For years we have heard that the urbanisation of China’s population had decades to run, which would lead to ever-rising demand for homes and infrastructure, thus putting a floor under commodity prices (especially iron ore).
A perfect example of this view was espoused in the 2014 WA Budget, which used China’s ongoing urbanisation to justify its forecast of an average spot iron ore price of $122.70 over 2014-15, and only minor downward adjustments in the out years:
China’s iron ore demand is expected to grow by 3.2% per annum over the budget period, to reach 1.2 billion tonnes by 2017-18. Over the same period, demand from the rest of the world is projected to rise by about 3.5% per year to around 940Mt.
The continued urbanisation of China is likely to be a key driver of domestic consumption and new investment. In 1990, urban Chinese accounted for just over a quarter of the total population, but now they account for over half of the population. By 2030, it is estimated that urban Chinese will account for about 70% of the total population.
Based on United Nations data, around 90 million additional people are projected to move to cities between 2014 and 2018.
Well, as the above video from the New York Times shows, China’s slowing growth has in fact caused de-urbanisation, whereby people laid off from their jobs in the city are retreating back to the rural areas where they grew up. Interest.co.nz summarises the video:
This 5-minute long New York Times documentary humanises the economic speak we hear about China moving from a manufacturing to a services sector economy.
It follows a middle-aged worker who heads back to the countryside after the sudden closure of the shoe factory he worked at in Dongguan.
The video shows the desolate streets of the once ‘sneaker capital’ of the world, as factories are moving from China to parts of South East Asia.
With China already having a vast array of empty homes, this is bad news for those hoping for a sustained construction rebound.
Better check those assumptions again, Colin Barnett.
