Chinese Urbanization: its implications and business opportunities According to a McKinsey Global Institute study, “, China will have an urbanized population over one billion by the year 2030, from approximately 600 million today. As 400 million more people move from the countryside to urban population centers, there will be massive shifts in income, consumption, and the use of public goods (mass transportation, education, etc.). These changes will have a great impact on China’s society and economy.
Why China’s Urbanization cannot be stopped China’s development over the last 30 years since the opening of China’s doors in 1978 has been anything but a smooth, national process. Indeed, starting with Guangzhou and following with Shanghai, Beijing and now Tianjin, the mega-cities have developed at a much faster pace than its surrounding areas, with surrounding cities, and rural areas lagging far behind. Both geography and socio-political concerns have contributed to this pattern of growth. Geographically, the coastal areas have been China’s traditional powerhouses in trade and commerce, and given China’s borders with the Himalayas, the Gobi Desert, and the tropical forests of Southeast Asia, the coastal areas served as China’s primary (if not only) conduit to the West. Socio-politically, Guangzhou’s and Shenzhen’s proximity to Hong Kong made them ideally suited to serve as the first door to the west; Shanghai’s location at the terminus of the Chang Jiang made it a historically important port of trade, both for domestic trade inland and for ocean going foreign trade, and Shanghai quickly reasserted itself as well. Beijing’s role as the seat of power in China made it impossible for it not to develop, as else it would lose face. But in the coming 20 years, the drivers of urban growth will not be the same Geographic or Socio-political reasons; it will not be led by government policies designed to stimulate the growth of urban centers.
What drives China’s citizens to the cities today, particularly the mega-cities of more than 10 million citizens, is opportunity: opportunity for income, opportunity for public goods, and opportunity for consumption. While the government had a hand in developing the coastal cities first and may be responsible for much of the early urbanization, today’s urbanization is driven by a desire for opportunity. Given that the provider of such opportunities (except for public goods) will increasingly not be the government but other private citizens (as the private sector grows), it will be extremely difficult for the government to stop urbanization. Even in the case of public goods, such as schools and roads and mass transit, the natural demands of a larger population will require the government to address the concerns of more populous cities first; the cycle is positively reinforcing, and thus that much more difficult to stop. China’s best schools are in major urban centers; China’s highest paying jobs are in major urban centers; and as China’s arts and culture (and the associated demand for art and culture) grow, the best places to consume such goods will be major urban centers. As such, the best that the government is likely able to accomplish will be to push the expansion of second- and third-tier cities to prevent the megacities from becoming uninhabitably overcrowded. The drumbeat of migration and urbanization will go on, if not accelerate, in the next 20 years.
Before addressing opportunities, the assumptions I am making are the following: (a) that China will be able to avoid political instability, (b) that global energy resources will be strained but not exhausted in the coming 25 years, and (c) that China can get sustainability and environmental protection issues under control. Without these, no amount of consumption increases will be able to “make up” for the decreases in standard of living from political and social unrest, rationed fuel and energy, and diminished environment. If these issues can be held in check, China’s urbanization will create tremendous opportunities.
Business opportunities arising from Urbanization The urbanization of China will create tremendous opportunities in many facets of Chinese life. Increases in congestion from cars and people will cause higher demand for alternative forms of transportation, or for transportation related services. The increases in income and the erosion of personal space will cause an increase in the demand for mid- to high-level (even luxury) goods and services, both out of curiosity and for compensation for the lack of personal space. Psychiatry, life coaching, and other yearnings for a more fulfilled life will result from having eroded personal relationships due to distance of travel and difficulty differentiation in a city of 20 or 25 million. The list goes on. In order to examine one opportunity in depth, I will focus on transportation. China’s urbanization will create tremendous opportunities in transportation, both in terms of mass transit, but also in terms of personal urban transport. Already, China’s urban infrastructure is being strained by peak usage, with buses, taxis, roads, subways and light rail all running essentially close to capacity. But in this environment, the normal solutions of “more” and “more dense” do not work. More roads will be filled by more drivers: China’s per capita of automobile ownership is very low, at only 30 cars per 1000 citizens in 2009; this number is set to dramatically increase, especially in urban centers. Additionally, plugin electric vehicles, an innovation that will reduce emissions and improve air quality in urban environments, will do little to relieve congested traffic; even with traffic quotas (cars that cannot be driven on certain days), traffic has not notably improved. So how can a business make money? As the number of cars increase in these urban centers, there will be a growing need for car storage and parking. The demand for street parking is high now, but manageable due to the low number of drivers (comparatively) to the US. But to avoid becoming a nightmarish version of Los Angeles, cities will demand transportation services, such as automobile parking and storage, that will allow them to use their car infrequently but to still own a car, especially while longer term solutions are being built. These are highly, highly profitable operations in the United States, and will likely be profitable in China as well; similarly, car services such as short-term car rentals, car time-shares, and other such “temporary” auto solutions will grow in popularity as the cost of car maintenance in these cities increase (parking fees, etc.). Longer-term solutions are in turn also business opportunities. While China’s rail, road, and subway infrastructure have long been government operated public goods, taking the next step from a handful of megacities to a hundred such cities may tax even China’s ability to fund infrastructure improvement. A future technology solution to both congestion and personal transport might be computer driven personal transports. Able to operate at much tighter safety margins (in terms of distance between cars, vehicle speed, etc.) and able to optimize given additional information about existing traffic conditions, etc., such transports could be sold or leased to the government, who would in turn ban human driven vehicles within some urban limit. This would both given people an incentive to live and work in suburban environments while also providing a higher level of safety, a higher level of traffic orderliness, and a lower level of traffic congestion (especially at current mass transit nodes). Another long term solution may be to add an elevated train, which can be built at a much faster rate than a subway. Mass transit systems that utilize the large number of tall buildings in these major urban centers will allow for a parallel mass transit system (to subways) and reduce the dependence of these megacities on personalized transport. But given the cost and time required to construct such a system, perhaps a better alternative should be found. There is a huge need for a transit system that will support a much greater number of drivers, and businesses will need to invest and innovate to make that happen. Finally, more telecommuting, home offices, and flexible working hours resulting from the demands on transportation (and limits on driving) will result in an increase in delivery services fulfilling the role of shopping. e-Commerce systems will flourish as home office / telecommuters increase their dependence on others for transportation, essentially outsourcing grocery, shopping, and other consumption tasks. Existing models, such as dianping, taobao mall, and others presage the development of such vibrant e-Commerce ecosystems, but are only the tip of the iceberg when it comes to the role that such deliveries will make in China.
Conclusion
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Transportation is key to how these future urban centers will operate. Certain areas have no choice but to flourish: in the short term, additional cars will require some form of urban parking at a greater extent than it is available today. Furthermore, I expect the future of transportation does not look like the electric vehicles of today, and future services will tax existing transportation services, so that new solutions will have to be developed.

Sources: 1. Jonathan Woetzel, Lenny Mendonca, Janamitra Devan, and seven others. "Preparing for China's urban billion." March 2009, McKinsey Global Institute.

2. Jonathan Woetzel, Janamitra Devan, Richard Dobbs and three others. "If you've got it, spend it: Unleashing the Chinese consumer." August 2009, McKinsey Global Institute.