Andy Xie: In China, The Future Is Megacities

Andy Xie, renowned Chinese economist, opined that China’s Future Growth depends on the development of “Magacities”.  ChangSha, is a good model to learn from, accordingly to Andy.

Details from Andy’s article at Caixin: 

Small cities must survive on some industries that are competitive in the global economy. That is how such cities in Europe or the United States survive. Some cities are merely company towns, depending on a single firm. When the company loses competitiveness, the whole town loses viability. This is why there are ghost towns everywhere.

Living on building a city itself means building ghost cities to begin with. It is happening in China because the financial system is government-owned and credit allocation is heavily influenced by political considerations. Still, if there is enough money to build a city, how will it survive afterwards?

The Changsha Model

In a property market downturn, Changsha is selling more than any other city. Why is this tier two city able to do this? The reasons are that its industries are competitive, growing and attracting more workers, and its property prices never went crazy and are close to two months of salary per square meter. Affordable prices and booming industries support the property market there. The property market can only follow, not lead an economy.

What is the optimal size and infrastructure of a magacity? According to Andy Xie:

Megacities with over 20 million people each are the future of urbanization. As I argued before, a small city must rely on a few competitive companies to survive. If they lose competitiveness, the whole city goes down. It is a high-risk model for urbanization. A megacity has a diverse economy. When one part loses competitiveness, the city can absorb the loss. Over time, new competitive businesses rise up. This is why big cities tend to come back again and again. Size is their insurance.

Job creation cost, i.e, capital expenditure per job, is inversely correlated with the size of a city. Economies of scale in infrastructure formation and the market size for division of labor are the key factors in lowering costs for employment creation. China must boost household income to balance the economy. This means less money for investment. To make more out of less, focusing on developing megacities is a way out.

Want more insights from Andy?  Contact us today to engage him to share his views at your next conference.