A good American friend of mine who has been living in Shanghai for eight years has been hiding out to finish writing his book in a small town of 40,000 in Zhejiang province called Wukang, near Moganshan. He recently told me over cups of coffee in Shanghai that the local government in Wukang has finished its mission: its infrastructure projects are all but complete and they’ve moved most if not all the people from the surrounding countryside into flats in the city. Now, the city is populated with unemployed and unemployable country folk. Which brings me to a very nicely done white paper sent me by the Economist Intelligence Unit about the urbanization trend in China (about which I write in chapter 3 of my book, China Inside Out) and the market opportunities in what the report calls China’s Champs – the up-and-coming x-tier cities.
Some of the surprises (for me) in the report included:
- Hefei ranked first as an up-and-coming potential money-maker for companies invested in the city;
- Baotou (in Inner Mongolia) and Shenyang ranked second and third, respectively
- Wuhu (no,. 7) ranked above lovely Xiamen (14th);
- Anshan, in Liaoning Province, (no. 18) made it on the list at all (the city’s only redeeming feature is the great jade Buddha – recommended).
What struck me most about the list was that many of the cities are highly polluted (Hefei is terrible from automobile exhaust; Baotou is coal mining town; Shenyang is unpleasant, especially during the dust storms; and Changchun is simply toxic).
Now, that’s not to say the cities on the list do not have market potential; however, the report seemed more bullish to me than the average Economist output. The report estimates that urbanization and related wealth creation in the Champs cities will continue into 2035. The biggest obstacle the report suggested was perpetuation of the hukou, which essentially segregates country folk and city folk.
The report creatively identifies market opportunities in up-and-coming cities across eight categories: economy, consumer markets, IT connectivity, education, average wages, health care and industrial pollution. Suzhou ranked first for its output per head (yeah!), maturity of the economy and openness to trade, above Hangzhou, which ranked 10th for the same measure (in the never-ending battle between the two cities for who indeed has the most beautiful women – among other things).
In general, the white paper is a good read, and a good indicator of China’s boom towns over the next five to ten years. At least, it should get some armchair industrialists back out into the field. I am not as confident as the EIU, however, in the viability of the local economies over the next thirty years, based on my visits to many of these smoke-stack cities, and based on the fact that many of these cities are up-and-coming precisely because of local government economic gerrymandering, much like Wukang.Then again, Chinese cities across the board are increasingly finding their environmental sins catching up to them economically.
The report does not give weight to very real concerns that have the possibility over the next thirty years of putting the breaks on the micro-economies of these towns as well as China overall: the effects on GDP of pollution; of the loss of local ecologies and the cost of maintenance from the standpoint of livability – or of clean up; the costs to the local healthcare systems of pollution (with air pollution already killing an estimated 700,000 people per year throughout the country, and counting); the extent to which water is heavily subsidized and how rapidly dropping water tables in many of the regions in which the cities are located will have their water bills increased and perhaps water rationed from the near term on; and of the energy requirements of these cities (at least doubled over the next ten years; and only God knows the multiplier over the next twenty five years), and the extent to which the environment is able to continue supporting the opening of (by some accounts) as many as three new coal-fired power generation plants each week in China – with, of course, attendant pollution costs. Though, of course, there are business opportunities in the clean up itself, it would be naive to think local governments will slow down economic activity to give ready access to industrial “spoilers”, or that the revenue created through the clean-up would offset the costs already incurred to local health care and pension systems.
Finally, there’s what I call the Wukang effect, in which expensive, polluted cities are predominantly inhabited by an under-educated, under-employed majority that’s been moved into the cities from the countryside that makes substantially less money than the elite who live in high rises above the smog of the cities. Also, university graduates, despite the booming economy, are finding the job market practically nonexistent, with many bright young things making the same amount of money as migrant workers. In other words, come twenty-five years from now, there may not be the wealth at the level the report discusses; if, that is, consumers live long enough to spend all that supposed disposable income.
To get a copy of the EIU report, contact: Martha.McCubbin@grayling.com. Also, you’ll find a very nice infographic of China’s Champs here.
Further reading:
China’s Golden Cities – Newsweek
World Bank City Rankings: An Explanation — china.org.cn
China Is Set to Lose 2% of GDP Cleaning Up Pollution
