EIU identifies future growth champions in China

The Economist Intelligence Unit (EIU) has provided further ballast to projections that China’s future growth will be driven by its inland, central provinces, rather than its export-driven eastern seaboard.

In its report – Champs: China’s Fastest Growing Cities – the EIU lists the country’s top 20 large emerging urban centres, many of which are located in central provinces with large rural populations. This, it notes, reflects China’s transition to a consumption-driven economy.

“China’s past 30 years of growth were characterised by the exceptionally strong performance of the coastal cities, but this changed in 2007 when inland China started growing at a faster pace than the coastal area,” the report finds.

“The global financial crisis accentuated the trend, as it hit the export income of the coastal powerhouse while leaving the less trade-exposed inland cities relatively untouched. But the trend did not end with the crisis – it is here to stay.”

Economic data for the third quarter reaffirmed this picture: growth in central China stood at 18.9%, compared with 15.6% in the eastern region.

Among its list of China’s 20 fastest-rising cities (see chart, below), the EIU identified six future growth champions – Chongqing, Hefei , Anshan, Maanshan, Pingdingshan and Shenyang – noting they all have one thing in common: rapid increases in population, income and infrastructure development.

To pick out its champions, the EIU examined China’s 287 prefecture-level cities and forecast their respective populations, eliminating those that would have a population of less than one million by 2014. It then ranked the remaining 86 based on a variety of measures, including forecasts of population and real GDP growth.

Anshan, a steel town, has relatively slow population growth but is experiencing a solid investment boom in heavy industry driven by the Beijing government. Shenyang shares these characteristics: like the rest of the northeast it suffers from slow population growth but this is offset by strong investment.

Maanshan and Chongqing get a head-start from their position on the Yangtze River, giving them low transport costs, while coal is the backbone industry in Pingdingshan.

The six champions mostly tend to be fuelled by construction booms, with rising home ownership closely linked to spending on appliances and cars.

While wealthier consumers in coastal cities will exhibit higher levels of sophistication, the report notes that many consumers in the fastest-growing cities are making their first purchases of numerous consumer durables, from PCs to mobile phones (see chart 2, below).

The EIU also identified China’s future nerve centres: megacities created by being fed by the largest-scale urbanisation in history. Zhengzhou, for example, the capital of Henan province, is forecast to have a bigger economy in 2020 than Sweden, Hong Kong or Israel.

It says these megacities will attract a relatively high proportion of upper-income earners and their sizes will offer economies of scale and scope that will drive productivity growth in the service sectors.

It names the Pearl River Delta “City” (Guangzhou, Shenzhen, Dongguan and Foshan) as the one that will be largest by peak population. The four cities on the east bank of the Pearl River Delta are already connected to the point where satellite imagery shows one contiguous urban area the size of Los Angeles.

This is followed by Jingjin, Yangtze Pearl River Delta “City”, Chongqing, Chengdu, Zhengzhou, Xi’an, Chnagzhutan cluster and Nanjing.

The area surrounding Shanghai is also ripe for integration, finds the report. This will initially affect Suzhou and Shanghai, largely as a result of the rapid growth of Kunshan, a high-tech manufacturing hub located between the two metropolises.

“China’s future megacities will attract a relatively high proportion of upper-income earners, and their sizes will offer economies of scale and scope that will drive productivity growth in the service sectors,” the report says. “Although some are on the coast, those inland such as Chongqing and Zhengzhou will grow faster.

“The size and variety of [China’s fastest-growing] markets means that knowledge of local business environments is crucial to any strategy. Patience is required as companies adapt and readapt their strategies over time. Given the mass of choices confronting investors in China, reliable benchmarks for strategic planning are essential.”