By Zhang Yan

Shanghai has dropped to fourth place on an official ranking of China’s most competitive cities, due to the weakening regional economy and the city's overpopulation.

The nation’s commercial and financial hub fell from second place to fourth place, putting it behind the capital Beijing for the first time, according to the ranking compiled by the Urban and Real Estate Economy Research Office under the Chinese Academy of Social Sciences.

“Shanghai, as well as other eastern cities, has entered a key development period for a new structural transformation, and the shifts of related industries are the main factors contributing to its decreasing competitiveness… Only by speeding up their transformation can the eastern cities revive [themselves],” said Ni Pengfeng, director of the research office, which is part of an official think tank.

“Otherwise, the trend that these cities are surpassed [by others] will continue,” Ni said.

Eastern coastal economies have long relied on property investment and labor-intensive small and medium-sized enterprises for growth, but rising labor costs and the Chinese government’s 2-year campaign to rein in the overheated property market have hit related industries, experts said.

Moreover, the overpopulation in Shanghai greatly weakened its competitiveness in social environment, Ni said.

“Shanghai’s permanent resident population increased 3.9 million year-on-year according to the sixth nationwide population census [in 2010]. It is a significant factor in the data,” he said.

Hong Kong continued to lead the list this year with distinct advantages in financial trade, judiciary, professional services and market freedom, according to a report released with the ranking.

Taipei jumped to second from the fifth last year as an economic cooperation agreement with the mainland and a fading impact from the financial crisis lifted the foreign trade volume of the region.