September 28, 2022

EIU's 'China Emerging City Rankings' Aims to Uncover Opportunities Amid Uncertainty

As a strategic advisor to business executives, I am often asked which cities in China provide the best opportunities for corporate expansion. To provide an informed opinion, I utilize information provided by the Economist Intelligence Unit (EIU) such as the EIU's China Emerging City Rankings, which identifies urban centers with the greatest growth potential and includes parameters that will guide development and influence companies' long-term strategies.

Most people familiar with the China market events will concur with the EIU's 2022 version of its China Emerging City Rankings that "Chinese cities have faced extraordinary challenges and mounting uncertainty since late 2021." The report adds: "The debt crisis facing China's domestic property developers has fueled concerns over the health of not only local property markets, but also the fiscal position of local governments. A nationwide energy crisis has also forced authorities to strike a delicate balance between achieving carbon neutrality and sustaining economic growth. The spread of the highly-contagious Omicron variant of covid-19 has tested the efficacy of China's 'dynamic zero-covid' doctrine, as prolonged lockdowns across dozens of cities inflict massive shocks to local economic growth."

Aiming to address which cities have the greatest growth potential in the overall ranking, which cities can best navigate China's property woes, and which cities have higher economic resilience to covid-19 outbreaks, the report's key findings include:
  • The urban centers with strong growth potential are dominated by cities in eastern China, in addition to two inland cities, namely Hefei and Chengdu. The EIU see these regions as best placed to attain sustainable growth amidst economic uncertainty.
  • Thanks to the strong presence of high-value manufacturing or service sectors, cities in the Greater Bay Area (GBA) and Yangtze River Delta (YRD) will continue to enjoy steady population inflows and relatively healthy fiscal structures. This will help them navigate the fallout of China's property sector troubles.
  • The effects of citywide lockdowns that shocked China's economy in April-June 2022 are largely excluded from the EIU's emerging city index. Nevertheless, the UK-based organization created an index to assess a city's economic resilience in the face of covid-19, which finds that small population size and low density contributes positively.

Diving deeper into which cities have the greatest growth potential in the EIU's overall ranking, Hangzhou (Zhejiang) topped the emerging city rankings in 2022 following by other large cities on China's east coast (see map below). "With strong population inflows and industrial bases," the EIU explains that "these cities will play important roles in national strategies to move China up along global value chains, including via processes that include technological upgrading and a (longer-term) emphasis on decarbonization. In addition to coastal cities, some provincial capitals also feature within our top 10 ranking, such as Hefei (Anhui) and Chengdu (Sichuan). These outcomes reflect the success of these cities in developing their 'strategic emerging industries,' which have become increasingly important drivers of future industrial growth."

Regarding China's property woes, the EIU points out that "The debt crisis facing China's domestic property developers, has fueled concerns over the health of not only local property developers and banks, but also the fiscal position of local governments. These events have caused property prices across Chinese cities to plunge in recent months. This combined with the broader pandemic-induced economic slowdown have also prompted local mortgage boycotts, exacerbating property sector strains."

As for which cities can best navigate China's property woes, "Recent growth patterns in average land transaction prices, which could foreshadow housing price trends in the near future, illustrate that Hangzhou (Zhejiang) and Guangzhou (Guangdong) stand out in attracting population inflows–should sustain future local property values, even as authorities clamp down on speculative behavior."

For those businesses operating in China, the EIU's report serves as a useful tool for uncovering opportunities amid uncertainty.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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