- The concept of “city cluster” first appeared in a central government document in 2006. At a time when China’s urbanization rate was 43%, the goal of the city clusters was to develop small and medium-sized cities and create new growth drivers.
- As of today, China has approved 19 city clusters, covering 75% of China’s population and its wealthiest cities. But the clusters’ level of integration differs widely, especially in equalization of public services, coordinated policy-making and fiscal spending, according to the China Development Research Foundation led by the State Council.
- In this context, the 14th Five Year Plan called for a renewed national strategy to improve regional integration and resource optimization in the 19 city clusters. The two key policy focuses are market integration and transport interconnectivity.
- The State Council’s measures for market-based factor allocation will first be piloted in major city clusters. The pilots will focus on land and labor productivity reforms, including measures to liberalize urban settlement restrictions within the clusters and enable more local autonomy in land allocation and development.
- Interconnectivity is another challenge: China has high transit capacity, but less efficiency in connecting different modes of transportation. The Ministry of Transport plans to build more inter-city railways and improve door-to-door transport speed for major city clusters by 2025. This will drive up demand for investment in basic infrastructure and transport links.
- MNCs need to review synergies across their locations in China through the lens of the city cluster policies. They also need to pay close attention to the policy dynamics at a new level of policy-making. While companies can benefit from a more integrated, productive urban market, they will also face strengthened, more coordinated trans-regional regulatory enforcement, for example on environment issues.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.