For decades, rapid urbanization in China created clusters of knowledge, manufacturing and distribution in areas that benefited from well-established connections to the global economy. But that growth model has reached its end. With the share of people living in cities rising to 53 percent in 2013, from 20 percent in 1981, China is shifting to a "new normal."
According to President Xi Jinping, the aim is to ensure annual economic growth of around 7 percent, driven by new opportunities in value-added manufacturing, information technologies and modernized agricultural production. In moving toward this goal, however, China will face difficult balance-sheet adjustments that cannot easily be managed by conventional fiscal and monetary policies.
A new Deutsche Bank study reports that, last year, China's 300 cities faced a 37 percent drop in their land-sale revenues — a major setback, given that land sales accounted for 35 percent of total local-government revenues. Such revenues had risen at an average annual rate of 24 percent from 2009 to 2013.