OPINION: Pearl River Delta: Opportunities
The Pearl River Delta (PRD) is rich with opportunity and its dazzling prospects have become an obsession for businessmen in Hong Kong. This mutual attraction has made the region what it is today, and how opportunities are grasped and shaped now will define the region for the future, for better or for worse. As such, the PRD is at a crossroads as it faces up to the changes and challenges within China and the impact of the World Trade Organisation (WTO) and other business-facilitating pacts.

Chandran Nair

With greater interplay between Hong Kong, the PRD and its hinterland thanks to inter-regional agreements like the Closer Economic Partnership Agreement (Cepa) and the Pan-PRD Regional Co-operation Development Forum (PRD 9+2), the continued dynamic growth of the region’s economy seems assured. However, while it may be dynamic for the economy, it is not necessarily so dynamic when measured by other criteria.

These pacts have not only allowed the Pan-PRD provinces to play to each others’ strengths – for example Guangdong’s ports have developed into a vital trading bridge for the Pan-PRD. They have also opened a new way for foreign companies to gain access to the mainland. This is despite challenges from northern regional alliances, which, like the PRD, have their sponsors and champions in Hong Kong, each with their own agenda.

Shanghai and the Yangtze River Delta, and the Bohai Bay region, have lately challenged the PRD and for a short time wrested from it the title of favourite destination for foreign direct investment (FDI). The PRD has since grabbed back the title, attracting US$19.3 billion in 2004, edging out Shanghai’s US$11.7 billion. This amounts to undeniable success, but only by using FDI, which itself is short term by definition, as an indicator.

Together with the increasing effect of China’s membership of the WTO, the PRD -- historically the most outward-looking and most attractive of China’s provinces for investment -- will remain so and draw a greater concentration of foreign factories and plants to feed a growing export market. That much seems clear, given the conventional indicators.

However, the shifting dynamics within China have already demanded that the PRD re-invent itself to a certain degree. Once the undisputed driver of China’s economic miracle because it seemed to have an inexhaustible supply of cheap labour, the PRD is facing pressure from other provincial manufacturing centres that have grabbed onto its coat-tails and now offer even cheaper labour. Globalisation and competition is not just between nations. It sets up internal competition, and with some unhealthy consequences.

The PRD is diversifying. It is beginning to shift up a gear, from cheap export manufacturing to high-end production that adds value and requires greater investment in technology and the application of more sensitive intellectual materials. Today, firms such as IBM, Intel, Hitachi, Samsung, Nokia, Sony and General Electric -- among 87 Fortune 500 companies with bases in the PRD -- illustrate this move to more sophisticated and technologically more demanding manufacturing.

High-tech industries now account for half of Shenzhen’s industrial output. Most recently, the likes of Japanese carmakers Honda, Toyota and Nissan set up factories in Guangzhou, the provincial capital. But how far do the talents of its labour pool extend beyond volume and repetitious work?

Even with such an international pedigree, the delta is still dominated by small companies competing against each other in a cut-throat environment of ever-shrinking margins, dependant on export markets for their fortunes. While the demand is still heavily for a cheap, low-end labour force, one of the results will, unfortunately, be poor management practices and a lack of innovation. Will those factors infect Hong Kong, too, as it thrives off the easy pickings?

At the end of the day, even after diversification, the PRD will still be producing goods for other people in other countries and not for its own people and country. Regarded as the workshop of the world, or the sweatshop of the world, depending on which view you take, the opportunities that have been and are being generated in this planetary production plant appear to be heading in one direction and that direction is outbound. Hong Kong meanwhile appears to be the direct recipient of one major export -- pollution.

Opportunity has helped produce some impressive paper-figures for the PRD. It accounts for 40 percent (US$630 billion) of the nation’s GDP, it consistently draws the highest amount of direct foreign investment, it is China’s largest export base, and the influence of the WTO and such pacts as CEPA and 9+2 will assure the region’s continued economic dynamism. But these indicate only one dimension of success. Surely the PRD should aspire to being more than just the sweatshop to the world? It is a terrible label to have been given and a terrible legacy to accept.

The economic drive of the past three decades, and most dramatically of the most recent 10 years, has provided work for millions of people who have been drawn by the opportunities it has created. But the ability to buy the products that they have been producing remains within the grasp of only a fortunate few. The average disposable income in China remains far below the US$5,000 point at which that experts say discretionary spending takes off. It hovers at around $600. It has been as if the delta has been swept up in a frenzy of economic growth, incurring heavy social costs in the process despite the higher GDP.

The PRD is at a crossroads and this is a pivotal time for the delta and Hong Kong. With the dynamic switching from low-end, cheap, labour-intensive manufacturing to more sophisticated production, it seems the right time to exercise one of the characteristics that is so often used as a sales pitch -- the ability to adapt to changing circumstances -- and to match quality of life with monetary muscle.

What is the vision for the PRD beyond the treadmill of production? Should it continue to straitjacket itself by focusing exclusively on manufacturing? What are the other avenues open to the PRD as industrial development continues unabated? How can it acquire the fundamentals necessary to seize these opportunities, such as the “software” of training that will give the working population real, marketable and transportable skills?

Here, then, is another opportunity, then. Instead of continuing to do things for only the rest of the world, the PRD has the chance to think about what it can do for itself and perhaps for China as a whole.

It has, by necessity, been led for the past 30 years. It grasped opportunity when it presented itself. Now it seems the time has come to grasp a new opportunity. The new opportunity may lie in further “value-added” areas, like tourism, which would take advantage of the richness of the countryside and the culture of the region, and agriculture.

One of China’s critical issues is how to feed its own. With a population the size of many nations, the PRD should not rely on food imports. Food security and the retention of good farm-gate prices are important parts of any economic development model. One of the aspects of taking steps to ensure these economic factors are maintained is the absolute need to retain the integrity of the region’s natural systems.

So how is the PRD to re-tool itself from being the “sweatshop of the world” to becoming something of greater intrinsic value to its population? If it continues to be this global sweatshop it will see diminishing returns as other provinces seek that mantle. Is providing opportunities for cheap labour the PRD’s only defining advantage? What else is there for the PRD to do, and what can it do for itself? It must decide, and decide for itself rather than once again falling in with the ambitions of others and having decisions made for it. It needs to think how to better manage and minimise exposure to risks that are beyond its control and can have serious effects on livelihoods, like current trade disputes. The PRD ought at least to make this one crucial decision for itself.

There are other opportunities waiting to be grasped, not to replace those that are essential, but to complement, enhance and truly develop the region. They need not, should not and will not require the closure of the industries and factories that have been and will remain for some time the engine of growth. That would be unrealistic and unpractical and the quickest way to stifle any chance of change. As the engines of growth, they also open the way to improving individual circumstances. Some people in the PRD, alone among China’s regions, are now statistically able to exercise discretionary spending, with GDP breaching US$5,000. Shenzhen’s GDP reached US$5,238 in 2001.

The PRD is rich with opportunity, and the people who have been drawn by that opportunity have grasped it and ridden it to economic strength. Opportunity will now help them build on that economic strength and make the PRD better using approaches that have been put to one side while the region has developed.

Those who have invested in the PRD and who continue to help shape policy perhaps have the greatest incentive to reformulate current thinking, which needs to move beyond the why, how and when of investing in the infrastructure and logistics for the world’s factory.

Sixty million people cannot all work in sweatshops or just produce goods for the rest of the world. They need to start producing for themselves, and that means finding a role for the PRD within China -- a nation on its way to becoming the biggest economy in the world.

Chandran Nair is founder and chief executive of the Global Institute For Tomorrow, a pan-Asian, Hong Kong-based think tank.
www.globalinstitutefortomorrow.com/