Challenges and Promises of China's Urbanization
Jonathan Woetzel et al. | McKinsey Global Institute | April 2008
China's growth is especially generated in the cities. Their contribution to the GDP is around 75 percent. In 2025, there should be a billion Chinese living in urban areas, 350 million more than today. They could then be responsible for 95 percent of the Chinese GDP. For Chinese as well as international companies, this advancing urbanization of China holds huge promises. At the same time, urbanization represents a major challenge for the Chinese government and one that should be dealt with first.
The McKinsey Global Institute highlights two trends. On the one hand there is concentrated urbanization taking place: the targeted formation of conurbations due to a small amount of megacities of at least 20 million inhabitants or due to a region of metropolises that start out as small or medium sized towns, and develop around a larger city. On the other hand and in opposition to this, there is a more or less incontrollable kind of urbanization: a large number of medium sized towns (1.5 to 5 million inhabitants) or the establishment of a multitude of small cities of up to 1.5 million inhabitants.
Analysts favor the first model since in the case of conurbations challenges tend to be addressed more efficiently. The largest share of this new urban population will result from immigration. The integration of this immigrant population represents a huge task for the cities, and smaller urban centers could rapidly be overwhelmed. Metropolises should also be able to deal better with the enormous need for land, energy, and water. Larger centers are more attractive to investors in infrastructure and young graduates, and better equipped to address problems such as water and air pollution.
The Chinese authorities can influence the urban development significantly because they have a whole range of tools available to them to intervene. They can for instance decide on construction and infrastructural policies. Until now Chinese cities could obtain unlimited amounts of new land for construction. Stricter rules could strengthen a concentrated type of urbanization and prevent that uncontrolled urban growth spreads further.
Concerning infrastructure, concentrated urbanization could be strengthened by the development of a road and transport system, by a targeted settlement of refineries and ports, as well as the establishment of national institutions of education with a focus on urban development. Whether China will use its ability to influence the urbanization process or not - international companies in particular will come across many opportunities in the coming years to make the most of China's urban explosion. This is especially the case in the fields of transportation, rail construction, public transport, for the construction industry as well as providers of energy infrastructure and energy efficient technologies.
This summary was prepared by the Atlantic Community editorial team from "Preparing for China’s Urban Billion" published here in McKinsey Global Institute.
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