Building competitive Building competitive regions in a globalised regions in a globalised

economy: Policy lessons economy: Policy lessons from Chinafrom China

Dr Konstantinos A. Dr Konstantinos A. MelachroinosMelachroinos

Department of GeographyDepartment of Geography

Queen Mary, University of Queen Mary, University of LondonLondon

Global economic integrationGlobal economic integration

• Gradual abolition of trade barriersGradual abolition of trade barriers

• Shift of political, administrative and in Shift of political, administrative and in some cases even fiscal power to some cases even fiscal power to supranational and sub-national entitiessupranational and sub-national entities

• Limited capacity of central states to Limited capacity of central states to intervene and change regional fortunes intervene and change regional fortunes

Regional competitivenessRegional competitiveness

• Increased regional competition for Increased regional competition for market shares, investment, and skilled market shares, investment, and skilled workersworkers

• Search for best practices and innovative Search for best practices and innovative territorial policiesterritorial policies

• Limited to a few leading western regionsLimited to a few leading western regions

Competitive regions in Competitive regions in ChinaChina• Surprisingly little attention has been Surprisingly little attention has been

paid to the experience of the emerging paid to the experience of the emerging Chinese regionsChinese regions

• Controversy about the key mechanisms Controversy about the key mechanisms of economic growth in Chinaof economic growth in China

• Experimentalist vs. convergence schoolsExperimentalist vs. convergence schools

Aspects of regional Aspects of regional competitivenesscompetitiveness

• Rising export volumesRising export volumes

• Attracting investmentAttracting investment

• Attracting skilled workersAttracting skilled workers

• Maintaining successful businessesMaintaining successful businesses

Regional competitiveness: a Regional competitiveness: a meaningful concept?meaningful concept?

• Krugman (1994):Krugman (1994):

• Regions do not compete with each other Regions do not compete with each other like firms (e.g. go out of business)like firms (e.g. go out of business)

• Imports are beneficial to growth Imports are beneficial to growth

• Economic development is not a zero-Economic development is not a zero-sum gamesum game

• Competitiveness another word for Competitiveness another word for productivity?productivity?

Regional competitiveness a Regional competitiveness a broader concept than broader concept than productivityproductivity• Degree of utilisation of production Degree of utilisation of production

factorsfactors

• High employment rates: amplify High employment rates: amplify multiplier effects and promote social multiplier effects and promote social cohesioncohesion

Territorial competitiveness: a Territorial competitiveness: a relevant concept to regional relevant concept to regional economic growtheconomic growth• Camagni (2002)Camagni (2002)• In a globalising economy the automatic In a globalising economy the automatic

mechanisms that allow regional exports mechanisms that allow regional exports on a comparative advantage principle on a comparative advantage principle are gradually eliminatedare gradually eliminated

• Instead regions have to compete for Instead regions have to compete for markets and investments on the basis markets and investments on the basis of an absolute advantage principleof an absolute advantage principle

Territorial competitiveness: a Territorial competitiveness: a relevant concept to regional relevant concept to regional economic growtheconomic growth• European regional policy thinking:European regional policy thinking:• If firm competitiveness is largely If firm competitiveness is largely

affected by the characteristics of the affected by the characteristics of the hosting region then it is meaningful to hosting region then it is meaningful to talk about regional competitivenesstalk about regional competitiveness

• Regions as economic entities are not Regions as economic entities are not engaged in a direct competition, but engaged in a direct competition, but they do compete in an institutionalised they do compete in an institutionalised formform

Territorial competitiveness: a Territorial competitiveness: a relevant concept to regional relevant concept to regional economic growtheconomic growth• Malecki (2004):Malecki (2004):

• places compete not only for places compete not only for investment, but also for the attention investment, but also for the attention of migrants, tourists and media glowof migrants, tourists and media glow

• Knowledge-based economies compete Knowledge-based economies compete for attracting creative workersfor attracting creative workers

Territorial competitiveness: a Territorial competitiveness: a relevant concept to regional relevant concept to regional economic growtheconomic growth• Porter’s (1990) ‘competitive diamond’: Porter’s (1990) ‘competitive diamond’:

clusters of rival firms, demanding local clusters of rival firms, demanding local customers, favourable factor input customers, favourable factor input conditions and competent local conditions and competent local suppliers and supporting industriessuppliers and supporting industries

• A persuasive mechanism through which A persuasive mechanism through which local firm rivalry can be translated into local firm rivalry can be translated into a regional competitive advantagea regional competitive advantage

The determinants of The determinants of regional competitivenessregional competitiveness

• Turok (2004) identifies two contrasting Turok (2004) identifies two contrasting perspectives on the competitive perspectives on the competitive advantages of city regions:advantages of city regions:

• benefits of scale and diversity that benefits of scale and diversity that derive from concentrations of economic derive from concentrations of economic activityactivity

• quality of the interactions between quality of the interactions between local firms and supporting institutionslocal firms and supporting institutions

The determinants of The determinants of regional competitivenessregional competitiveness

• ‘‘Softer’ forms of capital, such as Softer’ forms of capital, such as human, social/institutional, cultural, human, social/institutional, cultural, knowledge/creative and knowledge/creative and infrastructural capital are very infrastructural capital are very important in supporting in the form important in supporting in the form of external economies an efficient of external economies an efficient regional economy (regional economy (Kitson et al (2004)Kitson et al (2004)

• Regional competitiveness is not only Regional competitiveness is not only a basis but also an outcome of a basis but also an outcome of economic performanceeconomic performance

Regional policy dilemmasRegional policy dilemmas

• Serious limits in enhancing the Serious limits in enhancing the competitiveness of regions:competitiveness of regions:

• Which form of capital (e.g. human, social, Which form of capital (e.g. human, social, knowledge, etc.) has to be acquired first?knowledge, etc.) has to be acquired first?

• What is the critical mass of each asset that is What is the critical mass of each asset that is necessary in order to create and sustain a necessary in order to create and sustain a competitive region?competitive region?

• Territorial competitiveness is a dynamic Territorial competitiveness is a dynamic process that depends on the ability of a region process that depends on the ability of a region to constantly upgrade its economic and to constantly upgrade its economic and knowledge bases in order to maintain their knowledge bases in order to maintain their rareness and stay ahead from the rivalsrareness and stay ahead from the rivals

Regional economic growth Regional economic growth in China: searching for the in China: searching for the drivers of competitivenessdrivers of competitiveness• Foreign Direct InvestmentForeign Direct Investment

• Chinese overseas capitalChinese overseas capital

• Transnational corporations (TNCs)Transnational corporations (TNCs)

• Industrial clusters Industrial clusters

Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)

• Low labour costs and market size tell Low labour costs and market size tell only a part of the storyonly a part of the story

• China more welcoming in relation to China more welcoming in relation to other rival countries (e.g. India)other rival countries (e.g. India)

• Emphasis not only on capital but also Emphasis not only on capital but also on technology, information, and on technology, information, and managerial skills transfermanagerial skills transfer

Chinese overseas capitalChinese overseas capital

• Organised efforts to attract capital from Organised efforts to attract capital from Hong-Kong, Macao, Singapore and Hong-Kong, Macao, Singapore and TaiwanTaiwan

• In 1992 Hong-Kong and Macao accounted In 1992 Hong-Kong and Macao accounted for 65% of foreign projects in China for 65% of foreign projects in China (Hayter and Hun, 1998)(Hayter and Hun, 1998)

• Joint ventures with Chinese Joint ventures with Chinese organisations that operate as ‘windows’ organisations that operate as ‘windows’ and ‘radiators’and ‘radiators’

Transnational corporations Transnational corporations (TNCs)(TNCs)• Liu and DickenLiu and Dicken (2006) (2006)• ‘‘obligated embeddedness’: the investments obligated embeddedness’: the investments

of TNCs are shaped to meet the state's of TNCs are shaped to meet the state's objectivesobjectives

• The state determines the access to assets The state determines the access to assets located within its territorylocated within its territory

• Whereas, elsewhere, TNCs are able to play Whereas, elsewhere, TNCs are able to play off one country against another to achieve off one country against another to achieve the best deal, in the Chinese case it is the the best deal, in the Chinese case it is the state whose unique bargaining position has state whose unique bargaining position has enabled it to play off one TNC against enabled it to play off one TNC against anotheranother

Industrial clustersIndustrial clusters

• Promotion of foreign trade in targeted Promotion of foreign trade in targeted economic zoneseconomic zones

• Ideological reasons (limited spatial Ideological reasons (limited spatial exploitation of workers by foreign firms)exploitation of workers by foreign firms)

• Economies of scale in the provision of Economies of scale in the provision of infrastructureinfrastructure

• Agglomeration and localisation Agglomeration and localisation economies economies

Timeline of China’s regional preferential policies, 1979–1990

Year of approval

Number and type of opened zone Location

1979 3 Special Economic Zones Guangdong

1980 1 Special Economic Zone Fujian

1984 14 Coastal Open Cities Liaoning, Hebei, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, and

Guangxi

10 Economic and Technological Development Zones

Liaoning, Hebei, Tianjin, Shandong, Jiangsu, Zhejiang, and Guangdong

1985 1 Economic and Technological Development Zone

Fujian

3 Coastal Open Economic Zones Pearl River delta, Yangtze River delta, and Fujian

1986 2 Economic and Technological Development Zones

Shanghai

1988 Open Coastal Belt Liaoning, Shandong, Guangxi, and Hebei

1 Special Economic Zone Hainan

1 Economic and Technological Development Zone

Shanghai

1990 Pudong New Area Shanghai

Source: Démurger et al (2002: 448)

Industrial clustersIndustrial clusters

• Gradual expansion of designated Gradual expansion of designated economic zoneseconomic zones

• Reduced territorial competition Reduced territorial competition among Chinese regionsamong Chinese regions

• Diffusion of growth to less developed Diffusion of growth to less developed areas through the relocation of low areas through the relocation of low tech activitiestech activities

Policy lessonsPolicy lessons

• Focus on diasporic capitalFocus on diasporic capital

• Enhancing the embeddedness of FDIEnhancing the embeddedness of FDI

• Cluster creationCluster creation

• Spatial and temporal differentiation of policy Spatial and temporal differentiation of policy initiatives in order to avoid wasteful initiatives in order to avoid wasteful territorial competitionterritorial competition