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Why is Chengdu's 2022 so different than other cities?
Looking into Chinese Cities via the Lens of Primate City Index
Chengdu is one of the new Tier-1 cities in China located in mid-western part of China, with a GDP comparable to the Philipines or Demark. While most large Chinese cities saw the weakening of the real estate market, and subsequently, their banking industry in 2022, Chengdu stood out as the only city that has 13 months of continuous housing price growth, with Bank of Chengdu outperforming many of its peers in 2022. Although the reasons behind this can be multifaceted, we looked at an article titled "成都的2022年为何如此不同？Why Chengdu's 2022 was so different" that pointed to an interesting metric, the Primate City Index.
When looking at Chengdu's Primate City Index, an index that compare the largest city's GDP to second largest city, we learned that Chengdu, as a provincial capital, has evolved into one that is drastically different from other provincial capitals in China. With nearly 6 times the GDP of the largest non-capital city in the province, Chengdu has the No.1 Primate City Index in China amongst all the provincial capitals. Chengdu’s outstanding performance in 2022 could be attributed to such concentration of resources.
The article drew our attention as it revealed one of the few growing parts of China during 2022. It once again reminded us that when one looks into China's economy, one can no longer use simplistic one-size-fit-all lens. After decades of rapid evolution, different parts of China's economy have developed their own characteristics. While in coastal cities thrive in clusters, in the inner regions, cities with higher Primate City Index have stronger economic performance. It echoes one Chinese mantra of "集中力量办大事 concentrated all of our resources to do something great".
Below is the translation of key extracts of the article. Enjoy!
Part 1 - One and the Only: Chengdu's housing prices have been growing consequently for 13 months (since Jan 2022)
As is well known, the real estate market has been relatively sluggish since 2022 due to factors such as weak market expectations, and the overall trend of the real estate market in most cities was declining. However, the performance of housing prices in Chengdu was exceptionally outstanding.
(1) Since January 2022, the prices of new and second-hand houses in Chengdu have risen continuously for 13 months, with cumulative increases of 9.99% and 9.59% respectively, making it the only city among the 70 large and medium-sized cities in China with continuously rising house prices and an increase of around 10%.
(2) Since 2022, only 6 of the 70 large and medium-sized cities in China have seen a cumulative increase in second-hand residential housing prices, with the increases in order from high to low being Chengdu (9.59%), Beijing (4.69%), Shanghai (3.03%), Kunming (1.19%), Nanchong (1.19%), and Changsha (0.20%). Among them, in the 13 months since 2022, the number of months in which the MoM increase in second-hand residential housing prices was positive, in order from high to low, were Chengdu (13 months), Beijing (10 months), Shanghai (10 months), Kunming (9 months), Changsha (8 months), Ningbo (6 months), Guangzhou (6 months), Wuxi (6 months), Xuzhou (6 months), Nanchong (6 months), Hangzhou (5 months), Xiamen (5 months), Haikou (5 months), Xi'an (5 months), and so on.
Part 2: Top Performance of Bank of Chengdu
Since 2022, the performance of Bank of Chengdu in the A-share listed banks has been outstanding:
As of February 21, 2023, Bank of Chengdu's PB ratio reached 1.05x, ranking third among A-share listed banks, only lower than Bank of Ningbo (1.34x) and China Merchants Bank (1.18x), but higher than Bank of Changshu (1.01x), Bank of Hangzhou(0.92x), Bank of Ningbo (0.84x), and Bank of Zhangjiagang (0.81x).
Among the 20 A-share listed banks that have disclosed their 2022 annual reports, Chengdu Bank's performance in 2022 was also outstanding. Its ROE reached 20% (ranking first among A-share listed banks), the provision coverage ratio was as high as 502%, and the non-performing loan ratio was as low as 0.8%.
Bank of Chengdu's total asset has almost reached RMB 1 trillion, but it only has two branches outside Sichuan province, namely Chongqing and Xi'an. It is a city commercial bank with a clear Western China label. The reason why it can achieve such outstanding performance and be favored by the capital market should be unique.
Part 3. Analysis of the Reasons Behind - Chengdu has the Top Primate City Index in China
For the two outstanding phenomena mentioned above, although we cannot currently find the logic behind them through more specific data, in general, whether it is Chengdu's surprising performance in housing prices or the impressive achievements of Chengdu's banking industry, the foundation or support behind them could be attributed to the region where they are located, namely Chengdu, which has the highest Primate City index in the country.
Here, we use the concept of the Primate City Index (the ratio of the GDP of the provincial capital city to the largest non-provincial capital city in the province) proposed by American geographer Mark Jefferson in 1939, to evaluate Chengdu's position in the region. Generally speaking, the higher the Primate City Index, the more prominent the importance of the provincial capital city in its province and the stronger its ability to attract other cities in the province.
Specifically, when the Primate City Index is below 2, it indicates a dual-core development trend in the region, which is relatively reasonable; when the Primate City Index is between 2 and 4, it indicates that the provincial capital city in the region is large and cohesive; when the Primate City Index is higher than 4, it indicates that various resources (economic, industrial, population, financial, etc.) are overly concentrated in the provincial capital city, which is relatively unreasonable.
The provincial capital cities with the highest Primate City Index, ranking from high to low, are Chengdu (573.97%), Lanzhou (327.06%), Wuhan (323.73%), Changsha (296.48%), Yinchuan (292.45%), Hefei (266.83%), Haikou (252.01%), Zhengzhou (223.01%), Taiyuan (198.63%), and Kunming (198.34%). It can be seen that Chengdu's Primate City Index of nearly 6 is far higher than that of other provincial capital cities, indicating that Sichuan Province's population, industry, economy, and financial scale are excessively concentrated in Chengdu, providing strong support for Chengdu's real estate and banking industries.
In 2022, Chengdu's economic scale reached 2.1 trillion yuan, ranking second among provincial capital cities (second only to Guangzhou's 2.9 trillion yuan), and is also one of the only two provincial capital cities with GDP exceeding 2 trillion yuan nationwide. At the same time, Chengdu's total population reached 21.2 million (2021 data), ranking first among provincial capital cities nationwide.
In terms of financial resources, Chengdu's fiscal revenue in 2022 reached 172.2 billion yuan, which is 6.25 times that of the second-largest city, only lower than Wuhan (681.09%) and higher than Changsha (573.24%), but its advantage over its economic scale is even higher. Usually, we can boldly predict that when the Primate City Index of a provincial capital city is high, the population and industry of other cities in the province will also gradually shift to the provincial capital city following the changes in the Primate City Index, and Chengdu has probably been in this situation in recent years.
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