The China Syndrome

© Can Stock Photo Inc. / rfx

In today’s increasingly globalized world, actions can have far-reaching economic consequences.

Take, for example, China. If you pay attention to business news you will probably hear a lot about China; as the second largest economy in the world, this should not be surprising. China is a major importer of raw materials such as oil and metals, so any signs of the Chinese economy slowing down tend to be met with alarm and panic in the markets.

These raw material imports have fueled a massive construction boom unprecedented in human history. Over the past 25 years, the percentage of China’s population living in cities has more than doubled. Almost 500 million people have moved from rural China into the cities—that’s the equivalent of the entire metro population of New York City moving into China’s cities every year for the past 25 years. It’s no surprise that the Chinese construction industry has played such a huge part in the world economy.

Some skeptics will argue that this part of China’s role is over and the boom is unsustainable—Chinese construction will level off, China will import fewer materials, and much of the world economy will slow down.

We view this as short-sighted. To put China’s demographic trends in context, China’s level of urbanization is on par with where the United States was at in the 1920s. China’s urbanization is still a century behind ours, and at some point they’ll have to catch up. If China follows the demographic trends of every other modern industrial nation, at some point in the not too distant future another 500 million people will be moving into Chinese cities—and they will still need places to live there.

We may not be sure of the timing. It might take them another 25 years, or it might take them longer or shorter. But the demographic reality is that China’s urbanization is not done, and neither is the construction they need to do to make it happen, or the demand for raw materials to build with. In the big picture, we view concerns of China’s economy slowing down as premature.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.