China’s path to sustainable growth runs through its megalopolises

As US President Donald Trump appeases voting blocks that have grown frustrated with China’s economic success, blaming it for America’s relative decline, Beijing continues to focus efforts fostering domestic demand as an engine of growth.

The incendiary rhetoric coming from Washington might be able to win votes among some segments of the American public, and it has helped to sour views of China, as a new poll from Pew found. But in the long run, the trade confrontation with China will hurt the global economy and has added a sense of urgency to Beijing’s reforms.

Economists Andrew Sheng and Xiao Geng write in an analysis this week that China will have to continue making strides with regional experiments, and that massive urban clusters will be a key to this.

“It is more urgent than ever that China curbs its reliance on foreign demand and high levels of investment, by fostering sustainable domestic consumption. Success will hinge on China’s continued use of what we call the ‘BREEP methodology,’ whereby policymakers browse, research, experiment, evaluate, and push forward what works, continually refining and adapting their tools and tactics,” the scholars say.

Beijing has tapped foreign expertise to inform its development model while crafting policy at the local level as cities compete amongst themselves.

“Then the experimentation phase began, with the establishment of the Shanghai Free-Trade Zone and the Qianhai-Shekou Pilot Free-Trade Zone. Evaluations of those experiences led to last year’s announcement of more FTZs, as well as the Xiong’an New Area, an ambitious plan to transform – using cutting-edge technology – dusty plains in Hebei near Beijing and Tianjin into a dynamic green model city,” according to Sheng and Geng.

“In fact, China is currently creating 19 ‘supercity clusters,’ by strengthening the links among cities. By 2030, HSBC projects, those clusters will account for about 80% of the country’s GDP,” they added

According to one HSBC report, the three largest urban clusters, those anchored by Beijing, Shanghai and Guangzhou, respectively, each boast a GDP larger than that of Spain.

The tariffs imposed by the Trump administration are not going to stop China’s economic rise, most serious economists agree, but Beijing faces a challenge to fully take advantage of the dynamic urban centers using its successful model of trial and error experimentation, Sheng and Geng conclude.