THE city of Nanjing, capital of China's Jiangsu province, was not the obvious place to host this year's international forum on urban competitiveness. Home to some 40 universities and colleges, the city's culture is conservative and contemplative, not competitive. At Nanjing University, for example, students amble past, their noses buried in books as they walk.

Their city ranked 247th out of 500 in the latest Global Urban Competitiveness Report unveiled at the forum in June by Ni Pengfei, of the Chinese Academy of Social Sciences. The ranking is based on many factors, including the size and growth of a city's economy, adjusted for its carbon emissions; its output per person and per square kilometre; the international patent applications it can claim; and the number of multinational companies it hosts.

Top of the heap, as in the previous ranking two years ago, is New York, followed by the familiar trio of London, Tokyo and Paris. But the stability at the top of the table belies the churn further down. Shanghai made it into the top 40 for the first time (see chart) and ten Chinese cities, including some quite obscure places, such as Erdos, Hohhot, Quanzhou and Xuzhou, rose more than 30 places. Seven cities in Africa and three in Brazil jumped by more than 15 places.

That kind of urban progress inspired Boston Consulting Group (BCG) to release a report of its own this week.* It argues that businessmen should look at emerging markets at the level of cities, not countries. And they should look beyond the familiar “mega-cities” to the “many cities” that are quickly growing big enough to warrant their attention. By 2030, the report forecasts, there will be more than 1,000 cities in emerging markets with populations of over half a million.

The scale of urbanisation is impressive. But its spread is daunting. Five years ago, the report points out, a company had to be in 60 cities to reach 80% of China's middle class. To reach the same share in 2020, a company will need to set up shop in 212 cities, given how quickly that middle class is growing and sprawling.

Rank discrimination

According to several scholars, most of China's cities remain too small to take full advantage of what economists call “agglomeration economies”: the benefits that people or firms enjoy from their proximity to others. These benefits include the ready availability of customers, specialised suppliers, a pool of skilled labour, or the tricks of the trade that a firm can learn almost by osmosis from its neighbours.

How big should cities be? In many countries, city sizes follow a remarkably regular pattern, known as the rank-size rule. According to this law, the biggest metropolis in a country will have roughly twice the population of its nearest rival; three times the population of the third-ranked city; and so on. Multiply a city's rank by its population and the result will match the size of the biggest city. Some scholars believe the law is a statistical artefact, bereft of economic meaning. But others argue it has at least one strong implication. For the law to hold, small cities cannot grow systematically faster or slower than big ones. Speed must be largely independent of size.

China makes a habit of bending the rules of economics. Do its cities obey the rank-size rule? The fit is not perfect. China's small cities are too dispersed and its big cities are too even in size, according to Zelai Xu of the Central University of Finance and Economics in Beijing and Nong Zhu of the National Institute of Scientific Research in Quebec.

Messrs Xu and Zhu show that China's cities became more equal during the 1990s, especially in the first half of the decade. This was partly because small cities grew faster than big ones. But it was mostly because China created 190 new cities largely by fiat, relabelling big towns as small cities. Thus even as China's urban population grew by 54m from 1989 to 1995, the average population of its cities fell, from 325,000 to 313,000.

China's small cities exploded in number. But its biggest metropolises conspicuously failed to explode in size. As BCG notes, only 27m Chinese live in cities of more than 10m, compared with 58m Indians and 32m Brazilians. Shanghai may have sprouted dozens of skyscrapers and Beijing may boast half a dozen ring roads, but China's big cities are still surprisingly small.

This partly reflects a conscious policy. Although China's rulers have embraced urbanisation, they still seem wary of mega-cities. They have made it easier for rural folk to obtain permission to settle in a middle-sized city than in a large one. The minimisation of China's maximum cities may also be an indirect consequence of China's model of growth. In favouring industry over services, China may have prevented its big cities achieving the economic density of a Hong Kong or Tokyo. Service firms, which stuff their staff into cubicles, use less land per employee than manufacturers, which array their workers along factory lines. They also benefit even more than manufacturers from agglomeration: “Service firms serve one another,” observes François Gipouloux of France's National Centre for Scientific Research.

China's economy would benefit from a stretching out of the distribution of its cities, argue Ting Jiang of Hong Kong University of Science and Technology and co-authors. But how might such a divergence come about? It might, they speculate, happen as an unintended consequence of the government's push to expand higher education. Since the bigger cities have the most universities, their expansion will draw youngsters from the hinterland to the metropolis. And with a degree (and a job), their graduates should win permission to stay.

In front of Nanjing University's ivy-clad tower, a graduate poses for a photograph in his gown, mortar board and Reeboks. Perhaps this cultured, cerebral place will find itself at the vanguard of China's urban competitiveness after all.





* “Winning in Emerging-Market Cities”, September 2010