Many Farmers, Low Urbanization Rates: Why This Won't Work For China

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Macroeconomics

China now dominates virtually all price-setting parameters for bulk materials globally.

The sheer size of the country’s demand for raw materials, the heavy reliance on material- and energy-consuming industry and the population of 1.3 billion has put an unprecedented (at least in the last hundred years) strain on global trade.

Naturally enough, the extent to which those demands are going to continue into the future are a topic of constant speculation among economists and market analysts.

As a recent FT article states, China’s growth over the past decade has owed much to the sheer size of its population; but more than the size of the population, it is the rate at which an agrarian economy has transformed itself into an urban economy that has driven the growth in GDP and demand on resources.

Productivity of farm workers in terms of contribution to GDP is intrinsically lower than urban workers, so the mass migration of workers from field to city, taking on urban employment in the process, has driven GDP growth and industrial expansion. Population growth is now slowing sharply as the effects of China’s one-child policy, begun in the early 1970s, begins to impact the working-age population, deemed to be 15 to 64 years of age.

Chinese women today are producing just 1.6 children on average and the population will begin to fall as the ratio of retired workers to working-age workers rises.

Meanwhile, another shift has also happened.

The flow of rural agricultural workers to the cities has caused the percentage of the urban population to rise from 18 percent in 1978 to 52.6 percent in 2012. Agricultural workers, while crucial for food production in purely economic terms, contribute less to GDP than urban workers particularly in labor-intensive, poorly mechanized developing economies like China’s.

The Financial Times quotes World Bank data that shows although China’s rural population is around 35 percent of the total, agriculture accounts for only about 10 percent of GDP. In modern economies, agricultural population is no more than 3-10 percent of the total. Moreover, China’s urbanization rate is low, given its GDP per capita.

To be continued in Part Two.

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