Building competitive regions
in a globalised economy:
Policy lessons from China
Dr Konstantinos A. Melachroinos
Department of Geography
Queen Mary, University of London
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
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
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
Aspects of regional
competitiveness
• Rising export volumes
• Attracting investment
• Attracting skilled workers
• Maintaining successful businesses
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?
Regional competitiveness a broader
concept than productivity
• Degree of utilisation of production factors
• High employment rates: amplify multiplier
effects and promote social cohesion
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
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
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
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
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
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
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
Regional economic growth in
China: searching for the
drivers of competitiveness
• Foreign Direct Investment
• Chinese overseas capital
• Transnational corporations (TNCs)
• Industrial clusters
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
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’
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
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
Timeline of China’s regional preferential policies, 1979–1990
Number and type of opened zone Location
Year of
approval
1979 3 Special Economic Zones Guangdong
1980 1 Special Economic Zone Fujian
1984 14 Coastal Open Cities Liaoning, Hebei, Tianjin, Shandong, Jiangsu,
Shanghai, Zhejiang, Fujian, Guangdong, and
Guangxi
10 Economic and Technological Development Liaoning, Hebei, Tianjin, Shandong, Jiangsu,
Zones Zhejiang, and Guangdong
1985 1 Economic and Technological Development Fujian
Zone
3 Coastal Open Economic Zones Pearl River delta, Yangtze River delta, and
Fujian
1986 2 Economic and Technological Development Shanghai
Zones
1988 Open Coastal Belt Liaoning, Shandong, Guangxi, and Hebei
1 Special Economic Zone Hainan
1 Economic and Technological Development Shanghai
Zone
1990 Pudong New Area Shanghai
Source: Démurger et al (2002: 448)
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
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
