How is the Yangtze River Delta driving China’s economic development

As one of China’s three metropolitan regions, the Yangtze River Delta will play an essential role in the country’s future economic growth.

The Yangtze River Delta (YRD), a major metropolitan area centered around Shanghai, has always been a driver of China’s economic development. Envisioned as a hotbed for nurturing new industries, innovating new technologies, and increasing the country’s overall competitiveness, the YRD is a good mirror on China’s present and future priorities. 

Since it was first mentioned by China’s State Council in May 2016, the YRD has increasingly become a driving force for the nation’s economy. In November 2018, President Xi Jinping declared the building up of the YRD a “national strategy.” And in December 2019, an outline for the region was issued¹ by China’s Central Committee, detailing an integrated approach to the region’s development.

Like China’s two other metropolitan areas – the Beijing-Tianjin-Hebei Area (Jingjinji) and the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) – the YRD is significant in both its size and its economic output. Centered around Shanghai, the YRD extends across the provinces of Zhejiang, Jiangsu and Anhui. It includes 27 cities², covers 225,065 square kilometers, and represents a total population of 163.3 million people. Its economic output is likewise impressive; in 2018, the YRD generated some 20% of China’s total GDP and represented some 39%³ of the country’s total foreign direct investment inflows.

Increasing competitiveness

The background for the December 2019 issuance is that there are perceived deficiencies in the YRD’s infrastructure, environmental conservation, and provision of public services. Although the YRD is widely recognized for its economic dynamism and business competence, the government considers it is in need of more holistic development to increase its global competitiveness. As indicated by Wu Xiaohua of the National Development and Reform Commission, “With a key focus on pursuing opening-up on all fronts, [the YRD] will… provide new impetus to globalization.”

Connectivity

That infrastructure is seen as lacking in the YRD indicates the rationale behind the push for connectivity. Creating an urbanized megalopolis, efficiently connecting the 27 cities of the YRD, will allow each city to lean on its own comparative advantages. This will increase the overall efficiency of the region and generate a variety of benefits, including developing the YRD’s rural areas, increasing the urbanization rate to 70%, and building 5G networks that will cover at least 80% of the YRD.

Technology

A large share of the success of the YRD to date is due to technology and the inputs that support the industry. For example, around one-third of China’s annual national research funding is used in the region. It is also home to around a quarter of China’s top universities, and a wide range of national laboratories and engineering centers⁴. All of this supports a robust technology industry. To continue this progress, the government is planning an end-to-end technology ecosystem for the area. This ecosystem is envisioned to support the development of a number of international industry clusters, focused on innovation and with resilient supply chains.

Environment

To ensure the YRD’s development is sustainable, the government is increasing its focus on improving the natural environment. By 2025, PM2.5 emissions are expected to be within healthy limits, the aim being that the air quality in cities at the prefecture level or above will be classified as ‘good’ for at least 80% of the year. Moreover, 80% of the YRD’s river water is anticipated to be of a satisfactory quality, and the area’s energy consumption per unit of GDP will be 10% below 2017 levels.

Standard of living

Underlining the holistic nature of the government’s agenda for the YRD is a focus on the welfare of the area’s inhabitants. For example, to ensure everyone in the YRD benefits equally, the government intends to spend RMB21,000 per capita by 2025. The benefits include increasing the average years of education for the YRD’s labour force to 11.5 and extending the average lifespan of the area’s inhabitants to 79 years.

Spotlighting technology

As mentioned previously, technology is a central feature of the YRD today, and will be in the future. As far as how such an ecosystem is to be realized in the region, the government has created plans for the four existing industry types. Traditional industries will be moved to the periphery of the region. Established industries will be clustered to increase efficiency. Focus industries will be supported in view of producing world-class enterprises while emerging industries will be nurtured as the future of the YRD’s technological aspirations.

Networks of support

To achieve its technological aspirations, China is investing heavily in digital infrastructure. From 5G network coverage, data centers, data encryption facilities and upgrades to satellite navigation capabilities, to the standardization and sharing of local government data, the advancement of digital infrastructure is intended to create an environment for the widespread adoption of new technologies, such as self-driving vehicles and smart highways.

Another area of focus is supportive government policies, which will revolve around the following: land reforms to reduce the current fragmentation and restrictions on land transfers and transactions; increasing access to professional qualifications to increase the YRD’s pool of qualified talent; and tax reforms to facilitate smoother cross-border reporting, simplify the standardized existing tax-filing requirements, and increase the sharing of tax-related credit rating information.

A final feature is the strengthening of the YRD’s intellectual property rights framework and the creation of a transaction platform for the exchange of innovative technologies. The long-term vision is to form a pipeline of high-growth and innovative enterprises, with the newly established Star Board of the Shanghai Stock Exchange to meet the capital needs of the emerging sectors.

The role of Shanghai

The government considers Shanghai to be the strategic centerpiece of the YRD’s future development. It is being positioned as the principal entry point for talent, goods, technology, and capital into the YRD, and it will play an essential role in the development and maintenance of the area’s technology ecosystems. There are three strategic intentions for Shanghai. 

The first is to enable talent mobility. Leveraging the Zhangjiang Hi-Tech Park and Shanghai Free Trade Zone, Shanghai is seen as playing a pivotal role in attracting foreign talent, especially people with skillsets in new technology. To do this, the government is drafting policies to streamline access to work and residence permits for students looking to work or start a business in the YRD.

Second, based on the success of the China International Imports Expo (CIIE) to date, the role of Shanghai as an international trade hub will be strengthened. Policies to liberalize the flow of merchandise are expected to incentivize top multinationals to expand their operations in the area and designate Shanghai as their regional headquarters.

Third is to increase the efficiency of Shanghai’s capital markets. In addition to the establishment of the Star Board for technology and innovation companies, as China’s international finance center, Shanghai will play a pivotal role in further opening up the banking industry to foreign participation. It will provide support for foreign enterprises who seek to issue renminbi-denominated bonds and foreign investors who want to participate in the domestic bond market. Initiatives will include expanding the Bond Connect scheme with Hong Kong.

The YRD is an essential part of China’s future economic development, alongside Jingjinji and the GBA⁵. Keeping a pulse on its evolution and achievements will provide a good indication of the country’s priorities and how far it has progressed toward its objectives.