Multi-asset                                                                                    China Research             ...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine    China Research                                                                                ...
Inside the growth engine  China Research                                                                                  ...
Inside the growth engine    China Research                                                      abc    December 2010Conten...
Inside the growth engine  China Research                                                            abc  December 2010Prov...
Inside the growth engine    China Research                                                            abc    December 2010...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine    China Research                                                                                ...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine     China Research                                                                               ...
Inside the growth engine  China Research                                                                                  ...
Inside the growth engine     China Research                                                                               ...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine     China Research                                                                               ...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine     China Research                                                                               ...
Inside the growth engine    China Research                                                                                ...
Inside the growth engine     China Research                                                                               ...
Inside the growth engine   China Research                                                                                 ...
Inside the growth engine      China Research                                                                              ...
Inside the growth engine   China Research                                                                                 ...
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
A guide to china's regions, provinces and cities
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  1. 1. Multi-asset China Research December 2010 Inside the growth engine A guide to China’s regions, provinces and cities This guide shows how local autonomy and inter-regional competition are helping to transform China’s economy. It gives comprehensive economic, financial and corporate data for 31 regions, provinces and municipalities and 21 big cities. We forecast that six Chinese provinces will be as big as Russia, Spain or Canada by 2020. By Zhang ZhimingDisclosures and Disclaimer This report must be read with the disclosures and analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
  2. 2. Inside the growth engine China Research abc December 2010The emperor is far away“The sky is high and the emperor is far away” is an old Chinese saying that refers to how much localofficials can achieve themselves with little supervision from above. It is an adage that is very relevant toChina’s dynamic expansion today as much of the country’s growth is being driven by local initiatives anddevelopments, rather than by Beijing.Chinese reforms have empowered local governments with unprecedented economic authority following aprocess of economic decentralisation that began in 1979. Indeed local officials in China’s provinces andcities have occasionally reduced the effectiveness of Beijing’s policies, as shown by the capital’s recentdifficulties in cracking down on property speculation. This brings to mind a modern rendering of the oldsaying, namely that “there are policies above and counter-measures below.”To try and capture the scale of this local dynamism, we have put together a 244 page guide, covering 31provinces, municipalities and autonomous regions and 21 major cities. For each, we give key economic,financial and demographic data, list their strengths and challenges, and provide a five-year outlook.This “bottom up” perspective on China, rather than the usual “top down” one, has thrown up someextraordinary statistics. By 2020, China will have six provinces with an annual GDP of more than USD1 trillion, equal to six countries the size of Russia (or Spain or Canada). With 47% of the population now living in cities, eight Chinese cities have a population of more than 10m, and 93 have more than 5m. By comparison, in the US only New York City has a population of more than 5m. Beijing, China’s Washington DC, is also China’s Silicon Valley. Its Zhongguancun area saw 23 high- tech IPOs in 2009, against just one for Silicon Valley. There have been another 35 IPOs so far in 2010. Kunshan, one of 2,000 county-level cities, produces more than half of the world’s notebook PCs, or 85m units – and yet IT manufacturing is not even its top-ranked industry. Suzhou, one of 280 prefecture-level cities, has a per capita GDP which is 70% and 46% higher than Beijing and Shanghai, respectively. Jiangsu, a province little known to outsiders, is poised to overtake the much better-known southern province of Guangdong to become China’s largest provincial economy as early as 2012. The 1.5m inhabitants of Erdos, a city rich in natural resources in the otherwise poor western part of the country, will have a higher GDP per capita than Hong Kong in three years time. 1
  3. 3. Inside the growth engine China Research abc December 2010 Among the 1m villages – the lowest unit in the administrative chain – there are some extraordinary contrasts, for example, between the fiercely-capitalist Huaxi, where every ex-farmer is a millionaire, and the communist Nanjie, where collective interests still prevail over those of individuals.What does it mean for China’s future when local officials have widespread powers over land sales,infrastructure, commercial and residential property construction, natural resource exploration and foreigndirect investment?First, sizzling growth should continue for at least another five years. Local governments have managed tobeat Beijing’s growth targets by a few percentage points every year since 1980. Published data for thecoming 12th Five-Year Plan from 2011 to 2015 show most provinces remain ambitious in their targets.Second, these growth ambitions have increased inter-regional competition. Provinces have far moreambitious plans for the expansion of their rail networks and clean energy activities than those stipulatedby national targets. In some cases, the local target is double the national one. One reason for this is that toget promoted in China, you have to outperform your peers.The danger, however, is that over-investment leads to overcapacity. For example, Kunshan’s strongposition in IT is being challenged by the municipality of Chongqing. Together they could soon supply 80per cent of the world’s notebook PCs – raising concentration risks as well as oversupply concerns.Third, overcapacity may lead to bad credits. For example, a recent report submitted by the ChinaAcademy of Science to the State Council raised concerns about unsustainable debt levels and the risk ofloss-making activities. It noted that the 1,000km Wuhan to Guangzhou bullet train, which startedoperating earlier this year, was running at less than half its capacity and would never make enough moneyto pay off the loans used to finance it.Fourth, policies at the centre risk being less effective if they are quietly resisted by local authorities.Beijing launched its fierce crackdown on property speculation in April – and yet eight months on, notonly have prices barely moved downwards, volumes actually rose again in September and October. Not asingle city has rolled out the much expected property tax. Vested interests have also blunted Beijing’srepeated calls for consolidation in the country’s iron and steel industry.Fortunately, Beijing is increasingly aware of this challenge to its policy effectiveness. It consistentlyrequires Beijing officials to gain in-depth local experience and promotes prominent local officials tonational level. A large-scale campaign is underway, making local postings for promising new leadersmandatory.Starting from the top, eight out of nine of the Politburo’s Standing Committee (China’s highest decision-making body) were Party secretaries for at least one province or municipality. Xi Jinping, the man widelyseen as China’s leader-in-waiting, is a good example. He has spent 31 years away from Beijing in variouspositions, which includes being Party secretary for two provinces and for one municipality.What emerges from this guide is a more complex picture of China than even many experts have assumed.For anyone hoping to conclude a business deal in China it offers this message: don’t assume you onlyhave to deal with decision-makers in Beijing. You must also make sure local officials are on your side.Whether you are a China expert or a mere beginner, we hope you enjoy what follows.2
  4. 4. Inside the growth engine China Research abc December 2010China’s regions and provinces Heilongjiang Jilin Liaoning Xinjiang Inner Mongolia Beijing Tianjin Hebei ia Shanxi gx Shandong Nin Qinghai Gansu Henan Jiangsu Shaanxi Tibet Anhui Shanghai Hubei Sichuan ing gq on Zhejiang Ch Hunan Jiangxi Guizhou Fujian Eastern Region Western Region Yunnan Guangxi Guangdong Central Region Northeast Region HainanSource: HSBCMajor Chinese cities and other locations mentioned in this report Harbin Changchun Urumqi Shenyang Beijing Erdos Dalian Tianjin Xining Qingdao Jinan Lanzhou Nanjie village Wuxi / Jiangyin / Huaxi village Xi’an Suzhou / Kunshan Nanjing Shanghai Chengdu Wuhan Hangzhou Ningbo Lhasa Chongqing Nanchang Changsha Xiamen Guiyang Kunming Nanning Shenzhen GuangzhouSource: HSBC 3
  5. 5. Inside the growth engine China Research abc December 2010ContentsPowered from below 7 Western Region 75Reform empowers locals 8 Chongqing (重庆) 78Following the Party (跟党走) 8 Gansu (甘肃) 83Pictures worth a thousand words 9 Guangxi Zhuang Autonomous Region (广西) 87Facts you may not know 10 Guizhou (贵州) 91 Inner Mongolia Autonomous Region (内蒙古) 95How the system works 16 Ningxia Hui Autonomous Region (宁夏) 99Local government hierarchy 16 Qinghai (青海) 103 Shaanxi (陕西) 107Urbanisation and consumption 19The four Deltas 20 Sichuan (四川) 111Cities and consumption 21 Tibet Autonomous Region (西藏) 115 Xinjiang Uygur Autonomous Region (新疆) 119The next five years 25 Yunnan (云南) 123Sizzling growth to continue 25 Central Region 127Provinces 29 Anhui (安徽) 129 Henan (河南) 133Eastern Region 30Beijing (北京) 32 Hubei (湖北) 137Fujian (福建) 36 Hunan (湖南) 141Guangdong (广东) 40 Jiangxi (江西) 145Hainan (海南) 45 Shanxi (山西) 149Hebei (河北) 49Jiangsu (江苏) 53 Northeast Region 153 Heilongjiang (黑龙江) 155Shandong (山东) 58 Jilin (吉林) 159Shanghai (上海) 62 Liaoning (辽宁) 163Tianjin (天津) 67Zhejiang (浙江) 714
  6. 6. Inside the growth engine China Research abc December 2010Province Comparison 167 Major Cities Comparison 225Major Cities 177 Appendix 230 A: China maps 230Summary 178 B: Monthly minimum wage level by province 236Beijing (北京) 179 C: List of government-guided venture capital funds 236Changchun (长春) 184 D: Seismic shifts in China’s local IPO markets 237Chengdu (成都) 186Chongqing (重庆) 188 Glossary 240Dalian (大连) 190Guangzhou (广州) 192 Disclosure appendix 243Hangzhou (杭州) 194 Disclaimer 244Harbin (哈尔滨) 196Jinan (济南) 198Nanjing (南京) 200Ningbo (宁波) 202Qingdao (青岛) 204Shanghai (上海) 206Shenyang (沈阳) 208Shenzhen (深圳) 210Suzhou (苏州) 212Tianjin (天津) 214Wuhan (武汉) 216Wuxi (无锡) 218Xiamen (厦门) 220Xi’an (西安) 222 5
  7. 7. Inside the growth engine China Research abc December 2010 This page has been left blank intentionally.6
  8. 8. Inside the growth engine China Research abc December 2010Powered from belowEven though China has opened up extensively to What is undeniable is that China, with athe outside world in the last 30 years, for many population of 1.3bn people, is big. As a result,observers it is as complex and intriguing as ever. most analysts, investors and business leaders stillBy the same token, views on China’s future, even take a big picture view of the Middle Kingdom.among leading China experts, have become more They fail to dig down to China’s economicdiverse. realities at province, municipality and city level – yet this is where the real action is.Some are awed by the startling way in which thecountry shrugged off the impact of the global Our guide offers a “bottom up” perspective offinancial crisis. Others question the sustainability of China’s growth engine. The focus is on China’sthe growth-at-all-costs model and fear the provinces and cities, and the administrativeexperiment could end badly. Some applaud China’s hierarchy. Within a complex structure, officials atstate-run capitalist model as a competitive or better various local levels are vying with each other toalternative to laissez-faire capitalism. Others produce the most stunning rates of economiccontend that what China has done is not much more development.than “the Japanese model on steroids”. The We highlight the strengths, challenges and theoptimistic predict that China is destined to replace upcoming five-year plans of the 31 provinces, asthe US by 2025 or earlier as the world’s largest well as details of economic activities, statisticseconomy. Others argue that it’s “on a treadmill to and strategic plans down to the level of 21 majorhell”. The battle of words is on and it’s loud. cities.Even David Pilling, the veteran Asia editor of the We also provide a glimpse of the economicFinancial Times, confesses to being baffled. In an dynamism of county-level cities (of which thereOctober 2010 column, he wrote, “After a great are more than 2,000) and of China’s top-rankeddeal of time spent travelling in China, reading villages. These are the lowest level of localabout China and thinking deep thoughts about administrative unit, yet their ambitions andChina, I have come to the conclusion that the most achievements may surprise all China watchers.profound thing one can say about it is this: Chinais exceedingly big.” After apologising for this“awfully trite observation” he went on to explain,“China’s sheer size helps to explain much aboutthe country, from its impact on global commoditymarkets to the fact that one of the world’s poorestcountries is now routinely mentioned in the samebreath as the (still) mighty US.” 7
  9. 9. Inside the growth engine China Research abc December 2010Reform empowers locals government incentives and vested interests have so far been deaf to the “emperor’s” call.A major theme of our report is that it is far toosimplistic to see China as a centrally-planned Another example is the iron and steel industry. Iteconomy, where local officials merely carry out is a pillar industry for many provinces andorders from their bosses in Beijing. That is China’s total output exceeds that of the next 10because Chinese reforms have empowered local largest foreign countries combined. However, thegovernments with unprecedented economic average sales price for iron and steel is about aauthority over the last 30 years. third to half of China’s comparable import price. That suggests that China’s 2,000-plus iron andIt all began in 1979. Before then, the central steel companies are focusing on low-endgovernment essentially controlled local economic manufacturing and that competition isdecision-making via a vast network of ministries, fragmented, despite Beijing’s calls for industrybureaux and committees. consolidation.But then came a massive programme of economic China’s rare earth sector shares exactly the samedecentralisation and privatisation and everything problem. As the world’s largest and dominantchanged. These days, local officials have exporter of rare earths, China should wieldwidespread powers over land sales, infrastructure, considerable pricing power. In reality, it has littlecommercial and residential property construction, authority over pricing (unlike Western peers in thespecial economic zones, natural resource iron ore industry) because smaller exportersexploration and foreign direct investment. across the country are under-cutting each other.They are also involved in investments via local But local governments do not always resist callsgovernment-owned or sponsored investment from the centre. When the aims and incentives ofvehicles that include a growing number of local the centre and the levels below are aligned, thegovernment-owned venture capital funds (see “emperor’s” mission can be accomplished withexamples in Appendix B), initial public offerings superb efficiency and speed. China’s strong, V-and mergers and acquisitions involving local shaped recovery after its RMB4.2trn stimulusstate-owned enterprises or small and medium- programme and the RMB9.6trn in bank loanssized enterprises. issued in 2009 (nearly a third of its GDP at thatIn such a world it is not surprising that the old adage time) have been jointly propelled by Beijing and“the emperor is far away” springs to mind. The local governments at all levels.authority of the centre appears increasingly distantas the local authorities become more empowered by Following the Party (跟党走)the country’s economic reform process. Beijing has taken a keen interest in these developments.Take Beijing’s latest property market crackdown,for example. Eight months after the capital Indeed, over the years, China’s top Party leadersannounced a series of harsh measures to cool have acted to ensure future leaders have a firmproperty speculation, prices in large cities have grip on developments at ground level.hardly budged and volumes surged again in Eight out of the nine current Politburo StandingSeptember and October. To date, not one city has Committee members (the country’s highestrolled out the property tax. It appears that local decision-making body) have in the past been Party8
  10. 10. Inside the growth engine China Research abc December 2010secretaries, the highest ranking local authority Meanwhile, in July 2010, the Party’s Centralposition, for at least one province or municipality. Organisation Department in Beijing sentOf the 25 current Politburo members, 18 (or 72%) instructions for 60 Director-General level officialshave been (or still are) Party secretary for at least (excluding their deputies), one notch belowone province or municipality. Deputy-Minister level, to be appointed as the deputy heads of cities in the country’s provinces.Deep-rooted local experience, which usually This is an experience now deemed necessary formeans decade-long assignments across many further promotion. It sends a very clear signal thatprovinces, has become a prerequisite for joining the top Party leadership cares deeply about localthe top Party and State leadership. experience and knowledge.Take the example of the top leaders for the Pictures worth a thousandcoming 5th generation – XI Jinping (习近平) andLI Keqiang (李克強). Mr. Xi worked 31 years wordsaway from Beijing, holding Party secretary How are the changes playing out in economicpositions at various county and city levels. He was terms at province and municipality level?also the Party secretary for two provinces and one We start by comparing the GDP of the provincesmunicipality. Mr. Li had 10 years experience as a as it was 10 years ago with how it was in 2009Party secretary for two provinces. Both have since and we forecast how it might look in 10 yearsjoined the highest decision-making body, the time.Politburo Standing Committee, in Beijing. Figure 1: China GDP in 2000 by provinces: a union of poor, mainly Third World countries Romania Ur uguay Albania Algeria Lebanon Bulgar ia Kazakhstan Kuwait UAE Luxem bou rg Croati a Egypt Zam bia Slovak Czech Portugal Albania Czech L ib ya Moro cco N ew Zealand Oman Pakistan Dominican Nigeria Republic Sudan Hungary Above $1,000bn Between $500bn – $1,000bn Vietnam Ukraine Greece Between $100bn – $500 bn Below $1 00bn Uganda Source: HSBC, CEIC, IMF, CIA 9
  11. 11. Inside the growth engine China Research abc December 2010Figs. 1 to 3 show maps of China’s provinces and Facts you may not knowmunicipalities in 2000, 2009 and 2020 (projected) Sifting through the data, one constantlycompared to countries with similar GDP in the encounters surprising and intriguing facts, and werespective years. The 2020 comparison is based highlight some of the more startling facts below.on assumptions of 1) a 7% and 4% differential innominal GDP growth rates between Mainland Beijing is China’s Silicon ValleyChina and the developed world and developing Beijing is considered China’s Washington D.C.,countries, respectively, and 2) a 3% annual but few realise that it is also home to China’sappreciation of the RMB against the USD over Silicon Valley. Its Zhongguancun (中关村) areathe coming decade. Both assumptions are quite has a heavy concentration of high-tech enterprisesconservative relative to current market forecasts and entrepreneurs and is also the most popularand the trend over the last decade. spot for venture capital funds.Six USD1trn provinces by 2020 In many ways, it has already become Silicon Ten years ago, after two decades of economic Valley “squared”. For example, in 2009, reform, China still largely resembled a union Zhongguancun had 23 high-tech IPOs whereas of African countries, or a collection of sub- Silicon Valley had only one. So far this year, developing nations, with only three provinces Zhongguancun has had another 35 IPOs. having an annual GDP above USD100bn. See Zhongguancun is home to some of China’s top IT Fig. 1. companies, such as Legend Holdings, Founder By 2009, GDP in the vast majority of Group and Tsinghua Holdings with the latter two provincial economies had risen to more than founded in and named after Beijing University USD100bn. At this point, China looked more and Tsinghua University (China’s leading like a collection of diverse developing world universities), respectively. It is one of five or six countries, such as ASEAN countries, Turkey, national level high-tech zones, but there are Czech Republic, South Africa, and Egypt. See hundreds of similar high tech zones at provincial Fig. 2. and city level. By 2020, China will have six USD1 trillion The richest city is in the poor northwest economies, under our conservative China is well known for its rich coastal cities in assumptions. At this point, the country will the east and poor provinces in the west. look more like a collection of second-tier Surprisingly, the city with the highest per capita developed world and leading developing GDP – set to surpass Hong Kong’s on a per capita countries. See Fig. 3. basis in about three years’ time – is the city of Erdos (鄂尔多斯) in Inner Mongolia, theThat’s just a quick snapshot of GDP. More traditionally poor north-west. Its per capita GDPstatistics that include fixed asset investment in 2009 had already reached RMB134,361 or(FAI), income, consumption, property sales and more than USD20,000.prices, auto sales vs. expressway growth, industryproduction and electricity usage, foreign trade and Erdos, with a population of 1.5m, has also becomeforeign direct investment (FDI), energy efficiency China’s luxury car capital with more Rolls-Royce,etc. down to major city level are provided in later Ferrari, Jaguar and Mercedes-Benz cars per capitachapters. than any other city in China.10
  12. 12. Inside the growth engine China Research abc December 2010Figure 2: China GDP in 2009 by provinces: a union of leading developing countries Peru Vietnam Estonia Portugal Croatia Thailand Algeria Slovenia Singapore es h Kazakhstan glad Switzerland Uganda B an New South Indonesia Africa P Ph Zealand ilip Haiti Ireland p in Egypt n es s Czech Morocco Venezuela Malaysia Kuwait Above $1,000bn Ecuador Nigeria Between $500bn – $1,000bn Slovak Turkey Ukraine Between $100bn – $500bn Below $100bn PanamaSource: HSBC, CEIC, IMF, CIAFigure 3: China GDP in 2020 by provinces (projected): a union of second-tier developed and top-tier developing countries Thailand Malaysia Sri Lanka Netherlands Israel South Africa Kazakhstan Argentina Korea Colombia Denmark Canada Kenya ia r ab Russia iA Turkey ud Sa Zambia Indonesia Belgium Poland Switzerland Sweden Australia Israel Egypt Greece Iran Argentina Above $1,000bn Singapore Between $500bn – $1,000bn Nigeria Venezuela Spain Between $100bn – $500bn Below $100bn SudanSource: HSBC, CEIC, IMF, CIA 11
  13. 13. Inside the growth engine China Research abc December 2010This is thanks to its rich natural resources. Some classical gardens and parks that have been dubbed80% of its 87,000 sq km of land contains coal and “heaven on earth” by locals and tourists and these50% contains natural gas reserves. This means are now UNESCO World Heritage sites.Erdos has the vast majority of Inner Mongolia’s What is less well known is that the main drivers298bn tonnes of proven coal reserves (according of this success are the highly efficient and pro-to the National Mineral Reserves Report of 2007), business county-level cities under theor about one quarter of the world’s total, administrative authority of Suzhou. All five areaccording to an estimate by the Energy ranked in the top 10 of China’s 2,000 county-levelInformation Administration. The latest local cities and four are ranked in the top five.government figure is as high as 702bn tonnes. InNovember 2009, one of China’s youngest and For example, in the first three quarters of 2010most promising political stars, HU Chunhua (胡春 alone, Suzhou’s top-ranked county-level city,华), a top candidate to lead China’s 6th- Kunshan (昆山), exported USD23.4bn worth ofgeneration leadership in 10 years’ time, was notebook computers. In fact, one in every twoappointed Inner Mongolia’s Party secretary to notebook PCs in the world is manufactured there.spearhead its local development. This can be seen This suggests Kunshan’s annual output is alreadyas a sign that the region’s economy will continue around 85m units, based on our estimate ofto develop rapidly in the years ahead. worldwide supply of 171m for 2010. Kunshan focuses on relatively high-end manufacturing,There is a place where “Heaven on unlike the better-known city of Dongguan inearth” means “Business is booming” Guangdong province where the manufacturingYou could argue that Erdos is lucky because its base produces a wide range of goods.fortune has been “endowed” rather than created.Excluding cities lucky enough to be sitting on a Note that IT product manufacturing such asrich pile of natural resources, you might think notebook PCs ranks only second in Kunshan’sShanghai, Beijing or Shenzhen had the highest per booming industry; machinery and equipment is itscapita value-added or GDP. But you would be largest sector. Kunshan shows how much awrong. That title goes to the city of Suzhou in county-level city can contribute to the economy ofShanghai’s neighbouring Jiangsu province. a prefecture-level city (in this case, Suzhou) and thereby to the country overall.Suzhou, with a population of 6.3m people, had percapita GDP of RMB106,863 in 2008 (official data Suzhou’s achievements have caught the attentionis only available to 2008), by far the highest of China’s top leaders who are keen to replicateamong China’s large cities. This is 70% and 46% its success elsewhere. Among Suzhou’s recenthigher than Beijing and Shanghai, respectively. “exports” are its top officials. For example,Suzhou has 27 listed companies, more than any of China’s current Minister of Commerce CHENChina’s other 280 prefecture-level cities Deming (陈德铭), Party Secretary of Liaoning province WANG Min (王珉) and Party SecretarySuzhou is best known to outside investors for its of Shenzhen WANG Rong (王荣) were all PartySingapore-designed Suzhou Industrial Park (苏州 Secretaries of Suzhou at some point before rising工业园区). The park, which delivered to their current posts.RMB112bn GDP in 2009 or a 15.1% y-o-yincrease despite the financial crisis, is a Less than a year after Wang Rong moved toremarkable achievement. The city also has Shenzhen, Suzhou is poised to become a larger12
  14. 14. Inside the growth engine China Research abc December 2010economy than Shenzhen for the first time. In the of Wuxi, Suzhou and Nanjing. Nearly 80% of thefirst nine months of the year, Suzhou’s GDP of largest companies in Jiangsu are privately-owned.RMB679.8bn overtook Shenzhen’s RMB672.2bn. The city of Jiangyin (江阴), a county-level citySuzhou has a more broad-based economic growth under the city of Wuxi in Jiangsu province, ismodel, while Shenzhen faces more difficult home to nine of China’s top 500 companies.restructuring due to its high cost base, from wages Jiangyin is one of China’s richest county-levelto real estate, and its dependence on exports. cities with 2009 per capita GDP of RMB142,572Rising star in the Yangtze River Delta or USD21,472.Suzhou’s parent province of Jiangsu, situated in Although its administrative ranking is rather low,the Yangtze River Delta (YRD), also deserves or 2-notches below province level, Jiangyin is notspecial mention. It is a well-balanced economy, a small town by any means. It has a population ofone of the three RMB3trn economies (Guangdong more than 1.2m (as of 2008) with a 2009 GDP ofand Shandong are the other two) in China with RMB171.3bn or USD25.8bn.large agricultural, industrial and service sectors. Itis the only one of the larger provinces that is still From Jiangsu to the countrygrowing faster than the national average rate in Former Jiangsu Party Secretary LI Yuanchao (李both real and nominal GDP terms. Jiangsu’s GDP 源潮) led Nanjing, Jiangsu’s capital, and theis set to reach RMB4trn or USD602bn in 2010, a province for seven years during its most critical17.6% growth rate in nominal terms against its period of economic growth from 2001 to 2007. He2009 GDP of RMB3.4trn. then moved to Beijing to head the Party’s Central Organization Department in 2007. Among otherIn fact, if the projected growth rate set out in China’s initiatives, Mr. Li is known for his role in China’s12th Five-Year Plan proves accurate, Jiangsu will talent drive which aims to recruit and retain 1,000overtake Guangdong to become China’s largest top professionals (千人计划) from around theprovincial economy as early as 2012. world to hold senior positions in government,Jiangsu has many of the world’s leading business, science, education and other areas. Themanufacturers and exporters of solar power “1,000 Top Talent Program” will be rolled out atequipment, chemicals, electronic equipment, national as well as local level as part of a keytextiles, materials and other machinery. No strategic plan to cement China’s long-termwonder it is China’s most popular destination for success.FDI (USD25.3bn for 2009), a title it has held for Jiangsu topped all other provinces andfour consecutive years. municipalities in total R&D spending in 2009. MrThriving private enterprise Li has also pushed for more senior centralJiangsu had 59 companies with more than government officials to take on temporary orRMB10bn revenue in 2009, second only to long-term assignments at local government level,Beijing Municipality with 98. But unlike Beijing, in order to feel the real pulse of the country’swhere the leading companies are state-owned development.monopolies in strategic industries such as bankingand energy, companies in Jiangsu are mostlyprivately-owned. They cover a wide range ofbusinesses with most headquartered in the cities 13
  15. 15. Inside the growth engine China Research abc December 2010Two villages, two systems Jiansu Huaxicun Co Ltd (ticker 000936.SZ). TheNowhere are the contradictions and complexities company runs a wide-range of businesses thatof China more apparent than at village (村) level. include polyester chip manufacturing, commercialVillages are the lowest-ranked administrative trading and electricity generation and sales.units in China, but they are much bigger entities For a place with just 30,000 inhabitants, Huaxi’sthan many Western observers might imagine. For ambitions seem extraordinary. In addition to itsexample, a typical village in the West is usually a existing 328-meter building (ranked the world’sloosely organized community of a few hundred 15th tallest in 2010, see Fig. 4), it is planning topeople, while its China counterpart is a well- build a new 128-storey, 638 meter skyscraper,defined administrative unit with a population which when completed will be the second tallestranging from a few hundred to tens of thousands. building in the world. Moreover, the village plansTake the contrast between the villages of Huaxi to have a fleet of 20 airplanes by 2015, a primeand Nanjie. example of its continued ambition.Huaxi (华西村) is China’s richest village. It is Huaxi shows the extent of the inroads thattwo notches down from the county-level city of capitalism has made in China in the last 30 years.Jiangyin in administrative ranking or four notches It is a place where “to be rich is glorious,” tobelow its parent province of Jiangsu. See Fig.5 on quote the late reformist leader, Deng Xiaoping.page 16. Western lifestyles are celebrated by ex-farmers who are proud to boast that they “breakfast at theEvery family in Huaxi has had a net worth of more Arc de Triomphe, lunch at the White House andthan RMB1m since 2005. The village enterprise is dine on lobster in Australia” – these world-famousa company listed on the Shenzhen Stock Exchange locations being the names of local restaurants!with a current market cap of more than RMB7.3bnor USD1.1bn. Many of the former village farmersare large shareholders of the village enterprise, Figure 4: Huaxi vs. Nanjie: China’s model villages embody opposing ideologies, yet both are endorsed by Beijing’s top leaders Village of Huaxi (华西村) - Model village of capitalist pursuit where ”to be rich is glorious”. Every village ex-farmer is a millionaire, thanks to its A-share listing in 1999. 200 of the richest village residents put down RMB10mn each or RMB2bn to build the 328 meter tall tower, the world’s 15th tallest and home to hundreds of families. Village of Nanjie (南街村) - Model village of communism where the village mantra says: “want to develop, study the works of Mao; want to grow, follow the Party”. Wealth sharing or preserving common interests takes precedence o ver individual pursuits. Source: HSBC, Picture source: Village websites14
  16. 16. Inside the growth engine China Research abc December 2010Capitalism vs. communism Harking back to the old days is not a cynicalAt the other end of the spectrum from Huaxi is the exercise designed to boost tourism. It is part of avillage of Nanjie (南街村) in Henan province in continued Chinese experiment to produce a morecentral China. Here communism is alive and well, harmonious society that incorporates theand the works of Chairman Mao are still revered. principles of fairness.The village and its enterprise run on a long- Fig. 4 compares Huaxi and Nanjie. Both villagesforgotten salary plus supply or need system are frequently visited and endorsed by Beijing’s(instead of a cash bonus), where basic resources top leadership1. One might see the co-existence ofsuch as food, property, schools and healthcare are the two village models as a sign of China’sfirst allocated on a needs basis. Readers contradictions. Or one might take the view thatcan learn more about Nanjie at they show China to be a nation that is confidenthttp://www.nanjiecun.cn/homepage.asp. enough to be open-minded and explorative. 1 Guess who visited Nanjie, the communist model village? Former Premier Zhu Rongji and Executive Vice-Premier Li Keqiang are among the senior leaders who have paid tribute there. 15
  17. 17. Inside the growth engine China Research abc December 2010How the system worksLocal government hierarchy There are numerous ways to achieve a ranking upgrade. For example, being a member orIn this section, we explain how China’s local Standing Committee member of the Partyadministrative system works, as set out in Fig. 5. organization or deputy of the executive orThe dotted lines define clear ranking order from legislative branches at a higher level of localprovince (省) down to prefecture (地), county government. The heads, or Party secretaries, of(县), town (乡) and village (村). A government at Shenzhen and Suzhou, for example, are membersa lower level of hierarchy reports strictly to the of the Party Standing Committee of their parentone above with province-level governments provinces, Guangdong and Jiangsu.reporting directly to the State Council or theexecutive branch of Beijing’s central government. Urbanization and domestic consumption, the two main drivers of China’s continued growth, are allThe ranking of a local government, and especially about economic development at various cityits top officials who often may rank slightly above levels. Moreover, the inter-city competition thatthe corresponding local government they run, has propels fast growth at the national level is closelysignificant implications in terms of authority over associated with the administrative hierarchy of theresource allocation. The subtleties of this ranking cities. Given their importance, we take a momentsystem are usually ignored by or confusing to to examine China’s cities in more detail.outsiders since it is not common practice elsewhere. Figure 5: China’s local government hierarchy by administrative ranking Provincial-level: Municipalities (4) Provinces (22) Autonomous Regions (5) (省级) (e.g. Beijing, Shanghai) (e.g. Guangdong, Jiangsu) (e.g. Inner Mongolia, Tibet) Sub-provincial cities (副省级市, 10 provincial capitals and 5 large cities) (e.g. Guangzhou, Shenzhen) Prefecture- Other provincial capitals (其他省会, 17) Important cities (超大地级市, ~10) level: (e.g. Hefei, Shijiazhuang) (e.g. Suzhou, Wuxi) (地级) Other prefecture-level cities (一般地级市, 240+) (e.g. Erdos) County-level: County-level cities (2,000+) (县级) (e.g. Jiangyin, Kunshan) Town-level: Town (40,000+) (乡级) Village-level: Villages (1,000,000+) (村级) (e.g. Huaxi, Nanjie) Note: Only red blocks are covered in this report. Source: HSBC16
  18. 18. Inside the growth engine China Research abc December 2010Municipalities factor in our view is administrative ranking. AAt the top level of the administrative structure are city’s administrative ranking, even at a very lowthe four municipalities: Beijing, Shanghai, Tianjin level of the hierarchy, is carefully set by the Stateand Chongqing. They share the same Council, taking into account quantitative criteriaadministrative ranking as the 22 provinces and 5 such as population and size of the economy asautonomous regions2 (see Fig. 5). well as strategic criteria.A municipality typically has a high population Sub-provincial city: not necessarily a capitaldensity and higher proportion of urban population A half notch below province is the sub-provincialthan a province, hence it has characteristics city (副省级市) whose top four officials, the Partytypical of an urban city. In fact, there is no secretary, the mayor and the heads of the localdistinction between “municipality” and “city” in National Peoples Congress (NPC) and Chinesethe Chinese language as both share the same Peoples Political Consultative Conferencecharacter “市”. There is a subtle distinction in (CPPCC), are all ranked at deputy-ministerialterms of administrative power, in that a (provincial) level. There are 15 sub-provincialmunicipality shares the same ranking as a cities, only 10 of which are provincial capitals, andprovince, but since the late 1980s, coinciding with that leaves the remaining 17 provincial capitals at aChina’s urbanisation drive, the Party secretary of slightly lower ranking. Apparently, a combinationeach municipality has usually been a Politburo of political, economic and strategic concernsmember (the Party’s highest decision-making determines the choice of sub-provincial cities.body), and that puts the municipalities slightly Next, or less than a half-notch below, are theabove the ranking of most other provinces. remaining 17 provincial capital cities plus about aA municipality has more financial clout than other dozen economically important cities, where attypes of city. For example, the cities of Shanghai least one top official (e.g., the Party secretary) is(RMB1.3trn GDP) and Guangzhou (RMB900bn ranked at deputy-ministerial level. Our major cityGDP) have roughly the same level of fiscal list includes two of these cities, Suzhou and Wuxi,revenue, yet Shanghai has a third more disposable since both of them are among China’s 10 largestfinancial resources due to the favourable value- cities (including municipalities) by GDP.added tax distribution enjoyed by municipalities. These cities are followed by the ordinaryChongqing’s economic development jumped to a prefecture-level cities (地级市) which numbermuch higher level only after it became a more than 240, excluding the cities ranked above.municipality in 1997. More cities are vying for County-level cities: real growth enginesmunicipality status, but Beijing seems in no hurry At centre stage of China’s massive urbanisationto grant any new ones soon. drive are the more than 2,000 county-level orCities lowest-ranked cities that report to their respective prefecture-level cities. Unlike in the West whereThere are several ways to rank cities – for officials are elected and promoted by localexample, by population or size of economy. constituents, local officials in China are promotedHowever, the most important differentiating according to whether they outperform their peers in running their respective local economies, judged by measures such as the GDP growth rate.2 An autonomous region is a province-level region that typically has ahigh population of ethnic minorities, e.g., Tibet and Xinjiang. 17
  19. 19. Inside the growth engine China Research abc December 2010Consequently, the race for faster growth amongst five in the city of Suzhou and two in Wuxi.county-level cities and above has become a key These cities are still in rapid transition. Fordriver of China’s overall development for the last example, about half the city dwellers in Kunshanfew decades. are migrant workers or professionals. Based onFirst, large-scale fixed asset investment (FAI) or the registered population, Kunshan would have byinfrastructure build up, whose long-term far the highest per capita GDP of RMB253,256 orsustainability is often in question, is usually USD38,141 in 2009, higher than Hong Kong. Wedetermined at a higher level of government. In believe that the vitality of these cities will largelyaddition, the nation’s large, monopolistic state- determine China’s future competitiveness and theowned enterprises (SOEs) are usually beyond the success of its urbanisation programme.control or influence of county-level cities. According to the China Securities RegulatoryTherefore, successful county-level cities are Commission (CSRC), China led the world in termsforced to focus on nurturing private enterprises in of number of IPOs in every month in 2010 exceptaddition to the rapid property construction that has for October. Less known is the fact that privateprovided easy but probably unsustainable gains. SMEs account for a large share of China’s IPOs andSecond, many county-level cities are not really many are from county-level cities. For example, thesmall, measured either by population or GDP, top-ranked Jiangyin and 10th-ranked Jinjiang eachthanks to rapid expansion in recent decades. have 28 listed companies. Jinjiang will have at least two more IPOs by the end of 2010 and 10 more inKunshan and Jiangyin with their thriving private 2011. The development in the IPO space, from largebusinesses have pushed their respective parent SOEs to small SMEs, from main board to SMEcities of Suzhou and Wuxi to China’s top 10 city markets and growth enterprise markets (GEMs), haslist, raising the status of the parent, Jiangsu completely changed the landscape and ranking ofprovince, and thereby the country. These are just domestic investment banks and underwriters (seetwo examples of a large number of cities whose Appendix D). Some well-connected investmentsgrowth in real productivity is providing the driving banks – the banking system’s “emperors” – that usedforce behind provincial and country-level success. to dominate the IPO space are at risk of being edgedFig. 6 shows the top 10 county-level cities in out by small players which are closer to localChina based on their overall competitiveness. businesses and entrepreneurs.Seven of the top 10 are in Jiangsu province withFigure 6: China’s top 10 most competitive county-level cities in 2009 GDP (RMBbn) GDP per capita (RMB) Population (k) Parent city ProvinceJiangyin (江阴) 153 99,170 1,200 Wuxi JiangsuKunshan (昆山) 150 120,881 690 Suzhou JiangsuZhangjiagang (张家港) 125 105,156 898 Suzhou JiangsuChangshu (常熟) 115 79,263 1,065 Suzhou JiangsuWujiang (吴江) 75 68,434 795 Suzhou JiangsuCixi (慈溪) 60 58,437 1,031 Ningbo ZhejiangTaicang (太仓) 53 79,449 466 Suzhou JiangsuShaoxing (绍兴) 61 85,368 715 Shaoxing ZhejiangYixing (宜兴) 60 48,102 1,068 Wuxi JiangsuJinjiang (晋江) 70 43,813 1,050 Quanzhou FujianNote: Both permanent and temporary residents are included in the calculation of GDP per capita, while the population in the table only includes number of permanent residents.Source: China County-Level Economy Top 100, CEIC18
  20. 20. Inside the growth engine China Research abc December 2010Urbanisation andconsumptionContinued urbanisation and domestic Eight Chinese cities have a population of more thanconsumption are expected to be the key drivers of 10m, 93 are bigger than 5m and 177 larger than 3m.China’s growth in the next few years. Both centre To put this in perspective, only one city in the USaround city development. Fig 7 shows the size of (New York City) has a population of more than 5m.China’s cities and where they rank in the However, individual Chinese cities may still be“pyramid”. too small to justify the size of ongoing and Figure 7: City pyramid by population – 93 Chinese cities have a population larger than 5mn, and 177 cities above 3mn Tier 1: above 30mn, the sole leader Chongqing Shanghai Baoding Tier 2: 10mn – 15mn Beijing Chengdu Zhoukou Linyi Nanyang Harbin Handan Weifang Fuyang Heze Xinyang Tier 3: 8mn – 10mn Tianjin Shangqiu Wuhan Xuzhou Shenzhen Shijiazhuang Jining Ganzhou Zhumadian Yancheng Xi’an Zunyi Xingtai Yulin Guanzhou Huanggang Liuan Changsha Tier 4: 6mn – 8mn Wenzhou Hengyang Nanning Jieyang Shaoyang Tangshan Luoyang Fuzhou Zhanjiang Maoming Quanzhou Suzhou Changchun Zhengzhou Hangzhou Nanjing Jinan Qingdao Nanchong Shangrao Jingzhou Changde Yantai Nantong Cangzhou Shenyang Dazhou Anqing Qujing 5mn – 6mn 4mn – 5mn 3mn – 4mn Below 3mn Tier 5: below 6mn 32 cities: 32 cities: 52 cities: 108 cities: Dalian Wuxi Fuzhou Xiamen Ningbo Hefei Lanzhou Daqing …. …. …. …. Source: HSBC, CEIC 19
  21. 21. Inside the growth engine China Research abc December 2010planned infrastructure projects, such as River Delta had RMB6trn 2009 GDP or 17.5% ofexpressways, high-speed railways, light railways the nation’s total and RMB2trn in retail sales.and subways. Larger scale cities in the former of The Pearl River Delta is about half the Yangtzemega-metropolitan areas are needed to achieve River Delta in economic size with about 10% ofbetter economic and energy efficiency. China’s GDP (or RMB34trn) and RMB1trn inThe four Deltas retail sales.Fig. 8 shows the 11 largest metropolitan zones The West Delta or West Triangle (the three citiesunder development where the size of each circle of Chongqing-Chengdu-Xi’an) is the leastrefers to the rough geographical reach of each developed and fastest growing metropolitan area.metropolitan zone. It is representative of the current “race to bottom” growth model where less developed regions setThe four metropolitan areas coloured red, referred more aggressive growth targets. Fig. 9 shows theto as the four Deltas, have the highest strategic West Triangle’s GDP growth rates since 2005.importance. They are the Yangtze River Deltacentred around Shanghai, the Pearl River Delta Strong growth is accompanied by surging FDIcentred around Guangdong, the Jing-Jin-Ji Delta shown in Fig. 10, suggesting private capital is(Beijing-Tianjin-Hebei) centred around Beijingand the West Delta centred around Chongqing. Figure 9: The three West Triangle cities have recorded in excess of 20% CAGR in nominal GDP growth since 2005The two largest and best known Deltas are theYangtze River and Pearl River Delta. The Yangtze 800 600 Figure 8: China’s top metropolitan zones RMB (bn) 400 10 200 0 6 3 2005 2006 2007 2008 2009 5 Chengdu Chongqing Xian 9 4 Source: CEIC 1 7 11 8 Figure 10: FDI in the West Triangle has jumped several times since 2005 2 4 1. Yangtze River Delta 长三角 3 2. Pearl River Delta 珠三角 RMB (bn) 3. Jing-Jin-Ji Delta 京津冀 4. West Delta 西三角 2 5. Shandong Peninsula 山东半岛 6. Central-southern Liaoning 辽中南 1 7. Wuhan Urban Agglomeration 武汉城市群 8. West Strait Economic Zone: 海峡西岸城市群 0 9. Central Plains Urban Agglomeration 中原城市群 Chengdu Chongqing Xian 10. Harbin Urban Agglomeration 哈尔滨城市群 11. Changsha-Zhuzhou-Xiangtan 长株潭 2005 2009 * Size of circles is indicative of size of metro area. Source: HSBC Source: CEIC20
  22. 22. Inside the growth engine China Research abc December 2010joining the boom in the West Triangle above and world’s leading retail and luxury brands. Sobeyond the build-up in infrastructure. The where does the shopping power come from?momentum is likely to continue as regional It’s all about citiesrevitalisation is set to be one of the biggestinvestment themes in coming years. The perception of China as a Third World country is largely derived from its low per capita GDP.While inter-city expressways have been fairly well Indeed, Fig. 11 shows China’s per capita GDP atdeveloped over the last decade, inter-city high- the province level in 2009 and how that comparedspeed railway, light railway and subway links have to similar countries around the world. Despite itsjust started. Provinces and cities around the new unprecedented economic growth over the pastmetropolitan areas are betting on a continued surge three decades, China ranks 99th in the world within railway construction and connections as key per capita GDP of USD3,678, right behinddrivers of economic growth in the years ahead. Albania in 98th position.Cities and consumption As the colour of the map shows, nearly half theChina’s domestic consumption as a share of GDP country, mainly the provinces in the West andhas been notoriously low (around 35% or about inner part of China, still has GDP per capita ofhalf the US ratio). It has been on a declining path less than USD3,000. The rest of the country, apartover the last decade, despite rapid economic growth. from Beijing and Shanghai, is below USD10,000.Some observers find it difficult to reconcile the However, that is not the right way to assessfact that this is a Third World country with the China’s purchasing power nor its potential.fact that it is the fastest-growing consumer of the Figure 11: 2009 GDP per capita by province: China ranks 99 in the world, still behind Albania at 98, despite 30 years of rapid growth Samoa El Salvador Maldives Colombia Armenia South Africa Honduras Chile Tonga Uruguay a ng T ur kme Dominican To ur k Republic Guatem ala nista n Morocco Botswana ta Georgia Indonesia Poland Ukraine Cape Verde Fiji Mauritius Morocco Congo Dominica Above $30,000 M oldova Between $10,000 – $30,000 Sri Lanka Paraguay Bulgaria Between $3,000 – $10,000 Below $3,000 Vanuatu Source: HSBC, CEIC, IMF, CIA 21

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