Change of Chinese cities to power spending growth (4)

Comparative advantages

Cities will compete based on their comparative advantages in terms of productivity or population growth. For example, cities that are rich in natural resources and have an abundant labor supply but historically low productivity have typically developed "traditional" industry sectors such as mining, textile manufacture, or energy production. Those sectors have developed extensively over the past three decades since China's economy started to open up.

Production processes in these industries tend to be mature and standardized, and as a result, simply increasing input, for example, additional labor supply, leads to growth.

Jonathan Woetzel is a director in McKinsey's Shanghai office, where Lillian Li and William Cheng are consultants. The article is condensed by Shanghai Daily from their report "What's next for China?" The opinions expressed are their own.

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