The power of Asian cities
So the economic order of Asian cities will depend on its social order. This means that social inclusivity and income and wealth equality will be high in the order of social priority in the years to come. With agglomeration comes rise in real estate values. Rise in property prices have occurred not just in Asian megacities, but also in second and third tier cities. But because of the housing affordability issue, the distribution of property wealth has up to now 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 that his promotion depends on generating GDP. In the future, GDP will not be the sole criteria, but also based on the delivery of what the city population wants – better environment and the feeling of well-being.
It is not a surprise that an increasing number of national leaders come from successful city mayors. Lee Myung-bak of Korea became President after being a successful mayor of Seoul, transforming the city into one of the most dynamic cities in Asia. Joko Widodo was elected governor of Jakarta because he was a successful mayor of Surakata, and today he is a hopeful in the presidential race for Indonesia.
By Andrew Sheng
Two years ago, the broad consensus was that global rebalancing was in the direction of the East. With capital flowing back to the US, as the Fed begins talking about tapering, and Asian markets and currencies retreating across the board, there is now doubt whether the Asian growth story is still on.
The global rebalancing story was basically about demographics – an aging 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 GDP in 2007, with the top 100 cities accounting for $21 trillion or 38 per cent of global GDP. But by 2025, these 600 cities will have one quarter of global population and nearly 60 per cent of the global GDP. As the world urbanises, income and wealth will concentrate in cities, rather than in nations.
As one sociologist has argued, "density is destiny". The density of city population brings diversity, pluralism, competition, new ideas, culture, art, science and commerce. Cities stand at the heart of the profound change in the growth order – the economic order, social order, ecological order and the 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 of them will come from the emerging markets, of which China will account for 100 and India for 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. Population growth in the top 600 cities will grow 60 per cent faster than global population.
In other words, economic power will increasingly shift towards new global cities in Asia from Bandung to Bangalore, because income levels of these cities will rise due to migration from rural areas. As we all know, immigration of new talent brings diversity, competition and generation of vigour, innovation and entrepreneurship. These growing cities will require huge amounts of investment in urban infrastructure and housing.
For example, McKinsey estimates that India alone will require $1.2 trillion in capital expenditure in its cities in the next 20 years, eight times the current level of spending.
At the same time, urbanisation creates more demand for higher quality services, such as healthcare, 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 happen at the city or local level. Almost all politics is local, because the man-in-the-street is concerned more about crime and personal security, whether the garbage is collected and whether he or she get good health care and good education for the children.
So the economic order of Asian cities will depend on its social order. This means that social inclusivity and income and wealth equality will be high in the order of social priority in the years to come. With agglomeration comes rise in real estate values. Rise in property prices have occurred not just in Asian megacities, but also in second and third tier cities. But because of the housing affordability issue, the distribution of property wealth has up to now 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 that his promotion depends on generating GDP. In the future, GDP will not be the sole criteria, but also based on the delivery of what the city population wants – better environment and the feeling of well-being.
It is not a surprise that an increasing number of national leaders come from successful city mayors. Lee Myung-bak of Korea became President after being a successful mayor of Seoul, transforming the city into one of the most dynamic cities in Asia. Joko Widodo was elected governor of Jakarta because he was a successful mayor of Surakata, and today he is a hopeful in the presidential race for Indonesia.
But cities also determine the ecological order, because urbanisation accounts for roughly 80 per cent of carbon emission, most of the pollution and energy consumption. Hence, the efforts of new Asian cities in coping with their environmental problems will determine whether the war against global climate change 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, because transforming cities involves a complex relationship between local governments and central governments. As New York Mayor Bloomberg has said, even though the US government has not yet approved the Kyoto Protocol, more than 700 cities in the US have pledged to meet its goals. Cities do not have the baggage of nationalism, and city to city cooperation, such as the US-China initiative on eco-cities can benefit both the participating cities and the globe at the same time.
What I notice is that 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, the small town where I grew up has been transformed into 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.
The writer is President of Fung Global Institute
Category: Local, Sri lanka news
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