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Global Economics

China's Population Shift and Investment Mismatch

It’s a well-known problem: In recent years China’s economy has been driven to an often unhealthy degree by supercharged levels of investment, with yuan going into new production lines, roads, rail, and residential housing blocks.

Now a new report by China economic research firm GavekalDragonomics, in Beijing, looks more closely at what places are sucking in the money, contrasting that with population shifts (China has some 20 million rural residents moving to cities annually) to see how well it matches. What it shows is hardly reassuring.

“While population growth was very uneven, investment growth was uniformly high across China in the previous decade,” writes Adam Hirschberg, in “Urbanization’s Winners and Losers,” published Feb. 20. “Rather than responding to weak population growth, investment growth in the smaller and less attractive regions actually accelerated.”

The report reaches this conclusion after reviewing population data from 287 of China’s prefectures—the largest administrative unit under provinces that often contain more than one urban area. These almost 300 prefectures grew to have a population of 1.24 billion by 2010 (92.5 percent of China’s total; population from large parts of Tibet, Xinjiang, and Inner Mongolia, were not included in the data), up from 1.15 billion in the year 2000.

These data show that during that decade, 30 percent of the prefectures actually lost population. Meanwhile, just 25 of the prefectures—mainly such big cities as Beijing, Shanghai, Guangzhou, and Shenzhen, as well as provincial capitals—proved particularly attractive to China’s internal migrants, accounting for almost 60 percent of China’s overall population growth.

While those 25 fastest-growing prefectures got one-third of all investment in 2000, that amount had shrunk to 17 percent by 2010. Meanwhile, the 84 prefectures that had the slowest growth in population—many in central or western China—increased their share of financing from 17 percent to one-fifth over the same period. By 2011, 45 percent of all investment was going to “stagnant or loser prefectures,” with the majority to the smallest and slowest-growing.

This mismatch is being exacerbated by Beijing’s efforts to boost the fortunes of some of its poorer provinces, even as their people are leaving for wealthier parts of China. Poorer regions, often with flat or falling populations, have not only won more public works projects, but have also gained easier access to funding for private investments.

“China’s population movements therefore seem, in economic terms, to be eminently sensible: people are leaving areas with fewer opportunities and going to areas with greater ones. The same is harder to say for its investment patterns,” the report notes.

Roberts is Bloomberg Businessweek's Asia News Editor and China bureau chief. Follow him on Twitter @dtiffroberts.

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