China's explosive urban growth may not be sustainable.
Foreign Policy and the McKinsey Global Institute (MGI) have performed a valuable service by providing reasonable estimates of economic growth across the world’s great cities over the next 15 years (“The Most Dynamic Cities of 2025,” September/October 2012). But though the primary punch line of these results — that China’s cities will increasingly dominate the urban world — is quite possible, it is not certain.
The recent performance of China’s economy and its cities seems to justify exuberance, but there are also reasons to suspect somewhat less explosive expansion in the future. Across U.S. cities, past population growth strongly predicts future population growth, but past income growth presages future income decline, as an influx of new workers brings down wages. If that pattern holds for China, we should expect the population growth of China’s cities to continue exceeding national population growth (though perhaps not to the degree predicted by MGI). We should, however, also expect to see incomes rising faster outside the megacities. A new flood of millions of internal migrants into Shanghai, for example, should dampen wage growth among less-skilled workers there, even as all that human capital creates more opportunities for China’s entrepreneurs.
We have watched China’s expansion slow in 2012, and it seems likely that China’s national growth rate will decline considerably over the next 15 years. Questions about China’s political future remain unresolved, and it will be far harder to sustain blistering growth rates as China becomes wealthier.
Foreign Policy and McKinsey are right to emphasize that the biggest things happening with cities are happening in Asia and that the biggest things happening in Asia are happening in cities. While I wonder whether Chinese urban growth will be as extreme as these figures suggest, China will continue to grow, and its cities will undoubtedly be massive entities that the world will need to respect and understand.
Professor of Economics
MGI‘s Richard Dobbs and Jaana Remes reply:
As usual, Edward Glaeser makes a good point about the uncertainties surrounding China’s growth prospects. Between 2000 and 2010, China’s urban growth exceeded even the most aggressive projections as migration, population growth, and shifting rural-urban boundaries increased the urban population.
Yet Chinese cities will still play a major role in global economic growth through 2025 because of China’s continuing urbanization, the country’s above-average per capita GDP growth, and the expected appreciation of the renminbi. We examined three scenarios to assess the robustness of our findings: (1) slower real GDP growth in China and India, (2) slower real global growth, and (3) faster real global growth. Our central findings hold across all these macroeconomic scenarios, though global growth and individual country and city projections naturally vary.
Finally, we agree that we should expect incomes to rise faster outside China’s megacities given the rapid growth of the country’s “middleweight” cities with populations less than 10 million. Ultimately, the question is not whether China’s urban growth will slow, but when and how quickly.