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China Economic Quarterly Q4 2019

China Economic Quarterly Q4 2019

China Economic Quarterly Q4 2019

Hot topic analysis: The facts and implications of River Delta integration III Hot topic analysis

The facts and implications of Yangtze larger area than the Yangtze River In the outline, the Yangtze River Delta River Delta integration Delta), and — consists of the Kong — Macao Greater Bay Area (province-level), and the provinces of In December 2019, ’s central (the Greater Bay Area ). , , and . It is government unveiled the “Outline of slightly different to the traditional integrated development of Yangtze So, as a new national development definition of the Delta which has not River Delta”, a comprehensive report to strategy, what do you need to know included Anhui province in the past. describe the blueprint of the region’s about the Yangtze River Delta and its With a population of 29 million, Anhui is development by 2025. It has officially integration, particularly from a business the least developed of the three documented the Yangtze River Delta and economic perspective? Moreover, provinces. It is a great opportunity for (YTD or the Delta) integration as one of what are the implications and Anhui to be incorporated as part of the the national development strategies, opportunities? Delta’s integration. It is also the central while others include the Belt and Road government’s intention that developed The world’s fifth largest economy has Initiative, — — (or regions should help less developed generated a quarter of China’s GDP Jingjinji) Collaborative Development, areas in order to narrow the gap of Yangtze River Economic Belt (a much unbalanced regional development.

Figure 14: Map of the Yangtze River Delta and Top 10 Cities by GDP in 2018

Yancheng 11,445km2

Nanjing 6,587km2 2 4,373km 10,549km2 16,931km2 4,627km2 8,657km2 Shanghai 6,341km2 Shanghai

Hangzhou Jiangsu 16,596km2 Anhui 9,816km2 Zhejiang

Source: Wind, China Statistics Bureau, PwC Analysis

PwC 1 The Delta is one of the most developed • A quarter of China’s total • A population of 220 million or 17% of areas in the country, and plays a government tax revenue. the national total which would rank significant role in China’s economic • One third of China’s exports and imports. the region as the fifth most development. More specifically, the country after . • Attracted more than 50% of China’s region has: total foreign direct investment (FDI). • A land size of merely 259,000 square • A quarter of the national GDP, and kilometres or 3.8% of the national • One third of national R&D expenditure its economic size in 2019 was total which is slightly smaller than and total number of patents. greater than the world’s fifth largest (270,467 km²) and economy, UK. larger than UK (242,500 km²).

Figure 15: 2018 Yangtze River Delta — GDP Per Capita by Provinces

Unit: RMB

Anhui 47,712

Zhejiang 98,643

Jiangsu 115,168

Shanghai 134,982

Source: Wind, PwC Analysis

Figure 16: 2018 Yangtze River Delta - Resident Population by Provinces Furthermore, within the country by Unit: Million People economic size, the Delta (21.62 trillion Shanghai 24 in 2018) is much larger than Beijing — Tianjin — Hebei (8.5 trillion

Anhui 29 yuan) and the Greater Bay Area (10.87 trillion yuan). Meanwhile, the Delta also has a greater population and land size Zhejiang 44 than China’s two other important economic cores.

Jiangsu 57

Source: Wind, China’s national and provincial statistic bureaus, PwC Analysis

2 China Economic Quarterly Q4 2019 As one of the most competitive regions Jiangsu and Zhejiang rank first and Jiangsu. The total GDP of Jiangsu is in China, in addition to the large size of second respectively among the slightly less than Guangdong and it is its economy, the Delta’s GDP per capita provinces. In comparison, Guangdong the second largest economy in the is also among the highest in the country. province in the Greater Bay Area has country (by province) . As a municipality, Shanghai has one of the largest economy in China, but its the highest GDPs per capita, meanwhile GDP per capita is about 25% less than

Figure 17: 2018 GDP composition of Yangtze River Delta by Cities Unit: percentage 100 90 38 36 80 44 44 42 41 40 51 50 50 48 48 48 48 47 47 47 46 45 57 54 52 51 70 64 61 70 60 50

40 52 49 50 42 44 54 58 30 45 47 47 48 49 48 48 51 52 54 33 43 46 48 48 46 20 34 37 30 10 11 11 11 10 10 12 0 0 2 2 3 2 1 1 4 5 5 5 4 3 5 6 3 4 2 5 4

Primary industry Secondary industry Tertiary industry Source: Wind, China’s national, provincial and municipality statistics bureaus, PwC Analysis

In spite of this, the development of the Delta is unbalanced. For instance, Shanghai’s GDP per capita in 2019 reached to more than US$ 20,000 at the prevailing exchange rate which is comparable to , one of the EU member states. The GDP per capita in the cities of and in Anhui province are less than 30% that of Shanghai (40,000 yuan compared to 135,000 yuan in 2018).

PwC 3 The Delta fosters 38% of the top 500 Bay Area in the South, the Delta is the traditional border between the North private enterprises and is the #1 situated in mid-eastern China which is and South of China, with inhabitants that destination for FDI comparatively one of the most have a mix of living habits and cultures. convenient geographic locations to While Beijing — Tianjin — Hebei is access from the most parts of the located in the North, and the Greater country. The Delta also stretches across

Figure 18: Yangtze River Delta-Top 10 Cities by GDP (2018)

Unit: RMB Billion

3,268

1,860

1,351 1,282 1,144 1,075 843 782 705 549

Shanghai Suzhou Wuxi Ningbo Nantong Hefei Changzhou

Source: Wind, China Statistics Bureau, PwC Analysis

Figure 19: Top 100 Cities by GDP in 2019 — Yangtze River Delta Cities As the economic heartland of China, the Delta also boasts some of China’s most developed cities. According to data from City GDP Ranking City GDP Ranking News, in 2019, 25 cities Shanghai 1 35 from the Delta ranked among China’s Suzhou 7 36 top 100 cities by economic size. Three of Hangzhou 10 Taizhou* 37 these cities are listed in the top ten, Nanjing 11 45 namely Shanghai (#1), Suzhou (#7), and Hangzhou (#10). Additionally, Nanjing, Wuxi 13 Taichow* 48 Wuxi, Ningbo and Nantong rank 11th, Ningbo 15 49 13th, 15th and 19th respectively. Nantong 19 50 Changzhou 24 70 Hefei 25 79 33 80 Yancheng 34

Source: 21st Century News *:Taizhou refers to 泰州， and Taichow refers to 台州

4 China Economic Quarterly Q4 2019 Figure 20: Number of top 500 private enterprise by Province Supporting these cities and strong economies in the Delta are the large

91 numbers of prosperous and competitive 83 enterprises that form the backbone of the area. Additionally, more than 50% of 61 57 China’s FDI has been invested in the region.

33 More specifically, take China’s top 500 private enterprises (generated by 20 19 18 14 13 All-China Federation of Industry and Commerce, ACFIC based on revenue) in 2019 as an example, 190 of these companies or 38% are headquartered in the Delta.

Source: All-China Federation of Industry and Commerce • 91 in Zhejiang • 83 in Jiangsu • 13 in Shanghai • 2 in Anhui

Figure 21: Number of Fortune 500 in 2019 in Yangtze River Delta Furthermore, in addition to the large number of top private companies, as of 2019 there were 16 Chinese Fortune 500,000 467,794 8 500 companies based in the Delta: 7 in 450,000 7 Shanghai, 4 in Hangzhou, 2 in Suzhou, 400,000 7 and 1 each in Nanjing, , and 6 350,000 Wuhu, respectively. 5 300,000 177,499 250,000 4 Moreover, the Delta is home to more 4 than 80 unicorns. Based on Hurun 200,000 3 Global Unicorn List 2019, China has 206 150,000 92,640 2 28,499 unicorns which mostly consist of billion- 100,000 2 37,032 26,847 dollar valuation tech start-ups. More 50,000 1 1 1 1 specifically, there are 47 in Shanghai, - 0 Shanghai Hangzhou Suzhou Nanjing Wuhu Tongling which ranks #3 in terms of cities with the most unicorns after Beijing and San Number of Firms Revenue （USD million） Francisco, 19 in Hangzhou (#5) and 12 Source: Fortune magazine, Wind, PwC Analysis in Nanjing (#7).

Figure 22: Hurun Global Unicorn List 2019 — Yangtze River Delta Companies

1,600 14 1,406 16 1,400 14 1,200 10 12 1,000 9 9 10 800 7 7 8 5 600 4 6 3 400 2 2 2 4 116 115 124 84 107 200 38 177 1 2 24 17 22 17 10 - 0

Number of Firms Company Valuation (RMB billion) Source: PwC Analysis, Hurun Global Unicorn List PwC 5 As mentioned earlier, the presence of MNCs with R&D centres in the city, both multinational companies (MNCs) and these numbers are the highest in the FDI also contributes significantly to the country. This has made Shanghai the Delta’s economic prosperity. For most popular city for MNCs in China. instance, in 2018, Shanghai, Jiangsu, Zhejiang and Anhui respectively More importantly, in 2018, received US$17.3 billion, US$25.6 foreign-owned enterprises in Shanghai billion, US$18.6 billion and US$17.0 generated: billion in foreign direct investment, which • 20% of total employment; accounted for 54% of China’s total FDI • 27% of total GDP; during the year. By the end of October • 33% of tax revenue; 2019, there were 710 MNCs with • 60% of industrial added value; and regional, continental or national level headquarters in Shanghai and 453 • 65% of imports and exports.

Figure 23: Proportion of FDI from Yangtze River Delta (2016-2018)

40% 42% 42%

12% 12% 13% 14% 14% 14%

19% 19% 19%

15% 13% 13% 2016 2017 2018

Shanghai Jiangsu Zhejiang Anhui Other Regions

Source: Wind, PwC analysis *:FDI Shanghai: The actual absorbed amount of foreign investment

6 China Economic Quarterly Q4 2019 Implications of the Outline for environmental protection, urbanisation, • Creating a digital Yangtze River businesses and potential R&D, infrastructure and Delta, such as building next opportunities telecommunications, education, generation information infrastructure, healthcare, the digital economy, and boosting the application of the The significance of the Yangtze River energy. These objectives include: Internet of Things, big data, artificial Delta is apparent. So what are the • Improving the environment. By 2025, intelligence, and building up implications of the outline report for energy consumption per unit of GDP will industrial Internet. businesses? How can companies take decrease by 10% compared to 2017. • Promoting the construction of advantage of opportunities? • Increasing the urbanisation rate for trans-regional energy infrastructure The official “Outline of integrated the permanent population from 60% for oil, gas and electricity. development of Yangtze River Delta” is to 70%. • Boosting the following top ten a forty page document with over 30,000 • Increasing R&D intensity to 3% sectors, namely electronic and has several which is also one of the five targets information, biopharmaceutical, points worth noting. of ’s 2020 strategy. aeronautics and astronautics, high- end equipment, new materials, First, integrated development of the area • Increasing the density of high speed energy saving and environmental can be achieved by: railways, express highways and 5G protection, automobiles, green network. For instance, high speed • Breaking provincial boundaries for chemicals, and garments, railway density will reach 507 more cooperation due to and intelligent appliances. kilometres per 10,000 square administrative fragmentation of kilometres, from 140 kilometres as of provinces. Finally, Yangtze River Delta integration the end of 2019. This means in the will reinforce the leading role of • Creating a new pattern to promote next five years the Delta will add an Shanghai, particularly its service regional coordination and additional 13,000 kilometres of high function, through preferential policies, development. speed railway from the base of 5,000 and will also create new opportunities for • Strengthening collaborative kilometres now. At the cost of 130 the Shanghai Free Trade Zone including innovation and industry cooperation. million yuan per kilometre, which is Lin-Gang Special Area which is home to • Facilitating and accelerating public based on Beijing — Shanghai high Tesla’s Gigafactory 3. Undoubtedly, service sharing across provinces. speed railway completed in 2010, the upgrading to become one of China’s • Strengthening collaboration to Delta requires at least 1.69 trillion national development strategies will protect the environment. yuan in investment. further transform the Delta into an even • Promoting a higher level of opening • Increasing the average length of more advanced and competitive region up through collaboration. education for the working-age in China. population to 11.5 years (from 10.5 Second, the major objectives or years) and the average life development goals for Yangtze River expectancy to 79 years old Delta integration by 2025 indicate (previously 77 in 2018 at the national enormous business opportunities for level).

PwC 7 Author G. Bin Zhao Senior Economist PwC China +86 (21) 2323 3681 [email protected]

Acknowledgements

Special thanks to Thought Leadership and Research teams for their contributions to the report.

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