The $2
Trillion Megacity Dividend China’s Leaders Oppose: Cities
Source: Bloomberg / News
China needs a new prescription for growth: Cram even more people into the pollution-ridden megacities of Beijing, Shanghai, Guangzhou and Shenzhen.
While this may sound like a recipe for disaster, failing to expand and improve these urban areas could be even worse. That’s because the biggest cities drive innovation and specialization, with easier-to-reach consumers and more cost-efficient public transport systems, according to Yukon Huang, a former World Bank chief in China.
He estimates China’s leaders’ seven-month-old urbanization blueprint, which aims to funnel rural migrants to smaller cities, will slice as much as a percentage point off gross domestic product growth annually through the end of 2020.
“China’s big cities are actually too small,” said Huang, a senior associate at the Carnegie Endowment for International Peace’s Asia program in Washington. “If China wants to grow at 7 percent for the rest of this decade, it’s got to find another 1 to 1.5 percentage points of productivity from somewhere.”
A strategy that supports the biggest cities’ expansion would add $2 trillion to China’s output in 10 years -- more than India’s 2013 GDP -- according to Shanghai-based Andy Xie, a former Morgan Stanley chief Asia-Pacific economist.
With a population more than four times that of the U.S. living on roughly the same land mass, China should have big, densely populated urban areas, Xie said. To make that a reality, the megacities need to build up, not out, he added, citing Tokyo and its population of about 37 million as a workable example.
‘Ecological Catastrophe’
“If you do not focus on big cities with concentrated populations, China will become an ecological catastrophe,” he said. “If you pick the wrong model of urbanization, it sets you back not just for years, it could cap your income level for eternity.”
Beijing and Shanghai already have about 20 million people each, while Guangzhou and Shenzhen both top 10 million. Even so, given China’s 1.4 billion population, their concentration is low by global standards. In the U.S., the largest 10 metropolitan areas account for about 38 percent of GDP, about double that in China.
Echoing Mao-era central planning, China’s current urbanization policy decrees that populations will be “strictly controlled” in metropolises with more than 5 million people while expansion is allowed in mid-sized cities and encouraged in small ones. The plan will redress unbalanced development that has left megacities overburdened, with deteriorating environments, Vice Minister of Public Security Huang Ming said at a March briefing.
‘Old Thinking’
The edict shows the “persistence of old thinking” even after past attempts to shift people and resources to smaller, less productive cities proved “hugely wasteful,” Andrew Batson, an analyst at researcher Gavekal Dragonomics in Beijing, wrote in an August note.
“Planners still seem convinced that big cities are crowded, terrible places whose growth must be controlled,” wrote Batson, who has covered China since 1998. “In reality, big cities are China’s richest and most vibrant places, and restraining their growth does the economy no favors.”
Premier Li Keqiang is under increasing pressure to boost the economy, which is headed this year for its slowest expansion since 1990. Growth probably fell to 7.2 percent in the third quarter from 7.8 percent a year earlier, according to the median estimate of analysts in a Bloomberg News survey ahead of data scheduled for release tomorrow.
Fourth Plenum
While Li and his fellow Communist leaders have the chance to shift policy priorities when they gather for the fourth plenum that starts in Beijing today, any major rethink on urbanization is unlikely. The conclave will focus on efforts to bolster the rule of law, state media reported last month.
The pace of migration from rural areas to cities, a dynamic hailed by Li as key to the nation’s development, is set to slow by a third in the years from 2013 to 2020 compared with the previous seven years, the government forecasts.
That’s pressuring Li to find ways to optimize productivity. The rapid expansion of China’s cities hasn’t been accompanied by efficiency gains because of impediments including urban sprawl and inadequate infrastructure, according to Cui Li, a Hong Kong-based economist at Goldman Sachs Group Inc.
Achieving the same efficiencies as U.S. cities, which are modest compared to those in more compact European metropolises, could add 1 percentage point to annual growth by the end of the decade, she estimates.
Guangzhou, Shenzhen
An additional 4.2 million people can be added to Guangzhou and 5.3 million to Shenzhen if those cities had the same population density as Seoul, according to a March report by the World Bank and the State Council’s Development Research Center.
Making changes to land use that would spur denser cities could save China $1.4 trillion from a projected $5.3 trillion in infrastructure-spending needs during the next 15 years, World Bank chief operating officer Sri Mulyani Indrawati said.
There are signs of progress. A bus rapid-transit system that opened in Guangzhou in 2010 has saved passengers a combined 32 million commuting hours a year and is projected to reduce carbon-dioxide emissions by 84,000 tons in its first decade of operation, the United Nations estimates. In Kunming, capital of southwestern Yunnan province, a new district is being developed with a subway system, bus stations and green spaces planned every 300 meters.
Cleaner Skies
Building dense cities around mass-transit systems that balance commercial and residential areas would slash reliance on cars, according to the Energy Foundation, a San Francisco-based nonprofit organization that promotes clean energy. That would prevent as much as 800 million tons of carbon dioxide from spewing into the atmosphere by 2030, more than emitted by Germany in 2011, it estimates.
A continuation of old methods raises the specter of worsening traffic congestion and pollution in the biggest cities if migration continues to outpace policy makers’ plans.
“For the last two to three decades, China’s city planning has not taken migrants into account in their plans for transport, housing and many social services,” said Kam Wing Chan, a professor at the University of Washington in Seattle and author of “Cities With Invisible Walls: Reinterpreting Urbanization in Post-1949 China.” Urban problems including traffic gridlock “are mainly a result of not providing for population growth,” he said.
-By Bloomberg News
http://www.bloomberg.com/news/2014-10-19/the-2-trillion-megacity-dividend-china-s-leaders-oppose-cities.html
Blackstone
Adds Luxury-Jet Finance in $280 Billion Market
Source: Bloomberg / Luxury
Blackstone Group LP (BX), vying with financiers including Citigroup Inc. (C), is starting a new fund to provide loans for a luxury-jet market projected to reach $280 billion over the next decade.
The fund’s creation adds Blackstone, the world’s largest alternative-asset manager, to a growing roster of lenders taking advantage of a business-aviation rally. The fund says it will be able to finance as much as $2.5 billion in plane purchases and will focus on the biggest models costing $30 million or more.
“We’ve seen more lenders come back into the market that had pulled out and we’re seeing new ones coming in,” said Wayne Starling, chief of the aviation finance unit for Pittsburgh-based PNC Financial Services Group. (PNC) “The market is showing some real signs of recovery.”
Companies and wealthy entrepreneurs will buy 9,450 new jets over the next 10 years, Honeywell International Inc. (HON) said in its annual forecast being released today. Their estimated value at list prices is 7.7 percent more than in last year’s projection, as buyers gravitate to costlier, longer-range jets.
Blackstone is jumping into financing by establishing Global Jet Capital, which will handle sales of new and used aircraft, said Shawn Vick, the fund’s chairman of the executive committee. The fund is being formally announced tomorrow at the National Business Aviation Association convention in Orlando, Florida.
Fund Partners
Joining New York-based Blackstone in the fund are Carlyle Group LP (CG), Franklin Square Capital Partners and AE Industrial Partners. Global Jet Capital’s executive committee includes Bill Boisture, the former chief executive officer of Hawker Beechcraft Co.
“We believe that it’s going to be a strong, healthy, vibrant market,” Vick said in a telephone interview. The fund’s sponsors “came to this conclusion at the same time and we were able to structure the partnership and go to market.”
Even regional banks that lost money in the last recession are hiring aircraft specialists to restart plane financing, PNC’s Starling said. Down payments required on a jet loan are dropping toward 10 percent from 20 percent just a few years ago, he said.
Private-aircraft demand evaporated after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 and the worst U.S. economic slump since the Great Depression. Business-jet deliveries tumbled by almost half and only began to rise in 2013, the first year-on-year increase since 2008.
First-half shipments rose 12 percent to 318, according to the General Aviation Manufacturers Association.
New Models
Recently introduced models such as Dassault Aviation SA (AM)’s 5X help perk up interest as owners look to replace older planes, said Ford von Weise, global head of aircraft finance at New York-based Citigroup.
“New aircraft have greater utility and capability,” Von Weise said in a telephone interview. “The avionics up front are a lot more sophisticated and do provide a high level of safety.”
The newer models also are getting a boost because fewer old aircraft are being put up for sale. Those planes accounted for 10 percent of the global fleet, down from a 2009 high of 16 percent, according to Morris Township, New Jersey-based Honeywell, which surveyed 1,500 business-jet operators.
Global Jet Capital is offering five-year leases and 12-year loans for new and used jets no more than 10 years old, according to Vick, with an emphasis on the large aircraft that are leading the industry’s rebound.
Big Cabins
“We believe that more and more people will be transitioning into the super mid-sized and large-cabin airplanes in the global economy,” Vick said. “They need to get to distant places in order to conduct business.”
This category includes models such as Bombardier Inc. (BBD/B)’s Global 6000. Deliveries in that niche rose 22 percent last year while mid-size and light jets, including Embraer SA (ERJ)’s Phenom 100 and Textron Inc. (TXT)’s Cessna Citation Mustang, fell 8.3 percent.
Gulfstream’s G650 boasts a range of 7,000 nautical miles (13,000 kilometers), luring customers as high profile as Exxon Mobil Corp. and Wal-Mart Stores Inc. It sells for $62 million, according to the AircraftCompare.com website. Gulfstream, a unit of Falls Church, Virginia-based General Dynamics Corp. (GD), introduced two new planes last week, including the G600 with range of 6,200 nautical miles.
Citigroup sees the rebound in the jet market starting to reach smaller planes as well, as companies gain more confidence in the U.S. economy.
“We’re finally beginning to see an uptick in inquiries from our clients for financing of light and mid-sized business jets,” Von Weise said. “Really for the past four to five years we have seen very little activity in that segment.”
More “fence sitters” will be convinced that it’s time to buy if the economy continues to show stable growth, Von Weise said, and that will attract more jet-financing competitors.
“A lot of people jump into a rising tide because it’s a heck of a lot easier to swim,” he said.
-By Thomas Black
http://www.bloomberg.com/news/2014-10-19/blackstone-adds-luxury-jet-finance-in-280-billion-market.html