BEIJING – China's real estate struggles and U.S. sanctions have taken a heavy toll on some of its cities, even as others benefit from Beijing's tech push, the Milken Institute's index of China's best-performing cities showed Tuesday.
Since 2015, the index has studied large and medium-sized Chinese cities in terms of their economic vitality and growth prospects. The latest edition generally compares 2023 data with 2021 data. Last year, the institute did not publish a report due to a re-evaluation of its methodology.
Hangzhou, the capital of eastern Zhejiang province and home to Alibaba and other tech companies, ranked first in this year's rankings.
While other cities, such as Zhuhai, which was previously a “rising star,” have fallen in the rankings due to a slump in the property market.
The city in southern Guangdong province near Hong Kong fell 32 places from the previous index published in 2022 to 157th. Suddenly, no one was buying homes.
“The builders did not have much money to complete their projects,” Perry Wong, the institute’s managing director of research, told reporters in Mandarin, as translated by CNBC.
Real estate and related sectors once accounted for more than a quarter of China’s GDP. But in 2020, Chinese authorities began cracking down on real estate developers’ heavy reliance on debt.
Real estate has dragged down growth in many major cities in the region, except for Dongguan, Wong added. The factory city, home to Huawei’s massive European-style campus, has been hit by U.S. sanctions. Dongguan fell 15 spots in the Milken Index rankings to 199th.
The index looked at a group of 33 large cities and a group of 217 smaller cities, then ranked them separately. While nearby Shenzhen rose in the rankings, the city came in ninth, behind Beijing. Wong noted in an interview with CNBC that the majority of Chinese companies initially blacklisted by the United States were based in Shenzhen or Beijing.
“Zhuhai is a very good place to do service work, even do production work, high-end production jobs in biotech. So (except for the real estate impact) it is expected to have a very promising future,” he said.
Another city affected by geopolitical factors that have weighed on exports is Zhengzhou, the capital of Henan province and home to iPhone maker Foxconn. Zhengzhou fell from third to 22nd place.
Wong noted that controlling Zhengzhou, Hefei and Wuhan has historically been crucial to ensuring control of the country.
From an economic perspective, Hefei City in Anhui Province and Wuhan City in central China's Hubei Province performed better in the latest index.
Wuhan rose about 30 spots to second place, while Hefei remained in the top 10. Wong attributed this to Wuhan’s efforts to keep factories running during the pandemic, allowing the city to recover quickly, while a university in Hefei received direct government support for technological development.
As for Hangzhou's success, the institute's research points to the city's growth as a hub for e-commerce, manufacturing and finance.
But when asked on CNBC's “Squawk Box Asia” whether it was possible to replicate Hangzhou's success, Wong said it would be difficult, partly because the outperformance of the local property sector had led to higher costs of living.
Correction: This story has been updated to reflect that there are 33 large cities and 217 small cities in the index.
