Building competitive regions in a globalised economy: Policy lessons from China Dr Konstantinos A. Melachroinos Department of Geography Queen Mary, University of London

Global economic integration Gradual abolition of trade barriers Gradual abolition of trade barriers Shift of political, administrative and in some cases even fiscal power to supranational and sub-national entities Shift of political, administrative and in some cases even fiscal power to supranational and sub-national entities Limited capacity of central states to intervene and change regional fortunes Limited capacity of central states to intervene and change regional fortunes

Regional competitiveness Increased regional competition for market shares, investment, and skilled workers Increased regional competition for market shares, investment, and skilled workers Search for best practices and innovative territorial policies Search for best practices and innovative territorial policies Limited to a few leading western regions Limited to a few leading western regions

Competitive regions in China Surprisingly little attention has been paid to the experience of the emerging Chinese regions Surprisingly little attention has been paid to the experience of the emerging Chinese regions Controversy about the key mechanisms of economic growth in China Controversy about the key mechanisms of economic growth in China Experimentalist vs. convergence schools Experimentalist vs. convergence schools

Aspects of regional competitiveness Rising export volumes Rising export volumes Attracting investment Attracting investment Attracting skilled workers Attracting skilled workers Maintaining successful businesses Maintaining successful businesses

Regional competitiveness: a meaningful concept? Krugman (1994): Krugman (1994): Regions do not compete with each other like firms (e.g. go out of business) Regions do not compete with each other like firms (e.g. go out of business) Imports are beneficial to growth Imports are beneficial to growth Economic development is not a zero-sum game Economic development is not a zero-sum game Competitiveness another word for productivity? Competitiveness another word for productivity?

Regional competitiveness a broader concept than productivity Degree of utilisation of production factors Degree of utilisation of production factors High employment rates: amplify multiplier effects and promote social cohesion High employment rates: amplify multiplier effects and promote social cohesion

Territorial competitiveness: a relevant concept to regional economic growth Camagni (2002) Camagni (2002) In a globalising economy the automatic mechanisms that allow regional exports on a comparative advantage principle are gradually eliminated In a globalising economy the automatic mechanisms that allow regional exports on a comparative advantage principle are gradually eliminated Instead regions have to compete for markets and investments on the basis of an absolute advantage principle Instead regions have to compete for markets and investments on the basis of an absolute advantage principle

Territorial competitiveness: a relevant concept to regional economic growth European regional policy thinking: European regional policy thinking: If firm competitiveness is largely affected by the characteristics of the hosting region then it is meaningful to talk about regional competitiveness If firm competitiveness is largely affected by the characteristics of the hosting region then it is meaningful to talk about regional competitiveness Regions as economic entities are not engaged in a direct competition, but they do compete in an institutionalised form Regions as economic entities are not engaged in a direct competition, but they do compete in an institutionalised form

Territorial competitiveness: a relevant concept to regional economic growth Malecki (2004): Malecki (2004): places compete not only for investment, but also for the attention of migrants, tourists and media glow places compete not only for investment, but also for the attention of migrants, tourists and media glow Knowledge-based economies compete for attracting creative workers Knowledge-based economies compete for attracting creative workers

Territorial competitiveness: a relevant concept to regional economic growth Porter’s (1990) ‘competitive diamond’: clusters of rival firms, demanding local customers, favourable factor input conditions and competent local suppliers and supporting industries Porter’s (1990) ‘competitive diamond’: clusters of rival firms, demanding local customers, favourable factor input conditions and competent local suppliers and supporting industries A persuasive mechanism through which local firm rivalry can be translated into a regional competitive advantage A persuasive mechanism through which local firm rivalry can be translated into a regional competitive advantage

The determinants of regional competitiveness Turok (2004) identifies two contrasting perspectives on the competitive advantages of city regions: Turok (2004) identifies two contrasting perspectives on the competitive advantages of city regions: benefits of scale and diversity that derive from concentrations of economic activity benefits of scale and diversity that derive from concentrations of economic activity quality of the interactions between local firms and supporting institutions quality of the interactions between local firms and supporting institutions

The determinants of regional competitiveness ‘Softer’ forms of capital, such as human, social/institutional, cultural, knowledge/creative and infrastructural capital are very important in supporting in the form of external economies an efficient regional economy (Kitson et al (2004) ‘Softer’ forms of capital, such as human, social/institutional, cultural, knowledge/creative and infrastructural capital are very important in supporting in the form of external economies an efficient regional economy (Kitson et al (2004) Regional competitiveness is not only a basis but also an outcome of economic performance Regional competitiveness is not only a basis but also an outcome of economic performance

Regional policy dilemmas Serious limits in enhancing the competitiveness of regions: Serious limits in enhancing the competitiveness of regions: Which form of capital (e.g. human, social, knowledge, etc.) has to be acquired first? Which form of capital (e.g. human, social, knowledge, etc.) has to be acquired first? What is the critical mass of each asset that is necessary in order to create and sustain a competitive region? What is the critical mass of each asset that is necessary in order to create and sustain a competitive region? Territorial competitiveness is a dynamic process that depends on the ability of a region to constantly upgrade its economic and knowledge bases in order to maintain their rareness and stay ahead from the rivals Territorial competitiveness is a dynamic process that depends on the ability of a region to constantly upgrade its economic and knowledge bases in order to maintain their rareness and stay ahead from the rivals

Regional economic growth in China: searching for the drivers of competitiveness Foreign Direct Investment Foreign Direct Investment Chinese overseas capital Chinese overseas capital Transnational corporations (TNCs) Transnational corporations (TNCs) Industrial clusters Industrial clusters

Foreign Direct Investment (FDI) Low labour costs and market size tell only a part of the story Low labour costs and market size tell only a part of the story China more welcoming in relation to other rival countries (e.g. India) China more welcoming in relation to other rival countries (e.g. India) Emphasis not only on capital but also on technology, information, and managerial skills transfer Emphasis not only on capital but also on technology, information, and managerial skills transfer

Chinese overseas capital Organised efforts to attract capital from Hong-Kong, Macao, Singapore and Taiwan Organised efforts to attract capital from Hong-Kong, Macao, Singapore and Taiwan In 1992 Hong-Kong and Macao accounted for 65% of foreign projects in China (Hayter and Hun, 1998) In 1992 Hong-Kong and Macao accounted for 65% of foreign projects in China (Hayter and Hun, 1998) Joint ventures with Chinese organisations that operate as ‘windows’ and ‘radiators’ Joint ventures with Chinese organisations that operate as ‘windows’ and ‘radiators’

Transnational corporations (TNCs) Liu and Dicken (2006) Liu and Dicken (2006) ‘obligated embeddedness’: the investments of TNCs are shaped to meet the state's objectives ‘obligated embeddedness’: the investments of TNCs are shaped to meet the state's objectives The state determines the access to assets located within its territory The state determines the access to assets located within its territory Whereas, elsewhere, TNCs are able to play off one country against another to achieve the best deal, in the Chinese case it is the state whose unique bargaining position has enabled it to play off one TNC against another Whereas, elsewhere, TNCs are able to play off one country against another to achieve the best deal, in the Chinese case it is the state whose unique bargaining position has enabled it to play off one TNC against another

Industrial clusters Promotion of foreign trade in targeted economic zones Promotion of foreign trade in targeted economic zones Ideological reasons (limited spatial exploitation of workers by foreign firms) Ideological reasons (limited spatial exploitation of workers by foreign firms) Economies of scale in the provision of infrastructure Economies of scale in the provision of infrastructure Agglomeration and localisation economies Agglomeration and localisation economies

Timeline of China’s regional preferential policies, 1979–1990 Year of approval Number and type of opened zoneLocation Special Economic ZonesGuangdong Special Economic ZoneFujian Coastal Open CitiesLiaoning, Hebei, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, and Guangxi 10 Economic and Technological Development Zones Liaoning, Hebei, Tianjin, Shandong, Jiangsu, Zhejiang, and Guangdong Economic and Technological Development Zone Fujian 3 Coastal Open Economic ZonesPearl River delta, Yangtze River delta, and Fujian Economic and Technological Development Zones Shanghai 1988Open Coastal BeltLiaoning, Shandong, Guangxi, and Hebei 1 Special Economic ZoneHainan 1 Economic and Technological Development Zone Shanghai 1990Pudong New AreaShanghai Source: Démurger et al (2002: 448)

Industrial clusters Gradual expansion of designated economic zones Gradual expansion of designated economic zones Reduced territorial competition among Chinese regions Reduced territorial competition among Chinese regions Diffusion of growth to less developed areas through the relocation of low tech activities Diffusion of growth to less developed areas through the relocation of low tech activities

Policy lessons Focus on diasporic capital Focus on diasporic capital Enhancing the embeddedness of FDI Enhancing the embeddedness of FDI Cluster creation Cluster creation Spatial and temporal differentiation of policy initiatives in order to avoid wasteful territorial competition Spatial and temporal differentiation of policy initiatives in order to avoid wasteful territorial competition