The power of Asia's cities
Andrew Sheng says change at local level will create its own set of social and ecological challenges
Two years ago, the broad consensus was that global rebalancing was in the direction of the East. But with capital now flowing back to the US, as the Federal Reserve begins talking about tapering its programme of quantitative easing, and with Asian markets and currencies retreating across the board, there is doubt whether the Asian growth story is still accurate.
The global rebalancing story was basically about demographics - an ageing advanced society competing against younger emerging markets. But the story of the rise of the East is also about the trend of urbanisation - the clustering effect of Asians into cities that will generate higher incomes and new sources of growth. This story remains unchanged.
The 2011 McKinsey Global Institute study on "Urban world: Mapping the economic power of cities" estimated that 1.5 billion people living in 600 cities accounted for more than half of global gross domestic product in 2007. But by 2025, the top 600 cities will have one quarter of the global population and nearly 60 per cent of global GDP. As the world urbanises, income and wealth will concentrate in cities.
As one sociologist has argued, "density is destiny". The density of city population brings diversity, competition, new ideas, culture, art, science and commerce. Cities stand at the heart of change in the growth order - the economic, social, ecological and global order.
Asian cities will comprise a significant number of the top 600 cities. Of the 136 new cities that enter the top 600, all will come from the emerging markets, of which China will account for 100 and India 13.
The interesting part of this story is that economic density today is concentrated in the advanced economies plus the emerging country megacities (with populations of over 10 million), which together account for 70 per cent of world GDP. But these regions and megacities will only account for one third of global growth to 2025, whereas 577 of the top 600 cities will account for half of global growth to 2025.
In other words, economic power will shift towards the new global cities in Asia, because the income levels of these cities will rise due to migration from rural areas. Immigration brings diversity and competition, and generates vigour, innovation and entrepreneurship. These cities will require huge amounts of investment in infrastructure and housing.
At the same time, urbanisation creates more demand for higher-quality services, such as health care and social services, and more sophisticated services such as finance, insurance, design, media and entertainment.
People concerned with national politics and economics forget that 80 per cent of the interface between people and the state happens at the city or local level; the man in the street is more concerned about crime and personal security, whether the refuse is collected and whether he or she gets good health care and good education for the children.
So the economic order of Asian cities will depend on social order. This means social inclusivity and wealth equality will be high in the order of social priorities in the years to come.
With agglomeration comes rises in real estate values. This has occurred not just in Asia's megacities, but also in its second- and third-tier cities. But because of the affordability issue, the distribution of property wealth has not been as equal as it could be.
A large part of the China growth story can be attributed to the competition within China between cities, because every mayor knows his promotion depends on generating GDP. In the future, GDP will not be the sole criterion; the delivery of what the city population wants - a better environment and the feeling of well-being - will also be a factor. It is no surprise, then, that an increasing number of national leaders were successful city mayors.
But cities also determine the ecological order, because urbanisation accounts for roughly 80 per cent of carbon emissions, and most of the pollution and energy consumption. Hence Asian cities' battle to cope with their environmental problems will determine whether the war against global climatic warming can be won.
Consequently, transforming Asian cities into smart cities where there is pluralistic dynamism, innovation, job creation and green living has to be the "leverage point" where the state meets the market. But reform has not been easy.
Cities don't have the baggage of nationalism, and co-operation between them, such as the US-China initiative on eco-cities, can benefit all.
As the world becomes more complex, reform and change is happening across Asia at the local level. Going back to Kota Kinabalu in East Malaysia for a school reunion, I saw that the small town where I grew up has become a bustling city, with the magnificent Mount Kinabalu as backdrop, and a beautiful marine national park just across the bay. But it shares the same global problem of traffic jams.
Asian cities can become the powerhouse of global growth, but the road remains bumpy.
Andrew Sheng is president of the Fung Global Institute