Building competitive regions in a globalised economy: Policy lessons from China

1. Building competitive regions in a globalised economy: Policy lessons from China Dr Konstantinos A. Melachroinos Department of Geography Queen Mary, University of London

2. Global economic integration • Gradual abolition of trade barriers • Shift of political, administrative and in some cases even fiscal power to supranational and sub-national entities • Limited capacity of central states to intervene and change regional fortunes

3. Regional competitiveness • Increased regional competition for market shares, investment, and skilled workers • Search for best practices and innovative territorial policies • Limited to a few leading western regions

4. Competitive regions in China • Surprisingly little attention has been paid to the experience of the emerging Chinese regions • Controversy about the key mechanisms of economic growth in China • Experimentalist vs. convergence schools

5. Aspects of regional competitiveness • Rising export volumes • Attracting investment • Attracting skilled workers • Maintaining successful businesses

6. Regional competitiveness: a meaningful concept? • Krugman (1994): • Regions do not compete with each other like firms (e.g. go out of business) • Imports are beneficial to growth • Economic development is not a zero-sum game • Competitiveness another word for productivity?

7. Regional competitiveness a broader concept than productivity • Degree of utilisation of production factors • High employment rates: amplify multiplier effects and promote social cohesion

8. Territorial competitiveness: a relevant concept to regional economic growth • Camagni (2002) • In a globalising economy the automatic mechanisms that allow regional exports on a comparative advantage principle are gradually eliminated • Instead regions have to compete for markets and investments on the basis of an absolute advantage principle

9. Territorial competitiveness: a relevant concept to regional economic growth • European regional policy thinking: • If firm competitiveness is largely affected by the characteristics of the hosting region then it is meaningful to talk about regional competitiveness • Regions as economic entities are not engaged in a direct competition, but they do compete in an institutionalised form

10. Territorial competitiveness: a relevant concept to regional economic growth • Malecki (2004): • places compete not only for investment, but also for the attention of migrants, tourists and media glow • Knowledge-based economies compete for attracting creative workers

11. Territorial competitiveness: a relevant concept to regional economic growth • Porter’s (1990) ‘competitive diamond’: clusters of rival firms, demanding local customers, favourable factor input conditions and competent local suppliers and supporting industries • A persuasive mechanism through which local firm rivalry can be translated into a regional competitive advantage

12. The determinants of regional competitiveness • Turok (2004) identifies two contrasting perspectives on the competitive advantages of city regions: • benefits of scale and diversity that derive from concentrations of economic activity • quality of the interactions between local firms and supporting institutions

13. The determinants of regional competitiveness • ‘Softer’ forms of capital, such as human, social/institutional, cultural, knowledge/creative and infrastructural capital are very important in supporting in the form of external economies an efficient regional economy (Kitson et al (2004) • Regional competitiveness is not only a basis but also an outcome of economic performance

14. Regional policy dilemmas • Serious limits in enhancing the competitiveness of regions: • Which form of capital (e.g. human, social, knowledge, etc.) has to be acquired first? • What is the critical mass of each asset that is necessary in order to create and sustain a competitive region? • Territorial competitiveness is a dynamic process that depends on the ability of a region to constantly upgrade its economic and knowledge bases in order to maintain their rareness and stay ahead from the rivals

15. Regional economic growth in China: searching for the drivers of competitiveness • Foreign Direct Investment • Chinese overseas capital • Transnational corporations (TNCs) • Industrial clusters

16. Foreign Direct Investment (FDI) • Low labour costs and market size tell only a part of the story • China more welcoming in relation to other rival countries (e.g. India) • Emphasis not only on capital but also on technology, information, and managerial skills transfer

17. Chinese overseas capital • Organised efforts to attract capital from Hong-Kong, Macao, Singapore and Taiwan • In 1992 Hong-Kong and Macao accounted for 65% of foreign projects in China (Hayter and Hun, 1998) • Joint ventures with Chinese organisations that operate as ‘windows’ and ‘radiators’

18. Transnational corporations (TNCs) • Liu and Dicken (2006) • ‘obligated embeddedness’: the investments of TNCs are shaped to meet the state's objectives • The state determines the access to assets located within its territory • Whereas, elsewhere, TNCs are able to play off one country against another to achieve the best deal, in the Chinese case it is the state whose unique bargaining position has enabled it to play off one TNC against another

19. Industrial clusters • Promotion of foreign trade in targeted economic zones • Ideological reasons (limited spatial exploitation of workers by foreign firms) • Economies of scale in the provision of infrastructure • Agglomeration and localisation economies

20. Timeline of China’s regional preferential policies, 1979–1990 Source: Démurger et al (2002: 448)

21. Industrial clusters • Gradual expansion of designated economic zones • Reduced territorial competition among Chinese regions • Diffusion of growth to less developed areas through the relocation of low tech activities

22. Policy lessons • Focus on diasporic capital • Enhancing the embeddedness of FDI • Cluster creation • Spatial and temporal differentiation of policy initiatives in order to avoid wasteful territorial competition