China's cities narrow gap with West in global survey
Shanghai and Beijing's affluent set help them race up the rankings of global survey, but other factors keep them from the top slots - for now
Cities in China are catching up with their Western counterparts. In Knight Frank's 2013 Global Cities Survey, Shanghai and Beijing power up the rankings, pushing Geneva and Paris down the list.
Even Dubai is knocked down the table by the anticipation of the influence that will be wielded by the Asian behemoths.
The Global Cities Survey's four-part assessment of performance is designed to give the most rounded picture of the places that matter to the wealthy and influential. It focuses on four categories: economic activity, political power, quality of life, and knowledge and influence.
Under the rubric of economic activity we examine economic output, income per head, financial and capital market activity, and the number of international business headquarters in each city.
Broader non-economic influence is captured by our second measure, which we loosely label political power. Here, we calculate the importance of each city to global political thought and opinion, identifying where power is held and influence exercised. Our ranking includes the number of headquarters for national political organisations and international NGOs, together with the number of embassies and think tanks in each city.
Perhaps the most contentious indicator in the survey is quality of life. No two people will share the same idea of what makes for the perfect lifestyle. For some, it will come down to hip nightlife and stylish shops. For others, the most important criteria may be arts and culture, or proximity to the great outdoors.
Measuring "cool" and other intangible factors is impossible, so Knight Frank has based its findings on elements that can be measured. These cover a wide range of issues, including measures of personal and political freedom, censorship, personal security, crime, political stability, health facilities, public services and transport, culture and leisure, climate, and the quality of both the natural and man-made environments.
Finally, each city's knowledge base is examined, assessing educational status and the number and ranking of educational facilities. The survey then looks at how well each city transmits this knowledge, reviewing the number of national and international media organisations and news bureaus, and the international market share of locally based media.
Returning to our main ranking, the real question is, how long can it be before one of mainland China's leading cities occupies a top five spot?
Ticking the economic box is unlikely to be a problem. In the past 10 years, China's economy has quadrupled in dollar terms and Shanghai ranks fifth for economic activity in our survey, with Beijing in sixth place.
The Shanghai Municipal Statistics Bureau said the city's economy expanded 7.4 per cent year on year in the first three quarters of 2012. Its GDP, which was 1.44 trillion yuan in the first nine months of the year, accounted for more than 4 per cent of total Chinese output. The city is also home to the headquarters of 19 of the world's largest public corporations, according to the Globalisation and World Cities Research Network, up from 15 in 2009 and just four in 2006.
A significant number of Chinese cities, not just Shanghai and Beijing, are economic giants in comparison with most Western centres. However, as already discussed, other factors determine what makes a truly global city.
The real challenge for China's new leadership will be how it tackles the country's pressing social issues, such as decreasing the widening wealth gap. These issues are closely intertwined with the future of its powerhouse cities.
China is grappling with what Bert Hofman, chief East Asia and Pacific economist at the World Bank, calls a "double whammy" of weaker exports and sluggish domestic demand. However, it is still expected to continue outperforming its rivals, overtaking the United States as the world's largest economy by the end of this decade, based on figures from the Economist Intelligence Unit.
Likewise, wealth creation in China - and wider Asia - will continue, according to Wealth-X, a global ultra-high-net-worth prospecting, intelligence and wealth due diligence firm.
It said China's ultra-wealthy population would more than double by 2022. As its population shifts from the countryside into the cities, fast-growing urban centres are driving China's rise to the top of the global economic rankings.
While most countries can boast only a few large cities with more than a million residents, China has around 170, as well as five mega-cities with populations in excess of 10 million. Mass migration to towns and cities meant that last year the urban population overtook that in rural areas for the first time.
By 2025, the country's urban population is forecast to be around one billion, and the push towards urbanisation shows no signs of slowing. A recent report by McKinsey estimated there would be 202 Chinese cities with more than one million residents by 2025. At present, there are 35 such cities in Europe.
As cities expand, so opportunities for wealth creation grow, and this is borne out by forecasts for growth in the numbers of the ultra-wealthy, especially in the so-called tier one cities, such as Beijing, Shanghai, Guangzhou, and Shenzhen. Shanghai's population of high-net-worth individuals (HNWIs) is expected to rise by more than 160 per cent over the next decade to 3,704. This is more than in Washington, Paris or Chicago. Beijing is expected to see growth of 130 per cent, putting it sixth in the world city rankings.
The four tier-one cities will be home to more than 140 billionaires, with a combined wealth of nearly US$300 billion.
But it is not all about tier one. Tier two and tier three cities are growing rapidly, and their wealthy populations are also expected to expand. The total combined wealth held by HNWIs in Hangzhou, capital of Zhejiang province in eastern China; and Chengdu, capital of Sichuan province in the southwest, is forecast to be US$345 billion in 2022, more than the combined wealth of HNWIs based in Zurich.
Yet, as Rupert Hoogewerf - publisher of the monthly Hurun Report wealth magazine in China - explains, some of the smaller cities face a struggle to hold on to wealthier entrepreneurs.
"There is a real attraction to the tier one cities for the wealthy Chinese. These cities offer so much in terms of lifestyle and education. The social environment is more vibrant, and the fact that there are plenty of other wealthy individuals living there is also a draw. This is a trend we have seen, particularly, in the last couple of years."
The movement of HNWIs across China does not come without problems, however. The loss of wealthy entrepreneurs is the tip of the iceberg of the "brain drain" from many tier two and three cities.
"The second tier cities are finding it hard to compete," Hoogewerf said. "The challenge is to keep the top businesspeople in these cities, so authorities and residents can benefit from the economic activity generated."
While the movement in populations between cities may create local economic difficulties, the overall migration of people from rural areas into cities will mean the latter account for an even bigger slice of China's economic output in the years to come. As such, it will be cities underpinning the economic growth, which will see China overtake the US as the world's largest economy by 2030.
We believe London, Paris, Tokyo, and especially New York will still benefit from their legacy of infrastructure, and to trade on their open societies, transparent governance, safe haven status, knowledge hubs, as well as their technological and travel connections, for some time.
But with China's rise, is it realistic to assume that they can retain their leading status, with relatively miserly economic and demographic growth?
Thomas Lam is a director and head of research & consultancy, Greater China at Knight Frank