China urged to shift urban growth to supercities

Shifting China's model of urbanisation to favour huge supercities could boost per capita output, improve energy efficiency and help contain the loss of arable land, the McKinsey Global Institute (MGI) said on Monday.

Rapid urbanisation has been a major driver of Chinese growth over the past two decades and will become more so over the next 20 years; cities will account for 95 percent of China's gross domestic product by 2025, up from 75 percent today, MGI said.

But the institute, the economics research arm of consultants McKinsey & Co, said in a report that China could reap even greater economic benefits by adopting a more concentrated pattern of urban growth.

By enforcing land acquisition rules more strictly and by tweaking incentives for local officials, national policy makers could nurture 15 supercities with average populations of 25 million people, the report said.

Alternatively, planners could develop 11 clusters of cities with combined populations of more than 60 million people.

China currently only has two cities of more than 10 million people, Beijing and Shanghai.

China's urbanisation rate doubled between 1980 and 2005 to 44 percent and will climb to 66 percent by 2025, driven by the influx of an additional 240 million rural migrants, MGI said.

This flight from the land will impose huge strains.

Urban China will need to find double the energy and water resources they now consume. Arable land could shrink 20 percent in the worst case, and pollution, no matter what, will be severe.

But MGI said supercities would be better equipped to handle the challenges than a rash of smaller cities: energy productivity would be almost 20 percent higher; public transport would be more efficient; air and water pollution would be easier to control and farm land losses could be kept to less than 8 percent.

"China's leadership has an opportunity to shape the path that urbanisation takes to maximise economic outcomes and most effectively mitigate the pressures that urbanisation will create.

"We find that shifting China to a more concentrated pattern of urban expansion would achieve both objectives," said Richard Zhang, a senior partner in McKinsey's Shanghai office.

THINK BIG

What's more, concentrated urbanisation would boost GDP per capita growth by as much as 20 percent above the current trendline, thanks to scale effects and productivity gains.

Big cities also lure skilled workers, which would enable China to move more rapidly up the value ladder.

Whatever the model of urban growth, construction over the next two decades will be unprecedented as the number of city dwellers rises by over 350 million -- more than the U.S. population -- to 926 million in 2025 from 572 million in 2005.

By 2025, China will have 221 cities with more than 1 million people, compared with 35 in Europe today.

China will need to build between 20,000 and 50,000 new skyscrapers -- the equivalent of up to 10 New York Cities.

China will pave up to five billion square metres of road and as many as 170 cities could meet criteria for mass-transit systems, more than twice the current number in Europe.

"This could promise to be the greatest boom in mass-transit construction in history," the report said.