How to build a world-class megacity
Yvonne Zhou, Partner and Managing Director, Boston Consulting Group
China’s rapid urbanisation has been a wonder of the world. But with that impressive growth have come challenges — including a lack of coordination between nearby cities. As development experts increasingly recognise, economies are more effective when cities form clusters to coordinate their use of resources and share their risks.
This is particularly true of the region around Beijing, including the city of Tianjin and the province of Hebei (also called Ji). This ‘Jing-Jin-Ji’ area accounts for 8% of the country’s population and 10% of its economy, and it has great potential to become a world-class urban cluster. But urban sprawl and excessive dependence on the Beijing core have left the region with a mismatch in capabilities that will stunt its future growth. A breakthrough in synergistic development here would invigorate the economy of China’s capital and inspire metropolitan areas throughout the rest of the country.
The making of a city cluster
A world-class city cluster is not just a large metropolitan region. Its component cities and provinces each have differentiated roles in promoting the main industries within the cluster. Each nurtures its own specialty sub-industries as part of a polycentric system fostering individual and collective competitiveness. Dense transportation networks reduce travel time to under four hours, enabling talent, capital and other factors of production to flow freely.
Each cluster typically has one or two core cities of more than five million people, which focus on high-end services. Three to five secondary cities of between 500,000 and five million people take on the higher-end manufacturing, logistics, and technological development that gradually move out of the core.
Finally, 10 to 30 smaller cities of under 500,000 people supply key production components such as parts and machine tools. This differentiation helps prevent ‘big-city disease’, where the core takes on so many responsibilities that communication and coordination break down.
Beijing has 19 million people, while Tianjin has 13 million. Hebei province, which surrounds those core cities, has 73 million. This high density gives the area enormous potential for clustered growth.
Moving Jing-Jin-Ji forward
Up to now, the Beijing area has grown more as a result of government pressures to meet general economic targets rather than from responding to market signals. Each local government body has promoted GDP growth rather than specialised development. And key public resources, such as education and healthcare, are still unduly concentrated in the capital, hampering development in the rest of the region.
Recognising these imbalances, the national government has recently broadened its targets to include environmental and social concerns. While it has achieved some synergistic development, much more needs to be done to spread key resources around the region.
Better coordination and integration start with physical mobility. The region is catching up with developed city clusters in its highway and rail connections, but it will need better governance in order to ensure that the secondary and smaller cities have a strong voice in determining priorities. Polycentric ring roads, for example, are a common feature in clusters but remain underdeveloped in Jing-Jin-Ji where the focus has been on serving the core.
From there, the region can move toward industrial differentiation. While Tianjin has made good steps toward specialisation in advanced manufacturing, Hebei has lacked the resources to compete because it relies mainly on low-value production. As a result, for example, automobile manufacturers in Beijing prefer to import parts from the Yangtze Delta cluster in the south. Until Hebei has the resources to invest in infrastructure, education and public services to support industrial development, it will struggle to properly integrate with and complement the core.
Here as well, the government has encouraged many Beijing manufacturers to move to Hebei. But the province cannot simply wait on Beijing’s support. It must actively upgrade its own offerings in order to make itself more attractive to prospective companies.
Letting the market play out
Governmental bodies have been key players in driving Chinese urbanisation and economic growth. But to promote effective clusters, they will need to step back a bit and allow markets to play a greater role.
Generally, government intervention for clusters is best understood in terms of a pyramid. On the bottom layer are broad policies that remove barriers to the flow of productive factors. On the next level up are auxiliary and supportive policies to build infrastructure and lower operating costs. At the top of the pyramid — the narrowest layers — are subsidies and other incentives, such as loan guarantees, tax waivers, and outright cash. These should be used sparingly for specific needs.
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Accordingly, the government should focus its efforts on removing barriers, while only rarely helping specific industries or companies. As fully developed countries — and the Yangtze Delta cluster — have shown, spontaneous market behaviour will usually differentiate roles in a cluster better than government officials can.
Jing-Jin-Ji has the potential to become one of the great city clusters of the world, powering China’s economic development as it moves from commodity to advanced manufacturing. But to get there, the government will need to further adapt the policies that have built the cluster up until now.
Originally published at www.weforum.org.