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The Macro Brief – Can cities absorb a billion people?
21 Plays1 year ago
With urban populations set to rise dramatically over the next decade, James Pomeroy, Global Economist, looks at what cities need to do to unlock their economic potential. Disclaimer: https://www.research.hsbc.com/R/101/VRlVRpm Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/ or click here: https://www.gbm.hsbc.com/insights/global-research.
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Introduction to HSBC Global Viewpoint Podcast
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
Podcast Release Information
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This podcast was recorded for publication on the 14th of March 2024 by HSBC Global Research.
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All the disclosures and disclaimers associated with it must be viewed on the link attached to your media player.
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And don't forget that you can follow this weekly podcast on Apple and Spotify or wherever you get your podcasts by searching for The Macro Brief.
Urbanization and Economic Implications
00:00:40
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Hello, I'm Piers Butler and welcome to the Macrobrief.
00:00:43
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On today's podcast, we're looking at the future of cities.
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Over the next decade, more than a billion more people will live in urban areas, with emerging markets driving much of the change.
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And while this might sound like a positive for the growth outlook, a lot needs to be done to make sure cities unlock this economic potential.
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But as we're about to find out, this is no easy task.
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I'm joined in the studio by James Pomeroy, global economist.
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James, welcome to the podcast.
00:01:13
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Thank you for having me.
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So let's start with this stat du jour, the next urban billion.
00:01:18
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What's that all about?
00:01:19
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So over the course of the next 10 years or so, we're going to see about a billion more people globally live in urban areas.
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Now, some of that is because of people moving from rural areas to urban areas, and some of it is because of natural population growth within those urban areas.
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But essentially, over the course of the next decade,
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the world's urban population will become a much, much bigger share of the total population and therefore our cities matter even more for the global economy.
00:01:41
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Now, hang on.
00:01:42
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We were on this very podcast talking about your previous report, The Baby Bust, which is all about declining populations.
00:01:49
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How do we reconcile those two things?
00:01:51
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Exactly.
00:01:51
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Well, globally, populations, as we said, will probably start to decline in 2040, 2050 sort of time.
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So before then, we've still got some population growth in the pipeline.
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And that population growth is disproportionately happening in those emerging market economies where you have still birth rates above.
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at the 2.1 replacement rate.
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Whereas in many developed economies you have much lower birth rates, starting to see shrinking populations, a very different dynamic.
Urbanization Challenges in Emerging Markets
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But globally these emerging markets still have got some population growth in them for now and still got a rapid urbanisation rate.
00:02:22
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Now, we have spoken, obviously, during COVID and just after COVID, that the trend in urbanization would slow or reverse.
00:02:30
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It's all about remote working, the ability to sort of leave the big city and still be able to carry on your work.
00:02:37
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So is that still a thing or have we basically sort of completely forgotten about that?
00:02:41
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It seems to still be a really important trend in the West.
00:02:45
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A lot of developed market cities where you've had this sort of spreading out of the love, essentially, away from just those megacities into smaller urban areas and suburbs.
00:02:53
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That's a trend that looks to be pretty consistent.
00:02:55
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Actually, in the report, we're actually arguing that that needs to happen more.
00:02:58
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Actually, we need to see more of that happen where...
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you need that growth to move away from just being in those mega cities and to broaden it out.
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Whereas in the emerging world it's a very very different story where remote work is just much much less of a thing because the nature of jobs, the spread of internet connectivity and those sorts of things.
00:03:14
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And so what you're likely to get in the coming years is continued urbanization because these cities are still the places where you go to get the best healthcare, the best education, the best access to water, to food, to jobs, all of those things that have typically always attracted people to cities.
00:03:28
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And that story isn't going to change for an extended period of time.
00:03:32
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And so we think you get this period of continued urbanisation in the emerging world.
00:03:37
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So let's give our listeners a sense of this.
00:03:39
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You have this table in your report.
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It is 2022 and then 2035, listing the largest cities or urbanisation centres in the world.
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And there are some quite spectacular changes.
00:03:52
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I mean, like Tokyo was...
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or is the largest, but it gets overtaken by Delhi, which in itself is interesting.
00:03:58
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But there are some other shifts in there which are quite striking.
00:04:01
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Yes, the fastest growing large cities in the world are all in sub-Saharan Africa.
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And the one that we use a lot in the reporting example is Kinshasa.
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And where is Kinshasa?
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It's Kinshasa, the capital of Democratic Republic of Congo, one of those cities that many listeners won't be too aware of, I'm sure.
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By 2035 is likely to be the seventh largest city in the world.
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And it's a great sort of example of the urbanisation challenge the world is facing of all these
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vast, sprawling, densely packed, big cities that are going to become a much, much bigger part of the global economy in the years to come.
00:04:31
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And it's not just Kinshasa.
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There's a ton of these cities across Africa, across Asia that are fast growing, full of lots of young people.
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And whether those cities can make the most of their potential is going to be absolutely fundamental to global growth.
00:04:44
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And for that, as you say in your report, the challenge is infrastructure.
00:04:50
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So how big is that of a challenge for these emerging urbanisation cities?
00:04:55
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It's a massive problem because what's ended up happening over the course of the last few decades is as these cities have grown and grown and grown and you've got these mega cities, you know, 10, 15 million people.
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which don't have anywhere near the basic infrastructure required to make the most of it.
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And that could be public transportation.
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A lot of these cities don't have fast train networks or metro lines or enough housing or the right levels of sanitation or correct access to internet that you'd need.
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And getting that infrastructure into densely packed
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heavily populated cities is really really hard and so you've now got this big challenge in a lot of these urban areas that just to get the infrastructure up to where it needs to be is far more costly and far harder to do than it would have been putting it in when these cities were much smaller and that's been a huge challenge that's starting to become evident in more and more cities across the world because as they get bigger and you don't have the infrastructure keeping up
00:05:45
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you get more and more problems.
00:05:46
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You get more challenges with housing.
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You get more challenges with congestion.
Mega Cities and Urban Primacy
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You get more challenges with can you actually get enough jobs in these cities because if people can't move around as easily.
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And so actually that lack of infrastructure really, really hurts the potential of a lot of these cities.
00:06:01
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You have this great example in your report of the timing that, say in Europe, big cities invested in transport infrastructure at a much earlier stage.
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Well, that's it.
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If you take an example of in London, we had the first sort of tube networks coming in more than 100 years ago, well over 100 years ago, when the city was tiny in terms of population, much easier to put this infrastructure in place.
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As you compare that to some of the investments in some of these other cities, you've started to just get, for the very first time, metro lines in Lagos or in Jakarta or even places like Bangalore, where you're just starting to get the first semblance of some sort of metro connectivity when cities have already got 15 million people.
00:06:42
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the number of tube stations in a city like London compared to similar size cities in many of these emerging markets and the infrastructure is a fraction of where it needs to be to make the most of that population and making it easy for people to get around.
00:06:56
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There are also, as you say in your report, unintended consequences of megacities in the sense that they kind of suck all the growth out of other parts of the country.
00:07:05
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Yeah, that's a big risk.
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And it's something that we're seeing in a lot of these emerging economies at the moment where because those big cities are where all the jobs are, where all the opportunities are, that naturally draws investment towards them.
00:07:16
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It draws investment by...
00:07:19
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I guess by public infrastructure to a degree it encourages people to move there more than elsewhere and so you get this rapid population growth and that's where most of the attention is focused and what you end up doing is creating these cities almost too big that you can't keep up even if there is a little bit more focus of that investment it's still not enough to keep up with that population growth
00:07:38
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but also those other urban areas in these economies just cannot keep up.
00:07:42
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They are places where people are less incentivised to move to, where investment doesn't come, and so you end up with the economy being so focused on one megacity that that actually comes with quite a detriment to the overall performance of an economy, and that's something that we've seen it play out across the developed world in a number of different scenarios, and it's something we're starting to see happen in many emerging markets too.
00:08:03
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Is that what you refer to as urban primacy?
00:08:05
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Exactly.
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When you've got all of your growth and all of your economic activity so focused on one city or a handful of cities and that essentially that sucking in that oxygen for the economy can make the rest of the economy much worse off.
00:08:20
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I suppose some of the smaller countries inevitably have it.
00:08:22
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I noticed in one of the Charles, Brussels was one of those.
00:08:27
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Exactly.
00:08:27
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It's less of a problem if you're a very small country, because one city naturally will take up a large part of the population.
00:08:34
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The most extreme example globally is somewhere like Luxembourg, where Luxembourg city is most of the economy.
00:08:41
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But that's less of a problem.
00:08:43
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The problem becomes in these larger population economies where so much of the focus is on one large city that the rest of the economy misses out on the infrastructure that's needed.
00:08:52
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It misses out on the population growth that maybe they would have otherwise had.
00:08:56
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And on a developed basis, which is where we've looked at a lot of the more detailed data on this, nowhere is that clearer than the UK.
00:09:02
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Where London's sort of focus in terms of jobs, in terms of investment, in terms of all of those things, has come at a huge cost to other cities around the UK.
00:09:12
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And that's a sort of example of what you'd want to try and avoid in many of these fast-growing emerging markets.
Infrastructure Strategies in China and India
00:09:18
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Let's look at a success story, which is clearly China.
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which has had huge urbanisation, but seems to have spent on infrastructure.
00:09:26
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I mean, some people would argue that they've overspent.
00:09:28
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But perhaps your report will point to the fact that they are relatively far-seeing in their respect.
00:09:33
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That's it.
00:09:33
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And it's encouraging to see a really nice example of this.
00:09:37
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And there's a few other examples across the world that seem to have done things pretty well.
00:09:40
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But the Chinese model was, we're going to really build that infrastructure so these fast-growing cities can make the most of their potential.
00:09:48
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And you're starting to see that really clearly.
00:09:50
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China has...
00:09:51
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dozens and dozens of mega cities that are all hugely powerful economic centers.
00:09:57
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Now, of course, the very big cities are still bigger than others, but you don't have that same degree of inequality between urban areas as you do in other parts of the world, which for an economy that's grown so quickly with that population growth and that urbanization growth is really quite impressive.
00:10:11
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And I think it's an interesting sort of model for other parts of the world looking at
00:10:16
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population growth, urbanization growth, and how can you get that infrastructure.
00:10:19
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And it really does show you the value of getting that infrastructure in early and investing heavily.
00:10:24
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And added to that, China's been able to manage migration more effectively than perhaps some of the other emerging countries.
00:10:30
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Yeah, to a degree.
00:10:32
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The hukou system does make it a little bit easier in terms of how you can slow down that natural pace and stop people just naturally being drawn to those larger cities.
00:10:41
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But that can happen in a number of different ways.
00:10:44
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And it can be incentives.
00:10:45
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It can be making sure those other urban areas grow quickly, investing in the right things.
00:10:50
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There's other ways you can make it happen.
00:10:52
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And I think that the lesson, overarching lesson from China has been
00:10:55
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to not make the economy so focused on one or two cities.
00:10:59
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And having that sort of broader reach of economic growth coming from a number of different urban areas can be really, really powerful and a way to improve both growth but also social outcomes as well.
00:11:08
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The other place where it is beginning to really happen is India.
00:11:12
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Talk to us about that.
00:11:13
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India is a fascinating example.
00:11:14
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It sort of straddles both sides of this debate where Indian cities grew very, very quickly over the course of the last few decades.
00:11:21
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Massive populations, but also a real lack of infrastructure in a lot of these cities, not just within those cities, but joining them.
00:11:28
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And what we're seeing now from the authorities in India is a real focus on capex investment, massive amounts of development and investment.
00:11:36
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into rail and to road and getting these urban areas equipped better, getting into city connectivity up.
00:11:42
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And that's a really, really powerful force for good.
00:11:45
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And that's the sort of thing we'd like to see happen in more parts of the world.
00:11:48
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I cannot sort of stress enough how important urban infrastructure investment will be for the future of the global economy.
Climate Change and Urban Resilience
00:11:55
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And India is a great example right now that seems to get that, that seems to have made it an absolute priority in terms of their economic development and long may it continue.
00:12:03
Speaker
You touch on
00:12:04
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In your report about climate change, I mean, the bigger the city, perhaps more vulnerable to some of these extreme weather events?
00:12:11
Speaker
Yes, and there's almost an additional challenge here in many of the emerging market cities that are typically coastal or near rivers or in parts of the world that are much more vulnerable to extreme weather events or heat stress or these sorts of challenges.
00:12:26
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And so what you end up needing is to build greater resilience as well.
00:12:29
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So investing in infrastructure isn't just about transportation.
00:12:33
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It's about making sure that there's enough housing, that there's enough drainage, that there's enough running water.
00:12:41
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All of the things that are absolutely crucial.
00:12:42
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And if you're in a city that's more exposed from a climate change perspective, the need for that investment is even higher because the shocks of those climate shocks on those cities will be much, much more clearly felt.
00:12:54
Speaker
So as you put it in your report, we need to build stuff, lots of it.
00:12:59
Speaker
But who's going to fund it?
00:13:00
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That's pretty much it.
00:13:01
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We do need to build loads and loads of stuff and that's going to be a whole range of these urban infrastructure side of things.
00:13:07
Speaker
Who's going to pay for it?
00:13:08
Speaker
Well, in some cases it will be governments.
00:13:09
Speaker
That's what we've seen in India, is what we've seen to a degree in China as well.
00:13:12
Speaker
Some of it will have to come from development banks because a lot of the economies who need this infrastructure, most pressingly, don't have the funds available to them.
00:13:20
Speaker
development banks and those sorts of areas is an obvious source for this funding.
00:13:25
Speaker
We could see some public-private partnerships come through and we could see this sort of spread of actually a little bit more investment that supported my private sector money in some of these areas could play a big role and there could be a role to play for the green bond market in terms of in particular projects in certain parts of the world getting that funding from private sources.
00:13:45
Speaker
But getting that money is easier said than done.
00:13:47
Speaker
The amounts of money that have to be spent are in the trillions of dollars a year globally.
00:13:51
Speaker
And it's easy for us to sit here and say we just need to spend more money.
00:13:54
Speaker
But getting that money both available and then actioned into projects looks to be quite difficult.
00:14:00
Speaker
I guess in terms of looking out those who are successful in getting the funding, it then becomes a very big positive for growth in that economy.
00:14:10
Speaker
That's exactly it.
00:14:11
Speaker
And the way we sort of sum this up in the report is saying, well, we're almost done this sort of split now.
00:14:16
Speaker
And if you spend enough money, actually you can make the most of these urban areas.
00:14:20
Speaker
And this rapid growing young urban population could be a real force for good in terms of lifting growth, creating jobs, creating sort of innovation and all of those things that you want to see from cities.
00:14:30
Speaker
But there's another path which is where you don't and cities actually then become a challenge and they become places where it's not just about having that population growth, you have to think seriously about some of the social consequences this has as well in terms of have you got enough housing, have you got the right level of sanitation, can cities function if people are stuck in traffic for hours and hours a day.
00:14:48
Speaker
All of these things that actually then hold back growth.
00:14:51
Speaker
So it almost feels like for a lot of economies across the world there's this almost very very binary outcome here.
00:14:58
Speaker
Spend enough and everything looks great.
00:15:01
Speaker
Don't spend enough and things don't.
00:15:03
Speaker
And the sad fact is in many parts of the world, we're on that second path at the moment where we're not spending enough money.
00:15:08
Speaker
And urban investment across the board in pretty much every economy in the world needs to go much, much
Conclusion on Urbanization Discussion
00:15:13
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higher.
00:15:13
Speaker
James, I'm sure we'll be revisiting this subject.
00:15:15
Speaker
But for now, thank you very much for joining us.
00:15:17
Speaker
Thank you.
Teaser for Upcoming Topics
00:15:22
Speaker
Hello, I'm Harold van der Linde, HHBC's Asian equity strategist.
00:15:26
Speaker
And I'm Leni Jinn, global FX strategist.
00:15:28
Speaker
On this week's Under the Banyan Tree podcast, we're asking, could a seemingly minor move for the Japanese yen signal something a lot bigger for currency and equity markets?
00:15:37
Speaker
What do you think, Leni?
00:15:38
Speaker
I think the listeners are going to have to tune in and subscribe to find out more.
00:15:42
Speaker
Indeed, be sure to follow Under the Banyan Tree, where we put Asian markets and economics in context every Thursday from here in our Hong Kong studio.
00:15:50
Speaker
Talk to you soon.
HSBC Global Research Highlights and Wrap-up
00:15:54
Speaker
Before we end, here's a few highlights from the global research team this week.
00:15:58
Speaker
Now, at a time when geopolitical tensions are rising, a new report from our economics team looks at how trade integration is advancing rapidly in Asia.
00:16:08
Speaker
The report led by Fred Newman, chief Asia economist, finds that intra-regional trade is set to rise 65%, or $400 billion per year until 2030.
00:16:20
Speaker
This will be led by the China-ASEAN and India-ASEAN corridors and helped by an increase in regional trade and investment agreements.
00:16:29
Speaker
Our latest proprietary environmental, social and governance sentiment survey, which canvases the opinions of investors, looks at whether we have reached peak ESG.
00:16:39
Speaker
Geopolitical distractions and anti-ESG sentiment in the U.S. provide headwinds to the growth of sustainable investment.
00:16:45
Speaker
However, Wei-xin Chan, head of ESG research, says the results also show room for optimism, with a sizable proportion of survey respondents planning to increase their ESG incorporation.
00:16:58
Speaker
And don't forget, the first HSBC Global Investment Summit takes place in Hong Kong between the 8th and 10th of April.
00:17:05
Speaker
More than 2,000 delegates will come together to hear insights into global trends from a world-class lineup of experts, political leaders, and decision makers.
00:17:16
Speaker
For more details on that, or anything that we've talked about on today's podcast, please email askresearch at hsbc.com.
00:17:27
Speaker
So that's a wrap.
00:17:29
Speaker
Thanks very much for listening to The Macrobrief.
00:17:31
Speaker
We'll be back again next week.