Economy, Talking Point

Beijing versus Shanghai

Which is the richest Chinese city? The top two just got a lot closer

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The old and the new: Beijing has always trailed Shanghai as China’s biggest urban economy

If you want a means for understanding some of the flow of Europe’s social and economic history, one way of doing it is to map its wealthiest cities through the epochs.

Broadly speaking, you can draw an arc westwards from the continent’s southern and eastern fringes, as its richest city moved through the centuries from the Mediterranean to the Atlantic seaboard (to name six of the most significant: Athens, Rome, Constantinople, Florence, Amsterdam and London).

A similar exercise might be undertaken for China, demonstrating how its richest city has moved from north to south over the last thousand years.

Economic historians report that it has been almost a millennium since a city in the north of the country was China’s richest. After the fall of Kaifeng in 1127 the Song Dynasty relocated its capital to what is today’s Hangzhou – in an area most Chinese consider to be part of the southern half of the country (northern China is usually defined as the territory above the Qin Mountains and the Huai River – Kaifeng is hundreds of kilometres north of this geographical line in Henan province).

This north-south divide is important in grasping the course of Chinese history. All the successful conquests (including the defeat of the Song empire by the Mongols) began from the north, because these invading armies were more motivated to storm southwards from harsher steppe climates towards warmer and more affluent cities. Northern strongholds were less likely to be unseated by revolts from the south, however. These strategic calculations help to explain why Beijing was designated as capital for nearly 800 years: its northerly location preferred by the triumphant Mongols (Yuan Dynasty) and later by the Qing emperors (ethnic Manchus who also invaded from the north).

Yet in the same periods the richest cities were in the lusher and more economically vibrant south. Despite sitting at the centre of China’s political power structure – and hosting an important cluster of state-owned enterprises and top universities since 1949 – Beijing’s economy trailed that of the south’s dominant city for decades, amounting to just 40% of Shanghai’s GDP by 1978. However, the so-called ‘capital economy’ has been catching up in recent years. So much so that economists expect China’s political centre could soon displace Shanghai as the country’s leading urban economy – which, given the context above, is a historically significant once-in-a-millennium shift.

Where are the richest cities in China today?

Most of China’s cities and provinces trotted out their economic performance for 2021 this month – with local journalists looking through the data for insights into the latest development trends.

According to the China Daily, 24 cities have now surpassed Rmb1 trillion ($158 billion) in local GDP – a yardstick seen domestically as a metropolitan economy reaching an ‘advanced’ stage of economic development.

Shanghai and Beijing were still well ahead of the rest, however. Both topped the Rmb4 trillion mark for the first time. Shenzhen came third at more than Rmb3 trillion (the local government has not yet announced the exact GDP and growth figures for 2021). Guangzhou, Chongqing and Suzhou were three of the group with a GDP exceeding Rmb2 trillion, while Chengdu and Hangzhou will join the same club should they achieve double-digit growth in 2022. Wuhan and Nanjing also made the top 10.

Underscoring the north-south divide, Beijing is the only city in northern China to reach the top 10. Indeed 18 of the 24 cities in the ‘Rmb1 trillion club’ are in the south.

How close is Beijing to catching up with Shanghai?

Analysts were unusually preoccupied this month with how close Beijing is getting to the top spot, which has been held by Shanghai for decades. In 2006, Shanghai became the first Chinese city to exceed Rmb1 trillion in GDP. Beijing achieved the same feat in 2008 and was followed by Guangzhou two years later.

Back in 2000, Beijing’s GDP was only about two-thirds of Shanghai’s. The gap had narrowed to 83% of Shanghai’s in 2010, 93% in 2020 and then 96% by the third quarter of last year.

Last week, the local government in the capital said its economy grew 8.5% to Rmb4.03 trillion by the end of last year. Just a day later, Shanghai announced an 8.1% growth rate, lifting its GDP to Rmb4.32 trillion during the same period.

If the two cities hit their own targets, Shanghai will probably stay ahead of Beijing in 2022. The capital’s local government has set a growth goal of “higher than 5%” while Shanghai is aiming at growing its economy by 5.5% this year. Yet there is no denying that Beijing has closed the gap on its southern rival spectacularly over the last 20 years. And with a 22 million population, Beijing’s GDP per capita has climbed to more than $28,000, which Mayor Chen Jining celebrated this month as the highest of China’s cities. Shanghai’s 25 million residents came in second on this measure at about $26,800.

Is Beijing’s recent growth defying expectations?

The achievement is all the more impressive considering that the central government has been trying to channel some of the political and economic functions of the capital into surrounding areas such as the Xiongan New Area (see WiC361) and another neighbouring region known as Jing-Jin-Ji (Beijing-Tianjin-Hebei).

Accordingly Beijing has seen some high-profile departures as key firms have moved elsewhere, such as the Three Gorges Corporation, one of the biggest state-backed power firms, which moved its headquarters from Beijing to Wuhan last September. China State Shipbuilding Corp (CSSC), the world’s biggest shipbuilder, moved its headquarters from Beijing to Shanghai last month and a number of other SOEs and universities are expected to move out of Beijing in the near future.

The decentralisation effort is designed to prevent Beijing from suffering from the so-called ‘capital city disease’, which is typically accompanied by urban blights like overpopulation, pollution and traffic gridlock. For local planners this means fashioning Beijing more in Washington’s image than that of the commercial and financial powerhouse New York, which is still the world’s largest city economy.

Moreover, Beijing hasn’t been helped in recent years by stuttering GDP growth in some of its neighbouring areas. Take the northeastern provinces in Dongbei which have faced severe slowdowns owing to their reliance on older heavy sunset industries (these energy-inefficient and high-polluting sectors have been ordered by policymakers to cut emissions and eradicate redundant capacity adding to regional woes).

Likewise the nearby city of Tianjin – 30 minutes from Beijing by high-speed train – shut down nearly 21,000 companies and 200 industrial parks between 2017 and 2019, says China New Weekly.

Municipal bosses in Beijing have also made their own efforts to cull the worst-polluting companies inside city limits in preparation for the international events in the city (including the upcoming Winter Olympics). These moves can be a drag on what were former growth sectors, even if they make the city a more pleasant place to live.

In that case, what has been fuelling Beijing’s rise?

Talking of the Olympics, Beijing will become the first city in history to host both the Summer and Winter Games. Perhaps more remarkably, the Chinese economy is three times larger today than at the time of the previous Olympics in 2008. The economy has also been holding up reasonably well over recent months, despite suggestions that a ‘zero tolerance’ approach to fighting Covid-19 is proving costly in terms of foregone output.

Beijing’s GDP added more than Rmb300 billion alone in the first three quarters of 2021. And despite the dampening effect of the pandemic in some sectors, the city’s growth will also have been boosted by the government’s efforts to fight the pandemic. For instance, the Chinese capital has again been mass-testing city households this week on concerns that the spread of the Omicron variant could disrupt the Olympics, which starts next Friday. Assuming a Covid testing kit costs Rmb30 each, a single round of nucleic tests for the 22 million individuals Beijing tested this week could easily entail spending of more than Rmb600 million in equipment costs alone (all of which adds to GDP).

Beijing and other Chinese cities have been carrying out mass Covid testing with greater frequency because of Omicron. Partly as a result of this activity the capital’s pharmaceutical industry has doubled in value in each of the past two years, China News Weekly reports. A total of five billion Covid-19 vaccines were produced in Beijing last year and its two major vaccine manufacturers contributed total output value of more than Rmb230 billion between January and November 2021.

The rise of the ‘new economy’ is another factor. Beijing is home to a series of fast-growing internet and tech firms that now hold a lofty 166,000 “invention patents” (up 13% from 2020), the local authorities proudly proclaimed this week. In the first 11 months of 2021, R&D spending by large and medium-sized enterprises rose nearly a third on the prior year. New infrastructure investment in 5G networks, integrated circuits and charging facilities for electric vehicles also accounted for 9.1% of Beijing’s fixed asset investment, which was 1.5 percentage points higher than 2020.

Preparations for the Winter Olympics, as well as the opening of the Universal Studios theme park resort in September, have also helped propel Beijing’s economy forward.

How about Beijing’s future plans?

Chengdu, the capital of Sichuan, is sometimes dubbed as “Chengdu province”. This underlines the perception that government policies there favour the development of the city at the expense of other parts of Sichuan (one of China’s biggest provinces in population terms). As a result, much of the most promising talent and growth opportunities in the province tend to be sucked into Chengdu from neighbouring cities, arguably hurting development elsewhere in the province. For instance while Chengdu was close to joining the ‘Rmb2 trillion club’ last year it raced far ahead of the next two biggest cities in Sichuan – Mianyang and Yibin – whose GDPs have just topped (a dramatically lower) Rmb300 billion.

There are similarities here with what the philosopher Montesquieu described in 1740, when he wrote that “France is nothing but Paris and a few distant provinces which Paris has not yet had time to swallow up”.

In a similar vein – and perhaps mindful of the Chengdu experience – the Chinese leadership has been keen to limit the impact of ‘capital city disease’ (in other hints at the influence of long-dead Frenchmen, Wang Qishan is said to have made Alexis de Tocqueville’s The Old Regime and the Revolution a must-read for Party cadres when he became anti-corruption tsar in 2012).

Of course, there’s no getting away from the fact that Beijing is the capital city of a country where state capitalism has been in the ascendant. That means that it still has plenty of political gravity to pull talent and resources in its direction. No surprise then that it hosts the headquarters of more than 900 major financial institutions, for instance, including the big four state-controlled lenders and 20 of China’s biggest state enterprises. Where else could be better than Beijing for companies that need proximity to the bureaucratic levers of power, with its pantheon of central ministries and powerful regulators all in the neighbourhood.

The establishment of the Beijing Stock Exchange last year was a major statement of intent too: a signal that local officials want to channel more of the nation’s financial resources to the capital (it also unmasked Beijing’s longer term competitive ambitions to be a financial centre at least equal in stature to Shenzhen, and not far behind Shanghai).

State media, however, has been careful not to overhype Beijing’s rise or its prospects of overtaking Shanghai in economic heft. Perhaps that is because of awareness of envious sentiment towards the city from other parts of the country – particularly the view that the capital “sucks blood” from the rest of the nation. As a perception, that doesn’t jibe well with the policy of Common Prosperity now prevalent in President Xi Jinping’s inner circle.

Several cities in the Yangtze River Delta – including Hangzhou, Suzhou and Nanjing (all members of “the Rmb2 trillion club”) – have basked in the spillover growth from Shanghai over the years. But there have been fewer trickle-down benefits for neighbours of Beijing, such as Baoding. That’s why the city’s 14th Five-Year Plan phased out mentions of the so-called “capital economy”. Political gossip is that Beijing may even become the first city in China where slowdowns in growth could be scored as ‘success’ criteria in evaluating local governance – given the need to push more economic activity into Xiongan and Jing-Jin-Ji, to narrow their GDP gap with the capital.

Of course, that too would nicely serve the narrative of a capital city prepared to make sacrifices to further the goal of Common Prosperity across the nation…


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