3rd International Forum on Urban Competitiveness

Chengdu, China
10-11 June, 2006

Peter Karl Kresl
Director, Urban Competitiveness Project
Charles P. Vaughan Chair in Economics
  Bucknell University (USA)

I would like to begin by saying what a pleasure it is for those of us of the Global Urban Competitiveness Project (GUCP) who have come from North America, Asia and Europe to be here in Chengdu during these times which are so exciting and important for the city and its urban region, and for the province of Sichuan.  During our stay we have come to begin to understand some things about this urban economic region of China, its current policies and its considerable potential for growth.  Several aspects of the current situation appear to have set the scene, so to speak, for our engagement with Chengdu and which elicit comments from us.  
First, economic growth in China as a whole has progressed at 9-10 per cent per year, with the attendant pressures on labor markets for certain skilled workers recently becoming evident.  This has motivated the central government to promote a policy of encouraging higher growth in the interior of the country, rather than in the coastal areas which may now, with annual wage increases in some areas in excess of 14 per cent, be seen to be “overheated.”  
Second, we note that there has been established in the 11th Five Year Plan a fourth economic region, that of the Chongqing-Chengdu Economic Region; this is in addition to the existing Bohai, Yangtze and Pearl River economic regions based on the cities of Beijing, Shanghai and Hong Kong.  This new region is the first to be established in the interior and should give Chengdu a significant competitive advantage over other cities in the interior as it will undoubtedly result in additional allocations of funds for transportation and other infrastructure improvements, as well as a boost in the self-esteem of residents and officials throughout the urban region.  As we know, there are many large urban regions in the interior of China and all will be struggling to gain ascendancy in the Chinese urban hierarchy.  Those of us who have studied urban competitiveness know that it is the city that acts most quickly and with the most intelligence that usually gains most in this competition among urban regions.  
Third, we would add a cautionary note that there are many examples of two- or multiple-city urban regions; some of them bring benefits to all participating cities, while others benefit one city and the experience of the other(s).  In the case of Chongqing-Chengdu, the space between the two primary cities is still relatively undeveloped.  This space will be opened as transportation improvements reduce the cost of distance.  The distribution of the benefits thorughout this developing economic region is yet to be determined.  Some multi-city regions such as Seattle-Vancouver have not been success stories, but others such as Copenhagen-Skåne (the Øresund Region) have.  This new initiative by the national government and its counterparts elsewhere should be studied so as to ensure the maximum benefit to Chengdu.  
Fourth, while touring the city we noticed that Chengdu has impressive assets in its industrial zones, high-technology parks, incubator center and export processing center.  Sichuan has over 40 universities and Chengdu has, among other institutions of higher learning, an Information Technology (IT) University.  There are currently over 100 companies in IT located in these zones or parks, including the recently added large facility of Intel.  So Chengdu has very impressive assets when it comes to high technology economic activity.  This structure exists along with other strengths in pharmaceutical, machinery, modern food processing and the service sector.
Fifth, it is more than merely symbolically important that Chendu has just begun direct flights to Amsterdam on KLM-Northwest airlines.  This ten hour flight will give the city greater access to Europe than it had when one had to transfer through one of the three coastal cities in China.
Finally, we have come to understand the many other positive features of Chengdu’s current economic situation.  Most worthy of mention here is the progress that has been made in understanding the process of Rural-Urban Integration, which is the central focus of this conference.  Chengdu’s leadership is recognized by others as having progressed far in comprehending what this process entails, its great importance to the economic future of China, and the policies that are required to bring this policy initiative to success.
It must be noted that we of the GUCP are not specialists in the question of the rural-urban integration process, but we do have valuable insights: 1) into the important topic of urban competitiveness, 2) into its most important dimensions such as industrial restructuring; the linkage between creativity, learning and competitiveness; the resurrection of a declining city; and the measurement of urban competitiveness, 3) into policies that can be implemented to enhance urban competitiveness, and 4) into how the analysis of urban competitiveness can be used in urban strategic planning which, if done properly, can enable Chengdu to advance in relation to its competition with other urban regions in the interior of China and elsewhere.  So it is with great pleasure and humility that we come from North America, Asia and Europe to Chengdu to share our knowledge of these important aspects of urban competitiveness with Chengdu’s leaders, planners and policy makers.
In the following summary comments on the content of this 3rd International Forum on Urban Competitiveness I will begin with observations on what was presented to us on the first day of the conference by officials and experts from China; following this I will make less extensive comments on the contributions of GUCP members, since they were presented to the conference attendees earlier today and will remain fresh in mind.  These comments will be offered as an addendum.
This is, of course, a period of unprecedented growth in the Chinese economy and also in its urbanization.  In discussing both of these phenomena, Chinese specialists argued the importance of the correct path to the future being taken.  They stressed the combination of both theory and practice – neither alone would be sufficient.  This concern for balance was something we heard throughout the day – theory and practice, urban and region, equity and efficiency.  We understand this to be a fundamental aspect of the Chinese approach to, among other things, economic development.
The Chinese approach to the question of economic development of the urban and rural areas was quite different than what is found in countries, such as the United States.  Here there is a concern for complimentarity in development – neither the city or the country alone.  In the US New York City, Chicago, Los Angeles and the other cities develop with no connection to their rural hinterlands.  The Metropolitan Statistical Area is entirely urban in nature.  In fact, there is tension and conflict between New York and upstate New York, and between Chicago and downstate Illinois, to the degree that no common strategy for urban development at the level of the state (province) can be undertaken.  We note the pre- and post-1983 administrative structure reforms and the consolidation of water and transportation and other responsibilities.  
This Chinese approach is perhaps also required because of the massive rural to urban migration flows – it has been estimated that these flows of people will be in the 100’s of millions.  The US has had its internal migrations after the Civil War (post-1965), during the 1920’s and 1930’s and during the Second World War and the post-war period – but nothing to equal these numbers.  Europe has had some rural to urban migration but its migrations were largely from Europe to the so-called lands of recent settlement in the Americas and other European colonies.
In China it is assumed that the relationship between rural and urban area:
1) there must be coordinated development between the large and the small,
2) it is important that a scientific approach be used in the integration of rural and urban economic activity,
3) the rural-urban relationship must be developed through an explicit recognition of specialization and exchange,
4) wastage of industrial investment must be avoided through the insistence on efficiency as a component in the balance between overall control and market-based decision making,
5) development must meet internal or local needs, and
6) increased employment must be a priority.
In spite of these necessary aspects of rural-urban development, it is apparent that the disparity in rural and urban per capita income is growing.  On the one hand this is seen as desirable because a certain inequality of income distribution is a sign of progress toward a modern economy – a ratio of 1 to 3, roughly the current imbalance, was suggested as being acceptable; on the other hand, some specialists focused more on the imbalance in both income and the quality of life an on the unacceptability of absolute poverty.  This is a lively debate in China and is an example of the debate over the balance of equity and efficiency that was noted above.  
One participant has argued that a ‘development dividend’ must be realized.  By this it is meant that while economic development generates lower costs and prices – a benefit, it also generally results in urban social pathologies such as crime, degradation of housing, drugs social exclusion and alienation – undesirable consequences.  The obligation of government is that of using policies to achieve a positive balance of this equation.  One of the primary requirements for this to occur is education in rural areas which will result in, among other things, increased productivity.  In a sense, one of the negative aspects of economic development, at least when a market based decision-making process is introduced, is the inability of the market system to provide adequate health and unemployment insurance for workers.  We currently see a partial retreat from market-based economics with new reforms in the ‘social safety net’ (vis a vis health and unemployment) that involve provision of insurance-type options for workers.  Here is explicit recognition that the market system has its problems just as does a centrally planned economy.  This brought to our attention the concept of the ‘socialist countryside,’ in which this concern that rural people share equitably in the gains in national income is made explicit, and that these gains not be allowed to accrue primarily to urban dwellers.  
In the broadest sense, there is an extensive debate in China over the relative roles of government and the market in the economy.  In spite of this, government clearly plays a more central role in economic decision-making in China than is the case in North America or Europe.  In the Chinese case, rather than exerting direct control over the economy, the central government guides or plans activity and then private sector entities make investments in accordance with the objectives of the plan, with some perhaps minor financial contribution by the government.  Given this, it is clear that priority must be given to creativity in the management of this relationship between public and private participation and that this planning must be evolutionary and flexible so as to continue to be relevant to China’s rapidly evolving economic situation.  In general, it must be stated that the government of China and the Communist Party of China have managed very successfully the transition from a centrally planned economy to one that is increasingly based on market-based decision-making.  This has been accomplished to this date without the chaos and corruption that have been experienced in other places in which the transition has been done primarily by relaxation of the presence of the state and without adequate attention being given to the establishment of an institutional and regulatory structure that such a transition requires.
We gained insights into the Chinese planning system during a discussion of the development of the plan for the economic region of Bohai.  The plan was developed by the national government, but it was implemented by local authorities.  However, Chinese authorities must be aware that today, through the actions of national governments during the past five to six decades to reduce trade barriers, to open financial and other markets and to stimulate rapid advances in technology (the three components of ‘globalization’), these same national governments are reducing their capacity to intervene in their own economies and both the capacity, and the responsibility for policies to affect both local and national  economic development and to enhance competitiveness are devolving to local authorities and the nation’s urban regions.  This is actually in conformity with China’s policy of decentralization.
With regard to urbanization, three concerns were identified: 1) recognition must be given to the spatial pressures on the central city and its rings or ‘edge,’ merging into the countryside or hinterland, 2) China must increase the size and economic importance of its core cities and urban regions if it is to continue to act positively on the global stage, and 3) cities are central to integration within China of all of its regions, as well as to integration between China and the global economy – traded goods are produced in them, they attract foreign direct investment, particularly their manufacturing ‘edges,’ and the city centers are central to finance, logistics, administration, and learning and research and development.  In this latter regard, it is the large cities that are China’s ‘learning regions.’
Nonetheless, it was argued by more than one participant that while urban and rural areas are different, each should be recognized as having positive features and should be developed according to its own unique requirements and potentials.  In particular, it must not be forgotten that the rustic attractiveness and values of rural areas have value both for tourism and for their role in creating and sustaining the ‘national culture’ of China.  One remembers that in Europe it was to the countryside that composers such as Brahms and Bartok and hundreds of artists went for inspiration.
This same globalization process is used by China in its effort to move from a focus primarily on equity to one in which there is a new balance drawn between equity and efficiency.  We see this in China’s recent reforms of banking and other legislation and regulation, and in an increased openness to respond to global forces for restructuring of economic activity.
For example, we understand that in Chengdu over 1,000 outmoded factories have been allowed to fail and to be closed.  We understand that new areas of production in IT and pharmaceutical and machinery are being opened or expanded.  The rate of urbanization in Sichuan and elsewhere is on the rise, and the service sector is expanding rapidly – for example, in tourism and logistics.  Increased focus on efficiency brings forth a new comparative advantage and new relationships of specialization and exchange of goods and services.  In our short visit, it appears to us that in Chengdu these developments are being embraced as the dominant elements in the economic future of this urban economic region.
Finally, it was noted several times during the forum that outsiders, both from abroad and from other parts of China, have learned much from Chengdu’s recent experience with economic development, and especially with rural-urban integration.  Chengdu has apparently been able to develop both its competitiveness and its livability – not always an easy accomplishment!  However, it was noted that: 1) the process of policy formulation lacks a scientific approach (one wonders whether the participants of the GUCP could be of assistance in this regard), 2) more public participation is required, both for the generation of a plan that has full relevance to the local situation and for the effective mobilization of local human resources, 3) the problem of urban and rural employment and unemployment continues to be a challenge, and 4) both Chengdu and Sichuan must increasingly accept relationships and linkages with other Chinese provinces and must ensure that they are mutually beneficial.
The international members of the GUCP return to their homes with a solid comprehension that Chengdu is an extremely interesting urban region to study, that it has great potential for development and for the enhancement of its competitiveness, and it is an urban region that we will want to continue to observe in the next decade or more.  On behalf of my GUCP colleagues I wish to extend our greatest appreciation to Mayor Ge Honglin and to Secretary of the CPC Chengdu Committee Li Chuncheng and their staffs for their generous hospitality and for making our visit to Chengdu so informative and pleasant.
 

Addendum: the presentations by GUCP members

Professor Peter Karl Kresl
 Chair of the Urban Competitiveness Project
 Charles P. Vaughan Chair in Economics,
   Bucknell University (USA)

The papers in this Report are by members of the Urban Competitiveness Project, established last year in Ottawa, Canada.  The Council of the UCP is composed of scholars and researchers from Europe, North America and China.  Our purpose is that of:
1) analyzing aspects of the competitiveness of the world’s urban regions,
2) promoting better communication among those who are doing research on urban
 competitiveness,
3) enhancing contact between researchers and practitioners in urban governance and    leadership positions,
4) encouraging more effective economic strategic planning in cities throughout the world,
5) helping to make municipal leaders more able to enhance the competitiveness of their
 regions and thereby to improve the economic futures of the residents of these regions, and
6) increasing the interest in and research in urban competitiveness on the part of researchers
 in both industrialized and developing economies.
To this end, we hold an international conference each year on the general topic of urban competitiveness, with conferences in even years to be held in a Chinese city and in odd years elsewhere in the world.
Our activities are governed to a large extent by our conceptualization of urban competitiveness, which we define as referring to:
“the degree to which a city, or urban region, in comparison with other “competing” cities, is able
to provide the jobs, income, cultural and recreational amenities, degree of social cohesion,
governance and urban environment to which its current and targeted new residents aspire.”
Thus, we consider urban competitiveness to be:
 1) very much a bottom-up process,
2) non-specific in the ultimate specialization of a competitive city, and
3) something to which every city or urban region can aspire.
This is in conformity with our understanding that in the globalized context in which urban economies exist, the capability, capacity and responsibility for both economic competitiveness and the future of that economy have devolved from the national level of government to that of local officials.  It is in this spirit that the papers for this conference in Chengdu have been written.
The papers fall into three general categories.  First, there is the characteristic of the city that can be taken to indicate success.  Second, four papers examine the process of refocusing the economy of a city or an urban region.  Third, three of the papers present a quantitative approach to the assessment of urban competitiveness.
In the first category, Bill Lever, and Leo van den Berg and colleagues examine the learning and knowledge element in urban competitiveness, while Antonio Serrano focuses on ‘city attractiveness.’  Serrano argues that enhancement of urban attractiveness is done by local authorities when they try to market their cities as ‘optimal’ places for certain economic activities and also by investors when analyzing where they should locate their facilities.  He suggests that the term is much broader in its meaning than simply improvement of a city’s competitiveness.  In his paper, Serrano defines and measures urban attractiveness and then links this concept to that of urban competitiveness and the relations among cities of a similar nature, explicitly in the context of the urban system of Mexico.  
Lever and van de Berg focus on the situation of major cities of the EU and discuss a very contemporary concern of city leaders – the adequacy of their city when it comes to what is argued by many researchers to be the most important component of the economy of the 21st century – knowledge.  Lever relates urban economic performance with creativity/innovation, quality of life, and entrepreneurial activity.  He concludes that while the linkages between the other variables are positive, that between innovation and productivity is not.  This is a rather surprising result and Lever discusses this in relation to other areas of public policy, such as demography, human capital, quality of life, economic clusters and civic leadership.  Van den Berg examines the shift toward knowledge-based activity in several cities in North-West Europe.  He finds that this shift is not always an easy or painless one and that some city types do not manage it very well, and is able to identify some factors that are determinants of this ease of transition.  While van den Berg considers this paper to be exploratory, his conclusion will be of interest to city leaders everywhere.
The second category of papers examines the process of restructuring and setting a new course for an urban economy.  These papers are based on the experiences of cities in Mexico, China, the EU and the US.  Jaime Sobrino explores the process of industrial restructuring in 81 cities in Mexico during 1980-2003.  As consequences of this restructuring Sobrino finds that Mexican cities refocused their sales in the US market, rather than in local ones, economic activity grew in the Northern Frontier relative to other areas and that inter-regional disparities increased.  He also finds that the changes in Mexican urban specialization are more in the category of quantitative expansion rather than in qualitative restructuring and that industrial cities developed further their specialties and did not move into new areas.  Thus Mexican cities have not transformed their economies into services and high technology activities as has been the case for cities in the US and the EU.  Focusing on the Pearl River Delta region of China, Shen finds that the state sponsored urbanization of the pre-reform period has been augmented by a more spontaneous model of urbanization in recent years in which non-authorized rural to urban and interior to coast migration has increased dramatically.  The consequences of this for urban regions are very significant for both gaining and losing regions.  One of the most important elements in this transition is land use and price, and the compensation paid to rural people when their land is converted to urban uses.
Sergio Conti, who was unfortunately unable at the last minute to attend the Forum, has studied the process of economic regeneration in one of the principal industrial cities of the EU – Turin, Italy.  Conti recognizes that any effort to reshape or refocus the economy of a city has to be based on a solid footing of effective governance and leadership.  While progress has been made in Turin during the past decade, there is still hesitancy at the regional and national levels.  Conti argues that, at the level of the city, politics has yielded to policies that are now recognized to be necessary for the viability of Turin’s economic future.  This involves the articulation of strong collaborative relations among economic and political actors with the objective of developing new activities of strength to replace the heavy manufacturing of Turin’s past.   Peter Karl Kresl draws lessons for city leaders everywhere from the experiences with strategic-economic planning in ten cities in the EU.  He presents a model that makes this linkage explicit and suggests how the process of strategic-economic planning can be facilitated in the context of individual cities.  Essentially, Kresl shows how the understanding researchers have of urban competitiveness can be utilized by city leaders and planners to chart the courses of development of their urban economies.  He shows how important factors such as effective governance, leadership, and elements of economic and political turbulence can be in this sort of planning.
Finally there are three papers that deal with urban competitiveness itself and with some way of measuring it.  Ni Pengfei estimates the competitiveness for a set of Chinese cities, and then groups them into five regional clusters; he is then able to draw some conclusions with regard to the distribution of competitive urban economies throughout China.  The development of individual cities is revealed by analysis of GDP per capita.  He then ascertains the factors that determine urban competitiveness for Chinese cities.  Finally he draws several very interesting public policy suggestions.  Dong-Sung Cho discussed the value of a similar approach to the study of urban competitiveness to major cities in Korea.  Peter Karl Kresl reviews some of the work that has been done in the United States on urban competitiveness, and separates the studies into two categories – the conceptual and the quantitative.  His own approach is in the latter category and he gives us a ranking of 24 US cities and then identifies the determinants of urban competitiveness in the context of that country.  The objective of both of these studies is that of giving enhanced understanding of the processes of urban competitiveness to city leaders and planners so that they may chart the most effective course for the future development of their urban economies.  
It is difficult to summarize such a rich and diverse set of papers on the urban economy.  However, it is clear that all authors recognize that the city or urban region is the primary economic and political entity when it comes to economic competitiveness.  Scholarship can provide city leaders and planners with the tools they need in their effort to assure rewarding economic lives for their residents.  Cities that rest on past accomplishments or that are mired in ineffective governance structures and leadership are destined to stagnate and to be marginalized.  This places a heavy burden on the citizens of a city to elect competent, visionary leaders and on those leaders to effectively mobilize local resources in the pursuit of the strategic-economic objectives that are more appropriate given that city’s collection of assets, handicaps and aspiration.  As was stated in the manifesto of Eurocities seventeen years ago – “now is the time of the cities.”