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Macroeconomic & Geopolitical

Cluster Cities: A Chinese Experiment in the Future of Urbanisation

5 June 2019 - 20 min read

China’s success in growing city clusters of previously unimaginable size is dependent on three key factors: continued rural-to-urban migration, planning that spans disparate administrative areas, and massive infrastructure investment.

China’s decision to promote city clusters of previously unimaginable size may be the most significant story in urbanisation today. Cities themselves have long been recognised for their role in boosting productivity, but interaction amongst clusters of cities might further enhance these benefits.

China has been nudged to adopt this plan by two factors. Firstly, it is still experiencing significant rural to urban migration. Secondly, urbanisation should deliver a labour market productivity dividend. In a unique policy experiment China has embraced cluster cities as a key element in its efforts to manage a slowing economy.

Perhaps the most eye-catching cluster is the Greater Bay Area (GBA), which encompasses Guangzhou, Shenzhen, Hong Kong and Macau, and is poised to have a larger population than the UK. Even with President Xi Jinping championing the model, however, its success will depend on the government’s ability to fully integrate the factors of production. This will involve ensuring that labour and capital can move across the different jurisdictions in order to capitalize on what each city can offer.

There will be winners and losers amid these new urban dynamics. Investors should keep a keen eye on the consequences of the massive infrastructure plans, which will have an impact on real estate prices, as well as on the expanded services that an integrated cross-city cluster workforce will demand.

By Gary Smith

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