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Growing Pains for a Megalopolis in Transition

Twenty years of on-and-off government discussions have yielded little progress toward the goal of coordinating urban and industrial development in a key Chinese megalopolisthe region encompassing the nation's capital Beijing, neighboring Hebei province, and the port-manufacturing-financial services city of Tianjin.

Now, central government authorities have intervened with clear orders to move forward. Details of a concerted push for regional development coordination were announced April 9 by the National Development and Reform Commission, the country's top economic planner.

The announcement followed central government directives in February ordering officials in the three jurisdictions, with a combined population of 105 million, to do more to foster cooperation on regional development. All parties are to work together to raise economic vitality in the Beijing-Hebei-Tianjin region to match the country's more powerful hubs—the Yangtze River Delta centered in Shanghai, and the Pearl River Delta around Hong Kong.

A lot of paperwork has already been completed. Beijing and Tianjin officials signed a document in March 2013 in which they agreed to enhance economic and social development. The following May, Hebei officials signed similar deals separately with Beijing and Tianjin.

Experts say only the central government has enough clout to push the campaign forward and break down the administrative barriers that have hindered coordination efforts during two decades of unproductive, intergovernmental discussions.

These barriers have been strengthened by fierce competition pitting each regional government against the others, said Chen Xiushan, a professor at Renmin University's School of Public Administration and Policy. Moreover each jurisdiction has grown its economy using similar development plans, he said, resulting in duplicity and overlapping interests.

Questions remain over how much of that competitive spirit and overlap can be controlled even with the central government's weight behind a coordination campaign. Neither is it clear how quickly changes can be made.

Experts such as Chen have taken a sober position.

"Even if the central government establishes a super agency under the State Council, the country's cabinet, to supervise coordination, it still won't solve problems related to conflicting industrial structures," Chen said. "It will take a long time for administrative forces and the market to reshape structures."

Industrial Chains

One reason for skepticism is that the latest, separate development plans for each region bear none of the hoped-for signs of coordination. Each jurisdiction is building its economy around a similar industrial structure. In fact, some say the rivalries may be deepening.

The central government's strategy calls for assigning each jurisdiction a unique role in the regional development effort. It hopes the strategy will cool the regional competition.

Beijing is on tap to remain a city at the heart of China's government and political activity. It is also to serve as a center for culture, international exchanges, and technological innovation.

Authorities want Beijing's heavy industries to move to Hebei or Tianjin, partly in hopes of clearing the city's notoriously polluted air. City officials have been reluctant to follow similar direction in the past, but Deputy Mayor Li Shixiang said at China's Two Sessions legislative meetings in March that Beijing would start helping targeted companies move out.

Ideally, each region should solely occupy certain links in each regional industrial chain, said Zhao Yanxia, Assistant Director of Beijing Fangdi Institute of Economic Development. For a specific business field, for example, Beijing might get the high-end of the chain while Tianjin and Hebei get the lower links.

Meanwhile, Beijing Mayor Wang Anshun wants the city to continue hosting high-tech companies, financial services, and the cultural sector. Biomedical and auto companies would be among those encouraged to remain, while other manufacturers would be told to shift operations to Tianjin or Hebei.

In one sign of things to come, Beijing recently closed some wholesale markets, including the Beijing Zoo clothing market and Dahongmen commodities market, and moved operations to Hebei.

Officials in Tianjin and Hebei have welcomed the chance to inherit well-established companies from Beijing. Tianjin Communist Party Chief Sun Chunlan recently said his city would accept any manufacturers that leave Beijing.

Meanwhile, the central government expects Tianjin to function as an international port, a financial center for northern China, and a center of environmental industry development.

Tianjin is also expected to be a financial center, said Zhu Jianfang, chief economist at Citic Securities. It is unlikely that financial services firms, bank headquarters, and related institutions will leave Beijing for new offices in Tianjin, he said, but the latter city hopes to host more back-office operations for major financial firms.

Hebei officials foresee provincial cities near Beijing, such as Baoding and Langfang, taking control of certain industries and government agencies.

But the migration process is not without its challenges, particularly in the area of inter-city rivalries.

Tianjin and Hebei have been competing for Beijing companies. Rivalry can also be found pitting some Hebei cities against one another in the scramble for companies. Baoding and Tangshan, for example, have been competing for manufacturers.

Going for Government

Communities have also been hungrily eyeing central and Beijing government agencies, wondering whether some might abandon the capital.

To date, however, most of the chatter about government office transfers has been idle talk.

On April 3, Beijing Communist Party Chief Guo Jinlong suggested the city's Tongzhou District would be the likely destination for any agencies that move. His comments clashed with widely repeatedly rumors that some agencies would move to Baoding—rumors that triggered a sharp increase for real estate prices in that city (http://english.caixin.com/2014-04-15/100665617.html).

According to the rumor mill, health and education-related agencies attached to the Beijing municipal government would be leaving town. But Li, the deputy mayor, said the city will not move hospitals and universities. Instead, "some new branches would be built in other cities," he said.

Hebei and Tianjin officials have also hoped to inherit health and education agencies that leave Beijing. According to Chen, "Tianjin may have advantages in receiving some educational and health agencies."

Local governments are seeking central government financial support for projects connected to the expected exodus from Beijing. Baoding Mayor Ma Yufeng, for example, said his city would apply for funds to support infrastructure construction, industrial planning, and public services.

Limited Choices

The entire decision-making process has been in the hands of government administrators, with central government officials prodding them to act. Companies and their workers have no say in the matter.

Any decision to transfer an entire company from one city to another should logically consider related costs and how a move might affect business, said Zhao Hong, Assistant Director of Beijing Academy of Social Sciences. Officials in Beijing also have to think about the price to pay for a company's departure, such as the loss of talent and executives, he said.

Moreover, companies should take into consideration the effects of a move on staffers' personal lives. Zhao noted that Beijing, Tianjin, and Hebei have separate health care systems, pension plans, and college entrance examinations.

Chen said the views of companies, their investors, and staffers should matter in the decision-making process.

For now, however, the focus is on getting officials in the three main jurisdictions to coordinate their plans in a way that promotes regional development. Chen has suggested the central government create a new administrative body to oversee the process.

In the long run, Chen said, the market should play an important role in the regional coordination process. But so far, governments have mapped out plans without considering the market factors, or how each community might work together to build efficient industrial chains.