Date: 13 June 2012
Source: South China Morning Post
Section: Property – Concrete Analysis
Headline: Self-promotion has helped cities ride the ‘go west’ wave

A key determinant used by the Urban Land Institute to rank the mainland cities that offer the best investment prospects was the extent to which the cities received an inward migration of skilled people.

Cities which are net recipients of talent or skilled resources tend to attract large domestic new economy companies, multi-national corporations (MNCs), and research institutions; and the collective requirements of these companies and organisations then drives requirements for real estate.

As reported last week, the ULI Mainland China Cities Survey 2012 ranked Shanghai, Chengdu, Hangzhou, Wuhan, and Shenzhen as the top five investment prospects.

Cities in China are not the least bit neutral with respect to each other, but are locked in competition for a limited quantum of investment funds, human talent, corporate presence, concentration of financial institutions, and financial trading activity – and all the other critical building blocks of urban greatness.

Hence, apart from whatever inherent natural and economic advantages they possess, the effectiveness of the cities surveyed at promoting themselves to potential investors, developers, corporate occupiers, entrepreneurs, and skilled workers, was found to be a critical factor in deciding their ranking in the ULI 2012 survey.

Apart from the rise of cities in the ranking due to both their competitive advantages and skill in communicating those advantages and promoting themselves, another important take-away from this year’s survey is that cities did not automatically achieve a high ranking because of their previous top-tier status.

Indeed, the fact that Shanghai, Hangzhou and Shenzhen, because of their peculiar attractiveness and strength, were able to achieve No2, No3 and No5 positions respectively, in terms of the ranking of their investment prospects, could be viewed as “bucking the tide”, since a pronounced trend revealed by the 2012 survey rankings was the dramatic rise of inland cities such Wuhan and Changsha in central China, and Xian and Chengdu, in northwest and southwest China.

The rising investment potential of these cities in a sense mirrors the policy which China’s central government has been implementing since 2000, namely to drive new incoming investment away from the well-established cities and provinces in its northern, eastern and southern coastal areas, where such a preponderance of China’s wealth, talent, intellectual resources and hi-tech manufacturing are still concentrated, and to divert more resources towards the less-developed interior.

Indeed, temporarily setting aside outperforming cities such as Shanghai, Hangzhou and Shenzhen, survey respondents this year viewed the mature Tier II cities of the Pearl River Delta and Yangtze River Delta (YRD) as being places where they were less likely to uncover value in the real estate market. This cooling attitude was reflected in the flat, middle ranking of cities such as Guangzhou and Suzhou, which were viewed as offering relatively bland prospects for real estate investment or development over the short term.

Chengdu has now successively come in twice as the No1-ranking city in both the 2011 and 2012 surveys, buoyed by both the central government’s policy support and its own municipal-level policies. It has also leveraged on the attractions of a large and skilled labour force, and competitive wage and real estate costs to strengthen its position, step by step, over the past decade as the city which is perfectly positioned to catch the “go west” wave.

It also demonstrated remarkable entrepreneurial foresight in re-inventing itself from being merely a major inland economic centre to being the inland location of choice for both MNC’s and major domestic corporations as the “go west” tide saw hi-tech manufacturing and back-office functions being relocated inland from higher-cost coastal locations.

The rise of Wuhan and Changsha in the ULI investment prospects opinion poll represents a temporally different phase of the same phenomenon when compared to the earlier rise of Chengdu.

Now that the economies of the seven coastal provinces and three coastal provincial-level municipalities have taken off, and the southwest has also begun to hit its stride, there was a sense, in undertaking the survey, that now is time for central China to bloom.

But despite this, central China was found to contain both cities that are natural “self-promoters” such as Changsha; and others, such as Wuhan, which could be termed “procrastinators”. Changsha, which jumped from No15 to No10 in the present survey, is an intensely upwardly mobile city and a tireless self-promoter. It has catapulted itself to No9 position in the China Academy of Social Science’s 2011 Blue Book on China’s Urban Competitiveness, earning high scores in the categories “Leisure Living and Ecologically Friendly City”, “Cities with the Best International Image” and “China’s Happiest Cities”.

Wuhan until recently has been much less adept at promoting itself as a strategically-positioned but underperforming city whose time has now essentially come.

As the political, economic, financial, cultural, educational and transportation centre of central China, and a city that has benefited from enhanced connectivity to the national high-speed rail grid, Wuhan has enjoyed many advantages, but in terms of perceptions has persistently lagged behind its rivals.

It would appear, therefore, that Wuhan basically has everything going for it except for a government that is reportedly locked into turf battles and other forms of internal contention that some survey respondents say has held back the city’s development.

Andrew Ness is an independent consultant of the Urban Land Institute