In nearly every public speech since the leadership handover, Li Keqiang, who will take over as premier in March, has spoke about the importance of urbanization as a new growth engine.
Societe Generale’s Wei Yao however writes that the impact of urbanization has been “misunderstood and overstated by the market”.
For one, Yao writes that the impact of urbanization on China‘s productivity growth is decreasing, just like the the direction of demographics on labor force growth.
“For an emerging economy to catch up, moving farmers to manufacturing plants is a key source of productivity gain in the early stage. China’s experience in the past three decades was a typical example.
The 10-year average growth rate of China‘s urban population growth was 4.8% in the 1980s, 4.2% in the 1990s and 3.8% in the 2000s. The impact of this rapid urbanization on total factor productivity (TFP) was particularly pronounced. We estimate that this source accounted for about 30% of the impressive TFP growth.