Chinese urbanisation to slow

From Bloomietoday:

The pace of migration of rural Chinese to cities, a dynamic hailed by Premier Li Keqiang as key to the nation’s development, is set to slow by a third in coming years, deepening economic-growth concerns.

A government report released this month projected a 6.3 percentage-point rise in the share of people living in cities from 2013 to 2020 — down from a 9.4-point gain the previous seven years. Nomura Holdings Inc. estimates that slower urbanization will slice as much as half a percentage point from annual gross domestic product growth over the next half decade.

“In the past 30 years we turned farmers into factory workers, triggering massive gains in productivity and hence growth,” said Ken Peng, Asia Pacific investment strategist at Citigroup Inc.’s private-bank business in Hong Kong. “Now those gains are diminishing.”

…Today’s report from the World Bank and the State Council’s Development Research Center, which helped inform the government’s plan, recommends changes including on land use to spur more-efficient and denser cities. That can save China $1.4 trillion from a projected $5.3 trillion in infrastructure spending over the next 15 years, World Bank Chief Operating Officer Sri Mulyani Indrawati said in a speech today.

“You cannot go on with the same urbanization model,” Sri Mulyani said in a separate interview.

Today’s report projects about 70 percent of the population, or 1 billion people will be city residents by 2030, which “implies a slowdown in urbanization compared with the past two decades.” Urban real estate investment is “unlikely to grow more rapidly than GDP in the coming years,” the report said.

UBS AG says migration won’t act as a stimulus for expansion. A broader deceleration in urbanization is “part and parcel of China’s slowdown in trend growth,” said Wang Tao, chief China economist in Hong Kong. “There is less surplus labor in rural areas.”

This may seem hard to understand, certainly it seems to be for Michael Pascoe and others, but its’ not, really. The key is that in the calculation of growth, it is the rate of change that matters, not the absolute level. Even if China builds a huge amount of stuff each year, it must be more than the year before or growth falls and commodities markets loosen as supply rises.

Roughly speaking, once urbanisation passes its halfway point it detracts from growth. As I’ve written before:

…the urbanisation story confuses rates of change with levels (surely the most common mistake in economics). China’s urban population grew from 26% in 1990 to 53% in 2012 and total numbers of 710 million people, growth of roughly 430 million people in cities over 22 years. Chinese population growth is close to, or at, a demographic peak of 1.37 billion and if it were to grow to 70% urbanisation by 2030, that will mean 960 million total urban residents in 2030, another 17 years away but only another 260 million new people. The peak in growth in the urbanisation push is past and thus the industrial capacity required to build it is already more than adequate (at best, rapidly approaching so).

We are past halfway.