Urbanization in China

Urbanization in China has accelerated since its reform and opening up policy starting from the 80s. And China is also expected to continue its rapid urbanization trend at least in the next 15 to 20 years. Thus, associated with the rapid urbanization, challenges and opportunities occur not only for Chinese government and domestic companies but also for foreign investors and foreign companies.

Background

In the last quarter of a century, China has rapidly begun to industrialize. This shift toward an industrial economy has led to urbanization as people migrate from rural areas into the quickly growing cities. Within the past twenty years, one hundred million people migrated to China’s large cities from areas that are more rural. This movement of people has become “the largest migration in human history.” By 2016, thirty-seven of the world’s largest 150 cities are in China. Furthermore, according to a research from McKinsey, China’s cities will add another 350 million people, more than the entire population of the United States today, in the next 20 years. By 2025, China will have 221 cities with one million plus inhabitants — compared with 35 cities of this size in Europe today — and 23 cities with more than five million.

urbanization in ChinaChinese government recently indicated that urbanization is one of their top agenda items in the next ten years, and clearly they see urbanization as the pathway to lift millions of people out of poverty. Simply speaking, for Chinese government, domestic demand is the fundamental impetus for the country’s development, and the greatest potential for expanding domestic demand lies in urbanization. Chinese government is expecting the more free-spending urbanites to help drive a more vibrant economy, helping wean China off its present reliance on unsustainable investment-heavy growth.

According to the joint report by the World Bank and the Development Research Center of China’s State Council in 2014, Chinese government will primarily focus on six priorities in the next decades:  reforming land management and institutions, reforming the hukou household-registration, placing urban finances on a more sustainable footing, reforming urban planning and design, managing environmental pressures, and improving local governance.

Challenges

Just like any urbanization of other countries all around the world, the expansion of China’s cities represents a huge challenge for local and national leaders. This growth will imply major pressure points for many cities. For instance, inefficient land development has already lead to urban sprawl and ghost towns, the high pollution is threatening people’s health, and farmland and water resources are becoming scarce.

One noticeable area of challenge is environment and pollution. There are clear signs of the environmental challenges all across the country. When the coal-fired plants that provide heat to the 11 million citizen of the far northeastern Chinese city of Harbin came on for the first time almost each fall in recent years, air quality got so bad it created a haze that halted traffic, closed schools and shutdown the airport.

Opportunities

Admittedly, opportunities are always associated with challenges. This fact is also true for the urbanization of China. For example:

To prepare for the new masses, China knows it must vastly expand urban infrastructure. For instance, they plan to ensure that expressways and railways link all cities with more than 200,000 people by 2020; high-speed rail is expected to link cities with more than a half million by then. Civil aviation will expand to be available to 90 percent of the population.

In addition to the significant investment in urban infrastructure, urbanization will also generate a range of new services. These services span traditional services such as maintenance, repair, upgrading or outsourcing, but also professional services focused on improving processes, managing change and building workforce skills related to the expected increase in technology enabled urban management such as energy management, transport, security, healthcare, water and education. Also, in order to assure an easy, citizen friendly and cost-effective delivery of government services, many opportunities will be created in the area of e-government technologies. New emerging urban market offers the opportunity for new forms of development, aligning donor, citizen and business interests in a new and more concrete manner around common interests.

Meanwhile, there are various fields with potential for foreign investors. For example, most of the congested Chinese cities fight a seemingly endless battle with traffic congestion, which causes the further deterioration of air quality. Foreign companies could offer systems to effectively manage traffic and to design solutions for the efficient and safe use of public transportation, according to the experience they earned in the major municipalities in Europe and USA.

The potential opportunity example list seems endless, as long as the investors pay enough attention to Chinese News and markets.

Take away

To sum up, the current rapid urbanization of China casts not only huge challenges to Chinese people and Chinese government such as environment, social, and healthcare issues, but also enormous opportunities to investors and companies from all over the world. it would be helpful and beneficial for both China and the rest of the world to create a list of companies that are ready to offer solutions in these areas, and to provide and capture values from the challenges.

Jianrui Zhao
Tulane MBA Candidate 2016