The Development of Guangdong

China's Economic Powerhouse

Joseph Yu-Shek Cheng

• Publisher: WSPC
• Year: 2018
• ISBN:
  9789813237384
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This volume examines the development of Guangdong, especially the Pearl River Delta, throughout the era of China's economic reforms and opening to the external world (from 1978 till now). It analyzes the evolution from a labour-intensive, export-oriented manufacturing base to a heavy-industry based economy, then to a high-tech manufacturing center cum regional business services center. This book focusses on the planning and development strategies of the Guangdong leadership and its local counterparts, their interactions with the central leadership, the learning and adaptation processes involved by stages, and the problems and challenges ahead. The author adopts a chronological approach, thus enabling the readers to study the development processes in detail, taking into consideration the benefits offered by as well as the crises in the domestic and international environment.

Chapter 1

Guangdong’s Development Since 1978: An Overview

I. Introduction

China’s economic development in the era of economic reforms and opening to the external world since the end of 1978 has often been described as an economic miracle. Guangdong’s economic performance has been one of the best among China’s provincial units. During the global financial crisis in 2008–2009, Guangdong was the first provincial unit in China to encounter the shock, and its experiences were probably the deepest and most comprehensive. These experiences contributed to its determination to engage in reforms and economic transformation, as the provincial authorities were eager to maintain Guangdong’s leading status, its above-average growth rates, and its role as a pioneer in China’s reform processes. All these explain why a study of Guangdong’s development since 1978 would be interesting and rewarding.

At the end of 2010, Wang Yang, the provincial Party secretary then, invited the Chinese Academy of Social Sciences to form a research team to offer advice on Guangdong’s development in the coming decade. In 2011, the task force of the Chinese Academy of Social Sciences visited Guangdong’s 10 prefectural-level cities and many enterprises, and delivered a report exceeding 300,000 words in length.¹ The foci of the report are: how to overcome the middle-income trap in the province’s development in the next decade, its development strategy and the alteration of the dynamics mechanism supporting its economic growth.

In 1978, per capita GDP in Guangdong was a mere 313 yuan (less than US$80); and by 2010, its per capita GDP amounted to 43,600 yuan (about US$6,700). In terms of GDP, by 2010 Guangdong ranked first among China’s provincial units for 19 years, and its share of national GDP reached 11.4%.² By 2014, Guangdong’s per capita GDP rose to 63,469 yuan (over US$10,000); and the proportions of the primary, secondary and tertiary sectors of the economy were 4.7:46.3:49.³ According to the forecast of the above-mentioned Chinese Academy of Social Sciences report, the provincial per capita GDP would reach US$16,887 by 2020 (based on the exchange rate of US$1:6.5 yuan and price level in 2011), and Guangdong would enter the high-income stage of development, basically realizing socialist modernization. Its rate of urbanization would be 66.18% then.⁴

II. A Brief Historical Survey of the Development Model

From 1952 to 1978, Guangdong’s average annual economic growth rate was 3.1%, below the national average of 3.9% in the same period. In 1979, the central government supported Guangdong to serve as a pioneer in China’s economic reforms and opening to the external world, partly because it is situated in China’s southern frontier, with an advantage in overseas connections. The central government granted the province a considerable degree of financial autonomy in its development of foreign trade; and Shenzhen, Zhuhai and Shantou were designated as special economic zones.

In 1984, Guangzhou was made one of the “coastal open cites” and in the following year, the Pearl River Delta (PRD) was granted the status of an open economic zone. In 1978–1990, Guangdong’s GDP grew at an average annual rate of 10.9%, leading all other provincial units and emerged as one of the most prosperous.

As the economic core of Guangdong, the PRD enjoyed a considerably higher growth rate than the other parts of the province as resources, technology, information and capital concentrated in the PRD. In the period 1980–2013, the PRD achieved an average annual growth rate of 18.5%, and became one of the fastest-growing and most prosperous regions in China. Since the early 1980s, Hong Kong had been moving its labor-intensive industries to the PRD due to geographical proximity and cultural similarity. Its investment and related trade focused on the PRD region. From 1979 to 2012, Hong Kong’s accumulated direct investment in Guangdong amounted to US$184.69 billion, and 68.8% of it went to the PRD. Hong Kong is China’s third largest trade partner, their bilateral trade reached US$401.01 billion in 2013; and Guangdong’s share was 66.7%.⁵

The PRD development model was based on the following factors: preferential policies granted by the central government as the pioneer in China’s economic reforms and opening to the external world; its geographical advantage as the immediate neighbor of Hong Kong and Macau; cheap labor and land; and relatively flexible market mechanism and advanced institutional innovations in China’s specific stage of development. These factors facilitated the rapid development of labor-intensive industries with Hong Kong serving as the shop front and the PRD as the workshop.

The emerging labor-intensive manufacturing factories adopted the “sanlai yibu” mode of operation, i.e., processing, processing industries and assembly work based on materials, designs and spare parts from outside China as well as compensation trade. Various types of ownerships gradually evolved, including state-owned enterprises (SOEs), collective enterprises, private enterprises, foreign-invested enterprises and later stockholding enterprises as well as stockholding co-operative enterprises. All these enterprises were export oriented and depended on the international market; the domestic market only developed at a later stage and on a supplementary basis.

Various levels of the local government assumed very important roles in this development process as they were keen to engage in innovations and take the initiative while exploiting the pioneering role granted to Guangdong by the central government. They were active in transforming the economic role of the government, in attracting external investment and projects and were skillful in combining government guidance and the functioning of the market.

The emergence and development of township and town enterprises were also significant characteristics of the PRD development model. They were originally industrial operations of people’s communes and production brigades, and were able to engage in internal transformation and the adoption of external organizational features. They then co-operated with enterprises outside Mainland China and succeeded in achieving industrialization in the rural areas through the introduction of external capital, technology and international market networks.

The export-oriented enterprises helped the PRD to emerge as the merger of China’s domestic and international markets. China’s exports went abroad from the PRD or through Hong Kong and its imports entered the PRD first before being distributed throughout the country. The processing industries and compensation trade gradually led to the development of import-substitution industries whose outputs could then also be exported. The household electrical appliance industries were obvious examples. The rise in incomes in the PRD generated consumption power and created demand for consumer goods.

Economists perceived that the PRD had benefitted from the twin advantages of being pioneers in China’s economic reforms and opening to the external world as well as being the late developers in the international economy. For a considerable period of time, the region was able to exploit its comparative advantage, absorbing factors of production from inside and outside China on a large scale and succeeded in achieving their optimum combination, generating strong economic growth. From 1990 to 2011, the PRD’s GDP rose from 5.39% of the national total to 9.27%.⁶

The PRD model generally refers to the 14 cities and countries with Guangzhou and Shenzhen as their center in the PRD. Together with the Wenzhou model and the Southern Jiangsu model, they are the most studied development processes in China’s development since the end of 1978. Many economists argue that there is not one PRD model, but in fact at least four development models have emerged namely, the Dongguan model, the Shunde model, the Nanhai model and the Zhongshan model.

The Dongguan model was basically the “sanlai yibu” mode of operation. Dongguan offered land for the processing industries, while external investors provided capital, equipment, technology and management. Cheap labor came from the interior provinces. The development model relied on a new international division of labor with Hong Kong and Taiwan relocating their labor-intensive manufacturing industries to Dongguan, thus absorbing the latter into the international economy and production chains, allowing Dongguan to develop into the “workshop of the world”.

The Shunde model was similar to the Southern Jiangsu model to some extent. In the early years of the reform era, basic-level governments established many township and town enterprises, laying the foundation for industrialization and leading to prosperity of the collective economy. In the mid-1990s, the Shunde government reformed the property-rights system of the township and town enterprises, and completed the privatization process. Some successful enterprises even became listed companies and adopted a mixed mode of ownership. Shunde emerged as a place where the private economy and mixed economy thrived. Shunde also reformed the functions of the government, following the “small government, big society” principle. Today, it has clusters of household electrical appliance industries, with a number of nationally famous brands, earning the reputation of “home of China’s household electrical appliances”.

In contrast to Dongguan’s externally-oriented model, Nanhai’s private economy is a typical internally-oriented economy. Government intervention in the economy was more limited in Nanhai, and peasants developed their own private enterprises, relying on private capital. Trade supported the development of industries which then gradually raised their technological level. Mobilization of private capital was impressive in Nanhai.

The Zhongshan model was a combination of the Shunde model and Dongguan model. In the initial years of economic reforms, Zhongshan concentrated on processing trade which allowed it to build its industries and enterprises to a considerable scale, thus achieving its first stage of capital accumulation. In the 1980s, while Dongguan relied on the “sanlai yibu” mode of operation, Shunde on its township and town enterprises, and Naihai on enterprises at the county, township and town, village, joint households, and individual household levels, Zhongshan’s emphasis was on its SOEs. In the second half of the 1990s, however, Zhongshan initiated its property rights reforms and managed to transform its state sector to private sector within a decade. At this stage, the property rights reforms were similar to those in Shunde. The transformation led to the formation of a number of regional industrial clusters and many towns specializing in one industry each.

III. Diminishing Returns, Domestic Competition and Various Inadequacies

Since the early 1990s, China’s economic reforms and opening to the external world spread nationwide. The development of Pudong in Shanghai, the development of Western China, the rise of Central China, the revival of the old industrial base in the Northeast and the development of the Tianjin Binhai Xinqu (New Area) all served to reduce the lead of the PRD and its comparative advantage. Its share of national exports dropped from 35.79% in 1990 to 26.68% in 2011.⁷

The traditional resources in the hands of local governments in the PRD in the initial stage of development gradually weakened as local governments outside Guangdong also initiated reforms. Within the broad context of the separation of governments from enterprises, the former to a large extent no longer directly participated in economic activities.

Policy innovations of local governments in the PRD began to encounter keen competition from those of their counterparts outside Guangdong. Land supply could no longer be expanded easily. Before the 1990s, a lot of land was leased at very low prices to attract investors. Land for construction in the PRD increased from 1,765.3 sq. km. in 1988 to 4,345.7 sq. km. in 1998. Since the 1990s, the central government and the Guangdong authorities introduced a series of land development policies restricting land supply and driving up land prices. Since 2004, costs of various types of land have been rising on a long-term basis.

Labor supply had been considered inexhaustible in the PRD because of underemployment in China’s vast rural sector. The low value-added of the region’s labor-intensive industries meant that they were very sensitive to the wage level due to low profit margins. With the introduction of a minimum-wage policy, the minimum wage in various cities in the PRD had to be adjusted periodically. From 1994 to 2004, average annual wage rise amounted to 4.43%; but in the period of 2004–2012, the average annual wage rise shot up to 22.92%.

In the period 2006–2011, China’s researchers observed that rises in the purchasing prices of new materials, fuel and power supply exceeded those in the producer price indices. From 2000 to 2008, renminbi appreciated from 8.28 yuan to US$1 to 6.46 yuan to US$1, an appreciation of 21.98%.⁸ All these trends added pressure to the PRD economy even before the global financial crisis in 2008–2009.

On the other hand, the high degree of dependence on the international economy and the high proportion of industrial operations at the low end of the international production chains gradually became liabilities in economic development in the new century. In the period of 2006–2010, actual use of foreign investment as a proportion of the PRD’s GDP fell from 6.53% to 3.43%; and actual use of foreign investment as a proportion of total social fixed asset investment in the PRD declined from 23.74% to 11.39%. The latter ratio reached a record high of almost 60% in 1997. This is not to deny that actual use of foreign investment in absolute terms still increased from US$17.77 billion to US$19.1 billion in the same period.⁹ More foreign investment went to the Yangtze River Delta (YRD) and the Bohai Gulf areas.

The same two factors also led to a decline in the PRD’s relative competitiveness compared with other advanced coastal provinces, besides the fall in its attraction for foreign investment. At the end of the previous decade, the labor productivity of almost 60% of the export-oriented enterprises in the PRD was lower than that in Jiangsu and Shandong, and even lower than the national average.

Further, these two factors meant that the enterprises concerned suffered from low efficiency, limited technological spillovers and could not generate much momentum supporting the development of related industries. The PRD enjoyed limited impact on promoting the development of neighboring urban circles too. As capital, technology, talents and markets were in the hands of foreign investors, the extent of autonomy for the PRD economy was small.

Relative to the YRD, the PRD’s human resource reserve was inferior. In 2008, the PRD had 100 tertiary institutions, 66,784 teachers and 1.07 million students in tertiary institutions, while there were 229 tertiary institutions with 157,820 teachers and 2.57 million students in the YRD. In the same year, the PRD had 178 research institutions with 13,659 research staff members and altogether 1.92 million professionals and technicians; while the YRD had 1,631 research institutions with 276,341 research staff members and altogether 5.8 million professionals and technicians.¹⁰

In the beginning of this decade, it was estimated that in the PRD, there were a shortage of 1.8 million middle-level technicians and above, and a shortage of over one million high-level technicians and above. For digital control technicians alone, the manpower gap was over 100,000 people. In 2008, for every 1,000 workers, Guangdong had 2.8 research and development personnel; the corresponding figures for South Korea, Taiwan, Hong Kong and Singapore were 9.4, 15, 6.2 and 12.3, respectively. The corresponding figure for the U.S. in 19...

Table of contents

• Cover Page
• Title
• Copyright
• Dedication
• Preface
• About the Author
• Contents
• Chapter 1 Guangdong’s Development Since 1978: An Overview
• Chapter 2 Organizational Reforms in Local Government in Guangdong in the Early Reform Era
• Chapter 3 Structures and Functions of Town and Township Governments in Guangdong
• Chapter 4 Guangdong’s New Development Strategy
• Chapter 5 Guangdong in the Twenty-first Century: Stagnation or Second Take-off?
• Chapter 6 Guangdong: The Challenges of WTO
• Chapter 7 Guangdong: Challenges and Contradictions in the Global Financial Crisis, 2008–2009
• Chapter 8 Reforms to Meet the Challenges of Economic Development in the Recent Decade
• Chapter 9 Guangdong’s Administrative Reforms in Recent Years
• Chapter 10 Hong Kong’s Challenges from the Economic Integration of the Pearl River Delta
• Postscript
• Index