Urbanization will lead to Investment in Chinese Machinery

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Drying crops…next to a river?
The article “Li’s Urban Planning Drives Sends Invesco Into Machinery Stocks” from Bloomberg’s website explains that the ongoing urbanization taking place in China will result in larger investment in machinery and railway stocks. As more people begin to move to Chinese cities, public transportation and other infrastructure essential to city growth will see improvements. These improvements come from machinery and railway companies so people are being encouraged to put their money into these growing stocks. Bloomberg claims “The changes are expected to spur 40 trillion yuan ($6.4 trillion) of investment by 2020.” It is interesting to me that this article came out so recently after the class where we discussed the elasticity of supply and demand for agricultural products in China. Clearly farmers are beginning to understand that the future of China lies in the cities as the economy is becoming more modernized. Bloomberg also states, “As many as 300 million people will move from the countryside by 2030, to join 600 million already living in cities.” Clearly China is currently in transition so if one’s looking for a good investment growth opportunity, China’s machinery, manufacturing and railway stocks may be a good place to start.

One Response to Urbanization will lead to Investment in Chinese Machinery

  1. We’ll read lots on migration, so let me look at two aspects of the (construction) machinery story.
    Fiscal stimulus in China relied in part (maybe in the majority — I don’t have numbers) on infrastructure investment, building roads and railroads and public buildings, and encouraging private developers to put up housing and office and retail complexes. All lead to higher demand for construction machinery (though in the background is the message that the cost of labor relative to capital is such that it now makes sense to substitute capital for labor).

    • Who supplies this machinery, and what is the cost & quality thereof? We’ll read about the passenger car industry, but not all “lessons” from that case study carry over. In particular, the government did not (does not) view this sector as strategic, hence foreign firms have greater freedom in how they structure their businesses.
    • If you develop better heavy-duty transmissions or other components, where do you (as a supplier) allocate your marketing resources? Your investment in production? The EU, the US, or China?