Creating Prosperous and Livable Chinese Cities: The New Resource Economy City Index Report. Accenture and the Chinese Academy of Sciences

Transcription

1 CHINESE ACADEMY OF SCIENCES Creating Prosperous and Livable Chinese Cities: The New Resource Economy City Index Report Accenture and the Chinese Academy of Sciences

2 Authors Peter Lacy Managing Director, Strategy & Sustainability, Asia Pacific Lead Michael Ding Senior Managing Director, Resources Lead, Greater China 2 Dr Minjun Shi Professor, Graduate University of the Chinese Academy of Sciences Deputy Director, Research Center on the Fictitious Economy and Data Science (FEDS), Chinese Academy of Sciences Director, FEDS, Green Economy Lab Guanghai Li Managing Director, Strategy & Sustainability, Greater China Xuyu Chen Senior Marketing Manager, Management Consulting, Greater China

3 Exhibit 1 China s urban challenge in numbers % The average annual GDP growth of China s prefecture-level and larger cities between 2000 and The number of megacities predicted to have a population of 10 million or more by % Proportion of China s total water use attributed to prefecture-level and larger cities 13.5% Resource and environmental consumption as a percentage of GDP 1.7% Environmental pollution control costs as a percentage of GDP 52.6% China s urbanization rate in % Proportion of China s total land area comprising prefecture-level and larger cities 89.6% Proportion of China s total industrial CO 2 emissions contributed by prefecture-level and larger cities 3.5% National ecological and environmental degradation costs as a percentage of GDP in % and 83.6% The respective rates of urban garbage disposal and sewage treatment in Chinese cities (compared to 100 percent in the majority of developed countries) 350 million Expected increase in China s urban population in the next two decades 61% The proportionate contribution to China s GDP from prefecture-level and larger cities 3% Portion of China s total land area used for industrialization, urbanization and other construction 2.8% Economic loss due to the impact of PM10 health costs as a percentage of GNP 34.6% vs 70.7% Broadband penetration rates in China and Japan respectively 3

4 Contents Balancing urbanization and sustainability 5 Taking a sustainable approach to growth 6 Executive summary 7 Part 1: China s urban challenges and a new model for development 10 Part 2: Starting out: China s cities today and their prospects 13 Part 3: Carving out a new path 32 Research methodology 38 Acknowledgements 46 References 47 Disclaimer 1. The rankings in this report are based on the economic development, resource and environmental sustainability, and affordability of future development of the cities. If the parameters are changed, the results may differ. 2. We endeavored to be as objective and impartial as possible during the data collection process, but we provide no warrant as to the accuracy, completeness, timeliness, validity and availability of the data we obtained. 3. The opinions, research, analysis and other content, in this report is intended for reference only, and shall not be taken to constitute advice for government decisions or personal investments. 4

5 Balancing urbanization and sustainability China s rapid economic development has delivered substantial benefits to its citizens and the nation. However, this development has come at a cost in terms of natural resources and the environment. Although the Chinese Government has identified urbanization as the key driving force for future development, it is also important to consider a coordinated approach that takes into account culture, ecology, economy, politics and society. As the Director of the Chinese Academy of Sciences Research Center on the Fictitious Economy and Data Science, I am delighted to present this report which encompasses the work carried out jointly by our Green Economy Lab and Accenture to evaluate and analyze the sustainability of Chinese cities. This is a new approach, and I expect that it will provoke thought and debate. While the research is at an early stage, I hope that the New Resource Economy (NRE) City Index will become a useful reference for macro-level decision making by China s central and local governments, as we refine the methodology and analysis over coming reports. I look forward to seeing how the NRE City Index can improve the development patterns of China s rapidly growing cities. Cheng Siwei Director of the Research Center on the Fictitious Economy and Data Science, Chinese Academy of Sciences Dean of School of Management, University of Chinese Academy of Sciences Vice-Chairman of the Standing Committee of the Ninth and Tenth National People s Congresses of the People s Republic of China 5

6 Taking a sustainable approach to growth 6 China s rapid urbanization is changing the country s landscape and the way people live. But it also poses daunting challenges for the country now and into the future. The most remarkable shifts can be seen in cities. Over the past two decades, China s largest cities, Shanghai and Beijing, have seen their populations double to exceed 20 million. Shenzhen, now with a population of over 10 million, accommodated less than 3 million residents in the early nineties. Six other megacities are still expanding in terms of size and population, as are eight other cities with populations of about 5 million each. Over the next two decades, we believe the majority of China s prefecture-level cities will become home to more than 1 million people. However, this rapid expansion has come at a cost. Resources such as energy, water and land are under intense strain, and issues such as air pollution are having an impact on people s health and quality of life. Given the unstoppable rise of cities, we now have to ask: is China s urban development sustainable? Taking into account current trends, China s urban population is tipped to exceed 900 million people by 2030 or two-thirds of the total population. But Chinese cities are struggling to effectively manage scarce resources and protect the environment, and many are caught in a pattern where economic development overrides all other concerns. To help cities address these challenges, we have developed the New Resource Economy (NRE) approach to support sustainable growth decoupled from high resource consumption and environmental impact. We are privileged to partner with the Chinese Academy of Sciences Research Center on the Fictitious Economy and Data Science to create the NRE City Index. This index is a tool for evaluating the performance of Chinese cities on economic development, resource and environmental sustainability, and affordability for future development. The key findings from this evaluation process are contained in this report. By encouraging Chinese cities to develop in more sustainable ways, we can help the nation become more prosperous, raise citizens quality of life and protect our valuable natural environment. The purpose of this research is to assess the current situation of a selection of Chinese cities to ignite new ideas and perspectives that can transform their economies. As it is the first report using the index, there will be scope to enhance the methodology and analysis in future reports. It is also important to note that we have not attempted to develop a white paper on urbanization in China. Rather, we want to promote innovative thinking on China s economic development. The NRE City Index methodology is in an early stage and does not yet cover all of China s cities. Nor does it take into account elements such as resource endowment and geography. However, it does provide a useful baseline to begin evaluating the sustainability paths of Chinese cities. In the next phase of the research, we will use these findings to initiate in-depth discussions with stakeholders including administrators, businesses and research institutions. Accenture believes the possibilities for city development aligned to the NRE model are substantial, and we are committed to supporting China s cities as they create prosperous, attractive and sustainable urban environments. We look forward to making an important contribution to this future through the report. Gong Li Chairman, Accenture Greater China

7 Executive summary The Chinese poet Tao Qian (AD ) used the term peach-blossom land to describe the paradise of agricultural civilization, which was the dream of ancient Chinese society. However, in the era of rapidly urbanizing societies, the contemporary Chinese dream is for more livable cities. Over the past three decades, China has changed from an agricultural society and economy to a predominantly urbanized and industrialized nation. In 2012, China s urban population made up more than 52 percent of its national total, and its 300 largest cities now generate more than 60 percent of the country s gross domestic product (GDP). The urban boom has spawned more and larger cities with higher buildings, wider roads, high-speed railways and more factories. This process has been highly resource intensive and has had a major environmental impact. Benchmark data used by the Chinese Academy of Sciences (CAS) shows the total cost of resource depletion, pollution and environmental degradation in China at 13.5 percent of GDP. 2 There is little doubt that China s urbanization and economic growth will continue. However, most experts agree that the current model of development for Chinese cities is unsustainable. The question is, how can Chinese cities strike a new balance between economic growth, resource use and environmental impact? How can they provide jobs and income, while remaining livable for the long term? We believe that China is uniquely positioned to turn challenge into opportunity through the transition to a new development model; one in which the country s continued economic prosperity is decoupled from its use of scarce resources and increasing environmental degradation. We call this model the New Resource Economy (NRE). The NRE encompasses all levels of society, from the individual through to enterprise and government, and requires an economy-wide transition in how resources are sourced, consumed and managed. To establish a quantitative baseline for how Chinese cities have been managing the challenges presented by urbanization to date, Accenture and CAS developed the NRE City Index. The index examined 73 Chinese cities and their performance on key sustainability and economic criteria. A need and an opportunity for a new path Our research confirmed that Chinese cities are currently on unsustainable development pathways and urgently need to apply new approaches. For instance, we discovered that 80 percent of the 73 cities we reviewed are currently failing to achieve a balance between economic growth, resource efficiency and sustainable development. The analysis pointed to five key insights about China s cities. Insight I: Unbalanced development but capacity to transition China s urban economic development is very unbalanced, and resource and environmental sustainability are prevalent challenges. However, cities capacity for transformation does not vary significantly by their level of economic development or by their sustainability track record. This suggests that all cities have the potential to transition to a more balanced development model. Insight II: More developed cities show greater unbalanced development Our results show that, with some exceptions, the most economically developed cities show more serious imbalances between economic growth, available resources and the state of the environment. Less-developed urban areas have fewer current challenges and may find it easier to steer towards a new path. Insight III: Mid-sized cities may have the greatest potential to adopt an NRE model Cities with 1 million to 3 million people are the key regions for future urbanization and at present enjoy relatively balanced development. They should take advantage of this situation and start their transition now. Insight IV: Poorly targeted urbanization is counterproductive in the long term Although there are benefits in prioritizing development in some areas over others, most developed cities show the downside of overdevelopment. Policymakers need to carefully select and manage focus regions for development. These areas should be chosen based on a comprehensive set of factors, including current resource and environmental conditions, the existing intensity of development and the potential for future development. Insight V: Resource-based cities must change their development path A number of Chinese cities are classified as resource-based cities, defined as those that depend on non-renewable resources for their rapid economic growth. According to our research, these cities show the most unbalanced development. To achieve ongoing and sustainable economic growth, resourcebased cities need to implement strategies to broaden their economic base, move towards less resource-intensive activity and, in turn, reduce carbon emissions. Harnessing innovation to transition to a new model Based on our analysis, we believe there are three broad areas of innovation that can enable cities to transition towards an NRE model for more sustainable growth. 7

8 Innovation in policy and strategy Achieving a transition to balanced development requires a deliberate strategy, that is, a set of policies and plans. China s city authorities and planners will need to take a long view, encompassing a broad range of economic, resource, social and cultural factors. Development in any one geographic area should be closely coordinated with each of the others, paying special attention to potential unintended consequences. Beyond individual cities, provincial and national authorities need to devise updated strategies for priority urban areas. Sustainable master planning and urban design must be about more than just energy and water efficiency, connectivity to public transit networks and planting more trees. Rather, it needs to reflect the aspirations of residents and help them achieve their desired way of life. Planning policy and regulatory control need to prioritize people ahead of motor vehicles and more closely align community, commerce and the digital infrastructure required to drive efficiency. These considerations are essential if China s cities are to attract and retain the right skills and capabilities to enable their growth and development. The essence of successful urban environments is vibrant and diverse street-level activity where people meet and interact in unplanned ways. China s future master planning needs to ensure it allows room for organic growth within the broader city vision, and enables an urban footprint to emerge that is both unique reflecting the characteristics of the individual city and its inhabitants and sustainable. More effectively managing the disparate elements of city government and services will also be important to break down silos. This will require a move towards integrated governance structures where multiple city departments such as energy, water, waste, building, transportation and culture will coordinate to achieve sustainable outcomes. Building the infrastructure to support balanced urban development will require massive investment. Traditionally, the main source of financing for Chinese cities has been land sales and leasing, which is a finite funding source and can also lead to overdevelopment. Local governments must diversify financing channels with measures such as establishing equity investment funds, developing municipal bonds, and encouraging and attracting private investment. Innovation in technology: the opportunity for digital cities Waves of innovations in digital information and communications technology are providing opportunities for Chinese cities to accelerate their move towards sustainable growth and a better life for their citizens. Key digital technologies include intelligent infrastructure, machine-to-machine communication (also called the Internet of Things ), smart devices, mobility, big data and analytics, cloud computing and social media. These technologies are connecting all elements of cities, encompassing citizens, public services, businesses, economic activity, buildings, transport, education, and utilities including energy, water and waste. They enable economic growth, resource efficiency and environmental sustainability in equal measure. Recent digital infrastructure policy and investment commitments are accelerating this shift towards a connected urban economy and society. One such announcement is the Chinese Government s Broadband Strategy which targets data speeds of 20 megabytes per second for all urban households by Another commitment is that of State Grid and the Chinese Government to roll-out smart grids to all Chinese households to optimize electricity supply. 4 Involving citizens through technology could result in the greatest near-term opportunities for new kinds of services, for problem solving and for education. Recent estimates put the number of mobile internet subscribers in China at 420 million and that of social media users at 597 million or 91 percent of all internet users. 5,6 Finally, the rapid improvement in Big Data analytics available today provides a massive opportunity for improved service delivery. In addition, city planners and government authorities at the city, provincial and national level can now turn masses of disparate data into information that can help them design new policies and then monitor the progress of the transition. Innovation in models for crosssector and cross-regional cooperation Governments lead China s urban development and management. Achieving harmonious development and building livable cities demands strong cooperation between all levels of government authorities and among city governments. Sharing innovation both at the policy and program level and allowing early use of new approaches will accelerate a new path. This cooperation can be supported through the creation of knowledge- and datasharing platforms among cities; and it should also allow businesses and citizens to play a greater role in urban planning. As China s growth continues apace, now is the time for governments, businesses and other stakeholders to start moving towards a new development model. This report aims to provide a first step by evaluating the current status of urban development across the economy, resources and the environment. The second step will be to set urban transformation goals. This will involve specifying capability constraints according to urban performance results and analysis; determining the transformation paths for different categories of cities; and addressing cities resource and environmental challenges. Next, stakeholders representing different levels of government as well as business and civil society will need to come together to think through transition strategies and to specify the roles to be played by the different parties. We look forward to working with all key stakeholders to advance this discussion and help China s cities develop and implement sustainable development strategies. 8

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10 Part 1 China s urban challenges and a new model for development In the 1980s, more than 80 percent of China s population carried on the agricultural lifestyle of their ancestors. In villages and terraced fields they raised cattle, and farmers cultivated their crops day after day, rising at dawn and resting at dusk. But in the past three decades, China has undergone a ferocious surge of urban development. Beginning with the period of reform and opening up in the 1970s, the country s economy soared, allowing the nation to experience a rate of urbanization unprecedented in human history. The boom of China s cities is a double-edged sword In 2012, China s urbanization rate had reached 52.6 percent, and the urban population exceeded 700 million. This urbanization pattern is set to continue at percent a year (see Exhibit 2) and by 2030, the urban population will account for two-thirds of the country s total. 7 According to the Development Research Center of China s State Council, the GDP growth rate will increase by 0.7 percentage points for every percentage point of increased urbanization. 8 However, China s sustained rapid growth (see Exhibit 3) largely depends on a development model characterized by high resource consumption and environmental degradation. According to the Chinese Academy of Sciences, China s resource and environmental costs account for as much as 13.5 percent of GDP. 9 Exhibit 2. China s urbanization rate % Urbanization rate % Year Exhibit 3. China s economic growth outlook, Annual GDP growth rate % Year

11 The Chinese Government recognizes the need to find a balance between driving economic growth and protecting the environment, and has emphasized that higher GDP should not be the sole aim of development. 12 For instance, the government s Twelfth Five-Year Guideline ( ) puts more emphasis on quality growth, setting a higher target for resource efficiency and environmental protection (see Exhibit 4). Further, the next five to 10 years is a critical period for China s transformation into an urbanized society. At the Chinese Communist Party s 18th National Congress*, the Government introduced the goal of building a more prosperous society by 2020, and promoted coordinated industrialization, IT development, urbanization and agricultural modernization. 13 However, we believe that unless China adopts a more sustainable growth pattern, the nation will remain restricted by its existing energy structure and resource supply and will see ever higher levels of environmental degradation (see Exhibit 5). The New Resource Economy a new model for development To illustrate how cities can transition to more balanced development, Accenture has developed the New Resource Economy (NRE) concept. In this model, the rate of economic growth is decoupled from the rate of resource consumption and environmental degradation. The approach proposes that by leveraging innovation in policy, technologies and new collaboration models, cities can meet their economic growth objectives without further straining the limited supply of resources and further degrading the environment. The NRE is characterized by: efficiency: the same or more utility is achieved with less resource consumption, effectively decreasing resource intensity substitution: non carbon based fuels and renewables replace hydrocarbons and diversify the energy mix regeneration: circular economy principles are applied to ensure that consumed resources are repurposed or recycled to extend their lifespan. What value does the NRE bring to China s cities in supporting their development? We believe it can be used to achieve three main objectives. First, it can be used to encourage innovation, improve development capabilities and form the basis of a long-term and effective mechanism for sustainable urban development. Second, it can help support the continuing prosperity of the urban economy through more efficient resource use. And finally, it can help emphasize the value of economic decisions which support a sustainable development approach in securing a better quality of life for all citizens. * (held in Beijing November 8 14, 2012) Decoupling: a definition According to the United Nations Environment Programme (UNEP) International Resource Panel 14, decoupling refers to two dimensions of sustainable development: Relative decoupling means that the increase in resource consumption or environmental impact is lower than the rate of economic growth, representing better resource productivity. resource decoupling: reducing resource consumption per unit of economic activity impact decoupling: reducing the negative impact of any ongoing economic activities on the environment while maintaining economic output. 11

12 Exhibit 4. Objectives regarding the economy, resources and the environment stipulated in China s Twelfth Five-Year Guideline ( ) 15 7% Average annual GDP growth rate 4% Increase in urbanization rate 45 million Increase in urban employed population 11% Proportion of non-fossil fuels in primary energy consumption 7% Average annual growth in per capita disposable income among urban residents 16% Decrease in energy consumption per unit of GDP 30% Decrease in land use for construction, per unit of GDP 17% Decrease in CO 2 emissions per unit of GDP 10% Decrease in ammonia and nitrogen oxide emissions 8% Decrease in chemical oxygen demand (COD) 8% Sulfur dioxide (SO 2 ) emission reduction Source: China s Twelfth Five-Year Guideline ( ). Exhibit 5. The trilemma of balancing economic development, resource security and environmental protection Resource security Sufficient supply and availability of resources that can support and sustain China s continuing growth Resource security Environmental protection Environmental protection Successful mitigation of environmental degradation and its implications to health, productivity and social well-being Economic development Economic development Increased economic prosperity characterized by rising income levels, higher output and improved standards of living 12

13 Part 2 Starting out: China s cities today and their prospects From senior government officials to the general public, there is widespread recognition of the challenges confronting China s cities. The NRE City Index aims to provide a baseline measure of a city s economic development, resource use, and resource and environmental sustainability to focus discussion and help decision makers as they start moving forward. Included in the analysis were 73 of China s 287 largest cities at the prefecture level and above. They represented a variety of sizes and per capita incomes and covered 31 provinces, municipalities and autonomous regions to ensure broad representation (see Exhibit 6). The indicator system used a weighted composite based on a total of 32 indicators (see Exhibit 8 on page 16). It measured three areas of performance: economic performance: a city s level of economic development and capacity for further development, indicating the quality of life it can support resource and environmental sustainability: a city s ability to preserve the environment, its dependence on natural resources and the efficiency of its resource use development capability: the capacity for a city to transition into an NRE, including elements such as infrastructure, IT development, and education and policy execution. The base year for the data was 2010; a small number of indicators used data from Please see the Research Methodology section of this report for a full list of indicators and their weighting. Exhibit 6. Sample distribution of the NRE City Index by size and per capita GDP Megacities Super cities Large cities Medium cities GDP per capita below RMB50,000 GDP per capita between RMB50,000 and 70,000 GDP per capita above RMB70,000 13

14 Exhibit 7. Ranking of all cities included in the index City NRE City Index ranking Economic performance Resource and environmental sustainability Supporting capacity Score Ranking Score Ranking Score Ranking Score Ranking Shenzhen Suzhou Beijing Xiamen Shanghai Hangzhou Zhuhai Guangzhou Tianjin Dalian Wuxi Weihai Qingdao Changsha Zhongshan Foshan Ningbo Changzhou Yantai Nanjing Jinan Wuhan Shaoxing Chengdu Taizhou Shenyang Hefei Nanchang Jiaxing Yangzhou Fuzhou Huzhou Wenzhou Nantong Xi an

15 City NRE City Index ranking Economic performance Resource and environmental sustainability Supporting capacity Score Ranking Score Ranking Score Ranking Score Ranking Wuhu Hohhot Kunming Harbin Zhengzhou Changchun Nanning Mianyang Zhuzhou Xuzhou Guiyang Shijiazhuang Taiyuan Weifang Chongqing Yichang Jining Shantou Yangquan Xiangtan Baotou Changde Yueyang Kaifeng Luoyang Zaozhuang Jilin Liuzhou Yinchuan Handan Changzhi Jiaozuo Xining Anyang Yibin ürümqi Zunyi Shizuishan

16 Exhibit 8. The indicator system How successfully do China s cities build prosperous, livable and sustainable places for now and for the future? NRE City Performance Index Economic growth and development Resource and environmental sustainability Capacity improvement KPIs KPIs KPIs Energy intensity Resource security Water intensity Land use intensity Economic density Economic density Efficiency of resource consumption Industrial structure Economic development level Proportion of industries with high energy consumption Proportion of high-tech industries Residents disposable income per capita Financial expenditure per capita Circular economy Environmental efficiency Environmental quality Low-carbon development Utilization rate of industrial solid waste Industrial water recycling rate Sulfur dioxide (SO 2 ) emissions intensity Chemical oxygen demand (COD) emissions intensity Ammonia emissions intensity Nitrogen oxide emissions intensity Industrial wastewater discharge compliance rate Average concentration of SO 2 Average concentration of NO 2 Average concentration of PM10 Percentage of blue sky days Carbon emissions per capita Change of carbon intensity Infrastructure construction Information infrastructure Policy Investment in environmental protection Innovation capacity Urban population density Water resources per capita Density of urban water supply pipeline Public transport passenger volume per capita Internet penetration Garbage treatment rate Low-carbon city or not Density of environmental quality monitoring sites Investment ratio of GDP to environmental pollution control Proportion of expenditure on education and science Number of high schools Exhibit 9. NRE City Index and the distribution of scores for first-tier indicators Overall performance Economic performance Resource and environmental sustainability Development capability 16

17 Key findings and insights Our analysis points to five key insights about China s cities. Insight I: Unbalanced development but capacity to transition According to our study, China s urban development is very unbalanced, and efficient resource use, and resource and environmental sustainability are significant challenges. However, there is little variation in cities development capacity, even among urban centers at different stages of economic development (see Exhibit 9). This suggests that a city s capacity to transform does not vary much regardless of its economic status, and that there is substantial room for improvement across the board. The average score of the 73 sample cities in the NRE City Index is 58.28, with scores ranging from 36 to 77. There is a difference of points between the highest and lowest scores, indicating considerable disparity between cities in their development towards the new resource economy (see Exhibit 10). Just over 80 percent of the cities scored 45 to 70; six cities (8.2 percent) scored lower than 45; and only eight cities (11 percent) scored higher than 70. The average scores of the three first-tier indicators are less than 60, demonstrating that there is much room for improvement in economic performance, resource use, resource and environmental sustainability, and development capability. The biggest difference between sample cities scores for the first-tier indicators is in urban economic performance there are more than 70 points between the highest (Shenzhen in Guangdong Province) and the lowest (Zunyi in Guizhou Province). The gap between cities resource and environmental sustainability scores is smaller than the gap for economic performance, with around 50 points between the highest and lowest scores. Over 74 percent of cities scored between 50 and 70. Cities scores were most similar for development capacity, with only around 35 points between the highest and lowest. Insight II: More developed cities show greater unbalanced development We categorized the level of development of cities by looking at two factors: per capita GDP and geographic location. This is because traditionally there is a significant difference in the level of development between coastal cities and those in the western inland provinces. What we found for both factors is that in more developed cities there is a larger imbalance between economic growth, resource use and environment quality, whereas these factors are relatively balanced in less-developed cities. When categorizing cities by per capita GDP, those with the highest average income (above RMB70,000) performed better than lower-income cities in the economic, environmental and developmental indicators. 16 However, there were significant imbalances between cities rankings for resource and environmental sustainability. These developed cities will face great challenges in achieving economic growth while using resources sustainably and protecting the environment. Exhibit 10. NRE City Index and scores for first-tier indicators Overall performance Economic performance Resource and environmental sustainability Median Average Minimum Maximum Development capacity Exhibit 11. Urban economic development and the NRE City Index Per capita GDP (RMB) Number of cities Overall performance Economic performance Resource and environmental sustainability Development capacity GDP growth Above 70, % 50,000 70, % Below 50, % 17

18 Cities with mid-tier per capita GDP (RMB50,000 70,000) have relatively balanced indicators 17, suggesting it may be easier for them to move to a more sustainable growth path in the future (see Exhibits 11 and 12). The differences in economic development are also apparent when looking at the cities in the index by geographic location (see Exhibit 13). Over the past 12 years, the Chinese Government has been implementing the Go West policy that accelerated the development of central and western China and the old industrial base of northeast China, in an effort to promote coordinated regional economic growth. Despite this policy, according to our index, there remains a significant gap in terms of urban development between coastal areas and the central and western regions. The top 20 cities in the index are the most economically dynamic cities in eastern coastal areas, except Changsha in south central China. 18 These cities achieved relatively high scores for urban economic performance, and most also scored highly for resource and environmental sustainability, and development capability. Shenzhen scored the highest, ranked first for urban economic performance and resource and environmental sustainability. However, as discussed previously, most of these highly developed cities ranked lower (relatively) for resource and environmental sustainability. For example, Hangzhou (Zhejiang Province) is ranked 22nd; Guangzhou and Zhuhai (both in Guangdong Province) are ranked 30th and 31st, respectively; and Nanjing (Jiangsu Province) is ranked 50th, while its economic performance ranked in the top 12. These cities rankings for resource and environmental sustainability lag behind their economic performance, highlighting the urgent need to promote a balance between economic development, and resource and environmental sustainability. The 15 lowest ranking cities on the index are all located in China s lessdeveloped central and western regions. With the exception of ürümqi (the capital city of Xinjiang Province), which has a relatively high level of development capability, western and central cities generally scored low in urban economic performance, resource and environmental sustainability, and development capability. Most of them ranked lower than 65 for economic performance, lagging far behind coastal cities in terms of their economic development. Exhibit 12. Urban performance from the perspective of per capita GDP Economic performance Development capacity Resource and environmental sustainability Above RMB70,000 RMB50,000 70,000 Below RMB50,000 18

19 Exhibit 13. Geographic distribution of composite scores in the NRE City Index Legend Data unavailable > <45 Exhibit 14. City population and the NRE City Index City size/ administrative level 10 million+ people 3 10 million people 1 3 million people 400,000 to 1 million people Number of cities Overall performance Economic performance Resource and environmental sustainability Development capacity GDP growth % % % % 19

20 Insight III: Mid-sized cities have the greatest potential to steer a new path We categorized the cities in the index by size and found that cities with between 1 million and 3 million inhabitants enjoy relatively balanced development (see Exhibit 14). This makes them key centers for future urbanization and gives them a sound foundation to transition to the NRE. However, it will take dedicated efforts by governments and stakeholders to ensure this potential is realized. The data collected for the index also showed that the larger the population of a city gets, the greater the environmental degradation. The largest category of cities those over 10 million people are most affected by issues such as water shortages, traffic congestion and air pollution, and thus face more significant challenges in resource and environmental sustainability (see Exhibit 14). On the other hand, the largest cities scored higher for infrastructure, information technology and intelligence, and technological innovation because they have more sophisticated physical infrastructure and human capital (see Exhibit 14). When looking at the overall performance of China s six largest cities, Shenzhen ranked first, Beijing third, Shanghai fifth, Guangzhou eighth and Tianjin ninth, while Chongqing ranked 50th. However, it is worth noting that compared with the indicators of economic performance and development capacity, the four municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin) ranked lower for resource and environmental sustainability. Beijing, Shanghai and Tianjin ranked below 20 for environmental sustainability, while Chongqing ranked 36th and 52nd respectively for urban economic performance and development capability, compared to 67th for environmental sustainability. Although medium-sized, cities currently have a better balance between economic development, resource use and the environment, they urgently need to enhance their development capacity and IT infrastructure, and improve resource and environmental efficiency. Otherwise, future environmental deterioration may hinder their economic growth. At the same time, larger cities should apply their enhanced development capabilities to creating more sustainable platforms for growth. Exhibit 15. City population and the NRE City Index Economic performance Development capacity Resource and environmental sustainability 10 million+ people 3 10 million people 1 3 million people 400,000 to 1 million people 20

21 Exhibit 16. The economies of China s megacities Shanghai Beijing Chongqing Tianjin Guangzhou Shenzhen GDP per capita (thousand yuan) Exhibit 17. Performance of different-sized cities across the indicators of resource and environmental sustainability Low carbon level Resource efficiency Recyclable economy Environmental quality Environmental efficiency 10 million+ people 3 10 million people 1 3 million people 400,000 to 1 million people 21

22 National Planning of Main Functional Areas 19 National Planning of Main Functional Areas, released by China s State Council in 2011, is a long-term strategy that promotes a national spatial development system to ensure coordinated population and economic growth, resource use and environmental efforts. The strategy also aims to accelerate China s harmonious urbanization, promote long-term social stability and encourage rapid yet sound economic growth. The strategy includes stringent environmental policies to ensure the country avoids the traditional path of developing at the cost of the environment. National Planning of Main Functional Areas recognizes that each region has a unique economy and development model based on its natural resources and environmental loading capacity. By dividing the country into development regions, the government can more effectively control rates of development to ensure a better geographical balance. The four types of development regions Optimized development regions are urbanized areas with relatively developed economies, dense populations and high-intensity development. They also face major challenges around environmental sustainability and resource security, and thus need to be optimized for future industrialization and urbanization. Key development regions are urbanized areas that have a relatively solid economic base, abundant resources and high environmental loading capacities, as well as strong development potential, and sound demographic and economic conditions. These regions will be key areas for future industrialization and urbanization. The government s plans for development in optimized development regions and key development regions are similar, only differing in terms of development intensity and models. Key development regions in coastal provinces have the advantage of relatively mature economies and access to natural resources that will enable their transition to a new resource economy, so urbanization efforts should focus on these areas. Restricted development regions are divided into agricultural areas and areas under ecological protection. The government limits large-scale, high-intensity industrialization and urbanization in these regions to ensure national agricultural security, sustainable development and ecological preservation. Prohibited development regions are areas where natural and cultural resources are protected by law. These places also include key ecological areas where industrialization and urbanization are prohibited to ensure environmental protection. 22

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24 Insight IV: Poorly targeted urbanization is counterproductive in the long term In 2011, China s State Council released National Planning of Main Functional Areas, which divides the country into four categories: optimization development regions, key development regions, restricted development regions and prohibited development regions (see feature on page 22). Regions are categorized according to their resource and environmental capacity, existing development intensity, potential for future development, and capacity to support large-scale, high-intensity industrialization and urbanization. Within the NRE City Index, cities classified as optimized development cities ranked highest overall, followed by key development cities (see Exhibits 18 and 19). Future regional urbanization should focus on key development cities, as these locations are best positioned for sustainable expansion. According to the index, inland cities in key development regions generally do not perform as well economically as cities in coastal areas, but their environment is less damaged. With the proliferation of high-speed railways, highways and logistics networks, and the increased availability of high-speed internet, these inland cities can now more easily connect with international markets that will support future economic growth. Cities in optimization development regions scored higher in areas such as economic strength, resource and environmental efficiency, and infrastructure. However, they also face challenges such as environmental deterioration and resource security, which may hinder their future development. Within the optimization development regions, there are score variations between the cities of the Pearl River Delta, those of the Yangtze River Delta and the Bohai Economic Rim area. Pearl River Delta cities scored highest in urban economic performance. There was no significant ranking difference between the three regions in terms of resource and environmental sustainability, and development capability. The Pearl River Delta also scored higher for environmental quality, but lower for its development as a circular economy. There was no significant difference between the three regions scores for development capability. Exhibit 18. Main functional area positioning and the NRE City Index Main functional areas Optimized development regions Priority development regions Regions Pearl River Delta Bohai Economic Rim Yangtze River Delta Overall performance Economic performance Resource and environmental sustainability Development capacity GDP growth % % % Coastal areas % Inland regions % Other regions Other % 24

25 Exhibit 19. Main functional area positioning and the NRE City Index Economic performance Development capacity Resource and environmental sustainability Optimization development regions Priority development regions Other regions Exhibit 20. Strategic layout for urbanization North of Tianshan Mountains region South and center area of Hebei Taiyuan City group Hohhot Baotou Erdos Yulin Economic Zone Guanzhong Tianshui area Economic Zone along the Yellow River in Ningxia Lanzhou Xining region Ha Chang area Bohai Economic Rim South and central region of Tibet East Longhai region Central Plains Economic Zone Jianghuai region Yangtze River Delta region Yangtze River region Chengdu Chongqing region Central Yunnan area West Coast Economic Zone Central Guizhou area Pearl River Delta region Major urbanized areas Beibu Gulf Economic Rim Source: National Planning of Main Functional Areas, State Council of China, South China Sea Islands 25

26 Insight V: Resource-based cities must change their development path Cities that depend on one or two major industries, mainly resources industries like mining, oil, coal and steel manufacturing, for their rapid economic growth show more unbalanced development (see Exhibits 21 and 22). To achieve ongoing and sustainable economic development, these cities need to implement strategies to diversify their economies. These cities ranked far lower on the NRE City Index than cities with broader industrial bases. They received significantly lower scores for first-tier indicators (economic performance, resource and environmental sustainability, and development capacity) and second-tier indicators, with the exception of environmental protection efforts. This indicates that these cities are too reliant on resourcebased industries, and may face serious development problems in the future. They are also characterized by a lack of economic diversity, poor innovation capabilities, unsustainable economic growth, resource and environmental inefficiency, underdeveloped progress towards a low-carbon economy, and limited infrastructure and application of information technology. For these reasons, it is particularly urgent to accelerate transformation efforts in resource-based cities. Detailed analysis for different types of city In the previous section, we looked mainly at the overall index results in terms of the three dimensions of economic performance, resource and environmental sustainability, and development capacity. However, to accurately identify the issues cities face, we must look further than these three dimensions. Under the first-tier indicator of resource and environmental sustainability, there are five second-tier indicators: resource use efficiency, a circular economy, environmental quality, environmental efficiency and low-carbon development. Resource use efficiency, environmental quality and environmental efficiency in particular reflect the Chinese Government s key targets of enhancing energy conservation, building a more resource-efficient society and achieving environmentally sustainable development. 20 In the NRE City Index, we calculated the second-tier indicator of resource use efficiency based on energy, water and land consumption per GDP unit, which is a key indicator of sustainable urban development. Because improving energy efficiency is a top priority for all Chinese cities, we have coupled economic performance (in the first-tier indicators) with resource use efficiency and environmental quality (in the secondtier indicators) to group cities together based on common characteristics. Through this analysis, we have identified four types of city (see Exhibit 23). Exhibit 21. Comparison between the index rankings of resource-based and non resource based cities Type of cities Resource-based cities Non resource based cities Overall performance Economic performance Resource and environmental sustainability Development capacity GDP growth % % 26

27 Exhibit 22. Comparison between the index rankings of resource-based and non resource based cities Economic performance Development capacity Resource and environmental sustainability Non resource based cities Resource-based cities Exhibit 23. Types of city based on the NRE City Index City type Economic performance Environmental quality Resource use efficiency Selected cities Balanced >60 >65 >60 Dalian, Changzhou, Nantong, Yangzhou, Fuzhou, Yantai, Weihai, Guangzhou, Shenzhen, Foshan <60 Ximen, Zhuhai Wealthy >60 <65 >60 Beijing, Tianjin, Shenyang, Suzhou, Hangzhou, Ningbo, Shaoxing, Jinan, Qingdao, Changsha <60 Nanjing, Wuhan, Chengdu Potential <60 >65 >60 Huzhou <60 Hohhot, Changchun, Jilin City, Wuhu, Yichang, Yueyang, Nanning, Liuzhou, Kunming, Yinchuan Conventional <60 <65 >60 Xuzhou, Wenzhou, Weifang, Jining <60 Handan, Baotou, Zaozhuang, Kaifeng, Luoyang, Anyang, Jiaozuo, Zhuzhou, Xiangtan, Zunyi, Xining, Shizuishan Note: By considering its overall distribution, index scoring is classified into two categories. Because demarcation is slightly higher than the median, cities scoring above and below the dividing line account for 40 percent and 60 percent respectively. 27

28 Balanced cities These cities are characterized by balanced economic growth, resource and environmental sustainability, development capacity, good economic performance, environmental quality and efficiency, and better prospects for achieving sustainable economic growth. Balanced cities include the three megacities of Shanghai, Guangzhou and Shenzhen; 11 second-tier coastal cities in optimization development regions; and Xiamen and Fuzhou (Fujian Province) both in the West Coast Economic Zone. Of the 14 cities with the highest scores for resource efficiency, 11 have a per capita GDP of over RMB70,000. With a lower economic density than other major coastal cities, they have a smaller environmental impact, and enjoy better environmental quality, more coordinated economic development, and greater resource and environmental sustainability. However, most of these cities are at the prefecture level, and unlike the four megacities governed directly under the Central Government, they have limited budgets to fund urban infrastructure and environmental initiatives. Therefore, it is important that these cities enhance their information technology capabilities and increase efforts to maintain resource and environmental sustainability. Zhuhai and Xiamen are the topscoring balanced cities in terms of environmental quality; however, their resource and environmental efficiency is lower than their counterparts in this category. For these cities, further urban development may lead to overuse of resources and poor environmental quality, and will hinder these cities progress in the new resource economy. Balancing economic growth in Xiamen Xiamen is a vibrant harbor city ranked fourth overall among the 73 cities on the NRE City Index. It is ranked third for economic performance, 13th for resource and environmental sustainability, and 22nd for development capacity. Despite limited water and land resources, Xiamen stands out for its superior geographic location, highquality natural environment (for which it is ranked fourth), strong economy and low carbon emissions (for which it is ranked 10th). sustainability, Xiamen ranks 34th for resource use efficiency and 28th for environmental efficiency. With per capita water resources barely higher than one-third of the national average, Xiamen also ranks poorly (61st) for resource security. While the city is taking steps to improve its water supply, it may need to take more comprehensive action to facilitate sustainable growth. Jiangxi Fujian Zhejiang Xiamen However, there is room for improvement in terms of development capacity. In the second-tier indicators related to resource and environmental 28

29 Wealthy cities Wealthy cities are mainly located in the megalopolises of the Yangtze River Delta and the Bohai Economic Rim area, as well as large cities in the megalopolises of the middle reaches of the Yangtze River and the Chengdu Chongqing cluster. These are China s economic powerhouses. For example, nearly twothirds of these cities are supercities with populations of 3 10 million people. This accounts for almost half of the supercities in the NRE City Index, including two megacities, Beijing and Tianjin, in northern China. With the exception of provincial capital cities such as Nanjing of Jiangsu Province, Wuhan of Hubei Province, Chengdu of Sichuan Province and Nanchang of Jiangxi Province, wealthy cities are well placed to move to new resource economies. However, some of these cities, including Beijing, Tianjin and Nanjing, face severe challenges related to pollution and water scarcity which could hamper future development. These cities are hives of economic activity. However, economic development is being prioritized over environmental quality, which is putting pressure on resource supply. Managing conflicting forces in Shaoxing Famous for its historical and cultural heritage, Shaoxing boasts a robust economy and a relatively wellmaintained environment. With its strong development capacity and access to natural resources, Shaoxing has the potential to enjoy balanced development into the future. Shaoxing ranked 23rd among the 73 cities surveyed in the NRE City Index. Specifically, it ranked 29th in economic performance, 25th in environmental sustainability and 9th in capacity building. However, Shaoxing s goals of economic development and environmental protection are increasingly coming into conflict. The city s key industries require hundreds of production plants including wineries, breweries and dye factories, which have a negative impact on the environment. For example, the dye industry is a heavy polluter and the inappropriate disposal of waste products adversely affects water quality. This, in turn, hinders the development of other industries that require access to high-quality water supplies. Shaoxing is now at a critical point in achieving balanced economic growth. Its fast-developing industries are making their mark on the environment, and the government should consider ways to intervene in the areas of environmental protection and resource management. By implementing appropriate safeguards, Shaoxing can harness the potential of its natural resources and geography to expand its industries and pursue a path of sustainable development. Anhui Jiangxi Zhejiang Shaoxing 29

30 Potential cities These cities are in a sustained growth phase, and are characterized by a moderate level of economic development, good environmental quality, and low resource and environmental efficiency. Most cities in this group aside from Changchun (Jilin Province), Huzhou (Zhejiang Province) and Shantou (Guangdong Province) are economic hubs in central and western China. Huzhou and Shantou are part of megalopolises in the Yangtze River Delta and Pearl River Delta. These cities generally lag behind the major cities in coastal areas and central and western regions in terms of economic development, but they feature low economic density and moderate environmental quality. Potential cities include the resourcebased cities of Yangquan (Shanxi Province) and Changzhi (Shangxi Province), and 11 large cities with a population of between 1 million and 3 million people. Eleven of the 16 potential cities are located in key development regions: Changzhi, Hohhot, Changchun, Jilin, Wuhu (Anhui Province), Yueyang (Hunan Province), Shantou, Nanning, Mianyang (Sichuan Province), Kunming and Yinchuan. The potential cities of Huzhou, Wuhu, Yichang and Yueyang are located in megalopolises in the Yangtze River Delta and the middle stream of the Yangtze River. Potential cities are among the most promising in terms of resource security and development potential. For instance, 10 cities (Jilin, Huzhou, Wuhu, Yichang, Yueyang, Nanning, Liuzhou, Mianyang, Yibin and Kunming) scored more than 65 on the NRE City Index for resource security. These cities will play an important role in forming major megalopolises and in China s overall sustainable development. However, a key obstacle for these cities is their inefficient use of resources, which is closely related to their underdeveloped infrastructure, inadequate capacity for innovation, and slow progress in technology development and application. Due to these inefficiencies, potential cities will face enormous pressure on resources and dramatic environmental deterioration. They must prioritize improving resource and environmental efficiency and focus on decoupling economic development from environmental degradation. Moving up the value chain in Nanning Nanning is the capital of the Guangxi Zhuang Autonomous Region in southern China, and is known as the Green City because of its abundance of lush tropical foliage. It is a highly livable city and has great potential for sustainable urban development. Nanning is ranked 42nd of the 73 cities on the NRE City Index. It is ranked 58th for economic performance, 33rd for resource and environmental sustainability and 16th for development capacity. Despite its potential for development, Nanning has failed to strike a balance between the three dimensions it does not have sufficient development capacity to support economic growth, and resource and environmental sustainability. Unlike other capital cities, Nanning s economy is sustained by its service industry, which accounts for over 50 percent of its economy. The city is the center of science and technology, education, culture and health in Guangxi Province. However, among the 24 capital cities involved in this study, Nanning s economic performance ranks third lowest. Nanning is currently seeking more highend, high-value business opportunities to unlock new sources of growth for its service industry. While the city s economy is not currently growing fast, its unique ecological conditions and high level of access to resources will see it develop rapidly in the future. Furthermore, Nanning s service-based economy will ensure better environmental quality than in cities that rely on industries such as construction and manufacturing. Liuzhou, the largest industrial city in Guangxi Province, accounts for one-third of the overall industrial capacity of the province, protecting Nanning from the environmental pollution and degradation of industrialization. With its sub-tropical monsoon climate and evergreen plants, Nanning is ranked 13th for environmental quality. However, its relatively low resource use efficiency may diminish environmental quality in the future. In addition, Nanning is only ranked 61st for policy execution, Nanning Guizhou Guangxi Hainan Hunan Guangdong which highlights its inadequate efforts to improve environmental quality. Fortunately, its low-carbon development (for which it is ranked second) and access to resources (for which it is ranked 13th) will aid its future development. To take advantage of the absence of heavy industry, Nanning should enhance its citizens awareness of environmental protection, improve resource and environmental efficiency, maintain its low-carbon development efforts, secure its access to resources and prepare for rapid development. 30

31 Conventional cities These are typically resource-based cities with relatively low levels of economic development, and poor environmental quality and efficiency. Their future development must be carefully planned and managed if they are to avoid China s traditional development model of economic growth at the cost of the environment. Most of the conventional cities including Handa, Zaozhuang, Jiaozuo and Shizuishan are located across 14 key development regions. Their transition to the NRE is of great significance to China s urban development and resource and environmental sustainability, and its progress as a successful society. Conventional cities tend to be industrial cities in central and western China, but the group also includes eight capital cities in the north and west. With the exception of Zaozhuang, Weifang (Shandong Province), Jining (Shandong Province) and Anyang, all other cities in this group are located in key development regions. They are mainly large and medium cities with populations below 3 million and a per capita GDP of less than RMB50,000. Since heavy manufacturing and chemical industries account for a large proportion of their economies, these cities perform poorly in the areas of economic growth, environmental efficiency and environmental quality. Sixteen conventional cities received low scores for resource use efficiency. Cities in this group rely too heavily on natural resources, resulting in environmental degradation and unbalanced industry structures. Low levels of technology development and innovation make it difficult for them to reduce this reliance. As such, it is essential for these cities to accelerate their transformation into new resource economies by enhancing technological innovation, and decoupling their economic development from resource use and environmental impact. Helping Shizuishan become a low-carbon economy Shizuishan is a northern city dominated by its coal industry, and has poor economic, environmental and development capacity performance. It is ranked lowest of the 73 cities on the NRE City Index. Shizuishan ranks 66th for economic performance, 73rd for resource and environmental sustainability, and 72nd for development capacity. Despite its low overall development, Shizuishan has a relatively high per capita fiscal expenditure, and achieved a mid-level score for resource accessibility, indicating great potential for development. If it can use its capital and resources more efficiently in future, the city could rise to the middle of the index. Known as the Frontier Coal City, Shizuishan is a major coal producer and the base for energy, heavy chemicals and raw material production in Ningxia Province. As the province s industrial hub, Shizuishan has abundant mineral resources, including large reserves of anthracite. Rich in electric power resources, its per capita generation capacity exceeds China s average. Yet its primitive urbanization, infrastructure and large-scale industrial construction have caused substantial environmental damage. Shizuishan is currently transitioning from a high-carbon to a low-carbon economy. Since 2004, 98 small polluting enterprises have been shut down and 64 companies with outdated technology and overcapacity have been phased out. The city has deployed centralized heating systems, promoted clean energy and completed more than 750 industrial pollution control projects. After almost a decade of improvement efforts, quality of life and the natural environment have greatly improved in Shizuishan. Inner Mongolia Gansu Shizuishan Ningxia Hui The Chinese Government identified Shizuishan as one of the first resourceexhausted cities and a pilot city for the circular economy. But as a city built around coal production, Shizuishan has a long way to go in solving its ecological challenges, and harmonizing economic development and the natural environment. 31

32 Part 3 Carving out a new path The transition to an NRE is a long journey involving numerous complex decisions; it calls for long-term involvement and joint efforts by multiple stakeholders. In the next phase of our research program, we will consult city planners and managers, industry and business leaders, and think tanks to discuss how cities plan their path of transformation, establish their positioning, set goals and take action. To stimulate these discussions, we have identified three broad areas of innovation that we believe can help China s cities start the transition to the NRE model and more sustainable growth patterns: innovation in policy and strategy innovation in technology innovation in cross-sector and crossregional cooperation. Innovation in policy and strategy The first area of innovation covers three key challenges facing Chinese cities. Strategy and governance The transition of cities to an NRE model requires a deliberate strategy, and a set of policies and plans. This means China s city authorities and planners will need to take a long-term view, and take into account economic, resource, social and cultural factors. Many of China s cities reflect a formulaic approach to master planning, very much a legacy from the middle of the last century. As statements of power and visions of grandeur they hold their own, but wide boulevards and ambitious road infrastructure do not lend themselves to the level of urban density needed to achieve sustainable urban environments. City planners need to consider how their residents interact with the city and, in turn, how they can influence and encourage more sustainable resident behaviors through the city s design. China s city planners need to move beyond the traditional definition of master planning that has limited itself only to the built environment. Instead they should start to consider integrating the city s digital infrastructure planning with the city s physical planning, to enable the development of more efficient and innovative services that leverage insights from previously untapped data resources. By bringing together physical and digital infrastructure considerations during master planning, and embedding technology into a city s master planning design and operation, a city can better drive social, economic and environmental value, and ultimately achieve improved sustainability outcomes. Exhibit 24. Policy options to set energy efficiency targets Push mechanisms Pull mechanisms Binding targets Non-binding targets Voluntary programs Industry mandates Incentives and subsidies Minimum standards Energy labels Taxation Tax incentives Education campaigns 32

33 Cities that are designed to integrate across multiple infrastructure layers can help facilitate information exchange between previously isolated sectors and services such as energy, water, waste and transportation, and further enrich the master plan of the city by integrating strategies and roadmaps to respond to future growth. This approach can help cities serve citizens more effectively and break down traditional silos in service delivery. Chinese cities should move towards integrated governance structures where multiple city departments such as energy, water, waste, building, transportation and culture coordinate their activities to achieve sustainable outcomes. Promoting energy efficiency Helping cities become more energy efficient is a key enabler in achieving balanced development; it is also the fastest and most convenient way to reduce a city s carbon emissions. According to the Twelfth Five-Year Guideline ( ), the Central Government aims to achieve the following by 2015: decrease energy consumption per unit of GDP by 16 percent increase the proportion of non-fossil energy in primary energy consumption by 11.4 percent by 2015 reduce CO 2 emissions per unit of GDP by 17 percent. In terms of enhancing energy efficiency, Chinese authorities at the city, provincial and national level play the central role. In addition to setting detailed energy efficiency targets, they need to implement policies that reduce energy use by businesses and citizens (see Exhibit 24). 21 Changing citizen behavior is central to improving energy efficiency outcomes. However, this will require intensive communication efforts. According to recent Accenture research, only 26 percent of Chinese consumers surveyed said they knew about programs that help reduce their electricity consumption. 22 Financing and investment China will need to undertake massive investment to build the infrastructure to support balanced urban development. According to McKinsey & Company, cities with populations below 10 million require around RMB2.2 trillion in funding every year to build and maintain local infrastructure, public facilities and publicly owned buildings. 23 Traditionally, the main source of financing for Chinese cities has been land leasing. However, this limits access to finance, and can also lead to overdevelopment and drive up property prices. Land leasing typically accounts for around 60 percent of local government revenue. Further, it may take some time for cities to see a return on public infrastructure investment. Because of this, local governments must diversify financing channels through measures such as establishing equity investment funds, developing municipal bonds, and encouraging and attracting private investment. In addition, tax reform can help finance urban development. Innovation in technology Information and communications technologies are permeating the physical world, creating a connected, digital parallel in transport, buildings, energy, water and citizen services. Important technologies include intelligent infrastructure, machine-tomachine communication (also called the Internet of Things ), smart devices, mobility, big data and analytics, cloud computing and social media. Digital technologies are connecting all elements of cities, encompassing citizens, public services, businesses, economic activity, buildings, transport, education and utilities including energy, water and waste. Alone, each of these new digital technologies provides opportunities to increase efficiency and deliver new services. Together, these digital technologies can help support cities in their transition to the NRE model. China s recently announced Broadband Strategy supports the digital transformation of cities. 24 According to this policy, by 2020 all urban households in China will have broadband access and urban broadband speeds will reach 20 megabytes per second, enabling new kinds of data services for consumers, industry, education and culture. Another major digital infrastructure investment is the commitment of State Grid and the Chinese Government to roll-out smart grids to all Chinese households to optimize electricity supply. 25 Information generated through this intelligent infrastructure will help match and manage electricity supply and demand, reduce surplus generation, and enable the transition to new and renewable forms of energy production while supporting the growing needs of citizens and businesses. Involving citizens through technology could result in the greatest near-term opportunities for new kinds of services and problem solving for Chinese cities. Recent estimates put the number of mobile internet subscribers in China at 420 million, and that of social media users at 597 million, or 91 percent of all 26, 27 internet users. However, it is the data itself that may become the most powerful enabler of the NRE. For the first time, city planners and government authorities at the city, provincial and national level can use advanced Big Data analytics to extract insight from information sources that have traditionally been too expansive or complex to tackle. Big Data will also provide the opportunity to establish and monitor a set of indicators for balanced development. So, how do all these factors come together to support growth, reduce resource use and improve environmental sustainability? 33

34 Take the example of energy consumption in city buildings. This currently accounts for one-third of China s total power use. 28 As massive construction projects continue apace, energy consumption will remain on an upward trajectory. New digital automation and intelligent control systems are now available to make buildings more energy efficient and reduce operating costs. Over the coming years, smart grids will connect more and more buildings, allowing the use of advanced sense and control capabilities to further optimize energy use. In addition, this can help automate the management of essential functions such as maintenance, water treatment and waste disposal. Digital information for building workers and residents can provide education on energy efficiency and also form the basis of new kinds of products such as service contracts that incentivize lower energy use and are based on the individual needs of consumers and businesses. Exhibit 25 provides an overview of 10 digital technologies that we predict will be central to helping create China s digital cities. Innovation in models of cross-sector and crossregional cooperation For Chinese cities, regional-based ecological protection and cross-regional cooperation including through inter-city collaboration and knowledge-sharing platforms are the keys to achieving sustainable urban development. For example, preserving water supplies and maintaining air quality depends on cooperation among cities. The government plays a leading role in China s urban development and management. The harmonious development of future cities will require effective cooperation between the private and public sectors; increased participation by enterprises in urban policymaking, financing, infrastructure development and strategic planning; and a bigger role for the private sector generally. This high-level planning will help reduce overlapping developments and inefficient investment. To enable this process, the government should also provide incentives to encourage the involvement of citizens and businesses. Sharing innovation both at the policy and program level will help create knowledge- and data-sharing platforms among cities, which will also allow businesses and citizens to play a greater role in urban planning. For example, the utilities sector could work with property developers and building management companies to improve energy efficiency in buildings. The ICT industry could collaborate with public transport departments to implement more innovative transport solutions. With China continuing to grow rapidly, governments, businesses and other stakeholders must act promptly. By working towards sustainable growth, Chinese cities will develop effective long-term patterns for urban development, which will result in increased incomes, higher living standards and more effective environmental protection. Exhibit 25. Ten near- and mid-term digital technologies and solutions to enable digital cities 29 Digital technology Description Benefits Years to mainstream adoption Information and communications Smart Governance Framework Administrative approach that applies and integrates information, communications and operational technologies with planning, management and operations functions Operational cost savings through integration of operations, new services and faster responses to citizens requirements 2 to 5 years Big Data analytics and large-scale information processing and management Analysis and management of extremely large data sets Generate insights into the complex patterns driving economic value creation, resource use and environmental sustainability. Provide the ability to track and report on integrated KPI sets 2 to 5 years 34

35 Digital technology Description Benefits Years to mainstream adoption Internet of Things Phase 1: Generate insights and value from data sourced from sensors in infrastructure and public and private assets Job creation, city growth and enhanced environmental benefits 5 to 10 years Phase 2: Combine these insights with people, processes and systems the true smart city as buildings, transport, utilities and other services all become connected Buildings Reporting and benchmarking of building data Reporting on building performance Data is available for a range of uses by national and urban authorities, developers, and building owners 2 to 5 years Integrated building automation and control systems Integration and optimization of the management of heterogeneous building infrastructure equipment based on proprietary and open standards Building owners will see cost improvements of up to 40 percent based on reductions in resource use 5 to 10 years Energy Demand-side management and consumer energy management Analytics-enabled improved peak load management through peak sharing, better matching supply and demand. Help consumers optimize energy use. Measures include optimized generation and consumption based on factors such as pricing signals and the weather Lower energy prices and energy savings for customers. Homes avoid grid electricity when the price is right. New service and revenue opportunities for utilities 2 to 5 years for demand-side management; 5 to 10 years for consumer energy management Distribution network management control Collection of applications designed to monitor and control the entire distribution network efficiently and reliably On average, utilities can save 3 percent to 7 percent in grid electricity and improve reliability of supply 2 to 5 years Energy and water Advanced metering infrastructure Two-way communications between usage meters manages the data lifecycle and provides information to customers and utilities Utilities benefit from improved billing revenue management, time-of-use pricing, distribution network analysis and outage reporting. Customers can save money and reduce emissions 2 to 5 years Transport Intelligent transport systems Transfer information between systems for improved efficiency, safety and environmental sustainability. These systems include traffic management systems, information and warning systems installed in vehicles, and cooperative ITS applications involving vehicle-to-infrastructure and vehicle-to-vehicle communications. Greater capacity and lower congestion, lower energy use and carbon emissions. Greater safety and speed of systems 2 to 5 years Mobile and Web 2.0 for transport Websites, and mobile and social media applications that find alternative routes and support location-based services Lower congestion and associated emissions. Citizens have new service options 2 to 5 years 35

36 Tianjin leads future urban development 30 Tianjin is one of China s fastest growing cities in terms of economic and population growth (see Exhibit 26). The city s per capita GDP surpasses many countries including Russia and Brazil, and its population of close to 13 million people is expected to grow by 500,000 a year. In 2011, Tianjin s per capita GDP was RMB79,556, slightly greater than Beijing s. Tianjin is also the main maritime gateway to Beijing, and trades with more than 600 ports in 180 countries. This has helped secure the city s position as a leading manufacturing hub in China. The city ranked 9th overall in the NRE City Index. Tianjin performed 8th in economic performance, 20th in development capability and 23rd in resource and environmental sustainability. Tianjin s lower scores in development capability, and resource and environmental sustainability indicate that its urban development to date has been unbalanced. Exhibit 26. Tianjin economic growth In 2012, Tianjin was selected as the first Champion City of the World Economic Forum s Future of Urban Development initiative. This gave the city high-level access to industry leaders and experts, to address the city s urban development challenges and goals. This process involved sharing the best practices of global cities, contributing insights about Tianjin s service industry and urban transport development, and offering advice and suggestions for the city s future development. As part of this initiative, the World Economic Forum, Tianjin Municipal People s Government, the China Center for Urban Development, local and regional stakeholders, and steering and advisory board members from the Future of Urban Development initiative undertook a seven-step process to devise strategies for the city. The two key areas of focus were easing traffic congestion and growing the services sector. In the area of transport, the following recommendations were put forward. Tianjin should: promote the development of an intelligent transportation system one that uses hardware and software to provide real-time traffic management services and improve the operating efficiency of the city s road network better coordinate land-use and transport planning enhance the efficiency of its public transport system. In developing the services industry, the following recommendations were put forward. Tianjin should: brand itself as a dynamic location to promote its services sector, and attract talented workers and investments cultivate and support all kinds of small and medium-sized enterprises launch service industry oriented courses by partnering with local universities. As Tianjin implements the recommendations and gains further experience through the program, lessons learned there will be applied to other cities in China through collaboration with the China Center for Urban Development. 100,000 90,000 80,000 70, , RMB 50,000 40, % 30, ,000 10, Year 0 GDP per capita (yuan) Growth rate (%) 36

37 37

38 Research methodology Building on existing research To develop the NRE City Index, we drew on leading China-based and global research. The methodology we used followed on from the report New Energy Architecture: Enabling an Effective Transition 32, which was developed by the World Economic Forum in collaboration with Accenture. This research report included the Energy Architecture Performance Index, designed to help countries monitor the transformation of their energy systems. However, the index did not take a city-based approach to examining a country s energy architecture. The ideas and methods from the New Energy Architecture research fit neatly with the goals of the NRE City Index. Both set out to analyze how China is transitioning to a more sustainable economy one where economic growth is decoupled from resource depletion and environmental degradation. Many national and international organizations have conducted extensive research on China s economy and its sustainable development, including the challenges of creating a lowcarbon economy. This research has identified numerous ways to measure the balance between economic development, society, resources and the environment. These methods include: quantifying resource and environmental costs (in monetary terms) against GDP calculating the resource, environmental and technological efficiency of economic output by comparing inputs and outputs. However, these methods require specialized theoretical approaches and substantial amounts of data, and they do not hold much influence outside academia. Further, neither method conducts a micro-level analysis of cities (at the level of businesses, families and individuals) or offers recommendations to decision makers in cities. In general, the index methodology is widely used to measure sustainable economic development. This method translates various environmental performance indicators into a composite index through weighted calculation. Indexes are highly credible because of their simplicity and transparency. Index-based methods are also highly flexible, enabling researchers to take different scenarios into account. Many domestic and international institutions use index-based methods to assess the relationship between the economy, society, resources and the environment in different regions. These methods include the Environmental Performance Index developed by Yale University and Columbia University, which was used to evaluate resource and environmental performance in 163 countries. It examined key indicators in areas such as agriculture, forestry, fisheries, ecology, climate change and air pollution. However, this index did not apply to cities. Among the indexes used to assess a city s sustainable development, the Siemens Green City Index takes into account the use of technology and government policy to assess the relationship between economic development, resource consumption and the state of the environment. However, the Green City Index only includes five Chinese mainland cities. The China Green Development Index, developed by Beijing Normal University and China s National Bureau of Statistics, examines sustainable development in China s 30 provinces and 34 major cities. It looks at the resource and environmental sustainability of economic growth, the depth of natural resources, and government policy support. However, this index cannot easily be used to evaluate city-wide environmental performance, because some indicators related to agriculture need to be adjusted. It is also difficult to obtain data on many of these indicators, which limits their scope of application. The Chinese Academy of Social Sciences Urban Scientific Development Index System examines China s 286 cities at the prefecture level and above based on four dimensions: economic prosperity, social harmony, environmental responsibility and support capabilities. It uses weighting to evaluate sustainable urban development. There has also been a great deal of research on topics such as China s energy consumption, livability and transition to a low-carbon economy. This research includes the low-carbon development index of China s 110 cities, led by the CAS Institute for Urban and Environmental Studies; The Evaluation of Environmental Habitability of Chinese Cities, by the Chinese Academy for Environmental Planning in cooperation with the Asian Development Bank; and the World Bank s Sustainable Low-Carbon City Development in China. However, these studies do not offer a comprehensive method for assessing cities economic and environmental performance. 38

39 Although the studies above vary in terms of content, approach, method and target, they provide significant scientific evidence and important references. We have drawn on this research to produce an inclusive, balanced and data-driven index system that can comprehensively evaluate the coordination between the economy, resources and environment in China s cities. Creating the NRE City Index The NRE City Index reflects a city s sustainability performance in a target year. It demonstrates how a city performs by decoupling economic growth from resource consumption and environmental damage. The index does not predict trends in decoupling, which would require years of historical data. The indicator system consists of three first-tier indicators, 14 second-tier indicators and 32 third-tier indicators. 33 The first-tier indicators are based on three dimensions: a city s economic performance, its resource and environmental sustainability, and its development capability. This reflects the essence of urban development performance in terms of the trilemma, and the core vision of decoupling in the transformation to the NRE. The three tiers of indicators also reflect the Chinese Government s vision to improve energy efficiency, protect the environment and reduce greenhouse gas emissions. The first-tier index of economic performance is connected to three second-tier indicators: urban economic density urban economic structure urban economic development. The first-tier indicator of resource and environmental sustainability corresponds with five second-tier indicators: efficient resource use circular economic development environmental efficiency environmental quality low-carbon development. The last first-tier indicator, development capability, relates to six second-tier indicators: resource security urban infrastructure information technology and intelligence policies investment in environmental protection technological innovation capability. A full list of the indicators and their underlying data sources can be seen below. Exhibit 27. Three-tiered indicators and their data sources Indicator Unit Specification Data source Urban economic density RMB10,000 per km 2 Local GDP and developed urban land area China City Statistical Yearbook Proportion of high-energy consuming sectors % Proportion of industrial output value of high-energy consuming sectors 34 Economic statistics database of large-scale industrial enterprises Proportion of high-tech industries % Proportion of industrial output value that is derived from high-tech industries 35 Economic statistics database of large-scale industrial enterprises Residents per capita disposable income RMB Urban residents disposable income per capita China Statistical Yearbook for the Regional Economy Fiscal expenditure per capita RMB Local government budget per capita China City Statistical Yearbook 39

40 Indicator Unit Specification Data source Water consumption per unit of GDP Tons per RMB10,000 Urban water supply per unit of GDP China City Statistical Yearbook Energy consumption per unit of GDP Tons of standard coal per RMB10,000 Urban energy consumption per unit of GDP China Provincial and Municipal Statistical Yearbook Developed land area required per unit of GDP Km 2 per RMB10,000 Developed urban land area per unit of GDP China City Statistical Yearbook Rate of comprehensive utilization of industrial solid waste % Comprehensively utilized industrial solid waste per year as a percentage of industrial solid waste created throughout the year and comprehensively utilized total stock in previous years China City Statistical Yearbook Rate of industrial water recycling % Proportion of recycled water in terms of total water used during industrial production China Urban Construction Statistical Yearbook Intensity of sulfur dioxide (SO 2 ) emissions Kilograms per RMB10,000 Gross SO 2 emissions from production and living per unit of GDP China Environment Yearbook Intensity of chemical oxygen demand (COD) emissions Kilograms per RMB10,000 Gross COD emissions from production and living per unit of GDP China Environment Yearbook Intensity of ammonia emissions Kilograms per RMB10,000 Ammonia emissions from production and living per unit of GDP China Environment Yearbook Intensity of nitrogen oxide (NOx) emissions Kilograms per RMB10,000 NOx emissions from production and living per unit of GDP China Environment Yearbook Industrial wastewater discharge compliance rate % Proportion of discharged industrial wastewater meeting relevant national standards China Environment Yearbook Average concentration Micrograms per m 3 Average concentration of SO 2 Environmental and air quality of of SO 2 key environmental protection cities in 2010 Average concentration of nitrogen dioxide (NO 2 ) Average concentration of particulate matter (PM10) Micrograms per m 3 Average concentration of NO 2 Environmental and air quality of key environmental protection cities in 2010 Micrograms per m 3 Average concentration of PM10 Environmental and air quality in key environmental protection cities in 2010 Percentage of blue sky days % Proportion of days with good air quality China Environment Yearbook Carbon emissions per capita Tons per person Carbon emissions calculated according to primary energy consumption per capita Statistical yearbooks of the sample cities 40

41 Indicator Unit Specification Data source Rate of change in carbon emissions intensity % Average rate of change in carbon emissions between 2007 and 2010 Statistical yearbooks of the sample cities Urban population density People per km 2 Urban population in the urban land area Water resources per capita m 3 per person Average total water resources use per capita China City Statistical Yearbook Bulletin of Water Resources of Cities Urban water supply pipeline density Kilometers per km 2 Length of water supply pipe in built-up areas China Urban Construction Statistical Yearbook Urban public transport passenger volume per capita Times used per person Number of passengers carried by public transportation vehicles throughout the year China City Statistical Yearbook Internet penetration % Broadband internet users as a percentage of the total number of households China Statistical Yearbook for Regional Economy Rate of harmless treatment of household garbage % Rate of harmless treatment of household garbage China City Statistical Yearbook Low-carbon city pilot Y/N Yes or no answer The NDRC Notice regarding the Pilot Project of Low-Carbon Provinces and Cities, and the NDRC Notice on the Pilot Project of the Second Batch of Low- Carbon Provinces and Cities Intensity of urban environmental quality monitoring Number per km 2 Number of sites in the national surface water and environmental and air quality monitoring network, which examines six monitoring indicators: SO 2, NO 2, PM10, fine particles (PM2.5), ozone (O 3 ) and carbon monoxide (CO) List of Sites of National Urban Environmental and Air Quality Monitoring Network Proportion of pollution treatment investment in terms of GDP % Investment in environmental pollution treatment completed this year per unit of GDP China Environment Yearbook Proportion of fiscal expenditure in science and education % Science and education spending as a percentage of local general budget expenditure China City Statistical Yearbook Number of high education schools Number Number of higher education institutions weighted by central government funding support categorization (211 project and 985 project) Ministry of Education list of universities Note: The database year is Some indicators use data from neighboring years. Data from 2009 was used to calculate the proportion of high-energy consuming sectors and the proportion of high-tech industries. The lists of low-carbon pilot cities referring to the first and second batches of cities stipulated by the National Development and Reform Commission were released in 2010 and 2012 respectively. The number of universities referred to the latest list of universities, which was released by the Ministry of Education in

42 Applying the index framework For this study, we applied the index to 73 of China s 287 cities at the prefecture level and above, covering 31 provinces, municipalities and autonomous regions to ensure broad representation. The base year is 2010; however, a small number of indicators use data from We asked experts on urban management and environmental economics in China to rank the importance of each indicator across the three tiers (a city s economic performance, resource and environmental sustainability, and development capability). We then used these rankings to weight the indicators. According to the weighting of each indicator, we standardized the raw index data (through a combination of sub-segment assignments and standard deviation), and set a range for the value of each indicator. The weighted sum of each indicator s score then provides an indication of a city s urban performance, allowing comparative analysis of different cities. The CAS and Accenture research team consulted with urban management and environmental economists to determine the most appropriate weights for each indicator. The precise weights applied are shown in Exhibit 28 below. Exhibit 28. Constitution and weight of NRE City Index indicators First-tier indicator First-tier weight Second-tier indicator Second-tier weight Third-tier indicator Third-tier weight Economic performance 32% Urban economic concentration 9% Urban economic density 9% Urban economic structure 10% Proportion of high-energy consuming sector 5% Proportion of high-tech industry 5% Urban economic development 13% Residents disposable income per capita 6.5% Fiscal expenditure per capita 6.5% 42

43 First-tier indicator First-tier weight Second-tier indicator Second-tier weight Third-tier indicator Third-tier weight Resource and environmental sustainability 35% Efficient resource use 7.5% Water consumption per unit of GDP 2.5% Energy consumption per unit of GDP 2.5% Developed land area required per unit of GDP 2.5% Circular economic development Environmental efficiency 6% Rate of comprehensive utilization of industrial solid waste 3% Rate of industrial water recycling 3% 8% Intensity of SO 2 emissions 2% Intensity of COD emissions 2% Intensity of ammonia emissions 2% Intensity of NOx emissions 2% Environmental quality 8% Industrial wastewater discharge compliance rate 1.6% Average concentration of SO 2 1.6% Average concentration of NO 2 1.6% Average concentration of PM10 1.6% Number of blue sky days 1.6% Development capability Low-carbon development 33% Resource security Urban infrastructure IT and intelligence 5.5% Carbon emissions per capita 2.75% Rate of change in carbon emissions intensity 2.75% 6.6% Urban population density 3.3% Water resources per capita 3.3% 6% Urban water-supply pipeline density 3% Urban public transport passenger volume per capita 3% 4.5% Internet penetration 4.5% Policies 5.7% Rate of harmless treatment of household garbage 1.9% Low-carbon city pilot 1.9% Investment in environmental protection Intensity of urban environmental quality monitoring 4% Proportion of pollution treatment investment in terms of GDP 1.9% 4% Scientific and technological innovation 6.2% Proportion of fiscal expenditure in science and education 3.1% Number of universities 3.1% 43

44 Indicator value assignment and calculation methods Since the indicators are subject to different value ranges, we used data standardization to produce a composite index for evaluating different cities under uniform standards. This allowed the team to undertake a comparative analysis across all the sample cities. Based on the relevant national and international standards, each indicator has a target and reference value. The target value is the optimal standard a city can achieve on an indicator, and is extremely hard to achieve. The reference value is the minimum level a city should achieve on an indicator, and is based on the relevant standards released by the World Health Organization, the Chinese Ministry of Environmental Protection and other authoritative organizations. Where it was not possible to determine a relevant standard, the study instead used a mean or median value based on the distribution of sample values. The study used a scoring range of for standardized indicators, where a target value is equal to 100. Therefore, each sample city s score against that indicator is the difference between the indicator value and the target value. A city s NRE score is the weighted sum of its standardized scores across all indicators. x ik 100, if xik is equal to or larger than target value = z xik xik z * or *, if xik is smaller than target value z min xik max xik z Note: z = target value; x ik = the city s score for indicator k; i = (1,2, 73), k = (1,2, 32). For indicators that also had a reference value, the reference values needed to be standardized according to the value distribution of the data for that indicator. For example, if the reference value was 70 points, and a city s indicator value reached or exceeded the reference value, it would score in the range of points depending on the difference between the indicator value and the reference value. If the index value was lower than the reference value, it would score in the range of 0 70 points depending on the difference between the two. x ik + 30* = 70 70* xik w w xik or * max x w w min x 70, ik ik ik w xik w min x ik ik if x is equal to or larger than reference value xik w or 70 70*, if xik is smaller than reference value max x w In the formula, w represents the reference value. If necessary, the data for one indicator was split into subsegments to help determine the score. If the indicator value was above the optimum limit, the score was 100; if the indicator value was below the minimum, the score was 0. Furthermore, to eliminate the effect of singular, unstandardized values, each indicator had an optimum and minimum limit according to the range and distribution of the sample indicators. 44

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