Chinese Cities of Opportunity...Chinese Cities of Opportunity 018 2 Overview Cities have long been...

Chinese Cities of Opportunity 2018

BeijingShanghaiTianjinChongqing

HarbinShenyangDalianUrumqi

LanzhouXi’anTaiyuanShijiazhuang

JinanQingdaoZhengzhouNanjing

WuhanWuxiSuzhouHangzhou

NingboFuzhouXiamenChangsha

GuangzhouShenzhenZhuhaiChengdu

KunmingGuiyang

In modern society, cities are the most important spaces in which people can pursue a better life. China has the largest urban population in the world. In 2017, over 58% of China’s population, or more than 800 million people, lived in cities, and the urbanisation rate for residents is increasing by over one percentage point every year. The advancement of urbanisation has pushed forward the intensive and efficient use of resources, promoted innovation and enabled the economy to prosper, while providing better basic public services. Taken together, these features have laid the foundations of a better life for residents.

Large cities and the urban clusters centred on them have been playing a greater role in providing opportunities for people in changing their life chances, which justifies the designation: “Cities of Opportunity”. According to a recent study by the China Development Research Foundation, the proportion of GDP of 12 urban clusters accounted for 71.34% of China’s total GDP in 2006 and increased to 82.03% in 2015. This reflects the trend of economic opportunities gathering in large cities and urban clusters. The 12 urban clusters reviewed cover the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei Region, Western Taiwan Straits Economic Zone, Shandong Peninsula, Central China, Wuhan,

Changsha-Zhuzhou-Xiangtan Region, the Guanzhong Plain urban cluster, Chengdu-Chongqing Economic Zone, the central-southern of Liaoning and Harbin-Changchun urban cluster. People gravitate toward areas with economic opportunities and high quality public services. Therefore, enhancing the inclusiveness, balance and sustainability of the development of urban clusters with large cities is a significant undertaking at the core of resolving “the principal contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life” proposed in the 19th CPC National Congress.

The Chinese Cities of Opportunity report, jointly released by the China Development Research Foundation and PwC for five consecutive years, focuses on the industrial development, innovation potential, coordinated regional development and the synergetic development of people’s life and ecological protection in China’s key cities. It is also the Chinese version of PwC’s Cities of Opportunity report on global urban development. Using the perspectives and analytical framework of the global edition, and combined with the realities of China, the Chinese version has built an indicator system of the state of China’s development with Chinese characteristics. The system

offers a comprehensive evaluation of the competitiveness, influence and potential of urban development to provide benchmarks for overall urban development, and has come to exert an extensive influence in China. On the basis of Chinese Cities of Opportunity 2017, the number of sample cities observed this year has increased to 30, and special attention has been given to the development of national strategic regions such as Guangdong-Hong Kong-Macau Greater Bay Area and Xiong’an New Area. Most of the 30 cities are central cities of the aforementioned urban clusters. Through exploring urban characteristics and advantages, we are striving to set up an innovative approach for urban social governance to build a harmonious and beautiful China.

The team of the China Development Research Foundation participated in the discussions at every stage of this report. The team regards it as an important learning opportunity, while aiming to add contributions and benefits. I would like to take this opportunity to express my appreciation and admiration to PwC for actively taking on this socially responsible undertaking, and dedicating intelligence to China’s development, along with my gratitude to PwC and the team for all their efforts. I hope we can continue to deepen our partnership in the future, and jointly deliver valuable intellectual products to society.

Cities: Creating a beautiful life and new opportunities

Lu Mai

Vice Chairman and Secretary General China Development Research Foundation

Welcome to the latest edition of PwC’s Chinese Cities of Opportunity. Now an established fixture, this report is developed for the 5th year in tandem with PwC’s global annual assessment of urban development to provide an evaluation of updates in influential cities across China.

In October, the 19th National Congress of the Communist Party of China set out the blueprints for future national development. Due to China’s role in global economic and political progress, the impacts following from the national development plans will have greater reach than ever before. A range of new strategies and policies rolled out at the National Congress will shape China’s approach to challenging major issues, offer pathways for common development that transcend national boundaries, and critically, put forward new goals for boosting urban development in China, with effects that could reverberate around the world.

A city is a window into a country, and our findings relating to development of urban centres have shed light on the remarkable progress achieved across the nation since the initial implementation of the reform and opening up policy began. Now, China’s cities are marching confidently forward toward market-oriented development, benefiting from myriad innovations in institutions and industries. Of note, the establishment of Xiong'an New Area in 2017, represents a bold exploration of a fresh mechanism for coordinated regional urban development driven by innovation. Xiong'an New Area is tasked with driving the green development of the whole region, and reflects China’s efforts in this mode of urban development. At the 19th Party Congress, President Xi Jinping proposed the building of a smart society in his report. Accelerating the construction of smart cities along with the coordinated development of new urbanisation look like two particularly crucial steps in pursuing this goal. An essential feature of PwC’s Chinese Cities of Opportunity report is the identification of areas of new growth potential in Chinese cities, which provides reference points for the building of a smart society.

We appreciate the trust and support that the China Development Research Foundation has given PwC over the last five years. Such support enables our ongoing efforts in urban development research in China, which underpins this report. We look forward to continuing our study in this subject, while exploring and contributing to China’s ongoing drive in urbanisation.

China’s innovation-driven development will boost the global economy

Robert E. Moritz

Global Chairman PwC

Contents

Overview ...................................................................................................................... 2

Selection of cities ................................................................................................................................ 2

Assessment approach .......................................................................................................................... 3

Scoring method .................................................................................................................................. 3

Data sources ....................................................................................................................................... 3

Observation results ............................................................................................................................. 4

In-depth interviews ............................................................................................................................ 4

Comparison and analysis of Beijing, Shanghai, Guangzhou and Shenzhen ................. 5

(Interview) Connie Wong Wai-ching: Studying the spirit of the 19th CPC National Congress

and integrating urban development strategy into business operation............................................. 7

Comparison and analysis of ranking ........................................................................... 9

I. Intellectual capital and innovation ............................................................................................. 11

(Interview) Liu Hongxia: Complementarity between a research university

and an intellectual-innovative city ............................................................................................ 13

II. Technical maturity ................................................................................................................... 15

III. Major regional cities ................................................................................................................ 17

(Interview) Wang Jianye: Cross-border flow of factors of production

and governance modernisation ................................................................................................. 19

IV. Health, safety and public security ............................................................................................ 21

V. Transportation and urban planning .......................................................................................... 23

VI. Sustainable development and natural environment ................................................................. 25

(Interview) Bai Jiangong: Innovation poses a substantial challenge

to corporate management ......................................................................................................... 27

VII. Culture and quality of life ...................................................................................................... 29

VIII. Economic clout ..................................................................................................................... 31

IX. Cost ........................................................................................................................................ 33

(Interview) Zhang Yueguo: Deepening cooperation between Guangdong,

Hong Kong and Macau to build a world-class bay area ............................................................... 35

(Interview) Zhou Ping: The Belt and Road Initiative

and the construction of Guangdong-Hong Kong-Macau Greater Bay Area ................................. 36

X. Ease of doing business .............................................................................................................. 37

Variables..................................................................................................................... 39

Acknowledgements .................................................................................................... 44

For further information ............................................................................................. 45

Chinese Cities of Opportunity 2018 2

Overview Cities have long been the epitome of economic development and social advancement. A wide assortment of elements of a city hold opportunities for urban growth, including historical traditions, natural environment, industrial features and cultural resources, as well those that lie in the bigger picture amid reform and development. While keeping track of major cities around the world, PwC has been cooperating with the China Development Research Foundation since 2014, to select cities in China as samples for further comprehensive comparison and study. This year is the fifth year we publish Chinese Cities of Opportunity.

Selection of cities

The preceding four reports had varied sample sizes, with 15, 20, 24 and 28 cities included for 2014, 2015, 2016 and 2017, respectively. This trend points to an increasing range that has broadened annually. Also, these prior reports didn’t include Beijing and Shanghai. This is because Beijing, Shanghai and Hong Kong have been studied by PwC from a global perspective. Given this, the global observations on Beijing and Shanghai over the four consecutive years had been listed in the Appendix of our reports.

This year, we have introduced changes.

Chinese Cities of Opportunity 2018 features observations on 30 cities including Beijing and Shanghai, as well as all cities reviewed in 2017. Given the huge size of the two new entrants, as well as the reality and actual influence of Guangzhou and Shenzhen, the

ranking-based comparison method that had been used in our prior reports to compare all the cities together is less appropriate this year. Therefore, this report differs from previous editions in that the four cities of Beijing, Shanghai, Guangzhou and Shenzhen are studied separately, while the other 26 cities are ranked in sequence. Therefore, this year, Chinese Cities of Opportunity 2018 provides two observation results. One involves comparison between Beijing, Shanghai, Guangzhou and Shenzhen. The other is a comparison of the 26 remaining cities. These cities are Harbin, Shenyang, Dalian, Urumqi, Lanzhou, Xi’an, Taiyuan, Tianjin, Shijiazhuang, Jinan, Qingdao, Zhengzhou, Nanjing, Wuhan, Wuxi, Suzhou, Hangzhou, Ningbo, Fuzhou, Xiamen, Changsha, Zhuhai, Chengdu, Chongqing, Kunming and Guiyang.

Suzhou Photo by Ryan Yang (PwC)

3 PwC

Scoring method

The “score by rank” principle is used to order results. In terms of the 26 aforementioned cities, a value corresponding to each city is obtained under the same variable in a given dimension. Then, all values of different cities for this dimension are ranked from the largest to the smallest. Subsequently, the city with the highest rank is given a score of 26 points, the city with the second highest rank is given a score of 25 points, and so on (where the score is opposite to its ranking); in the case of cities with the same ranking, the corresponding score is the same. There are exceptions however, where the ranking of a city is opposite to the score. This is the case for variables such as costs and resource consumption, where a city with the lowest numeric value takes the highest position and score, and so on. The ranking-based scoring method offers a simplification of the otherwise complicated differences among cities that are separated by a point. The sum total of scores for a city under the different variables in a given dimension is equal to the total score the city is allocated in that dimension. The final rank of all cities is determined by comparing the sum of all the total scores of each city for every dimension.

The scores for Beijing, Shanghai, Guangzhou and Shenzhen are also determined by the same method.

Data sources

With regard to data selection, PwC assessment tools are distinguished for their attention to the data’s objectivity, comparability and feasibility. Sources of data are publically available, and predominantly come from the National Bureau of Statistics, statistical results of

Assessment approach

PwC’s assessment tools for urban surveys are used in this report. The methods are similar to those typically adopted for comparative study of cities, in that variables at several levels are employed to collect an extensive range of data. However, this report uses more dimensions than in ordinary surveys, in an effort to provide a more detailed picture of the cities involved. In total, 10 dimensions are used and altogether 57 variables are employed, with a range of four to seven variables in each dimension. These dimensions indicate observation angles but are not weighted. All variables are viewed equally, and they form a subdivision of the observation angles. The number of variables in each dimension reflects the difficulty in access of statistical data, and, to some extent, the importance we attached to that dimension.

Given the limited data sources, the design angles of the variables of Chinese Cities of Opportunity 2018 are slightly different from the previous edition, though the basic principles remain unchanged. All design angles and data sources of the variables can be found in the “Variables” section of the report.

In reality, social life is rich and colourful. Cities differ, and the varied landscapes, historical changes, cultural traditions and industrial layouts present us with complex and fluctuating phenomena. PwC’s assessment tools seek to capture as many observation perspectives on the variety of aspects and diversity of actual life as possible. A summary of the data from a range of aspects ensures that comparison of cities gets as close to our visual impression as possible.

government departments, statistical yearbooks and statistical bulletins of every city, as well as survey findings of authoritative think tanks, universities and research institutions. The data are sorted without being weighted.

In determining observation variables, we give priority to statistical data and avoid questionnaire data, so that the data selected can reflect the observation angles in the most objective way. In instances where single sources of data don’t fully reflect the observation angle, we turn to parameters with the same influencing factors to gather composite data, in an effort to compile data that faithfully reflect the observation angle as much as possible.

The majority of data has been collected from the end of 2016, with some in 2017, when a reliable source was available. In instances where cities did not disclose sufficient data, data at the provincial level has been used. These instances are presented in the Appendix of the report.

Observation results

The observation results for Beijing, Shanghai, Guangzhou and Shenzhen have Beijing at the top of the list, followed by Shanghai and Shenzhen, while Guangzhou is ranked last. We should point out that in the preceding four reports of Chinese Cities of Opportunity, Shenzhen ranked above Guangzhou in the first and second editions, and below Guangzhou in the third and fourth issues, and now outperforms Guangzhou again in this report. Please refer to the analysis for scores in specific dimensions.

The results of the 26 other cities see Hangzhou ranked first, followed by Wuhan, Nanjing, Chengdu, Xiamen, Xi’an and Tianjin. These rankings are


the same as the previous year. The subsequent cities are Changsha, Suzhou, Zhengzhou, Zhuhai, Qingdao, Jinan, Kunming, Chongqing and Ningbo. Notably, Changsha is two places higher than the previous year, and Qingdao surpassed Jinan, but Chongqing dropped three positions. The bottom 10 cities in sequence are Wuxi, Fuzhou, Guiyang, Dalian, Taiyuan, Shenyang, Urumqi, Shijiazhuang, Harbin and Lanzhou. Compared to the previous year, Wuxi’s position has risen, while Shenyang’s position has declined. There is no major change in ranking among the best and worst cities, though there have been slight variations in the middle of the rankings. More minute changes are observable with the variables in the dimension and further observations are presented in the analysis of each dimension.

Due to the limited space, we are unable to give a detailed analysis on all aspects of every city, but the report is rich with data. Interested readers may conduct more in-depth analysis based on the 10 dimensions and 57 variables summarised in the report, to focus on the natural resources, development strategy, industrial layout, historical tradition and the success and failure of management practice of specific cities, with a view to exploring the opportunities that fit with the development focus of cities.

In-depth interviews

In addition to the compilation and analysis of quantitative data, each year, a selection of entrepreneurs, scholars and social elites are invited to participate in an interview to share their views and insights. Each interview is focused on a topic related to urban development, not limited to the

dimensions defined in the report. The Chinese Cities of Opportunity, is not conducted for profit. Views of each participant are entirely their own, and they have been shared freely to contribute to a better understanding of urban development. This year, Chinese Cities of Opportunity is privileged to include perspectives from the following distinguished professionals.

Ms. Connie Wong Wai-ching, a businesswoman from Hong Kong, with years of experience in investment in mainland China and Hong Kong. Ms. Wang is also actively involved in social services, holding public office both in mainland China and Hong Kong. Ms. Wang’s contribution in this report considers the influence of national and regional urban development strategies on enterprises from the perspective of business operation.

Ms. Liu Hongxia from New York University Shanghai(NYU Shanghai), looks at the topic of education. With her world-class educational experience and a global view, Ms. Liu provides a vivid perspective of how to build up urban intellectual capital.

Dr. Wang Jianye previously held a senior position at the IMF, and served as the Chief Economist at the Export-Import Bank of China. Today, Dr. Wang is an influential figure in business and economic academia in China and the US. His contribution is set against the backdrop of reform and further opening-up of China’s financial sector this year.

Mr. Bai Jiangong is an entrepreneur from mainland China. Having seen ups and downs along Shenzhen’s development, Mr. Bai has been engaged in pursuing product and management innovation. In his capacity with

corporate operations, Mr. Bai has stimulated corporate growth and established a national-level incubator park. Mr. Bai applies his experience here to share perspectives on innovation.

Mr. Zhang Yueguo serves as President as well as Secretary of the Leading Party Members’ Group of the Guangzhou Academy of Social Sciences. His contribution pertains to development of the Guangdong-Hong Kong-Macau Greater Bay Area. Due to the fact that implementation of this strategy will exert a great influence on the economy, environment, culture and social life in the area, a special interview concerning the greater bay area was arranged, despite lack of such a dimension in this year’s report.

Dr. Zhou Ping, from Macau, launched and led a forward-looking and pragmatic social survey called “Survey of 100 Villages by 100 Doctors”. Dr. Zhou’s contribution to this report considers regional cooperation and development from the perspective of the Belt and Road Initiative and Trade and Economic Platform between China and Portuguese-speaking countries.

Each of the interviewees has generously contributed their knowledge and experience to this report, adding nuanced perspective to inform readers’ current understanding of urban development in China.

Beijing, Shanghai, Guangzhou and Shenzhen, known as “Bei, Shang, Guang, Shen” for short, are normally classified as first-tier cities. In light of their capacities as agglomerations with economic clout, large population and influence on the global market, the four are all readily identified as cities at an international level. Globally, a megacity is typically a symbol of the country it’s located in, and this is especially true for a great power. In China at this current stage, Beijing, Shanghai, Guangzhou and Shenzhen can each be considered windows into China, and representative of the national profile to a fair extent.

According to our data, among the four cities, Beijing and Shanghai rank first and second, followed closely by Shenzhen and then Guangzhou. When it comes to the scores of the dimensions, Beijing heads the list in five dimensions; “intellectual capital and innovation”, “technical maturity”, “health, safety and public security”, “transportation and urban planning” and “economic clout”. Shanghai holds the second place with high scores in “major regional cities” and “ease of doing business”. Shenzhen ranks third and stands side by side with Beijing with regard to “transportation and urban planning”, while topping “sustainable development and natural environment” and “ease of doing business”. Guangzhou exceeds Shenzhen in the dimensions of “major

Transportation and urban planning

Sustainable development and natural environment

Culture and quality of life

Economic clout Cost Ease of doing business

162

156

152

137

Score

1

2

3

4

Beijing

Shanghai

Shenzhen

Guangzhou

Health, safety and public security

Major regional cities

Technical maturityIntellectual capital and innovation

19 16

13 12 21 12

15 13 11 14

13 8 18 13

17 17 24 6 9 21 14 19

18 11 10 19 16 24

24 19 11 9 16 20

22 14 10 11 14 14

Note: the design of variables and data collection angles for Beijing, Shanghai, Guangzhou and Shenzhen are identical with those of the remaining 26 cities. Due to limited space, only the Dimension Sheet is listed here.

Comparison and analysis of Beijing, Shanghai, Guangzhou and Shenzhen

PwC5 Shenzhen Photo by Susanna Zhang (PwC)






162

156

152

137

Score

1

2

3

4

Beijing

Shanghai

Shenzhen

Guangzhou

Health, safety and public security


Technical maturityIntellectual capital and innovation

19 16

13 12 21 12

15 13 11 14

13 8 18 13

17 17 24 6 9 21 14 19

18 11 10 19 16 24

24 19 11 9 16 20

22 14 10 11 14 14

regional cities” and “economic clout”, but occupies the fourth place due to a lower overall score, with comparatively low-ranks in other dimensions.

Upon PwC’s observation of 30 global cities made in 2016, Beijing came 19th in the overall ranking, though placed 3rd after London and Paris in the dimension of “gateway city” and also secured the 3rd spot, trailing London and New York, in the “economic clout” dimension. Shanghai came 21st in the overall ranking, taking the 7th place in the two aforementioned dimensions. Factors contributing to Beijing and Shanghai placing lower on the overall global list can be in large part attributed to their poor performance in the international comparison of the costs dimension, with the two cities taking the lowest, and second lowest positions respectively.

Based on observations from prior reports, Guangzhou has long been ranked comparably with Shenzhen. Shenzhen topped the list of domestic cities in 2014 and 2015, while Guangzhou came in first in 2016 and 2017. However, both were given the lowest ranking in the costs dimension. Consequently, we can observe soaring costs have become a common feature in China’s megacities.

We can also note that each of these four cities feature their own distinct and

inherent urban characteristics. Beijing functions as the political, cultural, international exchange and scientific innovation centre, Shanghai serves as China’s largest business and financial hub, while Guangzhou established itself as a pioneer of reform and opening up in China. These three cities have a long and established history. Shenzhen, a 40-year-old city, is a more modern construct, yet has quickly managed to rise to a level on par with the other three, despite not sharing a legacy stretching over millennia. Nevertheless, Shenzhen has become an illuminating window into China for the world. This is an indication of the scope of China’s achievements since embarking on reform and opening up, as well as evidence of the advantages brought about by a socialist market economy with Chinese characteristics.

An accurate study of China’s top four cities requires a view transcending the traditional limits of these cities. Beijing lies at the core of the Beijing-Tianjin-Hebei area, Shanghai takes the lead in the Yangtze River Economic Belt, while both Guangzhou and Shenzhen will be essential components of the Guangdong-Hong Kong-Macau Greater Bay Area. Following roll out by the State Council, the construction of these three major city clusters has been upgraded to a national development strategy. As a result, these developments carry strategic

implications for the economic growth and social advancement of China.

Regarding the potential of these shifts, we can consider the Xiong’an New Area, in Hebei. This new initiative led by the Central Committee of the Communist Party of China, has the potential to exert far-reaching significance. The seemingly plain and simple words “affairs of national significance” can spark endless imagination of the possibilities for people in the flat farmlands on the North China Plain, particularly if they compare Shenzhen today, with what it looked like as a small fishing village 40 years ago.

The development strategy of the three major regions applies a focus on growth that is specific to each of the cities. Hence, the 19th CPC National Congress report specifies that: “we will create networks of cities and towns based on city clusters, enabling the coordinated development of cities of different sizes and small towns”, reflecting a new situation in development of city clusters with urban and rural integration.

Studying the spirit of the 19th CPC National Congress and integrating urban development strategy into business operation

Connie Wong Wai-ching

Member of the National Committee of the CPPCC Managing Director of Wong Sun Hing Limited Managing Director of Wanling Industrial Co., Ltd.

People in Hong Kong haven’t always counted among those paying the most attention to the Party Congresses, however, I personally, was deeply impressed by the report to the 19th CPC National Congress. Having participated in several learning programs organised by the Liaison Office of the Central People’s Government in the Hong Kong S.A.R, I now have a clear understanding of the significance the Congress has on the future development of mainland China and Hong Kong. Still, many in Hong Kong may not yet appreciate the degree to which they are influenced by the Party Congress. Some corporate executives may show slight interest, but also believe business development is separated from the political context. However, it is my observation that the two are closely intertwined. When looking at investing in the United States, prudent investors will thoroughly explore the political and policy environment there before acting. Similarly, we must keep abreast of the fundamental national policies in mainland China when investing and operating in the country, lest we make unnecessary detours.

The report to the 19th CPC National Congress includes specific contents while covering an extensive range. It makes clear our direction for development in the coming five years, and over the next decade. A clear development objective is proposed: China will achieve modernised development by 2035 and grow into a strong power by 2050. The development focus has been shifted from speed to quality. In terms of assessment for officials, rather than using measures of

PwC7

GDP growth alone, environmental protection effect and energy consumption per unit of output are also taken into consideration.

There are precedents to learn from. Some years ago, leaders of Guangdong-a provincial pioneer for reform and opening up-put forward the policy known as “emptying the cage for the new birds”. This policy approach contributed to industrial upgrading and technological innovations, leading to progress in the development of the high-tech park of Shenzhen and transformation of Dongguan. This case serves as a reminder that higher quality and output can lead to the level of prosperity desired across China.

Through the report to the 19th CPC National Congress, President Xi brought forward 14 basic strategies for the new era, the last of which is to comprehensively strengthen party discipline. This will, among other things, lay the foundation for the development of a market-based economy. In the fledgling years of reform and opening-up, corporate investment was sometimes facilitated by personal connections alone instead of a contractual spirit; however, this is no longer the case. The country has grown into a nation ruled by law; the government and society cherish the contractual spirit, and enterprises can implement reasonable contents of contracts without seeking personal connections here and there. Such a sound situation benefits from strengthened party governance. Personally, I’m glad to see that our country has demonstrated itself capable of fully exercising law-based governance.

We entrepreneurs must harbour a long-term vision while being sensible to changes in the environment. When taking charge of the preparation for the One Link Plaza integrated project, I was told that costs of fire-fighting equipment could be saved by exploiting loopholes of laws and following an older fire-fighting plan. But, I believed that the plan would become stricter as the urban environment changed. Therefore, I asked our engineering team to install equipment in accordance with the latest high standards. Now, some years later, the fire-fighting equipment is due for a new round of approvals to meet requirements for upgrading and transformation of a commercial building. As a result of my initial far-sighted decision, there has been no need to add more time and money into this. During my time working on business operations, officials from administrative departments have sometimes reminded me that our issues might be solved by seeking more personal connections. Yet, from my perspective, this cannot serve as our sole focus. We must exercise law-based and compliant operations, while meeting the requirements of urban development. For the existing problems, we do our utmost best to address them. Only by doing so can we stabilise and develop our enterprises for the long haul.

For those of us in business, our operation is dependent on urban development and it’s crucial for entrepreneurs to figure out the positioning of the cities where our businesses are based. As an example, a wholesale market that we operated in Yuexiu District has been a local leading enterprise for many years. With the

8Chinese Cities of Opportunity 2018

Suzhou Photo by Ryan Yang (PwC)

development of the city, however, I predicted that non-city functions would eventually be transferred. As a result, in recent years we have been improving the functions for further transformation and upgrading. By doing so, we have been able to keep up with the changes in the environment at Yuexiu District, which is now planned to become a finance and innovation centre.

In November last year, I also held a sharing session on the principles of the 19th CPC National Congress with our group’s management members. Hopefully, they can move beyond their older concepts and put in place new requirements as well as objectives that align with this new era. For us, the “green hills and clear waters” specified at the 19th CPC National Congress requires us to enhance our environmental standards. We must head for this new objective.

I have been asked what impressed me most about the report. For me, it is the continuous implementation of stricter party discipline since the 18th CPC National Congress! Given the vast territory of our nation, loose governance here and there is doomed to fail. This is also true for us. We are called on to manage our enterprises strictly, and to value new concepts and objectives so that we can keep up in this new era.

9 PwC

Comparison and analysis of ranking

1043

1008

993

963

926

877

866

864

852

797

794

781

748

746

738

737

727

716

716

715

656

644

641

602

537

498

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

17

18

18

20

21

22

23

24

25

26

16

Hangzhou

Wuhan

Nanjing

Chengdu

Xiamen

Xi'an

Tianjin

Changsha

Suzhou

Zhengzhou

Zhuhai

Qingdao

Jinan

Kunming

Chongqing

Ningbo

Wuxi

Fuzhou

Guiyang

Dalian

Taiyuan

Shenyang

Urumqi

Shijiazhuang

Harbin

Lanzhou

134

121

135

127

100

99

101

104

101

86

69

71

74

58

68

58

55

33

31

117

117

113

104

100

110

116

110

116

131

115

106

99

91

74

95

88

98

44

23

65

50

38

54

38

93

81

63

93

58

91

59

79

49

75

78

66

42

87

57

68

71

48

52

121

111

133

98

113

110

107

97

82

88

85

108

88

84

77

109

57

58

89

72

73

76

53

76

51

58

76

63

50

33

31

58

58

46

32

36

25

37

138

114

96

115

108

96

116

99

74

82

90

64

59

58

44

55

56

60

50

25

77

50

72

68

84

66

56

83

56

66

121

79

138

121

108

125

116

81

131

124

140

90

126

90

99

97

142

84 43 80 147 87 74 30 117

75 78 79 108 34 77 94 114

93

93

71

79 72 48 59 70 99 66 110

60 142 60 51 28 99 74 81

127

62 73 63 107 59 61 107 90

54 79 47 82 75 76 63 96

74

68

95

69

87

70

46

69

29

63

13

37

50

22

47

58

64

81

59

65

18 75 85 101 67 56 99 72

73

66

101

71

49

61

96

80

71

80

94

50

66

96

74

80

85

69

76

70

62

70

87

79

69

34

48

37

47

56

44

37

Intellectual capital and innovation





ScoreHealth, safety and public security


Technical maturity


1043

1008

993

963

926

877

866

864

852

797

794

781

748

746

738

737

727

716

716

715

656

644

641

602

537

498

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

17

18

18

20

21

22

23

24

25

26

16

Hangzhou

Wuhan

Nanjing

Chengdu

Xiamen

Xi'an

Tianjin

Changsha

Suzhou

Zhengzhou

Zhuhai

Qingdao

Jinan

Kunming

Chongqing

Ningbo

Wuxi

Fuzhou

Guiyang

Dalian

Taiyuan

Shenyang

Urumqi

Shijiazhuang

Harbin

Lanzhou

134

121

135

127

100

99

101

104

101

86

69

71

74

58

68

58

55

33

31

117

117

113

104

100

110

116

110

116

131

115

106

99

91

74

95

88

98

44

23

65

50

38

54

38

93

81

63

93

58

91

59

79

49

75

78

66

42

87

57

68

71

48

52

121

111

133

98

113

110

107

97

82

88

85

108

88

84

77

109

57

58

89

72

73

76

53

76

51

58

76

63

50

33

31

58

58

46

32

36

25

37

138

114

96

115

108

96

116

99

74

82

90

64

59

58

44

55

56

60

50

25

77

50

72

68

84

66

56

83

56

66

121

79

138

121

108

125

116

81

131

124

140

90

126

90

99

97

142

84 43 80 147 87 74 30 117

75 78 79 108 34 77 94 114

93

93

71

79 72 48 59 70 99 66 110

60 142 60 51 28 99 74 81

127

62 73 63 107 59 61 107 90

54 79 47 82 75 76 63 96

74

68

95

69

87

70

46

69

29

63

13

37

50

22

47

58

64

81

59

65

18 75 85 101 67 56 99 72

73

66

101

71

49

61

96

80

71

80

94

50

66

96

74

80

85

69

76

70

62

70

87

79

69

34

48

37

47

56

44

37

Intellectual capital and innovation





ScoreHealth, safety and public security


Technical maturity

11 PwC

I. Intellectual capital and innovation

The “Intellectual capital and innovation” dimension includes six variables. These are “turnover rate of full-time teachers”, “scale of secondary vocational education”, “proportion of spending on science and technology”, “level of research and development”, “entrepreneurial environment” and “innovation application”. Given the limited data sources, there are fewer variables in this dimension than in previous years. Therefore, the scores and city ranking for the dimension are not directly comparable with the respective scores from the preceding years. Based on the overall distribution of the city ranking, however, no major changes to the bigger picture are observed.

Data shows that the top eight cities are Nanjing, Hangzhou, Chengdu, Wuhan, Changsha, Tianjin, Suzhou and Xiamen. The bottom eight cities are Dalian, Chongqing, Taiyuan, Urumqi, Shijiazhuang, Fuzhou, Harbin and Lanzhou. While the 10 cities in the middle of the rankings are Xi’an, Qingdao, Zhuhai, Ningbo, Zhengzhou, Guiyang, Wuxi, Kunming, Jinan and Shenyang.

Xiamen, Suzhou and Zhuhai secured the top three places in the variable of “turnover rate of full-time teachers”, indicating the rigid demand for primary and secondary school teachers arising from population growth. This trend is also observed in the “rate of change in floating population” variable.

The “scale of secondary vocational education” and “turnover rate of full-time teachers” variables are both aimed at observing adolescent

education, albeit from different angles. The turnover of full-time teachers places particular emphasis on the changes to a floating population. Emerging coastal cities invariably rank in the top positions for this variable. The scale of secondary vocational education variable observes the supply of skilled workers in a city. Graduates from technical secondary schools often work in the same city, and some technical secondary schools act as educational establishments for enterprises stationed in the city, showing a strong relevance with the real economy. So compared with the observation of the size of undergraduates, this variable is more conducive to demonstrating the long-term impact of intellectual capital. Notably, Wuhan, Taiyuan, Guiyang, Nanjing and Zhengzhou are top ranking cities for this variable, most of which are industrial powerhouses.

The top scorers for “proportion of spending on science and technology” include Zhuhai, Suzhou, Wuhan, Hangzhou and Nanjing, showing the demand in these cities for technology spending, as well as their relatively stable fiscal strength, underpinning technology spending.

“Level of research and development” is a composite variable constituted of three factors. Due to the limited data sources, we do not have access to recent data, but a comparison is still applicable. The highest ranked cities are Nanjing, Wuhan, Xi’an, Hangzhou and Tianjin.

The last two variables reflect entrepreneurship and innovation, with the top three cities for these being Hangzhou, Chengdu and Nanjing.

Together with the “level of research and development”, the two final variables of the dimension relate to the achievements of graduates and post-graduates to some extent. They illustrate the state of scientific and technological innovation, and also reflect important factors for intellectual capital. Overall, Nanjing, Hangzhou, Chengdu and Wuhan secured the top four positions in this dimension, each registering in the top positions of the six variables.

As China emphasises a national strategy of revitalising the country through science and technology, all cities have scientific advancement and application high up on their agendas. This onus is readily seen as one glances over the mayor’s report on the government work for each city. The different cities have diverse industrial foundations and scientific resources, as well as distinctive development directions and speeds. We can only provide a basic description of the general conditions. Closer and deeper observations on each city would be required for a more nuanced understanding of each city’s intellectual capital cultivation and scientific innovation.


1

2

3

4

5

6

6

8

9

10

11

12

13

14

14

17

18

19

20

21

21

23

24

25

26

16

Nanjing

Hangzhou

Chengdu

Wuhan

Changsha

Tianjin

Suzhou

Xiamen

Xi'an

Qingdao

Zhuhai

Ningbo

Zhengzhou

Guiyang

Wuxi

Kunming

Jinan

Shenyang

Dalian

Chongqing

Taiyuan

Urumqi

Shijiazhuang

Fuzhou

Harbin

Lanzhou

135

134

127

121

104

101

101

100

99

86

84

79

75

74

74

71

69

68

62

60

58

58

55

54

33

31

16

21

22

2

23

13

25

26

8

14

24

17

11

20

10

18

15

4

12

6

7

19

9

5

1

3

23

15

20

26

6

8

5

9

18

16

3

1

22

24

11

21

19

14

12

4

25

17

13

10

2

7

22

23

16

24

13

19

25

15

17

8

26

21

7

18

20

10

5

14

12

3

9

11

6

4

1

2

26

23

19

25

21

22

4

12

24

21

3

2

9

7

6

10

15

16

14

17

11

2

8

5

18

13

24

26

25

23

19

21

22

20

17

13

10

15

14

3

8

6

12

11

7

18

5

1

9

16

4

2

24

26

25

21

22

18

20

18

15

14

18

23

12

2

19

6

3

9

5

12

1

8

10

14

7

4

Turnover rate of full-time teachers

Scale of secondary vocational education

Proportion of spending on science and technology

Level of research and development

Entrepreneurial environment

Innovation application

Total

13 PwC

Complementarity between a research university and an intellectual-innovative city

Liu Hongxia

Associate Vice Chancellor, NYU Shanghai

I am pleased to see that intellectual capital and innovation ranks at the top of the quantitative indicators of Chinese Cities of Opportunity. The core of intellectual capital and innovation is the cultivation of human talent, and the core of cultivating human talent is education. The quantitative indicators used here for the evaluation of investment in intellectual capital for Chinese Cities of Opportunity include: spending on science and technology, level of research and development, entrepreneurial environment, and innovation application. To a large extent, these variables correlate positively, I believe, to the capacity-building of university in a city–in particular, research university.

The development strategies of China’s many large cities highlight strengthening university capacity, especially in relation to top research universities. Strengthening university capacity does not however, mean building more universities. Rather, universities must embrace such a development goal from quantity to quality in order to cultivate more innovative talent for society. President Xi Jinping, at the 19th National Congress of the Communist Party of China declared: “We will move faster to build Chinese universities into world-class universities and develop world-class disciplines as we work to bring out the full potential of higher education.” Building world-class universities and world-class disciplines is a new measure by which cities and municipalities can pursue for the promotion of intelligence and innovation. There are numerous examples at home and abroad which

PwC13


their respective host cities, a new generation of “innovative” talent.

The cultivation of “innovative” talent and building of world-class universities does not mean chasing immediate or fancy gains on the surface. Initially at NYU Shanghai, many parents want their children to study business and finance, so that they are on a fast track to become senior executives or even presidents of enterprises, banks or investment companies. Our leadership and faculty encourage our students and their parents to take note of the fact that few Chairs/CEOs of the world’s top 500 companies graduated with undergraduate majors in business and finance. Many instead studied subjects such as history, literature, philosophy, mathematics or art. Our university stresses the importance of a liberal arts education. Students can choose their majors based on their own interests after a two-year general education. They can also study for one to two semesters in another campus within New York University’s global network, which spans 13 other top cities around the world. Consequently, students can pursue their own dreams and careers, maintain their spontaneity and enthusiasm, and broaden their international perspectives.

Over a year ago, I assisted John Sexton, the former President of New York University, to teach an undergraduate elective course at NYU Shanghai. John applied the Socratic heuristic teaching method throughout the entire course, encouraging students to seek out facts, raise questions, and conduct debates. The class catered to 18 students, half of them hailed from China, and half from

other countries including the US, UK, Pakistan and the Philippines. All students engaged equally in the discussions and debates with John in and out of classroom. At the end of semester when asked about their biggest gains from this course, the students answered that it was courage and capacity for independent analysis based on facts, it was confidence for expressing their own thoughts, and it was temperament when seeking common ground amid different perspectives across cultures.

In conclusion, while some indicators used here to evaluate investment in a city’s intellectual capital and innovation environment can be quantified, others cannot. Even if some indicators cannot be quantified, it doesn’t necessarily mean that they are unimportant. In the long-term, support for and acceleration of the building of world-class universities and world-class disciplines will come to serve as a viable bridge for host cities to enhance investment in intellectual capital and environment for innovation. Several key factors, such as liberal arts education with international perspectives, heuristic teaching method, encouragement of critical thinking, and an academic atmosphere premised on tolerant and inclusive communication, can determine whether Chinese universities will succeed in inner-capacity building and advance into the world’s top rank, while delivering innovative talent in the future generations.


Chengdu Tianfu Software Park

demonstrate that a research university and an intellectual-innovative city complement each other well and promote mutual development.

As the inner-quality demands on Chinese universities increase, Chinese-foreign joint-venture institutions have sprung up as a new mode of higher learning. Examples include Xi’an Jiaotong-Liverpool University, University of Nottingham Ningbo China, New York University Shanghai (NYU Shanghai), Duke Kunshan University, Wenzhou-Kean University, Beijing Normal University-Hong Kong Baptist University United International College, The Chinese University of Hong Kong Shenzhen, Guangdong Technion Israel Institute of Technology, and Shenzhen MSU-BIT University. Notably, these universities, as independent legal entities, are located in Shanghai or other coastal cities-which lead their peers in indicators of intellectual investment and innovation in Chinese Cities of Opportunity. These cities all enjoy a high degree of internationality and their local governments, enterprises, communities and citizens are relatively open and inclusive for these “mixed-blood” institutions. Such factors ultimately lead to, in varying degrees, access to financial and material resources and at the same time recognition in stature and accommodation in policy. As a result, these institutions are well placed to apply internationally advanced pedagogy, curriculum, and faculty and student management. In serving as an “experimental field” for China’s reform in the higher learning and cultivation of world-class universities, these joint-venture universities are grooming, in

PwC15

II. Technical maturity

1

1

3

4

5

6

7

8

9

10

11

11

13

14

15

17

18

19

20

21

22

23

24

25

26

16

Hangzhou

Wuhan

Nanjing

Suzhou

Chengdu

Xi'an

Tianjin

Qingdao

Chongqing

Jinan

Changsha

Wuxi

Xiamen

Fuzhou

Ningbo

Shenyang

Dalian

Zhengzhou

Harbin

Zhuhai

Kunming

Shijiazhuang

Taiyuan

Lanzhou

Guiyang

Urumqi

117

117

113

110

104

100

95

87

81

70

69

69

68

65

64

63

59

58

50

47

46

37

29

22

18

13

Internet plus Digital economy Software and multimedia design

Technology market size

Number of high-tech incubators

Total

25

24

18

20

26

19

17

14

23

11

21

8

15

22

13

12

6

16

7

4

10

9

5

1

3

2

26

25

22

23

16

15

11

14

4

13

17

12

24

18

20

7

5

19

1

21

9

10

8

2

6

3

25

19

26

21

24

20

17

22

14

23

9

13

16

12

11

15

18

7

8

10

4

6

1

3

5

2

17

26

25

20

21

25

25

18

22

13

7

16

10

11

10

16

14

3

19

5

10

5

7

12

3

1

24

23

22

26

17

21

25

19

18

10

15

20

3

2

10

13

16

13

15

7

13

7

8

4

1

5


Since President Xi proposed the enhancement of supply-side reform in November 2015, the innovation-driven approach has been upgraded to a state-level strategy. Subsequently, the 19th CPC National Congress made clear that “innovation” is the primary driving force behind development, and that China encourages the vigorous development of emerging industries that utilise resources reasonably and have high added value. The “technical maturity” dimension is designed to weigh up the development status of the cutting-edge technology industry in each of the cities. It includes five variables which are; “Internet plus”, “digital economy”, “software and multimedia design”, “technology market size” and “number of high-tech incubators”.

The last variable for this dimension, “number of high-tech incubators”, has been included for the first time this year. This new addition takes the number of state-level high-tech incubators as its key measure. High-tech incubators are the cradle of implementing the strategy of independent innovation, cultivating leading high-end, forward-looking, and strategic emerging enterprises at an early stage. By adding this variable, we aim to extend insight into the application status of the high-end technology industry in China, helping the observations of the “technical maturity” dimension to keep pace with urban developments.

The top five cities in this dimension are Hangzhou and Wuhan (tied), Nanjing, Suzhou and Chengdu, each of which takes first place in the five variables respectively. The “digital economy” variable uses AliResearch’s “e-commerce development index” to rank cities, and Hangzhou tops the list in this regard. Alibaba Group, the earliest and largest Internet enterprise in China, is headquartered in Hangzhou,

which has led to the city becoming the e-commerce centre for China and indeed, the whole world. On the same day of the “Double Eleven” shopping spree of 2017, TMALL recorded CNY168.2 billion in turnover, setting a new global record for online sales. Alibaba’s enormous economic volume has galvanised the development of the digital economy in Hangzhou and across China.

The “technology market size” variable includes two sub-variables, namely, “technology output turnover” and “technology input turnover”. Wuhan and Nanjing hold the first two places in the variable, both of which are home to famous universities. As a hub of talent in central China, Wuhan now has over 80 universities with over one million college students, while Nanjing is an important scientific research education base in eastern China, where the pool of high-quality talent and abundant educational resources continue to spur rapid local industrial development. Universities in Nanjing have been focused on developing science and technology, and the city now stands above its peers in the software industry, surpassed in China only by Beijing and Shenzhen. With regard to the variables, Nanjing is top of “software and multimedia design”. Nanjing also takes the second place in the variable of “technology market size” (tied with Xi’an and Tianjin), highlighting the positive urban benefits that correlate with the presence of well-known universities and research institutions.

As noted, the newly added variable of “number of high-tech incubators” helps to measure the level of technical maturity demonstrated by high and new technology and emerging industries. Suzhou scores the highest among the 26 cities in this field. Suzhou is a national hub for the high-tech industry, with Suzhou Industrial Park playing a special role as an experimental zone for

cultivating innovation. The city is also host to Suzhou Nanopolis, the largest integrated business community for the nanometer technology industry in the world. Having grown incrementally over time, the site is now home to more than 260 signatory enterprises and institutions related to nanometer technology, and continues to attract new enterprises. In 2017, Suzhou saw the addition of seven new state-level high-tech incubators. As a result of these service providers that cultivate and foster small and medium-sized high-tech enterprises, Suzhou is well positioned to continue to mobilise the development of high-tech enterprises in the Yangtze River Delta Area.

Taking the “Internet Plus Digital Economy Index” as the basis for measurement, the “Internet plus” variable reflects the degree of integration of Internet, cloud computing, big data, the Internet of Things and related technology with agriculture, industry, catering, tourism, transportation, retail e-commerce, finance and other sectors. Chengdu ranks at the top in this variable. The city is known as the “fourth city of games” and “city of mobile games” due to the local digital game industry’s prosperous development. Relevant statistical data indicates that in 2016, the Chengdu Hi-tech Industrial Development Zone attracted more than 300 digital game-related companies. Talent lies at the core of intellectual resources, underpinning the development of “Internet plus”. Chengdu ranks first in western China as a hub for talent with the skills to continue the development of “Internet plus”. Progressing with “Internet plus” can help to increase the economic efficiency, stimulate the development potential and mobilise robust advancement of the real economy in Chengdu.

Hangzhou Photo by Melody Chen (PwC)

17 PwC

According to China’s “13th Five-year Plan”, development of the nation’s new-type urbanisation will see the concept of city clusters replace the former approach of point-to-point city development. Within the scope of enhancing the leading function of central cities, 19 city clusters will be developed. At the centre of each city cluster will be a megacity, which will mobilise and galvanise the development of smaller neighbouring cities, and facilitate regional economic development. Consequently, in this report, the “major regional cities” dimension is used to review the role of each observed city in its region, and its capacity to mobilise overall development in that region. This dimension includes six variables, namely, “star-graded hotels”, “international tourists”, “inbound and outbound flights”, “passenger capacity”, “freight volume” and “exhibition/convention economy development index”. The remit of our observation includes provincial capitals, and cities with advanced economies in certain regions, as well as gateway cities with deep international ties.

Statistics show that Chongqing, Chengdu, Hangzhou and Nanjing (tied), and Xiamen are the top five cities in this dimension. Chongqing ranks among the top three in the variables of “international tourists”, “passenger capacity” and “freight volume”, while Chengdu is top in the variables of “passenger capacity” and “exhibition/convention economy development index”. The results highlight the decisive role that both cities play in the city clusters of the central and western regions. Hangzhou is placed first in the variable of “star-graded hotels” thanks to its rapid economic development and strengthened external communications in recent years. In addition, Nanjing and Xiamen have achieved relatively balanced development as hubs with

III. Major regional cities

142

131

116

116

115

110

106

99

98

95

91

88

79

78

75

74

73

72

65

54

50

44

43

38

38

23

Total

1

2

3

3

5

6

7

8

9

10

11

12

13

14

15

17

18

19

20

21

22

23

24

24

26

16

Chongqing

Chengdu

Hangzhou

Nanjing

Xiamen

Wuhan

Xi'an

Tianjin

Kunming

Qingdao

Changsha

Jinan

Fuzhou

Zhengzhou

Guiyang

Suzhou

Dalian

Ningbo

Shenyang

Harbin

Urumqi

Wuxi

Zhuhai

Lanzhou

Shijiazhuang

Taiyuan

Inbound and outbound flights

Star-graded hotels International tourists

Passenger capacity

Freight volume Exhibition/convention economy development index

22

24

26

26

24

16

16

10

18

18

22

19

20

4

9

1

7

12

3

13

6

12

14

8

5

2

24

19

18

15

25

22

17

26

12

16

7

6

21

8

3

23

14

11

13

5

9

10

20

1

2

4

23

26

15

21

25

8

18

6

17

24

16

20

4

22

5

19

7

13

10

11

12

9

1

14

2

3

26

11

16

17

13

24

10

25

15

14

18

19

12

8

20

4

22

23

9

1

6

5

2

3

21

7

24

26

19

16

8

22

21

18

10

6

12

15

14

17

25

23

11

9

20

13

2

7

4

5

3

1

23

25

22

21

20

18

24

14

26

17

16

9

8

19

13

4

12

4

10

11

15

1

2

7

5

6

Tianjin Photo by Faust Ren (PwC)



142

131

116

116

115

110

106

99

98

95

91

88

79

78

75

74

73

72

65

54

50

44

43

38

38

23

Total

1

2

3

3

5

6

7

8

9

10

11

12

13

14

15

17

18

19

20

21

22

23

24

24

26

16

Chongqing

Chengdu

Hangzhou

Nanjing

Xiamen

Wuhan

Xi'an

Tianjin

Kunming

Qingdao

Changsha

Jinan

Fuzhou

Zhengzhou

Guiyang

Suzhou

Dalian

Ningbo

Shenyang

Harbin

Urumqi

Wuxi

Zhuhai

Lanzhou

Shijiazhuang

Taiyuan


Star-graded hotels International tourists

Passenger capacity

Freight volume Exhibition/convention economy development index

22

24

26

26

24

16

16

10

18

18

22

19

20

4

9

1

7

12

3

13

6

12

14

8

5

2

24

19

18

15

25

22

17

26

12

16

7

6

21

8

3

23

14

11

13

5

9

10

20

1

2

4

23

26

15

21

25

8

18

6

17

24

16

20

4

22

5

19

7

13

10

11

12

9

1

14

2

3

26

11

16

17

13

24

10

25

15

14

18

19

12

8

20

4

22

23

9

1

6

5

2

3

21

7

24

26

19

16

8

22

21

18

10

6

12

15

14

17

25

23

11

9

20

13

2

7

4

5

3

1

23

25

22

21

20

18

24

14

26

17

16

9

8

19

13

4

12

4

10

11

15

1

2

7

5

6

Nanjing playing an important role as a major city in eastern China, and Xiamen serving as the central city in the southeastern coastal area.

While continuing to hold the top spot in the variable of “freight volume”, Chongqing ranks third in the variable of “passenger capacity”. It also takes the strategic position of traffic hub in the southwestern region, as the only megacity in the upper reaches of the Yangtze River with transportation resources spanning water, land and air. After years of development, Chongqing has completed the expressway network referred to as “two ring roads and ten radial highways”, as well as the railway network known as “one pivot and eight trunk lines”. Additionally, the port has an annual throughput output of 160 million tons. At the same time, the “YUXIN’OU” (Chongqing-Xinjiang-Europe) International Railway has developed a regular all-purpose operation. The railway serves as the

major route for land borne trade between China and Europe, with a total journey duration that has been reduced to just 13 days.

Concurrently, Chengdu, the fourth largest aviation hub and fifth largest railway hub in China, is evidently accelerating its internationalisation at pace. The “Chengdu-Europe Plus” International Railway from Chengdu to Lodz, Poland now sees regular operation. The number of air routes to Europe and North America opened by Chengdu ranks first in the central and western regions, so its position at the top for the variable of “passenger capacity” is also well-deserved. In addition, as an international gateway and hub city, Chengdu has overseen rapid development of its exhibition economy.

Kunming comes out top in the variable of “inbound and outbound flights”, being a gateway city and regional

transport hub facilitating connection with South and Southeast Asia. It is also the largest supplier of fresh-cut flowers in China, and in fact, Asia.

Also of note, Xiamen ranks among the top three in three out of the six variables of this dimension, including occupying second place in the variables of “international tourists” and “exhibition/convention economy development index”. After successfully hosting the BRICS Summit in 2017, Xiamen has increased development of its exhibition economy, while its picturesque port city environment and position as the special economic zone will continue to facilitate urban development in the future.

We believe that driving the development of city clusters by improving the major city and subsequently advancing coordinated development across the region will prove to be a successful new direction for urbanisation in China.

International mobility of productive factors and governance modernisation

Wang JianYe

Professor, Guangzhou Institute of International Finance and NYU ShanghaiFormer MD, Silk Road Fund Chief Economist, China Exim Bank

PwC19

China has recently announced plans to further open up its financial sector. The significant measures are to remove limits on foreign equity share in banks and asset management companies, treating domestic and foreign investors equally; to phase out equity share limits in securities and insurance firms, allowing foreign ownership up to 51% immediately and to 100% in three years for the securities industry, and in five years for the insurance industry. Meanwhile, the government has announced further reduction of import tariffs on consumer goods, and entry barriers to the domestic tertiary industry.

We all know that developing countries have huge unmet investment needs, including in infrastructure. International financing cost has been extremely low since the financial crisis in 2008. Why haven’t we seen capital, talents and other productive factors swarm to these countries? A recent study by World Bank (WB) staff indicates that emerging markets and developing countries suffered from a sharp drop in the growth rate of per capita investment in the post-crisis period. Non-BRICS commodity exporters experienced a decline from about 7% in 2010 to 0.1% in 2016, while per capita investment recovered in developed countries to near their long-term average by 2014-15. The WB research suggests that the main reasons behind the sluggish investment and growth in most developing countries are internal: worsening business environment, piled-up corporate debts, and heightened policy uncertainties – these explicit and implicit domestic barriers have impeded inflows of capital and other productive factors. The external environment also played a role, mainly

on their relative scarcity and hard infrastructure (e.g., roads, availability of electricity), but also fundamentally on the clustering of such factors (positive externality) and “soft infrastructure”, i.e. an open, fair, and transparent business environment, along with strong protection for property rights including IPR, adequate supply of other “public goods” supported by low and non-discriminatory taxation, sustainable public finances, as well as governance of society abiding by rule-of-law.

Our history over the past 40 years has been a process of continuing efforts to open up, increasing international mobility of capital and other productive factors, to clearly delineate property rights, to enlarge and ultimately to let the market play a dominant role in resource allocation, as well as to reform and modernise governance. The CPC Third Plenary Session of the 18th Congress was committed to modernising the country’s governance systems. While much has been achieved, we should be sober on the challenges going forward. Two of the most prominent challenges come from reform of SOEs and public finances.

As China advances its economic transition, SOEs are still dominant or important in many industries. However, rate of return on investment and on assets in SOEs had been trending down and far below that of private enterprises. SOE reform, therefore, needs to develop market-compatible corporate culture and incentives, breakup entry barriers, remove implicit subsidies, subject SOEs to competitive pressures, and significantly improve corporate governance.

Public finance reform is particularly important in modernising a country’s economic and social governance, requiring difficult reforms on the revenue and expenditure side, as well as on central-local financial relations. A good revenue system, in my view, should not rely heavily on non-tax revenues. The tax regime should encourage or not punish business and innovations, and help reduce income/wealth disparities. It needs to be simple, without too many taxes, using relatively low rates, and relying mainly on direct taxation, with few exemptions, which in practice often become rent-seeking loopholes. The recent tax reform package enacted in the US, together with tax reforms by other developed countries could add pressure on countries with high tax rates, low tax administration capacity, and high government/broad public sector financing costs. Such pressure will be increasing with population aging, therefore, timely revenue reform to increase progressivity of the tax system, and reform of the broad public sector to reduce costs, increasing the efficiency of providing “public goods” are critical for achieving fiscal sustainability and lasting prosperity.

Increasing international mobility of capital, talents and other productive factors put pressure on domestic reform. Under certain conditions where forces of reform overcome the resistance of vested interests, the pressure leads to institutional and governance modernisation. The essence of the Belt and Road Initiative is to open up, which will ultimately benefit the business community as well as society at large. It will benefit the reforming countries and their international partners, resulting in a true “win-win” outcome.


Hangzhou Photo by Kim Sheng (PwC)

through the impact of slowdown by large economies including China, and deteriorating terms-of-trade.

With regard to China’s cross-border capital flows in recent years, three types of driving forces have become observable: cyclic driver: US Fed’s exit from quantitative easing (QE), changing expectations on interest rate differentials and exchange rate movements led domestic entities to adjust their foreign debt and asset positions; structural driver: rising domestic costs (of labour, land, compliance of environmental regulations, etc.). As China’s industrialisation reached a plateau, with large overcapacity, investment returns in traditional industries began to diminish; and governance driver: which affect state-owned enterprises (SOEs) through corporate governance, and non-SOE enterprises through taxation, regulatory regimes, property rights including IPR protection, law enforcement, as well as various other interferences in the playing field for business.

The cyclic driver is relatively easy to understand, although cross-border flows of short-term capital could be volatile and destabilising; the structural driver needs be handled through structural adjustment, industrial upgrading to move up the value-chain, increasing efficiency and productivity of the Chinese economy. The governance driver is arguably even more important, having a deep and lasting impact on cross-border flows of productive factors.

Evidence at home and abroad suggests that productive factors flow from poor to good environments, from low-return to high-return territories. The rate of return on productive factors depends not only

21 PwC

The 19th CPC National Congress report considers a “healthy population” to be a key characteristic of a strong and prosperous nation, and documents that implementation of the Healthy China initiative will commence in the next period. The “health, safety and public security” dimension of this report is designed to review the medical resources in each city that underpin residents’ health, urban safety and public security, and in so doing, offer effective considerations for city administrators. There are five variables used in this dimension, which are “medical resources”, “medical facilities”, “elderly care”, “urban traffic safety index” and “loss due to disasters”. These variables help to provide an indication of the state of medical services, elderly care and comprehensive security of a city. They are useful for making observations and comparison between cities, though, additional meticulous study would be required for a more in-depth appreciation of safety and security in each specific city.

The top ranking cities for this dimension are Hangzhou and Chengdu (tied), Xi’an, Taiyuan and Guiyang, which are then followed by Wuhan, Zhuhai, Changsha and Zhengzhou (tied), and Jinan. When it comes to the ranking of this dimension, there is no clear geographical disparity in city distribution, but we can see that the top ranked cities are predominantly made up of provincial capitals. One reason for this relates to Chinese medical resources being primarily concentrated in provincial capitals, where management resources are relatively abundant.

Hangzhou, the city with the best performance in this dimension, remained top in the variable of “elderly care”, benefiting from a track record of attaching importance to elderly care over the years, and consequently, has accumulated substantial experience and development in this area. Hangzhou has

cared for an aging community since the 1980s. Indeed, the city established an approach known as “9064”. This sets out the target for 90% of the city’s elderly population to live in independent home-based care, which relies on communities to care for the individuals with assistance from social services; 6% to receive care at home, benefiting from the governments’ purchasing service; and 4% to live in retirement institutions that provide concentrated elderly care services. In addition to benefiting local residents, Hangzhou’s innovative policies for elderly care have provided a useful template for other cities to follow. In recent years, Hangzhou has successively released 11 comprehensive policy papers, over 30 supporting policies and six local standards to advance care for the elderly. The city has also established a leading group for building their elderly care system and a steering group for the integrated pilot reform of the elderly care industry, which is headed by municipal leaders, and aims to continue advancing the work of elderly care in a holistic manner. Guiyang is another city that grades well in this dimension, seeing its ranking rising in step with its economic development over the years. Guiyang has also maintained top position for four consecutive years among Chinese provincial capitals when it comes to economic growth rate. Over this period, Guiyang has worked to develop emerging science and technology, and positioned itself as a hub for big data. The city has been approved to build the state-level nesting zone for big data industrial development, together with the pilot site for technology innovation of the big data industry. It is also the core of the national big data (Guizhou) comprehensive pilot site. Ongoing economic development can continue to spur further improvements at the urban administration level, provide richer life convenience, while helping to improve health and public security for the residents.

Notably, four non-provincial capitals, Zhuhai, Suzhou, Wuxi and Xiamen, lie at the bottom of specific variables used in this dimension; while Ningbo- another non-provincial capital–also rank among the bottom in some variables. Although the positions of some are not the very lowest in the dimension, the general lagging performance of cities that are not provincial capitals in specific variables indicates that these cities–which are all open coastal cities with rapid economic growth–still have work to do in improving their capacities in this dimension.

93

93

91

87

85

81

80

79

79

78

75

71

68

66

63

63

60

59

58

57

52

49

48

48

47

42

Total

1

1

3

4

5

6

7

8

8

10

11

12

13

14

15

17

18

19

20

21

22

23

23

25

26

15

Hangzhou

Chengdu

Xi'an

Taiyuan

Guiyang

Wuhan

Zhuhai

Changsha

Zhengzhou

Jinan

Qingdao

Shijiazhuang

Urumqi

Kunming

Nanjing

Dalian

Chongqing

Tianjin

Xiamen

Shenyang

Lanzhou

Suzhou

Harbin

Ningbo

Fuzhou

Wuxi

Medical facilitiesMedical resources Elderly care Urban traffic safety index

Loss due to disasters

11

26

24

13

12

15

23

16

25

21

18

22

14

17

7

10

9

2

1

3

19

8

20

4

5

6

9

20

13

14

24

18

11

25

26

3

21

23

6

19

8

16

22

10

17

5

2

12

4

7

15

1

26

9

17

11

14

6

25

7

13

16

20

2

12

3

15

10

8

18

24

19

1

22

4

23

5

21

23

20

24

23

18

26

2

10

8

13

5

14

13

5

21

13

20

26

8

15

10

2

18

5

18

8

24

18

13

26

17

16

19

21

7

25

11

10

23

22

12

14

1

3

8

15

20

5

2

9

4

6

IV. Health, safety and public security


93

93

91

87

85

81

80

79

79

78

75

71

68

66

63

63

60

59

58

57

52

49

48

48

47

42

Total

1

1

3

4

5

6

7

8

8

10

11

12

13

14

15

17

18

19

20

21

22

23

23

25

26

15

Hangzhou

Chengdu

Xi'an

Taiyuan

Guiyang

Wuhan

Zhuhai

Changsha

Zhengzhou

Jinan

Qingdao

Shijiazhuang

Urumqi

Kunming

Nanjing

Dalian

Chongqing

Tianjin

Xiamen

Shenyang

Lanzhou

Suzhou

Harbin

Ningbo

Fuzhou

Wuxi

Medical facilitiesMedical resources Elderly care Urban traffic safety index

Loss due to disasters

11

26

24

13

12

15

23

16

25

21

18

22

14

17

7

10

9

2

1

3

19

8

20

4

5

6

9

20

13

14

24

18

11

25

26

3

21

23

6

19

8

16

22

10

17

5

2

12

4

7

15

1

26

9

17

11

14

6

25

7

13

16

20

2

12

3

15

10

8

18

24

19

1

22

4

23

5

21

23

20

24

23

18

26

2

10

8

13

5

14

13

5

21

13

20

26

8

15

10

2

18

5

18

8

24

18

13

26

17

16

19

21

7

25

11

10

23

22

12

14

1

3

8

15

20

5

2

9

4

6

23 PwC

V. Transportation and urban planning

This dimension is assessed using seven variables. These are, “road area per capita”, “public transit system”, “rail transit coverage”, “urban expansion rate”, “state of floating urban population”, “green area” and “available housing for residents”. The first three variables reflect urban traffic status, and the subsequent four relate to the urban planning conditions. On this basis, analysis has been carried out on the state of transportation and urban planning in every city. Included in these variables is the “state of floating urban population”, which observes the changes to a floating population in the cities over five years.

In this dimension, Zhuhai and Nanjing rank among the top cities in most variables. Consequently, both cities come out at the top of the rankings for the second consecutive year. The two cities are followed closely by Hangzhou, Xiamen, Wuhan and Xi’an. Despite the smaller urban area, Zhuhai ranks the first in the three variables of “road area per capita”, “urban expansion rate” and “available housing for residents”, which use per capita figures and land area for measurement. One factor for these results relates to the city’s population being relatively less permanent than that of many of the comparable cities.

147

133

121

113

111

110

109

108

108

107

107

101

98

97

89

88

88

85

84

82

82

77

59

58

57

51

TotalUrban expansion rate

Public transit system

Rail transit coverage

State of floating urban population

Green area Available housing for residents

1

2

3

4

5

6

7

8

8

10

10

12

13

14

15

16

18

19

20

20

22

23

24

25

26

16

Zhuhai

Nanjing

Hangzhou

Xiamen

Wuhan

Xi'an

Urumqi

Kunming

Zhengzhou

Tianjin

Dalian

Guiyang

Chengdu

Changsha

Lanzhou

Wuxi

Qingdao

Jinan

Taiyuan

Suzhou

Fuzhou

Shenyang

Ningbo

Harbin

Shijiazhuang

Chongqing

Road area per capita

26

25

10

19

17

15

18

14

4

16

12

5

7

9

23

21

13

24

22

20

1

11

2

8

3

6

24

20

23

25

18

22

26

18

7

12

20

15

8

15

21

4

15

12

9

3

6

10

5

16

1

2

2

26

14

7

24

19

6

17

16

20

25

5

21

15

23

13

10

4

3

12

8

22

18

9

1

11

26

7

15

1

6

3

11

12

17

16

22

26

19

26

2

10

13

5

8

9

18

20

14

21

23

4

18

6

17

22

20

11

23

10

24

26

1

19

25

21

8

5

13

15

9

3

16

4

7

2

14

12

25

26

18

24

4

20

23

19

15

6

22

18

10

2

6

21

12

9

16

14

14

7

3

1

11

9

26

23

24

15

22

20

2

18

25

11

5

13

8

9

6

14

12

16

17

21

19

3

10

1

4

7


147

133

121

113

111

110

109

108

108

107

107

101

98

97

89

88

88

85

84

82

82

77

59

58

57

51

TotalUrban expansion rate

Public transit system

Rail transit coverage

State of floating urban population

Green area Available housing for residents

1

2

3

4

5

6

7

8

8

10

10

12

13

14

15

16

18

19

20

20

22

23

24

25

26

16

Zhuhai

Nanjing

Hangzhou

Xiamen

Wuhan

Xi'an

Urumqi

Kunming

Zhengzhou

Tianjin

Dalian

Guiyang

Chengdu

Changsha

Lanzhou

Wuxi

Qingdao

Jinan

Taiyuan

Suzhou

Fuzhou

Shenyang

Ningbo

Harbin

Shijiazhuang

Chongqing

Road area per capita

26

25

10

19

17

15

18

14

4

16

12

5

7

9

23

21

13

24

22

20

1

11

2

8

3

6

24

20

23

25

18

22

26

18

7

12

20

15

8

15

21

4

15

12

9

3

6

10

5

16

1

2

2

26

14

7

24

19

6

17

16

20

25

5

21

15

23

13

10

4

3

12

8

22

18

9

1

11

26

7

15

1

6

3

11

12

17

16

22

26

19

26

2

10

13

5

8

9

18

20

14

21

23

4

18

6

17

22

20

11

23

10

24

26

1

19

25

21

8

5

13

15

9

3

16

4

7

2

14

12

25

26

18

24

4

20

23

19

15

6

22

18

10

2

6

21

12

9

16

14

14

7

3

1

11

9

26

23

24

15

22

20

2

18

25

11

5

13

8

9

6

14

12

16

17

21

19

3

10

1

4

7

In recent years, rail transit has played a decisive role in tackling urban congestion and improving mobility efficiency for residents. As a new-type, convenient and environmental-friendly mode of travel, rail transit is increasingly valued by local governments. Virtually all cities mention the improvement and optimisation of rail transit construction in the “13th Five-year Plan”, which helps explain why we have selected this variable for four years in a row. Looking at the ranking, Nanjing has come out top for three consecutive years, with outstanding performance in the variable of “rail transit coverage”, an outcome that can be primarily attributed to the city’s development of rail transit over many years. Currently, Nanjing holds fourth place in China when it comes to the mileage of subways. In the next five years, 17 new rail transit lines will be built in Nanjing and the surrounding metropolitan area. It is also noteworthy that, despite the status of the permanent

population, Nanjing still maintains first position for the per capita green area, reflecting the government’s efforts to promote green space in the city and prioritise municipal planning.

The “public transit system” variable is calculated using two parameters, which look at the passenger turnover rate of public transit, and the number of buses available for every 10,000 people. As Urumqi has a lower permanent population and is also an important integrated traffic hub in the region, it ranks first in this variable, demonstrating that the per capita public transit resources in Urumqi are relatively sufficient.

It’s also worth noting the improved ranking of Wuhan and Xi’an from the previous year. These rise in rankings benefitted from the rapid development of urban transport. As the axis of China’s high-speed railway network, Wuhan has seen development increase due to advantages of a rapid and accessible

transportation system. At this moment, Wuhan lies at the centre of what is referred to as the “1-2-3-4-hour” transportation circle, while the integrated traffic system of “railway, highway, water and air transport” achieves continuous improvements. As with Wuhan, Xi’an, one of the eight leading railway hubs in China, is developing itself into an important city that acts as an “international transport corridor” and “international aviation hub”. Further, the city’s “star-shaped” high-speed railway is expected to be completed and open to traffic in 2020. Beyond that, Xi’an is also speeding up construction of its urban rail transit. Since 2017, the total mileage of rail transit under construction has reached 203.2 kilometres, and observers can witness an unprecedented nine lines being built simultaneously.

25 PwC

VI. Sustainable development and natural environment

96

96

94

87

85

80

80

80

79

76

74

71

70

70

69

69

66

62

56

50

48

47

44

37

37

34

Total

1

1

3

4

5

6

6

6

9

10

11

12

13

13

15

17

18

19

20

21

22

23

24

24

26

15

Changsha

Hangzhou

Xiamen

Wuxi

Zhuhai

Chengdu

Zhengzhou

Wuhan

Fuzhou

Jinan

Suzhou

Nanjing

Ningbo

Kunming

Qingdao

Guiyang

Tianjin

Chongqing

Shijiazhuang

Xi'an

Taiyuan

Urumqi

Harbin

Shenyang

Lanzhou

Dalian

Centralised sewage treatment rate and household waste disposal rate

Residential water resources per capita

Labour supply Rate of change in floating population

Carbon emissions

23

26

13

19

21

12

3

18

25

6

15

16

22

17

2

14

4

24

8

7

5

11

20

10

1

9

25

19

7

17

23

18

20

7

24

13

10

11

4

21

13

2

14

22

5

16

1

3

9

8

15

26

16

9

23

18

6

19

21

7

20

22

14

24

11

25

17

8

26

5

3

10

12

13

4

1

15

2

6

18

26

22

23

9

15

19

7

11

25

17

21

16

12

13

24

1

4

5

14

20

3

8

10

2

26

24

25

11

12

22

15

16

20

13

7

4

5

8

17

21

10

18

19

23

1

2

14

9

3

6

The dimension of “sustainable development and natural environment” mainly evaluates the impact of resources, environment and labour supply on the future development of cities. It includes five variables, namely “residential water resources per capita”; “centralised sewage treatment rate and household waste disposal rate”; “labour supply”; “rate of change in floating population”; and “carbon emissions”. Of these, the “rate of change in floating population” uses the ratio of permanent population to registered population to reflect the ratio of migrant workers in the workforce population, which is different from the “state of floating urban population” in the preceding dimension, which compares the changes in the floating population over a five-year period.

According to the results of data analysis, Changsha and Hangzhou both rank first. Changsha’s leadership in this dimension is attributable to its pole position in the variable of “carbon emissions”, second place position in the variable of “centralised sewage treatment rate and household waste disposal rate” and fourth place position in the variable of “residential water resources per capita”, giving it the highest accumulated score. While variable statistics can be mundane and abstract, these results offer a close approximation to real life. Changsha is a famous historical city which has made profound historical contributions to the development of modern China. Because of natural resources and industrial allocations during the era of the planned economy, Changsha shoulders a heavy burden in modern city development. Starting from the practical realities of the reform and opening up period, the people of Changsha have fully leveraged the regional advantages of the heartland in the middle reaches of the Yangtze River,

exploring a direction of development suitable for Changsha’s objective situation, and subsequently becoming among the first batch of pilot sites for the country’s resource conservation and environment-friendly society concept. This demonstrates the advantages of “sustainable development and natural environment”, which has made Changsha the centre of development for the Changsha-Zhuzhou-Xiangtan urban cluster. Currently, Changsha is working with Wuhan, Nanchang and Hefei in jointly developing the urban cluster in the middle reaches of the Yangtze River, with a view of finding a new pole of growth in the region’s development.

Wuhan is another city identified as a pilot site for the country’s resource conservation and environment-friendly society concept. Wuhan is also one of the nine central cities of China, playing a decisive role in the central region of China. Among the 26 cities, it generally ranks second, behind Hangzhou and ahead of Nanjing. It outperforms Nanjing mainly due to the impact of five dimensions, including this one.

Cities ranking at the bottom in this dimension are from central, western and northeast China. In the northeast, the positions of Harbin, Shenyang and Dalian are particularly noteworthy. These three cities are important to northeast China and have been at a disadvantageous position for development in recent years due to the adjustment in industrial structure and changes in the geographical environment. The government and academics have paid close attention to this problem, establishing a corresponding “revitalisation strategy”. This issue has also been the subject of much debate in the public and media, with public opinion focused on the

customs of the region’s government, society and people. Although our assessment tools cannot account for these deep-seated factors, the analysis of results from the resource, environment and labour supply data are quite close to actual on-the-ground realities. It is thus necessary for stakeholders such as city managers, entrepreneurs, experts and scholars to carry out in-depth studies on how to lead northeast China’s old industrial base out of this dilemma.


96

96

94

87

85

80

80

80

79

76

74

71

70

70

69

69

66

62

56

50

48

47

44

37

37

34

Total

1

1

3

4

5

6

6

6

9

10

11

12

13

13

15

17

18

19

20

21

22

23

24

24

26

15

Changsha

Hangzhou

Xiamen

Wuxi

Zhuhai

Chengdu

Zhengzhou

Wuhan

Fuzhou

Jinan

Suzhou

Nanjing

Ningbo

Kunming

Qingdao

Guiyang

Tianjin

Chongqing

Shijiazhuang

Xi'an

Taiyuan

Urumqi

Harbin

Shenyang

Lanzhou

Dalian


Residential water resources per capita

Labour supply Rate of change in floating population

Carbon emissions

23

26

13

19

21

12

3

18

25

6

15

16

22

17

2

14

4

24

8

7

5

11

20

10

1

9

25

19

7

17

23

18

20

7

24

13

10

11

4

21

13

2

14

22

5

16

1

3

9

8

15

26

16

9

23

18

6

19

21

7

20

22

14

24

11

25

17

8

26

5

3

10

12

13

4

1

15

2

6

18

26

22

23

9

15

19

7

11

25

17

21

16

12

13

24

1

4

5

14

20

3

8

10

2

26

24

25

11

12

22

15

16

20

13

7

4

5

8

17

21

10

18

19

23

1

2

14

9

3

6

27 PwC

Innovation poses a substantial challenge to corporate management

Bai Jiangong

Chairman of Shenzhen Linoya Electronics Co., Ltd.

PwC27

As a stalwart of the electronics industry, where products regularly undergo rapid changes and upgrades, we are keenly aware of the need to adapt to an innovation-driven approach.

In Shenzhen, a city where science and technology are highly advanced, we have undertaken two key innovations. One relates to upgrades in our technologies to improve production. The other has come from the establishment of a technological incubator which, by capitalising on the resources of our industrial park, has attracted more than 20 enterprises. As a result, we are projected to increase our total output from more than CNY1 billion to up to CNY10 billion at the end of next year.

In recent years, Shenzhen has grown into an international metropolis, a shift which has led to drastic changes in urban functions. Due to the initial inability of our production to keep pace with the rate of development, we went through a period in which we didn’t reap satisfactory economic and social benefits. Given this, we transferred some of our production facilities to Dongguan, though kept our headquarter office, academic workstation, and scientific research centre, as well as the output of more than CNY1 billion in Shenzhen. Additionally, more spaces have been reserved for other tech-based enterprises to establish their headquarters and R&D centres, turning a production base for in-house use into a high-tech incubator base.

Chinese Cities of Opportunity 2018 2828Chinese Cities of Opportunity 2018

are no guarantee that an enterprise will succeed. To ensure a start-up prospers, the capacity of management is critical. Therefore, we take a discreet approach to construction at our technological incubator. We determine the development path of the incubator based on the features of our business, and then select enterprises which are in line with our development goal to join. By closely combining our own development with the enterprises in the incubator, we are able to grow together, achieving win-win and multi-win outcomes.

industries which face issues that are resource or monopoly based. In the electronics industry, we are exposed to a wide array of changes, which call for breakthroughs in solving these pain points, regardless of being pushed or not. To frame this in terms of a popular word at present, we are dealing with “innovation”. By taking the initiative, we can ride this trend. If we do not, our pace may slow. If we fail to adapt to the ongoing changes, we will end up out of sync with this rapidly changing environment.

Innovation poses a huge challenge to corporate management. As I have said before; once enterprises embark along the path of transformation and upgrading they can’t return. Having stepped on the path, the end will either be success or closure. With massive investments of resources and talent, the management process is destined to be overturned. There is no way back to the origin. A failure to establish a new model when the old is broken will lead to bankruptcy and closure. It can be safe to conclude therefore, that heading for innovation is going to be more than a little bitter for enterprises.

In fact, there have been a host of problems in the implementation of the national rallying call of “mass entrepreneurship and innovation”. Perhaps the most notable of these concerns the types of campaigns that have relatively high failure rates. There are many cases which demonstrate that enthusiasm and capital support alone

Tianjin Photo by Leon Li (PwC)

At our incubator we are not engaging with the most advanced technologically innovative projects which frequently have high rates of failure. Rather, taking the objective reality into consideration, we attract mature projects that have need for the services we can provide. Positioned as a new energy technological innovation base, our incubator forms an entire industry chain for new energy vehicles, ranging from the development of chips to design of charging piles. The plan is ambitious, and the upgrading process has posed substantial challenges to our management efforts.

Braving the odds, we have opted to embrace innovation. There are two motivating forces for this. One is that innovation is encouraged and underpinned by the nation, promoted on radios and in newspapers, and by government at all levels, so we are immersed in a supportive environment. The other driver has stemmed from our endeavours to overcome difficulties we have encountered throughout the process. In the early stage of our start-up efforts, we were intrigued and content with the manufacturing program. As time has moved on, however, we have struggled with some pain points. In this context, the options are either to be resigned to the status quo, or to take steps that make significant changes. In fact, the former isn’t really a practical option. It is even harder for us, as we develop products that are technological and capital intensive, rather than other

29 PwC

VII. Culture and quality of life

This dimension represents an important aspect of city life, and is also an area where you will likely see differences between statistical data and one’s intuition. Only one variable is designed in this dimension to reflect the cultural life of the cities, although it contains several factors. As a composite variable, it measures first the proportion of culture, sports and media spending in fiscal expenditures. Second, it measures the number of professionals in the cultural, sports and entertainment industry as a proportion of professionals from all industries. Additionally, the lives of residents are measured via three variables: “traffic conditions”; “air quality”; and “standard of living”.

The results of the data analysis show that Zhuhai comes out on top, followed by Xiamen. Conversely, Nanjing, Changsha, Fuzhou, Wuhan, Hangzhou and other large cities do not hold any special advantages. Zhuhai’s first place position is clearly the result of its urban development strategy. Since the start of the reform and opening up period, Zhuhai has been one of the first batch of coastal cities to open itself to the outside world, while holding up scientific development and education as a long-term goal in its development strategy, and thus realising a balanced allocation of industrial distribution and residential planning. The urban planning layout of roads, housing and parks is orderly and takes into account the needs of the developing tourism industry in neighbouring Macau. Green aquaculture and vegetable science centres have enhanced the standard of living in the city. When it comes to industrial planning, the local R&D centres of large enterprises and branch campuses of famous universities are easily visible here, with the Lovers’ Road

built along the coast even becoming a well-known calling card for the city at home and abroad. Thanks to this long-term commitment, this small city now occupies an indispensable place in the various rankings of liveable cities. Xiamen is also one of the earliest cities to open up to the world, with its time-honoured cultural traditions, the open views of its residents and its peaceful folk customs. Xiamen’s leading performance in this dimension is attributed to the implementation of the concept that beautiful scenery is an invaluable asset to city administrators. While sustaining its rapid economic development, Xiamen has laid emphasis on environmental protection and social and cultural development over the long run, thus preserving its unique characteristics. Its outstanding performance also supplements its leading position in the dimension of “major regional cities”: Xiamen is a city defined by the balanced development of its economy and social life.

When it comes to the variable of “cultural dynamism”, the top three cities are Chengdu, Changsha and Xi’an. Along with the fifth city Taiyuan, the seventh city Guiyang and the ninth cities Shijiazhuang and Lanzhou (tied), most of them are central and western cities. One factor at play here is that our statistical methodology cannot parse out the activeness of a city’s cultural industry. From practical observation, developed coastal cities have a rich cultural industry, as film, drama, culture weeks and multimedia have expanded the cultural domain, while a variety of leisure and entertainment activities have enriched city life. This is a limitation in the statistical methodology.

The top ranked cities for the “traffic conditions” variable are relatively small cities, including Wuxi, Suzhou, Ningbo and Xiamen, which is quite revelatory. There may be numerous reasons behind this, such as a solid urban infrastructure. Other possible factors may include a rich cultural tradition, which impels urban planning to follow the law of urban development, or a high proportion of foreign investment from overseas. Regardless, these cities feature rapid economic growth, a large floating population and high living standards. They also suffer from urban challenges such as traffic congestion, but these are not particularly serious. This will be of great value in the future development of these cities.


1

2

2

2

5

6

7

8

9

10

11

12

12

12

15

17

18

19

20

21

22

23

24

25

26

16

Cultural dynamism TotalTraffic conditions Air quality Standard of living

18

11

23

26

14

18

22

14

20

7

11

20

4

22

26

24

3

5

18

18

11

6

12

3

1

8

Zhuhai

Xiamen

Nanjing

Changsha

Fuzhou

Wuhan

Hangzhou

Ningbo

Guiyang

Suzhou

Dalian

Tianjin

Wuxi

Taiyuan

Chengdu

Xi'an

Qingdao

Shenyang

Lanzhou

Shijiazhuang

Zhengzhou

Jinan

Urumqi

Kunming

Chongqing

Harbin

18

23

15

12

17

21

10

24

9

25

11

22

26

19

6

4

20

14

8

16

13

1

5

3

7

2

25

26

13

15

23

12

16

21

24

17

20

6

14

2

11

4

19

9

7

1

3

5

8

22

18

10

26

16

25

23

21

22

24

11

14

14

17

10

14

15

10

19

8

18

4

1

7

21

7

3

2

5

87

76

76

76

75

73

72

70

67

63

59

58

58

58

53

51

50

46

37

36

34

33

32

31

28

25

Tianjin Photo by Faust Ren (PwC)

31 PwC

VIII. Economic clout

A city is the product of its economic growth, and that growth in turn shapes the city. To an extent, urban scale can reflect the influence that a city wields on the surrounding area as well as on small and medium-sized cities. We’ve made observations based on six starting points: “number of well-known enterprises”; “number of financial practitioners”; “foreign direct investment”; “proportion of the urban service industry”; “nominal growth rate of gross regional domestic product”; and “total power of agricultural machinery”. Among them, the variables that reflect the degree of enterprise clustering, foreign investment, service industry and GDP growth rate are relatively intuitive, while “number of financial practitioners” and “total power of agricultural machinery” are unique.

When we observe the variables related to the number of personnel, we generally use the relative numbers as a share of the total employment population. But number of financial practitioners are different in that even though business scope is related to territory, it’s not restricted to the region. Therefore, when measuring the influence of a city, we directly use the absolute number of financial practitioners. Total power of agricultural machinery production reflects the degree of industrial application of agricultural production. Because each Chinese city has several counties under its jurisdiction, it can draw on vast rural areas as its supply base for farming and agricultural by-products and the source of its urban labour force in certain service sectors. Therefore, evaluating a city by itself without also considering its rural and agricultural production is too single-faceted.

The results of data analysis show that the top two cities in terms of “economic clout” are Hangzhou and Tianjin. Hangzhou’s position is attributed to its top score in the variable of “number of

Total

1

2

3

4

5

6

6

6

9

9

11

12

13

14

15

17

18

19

20

21

22

22

24

25

26

15

Foreign direct investmentNumber of well-known enterprises

Number of financial practitioners

Proportion of the urban service industry

Nominal growth rate of gross regional domestic product

Total power of agricultural machinery

138

116

115

114

108

99

99

99

96

96

90

82

77

76

74

74

64

61

60

59

58

56

56

55

50

44

Hangzhou

Tianjin

Chengdu

Wuhan

Xiamen

Ningbo

Chongqing

Changsha

Nanjing

Xi'an

Jinan

Qingdao

Zhengzhou

Fuzhou

Suzhou

Zhuhai

Kunming

Dalian

Harbin

Wuxi

Taiyuan

Guiyang

Shijiazhuang

Urumqi

Lanzhou

Shenyang

26

19

24

23

20

22

22

16

25

17

15

5

4

14

18

8

14

9

10

7

11

3

2

14

2

6

23

24

18

7

19

25

15

10

20

22

12

21

6

14

1

8

16

17

9

5

4

11

2

3

13

26

24

26

21

21

19

18

22

15

18

12

8

25

10

13

24

16

6

12

9

14

2

6

4

3

1

7

22

15

12

11

20

1

3

4

19

23

21

13

9

6

8

5

16

10

18

7

25

17

2

26

24

14

24

13

25

19

17

15

26

23

10

8

6

7

20

22

5

21

14

2

4

12

11

18

16

3

9

1

19

17

9

22

25

24

1

26

14

16

18

20

13

15

5

23

6

12

2

10

4

8

21

7

11

3

well-known enterprises”, while Tianjin secured first place on two variables. Tianjin, as a municipality under the central government, only ranks seventh among 26 cities. This is related to traditional economic structural factors as well as our evaluation method. PwC’s assessment tools use more ratios, such as relative share data, to compare cities of varying sizes. That means cities with large rural areas lose an advantage. Tianjin manages to excel in this dimension partly because its score on the “number of financial practitioners” variable is high. Chongqing, another municipality under the central government, is in a similar situation. Notwithstanding the fact that

Chongqing has a great deal of real world economic clout, this is not evident in our assessment, due its large area and the number of counties attached to it. This becomes especially evident in the variable of “total power of agricultural machinery”, with Chongqing ranking at the bottom. First, Chongqing has a vast rural area, giving it a larger denominator in the computational formula; second, Chongqing is located in a mountainous area, with small plots of arable land unsuitable for mechanised agriculture, reducing the numerator of our computational formula. As a result of these objective factors, Chongqing invariably ranks at the bottom.


Total

1

2

3

4

5

6

6

6

9

9

11

12

13

14

15

17

18

19

20

21

22

22

24

25

26

15

Foreign direct investmentNumber of well-known enterprises

Number of financial practitioners

Proportion of the urban service industry

Nominal growth rate of gross regional domestic product

Total power of agricultural machinery

138

116

115

114

108

99

99

99

96

96

90

82

77

76

74

74

64

61

60

59

58

56

56

55

50

44

Hangzhou

Tianjin

Chengdu

Wuhan

Xiamen

Ningbo

Chongqing

Changsha

Nanjing

Xi'an

Jinan

Qingdao

Zhengzhou

Fuzhou

Suzhou

Zhuhai

Kunming

Dalian

Harbin

Wuxi

Taiyuan

Guiyang

Shijiazhuang

Urumqi

Lanzhou

Shenyang

26

19

24

23

20

22

22

16

25

17

15

5

4

14

18

8

14

9

10

7

11

3

2

14

2

6

23

24

18

7

19

25

15

10

20

22

12

21

6

14

1

8

16

17

9

5

4

11

2

3

13

26

24

26

21

21

19

18

22

15

18

12

8

25

10

13

24

16

6

12

9

14

2

6

4

3

1

7

22

15

12

11

20

1

3

4

19

23

21

13

9

6

8

5

16

10

18

7

25

17

2

26

24

14

24

13

25

19

17

15

26

23

10

8

6

7

20

22

5

21

14

2

4

12

11

18

16

3

9

1

19

17

9

22

25

24

1

26

14

16

18

20

13

15

5

23

6

12

2

10

4

8

21

7

11

3

agricultural mechanisation is relatively high. Xiamen, Ningbo and Zhuhai are all coastal cities in southeastern China, where arable land resources tend to be less abundant. However, because of their rich fishery resources and vast tidal flats, the degree of aquaculture mechanisation is high. As a result, the three non-provincial-capital coastal cities rank among the top in this variable.

The most important factor in the economic clout of a city is its connection with large or international cities, which our assessment tools do not specifically address. To evaluate the economic clout of a specific city, it is also necessary to consider its geographical environment, industrial characteristics and specific relationship with other factors, thereby ascertaining the development opportunities and prospects applicable to that city.

As for the special variable of “total power of agricultural machinery”, the top cities are Changsha, Xiamen, Ningbo and Zhuhai. Changsha is an important city for engineering machinery and particularly developed in terms of its private industrial enterprises. Products are developed by closely following market trends, and their industrial machines are widespread and used everywhere. As a result, the degree of

Chengdu Tianfu Software Park

33 PwC

IX. Cost This dimension covers six variables, “average salary of employees”; “public transport cost”; “cost of commercial land”; “housing price”; “food price”; and “domestic services prices”. Observations are made from the perspective of an investor in terms of labour costs and other various outlay expenses. The cities demonstrate only minute differences in the data analysis for this dimension, but due to the lower average salaries in China, slight differences in living expenses can have an impact on consumption tendencies.

The data for this dimension are sourced from chinaprice.com.cn, a commercial authority. The price data originate from

government websites, and the disclosed information is correct and credible.

The data analysis shows that most of the top scorers, namely cities with lower living expenses, are mainly located in the central and western regions, while low scorers, or cities with higher living costs, are located in southeastern China. If Beijing, Shanghai, Guangzhou and Shenzhen were included in this ranking, this trend would be more evident. Taiyuan and Shijiazhuang secure the first and second positions respectively in this dimension. Taiyuan’s high score is attributed to its lower “public transport cost” and “domestic services prices”, while Shijiazhuang’s superior

138

125

121

121

116

108

107

99

94

84

83

81

79

77

74

72

68

66

66

66

63

56

56

50

30

25

1

2

3

3

5

6

7

8

9

10

11

12

13

14

15

17

18

18

18

21

22

22

24

25

26

16

Taiyuan

Shijiazhuang

Shenyang

Kunming

Harbin

Urumqi

Dalian

Guiyang

Zhengzhou

Xi'an

Suzhou

Lanzhou

Wuxi

Wuhan

Chongqing

Chengdu

Xiamen

Jinan

Ningbo

Tianjin

Fuzhou

Qingdao

Changsha

Nanjing

Zhuhai

Hangzhou

Average salary of employees

Public transport cost

TotalCost of commercial land

Housing price Food price Domestic services prices

23

25

20

18

24

13

12

15

26

16

22

14

21

11

17

19

10

9

7

5

6

8

4

2

1

3

4

7

9

3

5

1

7

2

8

21

25

24

26

12

19

24

22

15

20

17

16

19

13

14

10

12

26

22

12

24

21

23

16

25

14

20

18

15

11

17

13

10

19

9

1

7

5

3

6

4

8

2

22

25

24

20

20

12

23

11

15

10

21

18

18

26

16

13

14

3

9

6

5

8

8

2

1

4

26

24

14

12

16

20

24

24

18

21

20

10

15

13

25

17

11

2

9

8

4

5

6

7

1

3

26

24

17

20

17

14

24

11

22

21

14

17

19

14

19

25

10

6

5

3

4

8

9

7

2

1


138

125

121

121

116

108

107

99

94

84

83

81

79

77

74

72

68

66

66

66

63

56

56

50

30

25

1

2

3

3

5

6

7

8

9

10

11

12

13

14

15

17

18

18

18

21

22

22

24

25

26

16

Taiyuan

Shijiazhuang

Shenyang

Kunming

Harbin

Urumqi

Dalian

Guiyang

Zhengzhou

Xi'an

Suzhou

Lanzhou

Wuxi

Wuhan

Chongqing

Chengdu

Xiamen

Jinan

Ningbo

Tianjin

Fuzhou

Qingdao

Changsha

Nanjing

Zhuhai

Hangzhou

Average salary of employees

Public transport cost

TotalCost of commercial land

Housing price Food price Domestic services prices

23

25

20

18

24

13

12

15

26

16

22

14

21

11

17

19

10

9

7

5

6

8

4

2

1

3

4

7

9

3

5

1

7

2

8

21

25

24

26

12

19

24

22

15

20

17

16

19

13

14

10

12

26

22

12

24

21

23

16

25

14

20

18

15

11

17

13

10

19

9

1

7

5

3

6

4

8

2

22

25

24

20

20

12

23

11

15

10

21

18

18

26

16

13

14

3

9

6

5

8

8

2

1

4

26

24

14

12

16

20

24

24

18

21

20

10

15

13

25

17

11

2

9

8

4

5

6

7

1

3

26

24

17

20

17

14

24

11

22

21

14

17

19

14

19

25

10

6

5

3

4

8

9

7

2

1

performance is a result of its high scores in the variables of “average salary of employees”, “cost of commercial land” and “food price”.

Urumqi has a high ranking among the 26 cities. Its top position in the variable of “housing price” not only demonstrates the real cost of living, but also contributes to its higher total score. In the general ranking, Urumqi surpasses Shijiazhuang, Harbin and Lanzhou partly because of its high score in this variable (Urumqi also delivers an outstanding performance for the eighth dimension, the “proportion of the urban service industry” variable.)

Among the 26 cities, Hangzhou has the highest investment and cost of living, especially in the variables of “housing price” and “public transport cost”. Zhuhai follows Hangzhou in this dimension, as the second most expensive of 26 cities. This is because of its top position in the variables of “food price” and “domestic services prices”. The general feeling among the people also confirms the high level of consumption in these two cities. As cities grow their economy and living standards improve, social living costs also increase as a general rule. For city managers, improving management efficiency and reducing social transaction costs is a problem that calls for constant research and testing.

PwC35

Deepening cooperation between Guangdong, Hong Kong and Macau to build a world-class bay area

Zhang Yueguo

President and Secretary of the Leading Party Members’ Group of Guangzhou Academy of Social Sciences

In the Government Work Report delivered on March 2017, Premier Li Keqiang announced that a Guangdong-Hong Kong-Macau Bay Area city cluster development plan should be arranged. Subsequently, on July 1, witnessed by President Xi Jinping during the celebration of the 20th Anniversary of the return of Hong Kong to China, the National Development and Reform Commission (NDRC), the Guangdong Provincial Government, the Hong Kong SAR Government and the Macau SAR Government signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macau Cooperation in the Development of the Bay Area. The signing provided a broader vision and outlook for construction of the Bay Area.

The concept of the Bay Area has been inspired by examples in the international community, such as the Bay Areas in New York City, San Francisco and Tokyo, among others. The Bay Area, featuring an open, coastal and livable environment, promotes the development of surrounding areas and helps to form a city cluster. Consequently, it plays an important role adding to the international economy. Proposing the concept of the Guangdong-Hong Kong-Macau Bay Area is of historic significance. The plan, which pivots on cooperation and development of the Bay Area, takes into consideration the integration and connectivity of the Pearl River Delta-the earliest opening-up pilot area in mainland China-with Hong Kong and Macau SARs, two great contributors to China’s opening up.

At the national strategic level, the concept of three major city clusters is being developed with the Yangtze River Economic Belt, the Beijing-Tianjin-Hebei Region and the Guangdong-Hong

Kong-Macau Bay Area. Obviously, the Bay Area has more international features, and with it, related advantages. One of these relates to the manufacturing industry. Due to the Pearl River Delta region being closely integrated with world trade, the region is an attractive spot for international investment. A second advantage relates to Hong Kong’s position as an international financial center. A third benefit is that strategic emerging industries that are closely integrated with technological innovation attract international talent. Concurrently, the development of cities in the Pearl River Delta are relatively balanced, which facilitates cooperation and competition among cities. These conditions provide the Bay Area with broad development potential.

Nevertheless, challenges to cooperation between Hong Kong, Macau and the Pearl River Delta cities exist due to their differences in economic and legal systems. Consequently, there is a particular impetus to deepen cooperation between Guangdong, Hong Kong and Macau, a need which is reflected in the NDRC’s framework agreement. The 19th National Congress of the Communist Party of China arrived at a major conclusion that socialism with Chinese characteristics has entered a new era. China will begin this novel journey through continuing comprehensive reform, while making new ground by pursuing opening up on all fronts. Subsequently, efforts will turn to the modernisation of both state governance and social governance. The Bay Area should carry out cooperative construction with new exploration and bold innovation, becoming a budding pilot area with an important role in leading the way in reform and opening up.

The Belt and Road Initiative and the construction of Guangdong-Hong Kong-Macau Greater Bay Area

Zhou Ping

Director of Research Center on the Belt and Road Initiative (Macau) at City University of Macau

The construction of the Guangdong-Hong Kong-Macau Greater Bay Area has been upgraded to a national development strategy, and due to its pivotal importance, will have a significant influence on the Belt and Road Initiative.

I. Southeast Asian countries along the Belt and Road will be encouraged to participate in the development by focusing on node cities. Macau is well placed as a node city of both the Silk Road and Maritime Silk Road and enjoys natural relations with Southeast Asian countries both historically and via the flow of people. Consequently, amid the organic interaction between the construction of the Bay Area and the Belt and Road Initiative, Macau will not only contribute to the dual projects, but also facilitate Southeast Asian countries in contributing to the development.

II. The cooperation platform between China and Portuguese-speaking countries (PSCs) will be utilised to support PSCs with a convenient means to participate in the development of the Belt and Road Initiative. Many PSCs are keen to take part in the construction, though due to geographical restrictions it can be difficult for them to get involved. Macau, which plays a vital role in building the Bay Area and developing the Belt and Road Initiative, also serves as a platform that provides business cooperation services for China and PSCs. As a result, enterprises from PSCs expect to develop their businesses in and seek mutual opportunities with Macau. The involvement of Macau in the construction of the Bay Area and the Belt and Road Initiative could lead to new opportunities for its own development as well as for companies from PSCs located there. Further, more enterprises and institutions from PSCs will be attracted to Macau, thereby promoting the construction of the Bay Area.

III. Developing countries will be relied on to share benefits stemming from late-mover advantages. Macau shares close relations with countries from ASEAN and Africa, as well as PSCs, many of which have relatively smaller economies. However, the rich resources, political stability and low labour costs of these countries can contribute to their continued development and advancement. With the right direction, and support from advanced science and technology, these economies will reap gains from their having later-mover advantages, which will be unmatched by their developed counterparts.

IV. Macau’s engagement in the construction of the Bay Area will benefit “Policy Communication”. Owing to the different social systems and legal regimes of Guangdong, Hong Kong, and Macau, there is a need to create new rules on an equal, mutually-beneficial, and practical basis premised on in-depth discussion and research at the policy and legal level. The emerging rules will serve as a common code for the three parties and a reference for the implementation of “Policy Communication” as part of the Belt and Road Initiative. This will also serve as a common regulation for countries, developing countries in particular, to seek mutually beneficial and win-win results and shared growth by equal consultation in the process of building the Belt and Road. Furthermore, relevant experience is likely to be gained in helping developing countries eliminate the hegemonism and monopolism that developed countries have in dealing with international affairs, in addition to formulating establishing international principles that align with their common interest. In doing so, they will be laying a solid foundation to play a more active role in international affairs.


Chongqing Photo by James Yang (PwC)

37 PwC

X. Ease of doing business Distinct from liveable city metrics, the ease of doing business focuses more on whether a city has the soft power to attract development from domestic and foreign companies from the perspective of an investor. To comprehensively review the ease of doing business in a city, this dimension includes seven variables, namely “convenience for entrepreneurship”; “labour disputes”; “logistics efficiency”; “capital market engagement”; “business operation risks”; “fiscal balance”; and “reliance on foreign trade”, to reflect the market economic environment and comprehensive governance of the city. Upon analysis of the 26 cities’ variables, the top three highest total scores were posted by Suzhou, Nanjing and Hangzhou.

Suzhou ranks first in the “fiscal balance” variable, which means that its financial allocations can ensure continuous, stable and coordinated market development. Meanwhile, stable local public finances can also create a safe investment atmosphere, attracting more capital inflows. Thanks to its strong support for innovation and entrepreneurship in recent years, Hangzhou comes out on top in the variable of “convenience for entrepreneurship”. As the birthplace and headquarters for Alibaba Group, Hangzhou has evolved into China’s most important e-commerce centre, high-tech industrial base and centre of innovation.

In addition, Xiamen, the fifth city in the general ranking, placed first and second, respectively, in the variables for “reliance on foreign trade” and “logistics efficiency”. The “reliance on foreign trade” variable is measured by the share of GDP from total imports and exports. Xiamen’s top ranking is attributed to its increased innovation and entrepreneurship in recent years. As a result, high-tech products from industries such as biotechnology, computer-integrated manufacturing technology, materials technology and photoelectric technology have become important supporters for the export sector, driving exports to rebound and recovery. The BRICS Summit held in Xiamen in 2017 brought new

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Suzhou

Nanjing

Hangzhou

Wuxi

Xiamen

Wuhan

Zhuhai

Zhengzhou

Ningbo

Urumqi

Tianjin

Changsha

Fuzhou

Jinan

Qingdao

Dalian

Chengdu

Xi'an

Chongqing

Taiyuan

Guiyang

Kunming

Shijiazhuang

Shenyang

Lanzhou

Harbin

TotalCapital market engagement

Labour disputes Logistics efficiency Business operation risks Fiscal balance Reliance on foreign trade

Convenience for entrepreneurship

26

25

22

24

21

21

17

11

19

19

17

17

17

11

17

23

11

11

17

11

11

5

5

5

5

5

8

6

8

2

4

5

1

9

4

12

12

12

19

15

23

16

20

19

14

14

24

25

17

22

26

21

14

23

22

14

25

22

24

26

12

19

15

22

17

16

19

12

12

9

9

7

5

7

4

4

2

1

26

18

22

24

14

17

12

20

25

10

15

16

13

21

19

23

11

8

6

1

4

3

9

5

2

7

26

9

3

9

3

6

6

7

4

1

23

23

23

20

25

16

24

17

19

12

10

14

15

12

18

13

26

23

24

25

18

21

15

19

22

12

10

11

20

17

13

16

14

8

9

6

4

5

7

3

2

1

26

24

15

18

21

25

20

23

17

16

19

22

11

13

12

14

10

8

7

2

4

3

5

9

6

1


development opportunities to Xiamen, and its import-export volume with the BRICS countries witnessed an increase of 60% in the first half of 2017. Meanwhile, China’s international trade has transformed over time from being externally to internally driven. This helps address the issues faced by cities that rely heavily on foreign trade to achieve sustainable development for external trade. The “logistics efficiency” variable is composed of “per capita freight volume” and “per capita volume of express delivery businesses”. Xiamen is second only to Ningbo in this variable. Both cities are important central cities on China’s east coast. With the Port of Zhoushan, which boasts the world’s largest handling capacity, Ningbo enjoys exceptional advantages. Apart from the geographical advantages of its port, Xiamen’s rapid e-commerce development has also contributed to its improved logistics efficiency. In the first three days of Double Eleven shopping day in 2017,

the number of express items collected and delivered in Xiamen reached an all-time high of 7 million. All cargo bays of inbound and outbound flights with Xiamen Airlines were full, reflecting its powerful logistics handling capacity.

Wuhan, the sixth-highest scorer, rose significantly in the ranks from the previous year’s report. Wuhan increased its ranking in this dimension due to broad-based improvements in its strengths, with the largest increase posted in the “convenience for entrepreneurship” variable. This can be attributed to the efforts made in recent years by Wuhan to encourage business innovation and start-ups. In 2017, Wuhan issued the Policies to Support Innovation, Entrepreneurship and New Economy Development at the Wuhan East Lake High-tech Development Zone, which were called the “Ten New Golden Policies”. These policies draw from best practices both at home and abroad in supporting innovation and

entrepreneurship and developing the new economy, promoting the development of Wuhan in strengthening business innovation and entrepreneurship, while establishing Wuhan as an important city in the rise of Central China.

Another notable point is that Lanzhou’s performance was outstanding in the variable of “labour disputes”, despite its relatively low overall ranking, grabbing first place for the fourth consecutive year. This reflects the importance that enterprises in Lanzhou place on operational risks posed by employees, while the market environment is another possible factor at play. Generally, a higher score in this variable demonstrates how convenient it is for enterprises to maintain order in its production processes.

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16

Suzhou

Nanjing

Hangzhou

Wuxi

Xiamen

Wuhan

Zhuhai

Zhengzhou

Ningbo

Urumqi

Tianjin

Changsha

Fuzhou

Jinan

Qingdao

Dalian

Chengdu

Xi'an

Chongqing

Taiyuan

Guiyang

Kunming

Shijiazhuang

Shenyang

Lanzhou

Harbin

TotalCapital market engagement

Labour disputes Logistics efficiency Business operation risks Fiscal balance Reliance on foreign trade

Convenience for entrepreneurship

26

25

22

24

21

21

17

11

19

19

17

17

17

11

17

23

11

11

17

11

11

5

5

5

5

5

8

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1

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12

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17

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21

14

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26

12

19

15

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17

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19

12

12

9

9

7

5

7

4

4

2

1

26

18

22

24

14

17

12

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25

10

15

16

13

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19

23

11

8

6

1

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2

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9

3

9

3

6

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1

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13

26

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14

8

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4

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3

2

1

26

24

15

18

21

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20

23

17

16

19

22

11

13

12

14

10

8

7

2

4

3

5

9

6

1

39 PwC

I. Intellectual capital and innovation

Turnover rate of full-time teachers The educational resources of every city are measured by calculating the ratio of full-time teachers of middle and primary schools in 2016 to the respective figures in 2011. Data sources are the China City Statistical Yearbook 2017 and China City Statistical Yearbook 2012.

Scale of secondary vocational education Skilled workers underpin smart urban development. This variable identifies the proportion of students in secondary education that are in secondary vocational schools. The measure indicates future availability of technical workers in a city. The data is sourced from the China City Statistical Yearbook 2017.

Proportion of spending on science and technologyThis variable evaluates the scientific and technological resources of cities by tracking the proportion of public funds allocated to science and technology. The source of the data is the China City Statistical Yearbook 2017.

Level of research and development This variable primarily considers a city’s capacity for innovative technology and potential for scientific research. It refers to the number of key state laboratories (including enterprise laboratories) as well as the scientific research level of major universities. The data is derived from the 2015 Annual Report on State

Variables

Key Laboratories and the 2015 Annual Report on State Key Laboratories of Enterprises, issued by the Ministry of Science and Technology, and the List of Chinese Universities in 2017 by Wu Shulian.

Entrepreneurial environment This variable uses the China Entrepreneurship and Innovation Index released by the Administrative Committee of the Zhongguancun Science Park in Beijing to measure the entrepreneurial environment of every city. The value attributed to each city reflects the mean of the 12 monthly scores in the entrepreneurship and innovation index in 2017.

Innovation application This variable examines the socioeconomic benefits derived from innovation as a basic driving force behind urban development, and the contribution of innovative industries to each city’s economic growth. Given that the Growth Enterprise Market (GEM) serves as an important funding platform for supporting independent innovation and fostering the growth of small/medium-sized hi-tech enterprises, this report assesses the local level of innovative applications by measuring the number and revenue of GEM-listed companies in the respective cities. Data is sourced from the website of Wind.

II. Technical maturity

Internet plus Data for this variable comes from the 2017 China Internet Plus Digital Economy Index released by Tencent Research Institute. It aims to assess application of


the Internet, as well as the scale and maturity of development of the digital economy in each city.

Digital economy A city’s digital economy is determined by the ranking in the China Urban E-Commerce Development Index Report 2016, published by AliResearch. The variable charts the application and development status of e-commerce in every city, mirroring their industrial upgrading process.

Software and multimedia design This variable uses the income from each city’s software industry to evaluate the scale of development of software services and gauge how effective industrial upgrading has been. The data is sourced from the Completion Status Sheets of Major Economic Indicators of Software and IT Services of Sub-provincial Cities from January to November 2016 (I and II) issued by the Ministry of Industry and Information Technology of China. In the instances in which individual cities don’t disclose the income of their software industry, measurements and calculations are based on data of the provincial administrative areas that the cities are in.

Technology market sizeThis indicator uses the turnover of technology output and input to evaluate the hi-tech capabilities and state of hi-tech research commercialisation in each city. The data comes from the Annual Report on National Technology Markets Statistics 2017 issued by the Ministry of Science and Technology. For cities that have yet to disclose the required data, information for their

respective provincial-level administrative areas are used to calculate the scores.

Number of high-tech incubators This variable uses the number of state-level high-tech incubators identified by the Ministry of Science and Technology as a gauge of each city’s commitment to creating an environment for independent innovation. By inference, it also hopes to shed light on each city’s efforts to develop high-tech industry, foster entrepreneurs and small and medium-sized technology enterprises. Further, it aims to show scale of investment and promote the level of engagement in regional scientific and technological innovation, in addition to economic growth. The data is collected up to December 2017.


Star-graded hotels This variable uses the number and average occupancy rates of hotels rated three stars or above in every city to measure the supply and demand and market saturation levels of star-graded hotels. Data is sourced from the appendix of the 2016 Statistical Bulletin on Star-graded Hotels in China, released by the National Tourism Administration.

International tourists The appeal of cities to International travellers is measured by entry and overnight visits by overseas tourists and average duration of stay per arrival. The data source for this indicator is the Yearbook of China Tourism 2017.


This variable aims to reflect demand in each city for air passenger and cargo transportation. The ranking is based on the number of inbound and outbound flights to and from the cities’ main airports. Figures include international and domestic flights for civilian use, cargo flights and non-revenue flights (excluding military aircraft). As there is no airport in Suzhou, the ranking of its neighbouring city Ningbo is referred to. The source of the data is the Rankings of Throughput Capacity of Civil Aviation Airports 2016 published by the Civil Aviation Administration of China.

Passenger capacity Passenger capacity spans railroads, civil aviation, highways and water transport. It is used to indicate the size and carrying capacity of passenger transport of the cities. Data sources are the 2017 statistical yearbooks and bulletins of each city.

Freight volume Freight volume is an indicator of the production results of transportation by rail, road and air. It reflects the pivotal role that the logistics of each city play in adding to the respective regional economies. The data comes from the 2017 statistical yearbooks and bulletins of each city.

Exhibition/convention economy development index This variable is based on the composite index of urban exhibition development in the 2016 China Exhibition Data Statistical Report 2.0, released by the China Convention and Exhibition Research Society. It aims to evaluate the developments of the exhibition industry

41 PwC

of every city using several metrics, including the number of specialised exhibition halls, area of indoor exhibition halls, number of exhibitions held annually, and total exhibition floor area.

IV. Health, safety and public security

Medical resources This variable takes the number of medical practitioners (including assistant medical practitioners) available for every 10,000 people, as a measure of each city’s capacity to provide medical services. Data is from the National Bureau of Statistics.

Medical facilities This variable considers the numbers of Grade A tertiary hospitals to assess the service level of the medical system for each city. Data is sourced from the website of the National Health and Family Planning Commission.

Elderly care This indicator uses the coverage rate of urban basic public pensions in urban centers to measure the development of each city’s elderly care system. The data comes from the China City Statistical Yearbook 2017.

Urban traffic safety index This index reflects the traffic safety in cities by reviewing the mortality rates of road traffic per 10,000 vehicles. The data source is the China Research Report on the Development of Road Traffic in Metropolitan Cities. Available data covers up to the end of 2015.

Loss due to disastersThis variable uses the ratio of compensation expense to premium income of property insurance to determine economic loss caused by disasters. The data source is the China Insurance Statistical Yearbook 2017.

Available housing for residentsThis variable uses per capita investments in real estate development to review the capital input and indicate market supervision directed at improving the living conditions for residents of each city. Data is sourced from the statistical yearbooks of each city, and the National Bureau of Statistics.

VI. Sustainable development and natural environment

Residential water resources per capitaThis variable uses the ratio of the total quantity of water resources to permanent population as a measure of the reserve of water resources in each city. The data source is the China City Statistical Yearbook 2017.


This variable measures the resource utilisation efficiency of every city in terms of treatment of sewage and household waste disposal, to highlight development of the recycling economy in each city. Data is sourced from the China Urban Construction Statistical Yearbook 2016.

Labour supply This variable measures changes in population at a working age in each city by comparing the total number of employees in the current year with that of the prior year. The data is sourced from the statistical yearbooks and bulletins of each city.

Rate of change in floating population This variable uses the ratio of permanent population to registered population to reflect the supply of floating labour in every city. Sources for the data are the statistical yearbooks and bulletins of every city and the National Bureau of Statistics.

V. Transportation and urban planning

Road area per capitaThis data, taken from the China Urban Construction Statistical Yearbook 2016, is used to assess the road facilities of each city.

Public transit system This variable uses the number of buses available for every 10,000 people and the passenger transport turnover rate of public transit to measure the passenger capacity and operating efficiency of the public transit network of every city. The data is sourced from the China City Statistical Yearbook 2017.

Rail transit coverage This variable takes the mileage of rail transit lines operated for every 10,000 people as a measure of rail transit development in every city, indicating approaches to urban planning. The data is from the 2016 Statistical and Analysis Report on Urban Rail Transit released by the China Urban Rail Transit Association.

Urban expansion rate This variable uses the ratio of the area of requisitioned land to the area of built-up land in each city over the year. The source of the data is the China Urban Construction Statistical Yearbook 2016.

State of floating urban populationThis variable adopts the ratio of the permanent population in 2016 to that in 2011, to illustrate change in labour sources and speed of population migration of every city. The data is sourced from the statistical yearbooks and bulletins of every city in 2017 and 2012.

Green area Green area per capita and ratio of green coverage to built-up areas are used to gauge each city’s green area. Data is sourced from the China Urban Construction Statistical Yearbook 2016.


Carbon emissionsThis variable takes carbon emissions per unit of GDP generated from coal, crude oil, diesel oil, gasoline, kerosene, fuel oil, natural gas and coke, consumed by each city to monitor the degree of greenhouse effects in each city. Data sources are the 2017 statistical yearbooks and bulletins of every city.

VII. Culture and quality of life

Cultural dynamism This variable looks at the scale of the cultural industry in every city. Two factors are used; fiscal expenditure on cultural, sports and media industries, and the proportion of cultural, sports and entertainment practitioners in each city. Data is sourced from the statistical yearbooks and bulletins of every city in 2017 and the China City Statistical Yearbook 2017.

Traffic conditions Evaluation of this variable adheres to the rankings of the all-day congestion delay index in the China Traffic Analysis Report of Major Cities 2017 released by AutoNavi.

Air quality This variable adopts the composite index of average annual air quality to assess air quality of each city. The index evaluates levels of six pollutants namely; fine particulate matter (PM2.5), inhalable particles (PM10), sulphur dioxide (SO2), nitrogen dioxide (NO2), ozone (O3) and carbon monoxide (CO). The larger the index, the more severe the pollution is. Data is sourced from the monthly air quality reports of 74 cities in 2017, released by the China National Environmental Monitoring Centre (CNEMC).

Standard of livingThis variable is made up of two factors. The first is measuring residents’ spending power by retail sales of consumer goods per capita. The second is domestic electricity consumption per capita, which is used to reflect demand

for convenience and comfort in daily life. Data is sourced from the China City Statistical Yearbook 2017.

VIII. Economic clout

Number of well-known enterprises This variable uses the number of registered headquarters of China’s top 500 companies and the number of companies listed on the Shanghai and Shenzhen A-shares markets in every city. It reflects the status of the cities in their regional economies, and their capacity for influencing the economy of the surrounding areas. Data is sourced from the "China Top 500" in 2017, released by Fortune’s Chinese website and the website of Wind.

Number of financial practitioners This variable reflects the scale of development of the financial industry in each city, using the number of financial practitioners of the city at year-end. The data source is the China City Statistical Yearbook 2017.

Foreign direct investment This variable measures the development level of the externally-oriented economy of every city, using the number of signed projects of foreign direct investment and the amount of foreign investment in actual use for the year. The data source is the China City Statistical Yearbook 2017.

Proportion of the urban service industry This variable uses the proportion of the added-value of the tertiary industry in the regional GDP to reflect changes in each city’s urban economic structure and the status of transition from production to service. The source of data is the National Bureau of Statistics.

Nominal growth rate of gross regional domestic product This variable compares the final GDP and GDP of the base period adjusted according to current price. It is a

dynamic indicator to show the vigour of an economy. The source of data is the National Bureau of Statistics.

Total power of agricultural machinery Agricultural mechanisation is the physical foundation of modern agricultural development, and an important component for sustainable development of new rural areas, which have significant economic impact. This variable uses the total power of agricultural machinery per 10,000 hectares of cultivated land to measure the development level of agricultural mechanisation in each city. Data sources are the statistical yearbooks and bulletins of every city in 2017.

IX. Cost

Average salary of employeesThis variable uses the average salary to compare the cost of employees that enterprises in each city bear. The source of data is the National Bureau of Statistics.

Public transport cost This variable takes the fares of urban buses and taxis as standards for measuring the mobility cost in the cities. Data is sourced from chinaprice.com.cn.

Cost of commercial landThis variable compares the lease price of offices and commercial rentals in each city. Suzhou, Wuxi and Zhuhai do not disclose relevant data, so the median of the quoted price of second-hand housing is taken as reference. Data is sourced from the China Price Information Network.

Housing price This variable takes the median of the quoted price of second-hand residential housing of the Chinese cities in 2017 to measure the living costs. The data is sourced from the Housing Big Data Joint Laboratory and the Housing Big Data Project Team of the National Academy of Economic Strategy, the Chinese Academy of Social Sciences.

43 PwC

Food price This variable takes the prices of rice, soybean oil, pork, eggs, apples, Chinese cabbage, mustard, greens and other everyday food items as examples to observe food pricing in the cities. The data is sourced from the China Price Information Network.

Domestic services pricesThis variable primarily reviews the prices of four daily life services of every city, covering residential property service, residential electricity, natural gas and monthly cable (digital) TV charges. The data is sourced from the China Price Information Network.

X. Ease of doing business

Convenience for entrepreneurship This variable adopts the growth of non-state-owned enterprises, using the number of non-state-owned public companies, to measure the entrepreneurial environment in each city. Data is sourced from Wind.

Labour disputes This variable takes the number of labour disputes accepted by relevant authorities for every 10,000 job holders. The source of data is the China Labour Statistical Yearbook 2016. As the Yearbook only discloses the data of provincial administrative areas

(including autonomous regions and municipalities), the evaluation is based on data of the provincial administrative areas each city is affiliated to.

Logistics efficiency This variable reviews the logistics efficiency of each city by considering commodity circulation, using the per capita volume of freight and per capita volume of express delivery business. The efficiency of logistics reflects a city’s basic conditions and overall standards of transportation, information and communication, as well as warehouse facilities. Data is sourced from the statistical yearbooks and bulletins of every city in 2017 as well as the State Post Bureau.

Capital market engagement This variable uses performance to evaluate the financial competitiveness of each city’s financial services industry, strength of financial institutions, and size of financial market. Data is sourced from the ninth edition of China’s Financial Centre Index (CDI CFCI) Report.

Business operation risks The non-performing loan ratios of commercial banks are used to measure potential business operation risks in each city. Data is sourced from the 2016 Annual Report of the China Banking Regulatory Commission. As the Report only discloses the data of provincial

administrative areas (including autonomous regions and municipalities), evaluation is based on the data of the provincial administrative areas that each city is affiliated to.

Fiscal balance The ratio of local general budget revenue to local general budget expenditure is used to measure fiscal balance. The data source is the National Bureau of Statistics.

Reliance on foreign trade Using the ratio of total import and export volume to regional GDP, this variable indicates foreign trade dependence, reflecting the impact of foreign trade activities on economic development in each city. Data is sourced from the National Bureau of Statistics.


AcknowledgementsPwC China Senior Advisor Xiaofeng Cai provided guidance on this report. The following individuals and groups in PwC and China Development Research Foundation contributed to the production of this report.

Advisory group

Qingwen XiaoDeputy Secretary General, China Development Research Foundation

Jiantuo Yu Assistant to Secretary General and Director of Research Department I, China Development Research Foundation

Frank LynPwC Mainland China & Hong Kong Markets Leader

Thomas LeungPwC Mainland China & Hong Kong Deputy Markets Leader

Daniel LiPwC China Assurance Leader

Xing ZhouPwC China Beijing Office Lead Partner

Elton HuangPwC China Shanghai Office Lead Partner

Jun Jin PwC China Strategy Consulting Partner

Jim Chen PwC China SOEs Leader

Research team

Kelly Lu (PwC)Jenny Ji (PwC)Lan Lan (PwC) Shan Liang (PwC)Chunchun Chen(China Development Research Foundation)

Project consultant

Jenny Guan (Institute for Tourism Studies, Macau; City Development Research Association (Macau) (start-up))

Data support

Della You (PwC)

Project management

Echo Chen (PwC)Faye Ji (PwC)Chris Li (PwC) Xue Wang (China Development Research Foundation)

Design

Shawn Zhang (PwC)Ran Zhang (PwC)

Cover: Hangzhou

45 PwC

Urban Development Research Team

Jun Jin

Partner, Strategy Consulting PwC China

+86 (10) 6533 2977

[email protected]

Carrie Zhang

Senior Manager, Strategy Consulting PwC China

+86 (10) 6533 7569

[email protected]

Kelly Lu

Manager, Strategy Consulting PwC China

+86 (10) 6533 7253

[email protected]

In recent years, PwC has been closely monitoring development opportunities and urbanisation progress in Chinese cities and has formed a scientific and systematic methodology for assessing urban and regional advancement through multi-level theoretical exploration and the accumulation of practical overseas and domestic experience. We hope this assessment system will provide cities with a clear picture of their respective development characteristics and core competitiveness so they can form reasonable strategic positioning and direction for progress, as well as a basis for scientific research.

Please contact us if you wish to understand the assessment system and research methodology or the benchmarking of specific cities.

For further information

For further information on cooperation, please contact:

Echo Chen

Director, Marketing and Communications

PwC China

+86 (10) 6533 8700

[email protected]

For enquiries about the research methodology, please contact:

Lan Lan

Manager, Marketing and Communications

PwC China

+86 (10) 6533 8759

[email protected]

For media enquiries, please contact:

Vivian Huang

Deputy Manager, Marketing and Communications

PwC China

+86 (10) 6533 8198

[email protected]


Flying by Alix Zhang

The sculpture was designed for the host city of the Beijing/Zhangjiakou 2022 Winter Olympics. It stands in the Banyue Cultural Square in Chongli, Zhangjiakou.

www.pwccn.comThis content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2018 PwC. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.CN-20180314-9

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