By the AmCham China Government Affairs Team

Under the leadership of President Xi Jinping, Chinese central authorities have begun to implement plans to integrate the northern economies of Beijing, Tianjin and Hebei into a regional economic hub to compete with the metropolitan regions of the Pearl River Delta in the south and the Yangtze River Delta to the east. The plans are part of a greater urbanization trend spearheaded by the National Development and Reform Commission (NDRC) to form 10 metropolitan regions around the country. However, the economic and demographic size of this region (abbreviated as Jing-Jin-Ji) will likely mark the initiative as the Xi administration's signature project.

Ambitious projects of such kind are not an uncommon feature in the PRC’s recent history. Deng Xiaoping’s “opening up” led to massive growth in the Pearl River Delta region; Jiang Zemin’s policies focused on transforming Shanghai’s Pudong area, and the Yangtze River Delta is now China’s greatest economic engine. The Hu Jintao administration then shifted China’s economic focus away from the coastal cities through campaigns to “Go West,” which facilitated the development of the Chongqing, Chengdu and Xi’an.

Plans to integrate Beijing, Tianjin and Hebei into a regional economy were announced in 2004, but the political will to proceed was only mobilized a decade later, as new leadership faced growing domestic and international concerns over China's pollution and urban congestion. Priority was therefore placed on promoting a more sustainable urban development plan, one that resembled a hub-and-spoke model, whereby satellite cities would grow adjacent to existing urban centers.

Proponents have argued that integration would rid the region of pollution, congestion, resource shortages and income inequality. How this will be achieved remains unclear, but momentum is building and policy initiatives are unlocking opportunities for businesses and investors. If the integration of Jing-Jin-Ji matures, it will potentially become a third engine of growth for China, rivaling the Shanghai and Guangzhou regions.

Urban strain on resources

For over a decade, urbanization has undoubtedly been a key driver for economic growth in China. At the same time, years of unrestricted urban expansion have created severe pressures on infrastructure, environmental resources and social services.

This is particularly the case for Beijing, Tianjin and Hebei. The region lies on the North China Plain, which possesses scarce natural resources. All three are located on the same river basin, with consumption levels close to 100 percent; the sustainable usage threshold prescribed by the World Bank is 40 percent. Moreover, with surging resident and inter-regional migratory populations, Beijing’s congestion issues are arguably the most severe in China, crippling economic activity.

With guidance from central authorities, policy initiatives have flourished at the local level as governments seek to take advantage of reallocating resources within Jing-Jin-Ji. Beijing is shifting away its manufacturing plants. Tianjin is removing regional customs regulations to develop itself as a mature port city. Hebei is absorbing unwanted industries and functions to provide for its underemployed population. For example, administrative, research and healthcare facilities from Beijing have already moved to Baoding in Hebei.

Inequality and competitiveness

The development of the Jing-Jin-Ji integrated regional economy is also driven by a need to maintain economic competitiveness against other urban hubs in China and the world. The formation of such mega regions is a global trend, particularly in Asia where large populations and high urbanization rates create demand for improved urban planning and design.

However, the region’s urban and economic development thus far has been largely absorbed by Beijing, creating a large income disparity between the country’s capital and its surrounding province. The regional integration aims to alleviate inequality by mobilizing Hebei’s underemployed population, reducing barriers to regional trade and investment, and piloting industrial economic zones.

Transportation and migration

Region-wide transportation infrastructure is already underway, with adjacent migration regulations expected to take place within the next few years. Tianjin is building several expressways, while Hebei and Beijing are currently developing the capital’s Seventh Ring Road, which links Beijing to the Jingzhang, Jingshen, Jinghu, Jingtai, Daguang and Jingzhu expressways, all completed by 2017.

But while transportation controls will be relaxed to promote migration within the Jing-Jin-Ji region, Beijing plans to tighten its hukou (household registration) regulations to incentivize low-wage labor supply in Hebei. Earlier this year, Beijing and Hebei reached an agreement to gradually transfer 5 million residents (approximately 70 percent of Beijing’s migrant population) to Hebei.

Economic restructuring

As government assets and physical resources are being reallocated throughout the region, there are two noticeable shifts in the three Jing-Jin-Ji economies:

First, Beijing and Tianjin are in the process of deindustrialization. As was the case of Hong Kong during the 1980s and 1990s, the headquarters of manufacturing firms will remain while their manufacturing facilities are expected to move to Hebei to take advantage of preferential regulations and lower costs. The two economies will therefore increasingly focus on services.

Second, Hebei will become the regional manufacturing and logistics hub. With growing political opposition against the province’s heavy-polluting firms, Hebei has begun to restrict energy-intensive industries, including iron and steel firms.

Third, the industrial makeup of the three economies restructure, government and corporate services will become increasingly intertwined, and in some occasions become fully integrated to streamline administrative and approval processes. For example, Shijiazhuang is expected to join Beijing and Tianjin’s recent unified customs clearance system, cutting regional logistics costs by an estimated 20 to 30 percent.

Continued concerns

Policy initiatives have generally been positively received, but concerns remain. With various migration and population control initiatives announced, what measurements will be in place to incentivize, rather than force, population relocation from Beijing and Tianjin to Hebei?

One example of this can be found in wholesale and retail markets. Earlier this year, Beijing and Hebei agreed to relocate many of the capital’s large wholesale markets, such the Beijing Zoo market, to its neighbor. These markets are situated in the city’s major traffic nodes and are the source of major congestion issues. However, they are home to thousands of vendors that serve tens of thousands of customers daily. While no deadline for relocation has been given, vendors have begun voicing their opposition.

Lastly, unlike the urban development of the Yangtze and Pearl River Delta regions, there is no cohesive program to promote foreign investment to support Beijing, Tianjin and Hebei in their policy initiatives. The degree in which foreign firms will be allowed to participate through access to markets, resources and investment is therefore unknown.  

AmCham China Government Affairs Interns Marcus Chiu and Jakub Skopek contributed to this article.