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China’s Leaders Point to Urbanization as Future Driver of Economic Growth

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Business media in Asia has been quick to note that latest announcement from China’s strategic planners, namely that mass urbanization will be the main engine of growth for China’s domestic economy in the years ahead.

This announcement, from our view, has tremendous and far reaching implications for manufacturers and retailers whose supply chains and fulfillment channels reside within China, implications that will play out in the coming years.

China will invest roughly a considerable sum, $6.4 trillion, to transfer 400 million people into cities over the next ten years. The goal is to have 60 percent of China’s 1.4 billion in total population as urban residents by 2020. This is to serve as a fuel for a more consumer consumption driven vs. a manufacturing export driven economy. Think of the magnitude of that investment.

According to a CNBC International published report, “Outgoing Premier Wen Jiabao indicated on Tuesday that consumption was the key to unlocking the full potential of domestic demand in the economy and would reduce excess, inefficiency and inequality.” It is now believed that the previous economic expansion fueled by wide-scale manufacturing has led to mis-allocation of resources, industrial inefficiency, social unrest and exacerbated pollution.  Government officials pledge to push forward with further economic reforms in the years ahead including financial, pricing and income distribution reforms.

Obviously, more details will be forthcoming in the coming months.  For now, supply chain and product management teams need to be focused on a couple of important implications.  The first is obviously any impacts on component and finished goods manufacturing sourcing within China over the coming years.  Our belief is that there will be a clear delineation of manufacturing for domestic China consumption vs. export markets.  The tolerance for consumption of resources, both physical, environmental and human, will probably turn more toward this new emphasis on domestic consumption.  The other rather important implication is on megacity focused product logistics and fulfillment.

In June of last year, Supply Chain Matters had the opportunity to attend Crossroads 2012, a conference sponsored by the MIT Center for Transportation and Logistics (CTL).  At that conference, Dr. Edgar Blanco of MIT addressed compelling trends in megacity growth in the coming years. Megacity was defined as a city population of at least 10 million persons.  Dr. Blanco provided some compelling data that indicate why logistics and distribution strategies directed at supporting megacity retail and product fulfillment needs will need to be revisited in the light of current trends, particularly urban growth reflected in the mega cities of China. Supply chain teams would be well advised to become more familiar with the implications of megacity logistics as defined by MIT and other leading-edge supply chain thought leaders. These implications reflect on how urban populations acquire and pay for products, different planning and flow through strategies to include synchronized logistics execution, as well as different planning and analytical technology support needs.

The notions of trade protection, restricted market access, intellectual property protection and others concerns related to doing business within China are all in our view, even more important as this new decade of economic policy unfolds.

Suffice to state at this point that the implications of China’s urbanization shift should be viewed far reaching.

For our part, Supply Chain Matters will continue to provide perspectives and education related to the supply chain and B2B fulfillment implications of these important strategic shifts in China’s economy that are planned for the next decade.

Bob Ferrari

 

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