Urbanization to boost global economy

Massive urbanization in emerging economies such as China will inject enormous vitality in world’s economy despite the sluggish growth in the cities of the developed world, a report said.

By 2025, urban consumers are likely to put about $20 trillion a year in additional spending into the world economy, with $14 trillion of that total coming from large cities in emerging economies, according to a McKinsey Global Institute report released on Sept 7.

To meet the burgeoning demand from urban consumers will require a boom in the construction of buildings and infrastructure, said the report, titled “Urban World: Cities and the rise of the consuming class”.

The report estimates cities will need annual capital investment to more than double, from nearly $10 trillion at present to more than $20 trillion by 2025.

Chinese cities alone will require an investment of $25 trillion, or 32 percent of the global total.

Urbanization will proceed at a faster pace in emerging economies than in developed economies.

Globally, 440 cities from emerging markets are expected to take up close to half of world growth between 2010 and 2025.

Of them, China has 242 cities, said the report, adding that by 2025, these Chinese cities could contribute one-fourth of global growth.

Between 2007 and 2010, three Chinese cities — Tianjin, Guangzhou and Shenzhen — joined Beijing and Shanghai to become mega-cities, with populations exceeding 10 million.

If the current pace keeps up, China’s urban population will grow to 925 million in 2025, from about 570 million in 2005, “an increase larger than the entire current population of the United States”, the report said.

The urban shift is changing the balance of the world economy, and governments, investors, and businesses need to ensure that they understand and respond, said Jonathan Woetzel, director of Mckinsey & Co’s Greater China office.

To cater to their new urban consumers, cities will have to invest heavily in infrastructure. The surge in capacity building in cities will put a further strain on the world’s nature and capital resources, he added.

“If managed effectively, it is a large opportunity not only for investors but also to achieve greater resource productivity for a prolonged period,” he said.