Urban populations are growing in Asia and may hold the key to the region’s future economic growth. The global urban population is expected to grow by 1.6 billion people by 2025, 40 percent of that coming from China and India alone.
By 2025, China’s urban population is expected to be three times that of the U.S. and India’s is expected to be double.
This urban growth is important because it will be the region’s catalyst for economic growth. This chart from the McKinsey Global Institute (NYSE:MGI) shows that GDP per capita growth in urban areas is expected to outpace that of rural areas over the next 15 years.
One reason for this is that urban jobs tend to pay more. In 2008, the average per capita income in China was 254 percent higher if you lived in an urban area versus a rural one, according to Morgan Stanley.
More pay leads to more discretionary spending. MGI estimates that the number of Indian households with discretionary spending could jump from just 13 million in 2005 to 89 million households by 2025. MGI says discretionary spending will account for 70 of consumption growth.
We’ve already seen how the urban migration affects China's overall consumption, which in urbanized eastern provinces is roughly 33 percent higher than in rural western provinces. As urban centers grow in western China, consumption levels for materials, goods and services should rise.
Disclosure: Long positions in Asia