The Century of the City – a Burden or a Blessing

2

Economic Geography: A Framework for Thematic Analysis

A year ago, we published our first thematic report where we set out what we believed were the key long-term interconnected themes that will reshape the global economic landscape and returns on portfolios. We named them 'the new world order', 'innovation', 'demographics', 'competition for resources and the new growth model'.

In the four reports we published over the last twelve months, we explored these themes through various angles (Table 1). We pointed to the likely loss of monetary policy independence, the potential rise of capital controls and the creation of a renminbi block, the growing importance of intangible capital in supporting future productivity growth in developed markets and the role of domestic politics in driving the globalisation cycle. This report looks at the impact rapid urbanization in emerging markets will have on the investment landscape.

We are not arguing that all these themes are new. Some of them have been simmering in the background for quite a while (ageing of Western societies, climate change, resource competition, the shift in economic gravity to emerging economies). But, in our opinion, the Global Financial Crisis has brought a large number of these disruptive forces to the fore. It has also highlighted the dangers of 'silo thinking'. We believe that thematic analysis is therefore most useful if it can help investors to think about how themes may interact with one other and what the product of these interactions may be. Having a framework that ties them together is essential.

We believe that economic geographya study of the location, scale and speed of economic activitycan help us in this exercise. Forces that change economic distance have the potential to disrupt the existing status quo, generating both opportunities and threats as firms tend to experience higher productivity growth and increasing returns to scale from being close to a zone of dense economic activity. Free-flowing factors of production are therefore essential to allow agglomeration economies to take place.

The World Development Report argues that some places are doing well because they have promoted transformations along the three dimensions of economic geography:

• Higher densities, as seen in the growth of cities • Shorter distances, as workers and businesses migrate closer to density • Fewer divisions, as countries thin their economic borders and enter world markets to take advantage of scale and specialisation In this short section, we explore how we can use economic geography as an overarching framework for our thematic analysis We believe that forces / themes that change economic distance have the potential to disrupt the existing status quo 3 In other words, proximity is a key driver of economic development. Falling transport and communication costs (shorter distances), for example, have allowed for greater specialisation and radically altered the location of firms and the nature of trade. But it has also made activity more geographically concentrated. Looking ahead, the internationalisation of the renminbi has the potential to shift the centre of economic gravity further east, redrawing the international monetary system and fundamentally changing geopolitical dynamics. Ensuring free access to energy resources will drive Chinese foreign policy; any restrictions (more divisions) will be interpreted as an impediment to their right to develop and will likely trigger swift reactions from the Party.

In this report, we explore one of the key trends that is reshaping economic activity across the globe and that is central to economic geography: the rise of the cities. This report uncovers three underlying themes, which we analysed to various degrees in previous reports: the shift in the economic centre of gravity from West to East (and North to South), the rise of Africa, and the emergence of a new global middle-class. The second part of the report thinks through the key industries and sectors involved in facilitating urbanization. The final section explores the environmental, societal and economic implications of the 'century of the city'.

Executive Summary

Joseph Stiglitz argues that urbanization in China is one of the two key themes shaping the world's development; the other being technology developments in the U.S.

Cities are engines of wealth and employment, innovation and creativity, and can directly improve livelihoods. Permanent settlements have historically taken hundreds, or thousands, of years to establish. However, developing countries experiencing rapid urbanization are building towns and cities increasingly quickly -some in the space of a few years! Such growth requires huge investments in infrastructure and the provision of services.

The increasing need to build and expand cities across the globe to accommodate increasing urbanization represents an opportunity to invest in the future of economic growth. We believe that sectors that will benefit from this urban era include construction, retail, technology and communications.

While it is impossible to forecast accurately the path that human history will take under future demographic and environmental change, urbanization is likely to be a key trend during the next half century at least. Cities throughout the developing world are growing each day, and new urban populations have the potential to enter the global middle class. This will not only boost capital stocks through their need for basic infrastructure, but will also contribute to the domestic and global economies through increased consumption of goods and services.

However, urbanization alone is not sufficient to reignite the global economy. Expanding employment opportunities in urban areas require structural change, growing household incomes and the rapid expansion of a range of service sectors. As such, economic, social and policy changes must accompany new infrastructure if urbanization is to be a success.

Awareness of the risks associated with urbanization and the predictions of future demographic changes are also important. These include the risks of climate change, political instability and the externalities associated with rising urban densities, as well as difficulties in defining a city.

Regardless, we believe that this trend presents huge potential opportunities for investors as we continue in the "century of the city", with developing economies and their emerging markets taking centre stage.

Key themes include:

1) The shift in the economic centre of gravity from West to East (and North to South)

2) The rise of Africa

3) The emergence of a new global middle class

Urbanization is likely to be a key trend during the next half century at least

Awareness of the risks associated with urbanization and the predictions of future demographic changes are also important

Introducing Urbanization

Urbanization is happening at an unprecedented scale and speed.

Africa and Developing Asia Pacific will urbanize fastest over the coming decades.

Economic growth is both a cause and a product of urbanization.

"No nation has prospered without urbanization and there is no prosperous nation that is not predominantly urban".

-Satterthwaite et al. (2010) As of 2008, for the first time in history, more than half of the world's population lives in urban areas (Chart 1). This represents significant growth in urban population from just 10% in 1900 and 30% in 1950. 3.5 billion people now live in urban areas, covering just 0.5% of the global land surface but accounting for 70% of global GDP. While developed economies tend to be more urbanized than developing countries, having urbanized earlier, countries in Africa and Asia are now experiencing the fastest rates of urbanization with city populations burgeoning (Chart 2).

Chart 1: Urban-Rural Population (1950-2050) Chart 2: Cities over 1m inhabitants by Region

Source: ASR Ltd. / UN Source: ASR Ltd. / UN Urbanization, the rising proportion of population living in urban areas, is predicted to continue apace during the next few decades. By 2025, the largest 100 cities will be home to more than 1 billion inhabitants. The UN Population Division (2011) predicts that between 2011 and 2050, urban areas are likely to absorb most of the global population growth, as well as expanding from rural-urban migration, with an estimated 2.6 billion extra urban inhabitants by 2050. Most of this growth is predicted to occur in the developing world. Africa's urban population is now larger than that of North America. Asia is home to half the world's urban population. This will have wide ranging implications, including the rise of a global middle class, and urbanization is thus one of the most influential trends shaping the economic and social fabric of our world. Urbanization can be caused by a direct rural-urban migration due to the perceived benefits of living in a city and the opportunities afforded by it, or through natural population growth in cities exceeding that of rural areas. Economies of scale from urban agglomeration increase productivity and efficiency, increasing their attractiveness to businesses and employees alike.

Size and Speed of Urbanization

China is urbanizing at 100 times the scale, and 10 times the speed at which the UK urbanized in the 18 th Century (McKinsey, 2009). While urbanization has occurred persistently since the Industrial Revolution, the process is now occurring at an unprecedented scale and speed. In 1800, Beijing was the only city with a population of one million or greater. By 1900, 16 cities had reached this figure. By 2000, it was 356 cities. By 2025, there will be more than 600.

The experience of urbanization is heterogeneous geographically and temporally; the size and speed of the urbanization is happening in developing countries much faster than it did for developed countries.

Urbanization at a greater scale: 60% of all people will live in cities by 2030

No society in human history has created more urban matter than China has in the last few decades. With 96 cities of more than 1 million inhabitants (Map 1), China has urbanized on a huge scale; its 2010 urban population of 660 million is double that of the U.S's total population, and up from just 65 million in 1950 (a tenfold increase in 60 years). This has required huge planning and investment in infrastructure, from city-wide transport and sewage systems, to housing and the provision of schools and hospitals.

Current urbanization is characterized by larger, as well as more, cities. In 1950 there were only 2 megacities (more than 10 million inhabitants) in the world, New York and Tokyo, but in 2011 there were 24 (Map 2)-by 2025, the UN predicts that there will be 37, only 7 of which will be in the developed world (Chart 3).

Map 1: Chinese Cities over 1m (2011) Map 2: Mega Cities (2011)

Source: ASR Ltd. / UN / GoogleCode Source: ASR Ltd. / UN / GoogleCode

Urbanization occurs via natural population increase or rural-urban migration

China is urbanizing at 100 times the scale, and 10 times the speed of the UK

Urbanization at a greater speed: A new migrant arrives in an Indian city every minute

It took India nearly 40 years to add 230 million urban residents, but it will take only half that time to add another 250 million. This rapid speed of urbanization is occurring in many developing countries, with Asia and Africa accounting for ¾ of the world's 100 fastest growing large cities (with a current population over 750,000), with only Antalya in Turkey representing Europe in the top 100 growing cities between 1950 and 2012. Urbanization, by facilitating economic growth and the rise of a new middle class, could redraw the global map of economics and development.

3 million people move to cities in the developing world every week. Cities such as Chongqing, Xiamen and Shenzhen in China have been growing more than 10% annually. However, there is still room for further increase especially in Africa and Developing Asia Pacific (Chart 4): China has only just reached the 50% mark, and key emerging economies with large populations, such as India, Pakistan and Indonesia, are less than 40% urbanized. In his final address to Congress, Premier Wen highlighted that in the past 5 years 30 million homes have been constructed or renovated, 18,000 reservoirs reinforced, 19,700km of railway and 609,000km of roads built (more than 15 times the distance around the Equator). However, in the next decade or so, the rate of urbanization will slow slightly and China will be overtaken by other emerging countries, with African cities topping the list of fastest growing large cities 2010-2015, compared to Asia's dominance between 1995 and 2010 ( Table 2). Africa's urban population is likely to double its 2010 urban population of 400 million by 2035. This is likely to put huge strain on urban resources and infrastructure, potentially leading to economic and political instability. While China's urbanization has led to strong economic growth, Africa may not be able to capitalize on this trend without replicating the strong central planning and investment that characterized China's urbanization. It is undeniable that urbanization and economic growth are inextricably linked -the richest countries tend to enjoy the highest urbanization rates (Chart 5 illustrates a snapshot of this using figures for the G20). Yet it is imperative to understand whether economic growth is a catalyst of urbanization or simply a byproduct. We believe that some economic growth is a prerequisite for rural to urban migration. In order to attract migrants into a city, investment is crucial. However the majority of potential for growth can be exploited only once a large urban population has been established.

The consensus view in the literature points to a 3-8% increase in productivity when a city doubles in size. This will have a significant effect, with a city growing from 50,000 to 5 million, as many have done especially in East Asia over the past decades, will increase productivity by 50% (Venables, 2006).

There are 4 main ways in which urbanization can cause economic growth: Improved agricultural productivity as small farms replaced by larger holdings enabling greater scale economies. Reallocation of labour away from agriculture towards higher productivity manufacturing and service sectors. Consequently urban incomes often exceed rural incomesboosting economic growth through consumption Spill over and scale effects are greater in urban areas

Chart 5: G20 Urban Share vs GDP/capita

Source: ASR Ltd. / UN / PWT 7.0

Chart 6 illustrates the relationship between urbanization and GDP per capita for G20 countries, with GDP per capita rising as urbanization does, but this does not automatically establish

Urbanization and economic growth are inextricably linked -the richest countries tend to have the highest urbanization rates

Cities benefit from 3-8% increase in productivity when a city doubles in size

10 causality. Other factors are clearly at work once urbanization has reached 70% as countries with similarly high urbanization rates have a wide range of per capita GDP figures. Given that most large and developing cities are in emerging markets, there are clearly many benefits to be realized from their investing in its infrastructure and industries.

Gains in economic growth can only be realized once the urban labour force is able to absorb the migrant labour force. Once this has been achieved and there are a sufficient number of city dwellers, a large urban population is a demographic dividend to be exploited.

The proximity to other people and sources of economic activity increases productivity as the costs of production tend to decline as firms and markets cluster together. In addition, innovation, a key component of long-term economic growth, thrives in urban areas, with urban density facilitating social interaction and the exchange of ideas. According to the OECD, more than 50% of patents come from urban regions, while patenting activities increase with city size.

Urbanization can also bolster economic growth as urban incomes often exceed rural ones. In China and India, city dwellers can expect to earn three times the amount of their rural counterparts, as they transition from agriculture to manufacturing or service industries. This creates trickle-down effects as "one man's spending is another man's income". An increase in demand for goods and services causes even menial jobs to pay better than a farm wages. McKinsey estimates that the rise in consumption and investment in cities will boost economic growth and inject more than $30 trillion into the global economy by 2025. In Asia, urbanization has been accompanied by higher GDP per capita (Chart 6).

Urbanization increases the benefits of economies of scale in cities In China and India, city dwellers can expect to earn three times the amount of their rural counterparts

However, there is also an argument for urbanization without growth, with several African countries experiencing urbanization but suffering a decline in GDP per capita (Chart 7). Fay and Opal (2000) argue that urbanization does not necessarily accompany development, with a range of factors associated with urbanization, including a growing informal economy, congestion, and the rise of slum settlements actually reducing growth. Michael Pettis (2013) argues that urbanization is actually a cost, not a source of growth, and this cost is only economically justified if the increase in the overall productivity for newly urbanized workers is greater than the cost of urbanization.

Chart 7: Urbanization Without Growth (1985-2010)

ASR Ltd. / UN / World Bank Development Indicators

Conclusion:

Urbanization is happening on a huge scale throughout the developing world, and is making cities increasingly important socially and economically (Cadena et al. 2009). This trend is rapidly increasing the proportion of people living in urban areas, and contributing to economic growth in many parts of the world through increased productivity and a rising middle class. While Chinese urbanization has been the main story over the past two decades, the next two could see a shift from East to South, with Africa likely to be home to the fastest growing cities. However, if African countries want to benefit from this growth, they would do well to follow Asia's path of strong central planning and heavy investment in hard infrastructure to build a strong urban economy.

Urbanization represents one of the defining trends of the coming decades, and as such offers investors a wealth of potential opportunities to benefit from the increasing infrastructure and consumer needs as the population increases and becomes more urban, with rising disposable incomes boosting markets across the developing world in particular. Never before in history have two of the world's most populous nations urbanized at the same time, and at such a pace as China and India are today, and this represents a huge opportunity to invest in these new markets. However, without the necessary investment, urbanization could become a problem rather than a blessing to developing countries, leading to environmental, economic and social issues.

UN-Habitat suggests that the "transition to a predominantly urban world is irreversible and brings with it equally irreversible changes in the way we use land, water, energy and other resources". While urbanization has been touted as unprecedented and unlimited, realistic analysis of some of the risks and externalities is necessary. Urbanization projections rely on a number of assumptions, particularly that of business-as-usual in terms of technology, economics, politics and environmental change, all of which could have a large effect on current trends.

However, urban theorist Edward Glaeser says that "it's really crucial to react to the enormous difficulties of cities by trying to solve these difficulties, rather than to keep people from moving to urban areas". It is important to recognize the huge economic and social benefits of urbanization, as well as their importance in sparking innovation and technological advance, with Glaeser reinforcing the point that "there's no such thing as a poor urbanized country. There's no such thing as a rich rural country".

Factors associated with urbanization, such as congestion and the expansion of slum settlements, could reduce economic growth

Chinese urbanization has been the main story over the past two decades, the next two could see a shift from East to South, with Africa likely to be home to the fastest growing cities

12

Investing in Urbanization

Entirely new cities are being established at rapid rates.

billion middle class consumers by 2030.

Key sectors likely to benefit include construction, retail and energy.

While urbanization in the developed world has been characterised by the growth and redevelopment of existing cities, current trends are witnessing the building of entirely new cities to keep up with demand for urban living. New cities such as Masdar in Abu Dhabi and Songdo, South Korea, are hoping to alleviate the pressure of a burgeoning urban population and increase efficiency and sustainability, incorporating the latest technology and energysaving techniques.

Here we think through the key industries and sectors involved in facilitating urbanization. Increasingly, private investment is needed as public debt levels soar.

A. Construction

Basic materials and those companies involved in building and designing large urban infrastructure projects stand to benefit the most from rising demand for new urban developments.

Developers will need to add extra floor-space equal to 85% of today's building stock, equivalent to the size of Austria! However, this is not just a developing world trend: in the first five months of 2013, New York welcomed $8.5 billion worth of new construction starts, a 16% increase over the same period last year, with a flurry of new residential towers popping up to meet the everincreasing demand for housing.

However, a report by CBS illustrated the potential issues with large-scale development, pointing to the growth of "ghost towns". Large real estate bubbles and debt crises could occur if properties remain vacant with rural migrants unable to afford high rents and unable to find jobs in empty cities. Developers need to focus on meeting demand, although continued urbanization into the future will likely meet this short-term over-supply in some regions.

B. Retail

The Brookings Institute (Kharas and Gertz, 2010) predicts that over the next two decades, there will be more middle class (with daily expenditures between $10 and $100 per person in PPP) than poor people in the world, with an estimated 5 billion middle class consumers globally by 2030, up from just 1.8 bn today. By 2015, for the first time in 300 years, the number of Asian middle class consumers will equal the number in Europe and North America, indicating a shift in the economic centre of gravity from West to East. In China alone, there could be over 670 million middle class consumers, compared with only 150 million today, an increase of almost 350%. Ernst and Young (EY) predicts that the global middle class will have a combined purchasing power of more than US$56 trillion by 2030, double that of current figures. Over 80%

This section analyses the key industries and sectors involved in facilitating urbanization

The global middle class will expand from 1.8bn to 5bn by 2030 13 of this demand will come from Asia. The rise of a global middle class in developing countries creates new markets for a range of goods and services, including electronics, food and consumer banking. As per capita income rises, so does a person's marginal propensity to consume, allowing for more spending on discretionary items. However, it is important to distinguish between the consumer class in different marketsa rising consumer class in Africa is not comparable to that in Asia. China's middle class, for example, are increasingly using ecommerce as their chosen mode of shopping, with online sales growing by 50% in China last year, compared to 18% in the U.S.

C. Energy

With the world's population headed toward 9 billion at midcentury and millions of people climbing out of poverty, Shell predicts that global energy demand could increase 80% by 2050, putting pressure on natural resources. Higher incomes increase personal consumption and new building stocks add to existing infrastructure energy use. How this energy demand is met (and reduced?) in the coming decades will be a key determinant of the impact of climate change on our cities, with new energy resources needed to cope with the declining availability of oil and the global requirement for more environmentally-friendly energy sources. Energy production also requires a large amount of water, and this could have far reaching implications on natural resources (Moore, 2013). Cities need to be at the forefront of environmental action and alternative fuel innovation due to their need for energy and their vulnerability to climate change.

D. Technology and Communications

Technology underpins many key developments in cities globally, with access to high-speed information now an integral part of global culture. Technology has implications for the delivery of all existing services including administration, education, healthcare, communication and transportation. In Africa, more people have mobile phones than access to a bank account, with some companies now facilitating payments or transfers of money via mobile phones. The smart-phone market is likely to boom if the prices come down, with providers likely to profit from rising data usage. Both new and existing cities are also competing to become "smart cities" which incorporate the latest technology to improve the livability and productivity of the city, lead by companies such as IBM and Cisco.

E. Transport:

Rising urban incomes will also boost demand for personal vehicles; companies marketing affordable and efficient vehicles are likely to benefit most. Transport remains the only sector which is failing to lower carbon emissions in the EU, so investment in greener transport is much needed if catastrophic climate change is to be avoided. To reduce congestion, pollution and carbon emissions, public transport is key. This requires large-scale public and private investment and planning, with emerging market Transit hubs such as ports and airports will also experience greater demand for their services from rising trade flows and increasing international travel.

F. Food and Water

The FAO, in their 2009 report 'How to Feed the World in 2050' suggest that in order to feed this larger, more urban and richer population, food production must increase by 70%. Annual cereal production will need to rise to about from 2.1 to 3 billion tonnes and annual meat production will need to rise by over 200 million tonnes to reach 470 million tonnes. Ernst and Young, in a report "Water Sector in India", found that Indian domestic and industrial demand for water will double between 2010 and 2030, largely due to demographic changes and growth in water intensive industries. Urbanization is decreasing self-sufficiency, increasing average incomes and reducing access to agricultural land and clean water sources. Investment is needed in R and D to ensure that technological improvements can provide sufficient nutrition and clean water resources for the growing population, and that these can be delivered equitably and sustainably.

G. Health care and sanitation

Healthcare provision in the form of new hospitals will be needed to cope with rising population densities in cities, with diseases more likely to spread, especially within slum settlements. Pharmaceutical companies are likely to benefit from growing demand as incomes rise, especially in areas with an ageing population. Lying at the root of many other development challenges, poor sanitation affects 2.5bn people globally and affects public health, education, and the environment and holds back economic growth. According to the World Bank, poor sanitation costs billions to some countries, amounting to 2.4% of GDP in Niger or 3.9% of GDP in Pakistan annually. Entrepreneurial companies and NGOs alike are competing to meet widespread demand for simple technologies to provide clean drinking water and sanitation facilities.

To feed the larger, more urban and richer population in 2050, food production must increase by 70%

Lying at the root of many other development challenges, poor sanitation affects 2.5bn people globally and holds back economic growth 15 What are the limits to urbanization? Climate change will impact upon cities and their populations.

Negative externalities of urbanization exist, including congestion and slum development.

Natural and financial resources are not unlimited.

Despite the potential benefits of urbanization, our cities are already struggling to support and facilitate the lives of their existing populations; how realistic is it to expect that they can cope with millions more? This section explores the environmental, societal and economic issues of this 'century of the city'. In the least developed countries, 78% of city dwellers now live in slums. The concentration of people makes cities unusually vulnerable, not just from social turmoil but also environmental upheaval. Urbanization comes at a cost.

Environmental Limits:

Cities are inseparably linked to climate change and the availability of resources. They are both a cause of and a solution to environmental problems.

Maplecroft's 5 th annual 'Climate Change and Environmental Risk Atlas' identified Dhaka, Manila, Bangkok, Yangon, Jakarta, Ho Chi Minh City and Kolkata as the cities facing the most risk from the onset of climate change. By 2025, these 7 cities alone will be home to 98 million people. Cities globally will experience higher temperatures due to the urban heat island effect which causes urban areas to have higher temperatures than their rural neighbours. Sea-level rise and increased storm-surges will be significant issues for coastal cities, putting property and livelihoods at risk. Urbanization will increase populations' vulnerability to such environmental risks; poor migrants forced to live on land previously deemed unsuitable for habitation (e.g. lowlying areas or flood plains) due to a lack of space in many cities.

Buildings-through lighting, air conditioning etc-consume roughly 50% of global energy, with transportation accounting for another 25%. Thus almost 75% of CO 2 emissions in the world are produced by cities. Urbanization will consequently increase CO 2 emissions, at least in the short-term. New migrants will earn more money and increasingly use motorized transport as cities sprawl to accommodate burgeoning populations.

The availability of resources, especially water resources, will become a central issue globally. Rivers are running dry due to over-exploitation, and many rivers are too polluted to be utilized. The supply of clean water is likely to be a large factor in countries' ability to develop into a prosperous nation. China's Department of Environmental Protection released alarming figures: more than half of the seven big water sources are polluted, 90 % of city water sources are severely polluted and 40 % of total water sources are not drinkable at all. The sheer size of the population growth expected in cities will also require new building stock to house these migrants. Over the past 20 years, more buildings have been constructed than in the previous 5,000 years. Shanghai for instance has expanded the number of buildings over 8 stories high from just 121 in 1980, to 3,529 in 2000, to 10,045 in 2005. Not only has this put pressure on energy resources, but Shanghai's urban expansion is putting strain on its very foundations. Experts estimate that the city has sunk 6ft since the 1920s due to the weight of buildings and the extraction of ground water causing the soft soil of the Yangtze delta to subside (Springer, 2012). This is not an isolated issue; 50 cities in China alone suffer from subsidence, including Beijing.

Urbanization has environmental, societal and economic implications which could limit the benefits of urbanization

Humanity is inexorably reaching the limits of the ecosystem, questioning the limits of unfettered urbanization. Rockstrom et al.

(2009) identify Earth-system processes and associated thresholds which, if crossed, could generate unacceptable environmental change and alter our ability to carry out business-as-usual. Of their nine 'planetary boundaries', three (climate change, rate of biodiversity loss, and nitrogen cycle removal) had already been crossed in 2009, suggesting that we will soon have to adapt to a different operating conditions. However, cities also present an opportunity for reducing our environmental footprint, providing that strong planning and governance as well as behavioral change occurs. Policies to encourage sustainability and the building of 'compact cities', 'ecocities' and 'smart cities' illustrate efforts to ensure that urbanization benefits the environment.

Societal Limits:

Urbanization will have a huge impact on society. As new people arrive in each city, they automatically alter the demographics and culture of the place. Increased population density makes it easier to bring people together, enables mass mobilization and allows new ideas to travel quickly. Richard Florida thus claims cities are "veritable cauldrons in which political energy and activism are pressurized and brought to a boil". Professor Craig Jeffrey has studied political activism among educated-unemployed youths in India, who use their free time to organise political rallies and protests against local corruption. Now, with over half of humanity living in urban areas, it is undeniable that mass migration into cities has an impact on the social, cultural, economic and political fabric of the nation as aspirations and unemployment rise simultaneously, as was seen in the 'Arab Spring' of 2011.

Unprecedented urbanization is also increasing inequality within cities, with luxury apartments overlooking sprawling slums. In China, such problems are exacerbated by the 'hukou' system of residency, which denies access to basic public services such as education and healthcare to migrants, reproducing and reinforcing inequality as noted by Bourdieu in 1977 who studied the creation of inequality through class-based social networks and education in France. If children of migrants are unable to gain a state

Shanghai has sunk 6ft since the 1920s due to the weight of buildings and the extraction of ground water

Three of the nine key planetary boundaries had been crossed by 2009

'Compact cities', 'ecocities' and 'smart cities' could ensure that the environment can benefit from urbanization

Cities act as melting-pots of different ideas, beliefs and cultures

Urbanization is increasing inequality within cities, with the rich and poor thrust together but living very different lives education in China, the new urban populations will be less educated, and less productive than previous ones. Beijing appears to have recognised the potential issues they face in ensuring social cohesion and political legitimacy. Recent efforts to plan for city growth and increase funding to rural areas, as well as reform of the hukou system in a number of regions suggests that the "CCP fears the instability that unfettered urbanization would lead to" (Kaiyang Huang).

Rising population densities and cultural differences have also lead to increasing violence and crime in cities around the world. Johannesburg city centre is all but vacant, with residents all leaving due to the soaring crime rates, and even on the edges of the city, communities and families live behind high walls and security gates to stay safe. This has resulted in enclaves and inequality, further exacerbated by the division of neighbourhoods by highways or other infrastructure being built through them.

Another issue is the lack of suitable housing and services to meet the growing demand, which could lead to issues of homelessness and exclusion within society. Recent research by London Councils suggests that London requires 809,000 new homes by 2021 to keep up with housing demand, but only 250,000 homes will be built on current projections. This trend will be repeated around the world, with demand for housing far outweighing supply. This will affect house pricing as well as availability.

Economic Limits:

Sprawling urbanization and the rise of slum settlements have a number of economic costs and limit the economic benefits of the trend. Larger cities, if not planned carefully, necessitate longer journeys, increasing the cost of travel and reducing productivity through time lost to travelling, with commutes taking as long as four hours in several megacities. This is particularly important in cities with high car-use, where congestion greatly increases travel times. Public transport can thus provide both environmental and efficiency gains. In Paris, Mayor Delanoë marked the 5 th anniversary of the Vélib' bike-sharing scheme by declaring that "automobiles no longer have a place in the big cities of our times". While laudable, this sentiment is not universal. Despite the 9 million bicycles in Shanghai, authorities have banned cyclists from main roads as they added to the automobile congestion, illustrating the growing dominance of the car.

As cities account for an increasing proportion of the world's population, agricultural land will inevitably be lost to urban sprawl. "Scholars have warned the rapid urban land expansion in China by sacrificing valuable arable land will not only downgrade its capacity to feed itself, but also pressurize the long-term food security of the world" (Chen et al. 2008). The cost of importing food into urban areas will grow as the population expands and the distances travelled from the farm to the city centre increase. Similarly, increasing demand for electricity puts greater pressure on supply, leading to rising prices.

The 'hukou' system of residency denies

migrants' access to basic public services A lack of suitable housing and services could lead to issues of homelessness and exclusion

Sprawling urbanization and the rise of slum settlements have a number of economic costs

Prices could rise as demand outstrips supply of food and energy resources

There is also an inevitable cost in the building of new infrastructure projects. McKinsey calculate that cities will require over $10 trillion annually by 2025 to provide for growing populations. Without this investment, urban populations will be underprovided for in terms of jobs and services. Public-private partnerships could offer one solution to financing large-scale infrastructure, but are not always successful, with Brazil failing to attract bidders for highway projects due to stringent conditions set out by the government. Some Chinese developers also fear a housing bubble and high levels of debt due to the proliferation of construction, with 'ghost towns' appearing as high prices make them inaccessible to the rural migrants. However, other experts predict that due to the ongoing trend of rural-urban migration and the rise of the middle class, they will not stay deserted for long. The creation of affordable and well-serviced housing, however, remains key.

Data Limitations:

It is also important to acknowledge limitations to the key urbanization datasets. There is no universal definition of 'urban', and issues surround the drawing of city boundaries. Cities evolve constantly and the type of urban area (city vs. metropolitan areas etc.) used in definitions often differs, making international comparisons problematic (Satterthwaite, 2007). Tokyo, widely cited as the world's largest city, has 35 million people in its metropolitan area but just 13 million in the city itself. Annual population figures tend to be extrapolations of census data. Censuses are taken every 10 years at best, and many countries, especially in the developing world, struggle to complete full surveys. This leads to misrepresentations of demographic data. Despite such issues, the UN data remains the best estimation of current and future trends, but should be questioned rather than accepted without question as many key reports tend to do.

Over $10 trillion will be needed in annual investments in cities by 2025 Some Chinese developers fearing a housing bubble and high levels of debt

There is no universal definition of 'urban', and issues surround the drawing of city boundaries "There's no such thing as a poor urbanized country.

There's no such thing as a rich rural country."