CHINA: URBANIZATION AND IMBALANCES

URBANISATION KEY FOR CHINA

McKinsey study shows it could cure nation’s economic imbalances

The Star, November 16, 2012

BEIJING: China's urbanisation could cure its economic imbalances, a new study shows, putting it on a path to domestic consumption-led growth within five years to replace three decades of investment and export-driven development that stoked global trade tensions.

The report by consultants at McKinsey comes as International Monetary Fund (IMF) models show China's current account surplus remains too big, despite a narrowing of global imbalances in the wake of the 2008/09 financial crisis and which IMF officials say could swell again as world economic growth recovers.

“We see this as being a turning point in the Chinese economy, really for the next few decades,” Jonathan Woetzel, a director in McKinsey, told Reuters.

“The world has only one model for economic development: modern societies are urban, consumer-driven, productivity-led and services-oriented. China, currently is none of these,” Woetzel said, “but urbanisation is the most crucial.”

The report, “What's Next for China”, forecasts that further urbanisation will see the consumer share of gross domestic product (GDP) in the Chinese economy reverse its long decline and accelerate over the next five years to see private consumption overtake investment as the biggest component of the economy by 2025.

That will be driven in part by household incomes across the country growing consistently faster than GDP growth in every year from 2012 out to at least 2030.

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