On October 14, President Xi Jinping visited the southern city of Shenzhen, where he delivered a speech celebrating 40 years of progress since the special economic zone (SEZ) was established there. A month later, Xi headed to Shanghai’s Pudong district – which was designated China’s first “new area” 30 years earlier – for the same purpose. The centrality of Shenzhen and Shanghai to China’s future development could not be clearer. When China first created the Shenzhen SEZ, some questioned its judgment. For example, as a postgraduate student at the University of Cambridge in the 1980s, James Kai-sing Kung, now of the University of Hong Kong, asked why the government chose an unknown village like Shenzhen, rather than an economic centre like Shanghai or Tianjin, as an incubator for Deng Xiaoping’s “reform and opening up” strategy. The decision must, Kung concluded, be politically motivated; China’s government was preparing for the return of neighbouring Hong Kong, which was already a global financial centre. While sovereignty over Hong Kong formally transferred back to China in 1997, Hong Kong’s impact on Shenzhen’s development was rooted less in sovereignty than in proximity. In an aerial view of Shenzhen’s Futian District and Hong Kong’s New Territories today, the latter areas would appear desolate. Meanwhile, Shenzhen, with its bustling ports and glittering skyline, is clearly populated and prosperous . This is not to say other areas of Hong Kong are not flourishing. In fact, that is the point. Shenzhen’s development along the border with Hong Kong reflects the “urban pile-up effect” – the accumulation of densely urbanised clusters along the frontier with a more developed area, generating cross-border spillover opportunities for the less-developed region. The same phenomenon is seen along the border between Mexico and Texas. An aerial view reveals 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 and other opportunities. Hong Kong has had similarly powerful spillover effects on Shenzhen. The result is a thriving metropolis where annual economic output will soon reach 3 trillion yuan (US$457 billion) – one-third of 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 per cent of mainland China’s GDP, and its share is growing. Shanghai’s location near the mouth of the Yangtze River has been similarly crucial to its success. Yet, far from piggybacking on the dynamism of a neighbour, Shanghai has always led the development of the Yangtze River Delta region and has been the heart of the Yangtze River economic belt, which covers nine provinces and two megacities. In the last 30 years, growth in the Pudong new area has reinforced Shanghai’s regional primacy while also driving development in the Yangtze River Delta. Today, the Yangtze River economic belt accounts for more than 40 per cent of China’s total output. This region, together with the Greater Bay Area, constitutes almost 60 per cent of China’s total output. 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 manufacturing . Yet its economic structure is far from stationary: the city is transforming into a research and development hub and a centre of trade, finance and modern services. Shenzhen is on track to become China’s Silicon Valley . In the last 20 years, this young, dynamic city has outpaced Shanghai in technology development, with dozens of world-renowned companies located there. Shanghai is still first in terms of overall technological prowess. But, rather than replacing Shanghai in the areas where it leads, Shenzhen is becoming a laboratory for experimentation in both technology and policies that incentivise innovation. Shanghai cannot play that role because it must continue to serve as a predictable environment for global trade and finance. Guiding an economy as large and diverse as China’s will always be a challenge. By recognising and investing in the strengths of pioneering cities and regions, China has developed a powerful mechanism for advancing its economic transformation. Judging by the success of Shenzhen and Shanghai, it seems clear China will continue reaping the rewards of this approach for decades to come. Zhang Jun is dean of the School of Economics at Fudan University and director of the China Center for Economic Studies, a Shanghai-based think tank. Copyright: Project Syndicate