By David Caploe PhD, Chief Political Economist, EconomyWatch.com
In the middle of the 1970s, Princeton economist W. Arthur Lewis – the first black man to win the Nobel Prize in Economics –
outlined the centrality of urbanization for developing countries in his classic, The Evolution of the International Order.
In this short work, he made a number of key points that remain as relevant today as when he first enunciated them,
in the inaugural Eliot Janeway Lectures in honor of long-wave theorist Joseph Schumpeter.
In examining the process of urbanization in China and India today,
two of the many crucial points Lewis made stand out:
the first is that urbanization is an incredibly expensive process for any nation in which it is occurring, requiring high growth rates of at least 4% / year;
and the second is that political factors are key in shaping both the inner dynamics and outcomes of the urbanization process.
In this context, while both emerging Asian giants are urbanizing rapidly,
China is re-shaping the process, while India is becoming ever more aware of its potentialities.
As Lewis would no doubt have noted, in this context,
the two countries are in the vanguard of a movement that is restoring the global prominence
Asia enjoyed before the European and North American industrial revolutions –
a process for which, Lewis argued, a revolution in agricultural productivity played a crucial role as a necessary pre-requisite.
By 2025, nearly 2.5 billion Asians will live in cities,
accounting for almost 54 percent of the world’s urban population.
India and China alone will account for more than 62 percent of Asian urban population growth
and 40 percent of global urban population growth from 2005 to 2025.
In 1950, India was a more urban nation than China – 17 percent of the population lived in cities, compared with China’s 13 percent.
But from 1950 to 2005, China urbanized far more rapidly than India,
to an urbanization rate of 41 percent, compared with 29 percent in India.
New research expects this pattern to continue,
with China forecast to add 400 million to its urban population,
accounting for 64 percent of the total population by 2025,
while India will add 215 million to its cities,
whose populations will then comprise 38 percent of the total in 2025.
Never before in history have two of the world’s most populous nations urbanized at the same time, and at such a pace.
This process will drive fundamental shifts—in both countries—
which will have significant consequences for the world economy
and offer exciting new opportunities for investors.
In India, urban per capita GDP is projected to grow at a rate of 6 percent a year from 2005 to 2025,
while China will see growth of 7.3 percent.
The number of urban households with true discretionary-
could increase sevenfold, to 89 million households, in 2025.
In China, there are 55 million middle-class households today.
That number could more than quadruple to nearly 280 million in 2025,
to account for more than three-quarters of all China’s urban households.
For businesses, the significant increase in per capita urban incomes and middle-income households
offers the potential of vibrant new markets to serve.
So what markets are likely to benefit the most from these trends?
In India, by 2025, the largest markets will be transportation and communications, food, and health care,
followed by housing and utilities, recreation, and education.
Even India’s slower-growing spending categories will represent significant opportunities for businesses
because these markets will still be growing rapidly in comparison with their counterparts in other areas of the world.
In China’s cities, the fastest-growing categories are likely to be transportation and communications,
housing and utilities, personal products, health care, and recreation and education.
In addition, in both China and India, urban infrastructure markets will be massive ...
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