Shanghai ranks among China's largest and best-performing cities. Sean Pavone / Shutterstock.com

Despite the nation’s recent financial setbacks, these metros will contribute to future global prosperity.

China has taken an economic bruising recently. Its stock market crash and subsequent attempts to rebalance its economy amid a devalued currency have created real worries about ripple effects across the world.

If China’s once-vaunted economy is in trouble, a ray of hope lies in its large and fast-growing cities. A report released this week by the Milken Institute helps us better understand the economic potential of China’s best-performing cities. The report rates and ranks the economic performance of Chinese cities based on job and income growth, economic output, foreign direct investment (FDI), and “high value-added” industries based on their levels of skilled employment. The report then categorizes China’s cities into three tiers, with the first and second tiers representing 34 of the country’s largest cities, and the third tier representing 232 of its small- to medium-sized cities.

The table below summarizes the key results.

Perry Wong and Michael C.Y. Lin, The Milken Institute

Chengdu, the capital of the Sichuan Province, tops the list of first and second tier cities. The city is one of the fastest-growing in the world, and is also an up-and-coming hub for science and education. Chengdu is driven by its ability to develop and attract human capital, its clusters of aerospace, aircraft design, and electronics industries, and support from the central government (including tax and investment incentives to foreign and domestic firms). Chengdu is also one of two cities in the top ten that are located outside of China’s economically propulsive east coast.

China’s second best-performing city is less surprising—Shanghai, the nation’s largest city, has long been known as one of the world’s most powerful financial hubs. Tianjin is third, Dalian fourth, and Nanjing fifth. Of these top ten largest and best-performing cities, most are located in or near the east coast of China, an area which affords more direct access to global markets, as the map below shows.

Perry Wong and Michael C.Y. Lin, The Milken Institute

The best performing small- to medium-sized city is Suzhou, a major manufacturing center in the Jiangsu Province on the eastern coast. This province accounted for seven of the top ten best-performing third tier cities across China, as shown on the map below. Cities in this area have profited from their proximity to Shanghai, lower business costs, and large market potential.  

Perry Wong and Michael C.Y. Lin, The Milken Institute

Although key economic clusters and growth have been concentrated along China’s east coast, there is still a huge opportunity for economic growth in inland China. “China’s development to date has largely been driven by government policy and urbanization,” the report notes, “but the future will depend on the development of urban clusters and small and medium-sized cities.”

China’s best-performing cities have grown based on a combination of diversified tech-based industries, foreign direct investment, and the ability to attract and retain talent. As a nation, China needs to learn from them as it strives to diversify its broader economy away from low-wage manufacturing and continues to build its middle class.

At the end of the day, China is less of a single national economy and more of a spiky one that revolves around its cities. The key to its economic future lies in empowering and enabling its best-performing cities for sustained economic success.

Top image: Sean Pavone / Shutterstock.com

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