Index ranks best performing cities in China

Index ranks best performing cities in China

A new index ranking the best performing cities in China puts Chengdu, the capital of Sichuan province in Western China, at the top. Shenzhen and Shanghai are ranked fourth and sixth respectively.

“The Best Performing Cities China Index provides new evidence of the economic dynamism and strong performance of Chinese cities,” explains Perry Wong, managing director of research at the Milken Institute and co-author of the report. “The Belt and Road initiative, together with the creation of regional economic clusters, demonstrate the central government’s determination to improve the growth prospects of Chinese inland cities as well as enhance the performance of the country’s large east coast urban areas.”

Background: new goals and strategies for doubling GDP by 2020

Since 2007, China’s gross domestic product (GDP) growth has been decelerating. In 2015, it was 6.9 percent, falling below 7 percent for the first time since 1991. The rate dipped further, to 6.7 percent, in 2016. Recognizing its economic slowdown and the challenges it brings, China’s government launched the “New Normal” concept marked by low-to-moderate economic growth. To cope with these challenges, China has set new goals in its 13th Five-Year Plan (FYP), notably that of doubling its 2010 GDP and per-capita income by 2020.

Several key strategies were also proposed in the plan. First, China wants to transform its economy from being the “world factory” to an “entrepreneurial and innovation base,” where more high value-added industries will be the driving force of growth.

Second, China has been accelerating urbanization, promoting more balanced regional development, and spawning and strengthening regional clusters where domestic consumption will be critical in driving economic growth. Third, China is developing more eco-friendly cities and industries.

In addition to the 13th FYP, the government has also launched the “One Belt, One Road (OBOR)” initiative to strengthen trade and reignite economic growth in various regions inside China and across Asia. Unlike previous strategies to attract foreign investment, the government in the last few years has encouraged China Inc. to make investments and to sell its products in international markets. Under the central plan, OBOR not only envisages more investment in foreign countries through infrastructure projects, but also encourages linkage of domestic infrastructure with the “Silk Road Economic Belt” and “Maritime Silk Road.” This initiative can also help reduce overcapacity in certain sectors, including steel production and construction.

The long-term effects of these programs on China’s overall economic growth remain to be seen. Nonetheless, quantitative and qualitative changes in the urban and regional economic landscape are already underway.

In addition to the well-known Yangtze River Economic Belt and the Pearl River Delta Economic Zone, more regional clusters such as the Jing-Jin-Ji Metropolis Region (BeiJING, TianJIN and JI, an initial for Hebei Province) and the Diamond Economic Zone (linking Chengdu, Chongqing, Xi’an and Kunming) are emerging or expanding.

Increasing numbers of cities are now improving their infrastructure and becoming more integrated into regional clusters. Guiyang (ranked third among first- and second-tier cities) and some cities like Zunyi (ranked 5th among the third tier cities) in Guizhou Province are examples. Guizhou used to be one of the least accessible and poorest areas in China. However, this area has been booming in recent years. From 2011 through 2016, its rate of economic growth has been among the top three in China. The recent rise of Guizhou can be attributed to improvement in its transportation networks and industrial development strategies. Guiyang now has a high-speed rail connection to Beijing, Shanghai, and Guangzhou. It has also been cultivating the big data sector as a core industry. Guiyang and Guizhou as a whole have assumed greater role in the Pan-Pearl River Delta (Pan-PRD) collaboration.

Highlights from the index – a tool for policymakers and investors

The main purpose of the index is to offer a tool to policymakers to monitor and evaluate the economic dynamics of cities in China and improve their performance. In addition, it provides businesses with insight into economic trends to explore potential investment opportunities in China.

Chengdu rose from fifth place in 2016 to number one among ‘first- and second-tier cities’ with its outstanding performance in the growth of jobs, wages, gross regional product (GRP), and foreign direct investment (FDI), mainly driven by government support, particularly related to with its One Belt, One Road (OBOR) initiative and an intensified effort to fill development gaps among East – West regions.

In the large city group, Chengdu was followed by Chongqing. Both cities have diverse and high value-added industries, a high-quality talent pool, and lower business costs compared with other metropolitan areas such as Beijing, Shanghai and Shenzhen. In addition, these two cities are the twin anchors for China’s “Great Western Development” strategy, launched in the early 2000s.

“Our data-driven analysis reveals that the top ranked cities are responding robustly to the central government’s directives, which has led to overall economic improvement and development in China,” says Mr. Wong. “With some of the economic challenges currently faced by China as well as other countries around the region, this analysis of the drivers of growth becomes all the more important.”

The Best-Performing Cities China Index offers a comparative snapshot of the economic performance of 260 Chinese cities in two categories. The largest-cities group includes 34 ‘first- and second-tier cities;’ the small and medium-sized group includes 226 ‘third-tier cities.’

To provide insights into urban economic and development trends in China, the index takes nine factors into account: one-year (2014-2015) and five-year (2010-2015) job growth, one- and five-year wage growth, one- and five-year gross regional product (GRP) per capita growth, three-year (2012-2015) foreign FDI growth, share of FDI and GRP (2015), and the location quotient (LQ) for high value-added industry (2015).

Two other cities – Kunming and Xi’an – in the Diamond Economic Zone, are ranked No. 8 and No. 11, respectively. This signals the growing economic power of this regional cluster, according to the data. Shenzhen remains in fourth place for the second year in a row, followed by Nanjing, Shanghai, Zhengzhou, Kunming, Nanchang and Qingdao.

In the category of ‘third-tier cities,’ Nantong vaults from No. 9 to No.1, thanks to the fastest five-year job and wage growth in its category. Bengbu, in Anhui province, earned second place on the strength of one-year wage growth, five-year GRP per capital growth, and its FDI/GRP ratio. Foshan, an important manufacturing hub in Guangdong, claimed the third place, followed by Ji’an, Zunyi, Taizhou, Luche, Yangzhou, Yichang on the Yangtze River, and Suzhou in the top-10.

This year’s index reflects the impact of China’s creation of regional economic clusters. For example, Chengdu, Chongqing and Guiyang are on China’s Belt and Road pathway. Foshan is part of the Pearl River Delta Economic Zone, also known as the “Bay Area,” as well as part of the Yue-Gui-Qian High Speed Rail Economic Belt. This regional cluster consists of three provinces – Guangdong (Yue), Guangxi (Gui) and Guizhou (Qian).

Cities from China’s Northeast, except Dalian, continue to display lackluster representation in the ranking, which shows China’s difficulty in restructuring an older industrial base that relies on energy, steel production and less diversified heavy industries, according to the authors.

To view an interactive map of the cities and their rankings, click here.

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