Think of two neighbouring cities blessed with many of their country's prestigious universities and research institutes, their nation's most successful development zone and most famous high-tech park, and the biggest sea port in the north of their country.

Sounds similar to the Boston-Cambridge region of Massachusetts, doesn't it?

But the two cities in question have more advantages: One has long been an industrial heavyweight; the other has attracted numerous banks, insurance companies and law firms, from within and outside China.

There's more. One of the cities is the country's cultural and political centre, is home to world-class tourist attractions and is preparing to host the Olympics.

The region in question: Beijing and Tianjin two of China's four municipalities under the central government which could become the country's next economic powerhouse, a dynamo to rival the glittering deltas along the Yangtze and Pearl rivers.

With its high-quality human resources, the Beijing-Tianjin area has become the home to knowledge-based industries and modern service providers.

A "high-tech belt" has formed between Beijing's Zhongguancun and Tianjin's Tanggu port, which connects almost all the major development zones of the two cities, including Yizhuang and the Tianjin Economic and Development Area (TEDA).

Decisions made in Beijing's Zhongguancun can shake up the global IT (information technology) industry, as Lenovo did when it announced its acquisition of IBM's PC business late last year.

Other Zhongguancun-based companies can also influence trading on Wall Street. Five of China's six NASDAQ-listed Internet companies are based in Beijing. The reason is obvious: The city is a beacon for many of the country's brightest brains.

"We have so many smart people from Tsinghua and Beida (Tsinghua University and Peking University) and other universities. They are the bedrock of Beijing's enormous potential as a high-tech capital," said Zhou Yunfan, chairman and CEO of Kongzhong Corp, which listed on NASDAQ last year.

Zhou, 30, graduated from Tsinghua and Stanford universities. He founded Chinaren.com in 1999, but sold it to Sohu.com a year later. In 2002, he established Kongzhong, which is now the country's leading cellphone-based entertainment provider.

The company has 500 employees. Zhou said he has never had difficulty finding the people he wants.

Also benefiting from the human resources talent is Zhang Yaqin, vice-president of Microsoft and former president of Microsoft Research Asia.

"The pool of talent here is just great," Zhang said. "Because of this, Beijing is becoming a very important R&D centre for technology companies like us."

Like Microsoft, Bell Labs, Siemens and Alcatel, among others, have established R&D centres in Beijing.

At the other end of the "high-tech belt," in TEDA, Samsung, Lucent and Matsushita are churning out products from their manufacturing bases.

Motorola is symbolic for the distribution of functions between Zhongguancun and TEDA the US-based company has its headquarters and research facility in Beijing. But it built its manufacturing base in TEDA.

Spearheaded by IT and other electronics-product manufacturers, TEDA, since its inception, has attracted US$6 billion in accumulated foreign investment.

The area has also maintained, for a decade, the highest level of profitability among the 53 national development zones in China.

The economy of the two cities is not only about high technology. Honda has a plant in TEDA and Beijing's answer is a Hyundai venture.

Both are strong in traditional industries such as steel, textiles and chemicals.

Exciting as all this might sound, the region pales in comparison with the accomplishments of the deltas along the Pearl and Yangtze rivers.

"Beijing and Tianjin have long been expected to become economic engines for neigbouring areas. But they have never really met those expectations," said Wang Yiming, vice-director of the National Development and Reform Commission's Macroeconomic Research Institute.

The cities' closest neighbour is Hebei Province, which surrounds the municipalities. Wang said several think-tanks have raised the idea of the Bohai Sea Rim Economic Circle, which encompasses part of the Inner Mongolia Autonomous Region and Shandong and Liaoning provinces.

But Beijing and Tianjin, mega cities with a combined population of 20 million, do not match the economic clout of Shanghai, another municipality directly under the central government.

Shanghai's gross domestic product (GDP) is almost equal to Beijing and Tianjin's combined. All the major economic indictors of the Beijing-Tianjin-Hebei area are less than those of either delta.

Given their ideal locations and rich resources, it is a shame the twin cities of Beijing and Tianjin have not been able to become economic peers and led regional growth to Shanghai.

But things are changing, and there has been much discussion on this topic since last year. A Chinese proverb says: "One becomes brave once he realizes the shame."

But for Beijing and Tianjin, wisdom seems to be more crucial. A visionary strategy, effective co-ordination and, above all, a good understanding of the market economy are needed.

A tale of two cities     

The first issue that must be dealt with in fostering sound regional development in the area is determining how to co-ordinate the roles of Beijing and Tianjin.

Tianjin has a much longer history of being an industrial and commercial centre, while Beijing has traditionally been a consumer city.

However, the capital has gradually become home to some gigantic corporations, such as Shougang Iron and Steel Corp and Yanshan Petrochemical Corp; and now has companies in other heavy and light industries.

But Beijing's industrial structure is similar to that of Tianjin. With its advantages as the nation's capital, Beijing has managed to obtain more resources and support from the central government.

Eyeing tax revenues and employment opportunities, the two cities have staged rounds of fierce, yet unproductive, competition in pumping up their industrial muscles.

But their rivalry has generated lots of lose-lose cases.

When the central government decided to build an ethylene project in the area in the 1990s, both used their clout to get the project. Both won and lost which meant neither could reach the critical mass for profitability.

In another case, Tanggu Port should have been the first choice for Beijing in handling its sea transportation. But the rivalry led to Beijing building an unnecessary port in Tangshan, a city to the north of Tianjin.

The result was higher expenses for Beijing's goods, drainage of customers for Tanggu, and a white-elephant port.

The successes of the two deltas has led Beijing and Tianjin to reflect on their rivalry; and they have found their development plans benefit neither.

While it is unnecessary to develop totally different industries, decision-makers of the two cities have talked about co-ordination and co-operation.

Construction of a second Beijing-Tianjin expressway began at the end of 2003, and it is scheduled to be completed next year. Also, the cities plan to build a smaller expressway to the north of the existing expressway in the first half of this year. A light-rail link is also under consideration.

"Co-ordination in transportation should be the priority for any meaningful regional development, so the two are on the right track," said Wang of the Macroeconomic Institute.

"The agreement on transportation also has a symbolic significance. It is the strongest-ever indication of co-operation."

There are also signs the two will seek development paths in accordance with their strengths. There is some overlap in industries on the agenda of the two: Both want to be centres for logistics and "advanced manufacturing industries," basically a euphemism for auto, electronics and biotechnology.

But, clearly, they seem to be more aware of their specialities.

Ding Xiangyang, director of Beijing's Development and Reform Committee, said the city will promote the concept of a "headquarters economy," which refers to services generated by corporations picking the capital for their headquarters.

Also on Beijing's key industry list are consulting, intermediary services, entertainment, tourism and exhibitions.

Tianjin's plan is more clear-cut it will focus on manufacturing and logistics, with a great deal of emphasis on the development of its port.

Tianjin Mayor Dai Xianglong has said the city will invest US$3 billion to double the port's current capacity of 130 million tons by 2010, to better serve the regional economy.

When receiving business representatives from Hong Kong at the end of last year, Tianjin's officials presented a list of investment opportunities that call for outlays of US$18 billion. At the top were projects that concern the development of the port and other logistics facilities.

Market forces

Gone is the era when the economy was all about what the government planned and did. Today, decisions on economic activities are increasingly made by companies and business people rather than government officials.

"It is reasonable the government has its ideas for development. But it is up to the company executives to decide which projects go where," said David Dollar, director of the World Bank's China Bureau.

The government's prime task is to create an efficient and fair environment for businesses. In a World Bank assessment of the investment climate of Chinese cities, Beijing and Tianjin fared poorly.

The study evaluated a host of issues that mainly covered "soft factors," such as the government's efficiency, flexibility of the labour market and access to financing.

Tianjin ranked a disappointing ninth and Beijing a humble 11th. The first four were cities from the two delta regions: Hangzhou, Shanghai, Guangzhou and Shenzhen.

During the recent session of the Tianjin People's Political Consultative Conference, deputies said the city's efficiency in providing services to investors still had room for improvement.

"Tianjin's environment (for investment) is now much better. But it is still not as good as that in some advanced countries, and even some Chinese cities," said Xu Jiahong, director of the Taihe Xinqiao Technology Park's administrative committee.

Feng Jie, a regional economy expert with the State Council's Development Research Centre, said in supporting regional integration, "what the governments needs to do is avoid setting up barriers for regional co-operation rather than using administrative measures to push it."

In the Beijing-Tianjin-Hebei area, local protectionism still exists for products and investors from other cities and provinces, he said.

Experts agree an indispensable ingredient for a real dynamic regional economy in the Beijing-Tianjin area is a sound economy in Hebei.

Currently, there is still a huge gap between the development levels of the province and the two cities. Hebei's per capita GDP is less than half of either Beijing or Tianjin's.

Hebei's cities around Beijing and Tianjin have not developed the capability to become links for the industrial chains of the two municipalities.

Private businesses are much weaker in Hebei compared with the more developed provinces, such as Jiangsu and Zhejiang.

"After all, integration is only viable only when it is the result of market forces," Feng said.

(China Business Weekly March 9, 2005)