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Weekly Comment icon imagePresident Xi Jinping has a thing for Hebei, the dusty industrial province that surrounds Beijing. He has promoted a plan for integrating wealthy Beijing and Tianjin with poorer Hebei, even declaring it a national strategy that will drive future growth. To us, the most interesting part of the plan is the focus on spreading public services more evenly around the region. This promises to break up the long-established concentration of services in central Beijing, and therefore make it more attractive to live in surrounding areas. If the plan is successful, one consequence should be rising property prices in now-peripheral areas, and a smaller price gap between Beijing’s urban core and the suburbs. In the longer term, this trend could spread to other cities as they mimic Beijing’s strategy for revitalizing suburban areas.

The Beijing-Tianjin-Hebei plan is as much about fixing Beijing’s woes as helping Hebei. Two of the biggest complaints that people have about Beijing are the extreme traffic congestion and the unaffordable housing prices. These problems are of course not specific to Beijing, but are features of the “city disease” that afflicts many of China’s large cities. And though Beijing’s population has indeed surged, these problems are not simply a result of rapid population growth. According to Zheng Siqi of Tsinghua University, commuters account for less than half of Beijing’s traffic volume. And it is easy to observe there are many other things besides local jobs adding to traffic in the capital: Beijing’s hospitals, among the best in the country, are packed with patients from all over. The 21 hospitals in Beijing’s urban core area handled 10.7mn outpatient visits from people outside Beijing in 2013, 30% of the city’s total. The central government bureaucracy in Beijing also gets a steady stream of visits from company executives and local officials. And these public services are disproportionately concentrated in Beijing’s urban core.

The concentration of public services in the core also seems to encourage people to live as close to the center of the city as possible. Indeed, central Beijing is extraordinarily dense by any standard, even if much of its surrounding area is not. The overall population density of the main urban area of Beijing within the Sixth Ring Road, home to two-thirds of the total population or about 14mn people, is about 12,000 people per sq km, which is lower than the 14,500 of the city of Tokyo (not the entire Tokyo metro area, but 23 districts with an area of 620 sq km and a population of 9mn).

But the population density in the core of Beijing (defined as Dongcheng and Xicheng districts, mostly within the Second Ring Road), is 24,000 people per sq km, more than double the 11,000 outside the core. Not one of Tokyo’s 23 districts is as dense.

The extreme centralization of people and services in Beijing is directly expressed in housing prices. As the graphic below shows, areas close to the center boast an extraordinary premium, while housing prices outside the Fifth Ring Road are relatively reasonable. The effects of this extreme centralization do limit the future growth of one of China’s most successful metropolises. Beijing’s high-income and diverse economy continues to attract people from all over the country. And successful cities are an important growth engine: the agglomeration effects and other economies of scale and scope from urbanization contribute to productivity gains.

But it is not clear how many more people can afford to live in central Beijing, or whether the center can manage a higher level of population density. So far, the city’s efforts to spread out the population have been notably unsuccessful, with “new towns” in the suburbs failing to develop much dynamism and just imposing a longer commute on their residents.

Beijing’s problems are really just an intensified version of the problems of the rest of China. Most provincial capitals have a very dense urban center surrounded by much wasteful urban sprawl—while few other provincial cities manage to develop into attractive urban centers. This pattern does not simply reflect natural economic concentration, but also the political structure of the country. A recent study by Wei Houkai of the Chinese Academy of Social Sciences, examining 755 cities and 15,563 towns, found that the higher up urban areas are in the administrative hierarchy, the faster they grow. His argument, with which we agree, is that this is because cities at a higher level have better access to public funds, a stronger voice in planning decisions and other institutional privileges. Money and public services tend to be concentrated in the cities at the top of the pyramid, and within those cities, inside the urban core where the government is located.

Relocating to the suburbs
It is this context that makes the Beijing-Tianjin-Hebei integration plan so interesting. One of its major aims is to try to counteract the effect of the administrative hierarchy, and distribute public services more evenly around the larger region. For instance, Beijing’s new airport will be built in Daxing, a southern suburb that borders Hebei. The biggest change so far is the relocation of the Beijing municipal government out of the city center and into Tongzhou, a suburb in the east that borders Tianjin. Tongzhou is already a big albeit sleepy community, from which about 350,000 people commute to central Beijing for work every day. The government relocation promises to fundamentally change its character, and Tongzhou’s housing prices rose sharply when the news of the move came out in July. Beijing can only relocate its municipal government once though, so the broader success of the plan depends on whether other smaller towns in the region can also develop their public services and attract businesses and residents. So we expect some state-owned enterprises, universities, hospitals and some central government agencies to relocate outside of central Beijing in coming years, giving a boost to more of the suburbs.

These will encourage employees of those agencies to move to the suburbs, and also give people elsewhere in Beijing a reason to come there (the Beijing-Tianjin-Hebei plan naturally includes infrastructure to improve transportation links in the region.) In turn, this will help these suburban centers develop more self-sustaining economies and attract more residents.

Indeed, given the extreme density of its core, the best way for Beijing to accommodate more people is for growth to happen in the periphery. So if this plan is successful, it should be directly expressed in rising property prices in surrounding urban and suburban areas. While some aspects of the Beijing-Tianjin-Hebei integration plan cannot be easily replicated in other parts of China, the urban development strategy can. Once other cities try to cure the “city diseases” by spreading public services more evenly, suburban properties across the country will start to look more attractive.

[Source: Reproduced by kind permission of Gavekal Research, October 8, 2015; written by Rosealea Yao;]


China - Spreading the Urban Wealth












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