"Even after three decades of strong growth, China’s level of real GDP per capita is still well below that of several recently industrialised economies, such as Malaysia and South Korea, suggesting that there is significant remaining potential for economic convergence…
Two hundred years ago, China accounted for over 30 per cent of world GDP, declining to around 5 per cent by 1980, with around half of that decline reversed over the past three decades (Chart 2).
The sheer size of China’s population means that its economic convergence has had a significantly greater impact on world economic activity than that of other Asian economies. In 2010 China’s population of 1.35 billion people is eleven times larger than that of Japan (127 million) and 28 times larger than that of South Korea.
The combined effect of China’s large population and rapid economic convergence has seen it move from the 12th largest economy in the world in 1980 with GDP of 9 per cent of that of the United States, to now be the second largest economy in the world, equivalent to about 60 per cent of the size of the United States (Table 1). By 2015, China’s GDP is projected by the IMF to be nearly the largest economy in the world at over 90 per cent of the size of the United States’ economy…
Over the past decade (2000 to 2009) the world economy grew by 36 per cent. Despite only representing about 7 per cent of the world economy at the start of the decade, China contributed 9½ percentage points, or around 26 per cent of world growth over this time. If China had grown at the same pace as the rest of the world, average annual world growth would have been around 1 percentage point lower than it was over the past decade (that is, 3 per cent rather than 4 per cent)…
China’s rapid economic convergence has coincided with rapid urbanisation. Since 1979 (the beginning of the reform period), the share of China’s population living in urban areas has increased by 27 percentage points, from 19 per cent to 46 per cent in 2009 (Chart 4)…
Nearly all middle-income countries have an urbanisation rate of at least 50 per cent, and all high income countries have an urbanisation rate above 70 per cent (Commission on Growth and Development, 2009). While the correlation between economic growth and urbanisation is clear, the direction of causality is not. That is, does economic growth cause urbanisation or does urbanisation cause economic growth? The most likely answer, at least in China’s case, is that the causality runs in both directions — that is, a little bit of both.
Economic reforms from the end of the 1970s set in train a process of industrialisation, capital deepening and productivity improvements that increased the demand for labour in urban areas, with workers attracted to cities by higher wages (Zhang and Song 2003). At the same time, productivity improvements in the agricultural sector, combined with a shortage of arable land meant that a significant amount of labour could move from rural areas without a reduction in agricultural production (Cai 2003). Urbanisation also contributes to economic growth through more rapid productivity growth in cities (Commission on Growth and Development 2009).
The relationship between economic growth and urbanisation is non-linear. The higher the level of GDP per capita, the smaller is the increase in the urbanisation rate for a given increase in GDP per capita. The relationship between China’s urbanisation rate and GDP per capita is similar to that of Japan, but somewhat below that of Western European countries (Chart 5).
China’s rapid economic growth since 1979 has coincided with rapid growth in urbanisation, with the pace of urbanisation surpassing that of other Asian economies, with the exception of South Korea (Chart 6). In part, this reflects China’s lower urbanisation rate when it commenced economic reform. Indeed, the level of China’s urbanisation today was achieved by Japan, South Korea and Malaysia in 1965, 1975 and 1985 respectively (Chart 6). This suggests that there is significant scope for further increases in China’s urbanisation over coming decades, with the United Nations projecting that China’s urbanisation rate will reach 51 per cent in 2015 and 73 per cent in 2050.
Again, a longer term perspective also supports the view that China’s urbanisation convergence is far from complete. Three hundred years ago most of the world’s population lived in rural areas. The urbanisation rate started to increase at the start of the 19th century in Western Europe, accelerating in the first half of the 20th century, before starting to plateau in the second half of the 20th century, with Japan following a similar, but more muted, pattern before an acceleration in urbanisation coincided with its economic take-off from the 1950s to the 1980s (Chart 7).
[The following charts show first relative shares of world GDP, contributions to world real GDP growth, and comparative urbanisation rates]
In contrast, China’s increased urbanisation has occurred more rapidly. China’s urbanisation rate in 1900 of around 4.5 per cent was about the same as that in 1700 (4 per cent). While the urbanisation rate had increased to 12 per cent by 1950, this was similar to the rate that Western Europe and Japan had achieved by 1800. The urbanisation rate in China has more than doubled since economic reforms began in the late 1970s (Chart 7)…
Over recent decades, China has experienced rapid economic growth and a related sharp increase in its rate of urbanisation. The speed of this transition, along with the sheer size of China’s population, has resulted in China being an increasingly significant driver of global growth and mineral resource demand over the past decade.
There are good reasons to believe that the convergence of China’s level of economic activity and urbanisation with those of more developed countries is far from complete, and that China will therefore continue to be a major source of demand for mineral resources for some time to come."
