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Global Impact of China's New Urbanization

Volume 5, 2013

By Charmaine N. Clarke

Jonathan Woetzel, a Director based in McKinsey's Shanghai office, is part of a research team that is reshaping the way urbanization is measured. The emphasis, they believe, should be on transforming people's lives, instead of tallying how many cities or highways have been built. In fact, they have come up with a series of metrics that provide China's local government officials with clear guidelines about targets they need to hit as they embark on this latest urbanization push.

"This is beyond simply quantifying modern urbanization. We link urbanization to issues such as integration of migrants, provision of health care, quality of the environment, development of industries. All of these things have measures and quantitative targets," Woetzel said in an exclusive interview with TheLINK. "That's been the focus of our work and we hope that, through providing these additional sets of benchmarks for local and national government officials, we will ultimately improve the quality of urbanization."

For him, the process is all about people: their leap of faith as they leave behind the life they have known for generations, a chance at new opportunities and the simple yet powerful act of being able to make their own choices.

TheLINK: Why should people outside of China – individuals, enterprises, governments – care about China's new round of urbanization?

Jonathan Woetzel: China's urbanization has obviously already had a significant global impact based on its need for resources – whether we are talking about iron ore, copper and other things determined by the scale of the process – as well as the need to pull in technical resources from outside. There's clearly an impact in the marketplace based on the middle class' demand for things created because of urbanization. The question of the demand for anything from pianos to furniture is going to be conditioned by what you think the average middle class Chinese family of a provincial tier 2 city would want to own. Understanding what is the likely outcome of urbanization, that is an important factor for any company that's involved in a traded good or service.  

Beyond that, I'd say this is probably one of the most fascinating stories in the history of the human species. What's changing in China today will ultimately have tremendous global impact, through the process of building a new China. The people who grow up in the China of tomorrow will be the shapers of our world; so it helps us to understand where they come from and what their attitudes are. Whether we're talking about Tencent or Alibaba or CNOOC and Sinopec, Chinese companies will certainly have global impact. Those companies are the products of an urbanizing China. At the same time, a global company which is trying to stay relevant without being a participant in the Chinese urban marketplace will find it increasingly difficult to do that. Having a leading position in urban China will be a prerequisite to being globally successful in most industries.

The LINK Volume 5, 2013

TheLINK: How feasible are the government's urbanization plans?

We all expect urbanization will continue, and we all expect that the larger cities will continue to take a major share of those migrants. To the extent that there's an expectation of change, it would be the hope that the small- to medium-sized cities start to catch up. Large cities have grown faster than small ones in the last five to ten years, and so the question is: will the smaller cities catch up and how will they integrate with the large cities.

That's the part of this that I think is most uncertain.

But in terms of the other aspects, for example investment and infrastructure, it's certainly well within the financial capability of government to do this. So it's not really a feasibility question, it's more about execution and motivation of lower-level government officials.

TheLINK: How will the average rural resident benefit, what are the changes that he will see?

Everything changes. The person in the countryside fundamentally doesn't have many choices today: doesn't have a choice about their job, doesn't have a choice about their education, doesn't have a choice about their family, doesn't have much of a choice about what they can buy or, for that matter, sell. With urbanization and the move to the city, all of this then becomes open for choices; so the average person has more freedom to ask and make decisions. Many of those decisions will be bad ones, but we are a resilient species and we will learn from those mistakes. That's what the experience of China and the world has been. I think of urbanization as a process that allows us all to wake up to our true potential.

The clearest benefit to the average person will be measured in terms of things such as gender inequality – issues such as women's access to education, to jobs, to representation, to money. All these are all far greater in a more urbanized society. That's what the average citizen experiences: greater access.  For society, in turn, this then creates opportunities for growth, for productivity, and for prosperity.

Urbanization is fundamentally about changing people's horizons, creating greater access to opportunity. That is the prime mover of the context which in turn creates economic opportunity. It doesn't go the other way around. People actually do have jobs in the Chinese country side; they're just not that interesting. They leave their jobs to do something that they don't know. It's an act of faith; it's also a belief in the value of choice.