This second edition of Milken Institute's Best-Performing Cities (BPC) China series analyzes the latest and most comprehensive official data to continue tracking the recent economic performance of Chinese cities. The main purpose of this series is to offer a tool to monitor and evaluate the economic dynamics of cities in China and improve their performance. In addition, this work provides businesses with insight into economic trends to explore potential investment opportunities in China.

Following the methodological framework from our inaugural BPC China index, the 2016 ranking index incorporates nine indicators: one-year (2013-2014) and five-year (2009-2014) job growth, one- and five-year wage growth, one- and five-year gross regional product (GRP) per-capita growth, three-year (2011-2014) foreign direct investment (FDI) growth, the share of FDI and GRP (2014), and the location quotient (LQ) for high value-added industry employment (2014). Like last year, we also present two separate rankings-one for the first- and second-tier cities and the other for the third-tier cities-to reflect the fact that cities belonging to the former group are normally larger in size and receive more support from the central government.

Increased openness, re-orienting the economy and urban clustering have all led to economic improvement. The escalation of openness comes from China's Twelfth Five-Year Plan (FYP) for 2010 to 2015 and the "One Belt, One Road" (OBOR) initiative, which expands China's trading activities with Central Asia, Europe, and Africa. These strategies have largely shaped urban economic development in the country and their impact is particularly pronounced on our top-ranked cities. Many Chinese cities have also been restructuring their local economies as China's economy has entered a "new normal" characterized by a lower yet more innovation-based growth trajectory.

Many more-developed cities such as Shenzhen have been transitioning their economies from low-end, low-cost manufacturing to innovation-based, high value-added industries while many less-developed cities have taken over low-end manufacturing by leveraging their cheaper production costs. Urbanization is one of the country's more obvious development strategies, causing massive migration and visible growth in residential properties and commercial developments. Major urban clusters have been emerging and are incorporating neighboring cities. In turn, these clusters play a key role in driving regional economies.

Many cities in the Top 10 list for both groups have been integrated into one of the major urban clusters and benefit from both expanding urbanization and the OBOR initiative. According to the World Bank, at the end of 2015 China's urbanization rate reached 56 percent, surpassing the targeted rate of 51 percent set by the 12th FYP. On the whole, cities in the less-developed inland regions elevate their growth rates as large-scale urbanization continues to drive regional economic growth. The refining of policies and restructuring of industries has lifted growth rates in leading development cities as well. Climbing the value chain, diversifying their industries, and streamlining their review processes for investors also led to the economic success of these top-performing cities.

Top 10 cities

Key Findings

Here are some key findings from our 2016 BPC China ranking:

» Moving up from 11th place last year, Guiyang grabs the crown in our 2016 first- and second-tier city ranking. Its performance in growth of jobs, wages, GRP, and FDI are all among the Top 10. Despite its location in the less-developed southwest, the city has benefited from the central government's effort to bridge the gap between the coastal and inland regions. In particular, the OBOR initiative helps Guiyang receive more investment, stimulating growth.

» Like last year, Shanghai and Tianjin stand in second and third places. Shenzhen moves up by six places to secure fourth place, followed by Chengdu, Dalian, Nanchang, Chongqing, Xi'an, and Haikou respectively. Shanghai and Shenzhen are the most notable in this group, as both have been designated as "Free Trade Zones" in China. In addition, high value-added and research and development (R&D) industries are growing in the Shanghai and Shenzhen regional economies.

» Nanchang, Xi'an, and Haikou are newcomers to the Top 10 list. Overall, cities belonging to large urban clusters (Yangtze River Economic Belt: Shanghai and Tianjin; Pearl River Delta Economic Zone: Shenzhen; Chengdu-Chongqing Economic Zone: Chengdu and Chongqing) have strong economic performance. The OBOR project largely helps drive the economic development of most Top 10 cities, Xi'an in particular.

» Ranked 95th overall last year, Zhoushan moves to the top spot among third-tier cities. In particular, it has a strong performance in one- (ranked 1st) and five-year (ranked 5th) job growth. Its recent strong growth can be largely attributed to its port location as well as the OBOR effort and 12th FYP.

» Along with Zhoushan, five cities is-Weifang, Xiangyang, Baoji, Meishan, and Liupanshui is-have their debut in the Top 10 list. As in the previous ranking, cities including Taizhou (ranked 3rd), Suzhou (ranked 5th), Nantong (ranked 6th), and Suqian (ranked 9th) in Jiangsu Province are in the Top 10 list. These four Jiangsu cities, along with Zhoushan in Zhejiang Province, are all part of the Yangtze River Economic Belt. However, it is notable that several inland cities, including Xiangyang (ranked 4th), Baoji (ranked 7th), Meishan (ranked 8th), and Liupanshui (ranked 10th) also enter the Top 10. The OBOR initiative and these cities' proximity to major urban clusters chiefly explain their recent economic improvement.

» In general, cities from the northeast regions in China, with the exception of Dalian, have a lackluster performance in our ranking. This reflects upon the region's difficulty in restructuring an older industrial base that relies on energy, steel production and less diversified heavy industries. Notably, the economies of Changchun fell from eighth spot in 2015 to 11th in 2016.

Top 10 first- and second-tier cities

Top 10 third tier cities

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