Urban growth calls for fiscal rethink

China is in the thick of a rapid urbanization campaign, one which is creating an enormous demand for construction and social service funding.

According to national urbanization plans for the coming years, the country's urbanization ratio will increase from 53.7 percent in 2013 to 60 percent by 2020. Along the way, demand for investment in infrastructure and social services will surge to 42 trillion yuan ($6.84 trillion).

How China will pay for its urban development is a problem that has yet to be answered. Traditional models of government financing based largely on income from land transfer fees are no longer sustainable. With the cooling of real estate markets across the country, local governments are still under pressure to grab as much as they can from land transfer fees. Meanwhile, tightened restrictions regarding local government financing vehicles are also damming off another important fundraising source.

Against such a background, the public-private-partnership model should be considered.

Such a model, which aims to introduce social capital into local infrastructure and public services, would not only reduce financial burdens on the government but also improve the quality of urbanization.