The “Best Performing Cities China Index 2021” from the Milken Institute, now in its seventh edition, highlights the urban centres that saw the most rapid economic development over the year. Perry Wong, the Milken Institute’s Managing Director for China and author of the report, shared the key findings at a seminar on 26 July and discussed the country’s regional development strategy. 

Wong said he prefers not to use the word “model,” when referring to China’s development, which implies a static plan.  

“I would rather call the last 35 years a non-stop continuous evolution of adapting to each stage of development,” he said.

China’s reform and opening-up policies have not followed a steady path, and there has been a lot of back-and-forth, with liberalization sometimes followed by restrictions. But the broader direction has remained the same, Wong said, aiming to build a better society, stronger economy, and lift citizens out of poverty through three key strategies: urbanization, industrialization and industry clusters.

These industry clusters play an important role in the country’s regional development. Wong noted that they are not unique to China, and have also shaped the economic growth of Taiwan and South Korea. But outside China, industry clusters have tended to evolve over a longer time period as connections develop among related sectors.  

In the United States, for example, a biochemical and pharmaceutical cluster stretches from Boston to Washington DC, connecting players including hospitals and universities in New England, pharmaceutical firms in New Jersey and Delaware, and policy experts in the capital.

In China, however, the Central Government has actively promoted industry clusters, which greatly shortens the time span for their development. 

Wong explained that the index uses a wide range of available economic information including employment, FDI, output, and the percentage of the economy that is high-value sectors. 

“This year’s ranking is one of the most pronounced in terms of demonstrating how policy helps drive the growth rate in certain regions,” he said.

This year, Haikou in Hainan Province is ranked number one among first- and second-tier cities, demonstrating the impact of a range of measures.

“Around five or six years ago, the Central Government started to introduce polices to make Hainan a more attractive destination for investment,” Wong explained. “They identified several areas including health, finance and retail – in addition to its established tourism industry.”

Then, in 2018, the Central Government made Hainan Province a free trade zone, which further facilitated Haikou’s economic growth.

Ranked second is Guangzhou. Wong noted that large, diverse and stable cities like Guangzhou do not usually feature so highly, as their growth is likely to be more moderate. But again, policy initiatives are driving the growth. 

“Guangzhou’s ranking says a lot about the momentum of the Greater Bay Area,” Wong explained. “The impact of the policies and investment is now showing up in the growth for the city.”

Two other top-ten cities Wong said are worth paying attention to are Wuhan and Changsha.

“The Chinese government wants to grow the big cities in the central region, like in the landlocked provinces of Anhui, Hubei and Hunan. These were kind of forgotten during the first 20 years of China’s opening,” he said.

Now, the focus has shifted as the Government aims to share the country’s equity more evenly among all its citizens. “If we want to achieve a stable consumer-based economy in China, we need everyone to shine.” 

To encourage growth in these central cities, the Government has allocated preferential treatment – not necessarily capital. There are also policies to link production facilities with local research and development, and to connect them with more advanced cities. 

The Index has a separate ranking for third-tier cities. An interesting development in this year’s list is that five of the cities in the top ten are in Anhui Province. Various reasons have spurred Anhui’s recent growth, including the development of high-speed rail lines. The growth in these cities also demonstrates the success of the Government’s poverty elimination efforts in the past six or seven years.

“If you go into the fringe areas of third tier cities, they tend to be very poor and drag down the city,” Wong explained. “The Government has tried to reverse that by investing in a number of areas. Firstly, by building roads to connect the outer fringe with highways and high-speed rail, which improves mobility and people’s access to goods.” 

It has also encouraged production plants that use low-skilled labour to relocate to these areas, to provide more employment for local people so they don’t need to migrate. 

Another factor is that Anhui is adjacent to Hunan Province, and together they make up  an agricultural region that benefits from very fertile land, a large population base as well as the recent transportation upgrades. If the technology sector in the region cooperates with the agricultural sector to improve efficiency, the future prospects are promising. 

Wong also noted that cities can change course, using the example of Dongguan. After years of being a hub for low-end manufacturing, the city became a pilot for reindustrialization and largely got rid of these high-polluting industries.

“The companies coming in now have been technology businesses, which shows how policy can work in that particular scenario,” he said.  

This also shows how development models and industry clusters are not set in stone, and can change quite rapidly given policy support. At the same time, if new measures are deemed to be too drastic, they can be rolled back.

“The Chinese planners and leadership are still finding the best way, and fine-tuning their policies over time,” Wong said.