Chinese Urbanization

247Bull.com Editor: Last summer China’s National Development and Reform Commission approved infrastructure investment projects worth around 1 trillion Renminbi, or 2% of GDP. The investment includes 25 urban rail projects, 13 highway construction projects, 7 waterway projects and 9 waste water treatment plants. The problem however, is that much of this investment is being funded internally leaving little demand for foreign investment partners. There may, therefore, be more potential to profit from Asia’s infrastructure boom by investing in India which is urbanizing rapidly and where existing roads, rail networks and airports are already feeling the strain.

The over-capacity and over investment problem in China is concentrated in low-end manufacturing businesses and sectors that experienced a massive boom during the last decade. Conversely, public infrastructure is grossly inadequate to accommodate further urbanization.

China is, at best, half-way through its urbanization process. About half of the Chinese population lives in rural areas with little or no prospect of improving their standard of living.

To reach South Korea’s level of urbanization, China would need to move an additional 500 million people into urban areas. Even with today’s level of urbanization, public infrastructure is already strained, with road, rail and air transportation capacity often being grossly inadequate.

Continued urbanization will require capital investment, and, according to our Global Investment Strategy service, China is far from a saturation point. Even per-capita fixed asset investment is way below the world average. Hence, capital investment, especially in public infrastructure, will continue to drive the economy.

Article courtesy of BCA Research.

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