China Needs To Spend Almost $8 Trillion To Cope With Massive Migration

 

China Needs To Spend Almost $8 Trillion To Cope With Massive Migration Of Rural Peoples Into Cities

By Palash R. Ghosh – International Business Times

China needs to spend £5 trillion ($7.8 trillion) over the next two decades as an additional 200 million people are expected to move into the urban centers of the country, a new government report warned.

There are already up to 300 million migrant workers who have taken up residence (often illegally) in China’s metropolises. Many of these arrivals live in substandard housing and toil at low-paying, menial jobs.

The report, entitled “Blue Book of Cities in China” and released by the Chinese Academy of Social Science’s Institute for Urban and Environmental Studies, underlines the massive problems China faces as its population rapidly urbanizes.

Shan Jingjing, a researcher from the Institute for Urban and Environmental Studies, or IUE, told the Daily Telegraph newspaper of Britain that a gargantuan amount of money will be required to provide housing, social welfare and infrastructure projects for the new migrants.

“The rural population currently working in the cities has not turned into an urban population yet,” he said. “They don’t have the same social insurance, housing, education, public service and citizen rights as urban residents.”

The urbanization of China has been an extraordinary, perhaps unprecedented, phenomenon.

In 1949, when the Communists seized power in the country, 90 percent of the populace lived on farms and rural regions. As recently as 1982, only about one-fourth of the people lived in cities.

Now, the urban population has exceeded that of the rural for the first time in China’s history.

Dr. Peter Liotta, a professor of political science at Salve Regina University in Newport, R.I., says the urban portion of the population will continue to climb in tandem with economic growth.

“In the next decade, 70 percent of the China’s population will live in cities,” he said.

“By 2030, China will have 221 cities with populations exceeding 1 million residents each, and its total urban population will add 400 million new residents — more than the entire population of the United States then.”

Liotta noted that Chinese authorities have prepared well for the oncoming crush in its cities.

“China has been thinking strategically about how to handle this astounding increase in population and its accompanying need for capacity resilience and infrastructure support,” he noted.

“China has specific plans for building metro systems, highways and high-speed trains for its top 170 cities. In Beijing, for example, from 2004 to 2006 alone, spending on urban transportation increased over 50 percent. So, for these 170 ‘top’ Chinese cities that are a strategic priority, China will need 28,000 kilometers [17,000 miles] of metro rail lines and 5 billion square meters of paved road — and it is likely that China will achieve these goals.”

Still, China faces some huge challenges.

Liotta indicated that China now has five mega-cities: Chengdu (approaching 35 million residents), Chongqing, Shanghai, Beijing and Shenzen. Many of these cities are new creations.

“The mega-city of Shenzhen in southeastern China (across the straits from Hong Kong), for example, did not even exist prior to 1979 except as a simple fishing village,” he said.

“Today, its population is 14 million. The movement of peasant populations from the west to the mega-cities of eastern China represents the largest — and most rapid — migration in human history.”

 

China – the contrarian

Recently, we have seen Chinese manufacturing and production figures decline and statistics appearing about how many consecutive months they have been decline or below a certain figure denoting a contracting economy.

Streaks come to an end and trends do weaken and reverse.

China’s greater growth cycle is still in its infancy and even more so are its political and economic reforms.

When growth in a country slows, reforms then speed up.

Listen to the market – China’s inverted yield

The spread between the yield of Chinese Govn’t 2yr and 10yr bonds have inverted. The yield that an investor is receiving buying 2 year maturing debt is higher than the yield from a 10 year bond.

Although the data on the attached graph only starts in 2005, an inverted yield curve signals stress in the credit market and leads to weaker equity markets. It is often a good indicator that precedes recession or a change in economic cycles.

It is notable that United States 2’s/10’s spread inverted in 1978, 1988, 2000 & 2006. Recessions followed within 12-18 months.

The trade to look at, is for a falling Australian Dollar. With this comes a rising US Dollar and falling commodity prices.

An inverted Chinese bond yield could spell trouble for the most crowded of “longs” because not many believe BHP, RIO and the Australian Dollar can fall – for China will apparently keep saving them all.

It is highly likely that China will still buy their products, but there is such a thing as cycles and although China has seemed to have avoided one in the past 15 years, the optimism in this post is to be ready to buy some bargains in Australia, China along with some commodities.

In the meantime, selling AUD and buying USD is hardly the worst trade to consider.

source - Bloomberg

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