Provincial capitals benefit from stimulus spending and foreign investment

BEIJING: Move aside, Shanghai. Lesser-known Chinese cities are making a name for themselves these days with their spectacular growth.

While China's Big Four of Beijing, Shanghai, Guangzhou and Shenzhen may have powered the country's economic growth in the past three decades, it is the lower-profile cities that are now spearheading its remarkable recovery from the global financial crisis.

Compare the numbers. The first-tier megacities chalked up impressive growth of 12 per cent on average in the first half of this year.

Their less famous cousins such as Changchun, Yinchuan and Hefei, on the other hand, scored 18.5 per cent and more - rates which the Big Four registered more than a decade ago. In fact, the three provincial capitals are the fastest-growing cities in China, their phenomenal growth rates far outstripping the Chinese economy's overall rate of 11.1 per cent.

These resource-rich cities benefited from the deluge of government stimulus spending to build infrastructure, encourage domestic consumption and speed up development of the inland economies.

This, in turn, drove up demand for commodities such as steel and coal - and further stoked the Chinese consumers' appetite for food, state-subsidised cars and electronics, as well as property.

One beneficiary is Changchun - the capital of Jilin province, which is known as the golden corn belt of China. Not surprisingly, the city's key industries of car manufacturing, petrochemicals and food processing have been in overdrive this year to satisfy surging demand.

Meanwhile, cities like Yinchuan, Chongqing and Chengdu, which are seen as gateways to the western provinces, have attracted fresh investments after Beijing ramped up its 'Go West' campaign this year to stimulate the region's development.

Many smaller cities are also benefiting from multinational companies shifting their operations from first-tier cities to cheaper locations like Tianjin. The port city's Binhai New Area, which houses high-tech companies, has been 'especially outstanding' as a magnet for foreign investment, including Singapore's joint-venture Eco-city project, said Professor Zhao Xijun of Renmin University.

So these lesser-known cities are hogging the limelight - and deservedly so. After all, they are punching well above their weight: 15 of these cities account for just 6 per cent of China's 1.3 billion population, but contribute about half of its total foreign direct investment, according to Mr Danny Ng, a Beijing-based director at Force Research, a market research firm.

Yet despite their solid performance so far this year, some analysts worry about how they will fare in the second half of the year.

Chinese Academy of Social Sciences professor Yuan Gangming singled out the island province of Hainan and its capital Haikou as a 'potential disaster for the national economy'. Haikou's breathtaking 27 per cent jump in first-quarter growth was largely driven by a property-buying frenzy.

'The whole country's speculative property bubble this year was first sparked by Hainan, and now it is starting to collapse,' said Prof Yuan.

Another concern is that the smaller cities' growth rates are propped up by government support - and may even have been inflated.

As the Chinese economy slows down in the second half of the year and as the stimulus measures start to wear off, cracks in these lower-tier cities' economies will begin to show, analysts warned.

Prof Zhao said: 'These areas' growth has been so influenced by government policy that it is hard to predict what will happen afterwards.'

In this respect, the more mature first-tier cities that are forced to keep up by transforming their economic models have done quite well this year.

The megacities have moved into tertiary industries like financial services. They have also been rebranding themselves. MNCs' regional headquarters hub? That will be Beijing.

Shanghai is Asia's financial hub, Guangdong is the investment gateway to Asia, and Shenzhen is the world's largest IT manufacturing base.

Shanghai-based business consultant Li Jingwei said: 'The first-tier cities are moving along the path that mature economies like Singapore have taken - attracting investors with their high-tech base and top talent.

'But the lower-tier cities will be the ones in the spotlight as they have so much growth potential.'

This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Source - The Straits Times (http://www.straitstimes.com/PrimeNews/Story/STIStory_563081.html?sunwMethod=GET)