Argument

Building a Better China

The world's cities will experience massive growth over the next decade. But are they ready to handle it?

Urbanization today is powering a transformation in the prosperity of billions of people in the world's emerging economies. The global consuming classes -- made up of people with incomes of more than $10 a day, sufficient for discretionary spending on goods and services beyond the basics of food, shelter and clothes -- will grow to 4.2 billion in 2025, up from about 1.2 billion in 1990. And more than half of those 4.2 billion will live in only about 440 mostly mid-sized cities in emerging markets. Consumers living in cities could spend an additional $20 trillion a year by 2025, a powerful growth opportunity for companies and the global economy.

China's growth dwarfs that of other countries -- and even entire continents. According to current trends, the country's urban population is expected to grow from about 570 million in 2005 to 925 million in 2025 -- an increase larger than the entire current population of the United States. By 2025, China's cities, 29 of which made our list of the 75 Most Dynamic Cities of 2025, will also account for nearly 40 percent of global urban demand growth for buildings, nearly 30 percent of urban demand growth for additional port capacity, and more than one-quarter of additional municipal water demand globally.

But what it will take for the world's cities to serve their expanding, and ever more prosperous, citizens while still sustaining growth? Our analysis of expected GDP growth and past investment patterns shows that the world's cities will need to more than double their physical capital investment from nearly $10 trillion today to more than $20 trillion by 2025. If this much-needed injection of additional spending into the world economy -- some $30 trillion -- comes to pass, urbanization could offer a rare bright spot in an otherwise cloudy outlook for the world economy. Here's how we think that money should be spent.

Buildings

Expanding cities -- and the rising incomes of many of their citizens -- will necessitate a building boom. To meet demand, residential and commercial floor space needs to increase by more than 80,000 square kilometers (including replacement buildings), an area equivalent to the entirety of Austria.

China alone will be responsible for almost 40 percent of that total between now and 2025. Three-quarters of that space will need to be residential, as the number of urban households in China rises and individuals become richer and demand more living space.

Indeed, cities in emerging markets like China are expected to account for more than 80 percent of growth in urban demand for residential floor space. And more than half of all new urban construction taking place between now and 2025 is likely to be in the cities of China and South Asia alone. These cities are set to build 27,000 square kilometers and 7,000 square kilometers, respectively. Together, that's the equivalent of the entire land area of the Netherlands. In total, the investment needed to power this building boom is likely to be almost $80 trillion in just 15 years.

Shipping Containers

As demand for many products soars around the globe, the question is whether the world has the capacity to transport these goods to their customers. The answer, at the moment, is no. The vast majority of consumer goods today -- more than 90 percent -- is transported by ship, and there are simply not enough ports (or big enough ports) to support the current number of containers.

The urban world will need port container capacity to increase by two and a half times by 2025 -- the equivalent of 24 new ports the size of Shanghai's port, the world's largest. About 85 percent of the growth in container traffic demand is likely to be in the economies of emerging markets, where demand for many products is rising swiftly and steeply, already straining current capacity levels. The estimated cost of this port building boom is more than $200 billion. More than one-third of that investment will be needed in China.

Municipal water

Water is the most basic human need, and demand in cities is set to rise by 40 percent from today's level by 2025. An estimated 80 billion cubic meters of additional water will be required by the world's cities -- more than 20 times what New Yorkers consume today.

Expanding the municipal water-supply infrastructure could cost about $480 billion by 2025, including both the supply of water and the treatment of wastewater. Cities in emerging economies will account for about 80 percent of this surging demand for water, with East and South Asia alone responsible for more than half of the additional demand, and China another 22 percent.

 

The global economic downturn has delayed investment projects worldwide and created a highly uncertain near-term investment climate. But cities that under-invest in infrastructure and fail to keep pace with the demands of their expanding populations -- or invest inefficiently or in the wrong things -- will ultimately come up against barriers to growth. Indeed, growth has already slowed down in many of the world's megacities because they have not kept pace with population growth. Only by investing ahead, or at least along with the curve, can cities build a foundation for the productivity they will need once the economic gains from their rural-to-urban transitions are exhausted.

Lintao Zhang/Getty Images

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