August 18, 2013

China's Urbanization Fallacy

Quote of the day from Michael Pettis on China's urbanization fallacy:

"Like so many of the earlier bull arguments, however, this new belief that urbanization is the answer to China’s growth slowdown is based on at least one fallacy and probably more. The first and obvious reason is that urbanization is not an act of God, and therefore indifferent to earthly conditions. Urbanization itself responds to growth. Countries do not grow because they urbanize, in other words, they urbanize because they are growing and there are more good, productive jobs in the cities than in the countryside. In that sense urbanization is not a growth machine. It is simply a pro-cyclical process that accommodates growth when growth is rising and reduces it when it falls."