Urbanisation boosts China's investment opportunities | South China Morning Post
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  • Mar 5, 2015
  • Updated: 3:12pm

Urbanisation boosts China's investment opportunities

PUBLISHED : Sunday, 29 July, 2007, 12:00am
UPDATED : Sunday, 29 July, 2007, 12:00am

The number of people living in urban environments has overtaken the number of people living in rural environments for the first time. Arjuna Mahendran, chief economist Asia-Pacific at Credit Suisse, said nowhere was this more evident than in the mainland, where every year about 8.5 million peasants moved into cities. He said this development was exciting news for emerging market investors.


The mainland's economy expanded 11.9 per cent in the second quarter, up from the 11.1 per cent recorded during the first three months of the year. The yuan also touched its highest level since 2005 - the second anniversary of its historic revaluation - sparking speculation that the country may raise interest rates in an attempt to cool the economy and fend off further criticism about its currency policy.


'Migration from the countryside to urban areas creates a whole new set of investment dynamics. All of a sudden, you find that people need transport, infrastructure, property, water, energy and food,' Mr Mahendran said.


'Also, people living in urban environments tend to earn more than their rural counterparts, so therefore they have more disposable income to spend on consumer goods.'


To meet these needs, new companies need to be established, internally, and existing enterprises must expand. Externally, resources need to be procured to fuel the mainland's insatiable appetite for commodities.


'China acts as a double-whammy; it is probably the world's most important emerging market, and globally it is driving the economies of many more emerging markets,' he said.


The current rally in emerging markets is a little different from past booms. The drivers of growth are the low-cost debt and high energy and commodity prices. Yet there is a strong reason that current growth will not go bust in the way that earlier booms have done.


'What makes this rally different is that high commodity prices and low lending rates are as much a symptom of emerging market strength as they are a cause of strong returns,' Mr Mahendran said.


As China will remain hungry for commodities over the coming years, demand growth rates for most commodities will remain robust.


'We expect exporters in Latin America and Africa to continue to benefit from surging Chinese imports. Chinese investments in the two regions are set to increase as well,' he said.


These economies need to invest the commodity revenues wisely to promote broad economic development and a shift towards sectors that create more value added than the pure extraction of natural resources.


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