1050x300-XG-OC-GC-Working Paper-The Growth of Foshan-A Tale of State and Market

Working Paper: The Growth of Foshan: A Tale of State and Market

Author(s): Geng Xiao, Oliver Chase, Galvin Chia

Date: Dec 4, 2013

Theme(s): Finance & Macroeconomics, Trade & Investment

Publications: Project Documents

The Foshan story is not about the state versus market, but the evolving role of their mutually-complementary roles in driving growth. Its stories and experiences map out the trajectory of China's future growth.

Download the working paper here

Why Foshan?

In 2010, the GDP of China exceeded that of Japan, making it the world’s second largest economy. By contrast, China’s GDP per capita in 2012 was only US$6,156. While that is well above the World Bank’s upper middle-income threshold of US$4,086, questions abound over whether China’s economy can keep forging ahead to achieve high-income status, like that of the advanced countries. Or, will China find itself stuck in the middle-income trap because of persistent structural imbalances in its economy?

Answers to these and related questions have profound implications both for China domestically and the global economy, which has long looked to China for growth. Not surprisingly, these questions are the focus of extensive research by academics, think tanks, businesses and multinational organizations. Often, the outcome is sweeping macro-level statements with long wish lists on how China might avoid the middle-income trap.

China’s rapid growth is not only a story of reemerging markets and capitalism, but also a tale of the evolution of the respective roles of central and local governments. The depth and complexity of their interaction in China’s growth experience mean that studies and reports based only on macro or averaged statistics are incomplete. They risk generating results that bear little relevance to the real underlying story of economic growth, and overlooking key elements of reform needed to support the country’s transition towards a new growth order.

What we believe is missing from the expanding body of research and analysis on China’s economy is an on-the-ground, systemic city-level case study explaining the practical dynamics of state-market interactions. Our view is that these dynamics can better explain the key drivers of China’s rapid growth over the past three decades and provide a clearer map of China’s future challenges, as well as the options for tackling them.

Much of China’s growth story in the 1970s and 1980s occurred in rural areas, which were rapidly transformed by export production and urbanization. In the modern era, cities are where state and market forces are converging and interacting and, as such, provide the key to understanding contemporary China’s evolving patterns of growth, as well as future risks and opportunities. They are the building blocks of nationally and globally integrated economic, social, and ecological systems. Today, a globalized market drives the convergence of cities in lifestyles, hard infrastructure and production capacity. However, regulations, policies and key institutions are still largely set and implemented locally in cities, each with significant diversity in history, culture and politics. It is thus important to understand how cities grow while dealing with both convergent and globalizing market forces, and the diverse and localized influences of the state.