Posted by: Richard | July 16, 2010

Thoughts from a trip to China – Urbanization

I recently went to China to research the Chinese economy.    I thought I would describe some of the insights I had from the trip and my discussions with business leaders while there.

I’ll start with the overall economic outlook for China.  In this first post I’ll focus on urbanization

Many of us have seen the recent property boom in the West and the effect on employment.  Building homes is well-paid, relatively stable employment.  Building homes also has a huge knock-on effect throughout the economy, as new homes need new furniture, roads, shops and subways.  In North America, homes in themselves created a tremendous economic boom in both Canada and the USA.

Looking at China, they are at the start of urbanization.  Assuming they follow others countries rates of urbanization,  they have hundreds of millions of people who are still to leave the countryside to live in cities.  This represents tremendous future economic growth.  There are currently over 160 million person cities in China, and this number will rise as urbanization takes hold.  I see a tremendous stimulus to the Chinese economy simply through the natural evolution of a rural to an urban society.

What this implies to me is that I expect a significant minimum level of economic growth simply due to urbanization.  Opportunity is in the cities and I expect Chinese to continue to move to cities and fuel growth.

What I don’t know is the rate of economic growth due to urbanization and the spillover effects.  Specifically, is the economic growth from urbanization going to be enough to keep the Chinese people happy and the political system in China stable?  Will the investment in urbanization lead to over-investment in infrastructure (such as the rumoured high-speed train network extending into Western China)?  The stimulus for moving to the cities is jobs, which are often tied to exports – will there continue to be growing numbers of jobs to draw rural dwellers to cities?  Finally, property is typically susceptible to boom and busts – will this affect China and what are the results of a potential bust?

It is difficult to answer these questions, and I’ll leave them to others to consider.

In coming posts I’ll discuss:

  1. China’s transition from an export economy to one focused on internal demand
  2. China’s goal of moving up the value chain from a manufacturing economy to a service economy
  3. The unique urban environment due to a lack of consumption
  4. Complex relationships between state and business and potential for regional conflict
  5. My view on moving manufacturing to the Western provinces via high-speed rail network
  6. China business moving to the West
  7. Challenges for Western companies moving to China
  8. The effect of a bust on the Chinese population after 2+ decades of a boom
  9. The best looking bar I’ve ever been to
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