The rise and rise of China's cities
URBANISATION IN China is happening at a rate that the world has not experienced before. The economy may be slowing, but more than half of China’s people now live in cities; by the end of this decade, 13 supersized megalopolises will have at least 10 million people each.
This is a major opportunity for investors, and one of the more powerful arguments in favour of Chinese growth continuing to remain robust despite the current slowdown is based on the rate of urbanisation.
A report – Supersized Cities: China’s 13 Megalopolises – from the Economist Intelligence Unit’s Access China team, says China’s new consumer class will be concentrated in these cities or, in fact, clusters of cities, as many of them are.
That’s a potential market the size of a small country, says Victoria Lai, an analyst for Access China. “But these newly emerging giants are still relatively poor, and the varying pace and character of their development will make regional substrategies essential,” she says.
She points out how Chengdu’s development trajectory to 2020 will differ from that taken by somewhere such as Shenzhen in the previous decade. They will also be younger, which means investors need to be flexible.
Yale University senior fellow and former Morgan Stanley Asia executive chairman Stephen Roach points out how China is moving 15-20 million people from the countryside into the city and, to do that, it needs to build a huge amount of low- and middle-income shelter, and that is an ongoing feature of the Chinese economy.
As both an export- and investment-led economy, when China’s exports slow, as is currently the situation, Beijing ramps up investment in urbanisation.
“The state planning agency has approved lots of new projects – the rate of approval has picked up materially, and that’s the tool that really works [to drive the economy],” Roach told CNBC recently.
“China has a huge pipeline of unmet investment needs, given the urbanisation needs of their economy. It’s what they did three years ago and I’m convinced they’ll do it again.”
Among the burgeoning megalopolises are clusters such as Greater Beijing, which includes Tianjin; Greater Shanghai, which encompasses Suzhou; and Greater Guangzhou, which includes Foshan and Zhaoqing.
Others city names will be less familiar to an Irish readership. You have Chang-Zhu-Tan, which comprises Changsha, Zhuzhou and Xiangtan; Greater Zhengzhou, which includes Zhengzhou and Kaifeng; and the Hefei economic circle, which includes Hefei, Lu’an, Huainan and Chaohu. To keep expanding, these cities will need major investment in healthcare, educational and public-service sectors such as waste management. The recent floods in Beijing, which killed 77 people, show there are opportunities in this area too.
These areas are being gradually opened to private investment.
A key factor in boosting urbanisation in China will be reform of the household registration system (known as the hukou system), which currently requires the families of migrant workers to get education and healthcare in their home towns, rather than their new host cities.
There also needs to be a shift in emphasis away from land sales as a source of local government revenue, and the energy, water and transport needs of these megalopolises need to be carefully managed.