The Yangtze River Delta (YRD), which includes Shanghai and its surrounding areas, is one of China’s economic powerhouses. It has long been a driving force behind the country’s development. In 2016, China’s government made integrating this region a national priority.
The YRD integration plan was officially launched in December 2019. It aims to boost cooperation and economic growth among Shanghai and the provinces of Jiangsu, Zhejiang, and Anhui.
This expanded region is vast, covering over 225,000 square kilometres (almost the size of the U.K.) and home to about 240 million people. This makes it the largest of China’s three major city clusters. The other two being the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) and the Beijing-Tianjin-Hebei Area.
China’s Export Engine and Talent Magnet
The YRD region offers many advantages for foreign companies seeking a presence in China, primarily due to its exporting expertise, clustered supply chains, and highly skilled, internationalized workforce. These advantages are similar to those of the GBA, which we discussed in a previous article.
The region produces about a quarter of China’s total economic output. Its export prowess is particularly noteworthy, accounting for approximately 40% of China’s total exports, compared to the GBA’s 18.9%
Within the YRD, Zhejiang is China’s second-largest exporting province, Jiangsu is third, and Shanghai ranks fifth. The inland province of Anhui ranks 12th, still placing it in the top half of China’s localities by exports.
The region’s export focus is coupled with an internationally-oriented, highly skilled workforce. Shanghai ranks second among cities on the Chinese mainland in terms of English proficiency, while Zhejiang tops the list among provinces for English skills, according to EF. Shanghai’s workforce is also the second-most educated in China behind Beijing.
Shanghai clearly leads among high-value workers in the region, but many nearby cities in the YRD also have skilled workforces.
- Suzhou, just 100 kilometres from Shanghai, is a major tech hub.
- Hangzhou, home to tech giants like Alibaba, has developed into a thriving centre for innovation and entrepreneurship.
- Nanjing, with its strong educational institutions, has a robust talent pool in various high-value sectors.
Accessing this expertise, however, comes at a premium. YRD salaries are among the highest on the Chinese mainland. Shanghai’s average monthly salary in 2023 is 13,486 yuan ($1,879), the highest nationwide. Other major YRD cities also rank highly:
- Hangzhou: 11,796 yuan ($1,608) (4th highest)
- Nanjing: 11,061 yuan ($1,508) (5th highest)
- Suzhou: 10,933 yuan ($1,491) (6th highest)
- Ningbo: 10,704 yuan ($1,459) (8th highest)
However, wages vary significantly across the region. For example, in Tongling, a small city in Anhui about 400 kilometres west of Shanghai, workers earn much less, typically only 3,000 to 4,000 yuan per month.
The region’s high-calibre talent, also capable of communicating effectively with Western executives, means the region is a magnet for foreign companies and sourcing firms.
Streamlined Supply Chains
Another key advantage of the YRD is its comprehensive industry ecosystem. Like other Chinese city clusters, the YRD functions as a one-stop shop for many industries, bringing entire industry value chains together into a small geographic area.
For instance, in the electronics sector, Shanghai specializes in high-value activities such as integrated circuit design and overseeing original equipment manufacturers. Suzhou concentrates on making components like displays and precision parts. Ningbo focuses on optics and batteries. Other cities contribute based on their unique strengths.
The variety of businesses in the area allows companies to work easily and affordably with local suppliers, manufacturers, and service providers, all close by.
The area also benefits from ongoing infrastructure projects. These improvements constantly reduce travel times between cities.
Competition vs. Coordination in the Yangtze River Delta
However, the region faces several hurdles on its path to full integration.
First, there’s often a clash between what’s good for each local area and what’s needed for the whole region to come together.
In theory, the region’s constituent parts should follow Beijing’s “coordinated, complementary development philosophy” — which, as you might guess, means aligning their growth strategies to supplement each other. Yet, implementation falls short.
Officials from Shanghai, Jiangsu, Zhejiang and Anhui meet only once a year to officially discuss integration. Moreover, each area has its own goals for growth and taxes, so they don’t have much reason to focus on integration. For example, look at Shanghai’s 2024 city report. In over 13,000 words, it only mentions the YRD seven times. That’s hardly a ringing endorsement of regional teamwork.
The electric vehicle (EV) industry is a good example of how YRD cities compete for economic growth.
Changzhou, a city in Jiangsu province, was one of the first to enter the EV industry. In 2016, it invested $109 million in a factory for EV maker Li Auto. This move helped create a network of suppliers around the auto giant.
But now, Changzhou faces tough competition. And it’s not just competing with other parts of China. Surprisingly, its biggest rivals are its own neighbours in the YRD.
Hefei, the capital of Anhui province, has quickly become a powerhouse in EV manufacturing. The city is now home to big factories for well-known brands like Volkswagen, BYD, and Nio. It has also attracted major suppliers, including Gotion, the world’s seventh-largest battery maker. Hefei saw its EV output quadruple in just one year in 2023.
Meanwhile, Shanghai has become a major EV player. It hosts Tesla and state-owned SAIC Motor, whose EV exports surged 43.9% year on year to over $13.89 billion in 2023. Not to be left out, Zhejiang province is also home to numerous EV manufacturers.
While these hubs do work together, they’re often competing for the same resources: skilled workers, consumers and investment money.
This proliferation of EV projects has raised alarms at the national level. Xin Guobin, vice minister at China’s Ministry of Industry and Information Technology, warned, “Many local governments and companies are rushing to start new energy vehicle projects without proper planning. This trend is concerning and requires our attention. We need to take effective measures to address this issue.”
With all four localities focusing on the same industries, like artificial intelligence, semiconductors, and biomedical tech, the region risks wasting resources on unnecessary overlap without coordination.
For foreign companies this could mean hiring challenges and higher labour costs as competition for talent intensifies. Supply chains could become unstable, with fluctuating costs and fewer reliable suppliers as competition narrows the field.
This uncertainty may complicate long-term planning, requiring more flexible business strategies in the region.
Labour Mobility Hurdles in the Yangtze River Delta
Labour mobility also challenges the region’s connectivity. Despite great transportation, it’s still hard for workers to move freely in the YRD. The main problem is the hukou system, which ties a person’s benefits to where they live.
Fast trains can zip between big cities like Shanghai and Hangzhou in just 45 minutes. But paperwork and rules still get in the way. The hukou system makes it tough for people to work in one city and live in another, unless they’re willing to forgo social insurance (very rare!).
Therefore, a company in Shanghai can’t provide social insurance for workers living in neighbouring Hangzhou, even if they can easily commute. To do this, the company would need to set up a separate entity in Hangzhou. The YRD isn’t unique in this regard; the GBA has also so far failed to address this issue.
This red tape makes it hard for foreign companies to use workers from different cities in the region. So far, there’s no talk of changing the rule that says you must work and live in the same city to get social insurance.
Looking Ahead
Despite these challenges, the region is still moving towards greater integration.
In July, leaders announced new plans to bring the area closer together. These include creating a single healthcare system for the whole region, working together to build more highways, coordinating how land is used across the area. According to the South China Morning Post, more measures like these are in the works.
Kinyu has a presence across the YRD. If you’re operating in the region and are interested in our services, please book a meeting with one of our team members.
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