Amid the struggle to reignite growth post-Covid, the city of Hefei in China has become a beacon of hope with its impressive economic success. While China’s overall economic indicators have been disappointing, Hefei has recorded high growth rates and emerged as a globally important high-technology hub.
China, known for routinely producing economic miracles, has recently lost its magic touch. After abandoning its strict zero-COVID policy at the end of 2022, the expected economic revival has not yet occurred. The country faces challenges such as a debt crisis in the property sector and a bruised IT sector. Weak aggregate demand and a decrease in net exports have contributed to China’s struggling economy.
However, Hefei has defied the national economic challenges and experienced significant growth. The city, the capital of China’s Anhui province, has seen an average annual GDP growth of over 8% from 2012 to 2022. It has become a globally important high-technology hub, attracting foreign direct investment and hosting leading companies in industries such as electric vehicles, semiconductors, and artificial intelligence.
Hefei’s success can be attributed to what is known as the “Six capital model.” This model includes six interrelated factors that have contributed to the city’s growth and transformation. Firstly, Hefei’s optimal distance from Shanghai has allowed it to benefit from the dynamism of the city without being weighed down by complex politics and bureaucracy. Secondly, the presence of the prestigious University of Science and Technology of China (USTC) in Hefei has attracted valuable institutional capital and helped develop cutting-edge research institutions.
Thirdly, Hefei has successfully developed and attracted top talent through a free exchange of talent between government, business, and academia. Government officials in Hefei often have specialized knowledge and make smart economic decisions. Fourthly, the city has generated intellectual capital through creative breakthroughs in scientific research and smart economic planning. Hefei focuses on identifying promising R&D projects and industries with high potential, constantly upgrading its industrial structure.
The fifth factor of the model is financial capital, as Hefei has successfully attracted foreign direct investment. For example, Volkswagen AG has announced a billion euro investment in establishing an innovation center in Hefei. Lastly, social capital, including strong collaboration between government and business, has contributed to Hefei’s success.
Overall, Hefei’s success can be seen as a result of smart strategic planning by the government and concerted action by key players in transformative industries. This aligns with Chinese President Xi Jinping’s vision of moving from low-cost manufacturing to higher value-added economic activities. Hefei’s model showcases an “Industrial Revolution 4.0” in China, driving its growth and development in the high-technology sector.
In conclusion, while China’s overall economic engine struggles, the city of Hefei thrives thanks to its “Six capital model” and its focus on high-technology industries. Hefei’s success demonstrates the potential for regional economic growth and the importance of strategic planning and collaboration between government, academia, and business. As China continues to navigate its economic challenges, Hefei serves as a shining example of innovation and growth in the country’s inland provinces.