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JLL: The integration of the Capital Economic Circle is a sound strategy for regional development

If the Capital Economic Circle plan is successful, the development of new areas will translate into new opportunities for office, retail, business park and residential property investors. Getting involved at the early stages of development could yield hig

Beijing, Tianjin, 2 September 2014 – JLL's latest whitepaper, Strengthening China's Next Economic Mega-region, focuses on the central government's plan to integrate Beijing, Tianjin and Hebei Province into the Capital Economic Circle.  The plan is designed to tackle pollution, overcrowding, traffic congestion, income inequality and inefficient resource allocation in the region through better integrating the economic development of Beijing, Tianjin and the 11 cities of Hebei Province. The plan aims to improve upon fragmented and overlapping development around the region using centralized, top-down planning and resource allocation.

Beijing, Tianjin and Hebei Province have been able to prosper over the past decade in spite of not being fully integrated. These two municipalities and province will need to work more closely together to form synergies that allow all three areas to thrive equally.

Michael Hart, Managing Director at JLL Tianjin, commented "We welcome this plan which will encourage the different cities to focus on their strengths as they attract new investment and at the same time hopefully eliminate waste and improve the air quality of the whole area."

The current lack of coordination has resulted in lumpy growth, as well as the competition between cities in the three regions, which causes oversupply risks. Both Tianjin and Hebei Province are trying to emulate the success of Beijing. This situation is leading Tianjin and the cities in Hebei to attempt to build new office towers and commercial areas that rival Beijing's CBD and Finance Street. These attempts are concurrent with Beijing's plans to expand its CBD and Finance Street. Looking just at the cities of Beijing and Tianjin, there is more than 15 million sqm of commercial space planned to complete by 2020. It is very unlikely that all of this space will complete on time, but the mere fact that so much space is planned for the two cities is worrying.

Christopher Clausen, Research Manager at JLL Beijing adds "Given the slowing economic growth and slower expansion of many traditional office occupiers, demand across the region is insufficient to justify such a large expansion of office space. Furthermore, the smaller cities in Hebei Province that are also planning new CBDs will run a real risk of oversupply, since many of these cities have relatively small service sectors."

By the three regions cooperating more fully, the hope is that fewer cities will try to build the next great commercial centre and will instead focus on utilizing their competitive advantages and allowing the private sector to figure out what is needed in terms of commercial real estate. Few cities in the Capital Economic Circle need more office space, and by working together and closely with the private sector, local governments can determine which areas are best suited to be commercial markets.

Integration of the cities within the Capital Economic Circle has the potential to open up a range of opportunities. The project will create jobs across several industries, improving livelihoods and the standard of living, particularly in Hebei Province, while reducing congestion and pollution in Beijing and Tianjin. Moreover, the success of commercial real estate markets will be dependent on the economic growth of the region, so it will be important that the planners set the right strategy.