Financing urban growth in China: A case study of Guangzhou

Rapid urban growth has become a global phenomenon. As these city populations expand, urban governance is even more of a daunting challenge in many countries. China is not an exception. It is at once a transitional state still undergoing urbanization and economic development; it is also currently experiencing a slowing economy. China's cities must simultaneously continue to improve the quality of urban life while maintaining social stability. Using the city of Guangzhou as an example of China's mega-cities, this study explores the financing strategies used by Chinese cities to manage urban growth. While economic growth has always been the main priority, Guangzhou's strategy has not followed China's traditional approach of growth for growth's sake; instead, it is relying on investment in innovation and transportation to promote the local economy. Education is also being stressed as a means of fostering human resources. However, undisciplined infrastructure financing and ineffective intergovernmental fiscal relations are jeopardizing the city's fiscal sustainability. To correct this will require further reforms of China's fiscal system and a careful sequencing of reforms to maintain a sustainable growth in the urban area.