What happened?

This week, China opened the longest sea bridge in the world, connecting Hong Kong and Macau to the Chinese mainland. It comes at a huge cost of $20 billion, and along with another vast, $11 billion high-speed rail network from Hong Kong into China, this project is designed to bind the former European colonies to China economically, physically and spiritually. With a combined population of 70 million and a projected GDP of $2.8 trillion by 2025, the economies of the “Greater Bay Area” (including Hong Kong, Macau, Shenzhen, and Guangzhou) must rival other global urban agglomerations as a technological and economic powerhouse. Likewise, the $380 billion Xiong’an New Area project has become a development hub for the Beijing-Tianjin-Hebei (Jingjinji) region, home to over 100 million people and producing 10% of China’s GDP.

What does this mean?

Urbanization is key to China’s long-term modernization strategy. Deng Xiaoping’s “Four Modernizations” theory has underpinned China’s “economic miracle” since the country’s opening up in 1978. First, the modernization and liberalization of China’s agricultural sector created a surplus of labor because of efficiency gains. Many of these workers moved to cities to work in industrial manufacturing, the second modernization, with higher value-added productivity. These gains were then used to further strengthen China in the fields of national defense and science and technology – the other two modernizations. Deng’s theory was the first phase of China’s long-term strategy to make it a “great power” by 2049, as we have written before.

What’s next?

As China is facing the challenge of avoiding the middle-income trap, it must move up the value chain: shifting from an export- and investment-driven growth model towards domestic technological innovation, creating a service economy and boosting domestic demand by consumption. In this process, Chinese megacities – such as the Greater Bay Area, Jingjinji, and Yangtze River Delta Megalopolis – will increasingly be the places to foster future Chinese innovation and create a network economy for China’s private sector. Just as the urbanization wave between 1980 and the 2000s pushed China’s first phase of modernization, the second modernization phase will be spurred by the upgrading of Chinese cities into world-leading innovations hubs. China is already home to almost half of all global smart city projects, and given the scale and size of China and its high-quality infrastructure (e.g. high-speed bullet trains, hypersonic aviation), China’s economy might increasingly gravitate around these superclusters to drive its future growth.