The Causes and Consequences of China's Municipal Amalgamations: Evidence from Population Redistribution

• Published date: 01 July 2022
• Author: Ning Jia,Huiyong Zhong
• Date: 01 July 2022
• DOI: http://doi.org/10.1111/cwe.12432

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 174–200, Vol. 30, No. 4, 2022

174

The Causes and Consequences of China’s

Municipal Amalgamations: Evidence from

Population Redistribution

Ning Jia, Huiyong Zhong*

Abstract

Along with China’s urbanization, the spatial redistribution of the country’s population

has led to difficulties for local governance, especially in areas experiencing

population outflows. Municipal amalgamation is an effective response. This study

uses administrative system code data that are accurate at the community and village

level to verify the causal relationship between migration and village or community

municipal amalgamation. It shows that migration has been an important reason for

municipal amalgamation. Counties with greater population outfl ow have experienced

more frequent amalgamation, manifesting a decrease in the numbers of villages and

communities. This study also examined the consequences of this amalgamation, fi nding

that it can significantly alleviate local governments’ fiscal pressures and promote

public services in the long term. It is of great importance for improving the grassroots

governance of population outfl ow areas during rapid urbanization in China.

Keywords: fiscal pressure, municipal amalgamation, population redistribution, public

services, urbanization

JEL codes: H11, H83, R12

I. Introduction

China has been experiencing large-scale urbanization. The level of urbanization

increased from 18.39 percent in 1980 to 63.89 percent in 2020. As this continues, it will

reach more than 70 percent in 2035 (Gu et al., 2017). During this process, the outfl ow

*Ning Jia, Postgraduate Student, Antai College of Economics and Management, Shanghai Jiaotong University,

China. Email: jianing_nuaa@163.com; Huiyong Zhong (corresponding author), Associate Professor, School of

Finance, Shanghai University of International Business and Economics, China. Email: zhonghuiyong@suibe.

edu.cn. The authors appreciate research funding from the China Merchants Foundation Young Scholar Funding

Program “Research on Contemporary Chinese Social Governance” project. Ning Jia appreciates the National

Science Foundation (No. 72073094) for research funding. Huiyong Zhong appreciates research funding from

the Center for Modern Finance Research, Shanghai Jiaotong University.

©2022 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China’s Municipal Amalgamations 175

of a large population from rural to urban areas and from inland to coastal regions would

result in urban agglomeration in China (Lu and Xia, 2016; Li and Lu, 2021). One effect

of this huge increase in the numbers of people living in urban areas is the higher level of

public welfare in the cities. The other impact is on the effi cient allocation of resources.

All of these contribute to China’s more than 40-year-long economic boom after the

economic reform of 1978 (Zhang and Song, 2003; Au and Henderson, 2006; Puga,

2010; Combes et al., 2017; Ma and Tang, 2020).

Urbanization, however, has profound impacts on the areas experiencing population

outflows. On the one hand, population decline is detrimental to public services,

which will widen regional income disparities (Li et al., 2017). On the other hand, the

process has generated considerable local government debt as large-scale infrastructure

investments are made ineffi ciently in areas where population outfl ows are severe (Lu

and Zhong, 2018; Wu et al., 2018; Han et al., 2021).

Improving public services and local government finances in areas experiencing

depopulation is inevitably very important. Public services are usually provided by local

government entities. When domestic emigration consistently remains high in these

areas, local government entities will face a shortfall in revenue, reducing the incentives

for local government entities to provide public services. Theoretically, as economies

of scale exist in the provision of public services by local government entities, merging

several jurisdictions into one unifi ed jurisdiction in the areas experiencing population

outflow may lower the per unit cost of providing public services and thus improve

public service provision (Reingewertz, 2012; Reingewertz and Serritzlew, 2019). This

strategy also lowers administrative costs and thereby reduces the fi nancial pressure on

local government entities (Blom-Hansen et al., 2014).

In China’s grassroots governance, village-community-level governments, the most

critical self-governing institutions, are directly responsible for providing public services

to their residents and are undergoing large-scale consolidation. Why are grassroots

government entities consolidating? Can their consolidation achieve economies of

scale in providing public services and improve their financial situation? Few studies

have sought to analyze these issues. Based on village and community data, from the

perspective of population outflow, we study whether economies of scale exist for

grassroots government consolidation and examine their impacts on local governments’

fi nancial condition and public services.

We conclude that migration can be an essential motivation for village-community-

level amalgamation – counties with more population outflow experience a more

salient decrease in the number of villages and communities. We also conclude that the

impact of government amalgamations on the government’s fi scal status is signifi cantly