The Banking Executive Magazine - May 2021

ISSUE 149 MAY 2021 the BANKING EXECUTIVE 45 that is the point. Shenzhen’s devel- opment along the border with Hong Kong reflects the so-called urban pileup effect: the accumulation of densely urbanized clusters along the frontier with a more developed area, enabling the less developed region to seize cross-border spillover opportu- nities. The same phenomenon can be seen along the border between Mexico and Texas. An aerial view of the re- gion would reveal sprawling suburbs on the wealthier American side – making it appear almost barren – and dynamic, populous cities on the Mexican side, where local workers flock to jobs at American-owned manufacturing plants, among other opportunities. As Deng predicted, Hong Kong, with its developed financial system and economic dynamism, has had simi- larly powerful spillover effects on Shenzhen. The result is a thriving metropolis, where annual economic output will soon reach CN¥3 trillion ($456 billion) – one-third of the Guangdong province’s total. Shenzhen is thus a major engine of the Greater Bay Area, which covers nine cities around the Pearl River Delta in Guangdong province, plus Hong Kong and Macau. The region already accounts for about 13% of mainland China’s GDP, and its share is growing. Shanghai’s geographical location – on China’s east coast, near the mouth of the Yangtze River – has been sim- ilarly crucial to its success. Yet, far from piggybacking on the dynamism of a neighbor, Shanghai has always led the development of the Yangtze River Delta region, and has been the beating heart of the Yangtze River Economic Belt – which covers nine provinces and two megacities – since the belt’s launch in 2016. In the last 30 years, growth in the Pudong new area has reinforced Shanghai’s regional primacy, while also driving development in an in- creasingly integrated Yangtze River Delta. Today, the Yangtze River Eco- nomic Belt accounts for more than 46% of China’s total output. This re- gion, together with the Greater Bay Area, constitutes about 60% of China’s total output. So, Shanghai and Shenzhen are both vital to China’s economic future. But neither is more important than the other; each has a unique role to play. As the more mature and developed player, Shanghai has long been a leader in equipment manufacturing. Yet its economic structure is far from stationary: the city is now being transformed into a research and de- velopment hub and a center of trade, finance, and modern services. Shenzhen, for its part, is on track to become China’s Silicon Valley. In the last 20 years, this young, dynamic city has outpaced Shanghai in hard- technology development, with dozens of world-renowned compa- nies – including Huawei, Tencent, Ping An, DJI, BYD, and SF Express – concentrating there. To be sure, in terms of overall tech- nological prowess, Shanghai still ranks first. But, rather than replacing Shanghai in the areas where it leads, Shenzhen is becoming a kind of lab- oratory for experimentation, not only with technology, but also with poli- cies that incentivize and facilitate in- novation. Shanghai cannot play that role, because it must continue to serve as a predictable environment for global trade and finance. Guiding the development of an economy as large and diverse as China will always be a difficult chal- lenge. But, by recognizing and in- vesting in the strengths of pioneering cities and regions, China has devel- oped a powerful mechanism for or- ganizing and advancing its economic transformation. Judging by the tremendous success of Shenzhen and Shanghai, it seems clear that China will continue to reap the re- wards of this approach for decades to come.