Urbanization a Key to Consumption

Urban populations are growing in Asia and may hold the key to the region’s future economic growth. The global urban population is expected to grow by 1.6 billion people by 2025, 40 percent of that coming from China and India alone.

By 2025, China’s urban population is expected to be three times that of the U.S. and India’s is expected to be double.

This urban growth is important because it will be the region’s catalyst for economic growth. This chart from the McKinsey Global Institute (MGI) shows that GDP per capita growth in urban areas is expected to outpace that of rural areas over the next 15 years.

One reason for this is that urban jobs tend to pay more. In 2008, the average per capita income in China was 254 percent higher if you lived in an urban area versus a rural one, according to Morgan Stanley.

More pay leads to more discretionary spending. MGI estimates that the number of Indian households with discretionary spending could jump from just 13 million in 2005 to 89 million households by 2025. MGI says discretionary spending will account for 70 of consumption growth.

We’ve already seen how the urban migration affects China’s overall consumption, which in urbanized eastern provinces is roughly 33 percent higher than in rural western provinces. As urban centers grow in western China, consumption levels for materials, goods and services should rise.

About Frank Holmes 265 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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