How can we successfully develop unindustrialized regions?
Can China’s peri-urban areas reverse recession and transform?
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While economic prosperity has propelled some 400 million Chinese into the middle class through strategic development focused on tier-1 and 2 cities and China’s coastal regions, that very success has drained investment and talent out of the vast areas in China.
After years of rapid development, China's national economic and social development has been significantly improved. From 2010 to 2019, China's GDP increased from RMB41,212 billion to RMB98,651 billion. Urban dwellers’ disposable income increased from RMB19,109 to RMB42,359 per person, the registered unemployment rate decreased from 4.1% to 3.6%, and a progressive trend of industrial and consumption upgrades brought improvement in many regions. However, that prosperity has not been matched in rural areas.
This has led to the Matthew Effect* , reflected across the world, in which prosperity grows in advanced urban centers while poverty increases outside them, widening the gap. There is a point at which the ripple effect of economic growth geographically outward from development hubs simply stops. EY analysis found that worldwide, only 22% of suburban counties have successfully developed dynamic local economies with the rest seeing negative growth or declining into commuter belts.
To reverse the trend, government programs globally have tended to focus on investment in regional technology and manufacturing. The strategy is doomed to failure, when the necessary highly educated talent pools or strong manufacturing bases are lacking.
Xiuwu County has a weak technological and industrial foundation. Before applying the aesthetic economic strategy, the added value of its secondary industry in 2015 was only approximately RMB6.7 billion, ranking bottom in the Zhengzhou metropolitan area. Both the quantity and quality of research institutions and personnel, as well as the R&D expenditure were also significantly lower than the average level of the Zhengzhou metropolitan area and the country as a whole.
The challenge faced by Xiuwu County, and many similar regions both in China and globally, is to focus on their own unique resources to build economic growth: a development path that has been overlooked and does not rely on exceptional technical skills or manufacturing advantages.
Natural capital and traditional culture are sources of a new aesthetic economy driving dynamic growth
The advantages of looking to culture, arts and heritage rather than technology or manufacturing for development, are that there are fewer prerequisites for success. The “aesthetic” route to growth rests on natural, cultural and historical resources that are unique to the region. EY research found that about 32% of successful economic development in peri-urban areas could be attributed to technology and manufacturing while 68% were aesthetically driven.
Having established this as a strategy, EY was able to find out what is needed for a successful transformation process from numerous examples across the world, including Portland, Rostock, Kamakura and Songyang. An aesthetic economy can be implemented in three key steps. First, determine ambitious but feasible goals based on a deep analysis of local resources. Second, translates these ambitions into specific projects, such as building on regional crafts, or outstanding natural landscape features. Third, ensure these specific projects are connected together to accelerate progress toward the aesthetic goals set in the first step, including attracting investment, developing stronger local institutions, and the growth of important infrastructure (transportation or connectivity).
In fact, the aesthetic economy is having a major impact on large areas of China’s financial base today. For example, the market value of home-grown designer brands increased from approximately RMB28.2 billion in 2015 to RMB72.1 billion in 2019. The annual income of cultural and creative products of the Forbidden City alone has exceeded RMB1.5 billion. We are witnessing a new era of innovation in China’s aesthetic economy.
Focus on regional strengths to regenerate
The widening gap between the prosperous centers of China’s rapid industrialization and its rural hinterlands affects everything from the quality of schools and hospitals to the prospects for its citizens. The traditional route of technology-plus-manufacturing capability building is often a poor fit and doomed to failure.
EY’s aesthetic economic strategy offers a new model for many counties in China that do not have outstanding technology and manufacturing resources to develop and upgrade.
For instance, it has helped Xiuwu County to exploit exceptional natural, historical and cultural resources to kickstart a new chapter in its development. The number of tourists and tourism income have reached about 2.8 times and 3 times that 10 years ago, respectively, driving the GDP to about 1.7 times that 10 years ago.
New cultural centers, museums and galleries were built and designed by leading architects, such as Atelier XI’s Miniature Series¹ . Xiuwu is now an acknowledged leader in the development of both natural and historical heritage, serving as a role model for other counties. The approach focuses on the unique characteristics of the region rather than forcing compliance with the mainstream. An aesthetic economic strategy ensures the unique character of different regions is preserved and nurtured, while also fulfilling development needs. Xiuwu County provides a blueprint for other regions to follow both in China and in similar regions around the world.
