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Competitive Cities: Changsha, China – coordination, competition, construction and cars

Z. Joe Kulenovic's picture

Cites are the heartbeat of the global economy. More than half the world’s population now resides in metropolitan areas, making a disproportionate contribution to their respective countries’ prosperity. The opportunities and challenges associated with urbanization are quite evident in the world’s most populous country, whose cities are among the largest and most dynamic on Earth. To better understand what a thriving metropolitan economy looks like in the Chinese context, our Competitive Cities team selected Changsha, the capital of Hunan Province, for inclusion among our six case studies of economically successful cities, as the representative of the East Asia Pacific Region.  
 
As recently as the turn of the millennium, Changsha’s economy was still dominated by low-value-added, non-tradable services (e.g. restaurants and hair salons) – an economic structure commonly seen today in many low- to lower-middle-income cities. Since then, Changsha has achieved consistently high, double-digit annual growth in output and employment, despite its landlocked location and few natural or inherited advantages, such as proximity to trade routes or mineral wealth. With per capita GDP surging from US $3,500 in 2000 to more than US $15,000 in 2012, Changsha has accomplished a feat so many other World Bank clients can only dream of: leapfrogging from lower-middle-income to high-income status in barely a decade, and an economy now comprised of much more sophisticated, capital-intensive industries. 

  

Photos via Google Maps

We took a closer look at the success factors behind this city’s dramatic growth story, and what lessons its experience may hold for cities elsewhere, especially in terms of (1) how to overcome coordination failures and bureaucrats working in silos and (2) how to ensure a level playing field for all firms in the city (that is to say, competition neutrality), even in industries with a strong SOE presence – something still not commonly seen in China these days.
 
Changsha’s (and Hunan’s) growth has clearly benefitted from a highly conducive national macroeconomic and policy framework, including a plan entitled The Rise of Central China, aimed at spurring development in areas beyond the country’s booming coastal regions. This and other initiatives provided for the removal of investment restrictions, more favorable tax treatment, and enhanced infrastructure and connectivity to coastal commercial gateways. China’s massive stimulus plan in 2009 (in response to the global financial crisis and recession) jump-started construction activity in the country, providing further impetus to one of Changsha’s principal industries, construction machinery and equipment manufacturing. And national government interventions in earlier decades – especially the establishment of dedicated research institutes – provided a critical contribution to Changsha’s accumulation of expertise in such disciplines as machinery or metallurgy.
 
Notwithstanding these national initiatives, responsibility for local economic development in China is highly decentralized, with municipal government leaders directly tasked with achieving GDP growth and tax revenue targets. Municipal governments also have rights over almost all land in cities, which can be leased or used as collateral to fund local infrastructure. In Changsha, municipal authorities used these prerogatives to improve their city’s economic competitiveness.

Build it Better: Climate Competitive Industries and Resilience

Etienne Kechichian's picture



Broadening the focus of the climate change agenda, the global policy debate has recently acknowledged the reality that adaptation and resilience need to be at the forefront of the climate change discourse. It’s a welcome sign not just for the societies that are most affected, but also for the business communities that operate in such risk-prone situations.

The recently publication “The Global Risks Report 2016” by the World Economic Forum highlights that climate change is perceived as a top business risk. This assessment by 750 experts reviewed 29 specific global risks for both their potential impact and their likelihood over a 10-year time horizon.



Source: WEF Global Risks Report, 2016

The findings are no great surprise. The numbers on economic impacts from recent disasters provides a similar story. A slew of recent natural disasters has caused severe economic damage, with ripple effects affecting many other aspects of society and the economy.

The 2011 floods in Thailand caused a loss of US$45.7 billion in total damage and loss – approximately 5 percent of GDP, of which $32 billion can be attributed to losses in manufacturing.  Floods in Chennai in December 2015 caused a total of $2.2 billion in losses in the automotive sector and severely disrupted India’s burgeoning ICT sector. Since those floods, Ford, Daimler, Apollo Tyres, Renault-Nissan, BMW and Hyundai Motors have all halted production in India. An additional $300 million loss is expected among MSMEs. The 2014 floods in the Balkans affected 19 percent of manufacturing units in Serbia alone. The Serbian manufacturing sector faced $77 million in damages and $89 million in overall economic losses, coupled with a total of $95 million for the costs of recovery and reconstruction.

The number of continuing climate-related disasters is growing. Other countries that have been able, thus far, to avoid climate disaster are still at risk. In Vietnam’s Ho Ci Minh City, 61 percent of urban land use and 67 percent of industrial land use is expected to be flooded by 2050 if proposed flood-control measures are not implemented. In addition, 50 percent of industrial zones (IZs) are at risk of flooding due to extreme events, even if the proposed flood-control measures are in place. An additional 20 percent of IZs are located within 1 kilometer of areas likely to suffer inundation. 

Developing a financial inclusion strategy: 5 lessons from Paraguay

Marlon Rolston Rawlins's picture




Increasing financial access and financial inclusion have proven to be effective in reducing poverty and accelerating economic growth, and are prominent in the new Sustainable Development Goals.

But expanding financial inclusion nationally requires a well-coordinated effort among different stakeholders.

A recent World Bank and FIRST Initiative project in Paraguay has taught us 5 important lessons about developing a national financial inclusion strategy:  Getting the process of developing a financial inclusion strategy right is key to success when implementing reforms later. 

While we’ve published these tips for financial policymakers as part of FIRST Initiative’s Lessons Learned Series, here’s a quick summary of Paraguay’s experience. 

The impact of tourism: How can we all do this better?

John Perrottet's picture

Tourism is growing, and growing fast. After surpassing 1 billion international visitors in 2012, we are expecting 1.8 billion by 2030. Tourism is growing faster than the global economy and, for the first time, the statistics for 2015 are expected to show that there were more trips taken to the developing world than to the developed world. But what does this actually mean?

Growth, on its own, is not enough. Destinations and their stakeholders are responsible for ensuring that growth is well-managed; that benefits are maximized; and that any negative externalities are minimized. This requires a continuous process of planning and management that evolves and that can be measured over time.

For the World Bank Group, our clients and our development partners, this process of planning and management is a central interest. How can we help these processes to deliver more and better development impact? What kinds of interventions or types of assistance will deliver the best results? How do you define the best results – for whom? – and how do we measure them?

Being able to demonstrate how the tourism sector contributes to the Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity is an imperative for all stakeholders. It’s relevant for national governments, sub-national state agencies, businesses (both multinationals and SMEs), multilateral development banks, NGOs, academics and think tanks. Moreover, it’s vital in helping guide future planning and development, gaining access to and applying for funding, and demonstrating progress to constituents at all levels.

On Your Mark — Get Set — Pitch!

Katerina Koinis's picture



Charity Wanjiku pitching for Strauss Energy
 
What does the journey of an entrepreneur look like? For founders like Mark Zuckerberg, it often begins with a groundbreaking idea, followed by several rounds of fundraising through Ivy League and Silicon Valley networks. But what if you weren’t raised in the United States? And what if your idea is not global in reach — but instead addresses clean technology needs that are unique to your region?
 
The World Bank Group’s Climate Innovation Centers are one solution to this challenge. The seven centers — in the Caribbean, Ethiopia, Ghana, Kenya, Morocco, South Africa, and Vietnam — support more than 270 clean-technology startups with training programs, grants and mentorship. Increasingly, the centers have turned to competitions to help entrepreneurs grow.

Bootcamps and pitching competitions have emerged as promising opportunities for jump-starting an entrepreneur’s journey. Participants train intensively with seasoned entrepreneurs to perfect their pitch. They learn to showcase their business idea and strategy in mere minutes before a panel of judges. Winners bring home significant prizes — and, perhaps more important, connections with potential investors and a greater understanding of the business landscape.
 
The 1776 Challenge Cup is a pitching competition on a grander scale. The Challenge Cup is a tournament for startups from around the world to share their vision on a global stage and compete for more than $1 million in prizes. 1776, a Washington-based incubator and seed fund, hosted its first annual Challenge Cup in 2014. Past finalists have developed mobile training for Middle Eastern women entering the workforce, have built charging devices for electric vehicles, and have disrupted the value chain in Kenya for perishable goods like bananas.

Why does efficiency-seeking FDI matter?

Cecile Fruman's picture
Today we face an interesting paradox. The number of people in the world living in extreme poverty has decreased dramatically in the past three decades. In 1981 half of the population in the developing world lived in extreme poverty. By 2010, despite a 60 percent increase in the developing world’s population, that figure dropped to 21 percent.

While extreme poverty has diminished, however, the gap between the richest and poorest countries has increased dramatically. In 1776, when Adam Smith wrote The Wealth of Nations, the richest country in the world was approximately four times wealthier than the poorest. Today, the world’s richest country is more than 400 times richer than the poorest.

What separates them?

One answer is knowledge, diversification and the composition of exports, all areas in which foreign direct investment (FDI) has an important role to play. 

FDI matters, but not all FDI is created equal
 
While FDI is important for economic growth, not all FDI is the same. One way to differentiate is by an investor’s motivations using a framework established by British economist John Dunning:
  • Natural resource-seeking investment: Motivated by investor interest in accessing and exploiting natural resources.
  • Market-seeking investment: Motivated by investor interest in serving domestic or regional markets.
  • Strategic asset-seeking investment: Motivated by investor interest in acquiring strategic assets (brands, human capital, distribution networks, etc.) that will enable a firm to compete in a given market. Takes place through mergers and acquisitions.
  • Efficiency-seeking investment: FDI that comes into a country seeking to benefit from factors that enable it to compete in international markets.

This last category – efficiency-seeking FDI – is particularly important for countries looking to integrate into the global economy and move up the value chain.
 

How can we leverage digital technology for financial inclusion?

Solvej Krause's picture



Despite transformative innovations in digital technologies, the digital divide is still substantial. What can be done to spread digital dividends - that is, the broader development benefits of digital technologies – more widely? How can digital technologies contribute to the World Bank Group’s twin goals of eradicating extreme poverty and increasing shared prosperity?
 
As this year’s World Development Report on “Digital Dividends” notes, digital finance is likely to play a key role in answering these questions. One of the main messages of the report is that digital development is not a matter of access alone.
 
Digital connectivity is key, but it is only a starting point for successful digital development. It is as important to strengthen other factors that interact with technology - such as responsible regulation and accountable institutions - in order to make digital technologies work for the poor. The World Development Report calls these other factors the ‘analog complements’ to digital technologies, which fall into three categories: regulation, skills, and institutions. 

'World SME Forum': A global platform to support SME development, bridging Turkey B20 and China B20

Tunc Uyanik's picture
This post was originally published on January 22, 2016 by the World SME Forum.

With this week's kickoff of the 2016 China “Business 20” (B20) proceedings in Beijing, this is an opportune time to reflect on some of the key accomplishments of the 2015 Turkey B20. As many readers of this blog know, the B20 is the premier dialogue platform of the business community with the G20 policymakers representing the most important economies of the world, and it is influential in identifying and supporting policies that are crucial for overall economic development. I believe that taking stock of the past enables us to learn from both successes and failures, and helps sustain the momentum on what worked and generated the desired impact.

Looking back at my involvement as Chair of the B20 Steering Committee, what strikes me as a major achievement is the amplification of the voice of small and medium enterprises (SMEs). I believe that, if we want our economies to have healthy and inclusive growths, this must remain as a key priority for the upcoming B20 in China.

Participants in the Turkish G20/B20 process shared the assessment that SMEs’ potential was not being fully realized. SMEs account for about two-thirds of all private-sector jobs globally and about 80 percent of net job growth. They are the engine for equitable growth and poverty alleviation. And they are the backbone of the middle class and of social stability. Yet they suffer disproportionately from limited access to markets, finance, talent, skills and innovation. In addition, regulations also often put them at a disadvantage. Until recently, SMEs had lacked an organization that would champion their cause.

With these major issues in mind, and with strong deliberations of the B20 Leadership and support from the G20 Finance Ministers, last year TOBB and the ICC officially founded the World SME Forum (WSF), with the mission to help improve the overall growth and impact of SMEs globally, by effectively tackling the key challenges they face. WSF aims to provide SMEs with effective representation and to advance the recognition of the role of SMEs in the global economy by partnering with international financial institutions (IFIs) and development agencies. WSF has membership from associations and chambers working in the SME space from all over the world.

WSF is ready to represent SME interests with regional and global bodies, and to advocate for better rules and regulations among standard-setters.

As I am on my way to Beijing, I cannot help but think that this is indeed a major achievement, which will give the SME development agenda a much better chance at succeeding. WSF can be a “bridge” across B20 presidencies, so that we can ensure continuity in the crucial SME agenda. WSF can help avoid any loss of momentum on the implementation of the recommendations we develop during each cycle.

Even better, after B20 China officially decided to continue the SME Development Taskforce, which was started for the first time by B20 Turkey, they invited WSF to be a Business Network Partner for the Taskforce. WSF will therefore be coordinating the network and will help drive the ideas that emerge from the Taskforce discussions into implementation.

Effective city competitiveness: 10 lessons learned in the Philippines

Hans Shrader's picture



Maybe it's just easier to think that the keys to economic growth lie at the national level of governance – where monetary and fiscal policies, national law and development strategies are conceived and debated. Certainly national policy is important, but it is rarely where entrepreneurs have their first experience interacting with law and policy.

The city is where people’s ideas create business, where people work and where the bustle of the economy comes alive. The city is where an entrepreneur will first interact with systems that are ostensibly created to attract and support business investment and growth.

Cities can and do engage in reforms to help improve their economic competitiveness. Often this includes the identification of a business sector deemed competitive and some strategy on how to do it better. Improved competitiveness also can include investment in more efficient transportation systems, better access to utilities and services, improved tax policies, better zoning, infrastructure investment and investment in skilled labor. While working on these complex policy and investment opportunities is rational, it often takes time to do the analysis necessary to identify the best opportunities – and it takes much longer to actually see the rewards. 

Fortunately, there is a reform that cities can do almost immeduiately, and at low cost, to help support business development and improve the business environment: business entry simplification. 

The Philippine Experience & Lessons Learned

In decentralized economies like the Philippines, cities play an important role in business registration. In fact, almost of one-third of the country’s business registration steps fall under the responsibility of city-level leadership.

In working with Philippine cities to reform dated, cumbersome, and confusing business registration requirements, a World Bank Group team was able to help its clients reduce registration steps from an average of 41 to just three. Cities also saw an average spike in new business registration of around 20 percent in the first year after the implementation of reform.

How much does it cost to pay?

Massimo Cirasino's picture

 Retail payment systems are important to the smooth functioning of an economy. Inefficiencies in the retail payments market can have significant negative effects throughout the economy. Retail payments are defined as regular payments of relatively low value that are not time critical and where the payer and/or the payee is not a financial institution.

Cost efficiency has been at the forefront of arguments for moving from paper-based to electronic payment instruments. Studies have shown that significant savings can be achieved in the transition from cash and paper-based to electronic payment instruments.

However, inefficiencies persist, with cash still being “king” in many countries. Among the non-cash payment instruments, the check is still dominant in lower-middle-income and low-income countries and check processing can be cumbersome and costly.

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