creating a world-class pearl river delta metropolis

Creating a World-Class

Pearl River Delta Metropolis Accelerating Economic Integration between

Guangdong and Hong Kong

August 2008

1

Table of Content

Preface ................................................................................................ 10

I. Strong Consensus on the Strategy of Guangdong-

Hong Kong Cooperation .................................................................... 11 II. Economic Integration of Guangdong and Hong Kong Heralds in Golden Age ........................................................................................ 13 III. Study Objectives and Focus Areas .................................................... 15

Chapter One: Historical Review of the Economic Integration between Guangdong and Hong Kong .................................................. 17

I. Development Process of Guangdong-Hong Kong Economic Integration .......................................................................................... 17

1. Stage One - Industrial Integration (1978-1997).......................... 20 2. Stage Two - Economic Integration (1998-2003) ........................ 22 3. Stage Three - Systems Interaction (2004 to Present) .................. 24

II. Important Areas in Guangdong-Hong Kong Economic Integration .. 26

1. “Front Shop, Back Factory”: Guangdong-Hong Kong Integration in the Manufacturing Industry ................................... 27

2. CEPA and the Integration of Guangdong and Hong Kong in Service Industry ........................................................................... 31 3. Evolution of the Hong Kong-Guangdong Cooperation Joint Conference and Guangdong-Hong Kong Public Governance .................................................................................. 34 4. “Greater Pearl River Delta Study”: Integration of Guangdong and Hong Kong’s Transport Infrastructure .................................. 37

III. Major Achievements and Problems in the Economic Integration between Guangdong and Hong Kong ................................................. 41

2

Chapter Two: Current Situation, Strategic Value and Development Goals of the Pearl River Delta Metropolis .................................... 45

I. Current Situation of the Pearl River Delta Metropolis ...................... 45

1. Composition of the Pearl River Delta Metropolis ...................... 45 2. Major Characteristics of the Pearl River Delta Metropolis ........ 54 3. International Comparison of the Pearl River Delta Metropolis . 62

II. Strategic Value of the Pearl River Delta Metropolis .......................... 84

1. Accelerate the Upgrading and Restructuring of the Pearl River Delta Industries........................................................................... 84

2. Guarantee Hong Kong’s Prosperity and Stability, Upgrade the Total Competitiveness of the Pearl River Delta Metropolis ...... 86 3. Be a Major Engine in China and the Pan-Pearl River Delta

Region’s Developments ............................................................. 87 4. Play a Major Role in the Global Economy ................................ 89

III. Development Goals of the Pearl River Delta Metropolis .................. 90

1. World-Class Advanced Manufacturing Base and Regional Innovation System ...................................................................... 90 2. World-Class Rail Transport Network ......................................... 93 3. World-Class Aviation Hub and Logistics and Shipping

Centre ......................................................................................... 96 4. World-Class International Education Hub and Talent Training Base ........................................................................... 100 5. World-Class Business and Leisure Vacation Sphere ................ 102 6. World-Class Green Pearl River Delta Quality Living Sphere . 103

Chapter Three:Industries of the Pearl River Delta Metropolis and Their Future Development ................................................. 108

I. New Trends in the Pearl River Delta’s Industrial Development ...... 108

1. Challenges to the “Front Shop, Back Factory” Model and the Restructuring of the Pearl River Delta Manufacturing Industry .................................................................................... 108 2. Industrial Restructuring in Guangzhou and Its Profound Effects ....................................................................................... 110

3

3. Development Trends of Pearl River Delta Manufacturing Industry after 2000 ..................................................................... 112

II. Characteristics of the Pearl River Delta Manufacturing Industry .... 129

1. Stability and Clustering ............................................................ 130 2. Internationalism and Openness ................................................ 133 3. Competitiveness and Systematism ........................................... 137 4. Pearl River Delta Manufacturing Industry Is Beginning to Enter the Stage of Branding ............................................................... 138

III. Characteristics of the Pearl River Delta Service Industry ............... 142

1. Cascading Development in the Whole Service Industry ......... 143 2. Balanced Development between Producer and Consumer Service Industries ..................................................................... 145 3. Synergistic Development between Service and Manufacturing Industries ......................................................... 148 4. The Pearl River Delta Service Industry Has the Characteristic of “Across the Boundary but Not Across Districts” ................ 149 5. Advantages and Inadequacies of the Pearl River Delta Region in Developing Service Industry ................................................ 152 6. Service and Manufacturing Industries in Accord: Comparison between the Pearl River Delta and Yangtze River Delta Regions ..................................................................................... 153

IV. Challenges and Opportunities for the Pearl River Delta Industries . 156

1. Objective Evaluation of the Pearl River Delta Region’s Processing Trade and Industrial Structure ............................... 156 2. The Pearl River Delta Industries Are Facing the Challenge of Rising Costs ............................................................................. 159 3. The Pearl River Delta Should Grasp the Opportunity to Upgrade Its Industries ............................................................................. 163

V. Future Industry Layout of the Pearl River Delta Metropolis and

Major Areas of Development ............................................................ 166 1. Future Industry Layout of the Pearl River Delta Metropolis ... 166 2. Major Areas of the Pearl River Delta Metropolis’ Future Industrial Developments .......................................................... 168

4

3. Interactions between Guangzhou and Hong Kong: Create a New Industry Framework for the Pearl River Delta Region ... 172

Chapter Four: The Planning and Construction of Infrastructure Facilities in the Pearl River Delta Metropolis .................................. 177

I. The Present Condition and Characteristics of the Infrastructure

Facilities of the Pearl River Delta Metropolis ................................. 178 1. The Network Development of Highway Transportation System ...................................................................................... 180 2. The Rapid Development of Railroad Transportation System .. 181 3. Acting as the Hub of Air Transport in the Asia Pacific Region ...................................................................................... 183 4. A Seaport Cluster of International Standard Has Been Formed ..................................................................................... 186 5. The Close Interconnection of Cross-border Infrastructure Facilities with Control Point Facilities ..................................... 187

II. The Planning and Construction of Infrastructure Facilities in the Pearl River Delta Metropolis ..................................................................... 189

1. Railroad Traffic Planning .......................................................... 190 2. Planning of Bridges, Tunnels and Cross-border Facilities ....... 195 3. Planning of an Express Highway System ................................. 200 4. Airport Planning ....................................................................... 201 5. Port Planning ............................................................................. 203

III. The Development Prospects of Public Infrastructure Facilities in the Pearl River Delta Metropolis ........................................................... 204

1. Forming a Generalized Transportation Network in the Pearl River Delta Metropolis with Railway Traffic As Nucleus........ 204 2. Becoming a Significant International Hub of Communication and Transportation .................................................................... 206 3. Gradually Becoming a High-efficiency Operating System of International Standard .......................................................... 210

5

Chapter Five: Analysis and Forecast of the Economic Repercussions of the Pearl River Delta Metropolis .................................. 213

I. Forecast on the Static Growth of the Pearl River Delta

Metropolis ......................................................................................... 213 1. Presumptions Made on the Economic Effects of the Pearl

River Delta Metropolis .............................................................. 213 2. Static Economic Growth of the Pearl River Delta Metropolis .. 215

II. Dynamic Economic Analysis of the Pearl River Delta Metropolis . 216

1. Analysis of the Effects on Economic Growth ........................... 216 2. Analysis of the Effects on Trade Growth ................................... 219 3. Analysis of Effects on Investment Growth ................................ 221

III. Comparison of the Pearl River Delta Metropolis with the Three Major International Metropolitan Areas .......................................... 224

1. International Comparisons on the GDP Indicator ...................... 224 2. International Comparisons on the GDP Per Capita Indicator .... 226

Chapter Six: Obstacles and Problems to be Resolved in the Construction of the Pearl River Delta Metropolis .................................. 228

I. The Differences in Systems and Mechanisms in the Pearl River Delta Metropolis ............................................................................... 228

1. Differences in Legal Systems ................................................... 229 2. Differences in Economic Systems ............................................ 229 3. Differences in the Systems of Public Administration ............... 230 4. Differences in the Systems of Social Services ......................... 231

II. Main Issues to Be Addressed in the Construction of the Pearl River Delta Metropolis ............................................................................... 232

1. Issues to Be Addressed Regarding the Mobility of Factors ...... 233 2. To Address the Issues of Major Public Infrastructure Planning and Construction Coordination ................................................. 235 3. Solving the Problems of Homogeneous Structure and Excessive Competition in Industries ........................................ 237

6

4. To Resolve the Problem of Lack of Coordination on Functional Positioning of Cities ............................................... 239 5. Addressing the Consequences of these Issues .......................... 240

III. The Specificity, Uniqueness, and Common Interests of the Pearl River Delta Metropolis .............................................................................. 242

1. The Specificity and Uniqueness of the Pearl River Delta Metropolis ................................................................................. 243 2. The Common Interest in, and Common Ground for Guangdong-Hong Kong Cooperation ....................................... 247

Chapter Seven:The Policy Recommendations on the Construction of the Pearl River Delta Metropolis ............................................. 254

I. To Plan Jointly the Strategy for Future Development of the Pearl River Delta Metropolis ............................................................................... 254

1. To Strengthen and Realize the Connection and Echoing of the Strategic Development Planning of Guangdong, Hong Kong and Macao ................................................................................. 254 2. To Set Up the Industrial Transfer Parks Zone in Beibu Gulf, Guangdong, Hong Kong and Guanxi to Form the “10+1” New Heights Together ....................................................................... 256

II. To Implement the CEPA First Test Mechanism While Establishing the Guangdong, Hong Kong and Macao Cooperation Zone ............ 257

1. To Implement the CEPA First-Test Mechanism and Establish the Guangdong, Hong Kong and Macao Cooperation Zone .... 257 2. To Renovate the System of Joint Conference for Hong Kong- Guangdong Cooperation, Serving to Guarantee the Implementation of CEPA .......................................................... 259

III. Establishment of Public Governance Structure in People’s Livelihood in Guangdong and Hong Kong ........................................................ 264

1. To Explore the Establishment of Public Governance Structure in the Pearl River Delta Metropolis .............................................. 264

7

2. To Establish a Pilot Point of Cooperative Public Governance Concerning the Livelihood of People from Guangdong, Hong Kong and Macao ........................................ 265

IV. Hong Kong and Guangdong to Optimize Together the Industrial

Ecology and to Create a World-class Regional Innovation System . 267 1. To Promote the In-place Transformation and Upgrade of Processing Trade Enterprises in the Pearl River Delta Metropolis ................................................................................. 267 2. Using the Shenzhen-Hong Kong Innovation Circle to Grasp the Construction of the Regional Innovation System ............... 269

V. To Learn from Hong Kong-Zhu Airport Cooperation Model and

Promote the Fissioning Development of Service Industry in the Pearl River Delta ........................................................................................ 272 1. To Innovate the Mode of Cooperation of the Service Sector in the Pearl River Delta Metropolis .................................................... 272 2. To Promote All-round Cooperation between Hong Kong’s Public Sector and the Guangdong Government At All Levels ............ 274

VI. Guangdong and Hong Kong to Enter into Partnership in Financing,

Construction and Operation of the Pearl River Delta Rail Transit ... 276 1. To Seize the Favorable Opportunity to Speed Up the Pearl River Delta Rail Transit Construction ................................................ 276 2. Guangdong and Hong Kong to Set Up Financial Holding

Company As a Means of Major Cross-border Infrastructure Financing .................................................................................. 279

3. Pearl River Delta Rail Transit Planning Should Reflect the Visions of the Pearl River Delta Metropolis ............................ 280

VII. To Speed up the Construction of the Hong Kong-Zhuhai-Macao

Bridge So As to Open Up the Two Sides of the Pearl River ............ 282 1. To Start Building the Hong Kong-Zhuhai-Macao Bridge As

Soon As Possible ........................................................................ 282 VIII. Guangdong, Hong Kong and Macao to Jointly Plan the Development

of Hengqin Island in Zhuhai and the Development of the Pearl River in the West Coast .............................................................................. 286

8

1. Guangdong, Hong Kong and Macao to Jointly Plan the Development of Hengqin Island in Zhuhai ............................... 286

2. To Develop a Sea Front Leisure Belt on the West Side of the Pearl River Metropolis ........................................................................ 288

IX. To Establish a Committee for the Overall Planning of Collaboration and Development of Sea Ports and Airports in the Pearl River Delta Region .............................................................................................. 290

1. To Establish a Pearl River Delta Metropolitan Port Collaboration Committee .......................................................... 290 2. To Establish the Pearl River Delta Metropolitan Air Port Management Committee ........................................................... 294

X. To Generalize the Use of “Octopus” and Promote the Integration of People’s Daily Life Consumption in Guangdong, Hong Kong and Macao ............................................................................................... 297

1. To Promote the Extension of the “Octopus” Network into the Pearl River Delta Metropolis .................................................... 297 2. To Promote the Convenient Customs Clearance for People in

the Pearl River Delta Metropolis .............................................. 300 XI. To Seek Sustainable Regional Development by Strengthening the Coordination on Planning and Environmental Protection ......... 302

1. Strive to Include “Quality Living Circle in the Green Greater Pearl River Delta Region” in the National 12th Five-Year Plan for Environmental Protection, and Make the Pearl River Delta Metropolis an Example in Environmental Management for China .................................................................................... 302 2. To Transfer Heavy and Chemical Industries to the Peripheral Areas of the Pearl River Delta Metropolis ................................ 307

Annex I Pearl River Delta Regional Development Model and Basic Characteristics ............................................................ 310

Annex II Comparison of WTO with CEPA in the Field of Service Industries .............................................................................. 312

9

Annex III Special CEPA Arrangements Concerning Guangdong ..... 321

Annex IV Main Topics Covered in the 1st- 11th Hong Kong-Guangdong Cooperation Joint Conferences ........... 328

Annex V Economic Characteristics of the Tokyo Metropolitan Area and the Pearl River Delta Metropolis ................................. 332

Annex VI Comparison of Institutional Mechanisms within the Pearl River Delta Metropolis ......................................................... 337

Annex VII Distribution Map of Guangdong’s Specialised Townships .............................................................................. 342

10

Preface In August 2007, the Bauhinia Foundation Research Centre released a study report entitled “Building a Hong Kong-Shenzhen Metropolis”. The study provided a comprehensive and systematic analysis of the strategic partnership between Hong Kong and Shenzhen, and the establishment of a Hong Kong-Shenzhen Metropolis with global influence. For the region of which Hong Kong is a part, this study was just a beginning, as the study report clearly concluded: “Current trends indicate that a Hong Kong-Shenzhen Metropolis is only the first step to building a metropolitan region in the Greater Pearl River Delta. With economic integration of Hong Kong and Shenzhen, this metropolitan area can be expanded to Macao and Zhuhai situated on the other side of the Pearl River Estuary. Taking this further, the Pearl River Delta metropolitan region including Hong Kong, Shenzhen, Macao and Zhuhai will also integrate with the entire Greater Pearl River Delta metropolitan region including Guangzhou, Foshan and Dongguan, leading to the globalization of the economies of the Pan-Pearl River Delta and China as a whole in a healthy manner.” For Hong Kong, the establishment of a Hong Kong-Shenzhen Metropolis will be the first step in accelerating its integration with the region. The future development direction of the Pearl River Delta Region, of which Hong Kong is a part, is to create a world-class metropolis with global influence. This direction will be critically affected by the pace of economic integration between Guangdong and Hong Kong and the level of cooperation between the two communities.

This study may be taken as an extension and expansion of the Hong Kong-Shenzhen Metropolis study. The scope of that study has been broadened from the two cities of Hong Kong and Shenzhen to the entire region that encompasses Guangdong and Hong Kong. It must be stressed that this study will assess the current economic situation of the Pearl River Delta Region and delineate a blueprint for its future development in the context of international metropolitan development theories and experiences, and global economic competition. It is based on this analysis that policy recommendations are formulated to accelerate the creation of a Pearl River Delta Metropolis.

11

I. Strong Consensus on the Strategy of Guangdong-Hong Kong Cooperation

Guangdong-Hong Kong cooperation is not something new or conceptual. It is a basic reality. The economic and social ties between Hong Kong and the Mainland (particularly Guangdong) have never been cut.1

In the past three decades, Hong Kong has played an important role in China’s reform and “opening up”, in which Hong Kong’s partner, Guangdong, has played a major role. During this period, the massive potential of the market economy materialized in Guangdong. Through industry transfer and capital investment, Guangdong and Hong Kong have been economically and socially integrated to an unprecedented extent. In the ten years after Hong Kong’s return to China, cooperation between the Guangdong and Hong Kong governments has broadened and deepened in keeping with the cooperation between the two territories’ businesses and populations. There is strong consensus between the governments on the Guangdong-Hong Kong cooperation strategy.

HKSAR Chief Executive Donald Tsang Yam-kuen specifically mentioned the issue of integration with the Mainland in his 2007-08 Policy Address: A New Direction for Hong Kong. He pointed out that “to embrace the era of globalisation, Hong Kong must find a suitable niche in the development of our country. Our economic integration with the Mainland is an irreversible trend.”2

1 Hong Kong has always been a part of the Pearl River Delta Region. When Britain colonized Hong Kong in the 19th century, it did not close the boundary. People could still travel freely between Hong Kong and other parts of the Pearl River Delta Region. It was only after 1949 that the boundary was closed. However, until the end of the 1970s, the colonial government of Hong Kong adopted the “touch base” policy, and illegal immigrants could become Hong Kong residents and stay in Hong Kong if they were successful in reaching the urban area. Hong Kong’s development is also inseparable from the Pearl River Delta Region and the Mainland. Before the United States imposed economic blockades on China in 1949, Hong Kong was an important entrepot for the Mainland even though it lagged behind Shanghai and even Guangzhou in development and economic status. With the Mainland business, it became the fourth largest financial centre of the world. After Hong Kong’s boundary with the Pearl River Delta Region was closed in 1949, the city’s economy still relied on the Mainland. 1) Much of Hong Kong’s supply of food and daily necessities came from the Mainland. This enabled Hong Kong to enjoy low costs over a lengthy period, giving it a competitive advantage during the industrialisation and urbanisation processes that started in 1949. 2) The start of Hong Kong’s industrialisation in 1949 was the result of industry transfer, or rather, transplant from the Mainland. This included the transfer of capital, technology, management, labour force, and overseas business relationships. The large influx of Mainland immigrants from the 1950s to the 1970s provided an abundance of low-cost labour, further spurring Hong Kong’s industrial development. 3) Continuous migration has shaped and maintained Hong Kong as a community of immigrants characterised by hardwork and strong entrepreneurial spirit. While overseas emigration has resulted in the cultivation of a large network of overseas Hong Kong people, the transfer of manufacturing industries and people back to the Mainland, particularly the Pearl River Delta Region, after China’s reform and opening up has seen the development of a large network of Hong Kong people on the Mainland.

2 Donald Tsang stressed there are two main levels of work in the integration of Hong Kong and the

12

As for Guangdong-Hong Kong cooperation, Tsang pledged that “we will strengthen cooperation with Guangdong to achieve a win-win situation; provide service support for economic transformation and industry upgrades in Guangdong Province; and enhance our cooperation in infrastructure development and environmental protection.”

When Guangdong Party Secretary Wang Yang met Donald Tsang on 5 January 2008, he pointed out that in view of international competition, the two sides should consider Guangdong-Hong Kong cooperation from a global perspective with the common objective of maximising benefits. The two territories should be viewed as one integrated economy functioning in the context of the global division of labour.3

At the Central Government level, the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, adopted in 1990 and which went into effect on 1 July 1997, resolved the political positioning of Hong Kong. The “Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)”, which became effective on 1 January 2004, resolved the economic positioning of Hong Kong. The Basic Law and CEPA provide the basic principles and legal basis for Guangdong-Hong Kong cooperation. It is mainly under these general frameworks that Guangdong-Hong Kong cooperation is carried out. Facing the trends of economic globalisation and regional economic integration, it is a wise move for the Guangdong and Hong Kong governments to reach

Mainland. The first level is central planning. Hong Kong would strengthen communication with the Mainland authorities and put in place appropriate working mechanisms so that it can take early action in supporting the preparation of the National 12th Five-Year Plan under the principle of “One Country, Two Systems”. The second level is relations with provinces and municipalities. Hong Kong would jointly develop a world-class metropolis with Shenzhen, cooperate with Guangdong, and participate in the Pan-Pearl River Delta regional cooperation. See Donald Tsang Yam-kuen, 2007-08 Policy Address: A New Direction for Hong Kong. 3 See the China Review News website (http://cn.chinareviewnews.com) (中國評論新聞網). Mr. Wang Yang outlined four focus areas for Guangdong-Hong Kong cooperation. 1) Drive industry restructuring and upgrading. He pledged that Guangdong would support Hong Kong’s processing enterprises in the Pearl River Delta Region to restructure and upgrade. 2) Boost Hong Kong-Guangdong cooperation in the service industry. 3) Deepen implementation of CEPA. Guangdong would strive to become the pilot-testing ground for the opening up of more service sectors. 4) Strengthen cooperation in livelihood affairs, which would include food inspection and administration, environmental management (striving to lower pollutant discharge to the designated levels by 2010), cooperation in major cross-boundary infrastructural projects and ports of entry (such as speeding up the construction of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, completing the preparatory works for an early commencement in the construction of the Hong Kong-Zhuhai-Macao Bridge).

http://cn.chinareviewnews.com/�

13

strong consensus on a cooperation strategy. As the world economy becomes more globalised, the regional economies will become more integrated. This is the order of economic development. The consensus between the Guangdong and Hong Kong governments provides a solid foundation and favourable conditions for the two territories to integrate economically. From cooperation to integration, the Guangdong and Hong Kong economies will feature more and more as one entity. This will be a continuous driving force behind the socio-economic development of the two territories. It will enhance the two territories’ strategic position in national development, and their influence and competitiveness in the global economy.

II. Economic Integration of Guangdong and Hong Kong Heralds in

Golden Age Guangdong has changed significantly. As China’s testing ground for reform and opening up, Guangdong attained a gross domestic product of RMB 3,060.6 billion in 2007. Guangdong’s economic output has surpassed that of Singapore, Hong Kong, and Taiwan. Its per capita gross domestic product has exceeded US$4,000, and its share of the national economic output has increased from 1/9 in 2002 to the present 1/8. The national status of Guangdong’s light industry and information technology industry, concentrated mainly in Shenzhen, Dongguan and Huizhou, and heavy and chemical industries, concentrated mainly in Guangzhou, have risen tremendously and are becoming more influential in the international marketplace. In view of the circumstances and challenges posed by economic globalisation and the rising power of China’s economy, how Guangdong plans its future development path has become a policy direction of considerable importance. Because of the Asian financial turmoil and the SARS epidemic, the economic development of Hong Kong experienced some ups and downs in the decade following its return to China. From 2004 onwards, the Hong Kong economy has gone back up, signifying a full recovery. The economic growth for the three years from 2004 to 2006 averaged 7.7% per annum, and grew by 6.3% in 2007. The unemployment rate also declined from 8.6% in 2003 to 4.2% in 2007. The socio-economic development of Guangdong and Hong Kong has set the conditions for Guangdong-Hong Kong cooperation to deepen and broaden.

14

Over the past three decades, Hong Kong’s economic restructuring and Guangdong’s rapid development have complemented each other. Market forces have accelerated the integration of Guangdong and Hong Kong via the flows of people, goods, capital, and information. Contact and resource sharing between the two territories in consumption, housing, education, medical services, telecommunication, etc. have become more frequent and extensive.

Along with this development trend, the primary objective of accelerating the economic integration between Guangdong and Hong Kong should be to jointly create a world-class Pearl River Delta Metropolis which will be highly competitive and influential in the world. This objective is both necessary and feasible, and has gradually become the common objective of the governments, enterprises, and communities in the two territories.

Based on international experience, a world-class metropolitan region in the modern world should be composed of several urban districts or cities that have different but complementary functions. To a large extent, the Pearl River Delta Region, which includes Guangdong, Hong Kong and Macao, has reached or is approaching the standard of a world-class metropolitan region in economic size, structure and division of manufacturing and service industries, and the linking up of infrastructural facilities. According to the current trends of development, there is no question that Guangdong and Hong Kong can, through further integration, develop the Pearl River Delta Region into a world-class metropolitan region on par with the international metropolitan regions in North America, Western Europe and Japan.

The next three decades will be the golden age for accelerating the economic integration between Guangdong and Hong Kong and creating a world-class Pearl River Delta Metropolis. Guangdong and Hong Kong must grasp this rare, historical opportunity. However, a comparison of world-renowned metropolitan regions has shown that while the Pearl River Delta Region has the foundation and conditions to become a world-class metropolitan region, there are many areas in the current status of Guangdong-Hong Kong integration that are not satisfactory. Discord exists in the institutional and policy arrangements in the planning and construction of infrastructural facilities, cross flows in key areas, and guidance on industrial competition and cooperation. The Guangdong and Hong Kong economies have not been able to leverage on their

15

complementary features to their full extent. The enterprises and people of the two territories have not been able to enjoy the full convenience of integration in doing business, residing and living in the two territories (both individually and as a collective entity). The key to accelerating the economic integration between Guangdong and Hong Kong, therefore, will be to remove these obstacles and resolve these problems.

III. Study Objectives and Focus Areas The main objective of this study is to examine how the policies of the Guangdong and Hong Kong governments can be adapted to market developments, eliminating obstacles created by systems and policies, while speeding up cross flows in the key areas of production and livelihood exchanges between their two jurisdictions. To achieve mutual benefits, the two governments should cooperate and work together to build cross-boundary infrastructural facilities while reforming systems and relaxing policies to remove hidden obstacles. In essence, the economic integration of Guangdong and Hong Kong is a process of establishing a cooperative relationship between two adjacent territories of the same nation operating under two different systems and customs authorities. Both sides need to move forward and cooperate under the WTO regulations and the CEPA framework. The independence and uniqueness at various levels of Guangdong and Hong Kong’s societies and economies should be taken into consideration in the process.

The focus of this study is to formulate policy recommendations for the Guangdong and Hong Kong governments on elimination, to the greatest extent possible, of existing obstacles in their economies and societies created as a result of current systems and policies. At the same time, the recommendations aim to maintain Guangdong and Hong Kong’s independent and unique features while enhancing their economic strengths and competitive advantages in China and in the world pre- and post-integration (both individually and as a collective entity). Specifically, recommendations are made in the following aspects: The current status of economic integration between Guangdong and Hong Kong and the Pearl River Delta Metropolis; strategic value of the Pearl River Delta Metropolis; future development goals; industrial foundation and future development; current situation and future planning of public infrastructural

16

facilities; static analysis and dynamic forecast on the economic effects; obstacles and problems to be resolved; and policy recommendations on the creation of the Pearl River Delta Metropolis.

The “Guangdong-Hong Kong economic integration” mentioned in this study refers primarily to the economic integration between Guangdong’s Pearl River Delta Region and Hong Kong. The Pearl River Delta Region is a key constituent in Guangdong-Hong Kong economic integration because of its sizeable economic output and great economic influence. Undoubtedly, Guangdong also integrates with Macao economically. However, given the smaller size of Macao, it does not fall into the focus of this study. The relevant information pertaining to Macao, nonetheless, is included in the study’s economic forecasts and policy analysis. The “Pearl River Delta Metropolis” mentioned in this study covers the nine Pearl River Delta cities of Guangdong, and the two cities of Hong Kong and Macao. These “9+2” (small) constituents have often been called the “Greater Pearl River Delta Region” in recent years, to distinguish them from the Mainland’s “Pearl River Delta Region” which does not include Hong Kong and Macao. However, from the historical, geographical and economic linkage perspectives, the Pearl River Delta Region per se should include Hong Kong and Macao. Therefore, we use the term “Pearl River Metropolis” to re-unite the region’s history, culture and geography.

17

Chapter One: Historical Review of the Economic Integration between Guangdong and Hong Kong

In the process of economic integration between Guangdong and Hong Kong, the characteristics of industrial integration, economic integration and systems interaction emerged at different stages. Each new stage did not replace the previous one but added on to it. This has enabled Guangdong-Hong Kong economic integration to proceed gradually in depth and in scope. During the integration process, different models were adopted in different sectors. The more typical models included “Front Shop, Back Factory” in the manufacturing industry, CEPA in the service industry, “Joint Conference” in public governance, and “Integrated Coordination” in the planning of regional developments. It is this gradual advancement in the integration process and perpetual innovation in the integration models that provides the Pearl River Delta Region with the basic characteristics of a metropolis.

I. Development Process of Guangdong-Hong Kong Economic

Integration Regarding the development process and how the different stages are divided in Guangdong-Hong Kong economic cooperation and integration, different scholars have given varying views from different perspectives. At the same time, their views share some similarities. In essence, these views are different in how the different stages are divided, but similar in the overall trend. They are also consistent and similar regarding how the different stages are divided into Mainland-Hong Kong, Guangdong-Hong Kong and Shenzhen-Hong Kong cooperation and integration. Most scholars are particularly focused and have similar views on the cooperation and integration between the two territories since the 1980s, after the reform and opening up of China. Some scholars divide the economic relationship between the Mainland and Hong Kong/Macao into three stages.4

4 Chen Guanghan proposes the following division of stages: 1) The merchandise trade stage from the 1950s to late 1970s. At this stage, the Mainland market was basically closed and the major tie between Hong Kong/Macao and the Mainland was the limited trading of goods. 2) The stage of direct investment and merchandise trading from China’s reform and opening up to China’s accession to WTO and the signing of CEPA. During this stage, Hong Kong was the engine of the Mainland’s reform, opening up and economic growth. 3) The stage of liberalisation in trade and investment. This stage was marked by China’s accession to WTO, with the Mainland market opening up more fully. In this stage, a

Some divide the Greater Pearl River

18

Delta regional collaboration into four stages of increasing depth. 5 Some scholars opine that the economic cooperation model of Guangdong and Hong Kong has undergone a change from functional economic integration, which is market-oriented and investment-driven in nature, to institutional integration, where agreements are signed between governments and organisations based on development needs. 6

new chapter in the history of the economic relationship between the Mainland and Hong Kong/Macao began. All parties strived to eliminate, to the greatest extent possible, obstacles to cross flows in goods and production, gradually allowing the free flows in direct and indirect investment, goods and services. See Chen Guang Han (陳廣漢), “Evolution and Changes in the Economic Relationship Between the Mainland and Hong Kong-Macao”, Academic Research (學術研究), 2 (2006).

Some scholars describe the economic relationship between the Mainland and Hong Kong after China’s reform and opening up as gradual accomplishment of the division of labour → c ooperation through friendly competition → integrative cooperation, a process which continuously

5 Lin Geng and Xu Xueqiang proposed the following division: 1) The stage of pilot-test cooperation from 1979 to 1982. Hong Kong investors entered the sectors of tourism, entertainment facilities, etc. through family ties. Shenzhen accounted for 40% of the Pearl River Delta Region’s actual foreign investment. 2) The stage of industrial cooperation from 1984 to 1992. Hong Kong was responsible for order taking, material procurement, quality inspection and marketing, playing the role of the 3shop”. The Pearl River Delta Region was responsible for processing, manufacturing and assembly, playing the role of the “factory”. The “Front Shop, Back Factory” model was thus created. 3) The stage of in-depth cooperation from 1993 to 1997. The Pearl River Delta Region reached a height in the actual utilisation of foreign investment. After the “soft landing” of the Pearl River Delta economy, Hong Kong capital started to flow into tertiary industries such as finance, real estate, etc. 4) The stage of full integration from 1998 to present. As the Hong Kong economy declined, the Pearl River Delta Region’s one-sided dependence on Hong Kong also declined. It started to take on many service functions of Hong Kong. The Greater Pearl River Delta Region has become an integrated entity, and the conventional “Front Shop, Back Factory” model has been given new meaning. See Lin Geng (林耿) and Xu Xue Qiang (許學強), “Study on Integration of the Greater Pearl River Delta Region”, Economic Geography (經濟地理), 5 (2005). 6 According to Lai Wenfeng, when China adopted the opening up policy in 1979 and Hong Kong entrepreneurs actively looked for new business opportunities, the two combined into an important driving force for Guangdong-Hong Kong cooperation. After Hong Kong’s return to China on 1 July 1997 and the successful implementation of “One Country, Two Systems” in Hong Kong, Guangdong-Hong Kong cooperation entered a new era. However, the Mainland and Hong Kong were not able to master the relationship of “One Country” and “Two Systems” in handling the economic relationship between Hong Kong and the Mainland, causing a great deal of difficulty in Guangdong-Hong Kong cooperation. Cooperation between the two territories was at a stalemate in the mid to late 1990s due to institutional constraints. After China’s accession to WTO in 2001, the Central Government pledged to open up its markets to the outside world, including the service industries. This helped to solve the problem of institutional constraints in the cooperation between Guangdong and Hong Kong under “One Country, Two Systems”. In 2003, the Mainland and Hong Kong signed the CEPA agreement. The implementation of CEPA solved some cross flow restraints in the area of production exchanges between Hong Kong and Guangdong. This triggered a second economic interaction between the Pearl River Delta Region and Hong Kong. Cooperation and division of labour were revived in the Greater Pearl River Delta Region. For the region which had already become an international export base for processed goods, the Mainland’s accession to WTO and the signing of CEPA brought about institutional integration in Guangdong and Hong Kong’s economic cooperation. See Lai Wen Feng (賴文鳳), “Comparison on the Models of Cooperation Between Fujian-Taiwan and Guangdong-Hong Kong”, International Economic Cooperation (國際經濟合作), 1 (2007).

19

boosts mutual benefits and scope of cooperation.7

Summing up the above views, three key threads are noted to run through the Guangdong-Hong Kong economic integration process:

First, system transformation has become an external driving force for economic integration. It is apparent that political arrangements and systems transformation were behind the segregation of the Guangdong and Hong Kong economies before China’s reform and opening up to economic cooperation afterwards, and economic integration after China’s accession to WTO and the signing of CEPA.

Second, when it comes to economic cooperation and integration, adopting and adhering to the rules of the market economy are critical to improving cross flows in key production and livelihood areas. Guangdong-Hong Kong economic cooperation has depended on relaxation in policies to facilitate cross flows. Further economic integration would depend on continuing improvements in the efficiency and effectiveness of cross flows. Third, contact and exchanges between the people of Guangdong and Hong Kong have existed throughout all stages of integration, in a variety of ways and to different extents. The ethnic, cultural, and historical links between Guangdong and Hong Kong have never been interrupted. In fact, once external conditions allow, these ethnic and geographical ties are surely to grow even closer. The close relationships are reflected not only in economics, but in all facets of the economy, community, culture, and life in general. The close interactions between the people of Guangdong and Hong Kong are under an undercurrent in the development of the relationship between the two territories. Indeed, this thread is becoming increasingly important.

7 According to Gao Xingmin and Bai Jiyang, before Hong Kong’s return to China, the economic relationship between the Mainland and Hong Kong was more on cooperation in the division of labour. Mainland enterprises went through the “learning curve” of absorbing knowledge from Hong Kong enterprises and upgraded their production technologies. Mainland and Hong Kong enterprises cooperated in the mode of “window-hinterland” for mutual benefits. After Hong Kong’s return to China and before the implementation of CEPA, the economic relationship between the Mainland and Hong Kong was characterised more by cooperation through friendly competition. Both sides’ production efficiency and management efficiency improved. After the implementation of CEPA, the economic relationship between the Mainland and Hong Kong showed signs of integrative cooperation. As an institutional arrangement, CEPA has facilitated trade and investment, and reduced restraints imposed by different jurisdictions. Gao Xing Min (高興民) and Bai Ji Yang (白積洋), “Report of the economic relationship between Hong Kong and Mainland after the handover”, in Jiang Tan Yu (江潭瑜) eds., Review and forecast of the handover of Hong Kong (Hong Kong: China Review Academic Publishers Limited, 2007), p. 435.

20

For regional cooperation, political arrangements and transformations in systems are primarily a means to an end. The basic objective is to liberalise cross flows. The primary beneficiary of improved cross flows is regional economic development. Economic integration will inevitably change the way people do business and live in the region. This can be taken as the spillover effect of cross flows. It is the continuous spreading and penetration of this spillover effect that renders regional economic, social and livelihood integration possible and sustainable. Admittedly, social and livelihood integration at higher levels will propel the integration of market forces, producing greater economic benefits. They will in turn further boost the total welfare of the whole region. Based on the above analysis, this study divides the development process of Guangdong-Hong Kong economic integration since China’s reform and opening up into three stages as follows: 1. Stage One - Industrial Integration (1978-1997) This stage was characterised by Hong Kong’s success in economic restructuring and Guangdong’s success in industrialisation. It is generally agreed that the Hong Kong economy has experienced two transformations. Before 1950, the re-export trade dominated Hong Kong’s economy. After Hong Kong’s industrialisation, the direct contribution from the manufacturing industry to GDP reached a peak in 1970 at 30.9%, and its direct contribution to employment was as high as 45.3%. 8 This signified Hong Kong’s transformation from a simple entrepot to an industrialised city, and marking the first transformation of the Hong Kong economy. In the early 1970s, Hong Kong introduced economic diversification. The financial, real estate, trading, and tourism industries developed rapidly. Meanwhile, in the early 1980’s, Hong Kong’s export- and light industry-oriented manufacturing sector faced labour shortages and high land costs as well as keen competition from its Southeast Asian counterparts. The opening up of China at that time made it possible for Hong Kong’s manufacturing industry to extend its lifespan by shifting to the Pearl River Delta Region.9

8 Xue Feng Xuan (薛鳳旋), “Extended Metropolitan Region: A New Basis for Hong Kong-Guangdong Economic Cooperation”, Economic Geography (經濟地理), 1 (2000).

From the 1980s onwards, a great

9 According to Xue Feng Xuan, “The northward shift of Hong Kong industries increased the international competitiveness of these industries, enabling them to expand and grow. Some industries in

21

number of Hong Kong manufacturers moved to the Pearl River Delta Region. The service industries in Hong Kong were then able to develop in fuller scale. Hong Kong thereby experienced its second economic transformation from manufacturing economy to service economy.

The transfer process in Hong Kong manufacturing was also the process of rapid industrialisation in the Pearl River Delta Region. Hong Kong was the critical contributor to the abnormal speed of development in the Pearl River Delta Region. At this stage, most of the foreign investment in the Pearl River Delta Region came from Hong Kong. Leveraging the Pearl River Delta Region’s lower land costs, wages, and production costs, Hong Kong manufacturers rapidly established an extensive manufacturing base in the Pearl River Delta Region, particularly along the east bank of the Pearl River Delta. They shifted a lot of their production processes to the Pearl River Delta Region to take advantage of the economic discrepancy between Guangdong and Hong Kong, leaving service functions like design, management, sales and marketing behind in Hong Kong. The Guangdong-Hong Kong cooperation model of “Front Shop, Back Factory” was thus created. This model shared many basic characteristics of division of labour, and transferred development mechanisms pertinent to the East Asian manufacturing industry. The regional division of labour and transferred development was characterised by multi-layer, cascading-style, and replacement of activities. Using this model, the Pearl River Delta Region developed rapidly from an agricultural society without much industrial base into an industrial society. Developing on this industrial society, the process of urbanisation was accelerated, turning the Pearl River Delta Region into not only a major “manufacturing base” of the world, but also into a metropolitan region swarmed with large, medium and small cities.

The “Front Shop, Back Factory” cooperation model was the leading force in Guangdong-Hong Kong economic integration during this stage. This model showed the characteristics of industrial cooperation. It was a result of market economy working on its own rules. This stage was therefore called the stage of industry integration.

decline were even able to extend their lives by nearly 20 years, becoming special cases in the development of their industries.” See Xue Feng Xuan (薛鳳旋), “Extended Metropolitan Region: A New Basis for Hong Kong-Guangdong Economic Cooperation”, Economic Geography (經濟地理), 1 (2000). The predicament being faced by Hong Kong manufacturers in the Pearl River Delta Region 20 years later manifests that Professor Xue’s analysis is correct.

22

2. Stage Two - Economic Integration (1998-2003) This stage was characterised by Guangdong and Hong Kong distancing from each other and striving to resolve their own internal problems. They developed their industries separately, and there was estrangement in their economic cooperation. Nonetheless, a new consensus for cooperation was eventually reached between the two territories. After Hong Kong’s return to China, the industrial cooperation between Guangdong and Hong Kong continued to deepen, particularly in the manufacturing industry. At the same time, cooperation at the government level began. Exchanges and coordination between the Guangdong and Hong Kong governments strengthened in areas such as the linking up of information networks, planning and construction of ports of entry and transport infrastructure, integration of tourism markets, joint resolution of environmental problems, etc. The establishment of a Guangdong-Hong Kong cooperation mechanism – the Hong Kong-Guangdong Joint Conference -- was particularly significant in providing a large platform for Guangdong-Hong Kong cooperation. Meanwhile, there were also signs of integration between Guangdong and Hong Kong in social and livelihood areas. More and more Hong Kong residents purchased flats in the Pearl River Delta Region. Cross-boundary consumption started to prosper. Cross-boundary students emerged and their numbers continued to grow. 10

The pattern of people working and living across the boundary began to take shape.

Guangdong-Hong Kong cooperation at this stage was characterised by the existence of challenges to each of the two economies. They became estranged in cooperation or even competed with each other. Soon after its return to China in 1997, Hong Kong endured the East Asian financial turmoil. It suffered further from the outbreak of the SARS epidemic in 2003. The fragility of the Hong Kong economy was exposed by issues like the hollowing-out effect caused when the manufacturing industry moved out of the city, how Hong Kong residents’ mindset was adjusted and adapted after Hong Kong’s return to China, and how SARS shook the confidence of Hong Kong residents. As a result, the Hong Kong economy suffered. Because the newly-formed Hong

10 ‘Cross-boundary students’ refers to those school age children who are Hong Kong residents but are residing in the Mainland and attending schools in Hong Kong every day. The emergence of cross-boundary students shows that there is a group of Hong Kong residents who work in Hong Kong but live in the Mainland.

23

Kong Special Administrative Region Government was busy resolving its internal problems, it had no time to think about its cooperation with Guangdong. Moreover, even if there was the desire for cooperation, the experience and ability to cooperate still needed to be polished and improved. From a more in-depth perspective, the East Asian financial turmoil was just the trigger to Hong Kong’s economic downturn. Since late 1997, the Hong Kong economy had been facing the dual pressure of cyclical downturn and structural adjustment. The structural adjustment that came after the bubble economy burst was far more difficult than anyone imagined. Developments in Hong Kong’s real estate, labour, and capital markets were seriously out of balance. The imbalance in the real estate and labour markets could be represented by their price elasticity, which had difficulty reaching the equilibrium price of “market clearing” after the bubble economy. The imbalance in the capital market was represented by an erosion of Hong Kong’s competitiveness under the linked exchange rate system. (This problem became very acute after many East Asian economies devaluated their currencies.) The SARS crisis in 2003 further accelerated the bottoming-out of Hong Kong’s economic cycle. (Judging the results objectively, the fact that the economic cycle had reached bottom provided new room for the government to implement stimulation policies.) Meanwhile, Guangdong-Hong Kong relations also experienced profound changes. In the 1980s, Hong Kong drove and led the rapid development of the Pearl River Delta Region. In the mid-1990s, the development of Guangdong and the returns that Hong Kong reaped from its investments in the Pearl River Delta Region propelled the transformation of Hong Kong into a service economy. However, after the Hong Kong economy fell into structural difficulty, its influence on the Pearl River Delta Region declined drastically. As a result, estrangement emerged in the cooperation between Guangdong and Hong Kong. The economic relationship changed from Hong Kong and the Pearl River Delta Region being complementary and mutually conducive to being competitive and restrictive. Development plans in Shenzhen and Guangzhou were aimed at taking away Hong Kong’s leading edge in the service industry. Areas for competition emerged one after another, from the planning and positioning of the Pearl River Delta airports, building of deepwater ports, development of logistics centres, to becoming the preferred location for regional headquarters of multi-national companies.

24

Admittedly, competition is also a form of cooperation. As long as it does not become hostile, competition can be an effective way to promote cooperation. The turning point for Guangdong-Hong Kong economic relations to go from competition back to cooperation also occurred during this stage. In August 2003, the sixth Plenary of the Hong Kong-Guangdong Cooperation Joint Conference was convened. The meeting ended the fight for leadership in the Pearl River Delta Region. It ascertained once more the overall philosophy of Guangdong-Hong Kong economic cooperation. A new consensus was reached. It was agreed that within 10 to 20 years, the Pearl River Delta Region (including Guangdong and Hong Kong) would be developed into one of the world’s most vibrant economic centres. Guangdong would be developed into one of the world’s most important manufacturing bases, and Hong Kong would be developed into the world’s most important service centre, specialising in modern logistics and financial industries. With Hong Kong exerting its role in the service industry and Guangdong exerting its role in the manufacturing industry, it was expected a win-win situation would be achieved. The economic integration between Guangdong and Hong Kong at this stage was obviously transitional. While Guangdong and Hong Kong strove to solve their own internal problems, they competed, cooperated, disagreed, and reached consensus, building the solid foundation for the next step in economic integration. To the long-term development of Guangdong-Hong Kong economic integration, this stage is strategic in the sense that Guangdong and Hong Kong began to more deeply understand and agree with each other. 3. Stage Three - Systems Interaction (2004 to Present) This stage witnessed the signing of CEPA, which opened the door wider for unrestrained flow in the key areas of production and livelihood exchanges, and provided greater room for Guangdong and Hong Kong to integrate. CEPA was signed in 2003 and officially came into effect in January 2004. It provides an open platform for cooperation in the Guangdong-Hong Kong economic integration process. CEPA is an open system with a large number of sectors included in the areas of cooperation. The arrangement can be expanded according to practical needs. For Guangdong-Hong Kong economic integration, CEPA has broadened the scope of cooperation by a great extent. Apart from manufacturing, cooperation has also been widened in the service industry, infrastructural facilities, ports of entry and customs, cross flows, public

25

governance, etc. Guangdong-Hong Kong economic integration at this stage is all-directional and multi-layered, expanding and deepening in industrial development, municipal functions, and systems interaction, taking Guangdong-Hong Kong economic integration into the stage of systems interaction. The greatest value of CEPA lies in safeguarding by law, the economic linkage between the Mainland and Hong Kong and resolving the positioning problem of the Hong Kong economy. The development of Hong Kong before 1997 was the result of its strategic economic and political positioning in the world. After returning to China, in view of the rapid development of China’s coastal areas, Hong Kong’s positioning became uncertain. It took time for the western world to accept Hong Kong as a special administrative region of China. For quite a long time, the international world saw a big difference between Hong Kong as a colony and its being a special administrative region of China. The mainstream western economies, as represented by the United States and United Kingdom, might have removed Hong Kong from their ‘circle’. The Hong Kong and Central governments had to make considerable effort, and even paid a high price, to demonstrate that the capitalist system of Hong Kong had remained unchanged. Meanwhile, because of the rise of China’s economy, the world’s investors started to pay much attention to China. As China’s conventional window to the external world, however, Hong Kong did not enjoy more preferential treatment as a special administrative region of China. Instead, it gradually lost its intermediary role for China after China’s accession to the WTO, and the resultant further opening up of its economy. Economically, therefore, the “One Country, Two Systems” framework resulted in Hong Kong’s former strategic positioning being made unclear and its conventional advantages are being lost, at least for the first few years after its return to China. The situation was made worse by the height of the global information industry revolution in the late 1990s. Lacking strong technological capability, Hong Kong could not provide new impetus to drive the economic growth of the Pearl River Delta Region, its conventional economic hinterland. At the same time, it was restricted by the boundary set up by “One Country, Two Systems” to capitalise on its conventional advantages in law, openness, freedoms, and acting as a bridge between the international world and the Mainland. It therefore could not transform these advantages into new impetus for development. In short, “One Country, Two Systems” could only resolve Hong Kong’s political positioning, but not its economic positioning. CEPA fills

26

this gap. Under the CEPA framework, Hong Kong has been able to establish a closer economic relationship with the Mainland that supersedes the general requirements of WTO. It establishes Hong Kong’s new positioning in the international marketplace. For Guangdong, CEPA is a win-win process of systems interaction. At the sixth Plenary of the Hong Kong-Guangdong Cooperation Joint Conference (2003), Guangdong indicated that in order to secure Hong Kong’s long-term prosperity and stability, the strengths of Hong Kong should be safeguarded and capitalized upon. Guangdong stressed the functions of CEPA, with the hope that the support given to Hong Kong by the Central Government via CEPA would be developed into Guangdong’s own policy advantages. Once the Hong Kong economy is revived, it will bring new opportunities to Guangdong. Therefore, in theory, this institutional framework is useful in rectifying the economic relations between Hong Kong and Guangdong and provides institutional protection. Since CEPA’s implementation, coordination, communication, and exchanges between Hong Kong and the Pearl River Delta Region, whether at the government or people’s level, have increased and yielded fruitful results, Guangdong and Hong Kong are now able to discuss major issues related to the two territories effectively. The above three stages in Guangdong-Hong Kong economic integration were divided to highlight the different characteristics at each stage. In fact, Guangdong-Hong Kong economic integration is a continuous process that will continue into the future. The directions of integration are becoming clearer, and its efficiency and effectiveness are becoming more obvious. Although difficulties and setbacks are inevitable, the results of the integration will surely create a win-win situation for Guangdong and Hong Kong. II. Important Areas in Guangdong-Hong Kong Economic Integration The major areas of Guangdong-Hong Kong economic integration are concentrated in the transfer of the manufacturing industry followed by the emergence of the service industry; planning and construction of infrastructural facilities; improvement in ports of entry and customs; increase in cross flows in key areas; governance and city administration; and social convergence. This study selects several important points in Guangdong-Hong Kong economic integration and analyses the current situation and results of integration.

27

1. “Front Shop, Back Factory”: Guangdong-Hong Kong Integration in

the Manufacturing Industry The “Front Shop, Back Factory” model distinctively characterizes Guangdong-Hong Kong cooperation in the manufacturing industry. This model is no longer applicable to manufacturing. For quite a long time, it has been a symbol of Guangdong-Hong Kong economic cooperation.11

The accelerated development of the Pearl River Delta economy benefitted from the high economic growth induced by expansion in manufacturing activities and economic restructuring. The expansion in manufacturing activities resulted from the transfer of the Hong Kong and Macao manufacturing industries. The primary impetus of Guangdong-Hong Kong economic cooperation lay with the comparative advantages of the two territories in labour-intensive industries. Since the 1980s, the Pearl River Delta Region has leveraged on its advantage of being located next to Hong Kong and Macao, as well as the innovative systems that allowed it to get a head start in China’s reform and opening up, to fully exploit the opportunity emerged when Hong Kong shifted its manufacturing industry. The major manufacturing industries of Hong Kong transferred more than 80% of their factories or assembly lines to Guangdong, of which 94% were transferred to the Pearl River Delta Region. From the early days when Hong Kong investment first started to flow into the Pearl River Delta Region, the “Front Shop, Back Factory” model was established. This model is essentially a model of importing investment and exporting products. In this model, investment and trade are interactive with one driving growth in the other. As a result, trade between Guangdong and Hong Kong grew rapidly. Hong Kong was then able to capitalise on its strength as a free port and develop into an international trading, financial, logistics and business services centre. The “Front Shop, Back Factory” model combines Hong Kong’s advantages in systems, financial capital and international market with the Pearl River Delta Region’s advantages in resources such as labour force and land, against the backdrop of China’s partially liberalised market. 11 In fact, this model is not as simple and low-end as it is usually perceived. According to Xue Feng Xuan, “the term ’Front Shop, Back Factory’ does not necessarily mean low-technology processing industries. Its essence conveys the fact that Hong Kong and the Pearl River Delta Region have complemented each other for the past 20 or more years.” See Xue Feng Xuan (薛鳳旋), “Economic Restructuring Policies in the Hong Kong-Pearl River Delta-Macao Extended Metropolitan Region”, Forward Position in Economics (經濟前沿), Z1 (2003).

28

Professor Xue Feng Xuan has conducted a systematic study on the “Front Shop, Back Factory” model. He believes creation of the model has strengthened Hong Kong’s reform in industrial and employment structures. At the same time, he points out that the economic structure of Hong Kong has only transformed from manufacturing to the service industry on the surface. In the background, the driving force continues to be an export-oriented light industrial economy. It is because “the entities served by nearly 60% of Hong Kong’s service industry are the ‘back factories’ in the Pearl River Delta Region. Without such a massive export-oriented light processing industry at the root, Hong Kong’s service industry would not have grown at such a high rate in recent years.” Therefore, “Hong Kong’s present economy is still an export-oriented light processing industry economy, though its production facilities are not located within the boundary of Hong Kong.”12

According to Wang Fuhai, the economic development of the Pearl River Delta Region is based on the “Front Shop, Back Factory” model. The model is essentially a division of labour in the value chain. The content of “Front Shop, Back Factory” has been expanding, with both “Front Shop” and “Back Factory” heading towards globalisation. Generally speaking, Hong Kong’s service economy is relying even more on the manufacturing industry. At the same time, the services provided by Hong Kong are going high-end and becoming valuable assets to the Pearl River Delta Region. Guangdong and Hong Kong have entered into a close interdependent relationship.13

12 See Xue Feng Xuan (薛鳳旋 ), “Extended Metropolitan Region: A New Basis for Hong Kong-Guangdong Economic Cooperation”, Economic Geography (經濟地理), 1 (2000).

Based on this analysis, Wang divides the “Front Shop, Back Factory” model into three stages (see Figure 1.1).

13 Wang Fuhai gives as an example that 87% of the Japanese enterprises in the Pearl River Delta Region claim that their investment is strongly linked to Hong Kong. The financial services, taxation system, information flows, and legal system of Hong Kong are the main reasons for their investing in and managing plants in the Pearl River Delta Region. The Dutch Chamber of Commerce in Guangzhou also perceives neighboring Hong Kong as the most important factor for foreign investors to invest in the Pearl River Delta Region. Cited from Wang Fuhai, Coordinated Development Plans for the Town Clusters in the Pearl River Delta Region and their Revelations to Shenzhen, Powerpoint document (December 2007).

29

Figure 1.1 Evolution of the “Front Shop, Back Factory” Model (Wang Fu

Hai, 2007) (Only Chinese Version Available) Since the 1980s, many development models have appeared in the Pearl River Delta Region. The more typical ones are “Dongguan Model”, “Shunde Model”, “Zhongshan Model” and “Nanhai Model” (see Annex I for the characteristics of these models). The demonstration effect of Hong Kong enterprises and spillover effect of the “Front Shop, Back Factory” model can be detected to some extent in all these models. The “Dongguan Model” is a typical example of “Front Shop, Back Factory”. The other three models are also affected in different degrees by Hong Kong enterprises in management philosophy, mode of operation, marketing concept, and building of brands. The inflow of Hong Kong investment and transfer of Hong Kong factories have not only initiated the Pearl River Delta Region’s industrialisation process and driven the rapid development of its export-oriented economy. They have also produced many indirect economic benefits. Their technology, knowledge and human capital have produced an extensive spillover effect in the Pearl River Delta Region. Infrastructural development in the Pearl River Delta Region has also been promoted and the mindset of the Pearl River Delta governments and people has been changed.

30

From the perspective of industrial evolution, the Guangdong-Hong Kong manufacturing industry of primarily the “Front Shop, Back Factory” model has undergone three development stages from 1980 to present (see Table 1.1). Currently, the “Back Factory” of “Front Shop, Back Factory” is facing a lot of pressure and challenges, under the stringent requirements for environmental protection and constraints created by the new scientific development concept. Hong Kong enterprises in the Pearl River Delta Region are under enormous pressure to restructure and upgrade. Table 1.1 Stages, Models and Characteristics of Guangdong-Hong Kong

Cooperation in Manufacturing Industry Stage Model and Characteristics of Cooperation

First Stage (1978-1997)

Guangdong-Hong Kong economic cooperation began with the “Front Shop, Back Factory” model, created at their comparative advantages in labour-intensive industries. The cooperation effectively propelled the Pearl River Delta Region’s industrialisation process. It also enabled the Hong Kong economy to transform from a manufacturing industry-based economy to a service industry-based economy. Hong Kong’s status as an international financial, trading and shipping centre was strengthened.

Second Stage (1998 -2003)

An effect of Hong Kong’s return to China was rapid broadening in the scope of Hong Kong investment, geographically and industry-wise. Guangdong’s industrialisation process accelerated. The manufacturing-based industrialisation process was basically completed. Meanwhile, owing to increase in the cost of production factors, the conventional comparative advantages of Guangdong and Hong Kong for cooperation in manufacturing industry subsided, and the “Front Shop, Back Factory” model was challenged. The labour-intensive industries of the Pearl River Delta Region were also pressurized to upgrade. The factors of competition and confrontation emerged.

Third Stage (2003 - )

Under the CEPA and Guangdong-Hong Kong cooperation framework, Guangdong-Hong Kong cooperation in manufacturing industry changed from the “Front Shop, Back Factory” model, which is applied mainly to the labour-intensive industries, to a higher level that centers around technological innovation and resource optimisation.

31

However, the consensus of “Guangdong focusing on developing the manufacturing industry, Hong Kong focusing on developing the service industry” reached by the Hong Kong-Guangdong Cooperation Joint Conference is still one of the most effective channels for economic integration between Guangdong and Hong Kong at the present stage. A new and upgraded “Front Shop, Back Factory” model of Guangdong and Hong Kong is still an effective cooperation model. Regarding this new “Front Shop, Back Factory” model, in the first place, one should not interpret it superficially, and secondly, one should not interpret it as merely manufacturing cooperation. In fact, it refers to a new integration and division of labour for the whole industry at a new historical stage of development and cooperation between Guangdong and Hong Kong.14

It will be a cooperation model of higher level, more broadened scope, and greater strategic meaning than that of simple manufacturing cooperation.

2. CEPA and the Integration of Guangdong and Hong Kong in Service Industry

Since the 1980s, many of Hong Kong’s conventional service industries (such as restaurants and hotels) and some of its modern service industries (such as banks and management consultancy) have followed in the footsteps of Hong Kong manufacturing industry to move to the Pearl River Delta Region.15

14 According to Li Jiang Fan, one should interpret “Hong Kong focusing on developing the service industry, Guangdong focusing on developing the manufacturing industry” correctly. By “Hong Kong focusing on developing the service industry”, Hong Kong is expected to capitalise on its strengths in the service industry, so that both Guangdong and Hong Kong can achieve a win-win situation in economic development. It does not necessarily mean that Hong Kong will lead Guangdong in the development service industry. “Hong Kong focusing on developing the service industry” does not necessarily mean that Guangdong should ignore or overlook its service industry. “Guangdong focusing on developing the manufacturing industry” does not necessarily mean “Guangzhou focusing on developing the manufacturing industry”. See Li Jiang Fan (李江帆), “Study on the positioning of Guangdong and Hong Kong industries in the Pearl River Delta economic cooperation”, The Pearl River Economy (珠江經濟), 3 (2006).

The present consumer services industry of the Pearl River Delta Region is much affected by Hong Kong’s service industry in management standards and marketing concepts. The banking industry (such as China Merchants Bank) and real estate industry (such as Country Garden and China Vanke Company) also grew

15 There are seven banks in Hong Kong that are qualified as “service providers” under the definition of CEPA. Of them, Nanyang Commercial Bank, CITIC Ka Wah Bank, East Asia Bank, and Wing Hang Bank have entered Shenzhen and the Mainland through various means long before the signing of CEPA. The only banks that have benefited from the liberalisation measures of CEPA are the three banks of Wing Lung Bank, Dah Sing Bank, and Shanghai Commercial Bank.

32

by learning from their Hong Kong model counterparts. This indicates that the service industries of Guangdong and Hong Kong have begun exchanges and cooperation for a long time under the effect of market principles. In-depth integration of Guangdong and Hong Kong’s service industries happened after the signing of CEPA in 2003. Although this integration has just begun, it will be one of the core domains of Guangdong-Hong Kong economic integration in the future. Meanwhile, one should note that the core of CEPA is the opening up of the Mainland market to Hong Kong, as a means to resolve mainly the problem of unbalanced cross flows in the area of production exchange between the Mainland and Hong Kong.16

It is meant to resolve the unbalanced situation in the cross flows, not for unrestrained flows or integration of the production factor market. CEPA is additional to the institutional arrangements of free trade area. However, compared with the institutional arrangements of the common market, there is still some distance. Therefore, to be exact, CEPA is only the beginning of the positioning of the Hong Kong economy by China. It will take some time for this “positioning” to reach its final position. The principles of CEPA are “easy first, then difficult, moving step by step”, and “enhance and enrich the content of CEPA through constantly opening up more room to each other”. Such a characteristic of CEPA in opening up shows that the positioning of the Hong Kong economy is a continuous process to China.

To enterprises, the major value of CEPA in Guangdong-Hong Kong economic integration is in the service sector. A comparative analysis of the CEPA clauses regarding trade in services, and the 11 major service sectors and 143 service items endorsed by WTO’s Council for Trade in Services (see Annex II), shows that although there are still some blanks, most sectors have been opened up in advance, providing a large scope for Guangdong and Hong Kong’s service industries to integrate. 16 Guo Guo Can explained this unbalanced situation by the following examples: “Mainland products can enter and leave Hong Kong without much restriction, while Hong Kong products need to pay customs duty to enter the Mainland. Even for raw materials in the processing trade, it is necessary to apply for exemption to enter the Mainland. Hong Kong residents can enter and leave the Mainland freely, while the application procedure for Mainland residents to visit Hong Kong is very complicated and tedious. It is very convenient for the Hong Kong capital to invest in the Mainland, while there are a lot of restraints for the Mainland capital to enter Hong Kong.” See Guo Guo Can (郭國燦), Hong Kong Economy after Ten Years of Return to China (Chengdu: Sichuan People’s Publishing House, 2007), p. 299.

33

The liberalization of trade in services under CEPA can be divided into three categories: basically liberalised; partially liberalised; and not liberalised. Among all sectors, the sectors of construction and related engineering services, sales services, environmental protection services, tourism-related services, and recreational, cultural and sporting services are basically liberalised. Professional services (except taxation services, veterinary services and services provided by midwives, nurses, medical practitioners, and nursing staff), computer and related services (except database services), real estate services, and other business services in the sector of business services are liberalised by various degrees. Whereas R&D services, and leasing or rental services without operators are not liberalised. In the communication services sector, there are different degrees of liberalisation in telecommunication services and audio visual services, while postal and courier services are not liberalised. The financial services sector is liberalised to a certain degree. The health and social services sector is liberalised in social services, but not in health-related services. In the transportation services sector, sea transport, air transport, road transport, and supporting and auxiliary transport services are basically liberalised, while inland water transport, aerospace, rail transport, and pipe transport are not liberalised. The education services sector is not liberalised.

In addition, in accordance with the actual situation, CEPA has made some special arrangements in the opening up of the services markets of different Mainland provinces and municipalities to Hong Kong. Of these, the special arrangements related to Guangdong have enabled the integration of Guangdong and Hong Kong’s service industries to head start (see Annex III). Since the signing of CEPA, the service industry has become a major content of Guangdong-Hong Kong cooperation. Cooperation between the two territories is getting closer, and cooperation projects in the service industry have become a focus area of Guangdong-Hong Kong cooperation. Although the overall implementation results of CEPA fell short of expectations and there still exists the institutional obstacle of “large door opened, small door closed”, the trend of integration and development in Guangdong and Hong Kong’s service industries is still toward amiable development. By the end of 2007, Guangdong’s service industry had attracted Hong Kong investment in 8,562 projects. Its actual utilization of Hong Kong investment amounted to US$7.1 billion, which accounted for 49% of the province’s total actual utilisation of foreign investment. This shows that the process of integration between Guangdong and Hong Kong in service industry is accelerating.

34

3. Evolution of the Hong Kong-Guangdong Cooperation Joint Conference and Guangdong-Hong Kong Public Governance

Before Hong Kong’s return to China, there was no communication and coordination mechanism between the Guangdong and Hong Kong governments. No channel for direct contact was ever established. At that time, Guangdong government authorities at various levels mainly contacted Hong Kong’s business sector for trade and investment. Cooperation at governance level did not appear in their agenda. After Hong Kong’s return to China, in order to adapt to the control policy formulated by the Central Government for Guangdong and Hong Kong governments to keep official contact to some extent, the Hong Kong-Guangdong Cooperation Joint Conference system was approved by the Central Government in March 1998.17

Beginning in 1998, a plenary meeting was convened once a year in Guangdong (mainly Guangzhou) and Hong Kong alternately. It was co-chaired by the Executive Vice-Governor of Guangdong Provincial People’s Government and the Chief Secretary for Administration of Hong Kong Special Administration Region. From 2003 onwards, the Joint Conference was upgraded and it is now co-chaired by the Chief Executive/Governor of the two territories.

Under the Hong Kong-Guangdong Cooperation Joint Conference are the “Hong Kong-Guangdong Cooperation Joint Conference Liaison Office” and a number of ‘expert groups’ (up to the present more than 20 expert groups have been set up). The expert groups are responsible for study, follow up and implementation of various thematic cooperation projects. In addition, there is now a “Guangdong-Hong Kong Strategic Development Research Group”, which will conduct research studies into a wide range of themes related to the economic development of Guangdong and Hong Kong. A Business Council has also been set up to tie in the governmental initiatives of promoting multi-layer and all-directional cooperation between the two territories in trade and investment. By 2008, the Hong Kong-Guangdong Cooperation Joint Conference had convened 11 plenary sessions, and played a major role in promoting cooperation between the two territories.

17 Up to the present, there are mainly three cooperation mechanisms at the Hong Kong and Mainland government level. In addition to the Hong Kong-Guangdong Cooperation Joint Conference, there are also a Shanghai-Hong Kong cooperation mechanism (Hong Kong-Shanghai Economic and Trade Cooperation Conference, set up in 2003) and a Beijing-Hong Kong cooperation mechanism (Hong Kong-Beijing Economic and Trade Cooperation Conference, set up in 2004).

35

The major themes and results of the Hong Kong-Guangdong Cooperation Joint Conference include nearly all areas in economic, governance, social and livelihood affairs between Guangdong and Hong Kong. Subjects like cross-boundary infrastructure, facilitating flows of people and cargo, control point development, environmental protection, trade and investment, hygiene and food safety, science and technology, culture, education, sports, intellectual property rights, etc. have all been major themes of the Joint Conference (see Table 1.2).

Table 1.2 Areas of Cooperation Included in the Seventh to Ninth Plenary of the Hong Kong-Guangdong Cooperation Joint Conference

2003－2004 2004－2005 2005－2006

Promotion of Pan-Pearl River Delta Regional Cooperation

Promotion of Pan-Pearl River Delta Regional

Cooperation Economic, trade, and

investment promotion

Cooperation in economic and trade, and investment

promotion

Cooperation in economic and trade, and investment

promotion

Support Guangdong

enterprises to list in Hong Kong

Support Guangdong enterprises to list in Hong

Kong

Science and technology

Guangdong-Hong Kong innovation and technology

cooperation

Cooperation in innovation, technology and informatisation

Joint efforts to promote the Greater Pearl River Delta

Region

Joint efforts to promote the Greater Pearl River Delta

Region Tourism Cooperation in tourism Cooperation in tourism

Urban planning and development cooperation

Urban planning and development

Control points Cooperation at control points Cooperation at control points

Education Cooperation in education Cooperation in education Civil servants exchange

Major infrastructure Coordination of major

cross-boundary infrastructural projects

Construction of major cross-boundary

infrastructural projects Environmental

protection Sustainable development and

environmental protection Cooperation in

environmental protection

Prevention of infectious diseases

Notification system for infectious diseases between Guangdong and Hong Kong

Cooperation in hygiene

36

Cooperation in food safety Cooperation in food safety

Culture and sports Culture and sports cooperation Culture and sports cooperation

Protection of intellectual property

rights

Cooperation in protection of intellectual property rights

Cooperation in protection of intellectual property rights

Others Exchange of work experiences on anti-dumping

Study on development

strategies Cooperation in business sector Cooperation in business

sector

The major objectives and results of the first three Hong Kong-Guangdong Cooperation Joint Conferences in 1998-2000 were to enhance mutual understanding. It was therefore not a surprise to see few concrete results. The fourth and fifth Joint Conference in 2001 and 2002 contributed to the implementation of some specific measures, such as 24-hour border crossing, construction of the Hong Kong-Shenzhen Western Corridor, joint efforts to develop Nansha, etc. In 2003, Hong Kong signed the CEPA agreement with the Mainland. Breakthroughs were made at the sixth Plenary of the Hong Kong-Guangdong Cooperation Joint Conference in 2004, during which several concrete cooperation agreements were reached. Of these, the most important two were: first, Guangdong would open its door to Hong Kong and Macao’s service industries under the CEPA framework; and second, a consensus was reached on the division of labour in industry between the two territories. Guangdong would enlarge and strengthen its manufacturing base, while Hong Kong would strive to become a logistics, financial, and service industry centre. By complementing each other, it was hoped that this would achieve a win-win situation. The sixth plenary session signified a new stage in Guangdong-Hong Kong cooperation, as both parties shared a common view on the integration of the Pearl River Delta Region. Based on the results of the sixth plenary session, more areas of cooperation were included in the seventh to eleventh plenary sessions of the Hong Kong-Guangdong Cooperation Joint Conference from 2003 to 2008, and the level of cooperation also increased (see Annex IV).

In addition, the Hong Kong and Shenzhen governments signed the so-called “1+8” Agreement and “1+6” Agreement in 2004 and 2007 respectively. Hong Kong has also established an exchange and collaboration mechanism with the Guangzhou government. After Hong Kong’s return to China, Hong Kong’s exchange and collaboration with the governments of Guangdong and its major

37

cities has been strengthening, and interactions at public governance have been broadening and deepening. 4. “Greater Pearl River Delta Study”: Integration of Guangdong and

Hong Kong’s Transport Infrastructure A pre-requisite and basic objective of Guangdong-Hong Kong economic integration is more to increase unrestrained cross flows in the key areas of production and livelihood. If the integration and collaboration between industries and between the governance of Guangdong and Hong Kong are taken as ‘software construction’ for promoting cross flows, then the integration of Guangdong and Hong Kong’s transport infrastructure belongs to the ‘hardware construction’ Promotion of cross flows between Guangdong and Hong Kong can be achieved, and further integration of Guangdong and Hong Kong can become possible, only when the software and hardware are closely combined together.

Owing to the existence of customs regulations and borders between Guangdong and Hong Kong, the integration of transport infrastructure involves two aspects, namely “border crossing” and “accessibility”. To physically facilitate border crossing, more control points have been set up between Guangdong and Hong Kong in the past three decades. This development has been met by a growth in the throughput of people, vehicles and cargoes. The time taken for individuals to pass through the control points is shortening, and the efficiency of the control points is improving. The growth in throughput can be observed from the border crossing statistics from the Shenzhen side (see Table 1.3).

38

Table 1.3 Border Crossing between Guangdong and Hong Kong

(2001-2007, Represented by Crossing at Shenzhen’s Control Points)

Year Visitors (million) Vehicles (’000) Cargoes (’000 TEUs) 2001 118 11,721.7 5,074.5 2002 129 12,490.0 7,617.8 2003 --- --- --- 2004 153 14,337.6 13,655.5 2005 159 14,830.0 16,190.0 2006 167 15,260.0 18,468.9 2007 178 15,390.0 ---

Source: Website of the Port of Entry Office of Shenzhen Municipality.

As the number of visitors increases and the efficiency of the check points improves, the frequency and efficiency of cross flows between Guangdong and Hong Kong have also greatly increased. Transportation network systems integrated with supporting facilities at the land ports of entry of Guangdong and Hong Kong have been gradually established and perfected, facilitating the border crossing of people from both territories. At Lowu, which is the most popular port of entry, by April 2008, 100 intercity high-speed trains were operated each way daily from 06:20 to 22:30 (88 trains each way scheduled, 12 trains each way in reserve). On average, trains to and from Guangdong East and Shenzhen depart the stations every 10 minutes, greatly facilitating the passage of Hong Kong visitors to the Pearl River Delta cities. In addition, Guangdong and Hong Kong cooperate in aviation (airports), sea transport (ports), highways, railways, and intercity railways, enhancing the linkage between the two territories. For instance, the Hong Kong Airport has cooperated with the Zhuhai Airport; Hong Kong investors have invested in Shenzhen and Guangzhou’s ports; highways and railways have been linked up; Hong Kong-Zhuhai-Macao is being planned, etc. All these show that Guangdong and Hong Kong are giving more consideration to the overall development of the region. Before 2005, collaboration in the planning and construction of transportation

39

infrastructural facilities between Guangdong and Hong Kong was primarily collaboration on specific projects. Owing to the institutional factor of “One Country, Two Systems”, however, in Guangdong’s Plan for Coordinated Development of the Pearl River Delta Townships (2004-2020), and Hong Kong’s Hong Kong 2030: Planning Vision and Strategy, the other party is indiscernible but appears as a “connotative factor” in the planning.

In the “Integrated Regional Transportation System” section of the Plan for Coordinated Development of the Pearl River Delta Townships (2004-2020), it was stressed in the development strategy that “the linking with Hong Kong and Macao’s transportation system needs to be enhanced. An integrated Guangdong-Hong Kong-Macao transportation system should be accomplished through collaboration in the construction and management of infrastructural facilities in rail, road, water, and air transport.” In aviation, it was deemed necessary to “integrate the aviation resources of the ‘Greater Pearl River Delta Region’ by promoting collaboration in the administration of the Pearl River Delta Region’s major airports, the Hong Kong Airport, and the Macao Airport.” In the planning of highways, it was stressed that “the transportation linkage among the Pearl River Delta townships and the linkage between them and Hong Kong/Macao need to be enhanced, so that they will form a perfect highway network with the existing highways.” In the planning of railways, it was stressed that “the Beijing-Guangzhou Express Passenger Railway should be constructed and extended southward to Shenzhen and Hong Kong, connecting China from north to south.” As for the policies in integrating regional transportation, it was stressed that “cooperation with Hong Kong and Macao should be sought in constructing and operating the region’s outbound transportation facilities. The Plan also proposed to fully engage the Guangdong-Hong Kong-Macao Infrastructure Coordination Group, establish a coordination mechanism in the business sector, make use of the market mechanism, strengthen the transportation linkage among Guangdong, Hong Kong and Macao, improve the conditions of outbound transportation, and promote reasonable division of labour and cooperation in the transport infrastructure.”18

In “The Future Roadmap” section of the Hong Kong 2030: Planning Vision and Strategy report, under the topic of “Leverage on Our Links with the

18 See the People’s Government of Guangdong Province, Plan for Coordinated Development of the Pearl River Delta Townships (2004-2020), posted on http://www.gdcic.net/zgb/images/guihua.pdf.

40

Mainland”, it was written that “in the context of the evolution of the Pearl River Delta Region as a multi-centred city-region, Hong Kong needs to recognise the synergy of cooperation and coordination.” Therefore, “we must recognise that as our neighboring cities make further progress in their development, our differences will become increasingly obscure. From the socio-economic angle, it is not unrealistic to assume that all could become one within the next decade or so. In our planning work, we need to be more anticipatory of the emergence of “one region” and its likely impacts on matters such as migration patterns and re-organisation of economic functions across the region, and in turn the repercussions on our planning strategy.” At the same time, the report stressed that “maintaining smooth and unimpeded flows of people, vehicles and goods is important to sustain Hong Kong’s growth. As a gateway to China, we should make effective connections to Mainland’s transport network and transportation systems (including land-, water- and air-based), in particular those within the Pearl River Delta and Pan-Pearl River Delta regions…..We should also formulate an overall strategy for the development of transport infrastructure to look after regional development needs and support our economic growth.”19

The situation of Guangdong and Hong Kong each producing their own urban planning and development has changed. In September 2005, the “Expert Group on Hong Kong-Guangdong Town Planning and Development” set up under the Hong Kong-Guangdong Co-operation Joint Conference framework convened the first meeting in Shenzhen, signifying the commencement of a research study on the urban planning and development of the Greater Pearl River Delta Region. This project, known as the “Greater Pearl River Delta Study”, comprised five topical studies: overall development strategies of the Greater Pearl River Delta townships; cross-boundary coordinated developments; strategic environmental impact assessment and strategies of regional ecological protection; resources protection and utilisation; and institutional mechanisms for coordinated development and action agenda. The “Greater Pearl River Delta Study” was one of the focus areas of Guangdong and Hong Kong in enhancing cooperation. It was also the first strategic regional planning studies conducted jointly by Guangdong and Hong Kong. The objective of the study was to formulate a regional development strategy by taking a forward-looking perspective to consider and analyse the development approach of the Greater 19 See HKSAR Government, Executive Summary of the Hong Kong 2030: Planning Vision and Strategy, downloadable from: http://www.pland.gov.hk/pland_en/p_study/comp_s/hk2030/chi/finalreport/pdf/C_ES.pdf.

http://www.pland.gov.hk/pland_en/p_study/comp_s/hk2030/chi/finalreport/pdf/C_ES.pdf�

41

Pearl River Delta Region under the “One Country Two Systems” framework. In December 2005 and December 2006, the Expert Group on Hong Kong-Guangdong Town Planning and Development held the second and third meetings in Zhuhai and Hong Kong respectively. The first guiding document in history that takes Guangdong, Hong Kong and Macao as one integrated study object – the “Planning Study on the Coordinated Development of the Greater Pearl River Delta Townships”- is about to be completed. Guangdong, Hong Kong and Macao’s transport infrastructure will integrate faster towards the direction of an extensive transportation system, providing stronger support for regional integration.

III. Major Achievements and Problems in the Economic Integration

between Guangdong and Hong Kong Summing up the different stages, major domains and important areas of Guangdong-Hong Kong economic integration, the following conclusions can be made regarding the major achievements and deficiencies of Guangdong-Hong Kong economic integration: (1) Guangdong-Hong Kong economic integration leads to a win-win situation. Guangdong-Hong Kong economic integration began with China’s reform and opening up policy, which has triggered system transformation and provided the base for the market principles and force to function. Meanwhile, Guangdong-Hong Kong economic integration is also a result of the real needs and demands for own benefits in the socio-economic developments of the two territories. The integration thus leads to a win-win situation. (2) Guangdong-Hong Kong economic integration accelerates Guangdong’s industrialisation and Hong Kong’s post-industrialisation. The process of Guangdong-Hong Kong economic integration is not just a rapid industrialisaton process for the Pearl River Delta Region, but also a transformation process for Hong Kong from manufacturing industry to service industry and from industrialisation to post-industrialisation. As a result of this process, the Pearl River Delta Region is now a significant “world factory” and a representative of “Made in China”. Hong Kong, meanwhile, is a major international financial centre, international shipping centre, and international commercial centre. Given the name “Nylonkong”, it has a high profile among

42

global cities.20

(3) Guangdong-Hong Kong economic integration creates an open, dynamic and highly competitive industry cluster in the Pearl River Delta Region. The industry cluster is open in the way that all production factors such as capital, manpower, technology are open to the international and national markets. It is dynamic in the way that within the industry cluster, the competition is keen, the products are diversified, and the structure is very systematic. The compact industrial structure is also constantly changed, updated and restructured. Because of the functions of the market economy, this industry cluster is more flexible and hence more competitive. (4) Guangdong-Hong Kong economic integration contributes to the emergence of the Pearl River Delta township cluster. The Pearl River Delta Region is industrialised and, at the same time, urbanised. The rapid development of manufacturing industry has led to the rise of many specialised townships and their rapid urbanisation. These specialised townships sustain the core cities, forging the Pearl River Delta Region into a clustering of townships which, nationally and even internationally speaking, is the highest in density and the most substantial in geographical coverage. They boost the urbanisation rate of the Pearl River Delta Region to a large extent. (5) Guangdong-Hong Kong economic integration is a process of accelerating cross flows. Owing to the relaxation on cross flows, Guangdong-Hong Kong economic integration has been able to develop in depth and scope. It is the facilitation of these cross flows that render the integration of the regional economy between Guangdong and Hong Kong possible. Cross flows determine Guangdong-Hong Kong integration in the past and at present. They will also determine its future. (6) Guangdong-Hong Kong economic integration develops from singular integration to multi-level integration. Guangdong-Hong Kong economic integration has shifted from business level to government level, from market level to governance level, from manufacturing industry to service industry, 20 The cover article of the 17 January 2008 issue of the American Time magazine expounded the success stories of the three cities and the challenges being faced by them. The article positioned Hong Kong along with the other two renowned international financial centres of New York and London. It should be mentioned that Mr. Anthony Wu, Chairman, and Dr. Zhu Wenhui, Senior Researcher, of the Bauhinia Foundation Research Centre were interviewed by the author of that article when it was conceived. See Michael Elliott, “A Tale Of Three Cities”, TIME 17 January 2008.

43

from industry collaboration and complementarily of city functions to institutionalised level and from pure economic integration to integration at community and livelihood levels. It has developed from singular integration to multi-level integration, contributing to the further development of Guangdong and Hong Kong’s socio-economic resources. (7) Guangdong-Hong Kong economic integration is a “restricted integration”. Guangdong-Hong Kong economic integration is conducted under the framework of the Hong Kong Basic Law and the basic principle of “One Country, Two Systems”. Guangdong and Hong Kong belong to two different customs regimes. Guangdong-Hong Kong economic integration is therefore predicated upon the existence of customs and border. It should abide by the principles and guidelines of WTO, as well as the guidelines of CEPA. Because of this “restricted integration”, the facilitation of cross flows will be a long process, and require great efforts from the two territories to succeed. (8) Guangdong-Hong Kong economic integration is facing challenges posed by differences between the systems and governance of the two territories. At the early stage of integration, the massive discrepancy in the economies of the two territories provided a good opportunity for Guangdong-Hong Kong economic integration. As the Guangdong and Hong Kong economies continue to upgrade and deepen, the differences in the systems and governance of the two territories continue to pose great challenges to the future economic integration between Guangdong and Hong Kong. Owing to different business concepts and business ethics, cultures and ways of thinking, governments and governance behaviour, economic and community administration systems, and economic and community legal systems between the two territories, Guangdong and Hong Kong are some distance apart in business environment, governance system, economic policy and legal system. The economic integration between Guangdong and Hong Kong needs to confront the challenges posed by these differences. It should endeavour to resolve the problems in systems and in social and culture costs, and to overcome these obstacles as soon as possible. (9) Guangdong-Hong Kong integration needs to face the reality of direct competition and conflict of interest. Competition and conflict of interest exist forever within a region and among its major cities. Guangdong-Hong Kong economic integration needs to resolve these problems. There could be

44

competition and conflict of interest in the functional positioning of the cities, linking and collaboration of industries, division of labour among the ports and airports, planning and construction of transport infrastructure, facilitation and restriction of cross flows in the key areas of production and livelihood, etc. It will require an intelligent and broad-minded approach from the two territories to transform competition into mutual promotion, conflict of interest into sharing of interests, and to create a good pattern of cooperation amid competition, and competition amid cooperation.

Based on the above delineation, after almost three decades of economic integration between Guangdong and Hong Kong, the Pearl River Delta Region has developed into a major metropolitan region of the world. The core objective of economic integration between Guangdong and Hong Kong in the next three decades should be to develop a world-class Pearl River Delta Metropolis. It is the main theme of this study to accelerate the economic integration between Guangdong and Hong Kong and create a world-class Pearl River Delta Metropolis.

45

Chapter Two: Current Situation, Strategic Value and Development Goals of the Pearl River Delta Metropolis

A major achievement of Guangdong-Hong Kong economic integration is the creation of a Pearl River Delta Metropolis. After nearly three decades of development, the region of Guangdong, Hong Kong and Macao is not only a world-class provider of modern services and a major manufacturing base for the global manufacturing industry. Through the close contacts among cities in the region, complementarity and coordination in industrial structure and division of labour, collaboration in major infrastructure such as ports and airports, networking in public transportation, the Pearl River Delta Region has formed an integrated economic entity under the market principles and public guidance. It is this unity that provides the Pearl River Delta Region with a distinct characteristic of metropolis.

The formation of the Pearl River Delta Metropolis is not only meaningful to the coordinated development of the Pearl River Delta Region. It has strategic value to the development of regions of broader geographical coverage (such as the Pan-Pearl River Delta Region, Asia and even the world), and to China’s economic impact in the world. Advancement of the Pearl River Delta Metropolis will greatly affect China and the world’s economy. The future objectives and directions of development of the Pearl River Delta Region should be to develop a world-class Pearl River Delta Metropolis. Based on the standards of a world-class metropolis, it should integrate and upgrade the region in every aspect: like economy and industry, community and livelihood, public governance, ecological environment, living conditions and transportation system. It should endeavour to become a major constituent of the global economy, and a major path and power by which China participates in the global economy and exerts its influence. I. Current Situation of the Pearl River Delta Metropolis 1. Composition of the Pearl River Delta Metropolis With tremendous growth in the past three decades, Guangzhou and Shenzhen

46

have evolved into the core cities of the region, along with Hong Kong and Macao. Together with the peripheral areas, these core cities have tentatively formed three urban areas: Hong Kong-Shenzhen, Guangzhou-Foshan, and Macao-Zhuhai. The Pearl River Delta Metropolis has thus the basic characteristic of being polycentric or polynuclear. (1) Historical development of the Pearl River Delta Metropolis. Since 1980, Hong Kong, Guangzhou, and Shenzhen have been the largest cities of the Pearl River Delta Region. Guangzhou is traditionally the Pearl River Delta Region’s urban centre. Its development level was higher than Hong Kong’s until the 1950s. Its growth, however, slowed down after 1949. Meanwhile, boosted by the industrialisation transplanted from the Mainland and the massive influx of Mainland immigrants, Hong Kong experienced high economic growth and its urbanisation soon superseded that of Guangzhou. Attracted by the rapid development of Hong Kong, many residents from places like Shenzhen (originally Bao’an County) and Dongguan migrated to Hong Kong through various channels, causing a standstill in the development of their original places. Only Shenzhen, a brand new migrant city, could grow rapidly at the impetus of the Central Government policies. The opening of the Guangzhou-Shenzhen Expressway to traffic in 1990 and the shift of Hong Kong manufacturing to the Pearl River Delta Region have contributed to the accelerated urbanisation of Shenzhen and Dongguan.

47

Figure 2.1 Spatial Development of the Pearl River Delta Region in Land

Utilisation (1990, 1995 and 2002) Source: Topical Study 2-Study on Regional Cooperation and

Development, Planning Study on the Coordinated Development of the Greater Pearl River Delta Townships, by Guangdong Urban and Rural Planning and Design Institute and Guangdong City Development Research Centre.

Figure 2.1 is a map of the Pearl River Delta Region in land utilisation. In 1990, Hong Kong, Guangzhou, and Shenzhen were obviously segregated in development. By 1995, Hong Kong and Shenzhen have already been linked up as one entity, while Guangzhou kept on expanding. By 2002, an urbanised corridor has already been formed from Hong Kong, Shenzhen, Dongguan, to Guangzhou along the highways and railways. The incorporation of county cities like Panyu into districts of Guangzhou in 2000 accelerated the urbanisation. From the land utilisation map, it can be seen that with the

Spatial Development of the Pearl River Delta Region in Land Utilisation (1990)



48

eastward expansion and southward shift of Guangzhou, the scope and depth of the urbanisation corridor leading to Hong Kong have expanded considerably by 2008. Driven by the two poles of Guangzhou and Hong Kong (Shenzhen), the urbanisation of Dongguan in the middle has also accelerated. It has transformed from a scattered distribution of industrial districts to a clustering of townships with some service industries. The eastern part of the Pearl River Delta Region has thus urbanised from points, to lines, to areas.

The urbanisation process of international metropolitan regions like New York and London was a process of outward expansion from a singular centre. On the Mainland, Beijing and Shanghai were also urbanised in this way. As for Tokyo, the Greater Tokyo Area was also formed first with the Tokyo City incorporating the neighbouring industrial city of Kawasaki and port city of Yokohama, and then with the Tokyo Metropolis of 23 wards joining up with the three prefectures of Kanagawa, Chiba and Saitama. Although it belongs to a polycentric urban region, and the Central Government of Japan and Tokyo Metropolitan Government deliberately use the strategy of “concentrated decentralisation” in planning, the Tokyo Metropolis is still the core of the region. A couple of transportation hubs called “secondary city centres” have been created within the core, and central cities have been formed in the peripheral areas by the trunk railways, such as Omiya, the new city centre of Saitama prefecture. Through the outward urbanisation process, expanding from the Tokyo Bay to areas beyond jurisdiction boundaries, and the setting up of regional transportation hubs, Tokyo developed from a mono-centric metropolis to a metropolitan region with many cores (city centres and secondary city centres), forming a closely-connected metropolitan network region.

For historical reasons, the urbanisation process of the Pearl River Delta Region can only follow the polycentric or polynuclear model. This is because both cores, Guangzhou and Hong Kong, have strong deep-rooted urban functions and historical and cultural traditions and they are widely (about 150 kilometres) separated. There is enough room to manipulate between the areas of influence of these two cores. There is also tension (including the institutional factor of “One Country, Two Systems”) between them, making it difficult to integrate them. In the northward- and southward-bound urbanisation process of the eastern part of the Pearl River Delta Region, Guangzhou and Hong Kong remains as the two poles that drive the development. On the other hand,

49

because the development level of the western part of the Pearl River Delta Region is lower than its eastern counterpart, urbanisation in the western part is found scattered around some small and medium-sized cities and townships. They will eventually be linked up to the central city region of Guangzhou and Foshan.

Generally speaking, the urbanisation of the Pearl River Delta Region is developing from dispersed to centralised, and the trend of centralisation concentrates at the two core regions of Guangzhou-Foshan and Hong Kong-Shenzhen, and at some other smaller core areas in the western part of the Pearl River Delta Region. They constitute a polycentric urbanisation pattern.

(2) Administrative Composition of the Pearl River Delta Metropolis. Based on the economic development and transformation history of the urban area in the past three decades, and considering the factor of “One Country, Two Systems” in the governance concept, the Pearl River Delta Metropolis can be divided into three major components, that is, the Pearl River Delta economic zone of Guangdong, Hong Kong, and Macao. The Pearl River Delta economic zone is the concept of the Pearl River Delta Region in narrow definition. It includes the 13 cities and counties of Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, the urban district of Huizhou, Huidong County, Boluo County, the urban district of Zhaoqing, Gaoyao City, and Sihui City in the Pearl River drainage area. The Pearl River Delta Region is urbanised to such an extent that it is, whether compared nationally or internationally, one of the regions with the highest density of cities (see Table 2.1). Table 2.1 Administrative Composition of the Pearl River Delta Metropolis

Administrative Composition Pearl River Delta

Metropolis

Pearl River Delta

economic zone

Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, the urban district of Huizhou, Huidong County, Boluo County, the urban district of Zhaoqing, Gaoyao City, and Sihui City

Hong Kong Hong Kong Island, Kowloon Peninsula, New Territories (including 262 outlying islands)

Macao Macao Peninsula, 2 outlying islands

50

(3) Spatial Composition of the Pearl River Delta Metropolis. From the perspective of spatial geography, the Pearl River Delta Metropolis is composed of the three large urban areas of Hong Kong-Shenzhen, Guangzhou-Foshan, and Macao-Zhuhai. They can be called East Bank, Middle, and West Bank Urban Areas respectively (see Figure 2.2).

Figure 2.2 Spatial Composition of the Pearl River Delta Metropolis Source: The People’s Government of Guangdong Province, Planning of

the Pearl River Delta Townships (2004–2020). Hong Kong is the central city of the East Bank Urban Area. However, because of the special status of Hong Kong and the factor of “One Country, Two Systems”, it has to be complemented by Shenzhen in exerting some of its functions. Shenzhen is therefore another important city of the East Bank Urban Area. The East Bank Urban Area comprises Hong Kong, Shenzhen, Dongguan, and parts of Huizhou. It can be replaced by the “Hong Kong-Shenzhen Urban Area”, but it is a geographically larger district and is relatively more open. By

51

the same token, the Middle Urban Area can be replaced by the Guangzhou-Foshan Urban Area, and the West Bank Urban Area can be replaced by the Macao-Zhuhai Urban Area. Guangzhou is the central city of the Middle Urban Area. The Middle Urban Area comprises Guangzhou, Foshan, and parts of Zhaoqing. With accelerated integration of Guangzhou and Foshan, Foshan will also be functionally important in the Middle Urban Area. Compared with the East Bank and Middle Urban Areas, the West Bank Urban Area is lagging behind in development. Because of Macao’s small economic size and simplex industrial structure, its economic influence on Zhuhai and other areas in the West Bank Urban Area is limited. However, Macao is still the central city of the West Bank Urban Area, and it forms an urban area together with Zhuhai, Jiangmen, and Zhongshan. (4) Economic composition of the Pearl River Delta Metropolis. The geographical region and economy centering on the above three large urban areas form the Pearl River Delta Metropolis. The total economic output, industrial structure, as well as the area, population and population density of these three large urban areas aggregate to form the economic characteristics of the Pearl River Delta Metropolis (see Table 2.2). Table 2.2 Economic Composition of the Pearl River Delta Metropolis

Indicator / Metropolis (Urban Area)

East Bank Urban Area

Middle Urban Area

West Bank Urban Area

Pearl River Delta

Metropolis Area (km2 14,511 ) 15,390 13,057 42,958 Permanent population (’000 persons) 26,090 16,790 8,560 51,440

Population density (person/km2) 1,798 1,091 656 1,197

GDP (RMB billion) 2,405.1 924.5 387.3 3,716.9 Per capita GDP (RMB/person) 91934 55056 29435 72257

Per unit area GDP (RMB million/km2) 165 60.1 29.7 86.5

Industrial structure (ratio of primary/ secondary/tertiary industries) (%)

1/27/72 3/47/50 4/44/52 2/33/65

52

Investment in fixed assets (RMB billion) 530.7 270.5 94.1 895.3

Total exports (US$ billion) 523.0 54.8 40.4 618.2

Actual utilisation of foreign investment (US$ billion)

727.5 4.4 13.2 745.1

Total retail sales of consumer goods (RMB billion)

511.3 306.0 104.6 921.9

Notes: All are 2006 figures at current prices. Figures in Hong Kong dollars and Macao patacas have been converted to renminbi according to the exchange rates in 2006 before aggregated with the figures in renminbi.

Source: Guangdong Statistical Yearbook (2007) and the websites of official

census and statistics departments of Hong Kong and Macao. From Table 2.2, it can be seen that the administrative areas of the three large urban areas are not much different in size, with a difference of about 1,000 square kilometres. In the distribution of population, the East Bank Urban Area is most densely populated, more than the Middle Urban Area by 10 million persons and much higher than the West Bank Urban Area. Because they are not much different in administrative area, the difference in the population density among the three urban areas is similar to that of the population. Owing to Hong Kong’s great economic power, the economic output of the East Bank Urban Area is far more sizeable than the Middle and West Bank. Regarding the industrial structure, the primary industry accounted for less than 4% in all three urban areas, and the industries rank from tertiary, secondary to primary in terms of importance. Because Hong Kong has a highly prosperous tertiary sector, its share of tertiary industry is the highest (more than 70%) for the East Bank Urban Area. As for economic efficiency, the ranking from high to low is East Bank, Middle, and West Bank for both per capita GDP and per unit area GDP. The East Bank Urban Area has much more external trade than the Middle and West Bank. The East Bank Urban Area also ranks the highest among the three in actual utilisation of foreign investment, investment in fixed assets, total exports, government revenue, and total retail sales of consumer goods. Therefore, of the whole Pearl River Metropolis, the East Bank Urban Area leads the other two in economic output, economic efficiency, industrial structure, population, trade and investment, government revenue, and consumption power, and is undoubtedly the centre of the Pearl River Delta

53

Metropolis. However, leveraging on its advantageous geographical and political positions, Guangzhou has been upgrading its industries and economic power, and catching up from behind in recent years. It is likely to play an important role in the formation and development of the Pearl River Delta Metropolis. (5) Future development of the Pearl River Delta Metropolis. The Pearl River Delta Metropolis will develop along two directions in the future. On one hand, it will influence a larger region inland, and become an important engine for that region’s development. On the other hand, it will enhance its economic competitiveness in, and influence on, Asia and the rest of the world.

From the perspectives of intercity geography and administrative geography, the inward development of the Pearl River Delta Metropolis will follow the following paths: cities in the Pearl River Delta Metropolis – Guangdong cities outside the Pearl River Delta Metropolis – cities in neighbouring provinces of Guangdong – cities in the Pan-Pearl River Delta Region; Pearl River Delta Metropolis – administrative regions of Guangdong – administrative regions of neighbouring provinces like Hainan, Guangxi, Hunan, Jiangxi, and Fujian – administrative regions of the Pan-Pearl River Delta Region. Under the market economy, the allocation and integration of resources will break away from the obstacles and restraints imposed by the local authorities. Therefore the economic ties between cities are more important than the relationships between administrative regions. Following the planning, construction, and improvement of the transport infrastructure within and beyond the Pearl River Delta Metropolis, the intercity accessibility will be greatly improved, and the economic activities within the region will be more prosperous.

From the perspective of international geography, the development path of the Pan-Pearl River Delta megalopolis will be: Pearl River Delta Metropolis – Pan-Pearl River Delta megalopolis – Southeast Asia – East Asia. Now that the Pearl River Delta Metropolis is located in the centre of Southeast Asia and Northeast Asia, its unique geographical advantage will render it the best bridge and hub to link up Southeast Asia and Northeast Asia. The Pearl River Delta Metropolis will become the economic representative of the countries in this region, and play a prominent role in the global economy.

54

2. Major Characteristics of the Pearl River Delta Metropolis According to international experiences, a polycentric urban area can evolve in different ways. In his article written in 2001, A. G. Champion proposed three ways: centrifugal, incorporation, and fusion; and three stages of evolution for each of these three modes (Figure 2.3). The development of the Pearl River Delta Region in recent decades seems to be a hybrid mode of incorporation and fusion. Guangzhou belongs to the incorporation model, as in recent years it has incorporated peripheral cities like Panyu, Huadu and Foshan. Indeed, it has entered the third stage and formed the Greater Guangzhou metropolis. Hong Kong and Shenzhen, on the other hand, resemble the fusion model. Hong Kong has sprawled northwards from the two sides of Victoria Harbour. Shenzhen has sprawled from the central district of Lowu to the new centre of Futian, and then sprawled further eastwards and westwards along the northern bank of Shenzhen River. After incorporating the district of Bao’an outside the boundary of the special economic zone, Shenzhen is now sprawling towards Dongguan. Hong Kong and Shenzhen are lying somewhere between the second and third stage of the fusion model. At present, the eastern part of the Pearl River Delta Region is reaching the fusion development stage between the Greater Guangzhou metropolis and the fused polycentric urban area of Hong Kong-Shenzhen.

55

Figure 2.3 Different Development Paths of Polycentric Metropolis

Source: Bart Lambregts, “Polycentrism: boon or barrier to metropolitan competitiveness? The case of the Randstad Holland”, Built Environment 32:2 (2006), p. 116, Figure 1. The concept comes from A.G. Champion, “A changing demographic regime and evolving polycentric urban regions: consequences for the size, composition and distribution of city populations”, Urban Studies 38 (2001), pp.657-677.

In this process, the Pearl River Delta Metropolis will develop with the following major characteristics:

(1) An “urban centrality system” has taken shape in the Pearl River Delta Metropolis. Jean Gottman, a French geographer, divided metropolitan development into four stages: (1) stage of separate development of cities, formation of central cities; (2) stage of formation of urban system, formation of urban area; (3) stage of urban centrality system, formation of metropolis; (4)

A) centrifugal

B) incorporation

C) fusion

central district peripheral cities

56

stage of development of megalopolis, which is formed by the sprawling of the metropolis outwards into the outskirts and along the transportation lines. On examining the current status of the Pearl River Delta Metropolis based on this division of development stages, it is concluded that: the Pearl River Delta Region has gone beyond the development stage of “urban centrality system”.

It is now situated between the stage of basic formation of a metropolis and that of further upgrade. The Pearl River Delta Region has basically the structure and pattern of a typical metropolis. Although the Pearl River Delta Metropolis is composed of three large urban areas, considering the economic influence and the function of driving development, Hong Kong (including Shenzhen) and Guangzhou form two poles in the development of the Pearl River Delta Metropolis. The so-called “polycentric” of the Pearl River Delta Metropolis is actually “bi-centric”, with the dual nuclei of Hong Kong and Guangzhou. Therefore, the “urban centrality system” of the Pearl River Delta Metropolis was formed by the aggregation of resources to Hong Kong-Shenzhen and Guangzhou respectively, instead of a singular centre. This is one major characteristic that the Pearl River Delta Metropolis differs from the other world-class metropolitan regions. Hong Kong is one of the most important cores of the Pearl River Delta Metropolis. The economic development and industrialisation of the Pearl River Delta Region is propelled by the impetus from Hong Kong. All cities in the Pearl River Delta Region have a very close economic relationship with Hong Kong. The total absolute economic relationship value of the nine Pearl River Delta cities with Hong Kong is as high as 171,652, of which the absolute economic relationship value between Shenzhen and Hong Kong is the highest at 92,305 (see Table 2.3). The total absolute economic relationship value of the other eight Pearl River Delta cities with Guangzhou is 98,855. This substantiates Hong Kong’s core status in the Pearl River Delta Metropolis. Even so, Guangzhou is still a core of the Pearl River Delta Metropolis. As the largest city of South China and the provincial city of Guangdong Province, Guangzhou has an edge in the integration of resources. Although it lags behind Hong Kong in its economic influence to the Pearl River Delta Region, with improvement in urban service functions and optimisation of industrial structure in recent years, Guangzhou is now comparable to Hong Kong in many aspects.

57

It is going to play a bigger role in the Pearl River Delta Region with its integrated advantages as the political, economic, and cultural centre of South China. While the total absolute economic relationship value of the Pearl River Delta cities with Guangzhou is lower than that with Hong Kong, it is nearly four times higher than Foshan and Shenzhen in the third and fourth place (see Figure 2.3).

The West Bank Urban Area led by Macao is also an important constituent of the Pearl River Delta Metropolis. Because of Macao’s simplex industrial structure and small economic size, Macao’s driving effect on the development of the western part of the Pearl River Delta Region is quite limited. A comparison of the West Bank Urban Area with the East Bank and Middle Urban Areas reveals obvious distance in development. For influence among urban areas, the Middle Urban Area has more influence than the East Bank Urban Area to the West Bank Urban Area. With the construction of the Hong Kong-Zhuhai-Macao Bridge, and the proposal for a Shenzhen-Zhongshan Bridge, the influence of the East Bank Urban Area to the West Bank Urban Area will increase, and the deficiency of Macao in promoting the development of the West Bank Urban Area is likely to be made up. By then, the development of the three large urban areas will be more balanced.

Table 2.3 Table of Absolute Economic Relationship Values between Cities

in the Pearl River Delta Metropolis21

City

Hong Kong Guangzhou Shenzhen Foshan Dongguan

Guangzhou 28478.98 --- --- --- ---

Foshan 10,845.46 47,443.53 2,997.67 --- ---

Zhaoqing 4,861.31 7,468.10 1,296.95 3,489.68 1,192.66

Shenzhen 92,304.81 8,028.05 --- --- ---

Dongguan 10,466.15 12,356.47 3,184.98 3,705.56 ---

Huizhou 13,319.99 5,343.84 4,285.74 1,964.05 2267.67

Zhuhai 1,990.12 2,519.80 525.63 1,225.30 451.24

21 Cited from Xu Li Li (徐麗麗) and Long Zhi He (龍志和), “Measurement and Analysis of the Economic Relationship Between Hong Kong and the Guangdong Region”, China Economist (經濟師), 4 (2007).

58

Zhongshan 3,212.49 5,406.94 862.44 2,814.96 830.13

Jiangmen 6,172.71 10,108.11 1,654.85 5,937.35 1,576.45

Total 171,652.02 98,854.84 14,808.26 19,136.90 6,318.15

Note: The formula for calculating the absolute economic relationship value is: ×i i j j

ijaij

PV PVR

D=

, where Rija is the absolute relationship value, Pi and

Pj are the population of cities i and j, Vi and Vj are the GDP of cities i and j, and Dij is the transportation distance between the two cities i and j.

(2) The division of labour and infrastructure of the Pearl River Delta Metropolis have already displayed the characteristics of a metropolis. In general, the division of labour and infrastructure of a world-class metropolitan region have three characteristics: (1) the central city focuses on developing the producer service industries, that is, finance, banking, accounting, legal, insurance, auditing, information and information processing, design, R&D, trading, engineering consulting and other business services; (2) the central city gathers the region’s hotels and tourism enterprises and facilities, as well as modernised international airports, ports and telecommunication ports, to facilitate international and national flows of information, people and cargoes;

(3) The infrastructure of the metropolitan region branches out to the outer rings, and links up with the country’s transportation network.22

22 See Xue Feng Xuan (薛鳳旋) and Cai Jian Ming (蔡建明), “Transformation and Development Strategies of China’s Three Extended Metropolitan Regions”, Geographical Research (地理研究) 22:5 (2003).

On these criteria, the Pearl River Delta Metropolis has already demonstrated these three characteristics. First, in economic structure, the Pearl River Delta Metropolis has already developed into a vigorous region with prominent central cities and active economic and commercial activities. Hong Kong-Shenzhen, Guangzhou-Foshan, and Macao-Zhuhai have emerged as the central cities or quasi-central cities of the Pearl River Delta Metropolis. In the economic indicators led by GDP, it is shown that the economic output of three (groups of)

59

central cities account for an overwhelming share of the Pearl River Delta Metropolis’ total economic output. This can be manifested by comparing Table 2.4 with Table 2.2. Of the three, the East Bank Urban Area led by Hong Kong-Shenzhen has the largest economic output.

Table 2.4 Economic Output of the Pearl River Delta Metropolis’ Central Cities (2006)

City

Indicator

Hong Kong- Shenzhen

Guangzhou- Foshan

Macao-Zhuhai

Total Hong Kong23

Shen- zhen

Guang- zhou

Foshan Macao24

Zhuhai

GDP (RMB billion) 1,481.0 581.4 607.4 292.8 111.6 74.8 3,149.0

Deposit balance (RMB billion) 4,787.0 1,061.6 1,335.1 446.4 161.2 114.9 7,906.2

Loan balance (RMB billion) 1,982.9 835.4 866.9 242.0 49.3 52.7 4,029.2

Saving deposit balance of residents (RMB billion)

1,365.4 374.5 556.1 266.7 44.1 54.0 2,660.8

Total retail sales of consumer goods (RMB billion)

220.6 167.1 218.3 77.6 10.4 25.6 719.6

Total exports (US$ billion) 316.5 136.0 32.4 21.1 2.6 14.8 523.4

23 Hong Kong’s authorised financial institutions include licensed banks, restricted licence banks, and deposit-taking companies. The customer deposits figure in the Hong Kong and Macao Economy Yearbook is taken as deposit balance, and the loans and advances figure of authorised institutions in the Hong Kong and Macao Economy Yearbook is taken as loan balance in this table. Because licensed banks account for an overwhelming share in the Hong Kong banking industry, the savings deposit figure of licensed banks is taken as saving deposit balance of residents in this table. For total retails sales of consumer goods, the total retail sales figure is used. For total exports, the total exports figure in 2006, which include domestic exports and re-exports in the year, is used. For utilisation of foreign investment, the inward direct investment figure in 2006 is used. 24 Macao’s deposit balance is shown as residents’ deposits in the Hong Kong and Macao Economy Yearbook. It includes the deposits (current deposits, savings deposits, notice deposits, and time deposits) of natural persons and legal persons (incorporations) in the banking system of Macao. The savings deposits figure under the residents’ deposits is taken as saving deposit balance of residents in this table. The loan balance in the table refers to total credit, which includes loans and advances, discount notes and others. For total retails sales of consumer goods, the total retail sales figure is used. For utilisation of foreign investment, the inward direct investment figure in 2006 is used.

60

Actual utilisation of foreign investment (US$ billion)

42.9 3.3 2.9 1.1 1.6 0.8 52.6

Notes: All figures are at current prices. Figures in Hong Kong dollars and Macao patacas have been converted to renminbi according to the exchange rates as of end-2006.

Source: Guangdong Statistical Yearbook (2007) and Hong Kong and Macao

Economy Yearbook (2007). Secondly, most producer service industries and high-end service industries are concentrated at the central cities like Hong Kong, Guangzhou, and Shenzhen. Most financial institutions and persons engaged in the financial industry, listed companies, accounting and law firms, tourists, star-rated hotels and overnight visitors, R&D input and patent applications are also found in the above-mentioned central cities (see Table 2.5).

Table 2.5 Size of High-end Service Industries in the Pearl River Delta

Metropolis’ Central Cities25

City

Indicator

Hong Kong- Shenzhen

Guangzhou- Foshan

Macao- Zhuhai Total Hong

Kong Shen- zhen

Guang- zhou Foshan Macao Zhuhai

Persons engaged in the financial

industry (no. of persons)

179,300 54,170 63,491 23,682 6,900 6,650 334,193

Foreign banking institutions (no.) 114 39 41 0 15 6 215

Listed companies (no.) 1,165 84 35 9 4 12 ---

Insurance institutions (no.) 181 36 36 25 24 24 326

Insurance premiums 19.4 13.5 17.5 6.1 2.4 1.7 60.6 25 In the table, the number of persons engaged in the financial industry in Hong Kong is the 2005 figure. The number of listed companies, accounting firms, and law firms are the latest statistics. The others are 2006 figures. Figures in Hong Kong dollars and Macao patacas have been converted to renminbi according to the exchange rates as of end-2006. Hotels of Hong Kong are classified into High Tariff A Hotels, High Tariff B Hotels, Medium Tariff Hotels and Tourist Guesthouses. There is no ‘star rating’. The number of star-rated hotels for Hong Kong in the table is the total number of High Tariff A Hotels, High Tariff B Hotels, and Medium Tariff Hotels.

61

(RMB billion) Accounting firms

(no.) 1,431 250 165 43 10 21 1920

Law firms (no.) 714 309 294 114 61 39 1531 Revenue of postal

and telecommunication

services (RMB billion)

--- --- 23.1 8.5 --- 2.8 ---

Total revenue of tourism industry (RMB billion)

118.9 46.1 70.1 12.8 34.6 13.9 296.4

Passenger throughput (million

persons) 218.79 139.57 437.77 163.15 25.74 54.71 1,039.73

Star-rated hotels (no.) 115 356 209 95 49 80 904

Overnight visitors (million persons) --- 23.17 29.60 6.28 --- 7.30 ---

R&D expenditure (RMB billion) 10.9 19.1 10.4 --- --- 0.2 ---

Patent application (no.) 1,881 11,494 6,399 9,064 15 1,251 30,104

Sources: China Statistical Yearbook (2007), Yangtze River Delta & Pearl River Delta and Hong Kong & Macao SAR Statistical Yearbook (2007), Hong Kong and Macao Economy Yearbook (2007), and the Statistical Yearbooks (2007) of Shenzhen, Guangzhou, Foshan, and Zhuhai; the figures on accounting and law firms are obtained from the websites of the relevant trade associations of the cities under study, including the websites of the Law Society of Hong Kong, Hong Kong Association of Chartered Accountants, Law Society of Macao, and Macao Society of Chartered Public Accountants.

Thirdly, the transport infrastructure within the Pearl River Delta Metropolis, and the accessibility between cities, has attained a certain level. Roads and railways form an important part of the internal transportation system of the Pearl River Metropolis. There are also railways and roads leading out from the region. The Pearl River Delta Metropolis has five large airports, with substantial passenger and cargo throughput. Sea and river ports are located in the region in clusters, and the cargo throughput via these is also considerable (Table 2.6).

62

Table 2.6 Transport and Logistics Infrastructure of the Pearl River Delta Metropolis

Central City Hong Kong + Shenzhen

Guangzhou + Foshan

Macao + Zhuhai Total

Airports (no.) 2 1 2 5 Ports (no. of berths) 225 1190 101 1516 Of which: ten-thousand tonnage 134 59 9 202

Railway (km) 221 1462 0 1683 Roads (km) 3535 9519 1442 14496 Of which: 1st class 588 1541 319 2448 2nd class 280 1204 57 1541 highways 244 530 4 778 Cargo throughput (million tonnes) 370.54 515.36 33.66 919.56

Of which: road transport 113.14 245.72 21.85 380.71

water transport 150.05 107.10 11.68 268.83

civil aviation 34.17 0.63 0.13 34.93

rail transport 6.10 161.91 0 202.94

Notes: All are 2005 figures. Hong Kong and Macao do not classify their roads. The figures of 1st class and 2nd class roads and highways therefore do not include Hong Kong and Macao.

Source: Yangtze River Delta & Pearl River Delta and Hong Kong & Macao

SAR Statistical Yearbook (2006).

3. International Comparison of the Pearl River Delta Metropolis (1) Development of polycentric urban areas in the world. Since the 1990s, the mode of polycentric urban agglomeration and urban area development has replaced the central places theory as the mainstream theory in academia and urban development and planning. The central place theory is a mono-centric urbanisation model. The relationship between central places is a vertical hierarchy. There is no lateral and cooperative relationship between central places. In contrast, the development mode of polycentric urban areas is

63

established on the lateral relationship between cities in a network.26

In the former theory, the free-will and diversity of cities in development are restrained by the hierarchy. In the latter theory, the many cores of the region progress together, leading to co-evolution. In the world’s course of economic development, the development mode of mono-centric central cities belongs to the industry era. To be more exact, it belongs to the industrialisation era of Fordist production mode, when there was less competition in the international marketplace. As for polycentric urban areas, in developed countries, they belong to the post-industrial era, where the impetus of economic development and urbanisation comes from service industry and innovation. Developing countries can be strengthened through the aggregation of local or regional competitiveness, in order to overcome the great pressure of competition from the developed countries. Both are facing the challenges of globalisation that has effectuated keener competition in the international marketplace.

The Netherlands and Belgium were the earliest in setting the development strategy and planning policy of polycentric urban regions as policy directives. Affected by the two countries, the European Union adopted them into its official policy in the late 1990s. 27 The European Spatial Development Perspective in 1999, and other decrees of the European Union, rule the nurture and promotion of polycentric urban regions as the development strategy of Europe as a whole.28

Since the 21st century, the European Union has initiated a number of related studies and plans, and the member countries of the European Union are also promoting many plans for polycentric urban regions. Table 2.7 shows the related plans currently undertaken by the European Union.

26 See Evert Meijers, “From central place to network model: theory and evidence of a paradigm change”, Tijdschrift voor Economische en Sociale Geografie 98:2 (2007), pp.245-259; Z. P. Neal, “From central places to network bases: the emergence of a new urban hierarchy, 1900-2000”, edited and posted on http://www.lboro.ac.uk/gawc/rb/rb267.html on 19 May 2008. 27 Evert Meijers, “Synergy in Polycentric Urban Regions - Complementarity, organising capacity and critical mass”, Sustainable Urban Areas 13 (2007). 28 The development strategy laid down by the “European Spatial Development Perspective” is meant to further upgrade the international competitiveness of Europe as a whole. It attempts to eliminate the development gaps within Europe (mainly the gap between the global integration zone of London, Paris, Brussels and Rhine-Ruhr, and the other regions of Europe) through the nurture, and promotion and development of polycentric metropolitan regions. See Evert Meijers, “Synergy in Polycentric Urban Regions - Complementarity, organising capacity and critical mass”, Sustainable Urban Areas 13 (2007).

http://www.lboro.ac.uk/gawc/rb/rb267.html�

64

Table 2.7 Planning Projects Promoted by European Countries on Polycentric Urban Regions

Country Concept Example of Regions

Belgium Urban-network Flemish Diamond (Brussels-Antwerp-Ghent-Leuven)

Denmark

Regions of competence,

polycentric national centres

Struer-Holstebro-Herning-Ikast; Middlefart-Kolding-Vejle-Fredericia

Estonia Urban-network Ida-Viru County: Johri-kohtla-Jave-Narva

France Reseaux dex villes (urban-network)

Normandie Metropole (Caen-Le Havre-Rouen)

Germany

European metropolitan region;

stadtenetze (urban-network)

Rhine-Ruhr (Bonn-Cologne-Dusserdorf-Essen-Dortmund);

Bergisches tri-city area (Remscheid-Solingen-Wuppertal);

Sachsendreieck (Dresden-Leipzig-Chemnitz/Zwickau)

Greece Twin poles / bi-pole Larissa-Volos

Italy City-network, multi-centric

metropolitan system Veneto (Padua-Venice-Treviso)

Ireland Linked gateways Letterkenny-Derry; Athlone-Tullamore-Mullingar

Lithuania Metropolis Vilnius-kaunas Vilnius-Kaunas

The Netherlands Rrban-network

Randstad (Amsterdam-Rotterdam-Hague-Utrech);

Brabantstad (Breda-Tilburg-Den Bosch-Eindhoven-Helmond)

Poland Duopolies Warsaw-Lodz; Torun-Bydgoszcz

Switzerland Vernetzte

Stadtesysytem (polycentric system)

Northern part of Switzerland (Zurich-Basel-Bern-Winterthur-Luzern)

Source: Evert Meijers, “Synergy in Polycentric Urban Regions - Complementarity, organising capacity and critical mass”, Sustainable Urban Areas 13 (2007).

In recent years, the Mainland has also adopted development strategies similar to that of polycentric urban regions. For instance, it has endorsed the Chengdu-Chongqing Economic Zone and Changsha-Zhuzhou-Xiangtan- Wuhan Economic Zone in the country’s regional policies. The incorporation of

65

counties in the peripheral areas by Guangzhou and its integration with Foshan in recent years also belong to the development mode of the polycentric urban region (although it belongs to the incorporation mode, and is different from the fusion mode of Chengdu-Chongqing and Changsha-Zhuzhou- Xiangtan-Wuhan). The development strategy of the polycentric urban region is adopted against the following backdrop:

First, international and regional competition has intensified. In Europe, in addition to the factor of globalisation, there is also the factor of competition under European integration. The central cities of a country now need to fully compete with the central cities of other countries. Market protection and injection through national policies have significantly reduced. The central cities of the developed countries can no longer rely on the support of their rich national resources. The central cities of the developing countries also find it difficult to rely on national policies to protect their markets. In the Mainland, market reform has eradicated local protectionism. Following China’s accession to the WTO and the signing of other bilateral free trade agreements, it has to abide by the principles of national treatment, most favoured nation rule, etc. These principles not only open up the Mainland market, but also restrain the government from providing special support through fiscal and other policies. From the capital of Beijing to the provincial capitals and to the central cities at the other levels, they have to embrace market competition under globalisation and integration of the whole China market. As the central cities have only limited resources, market, and talent, they can only become stronger by gathering together. Many central cities have therefore integrated with their neighbouring counterparts to compete together. Under the pressure of competition from the external world, the integration has evolved from simple cooperation to in-depth integration. The competitiveness formed by the integration of central cities, in turn, pressures the other integration of central cities and urban regions to deepen their integration, thereby effectuating a cycle of continuous reinforcement. Secondly, the global economy has entered a new era. Industrial production is no longer concentrated at one location. Rather, a lot of production has become cross-boundary, cross-nation, and even cross-continent, and on an enormous scale. At the same time, the division and modularisation of production procedures have rendered the integration of services at the upper and lower stream more important, inducing industrial chain and supply chain systems, and

66

the commercial mode of ‘global value chain’ that combines the two. The global value chain is heavily dependent on the functions of cities, especially their global functions. It is therefore biased towards the large cities and urban regions. Only the low value-added production and processing work will take place in the enclave industrial districts outside the cities. As such, the polycentric urban regions will have the edge over the traditional central cities or mono-centric metropolises like London and Paris. In the first place, polycentric urban regions contain many central cities in origin, and benefit from economies of scale at the aggregation of these central cities. While the aggregated economic size can be comparable to large metropolises like London, the polycentric urban regions are advantageous in capitalising on the many original city functions of their central cities. They can thus have a more diversified service sector and sophisticated division of labour, covering a larger portion of the value chain and producing higher synergy and complementarity effects.29

The focus of this is not just on the traditional production factors (capital, technology, human resources), but on the composition of a bigger supply and demand market of these production factors in the polycentric urban regions, forming critical mass and producing content of higher diversity. More important, there is the aggregation of knowledge. It is a traditional function of a city to aggregate knowledge through the flows of people and cargoes. In the polycentric urban regions, the level and effect of aggregation are much elevated. The aggregated knowledge and the global value chain will promote each other, and knowledge is the prerequisite condition for industry and system innovation.

Thirdly, the economic benefits mentioned above, such as agglomeration effects, economies of urbanisation, economies of localisation (effects of people, enterprises and institutions contacting, exchanging and interacting directly), economies of network (networking with local and cross-border or international factors), and economies of scale and scope of traditional industrial production, as well as related factors like diversification and innovation, can only be collected in the polycentric urban regions. They are hence the keys to success 29 The synergy and complementarity effects here are more related to lateral relationship. They include what is called in economics ‘positive network externalities’ that are induced by cooperation and competition. Synergy and complementarity effects of lateral relationship are better than synergy and complementarity effects of the traditional vertical relationship. The latter focuses mainly on the benefits of sizeable production and division of labour from agglomeration. It is more suitable to the traditional Fordist large-scale production mode, but not the current production mode of market segmentation and customisation promoted by the global value chain. For analyses of synergy and complementarity effects, see Evert Meijers, “Polycentric urban regions and the quest for synergy: is a network of cities more than the sum of the parts?” Urban Studies 42:4 (2005), pp. 765-782.

67

in the competition among cities and urban regions. Fourthly, problems pertinent to a mono-centric metropolis, such as packed traffic, living environment and space, high costs and cellular manufacturing, pollution caused by over-expansion and over-concentration, and lack of the abilities and opportunities for innovation brought forth by diversification and multiplex competition, can be avoided by the “concentrated decentralisation in urbanisation” pattern of polycentric urban regions.30

According to Meijers, a Dutch academic, the ‘edge’ of polycentric urban regions is latent. It requires integration in the functions of the many cores of the region to bring out the actual effectiveness. Integration in this context does not refer to the traditional division of labour or coordination of functions. Instead, it is an integration of dispersed functions for the whole urban region in a new pattern. It can be symbolised by segregation in the relationship between population and the size and city functions of central cities. For instance, the concentration of city functions or service industries in a core of a polycentric urban region is not related to the size of this core. The various functions and clusters of different service industries are well dispersed among the cores. High-end service industries and city functions can be located, say, in a secondary city centre.31 The same situation happens even in the labour market. Different types of labour force adapt to different markets. Taking Randstad of the Netherlands as an example, the high-level professionals of the whole urban region form a regional labour market that serves the whole region and the market outside the region. Each central city in the region can have different city functions, and the professionals working outside the region will be confined to a travelling distance of 45 to 50 kilometres. As for the low-technology workers and posts, they gather at individual central cities, and are not flowing across the whole region.32

30 Even for Paris, there have always been attempts to change the Paris Metropolis into a polycentric urban region. The development direction, however, is to create new sub-centres in the region, which is different from a genuine polycentric urban region. See Ludovic Halbert, “The Polycentric city region that never was: the Paris agglomeration, Bassin Parisien and Spatial Planning Strategies in France”, Built Environment 32:2 (2006), pp. 184-193. 31 See footnote 4. 32 Evert Meijers and Arie Romein, “Realizing Potential: building regional organizing capacity in polycentric urban regions”, European Urban and Regional Studies 10 (2003), pp. 173-186; and Robert C. Kloosterman and Bart Lambregts, “Clustering of Economic Activities in Polycentric Urban Regions: The Case of the Randstad”, Urban Studies 38:4 (2001), pp. 717-732.

68

This concentrated decentralisation is a characteristic and advantage of polycentric urban regions. It is also a trend to cope with some of the spatial distribution of the service industry in the value chain. 33

To attain this advantage of functional integration, it is a basic requirement for the many cores of the region to exchange, cooperate and integrate with each other. This is related to the convenience and costs (time cost in particular) of the flows of people, cargo, capital, and information within the region. A critical factor is the track network of public transportation and the supporting systems of other transportation means. They can turn, for instance, the polycentric urban region into one-hour living circles or economic circles. Most metropolitan regions of the world have attained this standard. The Pearl River Delta Metropolis is also targeting at this standard and will probably attain it around 2010.

It is noteworthy that polycentric urban regions are very open. The flows of people, cargo, capital, and information in a polycentric urban region are usually not just confined to the region, but extend to the external world like the globalised value chains. This reveals the network property of urban regions. However, globalised value chains are industry-based. The globalised value chains of different industries differ from each other in content, spatial layout, and scope, and do not totally overlap. Inevitably, some producer services and the city functions derived from them may be similar. In addition, the globalised value chains of different industries may have different markets. Globalisation includes localisation and the markets may range from national markets, regional markets to local markets within the urban region. This brings in two special factors. First, the local city functions, industries (including service industries), and markets of a polycentric urban region do not pertain to a simplex closed system. They are open with large diversity and different scope: multi-scalar, different degree, different content. Secondly, there are three factors in this diversified open system: connectivity (including accessibility), heterogeneity and differentiation, and the dialectical relationship between nodes and places. The former two factors are obvious, particularly that innovation can only be induced by differentiation, and a diversified open system must include and constantly produce differentiation. Nodes are the 33 This is the so-called spatial de-concentration. The new layout is dispersed in consideration of factors like rental, accessibility, environment, agglomeration (including historical factors), etc. See Evert Meijers and Arie Romein, “Realizing Potential: building regional organizing capacity in polycentric urban regions”, European Urban and Regional Studies 10 (2003): 173-186 and Simin Davoudi, “Polycentricity in European Spatial Planning: from an analytical tool to a normative agenda”, European Planning Studies 11:8 (December 2003), pp.979-999.

69

constituents of a network. They are also the transit points and junction points of the flows of people, cargo, capital, and information. However, nodes are merely the space of exchange for the various flows within a network. The flows do not necessarily generate social, economic, and cultural effects and functions at the nodes. A node needs to be a place with social, economic, and cultural setting to generate these effects and functions. Places that are not nodes cannot be of much importance. It is even difficult for them to become a city or the location of urbanisation. Although a node enhances the importance of a place, a place in turn also enhances the opportunity and capability of a node in linkage, interflow, and exchange. The two enter into a circle of mutual promotion.34 This is why polycentric urban regions supersede mono-centric cities or urban regions. This is also why some mono-centric urban regions like Tokyo and Paris try to produce new nodes and new places (secondary city centres) through the construction of rail transportation, so as to achieve functions and effects similar to those of the polycentric urban regions.35

The multi-scalar openness of polycentric urban regions is not confined to the relationship between nodes and places in the region. There are also the relationship between individual places and the region as a whole, and that between the region and the external world. Localisation at different scales within these relationships exhibits the integration and functioning of local resources, and it is the base for place development. Against the backdrop of intensified competition in the open market, innovation and changes are needed, and the keys to them are the external linkage and external factors. Under the current conditions of internationalisation, there are many options for external linkage. One can even link up with the most advanced technology of the world, and usher it in through investment, technology transfer, and exchanges of talent and culture. In a polycentric metropolitan region, not every constituent is equipped with the conditions to pioneer in developing linkage with the international community and ushering in advanced technologies. This issue is related to, firstly, systems, in particular the provision of support in the protection of intellectual property rights via the legal system, and secondly, the provision of social and cultural lives, that is, how to communicate and exchange with international enterprises and talent, and how to meet the living

34 For a discussion of the node-place model, see Luca Bertolini, “Station areas as nodes and places in urban networks: an analytical tool and alternative development strategies”, in Frank Bruinsma et. al, eds., Railway development: impacts on urban dynamics (Heidelberg: Physica-Verlag, 2008), pp. 35-58. 35 Corinne Tiry, “Tokyo Yamanote line-cityscape mutations”, Japan Railway and Transport Review 13 (September 1997), pp. 4-11.

70

quality requirements of incoming talent. International developments among enterprises, and in economic, social and cultural aspects, have formed an internationalised city hierarchy system, or world city hierarchy system and network. Polycentric urban regions like the Pearl River Delta Region may enter this hierarchy system and network through open international relationships, and derive more extensive, higher level network effectiveness. However, not every place constituting an urban region can enter, contact or interact with the international system. Only certain places have the appropriate conditions and ability. Within the Pearl River Delta Metropolis, Hong Kong, which exists under the “One Country, Two Systems” principle, and is at the highest in the level of internationalisation, can take up this role and function. Based on this, a multi-scalar system of division of labour in the relationships of localisation and internationalisation can be composed by Hong Kong and the other places of the Pearl River Delta Metropolis. Because of the internal and external openness of polycentric urban regions, two types of network externalities are produced. The first type is the overall network externalities of the region that can be enjoyed by all member cities or places of the region. Then there are the network externalities in the networking between the urban region and the hierarchy system of international cities or world cities. International development experiences in recent years show that network externalities are no longer the traditional benefits of lowering transportation cost and enlarging market coverage and market size. Instead, economies of scale are increased through complementarity relationships and synergy effects of cooperation. An urban area network resembles the membership system of clubs in nature. It is shared by all participants, while non-members are repelled. A membership system is not a ‘free lunch’ in nature. Every member should actively contribute to the ‘club’ of urban areas or the network, and share the benefits upon the relationship of cooperation. Meanwhile, the actual benefits of network externalities are dependent upon whether and how the participants use the network: for instance, strategic cooperation and coordination in policies, learning and transplant of other cities’ success experience and ways of innovation, and even specific measures like cross-boundary division of labour, etc. They are often related to policy formulation and implementation.36

36 Roberta Capello, “The City Network Paradigm: measuring urban network externalities”, Urban Studies 37 (2000), pp. 1925-1945; United Nations Economic and Social Commission for Asia and Pacific (ESCAP), Toward an Asian Integrated Transport Network, 2nd ed. (New York: United Nations

Taking the Pearl River Delta Metropolis as

71

an example, once the rail transport integrates every group of cities and places into half-hour or one-hour living circles or economic circles, it will be easy to enjoy the network externalities. Every city and place can input its own policies and resources and obtain different amount of actual externalities. In seeking network externalities, in addition to cooperating and collaborating with each other, the cities and places in each group are also engaged in city-based competition, which resembles market competition. Amid the enhancement in total effectiveness, there are also the effects of perpetual competition in the region.

(2) Comparison of the Pearl River Delta Metropolis with other international metropolitan regions. The formation of metropolitan regions in the early days exhibited the development pattern of global urbanization: from township agglomerates to central cities, from central city agglomerates to urban areas, and from urban areas expanded to metropolises and further to megalopolises. The development trend has tended to be “central city → urban area → metropolis → megalopolis” in global urbanisation. Most global cities like New York, Tokyo, and London have gone through similar stages of development. From Table 2.8, it can be clearly seen that New York, Tokyo, and London have developed through the four stages of central city, urban area, metropolis and megalopolis.

Economic and Social Commission for Asia and Asian Institute of Transport Development, 2007). Downloadable from: http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_2399-2/pub_2399-2_fulltext.pdf.

72

Table 2.8 Development of the Metropolitan Regions of New York, Tokyo and London

New York Tokyo London

Central city Manhattan, the

Bronx, Brooklyn, Queens, Richmond

Three commercial

districts of Tokyo City and 23

wards under its jurisdiction

16 boroughs including West End, Financial District,

and 14 other boroughs

Urban area

New York City, 4 counties in New

York State, 8 counties in New

Jersey State

23 wards and 27 districts in

Tokyo’s urban and suburban

areas

16 Inner London boroughs, 19 Outer London boroughs, all or neighbouring parts of 11 counties

in the peripheral areas of Greater

London

Metropolis

33 cities and counties in NY

City Proper, southwestern part of Connecticut,

northern part of NJ State, Long Island and Lower Hudson

Valley

Tokyo Metropolis, Kanagawa Prefecture,

Saitama Prefecture, Chiba

Prefecture

London Metropolis, remaining parts of 11 counties in the

outer ring of London Metropolis

Megalopolis

New York metropolitan area,

Boston, Washington D.C.

Greater Tokyo Area, the four prefectures of

Gunma, Tochigi, Ibaraki,

Yamanashi

London, Birmingham,

Liverpool

Sources: Compiled by the research team from various sources of information.

While the area and population of the metropolitan regions continues to expand, the population density has been falling (see Table 2.9).

73

Table 2.9 Land Area, Population, and Population Density of New York, Tokyo and London Metropolitan Regions

New York Tokyo London Area of central city 780 km2 598 km2 321 km2 Population/density of central city (per km)

7.38 million / 9,225

8.46 million / 14,147

2.34 million / 7,325

Area of urban area 10,202 km2 2,102 km2 1,580 km2 Population / density of urban area (per km)

16.06 million / 1,574

12.57 million / 5,980

7.38 million / 4,716

Area of metropolis 33,483 km2 13,280 km2 11,427 km2 Population / density of metropolis (per km)

19.34 million / 644

34.47 million / 2,595

12.53 million / 1,110

Area of megalopolis 140,000 km2 36,348 km2 27,224 km2 Population / density of megalopolis (per km)

65.00 million / 464

42.38 million / 1,166

36.50 million / 1,340

Sources: United Nations Centre for Human Settlements, An Urbanizing World: Global Report on Human Settlements, 1996 (Beijing: China Architecture & Building Press, 1999); Li Ping Ping et.al., (李萍萍等), Planning Study on the Overall Urban Development Concepts of Guangzhou (Beijing: China Architecture & Building Press, 2002); Gao Ru Xi (高汝熹) and Luo Ming Yi (羅明義), Economy of Urban Agglomeration (Kunming: Yunnan University Press, 1998).37

Compared with the metropolitan regions of New York, Tokyo, and London, the Pearl River Delta Metropolis lags behind and is internally unbalanced in economic output, economic functions, and economic efficiency. In the “hard” indicators such as land area, population, and population density, however, it is comparable to the three international metropolitan regions. Of the four large metropolitan regions, the Pearl River Delta Metropolis ranks top in land area and total population, and middle in population density (see Table 2.10).

37 Cited in Zhu Da Jian (諸大建), “Establish Shanghai Megalopolis into a World-Class Megalopolis (3)”, the Chinese skills exchange website (華僑華人經濟技術網), 15 November 2005.

74

Table 2.10 International Comparison for the Pearl River Delta Metropolis

Metropolitan Region

Land Area (km2) Total Population (million)

Population Density (no. of

persons per km2) Pearl River Delta

Metropolis 42,648 49.85 1,169

New York Metropolis

33,483 19.34 644

Tokyo Metropolis 13,280 34.47 2,595 London Metropolis 11,427 12.53 1,110

In addition to the similarities and differences in the above general parameters, the Pearl River Delta Metropolis has the following special features in comparison with the metropolitan regions of New York, Tokyo, and London: First, the Pearl River Delta Metropolis is not a “capital city” per se. New York, Tokyo, and London are “capital-type metropolitan regions”: the core city of the metropolitan region is the capital of the country where it is located. (The situation of New York is rather special, as Washington D.C., the capital of the United States, is purely a political centre. Most of the functions of the “economic capital” of the United States are performed in New York.) The Pearl River Delta Metropolis does not have the strengths and capabilities of capital cities that benefit from a concentration of resources in politics, economics, technology and culture. However, in the special historical background of China’s transformation from planned economy to market economy, owing to the “Hong Kong (Macao) factor”, an economy with unique systems that have penetrated into the Pearl River Delta Region, the Pearl River Delta Metropolis has become the most market-oriented region in China. The market-oriented allocation of production factors and resources in this region is also the highest in China.

Secondly, the Pearl River Delta Metropolis is not “mono-nucleus”. The metropolitan regions of New York, Tokyo, and London are all developed and formed naturally from the expansion of a mono-nucleus city. The Pearl River

75

Delta Metropolis, meanwhile, has the “dual nuclei” of Hong Kong and Guangzhou. This is also the result of historical developments. Before the 1950s, Shanghai was the most influential city of China (maybe of the Far East too), and Guangzhou is a major city in South China. The economic power and influence of Hong Kong at that time was far less competitive than Shanghai and Guangzhou. In the recent five decades, however, Hong Kong has developed into a major international city, and has in particular replaced Guangzhou since China’s reform and opening up, as the engine for driving the development of the Pearl River Delta Region. During this period, Shanghai and Guangzhou were striving to pick up their faded glory. It is noteworthy that after the recent years’ development, Guangzhou has re-emerged as a major core of the Pearl River Delta Region. Given the change in economic power between Hong Kong and Guangzhou and their balanced influence to the Pearl River Delta Region, it is certain that for quite a long period of time in the future, developments in the Metropolis will be led by the dual nuclei of Hong Kong and Guangzhou together. This is another unique characteristic of the Pearl River Delta Metropolis.

Thirdly, systems within the Pearl River Delta Metropolis are not “identical”. The metropolitan regions of New York, Tokyo, and London are each developed and formed under one system and in one country. But for the Pearl River Delta Metropolis, Hong Kong and Macao are administered under a system different from that of the Pearl River Delta Region. One is a highly mature marketing economy system, and the other is a transforming market economy system. Two different types of economies and different customs regimes co-exist in the Pearl River Delta Metropolis. Within the Metropolis, there are separate customs and ports of entry, resulting in special expenditure items and attrition of efficiency. Between the two systems, or even within one system, there are many areas that still need coordination and “run-in”. Market forces and market rules have not been able to function fully, and there are many constraints by the public authorities in ‘guiding’ the market forces. Therefore, market forces alone cannot lead to the formation and development of the Pearl River Delta Metropolis, and improvements and coordination in public policies are essential.

Fourthly, coordination in the Pearl River Delta Metropolis is neither simple nor straight-forward. For New York, Tokyo, and London, despite the existence of different jurisdictions, the development and formation of the

76

metropolitan regions were led by market force. The public administration in the Pearl River Delta Metropolis is far more complicated. In the Metropolis, there are two special administrative regions (Hong Kong and Macao); the provincial city of Guangzhou; and the special economic zones (SEZ) of Shenzhen and Zhuhai. Although the cities are well connected economically, they have to compete for administrative resources. To a certain extent, this competitive relationship can promote the development of the cities. For the development of the whole region, however, this has made regional coordination more difficult. Sophisticated deliberation on interests would increase the complexity of regional coordination and cost of coordination. Unconformity in interests, in particular, would induce an upsurge in time cost (such as in the case of the Hong Kong-Zhuhai-Macao Bridge). The Pearl River Delta Metropolis might lose some rare opportunities for development. This is a challenge that has to be faced and overcome by all cities in the Pearl River Delta Metropolis.

(3) Comparative analysis of the Pearl River Delta Metropolis and Tokyo Metropolis (Megalopolis). An obvious fact is that, in comparing the Pearl River Delta Metropolis that is being formed with the Tokyo metropolitan region, we find considerable similarities in the development process and overall economic structure. An in-depth comparative analysis of the two metropolitan regions is therefore conducive to understanding the future development trends and directions of the Pearl River Delta Metropolis. The development process of the Pearl River Delta Metropolis, has been delineated in the former chapters. This section will focus on the development of the Tokyo metropolitan region.38

38 Relative to the Pearl River Delta Region, it took a shorter time (less than three decades) to form the Tokyo metropolitan region. This reflects the rapid development of Tokyo, as well as the effect of the institutional factor of Tokyo as the capital of Japan. In terms of system, there is no difference between Tokyo Metropolis and the neighbouring prefectures. It is merely demarcation of jurisdiction. It has also been three decades in the metropolitan development of the Pearl River Delta Region since China’s reform and opening up. A metropolis, however, has not been formed in the whole region. In addition to the obstacle that Hong Kong was a colony before 1997, a critical factor is the slackened development of rail transport network in the Pearl River Delta Region, hence not being able to drive the rapid urbanisation of the region. In Tokyo, the development of Tokyo, Yokohama, and the areas around Tokyo Bay is led by rail transport. Railway constitutes the most important transportation mode between Tokyo Metropolis and the peripheral areas, and within Tokyo. After the 1960s, it is the railway, underground railway, and Shinkansen, the high-speed train. For the Pearl River Delta Region, before 1997, there was only the Mass Transit Railway in Hong Kong, and the Kowloon-Canton Railway for travelling from Hong Kong to Shenzhen, Dongguan, and Guangzhou. In the western part of the Pearl River Delta Region, there was no rail transport except the one from Guangzhou to Sanshui. In driving urbanisation, highway networks are far less effective than the high-speed mass transit systems of rail transport networks. In the Tokyo Metropolis, despite the large underground railway network, heavy rail trains and Shinkansen trains leave the station every few minutes, transporting more than a thousand

In general, the Tokyo metropolitan region has

77

experienced the following stages in development process and hierarchy structure:

(1) Core of the Tokyo metropolitan region – “Special Wards of the Tokyo Metropolis”. This refers to the “23 wards of Tokyo”, or what people usually call “Tokyo City”. The three most important wards are Chiyoda, Chuo, and Minato. They are taken as ‘the core of the core’ of the Tokyo metropolitan region. The population of the “Special Wards of the Tokyo Metropolis” is about 8.46 million, slightly more than Hong Kong (see Figure 2.4).

Figure 2.4 Core of the Tokyo Metropolitan Region – 23 Wards of Tokyo

(2) Tokyo Metropolitan Area – the Tokyo Metropolis. The Tokyo Metropolitan Area generally refers to the sub-national jurisdiction administered by the Tokyo Metropolitan government. It includes the 23 wards of Tokyo, Tama Area, and the Islands district composed of Izu Islands, Ogasawara Islands, etc. The Metropolitan Area has a population of approximately 12.57 million.

passengers each time. Being free from obstruction such as traffic congestion and road accidents in road transport, rail transport has very high efficiency. When the rail transport forms a network, as in the case of the Tokyo Metropolis after the 1960s, nearly all metropolitan facilities are located within one kilometre (or 15 minutes of walking distance) of a railway station. At the promotion of rail transport network, the process of urbanisation will be accelerated and deepened, and a metropolitan region will be formed with high degree of integration and connectivity. Most large metropolitan regions in the world comparable in size with Tokyo are supported by the rail transport network. The larger the metropolitan region, the higher is the rail transport network density. Around the railway stations, taking Tokyo as an example, there is usually an intermodal network of short to medium-distance transportation means, including buses, private cars, light motorcycles, bicycles, etc., to facilitate residents to travel and maintain connectivity and accessibility.

78

Figure 2.5 Tokyo Metropolitan Area – the Tokyo Metropolis

(3) Tokyo Metropolitan Region – Four Sub-national Jurisdictions. The coverage of the Tokyo metropolitan region includes four sub-national jurisdictions of Japan, namely, Tokyo Metropolis, Saitama Prefecture, Chiba Prefecture, and Kanagawa Prefecture. The region has a population of 34.47 million (see Figure 2.6).

79

Figure 2.6 Tokyo Metropolitan Region – Four Sub-national Jurisdictions

(4) Tokyo Megalopolis – National Capital Region. This is the “Kanto Region” of Japan, including all sub-national jurisdictions of the “Kanto Region”: Tokyo Metropolis, Saitama Prefecture, Chiba Prefecture, Kanagawa Prefecture, Ibaraki Prefecture, Tochigi Prefecture, Gunma Prefecture, and Yamanashi Prefecture. The population of this region amounts to 42.38 million (see Fig 2.7).

Figure 2.7 Tokyo Megalopolis – National Capital Region

80

It is noted in the comparison that the Pearl River Delta Metropolis has an area of 42,958 square kilometres, which is more than triple of the area of the Tokyo metropolitan region (13,280 square kilometres), and about the size of the Tokyo megalopolis (36,348 square kilometres). The population of the Pearl River Delta Metropolis is 51.44 million persons, which is 1.5 times of the population of the Tokyo metropolitan region, and about the size of the Tokyo megalopolis (42.38 million persons). Therefore, regarding the overall economic structure, it may be more meaningful to compare the Pearl River Delta Metropolis with Tokyo megalopolis. Table 2.11 Economic Structure of Tokyo Megalopolis in 2005

Region Area (km2)

Population

(million)

GDP Primary Industry

Secondary Industry

Tertiary Industry

Industrial Structure

Tokyo megalopolis

36,348 42.38 195,362 1,112 43,719 150,531 0.6:22.4:77.0

Tokyo 2,102 12.57 92,173 47 13,754 78,372 0.1:14.9:85.0 Saitama 3,767 7.05 20,785 114 5,678 14,993 0.5:27.3:72.1 Chiba 4,996 6.06 19,781 288 4,579 14,914 1.5:23.1:75.4 Kanagawa 2,415 8.79 31,855 55 8,188 23,612 0.2:25.7:74.1 Ibaraki 6,096 2.98 11,467 261 4,297 6,909 2.3:37.5:60.3 Tochigi 6,408 2.02 8,182 172 3,243 4,767 2.1:39.6:58.3 Gunma 6,363 2.02 7,863 119 2,987 4,757 1.5:38.0:60.5 Yamanashi 4,201 0.89 3,256 56 993 2,207 1.7:30.5:67.8

Note: The GDP and primary, secondary, and tertiary industry figures are 2003 figures. The monetary unit is billion yen. Because Japan has a large economic output and develops at a relatively slow speed, and the overall economy has even declined slightly after 1997, changes in the absolute figure of GDP over years are not large. The figures thus do not affect the consistency of the table in time frame.

Source: Somucho Tokeikyoku, Japan statistical yearbook (Tokyo: Nihon

Tokei Kyokai: Mainichi Shinbunsha, 2007).

81

Table 2.12 Economic Structure of Pearl River Delta Metropolis in 200539

Region

Area (km2)

Population (million)

GDP Primary Industry

Secondary Industry

Tertiary Industry

Industrial Structure

Pearl River Delta

Metropolis 42,648 49.85 3,282.1 50.8 1,059.4 2,171.9 1.5:32.3:66.2

Hong Kong 1,104 6.97 1,399.9 0.9 129.1 1,269.9 0.1:9.2:90.7

Macao 28 0.48 763 0 10.9 65.4 0:14.7:85.3 Guangzhou 7,434 9.50 515.4 13.0 204.5 297.9 2.5:39.7:57.8 Shenzhen 1,953 8.28 495.1 1.0 263.3 230.8 0.2:53.2:46.6

Zhuhai 1,688 1.42 63.5 1.9 33.9 27.6 3.1:53.4:43.5 Foshan 3,849 5.80 238.3 7.6 143.9 86.8 3.2:60.4:36.4

Jiangmen 9,541 4.10 80.5 7.2 42.5 30.8 9.0:52.8:38.2 Dongguan 2,465 6.56 218.2 2.0 123.6 92.6 0.9:56.7:42.4 Zhongshan 1,800 2.43 88.0 3.1 53.9 31.0 3.5:61.3:35.2 Huizhou 8,863 2.65 76.9 6.8 44.3 25.9 8.8:57.6:33.6 Zhaoqing 3,923 1.66 30.0 7.3 9.5 13.2 24.5:31.6:43.9

Source: Yangtze River Delta & Pearl River Delta and Hong Kong & Macao SAR Statistical Yearbook (2006).

The industrial structure of the Tokyo megalopolis is in the ratio of 0.6:22.4:77.0 for primary, secondary, and tertiary industries. The industrial structure of the Pearl River Delta Metropolis is in the ratio of 1.5:32.3:66.2 for the three industrial categories. Both exhibit a pattern of “tertiary, secondary, and primary” in ranking of importance. A more detailed analysis of the industrial structure for the major cities of the two metropolitan regions, however, reveals several discrepancies. First, all “one metropolis, seven prefectures” of the Tokyo megalopolis exhibit the “tertiary, secondary, and primary” pattern. With the exception of the Tokyo Metropolis, which has a higher proportion of tertiary industry, the other prefectures are not much different in the proportion of tertiary industry. The difference between the highest -- Chiba Prefecture (75.4%) and the lowest – Tochigi (58.3%) is merely 17.1%. This indicates that the overall economic development of the Tokyo megalopolis is quite balanced.

39 The population figures are permanent population figures. The figures for Huizhou are the aggregated figures of the urban district of Huizhou, Huidong County and Boluo County of the Pearl River Delta economic zone. The figures of Zhaoqing are the aggregated figures of the urban district of Zhaoqing, Gaoyao City and Sihui City of the Pearl River Delta economic zone. The monetary unit of GDP and primary, secondary, and tertiary industry figures is billion renminbi. Because the GDP figures based on the production approach and the GDP figures based on the expenditure approach are different, this table uses the GDP figures based on the production approach. The GDP of Hong Kong and Macao Special Administrative Regions do not include the items of production and import taxes. Hong Kong’s GDP in 2005 was HK$1,346.0 billion (converted to RMB 1,399.9 based on the RMB/HK$ exchange rate of 1.04 on 31 December 2005). Macao’s GDP in 2005 was MOP 75.71 billion (converted to RMB 76.3 billion based on the RMB/MOP exchange rate of 1.008 on 31 December 2005).

82

As in the case of the Pearl River Delta Metropolis, only Hong Kong and Macao (the proportion of tertiary industry is above 85%), Guangzhou (57.8%), and Zhaoqing (43.9%; the proportion of primary industry is the highest in the Pearl River Delta Metropolis at 24.5%) exhibit the “tertiary, secondary, and primary” pattern. The other cities exhibit the “secondary, tertiary, and primary” pattern. This indicates that the overall economic development of the Pearl River Delta Metropolis is not balanced, and its comparative advantages are still in manufacturing instead of the service industry. If the Tokyo megalopolis is said to be at the stage of post-industrialisation or service economy, then the Pearl River Delta Metropolis is at the stage of high-end industrialisation.

A comparison of the economic features of the Tokyo megalopolis and Pearl River Delta Metropolis shows that the metropolis and prefectures of the Tokyo megalopolis are extensively different in terms of topography, population, industry, and labour force. The economic activities of Tokyo Metropolis and the three prefectures of Saitama, Chiba, and Kanagawa are more concentrated. From the information on working population, topography, and economic output, it can be judged that the economic linkage between Tokyo and the three prefectures is stronger. For the three prefectures to the north and west of Tokyo, the economic linkage is less strong. This is particularly true to the Yamanashi Prefecture to the west of Tokyo. Compared with Tokyo, the Yamanashi Prefecture is like another world: spacious land, sparsely populated, rural area larger than urban area, rural population higher than urban population, and few industries. The industrial structure of the Pearl River Delta Metropolis reveals a cascading format. Spreading from Hong Kong, Guangzhou, and Macao in the centre to the peripheral areas, the ratio of the primary, secondary, and tertiary industries in GDP gradually changes, with the proportion of the tertiary industry declining, and the proportions of the primary and secondary industries increasing. Among the 11 cities of the Pearl River Delta Metropolis, Hong Kong, Guangzhou, and Macao have comparative advantages in service industry; Shenzhen, Dongguan, Zhuhai, Foshan, and Zhongshan have comparative advantages in manufacturing industry; and Huizhou and Jiangmen have comparative advantages in both manufacturing industry and agriculture. Therefore, the Pearl River Delta Metropolis can generally be divided into three regions: (1) Hong Kong, Guangzhou, and Macao, where the proportion of service industry is relatively large, and the proportions of manufacturing

83

industry and agriculture are relatively small; (2) Shenzhen, Dongguan, Zhuhai, Foshan, and Zhongshan, where the proportion of manufacturing industry is relatively large, and the proportions of agriculture and service industry are relatively small; (3) Huizhou, Jiangmen and Zhaoqing, where the proportions of agriculture and manufacturing industry are relatively large, and the proportion of service industry is relatively small. This situation is to a certain extent similar to the Tokyo megalopolis. By comparing with the Tokyo megalopolis, the advantages and discrepancies of the Pearl River Delta Metropolis can be identified, hence contributing to understanding and identifying the future development trends of the Pearl River Delta Metropolis. Table 2.13 Comparison between Pearl River Delta Metropolis and Tokyo

Megalopolis Item Tokyo Megalopolis Pearl River Delta Metropolis

Spatial layout With Tokyo in the centre, distribute regularly in two layers

according to topography.

Layout with Hong Kong and Guangzhou as central cities.

Layers not distinct. Development

stage Post-industrialisation stage or

service economy stage. High-end industrialisation

stage. Industrial

layout Central region focuses on service industry. Manufacturing industry distributed in the inner circles. Agriculture distributed in the outer circles. The farther a city is from the central city, the lower will the proportion of service industry of that city be, and the higher will the

proportion of agriculture of that city be. Industrial structure

Metropolis and other cities exhibit a “tertiary, secondary,

primary” pattern. Advantages in the service industry are

prominent.

Only the central cities exhibit “tertiary, secondary, primary”

pattern. The other cities exhibit a “secondary, tertiary, primary”

pattern. Division of functions

System of regional division of functions clearly formed.

Advantages of agglomeration prominent.

Industrial structure tends to be similar. Division of functions

not obvious.

Industry layers

Vertical: central district accounts for an overwhelming share of economic output, manufacturing and service industries; small

amount of agriculture Lateral: spread from the central city to the peripheral areas;

industrial structure exhibits regular cascading shape

84

II. Strategic Value of the Pearl River Delta Metropolis Based on the above delineation and analysis, the following conclusion can be made: the Pearl River Delta Metropolis is not a pure geographical concept. It is formed naturally via the continuous economic integration and social interactions between Guangdong and Hong Kong. To some extent, the Pearl River Delta Metropolis is already a reality. However, owing to constraints in factors like differences in systems and mechanisms, restrained cross flows, insufficient economic integration of the region, and unbalanced socio-economic development among cities in the region, the Pearl River Delta Metropolis has not been able to advance satisfactorily in terms of industrial level, reasonableness of industrial layout, closeness of economic relationships within the region, and full exertion of market forces and functions in the region. The Pearl River Delta Metropolis therefore looks inferior to the international metropolitan regions.

To resolve the above problems, it is fundamentally necessary to develop and upgrade the quality and level of the Pearl River Delta Region. As a development strategy, the Pearl River Delta Metropolis should not be considered just as a description, but as a mindset. That is, all market organisations and public organisations in the Pearl River Delta Metropolis should fully understand that the development of the Pearl River Delta Metropolis is an irreversible trend. One could only follow the internal rules of metropolis formation and join hands to promote the Metropolis, so as to share the resources and rights brought forth by its development. It is only when a consensus mindset is formed that the development of the Pearl River Delta Metropolis will be smooth and vigorous, and the strategic value of creating the Metropolis will be manifested. 1. Accelerate the Upgrading and Restructuring of the Pearl River

Delta Industries Although the Pearl River Delta Region is one of China’s foremost regions in terms of industrial diversity, flexibility in industrial transformation, and economic vitality, the industrial structures of its cities are not optimal. Specifically, the absolute and relative proportions of the tertiary industry are relatively low, while the proportion of the primary industry in some cities is relatively high. Moreover, despite the relative high proportion of the secondary

85

industry, they are facing the problem of homogeneity and low-end in their products. Therefore, in creating the Pearl River Delta Metropolis, priority should be given to accelerating the upgrading and restructuring of the region’s industries. After three decades of rapid development, the Pearl River Delta Region has become the world’s largest manufacturing base. The internal infrastructure and external conditions for industrial transfer and upgrade are ready. There is a pressing need to receive and accumulate advanced manufacturing and modern service industries in the creation of a world-class metropolitan region. In the current industrial upgrading and restructuring of the Pearl River Delta Region, the greatest challenge for it is to smoothly complete both the “outward transfer” and “inward transfer”. That is, while the Pearl River Delta Region is moving out its labour-intensive industries, it has to attract capital-intensive and technology-intensive industries to the region. Both have to be done simultaneously. If the Pearl River Delta Region cannot solve the problem of industrial integration, its pace and quality of development in the future will be much affected. The competitiveness of the region’s economy inside and outside China will also be much affected.

The industrial upgrading and restructuring is critical to the upgrade of the Pearl River Delta’s industrial structure. Resolving the problems of the manufacturing sector will, to some extent, promote optimisation of the primary industry and development of the tertiary industry. The Pearl River Delta Region should endeavour to develop high-technology industry, advanced manufacturing industries, producer service industries, and high-end consumer service industries in its industrial upgrading and restructuring. It is hoped that through the dissemination and application of advanced technologies, the conventional manufacturing industries will be upgraded to advanced manufacturing industries, reinforcing the Pearl River Delta Region’s position as a major manufacturing base of China and even of the world. Its development is expected to be sustained by developments in producer services and consumer service industries.

Through the creation of the Pearl River Delta Metropolis, the resources inside and outside the region can be effectively integrated, providing the Pearl River Delta enterprises a more suitable environment to develop advanced manufacturing industries and modern service industries. This will accelerate

86

and upgrade the progress and quality of the Pearl River Delta Region’s industrialisation, achieving a reasonable industrial structure and promoting more complete upgrading and restructuring of the Pearl River Delta industries.

2. Guarantee Hong Kong’s Prosperity and Stability, Upgrade the Total

Competitiveness of the Pearl River Delta Metropolis It is a basic national strategy to maintain the long-term prosperity and stability of Hong Kong. A key to successfully accomplish this strategy is to continuously upgrade the competitiveness of the Pearl River Delta Metropolis, and accumulate economic and social power. In the course of safeguarding Hong Kong’s prosperity and stability, it is also important to fully capitalise on Hong Kong’s functions and effects in international and national economic developments.

To upgrade the total competitiveness of the Pearl River Delta Metropolis, it is necessary to sharpen both the “hard” power of economic competitiveness, and the “soft” power of system competitiveness. At present, most Pearl River Delta cities focus on the development of economic competitiveness, that is, the hard power. This should, of course, be a focus, a key and the base for development, given the large discrepancy between the total competitiveness of the Pearl River Delta Metropolis and international metropolitan regions. However, it must be understood that the upgrading of economic competitiveness and hard power will inevitably meet the “glass ceiling” posed by system competitiveness and soft power. Therefore, while the Pearl River Delta Metropolis upgrades its economic competitiveness and hard power, it should at the same time pay attention to the upgrading of system competitiveness and soft power. The Pearl River Delta Metropolis should strengthen the linking of its systems and mechanisms, and accelerate cross flows along the direction of marketisation. It may start with reforms in systems and relaxation of policies, so that in parallel with the integration of Guangdong and Hong Kong, the economic and social systems and mechanisms of the two territories will continue to improve. For the development of system competitiveness and soft power, Hong Kong is the most important resource of the Pearl River Delta Metropolis. It should not only be safeguarded, but should also be smartly used. Hong Kong still has advantages that cannot be replaced by any Mainland city and region. The advanced service industries of Hong Kong can help the Pearl River Delta Region enhance its competitiveness in these sectors. Hong Kong’s

87

comprehensive and mature legal system and market mechanism, that follow international practices, can help the Pearl River Delta Region link up with the international community. The strengths and experience of Hong Kong in governance can help the Pearl River Delta Region upgrade its standard and efficiency in public administration. The strengths of Hong Kong in financial and capital markets can provide irreplaceable contributions in dealing with the international financial and capital markets and in evading major international financial risks. The excellent sales and marketing talent and experience, and the global network of Hong Kong can help the Pearl River Delta enterprises go global.

Through the creation of the Pearl River Delta Metropolis, and continuous upgrading of economic and system competitiveness and hard and soft power, the production factors of the Pearl River Delta Region can be further integrated, system collaboration mechanisms can be established, malignant competition can be avoided, reasonable regional division of functions can be accomplished, developments can be coordinated, and a win-win situation can be achieved. The development of the Pearl River Delta Metropolis will coordinate the development of the two types of competitiveness and two types of power, promote healthy development of the region’s economy and society, and upgrade the region’s total competitiveness, enabling it to take up an advantageous position in global and regional competition.

3. Be a Major Engine in China and the Pan-Pearl River Delta Region’s

Developments When the Pearl River Delta Region completes its industrial upgrading and restructuring and greatly enhance its total competitiveness, it can fully exert its function as an engine to drive the socio-economic development of the Pan-Pearl River Delta Region. By that time, the Pearl River Delta Metropolis will be able to leverage its unique advantages as a platform to spread the world’s and its own production factors inland: a major port for Pan-Pearl River Delta exports; a window to the external world; a producer service, financial and logistics centre; a high and new technology R&D and modern manufacturing base; and so promote the development of the Pan-Pearl River Delta Region. For a long period of time, the Pearl River Delta Region has had a close relationship with the eight neighbouring provinces and region (Fujian, Hainan, Jiangxi, Hunan, Guangxi, Guizhou, Yunnan, Sichuan) in diverse areas like

88

transportation, trade, energy exploration, science and technology, culture and tourism, etc. To achieve a win-win situation in the “Pan-Pearl River Delta Economic Collaboration Zone” that targets at Southeast Asia from its South and Southwest China location, it is necessary to further tighten the economic ties between the Pearl River Delta Region and its neighbouring provinces and region, create a Pearl River Delta Metropolis, and use the Metropolis to promote the development of the Cooperation Zone. Hong Kong is an international financial, logistics, information, trading, and tourism centre. Macao has close relationships with the European Union and Portuguese-speaking countries. Guangdong and its neighbouring provinces and region are rich in resources, and have a large population and market. The establishment of a closer collaboration relationship in the Pan-Pearl River Delta Region will enhance the strength of development and international competitiveness for the whole region. In the context of national development strategy, the Pan-Pearl River Delta Region with the Pearl River Delta Metropolis at its core will be developed into a bigger region covering provinces and regions in the southern, eastern, middle, and western parts of China. It is critical that if this region develops robustly, it will greatly enhance China’s total economic power and competitiveness. The harmonised and healthy socio-economic development of this region is also a major safeguard of national economic and social security. Therefore, the creation of the Pearl River Delta Metropolis is not just an important link in the strategy of the Pan-Pearl River Delta regional development. It is also an important component of the national development strategy.

The Pearl River Delta Metropolis is able to take up this mission. Economic development of any region needs a core area to function as an “engine”. For the Pan-Pearl River Delta Region, this “engine” is the Pearl River Delta Region. In the next three decades of reform and opening up, China will turn its attention from development in quantity to enhancement in quality. During this course of development, with forerunning advantages in economic and system development, the Pearl River Delta Metropolis is most qualified and capable to be an international world-class metropolitan region, and be a major engine in China’s economic development.

89

4. Play a Major Role in the Global Economy Another function of the Pearl River Delta Metropolis in the national strategy is to play a major role in the global economy. In recent years, the regional economic integration of the Asia-Pacific Region has obviously accelerated its pace. China began participating in the process of regional economic integration in the 1990s. The creation of China-ASEAN Free Trade Area (CAFTA), which will become the most populated free trade area in the world, and the third largest global economic entity, manifests the emergence of a new economic arrangement in Asia, particularly in East Asia. It is, however, much more complicated and difficult to achieve this new economic arrangement in East Asia, as all participants have their own priorities in various areas and on various issues. Among the participants, there are cooperation and competition, economic factors and political factors, people of different ethnicities and people of different cultures. These factors will inevitably affect the development process of the East Asian economic arrangement. Therefore, China should contemplate the special functions and effects of its different regions, and let these regions take the lead in participating in shaping the new East Asian economic arrangement at different stages and levels of the process. Through the major effects of these regions in shaping the new East Asian economic arrangement, China can establish and consolidate its important position in the new economic arrangement of East Asia and even of the Asia-Pacific Region. The Pearl River Delta Metropolis has a very major role to play in shaping the new East Asian economic arrangement. In the first place, the Pearl River Delta Region has very close socio-economic and cultural links with Southeast Asian countries and regions. Secondly, the Pearl River Delta Region is located at an important node between Southeast Asia and Northeast Asia, geographically and economically. The Pearl River Delta Region is located at the centre of CAFTA. It is the strongest bridgehead connecting China and ASEAN, and will play a major role in promoting CAFTA cooperation. By developing heavy and chemical industries, the Pearl River Delta Metropolis can increase its industrial weight. To the east, it can take care of the Taiwan Strait and Northeast Asia. To the west, it can take care of the Beibu Gulf and Southeast Asia. It can thus play a critical role in safeguarding the economic, political and national security of China. From a wider perspective, given the current high growth in economic output, China is going to rely more on the global market. It needs a world-class metropolitan region that, with a major position in the global markets of capital, manufacturing and merchandise, will participate in the allocation and operation

90

of global resources in the interests of China and attract various international resources. The Pearl River Delta Region is most qualified to become such a world-class metropolitan region.

III. Development Goals of the Pearl River Delta Metropolis It is necessary to stress again the basic fact that the Pearl River Delta Metropolis is already a reality. Because of this basic fact, the future development goals of the Pearl River Delta Metropolis are not a creation from nothing. Rather, they are improvements and enhancements to the existing basic structure. The development goals of the Pearl River Delta Metropolis would be to set higher standards, and make clear the future direction of its development. The “higher standards” required for the Metropolis should be “world-class”. To create a world-class Pearl River Delta Metropolis, it is necessary to see real enhancements in the manufacturing and service industries, agricultural and ecological environment, transportation network, and infrastructural facilities. Also, there should be real improvements in the economy, society, and people’s livelihood benchmarked against world-class standards. 1. World-Class Advanced Manufacturing Base and Regional

Innovation System Advanced manufacturing is a relative concept, defined in the context of conventional manufacturing. It refers to those manufacturing industries that assimilate the results of information technologies, network technologies, new machinery and materials, as well as modern management techniques, integrate these advanced manufacturing technologies, and apply them to the whole process of technology R&D, product design, product manufacturing, on-line inspection, sales and marketing services, and management. They target high quality, high efficiency, low energy consumption, clean, and flexible production, all of which result from informatised, automated, intelligence, customised, and ecological production. The “advancedness” of advanced manufacturing is demonstrated in three aspects: (1) advanced in industry. The industry is located at the high-end of the global production system. It has higher value-added and technology content, such as high-tech industries and emerging industries; (2) advanced in technology. Through the application of high and new technologies or suitable advanced technologies, and the maintenance of manufacturing technologies

91

and R&D at the advanced level, a conventional manufacturing industry can be transformed into a constituent of advanced manufacturing; and (3) advanced in management. Any manufacturing industry needs advanced management. Outdated management will not be able to adapt to the requirements of advanced manufacturing.

The Pearl River Delta Region has been performing very well as a “world factory” and “global manufacturing base”. Against the backdrop of scientific development and harmonised development, it needs to advance from being a “global manufacturing base” to being a world-class global manufacturing base. According to the “Smiling Curve” theory, the Pearl River Delta Region needs to extend from the bottom of “manufacturing, assembly” to the two ends of the “Smiling Curve” (see Figure 2.8).

Figure 2.8 Smiling Curve40

To upgrade from conventional manufacturing to advanced manufacturing, support from two areas is needed. One is to upgrade the technology innovation, R&D, and product design activities that are pertinent to production technologies. The other one is to upgrade the modern logistics, sales and branding activities that are pertinent to producer services. Technological 40 Cited from Xi You Min (席酉民), “Carving your ‘Smiling Curve’”, Managerialist (管理學家), 15 May 2007.

92

value-added will push conventional manufacturing towards the front end of the industry chain to master core technologies. Service value-added will push conventional manufacturing towards the rear end of the industry chain to obtain more profits. This is the inevitable path for conventional manufacturing industries to upgrade to advanced manufacturing industries. Because of this, to transform into a world-class advanced manufacturing base, the Pearl River Delta Region should endeavour to form clusters of information industry and high and new technology industry in Shenzhen, Guangzhou, Dongguan, Zhuhai, Zhongshan, and Foshan, to provide production technology support to the Pearl River Delta industry. And it should leverage on the advantages of Hong Kong and Macao in modern service industries, to provide producer service support to the Pearl River Delta industry. Meanwhile, it should further develop heavy equipment manufacturing industry, heavy and chemical industry, and port industries in Guangzhou, Huizhou, and Zhuhai, to transform the Pearl River Delta Region into a major heavy and chemical industrial base and equipment manufacturing base of the world. Through developing advanced manufacturing, Pearl River Delta industry will be led towards the direction of the “new economy” with service economy, virtual economy and high and new technologies at its core. The industrial structure of the Metropolis will be optimised and the division of labour will be reasonably shaped.

Advanced manufacturing is not only needed to upgrade the Pearl River Delta industry. It is also an effective way to create the Pearl River Delta regional innovation system. An autonomous innovation system and good manufacturing ecology have basically been formed in the Pearl River Delta Region. Autonomous innovation has become an internal requirement of many Pearl River Delta enterprises, and has extended from manufacturing industry to service industry. In Hong Kong, companies like Hong Kong Bank, Hutchison Whampoa, Sun Hung Kai, and Li & Fung have developed into leading enterprises of the world. In Shenzhen, companies like Huawei and Zhongxing have grown into China’s forerunning autonomous innovative enterprises. Small- and medium-sized innovative companies like Tencent, SiBiono GeneTech, Netac Technology, Han’s Laser Technology, and Chipscreen Biosciences have become leaders in their own sectors. The Pearl River Delta regional innovative system is taking shape, while the integrations between technology resources and industry resources and between capital resources and

93

enterprise resources have strengthened. Moreover, the “Hong Kong–Shenzhen Innovation Circle” will gather critical resources needed by the regional innovative system, such as venture capital and enterprise headquarters. This will forge the Pearl River Delta Region into one of China’s most active regions in regional innovation, and promote the continuous improvement and development of the Pearl River Delta regional innovation system.

2. World-Class Rail Transport Network Rail transport has the advantages of punctuality, high efficiency, low energy consumption, land-saving, and low pollution. It is therefore critical to the formation and development of a metropolitan region. The quality of a metropolitan region can be gauged by major indicators like whether the rail transport system is highly developed, or whether it is convenient to travel around the region. The rail transport systems of the metropolitan regions of New York, Tokyo, and London are highly developed. In the Pearl River Delta Metropolis, the rail transport system of Hong Kong is not only highly developed- its operational efficiency is one of the highest in the world.

The rail transport system of the London metropolitan region is composed of underground railways and inter-city railways. The London Underground has an excellent network. It has 11 lines, 408 kilometres of track, and 268 stations. In the city centre, there is usually a metro station within 10 minutes’ walking distance. The trains depart every 2-2.5 minutes from the stations in the city centre, and about every 10 minutes from the stations in the suburban areas. They are more than twice as fast as the vehicles on the road. The London Underground accounts for 45% of the city’s passenger throughput on public transport. Approximately three million passenger journeys are recorded every day, accounting for 40% of the total passenger journeys. The annual passenger throughput amounts to 815 million passenger journeys. The London metropolitan region has more than 20 inter-city railway lines, with a total track length of 2,300 kilometres. The inter-city railway lines and underground railway lines join to form London’s public transport network, with the emphasis on high speed and punctuality. In the peak hours, nearly 80% of the visitors enter London by metro or inter-city rail.

94

Table 2.14 Metro System of Four Major Cities City Date of

Opening Length (km) Lines

(no.) Stations

(no.) Ranking in

Length London 10 Jan 1863 408.00 11 268 1

New York 27 Oct 1904 370.00 26 468 2

Tokyo 30 Dec 1927 304.10 13 285 3

Paris 19 July 1900 215.00 16 384 8

Source: “World Metro Ranking”, Power (a Russian weekly journal), 4 August 2008, cited in “World’s top 10 metro ranking”, Can Kao Xiao Xi (參考消息), 19 September 2008.

Tokyo Subway Map London Tube Map

New York City Subway Map Paris Metro Map

Figure 2.9 Rail Transport Maps of the World’s Four Large Metropolitan Regions

95

In comparing the rail transport networks of the Pearl River Delta Metropolis and the London metropolitan region, it can be seen that there is much room for improvement regarding rail transport development in the Pearl River Delta Metropolis. According to the latest planning, although the Pearl River Delta Metropolis is close to the standards of the metropolitan regions of Tokyo and Paris in rail transport network density, it lags behind the London metropolitan region by quite a distance. Table 2.15 Comparison between the Rail Transport Networks of London

Metropolitan Region and Pearl River Delta Metropolis Indicator London Metropolitan

Region Pearl River Delta

Metropolis Area (km2) 11,427 42,648 Completed underground railway track length (km)

408 375

Completed inter-city railway track length (km)

2,300 368

Planned underground railway track length (km)

--- 637

Planned inter-city railway track length (km)

--- 2,000

Therefore, the construction of the inter-city express rail transport network of the Pearl River Delta Metropolis should be accelerated. A transport network with radiating and circular lines centering on Guangzhou and Hong Kong should be established. It should be linked up with the major national and provincial routes of the neighbouring provinces, especially the national trunk routes and inter-provincial routes of Luoyang-Zhanjiang Railway, Litang-Zhanjiang Railway, Ganzhou-Shaoguan Railway, and Wuhan-Guangzhou Express Passenger Railway, in order to strengthen the assembling and radiating capabilities of the Guangdong-Hong Kong-Macao rail transport.

The development of a rail transport system for the Pearl River Delta Metropolis is both necessary and feasible. The economic power of the Pearl River Delta Metropolis and its demand for transport have much magnified, hence the

96

governments and business sectors are more capable of making the investment. Besides, the rail transport development will trigger new economic growth points, and enhance the region’s attractiveness to foreign investment, which in turn will boost the region’s economic development. As for the objective conditions, the amount of land that can be utilised in the Pearl River Delta Metropolis is becoming scarce. In terms of transportation capability and land utilisation rate, an express railway line is equivalent to five highways. To carry the same amount of throughput, the rail transport is only 1/8 of road transport in terms of land occupancy. Therefore, it is a new demand of the Pearl River Delta Metropolis to construct a mass transit, highly environmentally-friendly rail transport system. In addition, there is another favourable condition for the Pearl River Delta Metropolis to develop a rail transport network. The rail transport throughput of Hong Kong averages at 3.5 million passenger journeys per day. It is one of the world’s busiest metro networks, and is also the world’s most excellently managed rail transport system. The MTR Corporation of Hong Kong is one of the few profitable railway companies in the world. With its excellent management record, it has been invited to operate metro lines in London and Beijing. Should various parties in the Pearl River Delta Region enter into in-depth cooperation in infrastructure construction and operations, one can expect the Pearl River Delta Metropolis to have a world-class transport infrastructure, network, and operating system.

3. World-Class Aviation Hub and Logistics and Shipping Centre At present, the airport cluster of the Pearl River Delta Metropolis is one of the world’s largest airport clusters, while its port cluster is the world’s first port cluster. The future development direction of the Metropolis is to be a world-class aviation hub and logistics and shipping centre. Within 200 kilometres of the Pearl River Delta region, there are five civil airports: Hong Kong, Guangzhou, Shenzhen, Macao, and Zhuhai. This airport density is the highest in China. In 2005, the Pearl River Delta Region’s major airports recorded nearly 700,000 aircraft landings and take-offs. The passenger throughput exceeded 80 million, and the cargo throughput exceeded 4.5 million tonnes. The passenger and cargo throughput ranked top among all regions in China. Currently, the Pearl River Delta Region is China’s most vigorous and robust regional aviation market. As for the spatial location, Guangzhou Airport is situated at the northern part of the Pearl River Delta Region, while the other four airports are situated at the southern part. Hong Kong and Shenzhen

97

Airports are situated on the east bank of the Pearl River Delta, while Macao and Zhuhai Airports are situated on the west bank. The five airports form a triangle in spatial distribution, and the distance between each pair of airports does not exceed 150 kilometres. Judging from the plans and businesses of the airports, with the exception of Macao and Zhuhai Airports, the other three are developing towards the direction of a general-purpose hub. The five major airports of the Pearl River Delta Region are facing the opportunity of tremendous growth in airfreight transport. The Pearl River Delta Region is the world’s largest processing and distribution base, and its annual demand for airfreight transport is expected to reach 10 million tonnes in 2010, and 20 million tonnes in 2020. This provides large room for development for the five major airports. Of the world’s four largest courier companies, three are going to locate their regional hub in the Pearl River Delta Region. DHL has selected Hong Kong, FedEx has selected Guangzhou, and UPS has selected Shenzhen Airport to establish its Pan-Asia Air Transportation Centre. This manifests the importance of the Pearl River Delta Region to global airfreight transport. The five major airports can complement each other in their developments, and this will greatly enhance the total competitiveness of the Pearl River Delta Region in airfreight transport.

As for air passenger transportation, the passenger throughput of the three airports of Hong Kong, Guangzhou, and Shenzhen attained 47.8 million, 30.96 million, and 20.65 million respectively in 2006. All were historic records. Adding the passenger throughput of Macao and Zhuhai Airports, the passenger throughput of the Pearl River Delta airport cluster has already exceeded 100 million. This not only ranks top among China’s three major economic regions. It is also one of the highest among metropolitan regions in the world. Judging from the growth in passenger and freight transport, the Pearl River Delta Metropolis is qualified to develop into a world-class aviation hub. Of the five major Pearl River Delta airports, Hong Kong Airport has attained the world’s best standards in operation and management. In the past eight years, Hong Kong Airport was seven times judged the world’s best airport in the annual opinion survey of Skytrax, the most renowned research and consulting corporation in airline and airport services. It has advantages in international passenger and freight transport, with a large number of scheduled international flights and high service standards. Guangzhou Airport has been selected as one

98

of China’s three hub airports in the national strategy, and has massive development potential. The Pearl River Delta Region should shift from competition to cooperation, and the Pearl River Delta airport cluster should enter into international competition as an integrated entity. It is only with this global competitiveness that the Pearl River Delta airport cluster will be able to contend with the world’s current two largest airport clusters -- London and New York. At present, the Pearl River Delta Metropolis is densely located with a large cluster of highly-developed ports, including the three large general-purpose ports of Hong Kong, Guangzhou, and Shenzhen functioning as hubs, and the small- and medium-sized ports of Zhuhai, Huizhou, Humen, Macao, Zhongshan, Jiangmen, Xinghui, and Zhaoqing. The three ports of Hong Kong, Guangzhou, and Shenzhen are the principal ports of the whole port cluster to ship cargoes of internal and external trade. Hong Kong and Shenzhen are the main ports for container shipment in external trade. They account for an overwhelming share of the hinterland’s containers in external trade for direct shipment. Capitalising on its advantage in river-sea intermodal transport, Guangzhou is a general-purpose hub for the shipment of energy products like coal, petroleum and gas products, as well as steel and other raw materials. The other ports are feeder ports for the large general-purpose ports, and serve the coastal industries in their vicinity.

At present, a layered arrangement has preliminarily been formed among the Pearl River Delta container ports for internal and external trade. The container terminals have developed considerable infrastructural facilities. Every place is pressing to plan and construct container terminals, and adopt flexible development and operation strategies, so as to get an edge in the new round of competition and cooperation. In recent years, because of the rise of Shenzhen and Guangzhou ports and the rapid development of the other Pearl River Delta ports, the container shipment business in the Pearl River Delta ports has changed from Hong Kong’s monopolistic situation to the duopoly of Hong Kong and Shenzhen, and further to tri-partition of the market by Hong Kong, Shenzhen, and Guangzhou. Eventually, there will be many players in the region.41

41 It is noteworthy that the ports of cities like Guangzhou, Shenzhen, Huizhou, Dongguan, Zhuhai are located in the same water, at a distance of less than 50 nautical miles between them. This is the only region in China with so many large ports aggregated along the coast. Because the ports are not far from each other, they share the same navigation channels and anchorages, and compete for the same cargo

99

For a port, the exploration of its economic hinterland is equivalent to exploration for cargo sources. At present, the cargo sources of the Pearl River Delta ports and the port of Hong Kong are chiefly the Pearl River Delta Region. The external trade economy of the Pearl River Delta Region is being affected by factors like China’s macroeconomic control policy, industrial restructuring, and more stringent environmental protection requirements. Although the Pearl River Delta Region’s external trade will continue to grow, its growth will definitely slow down. Except Hong Kong, all Pearl River Delta ports are accelerating their construction of container terminals. This will be a trial to the ports in keeping the port’s container throughput capacity and cargo throughput in balance. Every port needs to explore its economic hinterland through competition and cooperation with other ports.

As for the future development of the port cluster of the Pearl River Delta Metropolis, they must take the issue from the perspective of the whole region, shift from competition to cooperation, and join hands to create a world-class logistics and shipping centre. For the major ports of Hong Kong, Guangzhou, and Shenzhen, as each has its core competitiveness and there is still room for them to develop their niche areas that are difficult to be replaced by the others. They should complement each other in development and competition according to their own features. They should cooperate in optimising allocation of resources, lowering cost of trade, increasing operation efficiency and service quality, and maximising profits. They should also sharpen their total competitiveness through joint development, so as to forge the Pearl River Delta Metropolis into an international logistics and shipping centre.

sources with similar services and facilities. The operators therefore find it difficult to achieve a complementary and win-win situation through reasonable positioning. In fact, some ports have used “concealed subsidies from government, enterprise operating at a loss” kind of price competition to compete for cargo sources. They hope by getting a large quantity of cargoes, the shipping companies will be attracted to open new shipping routes to their ports, further strengthening their competitive advantages. In response to the keen competition among Pearl River Delta ports, the port of Hong Kong has in recent years attempted to increase its competitiveness by lowering the terminal handling charge, and increasing two new berths for river trade vessels at the Kwai Chung Container Terminal to encourage the Pearl River Delta freighters to send more cargoes to the port of Hong Kong through river transport. The Hong Kong Government has also joined to promote the port business of Hong Kong by simplifying the application procedures for river trade vessels to enter Hong Kong. Effective fromend-2006 onwards, they can apply for multiple entry permits, and the permit fees have been lowered by half.

100

4. World-Class International Education Hub and Talent Training Base Following multi-layered in-depth integration in economy, society, and people’s livelihood and international developments, the Pearl River Delta Metropolis must become a world-class international education hub and talent training base to satisfy the practical needs of the economy and society, and to support their future developments in talent and intellectuals. The relationship between education and economy/society will change from “service relationship”, with education as an external factor affecting the development of economy and society, to “factor relationship”, with education as a direct player in economic development having a determining role in the production of knowledge. Education no longer remains satisfied with its service function. It is going to become a factor sector of economic development. This would require the various education resources of the Pearl River Delta Metropolis to integrate. It is only by sharing the education resources that they can develop together.

At present, Guangdong has more than 40 tertiary institutions, more than 1,600 research institutes, more than 80 engineering technology R&D centres of provincial level and above, 140,000 persons engaged in scientific and technological activities, and 100,000 engineers. Every year, tens thousands of researches are conducted and patent applications approved. Guangdong ranks first in China in the number of patent applications and approvals, and third in its comprehensive strength in science and technology. Guangdong has much room for development, as each year many science and technology graduates from China’s tertiary institutions and research institutes and from overseas are attracted to Guangdong to establish new ventures or seek personal development opportunities. Guangdong has thus a relatively solid base of talent. Hong Kong and Macao are highly open liberal cities. They also attract many overseas experts and academics and Mainland talent studying overseas. In addition, the education systems of Hong Kong and Macao follow international practices, and some tertiary institutions of Hong Kong are ranked quite high in the world. If the education resources of the Pearl River Delta Metropolis are treated as one integrated entity, it will not only have an edge over the other regions of China, but also in the international community with its special features. By integrating properly, it will be given a position it deserves in the international community.

Sharing of education resources in the Pearl River Delta Metropolis should include gradual sharing of education infrastructure at an orderly pace- that is, the schools of the Metropolis are open to all students; sharing of teacher

101

resources- that is, all schools can employ teachers liberally according to their needs; providing “national treatment” to all education institutes; sharing of education channels- that is, the education channels of the Metropolis are open to all students. There are two focus areas of the Pearl River Delta Metropolis in the integration of education resources: first, cooperation in the nurture of technological talent, to satisfy the practical demand for talent for the Metropolis’s economic and industrial development; and secondly, cooperation in the development of tertiary education and technology R&D, to provide talent and intellectuals for the future socio-economic development of the Metropolis. With these focus areas at the core, the integration of education resources should be extended to sectors like general education, vocational training, etc.

Guangdong should strive for national support during this process. It should endeavour to cultivate Hong Kong and Macao international school systems. To promote resources sharing, it should enter into agreements on the enrolment of Mainland students by the international schools, and create a benefit compensation mechanism. It should invite the universities of Hong Kong and Macao to establish sub-campuses and provide related curriculums in Guangdong, to support the region’s economic development with talent and technologies. It should make use of the international education resources and channels of Hong Kong and Macao, and set up channels for the Mainland and Guangdong secondary school leavers to study matriculation courses for overseas universities in Hong Kong. It should also make use of the more authoritative and highly endorsed examination organisers of Hong Kong and Macao, and join hands with them to create an education information platform, set up an education examination training centre, and provide one-stop education services. In short, it is necessary to jointly create a Guangdong-Hong Kong closer education partnership sphere in the Pearl River Delta Metropolis. From the existing situation, of each territory serving its own economic development with its own education resources, the education resources of Guangdong, Hong Kong, and Macao should be integrated to become a more competitive entity. Through complementarity of education resources, this entity will have more extensive functions, and will forge the Pearl River Delta Metropolis into an international education hub and talent training centre.

102

5. World-Class Business and Leisure Vacation Sphere The economic development of the Pearl River Delta Metropolis will undoubtedly bring in a large amount of business visitors. As the Pearl River Delta manufacturing sector upgrades and the proportion of service industry in the industrial structure increases, the share of high-end visitors in the business visitors will also consistently increase. This offers a good opportunity for the Pearl River Delta Metropolis to develop a world-class business and leisure vacation sphere.

The Pearl River Delta Region is located between the sub-tropical and tropical zones. It borders on the sea, and is very suitable for human settlement and activities. With natural conditions like good climate and air quality, large variety of flora, and rich distribution of water resources, the region is well equipped with the hardware for developing the business and leisure vacation industry. As “China’s excellent tourism cities”, the nine Pearl River Delta cities are resourceful in human landscape and distinctive local cultures. Hong Kong’s tourism, shops and fine cuisine, and Macao’s gaming industry have made the two cities internationally famous for leisure, vacation, recreation and shopping. In the Pearl River Metropolis, there are 1,380 star-rated hotels distributed in various cities, and 62 golf courses distributed in 11 cities. Such a dense distribution of hotels and golf courses is rare in the world. In addition, the easy accessibility of the Pearl River Delta Region by air, road and rail transport is further favourable for the Metropolis to develop a business and leisure vacation industry. Although all Pearl River Delta cities have the right conditions to develop the business and leisure vacation industry, generally speaking, the conditions of Zhuhai, Huizhou, Jiangmen, and Zhaoqing are more favourable. Zhuhai and Macao at the west bank of the Pearl River Delta are particularly worthy of mention. The revenue of Macao’s gaming industry amounted to MOP 55.9 billion (equivalent to RMB 54.0 billion or US$6.95 billion) in 2006, 22% higher than in the preceding year. It has replaced the world-renowned gambling city of Las Vegas, the long time overlord of the sector, as the world’s largest gaming centre. In 2007, Macao’s gaming revenue further surged to MOP 83.0 billion, 46% up from 2006. At present, Macao focuses its development on the gaming industry and MICE (meeting, incentive, convention, and exhibition) industry. It is building many five-star hotels.

103

Macao’s gaming and MICE industries will extend its influence to Zhuhai and Jiangmen. In the future, these three cities will jointly create the world’s largest business, leisure vacation, entertainment and living settlement. Zhuhai’s Hengqin Island, an 86 square kilometre island overlooking Macao across a strait, is basically undeveloped. It can be developed to provide supporting services like leisure, entertainment, shopping, and restaurants for Macao’s gaming and MICE industries, ushering Macao’s visitors into Zhuhai for leisure consumption. The administrative area of Jiangmen accounts for one-quarter of the Pearl River Delta Region, and its population density is merely 430 persons per kilometre. With a pretty environment and rich tourism resources, it is also a desirable place to travel and reside.

6. World-Class Green Pearl River Delta Quality Living Sphere Guangdong-Hong Kong cooperation in environmental protection used to focus on project cooperation, such as the Pearl River Delta Regional Air Quality Monitoring Network; improvements to the water quality of the Pearl River drainage area; the Emission Trading Pilot Scheme for Thermal Power Plants in the Pearl River Delta Region; the Cleaner Production Partnership Programme etc. The most noteworthy project is the Pearl River Delta Regional Air Quality Monitoring Network established by Guangdong and Hong Kong in 2005. The Network comprises 16 monitoring stations, 13 of which are in Guangdong and three are in Tsuen Wan, Tung Chung and Tap Mun of Hong Kong. The network is capable of measuring the concentrations of sulphur dioxide, nitrogen oxides, ozone, and respirable suspended particulates. It is China’s first large scope, well-equipped regional air monitoring network on a comprehensive set of pollutants. It is advanced by international standards. Since 30 November 2007, the Network has announced the Regional Air Quality Index to the public every day. People only have to click their mouse on the computer screen to learn in detail the latest air quality of the Pearl River Delta Region. This Network has been commended as a “symbol of progress of the joint action between Guangdong and Hong Kong in responding to cross-boundary pollution in the region”.42

42 “Guangdong-Hong Kong cooperation in environmental protection effective Air quality monitoring in the Pearl River Delta Region leading in the world”, Shenzhen Economic Daily (深圳商報), 27 September 2008.

104

Ecological protection, conservation and management are a cross-boundary multi-facet work related to sharing, symbiosis, and co-existence between people and natural environment. This work should not be restrained by geographical jurisdiction. It is also incorrect to focus just on combating pollution and forget about people’s livelihoods. In the three bases for sustainable development proposed by the United Nation’s World Commission on Environment and Development, environment is abreast with economy and society, and has a significant role in development. Last year, General Secretary Hu Jintao proposed the new concept of ecological civilisation in the report of the 17th National Congress of the Communist Party of China.43 The Chief Executive of Hong Kong Special Administrative Region said in the 1999 Policy Address that “as we set out to build Hong Kong into a world-class city, we should find ways to increase prosperity and improve the quality of life while reducing overall pollution and waste; meet our own needs and aspirations without doing damage to the prospects of future generations; and reduce the environmental burden we put on our neighbours and help to preserve common resources”.44

43 Ecological civilisation is a new form of civilisation in human society, after primitive civilisation, agricultural civilisation, and industrial civilisation. According to some inside and outside China, it belongs to the post-industrialisation development stage. While “industrialisation” was the indicator of development in the 19th and 20th centuries, “ecology” (including industrial development conforming to ecological principles) is the indicator of development in the 21st century. This is the global trend. Ecological civilisation should not be mixed up with material civilisation, political civilisation, and spiritual civilisation. Material civilisation, political civilisation, and spiritual civilisation are the essence and components of ecological civilisation. As the principal entity in the establishment of ecological civilisation, human beings should internalise the content and requirements of ecological civilisation in their legal system, mindset, way of living, and daily behaviour. In other words, in establishing material civilisation, the industrialisation model of high production, high consumption, and high pollution should be changed. Material production in the society should be eco-industrialised based on ecological modernisation, so that a new mechanism that saves and uses natural resources in an integrated manner will be created for human production activities. In establishing political civilisation, institutional arrangements, policies and rules will be formulated to protect the ecological environment and promote harmonised relationships between human beings and nature. Ecology should be upgraded as a main theme in social discussions. In establishing spiritual civilisation, we should have comprehensive and in-depth understanding of nature and the value of ecological systems, and set up in ourselves value requirements, value norms, and value targets that conform to nature and ecological patterns. Ecological mindset, ecological morale, and ecological culture can then become a widely-accepted cultural mindset. Therefore, ecological civilisation is the aggregate of sustainable developments in ecology, society, economy, and culture. Of the many concepts, sustainable development in an ecological environment is a constraint to the others. If the social, economic, and cultural developments are not ecologically sustainable, then human development cannot be sustainable. For related articles, please see “How to understand the construction of ecological civilization”, Study Times(學習時報), cited in Xinhua Net(新華網), 15 November 2007.

Therefore, while Guangdong and Hong Kong endeavour to enter economic, social, and system cooperation, they should also elevate ecological

44 Refer to the introduction of “What is Sustainable Development?” by the Council for Sustainable Development, HKSAR. Last revision date: 10 September 2009. Downloadable from: http://www.susdev.gov.hk/html/en/sd/index.htm..

105

cooperation to the strategic level and attach considerable weight to it. Guangdong-Hong Kong cooperation in environmental protection should also break away from the existing framework and content of cooperation, and enter a new stage. In March 2008, when HKSAR Chief Executive Donald Tsang Yam-kuen met Guangdong Party Secretary Wang Yang, he proposed to the two territories to jointly form a “Quality Living Circle in the Green Greater Pearl River Delta” under the principle of promoting environmental protection and sustainable development. The concept of cooperation was formally endorsed and announced at the 11th Plenary of the Hong Kong-Guangdong Joint Conference convened this August. The HKSAR Government hopes to use this concept of “Quality Living Circle in the Green Greater Pearl River Delta” to break away from the current mode of Guangdong-Hong Kong cooperation in environmental protection. It attempts to change from cooperation in individual projects of Guangdong and Hong Kong to an all-directional, pro-active mode of cooperation in regional environmental protection. Specifically, the scope of cooperation will include assessment of the extension of Guangdong-Hong Kong environmental protection cooperation to circular economy industries, development of clean energy, optimisation of energy composition, joint promotion of clean production and greening work, as well as cooperation in public education and propaganda. These will broaden the cooperation relationship of the two territories from resolving pollution problems to all-directional urban development and the building of lifestyle. Based on the principle of “protect environment amid development, seek development amid environmental protection”, the HKSAR Government hopes to link up the long-term and sustainable benefits of Guangdong and Hong Kong firmly with an environmental protection mindset. Environmental protection should be viewed as a development strategy and investment strategy that would enhance the total competitiveness of the two territories. Guangdong and Hong Kong should follow the environmental protection directions of the National 12th Five-Year Plan and endeavour to mould regional environmental protection cooperation into a quality living circle of international standards. 45

45 “Full text of the speech by Secretary for the Environment at the 14th Green China Forum”. See the HKSAR Government’s news.org.hk, 12 September 2008.

This thinking breaks away from the previous mode of environmental governance and enters the level of livelihood. It intends to attract more foreign investment with quality living and optimised investment environment and living conditions.

106

This development concept has made reference to the California model of the United States. The proposal has received positive responses from Guangdong and from the Ministry of Environmental Protection. The development of the Pearl River Delta Metropolis into a green quality living sphere manifests essentially the philosophy of ecological civilisation and development. The creation of the green quality living sphere is a system project; building systems like the economic system, environmental system, human settlement system, and cultural system. Of these, the economic and environmental systems are the natural material content, while the human settlement and cultural systems are the humane ideals content of the ecologically-friendly living sphere. The ecologically-friendly content of natural materials is mainly represented by industrial upgrading and restructuring towards the goal of “clean production”, while the ecologically-friendly content of humane ideals is mainly represented by the philosophy of scientific development and the building of a harmonious society with “people-orientation” at the core. Therefore, the ecologically-friendly living sphere is critically represented by two facets: high economic effectiveness and social harmony.

The high economic effectiveness is mainly represented by eco-industrialisation. Eco-industrialisation is distinguished from conventional production in circulation, clustering, and added-value. By circulation, it means an industrial system is established based on the principle of natural ecology. Employing ecological rules, the conventional production process of “resources—product—scrap”, where materials flow in a unidirectional way, is re-organised into a feedback process of “materials—product—recycled materials—recycled product” and a circular utilisation model of “low exploitation, low discharge, high utilisation”. In this model, the concept of scrap does not exist, as the scrap produced in every production process is used as raw materials for the next production process. All materials are circularly utilised. By clustering, it means the eco-industries cluster as living organisms. Related enterprises gather together to form an industrial symbiosis system. In the cluster, enterprises cooperate with each other, especially in the utilisation of scrap materials, so that the overall utilisation of resources is optimised. In appearance, the cluster is a group of enterprises of different sizes and products along the upper, middle, and lower stream of an industry chain, gathering

107

loosely in an area. By added-value, it means all enterprises of an industrial symbiosis system benefit from the system, with increased value-added. Eco-industries discard the segregation between economic development and environmental protection in conventional industries, as the segregation causes conflicts between the two. Instead, they systematically combine economic development and pollution treatment/environmental protection together, so as to achieve a win-win situation. Social harmony should include harmony among people, and harmony between human beings and nature. Social development should not just be growth in economic indicators, but growth in “people-oriented” parameters. The living quality of people should be improved and enhanced. People should be safeguarded to live in an environment of clean air, good water quality, and safe food.

108

Chapter Three: Industries of the Pearl River Delta Metropolis and Their

Future Development

For the Pearl River Delta Metropolis to achieve the above-mentioned development goals, its industrial base needs to be strengthened. Industries are the major pillars of the Pearl River Delta Metropolis. Industrial development not only represents the economic competitiveness of a metropolis. It is also the engine for the sustainable development of the metropolis. It is only by establishing industries with competitiveness that the Pearl River Delta Metropolis can strengthen its functions of agglomeration and radiation, continue to create social and economic benefits, and maintain its exuberant economic vitality.

I. New Trends in the Pearl River Delta’s Industrial Development Over the past three decades, Guangdong and Hong Kong have jointly created an economic miracle based on the model of “Front Shop, Back Factory”. However, entering the new millennium, the “Front Shop, Back Factory” industry cooperation model has been continuously weakened, and needs to be restructured. The future of the Pearl River Delta Metropolis lies with whether Guangdong and Hong Kong can identify the direction for regional cooperation in this new era to greet the second three decades of reform and opening up.

1. Challenges to the “Front Shop, Back Factory” Model and the

Restructuring of the Pearl River Delta Manufacturing Industry From the perspective of industry value chain, the “Front Shop, Back Factory” model is a model of division of labour and integration at the nodes of the industry value chain in the Pearl River Delta Region. From the microeconomic perspective, it is a way by which Hong Kong enterprises cross the jurisdiction boundary and enter a broader spatial region through investment. With the support of Mainland policies, they capitalise on the international division of labour and optimise the combination of labour force, land, capital, and information. From the perspective of operations, the “Front Shop, Back Factory” model was created by Hong Kong entrepreneurs. The model was initiated when the Hong Kong manufacturers divided their companies into shop and factory, with the shop staying in Hong Kong and the factory moving to the Pearl River

109

Delta Region. A cross-boundary production service system was formed in Hong Kong and the Pearl River Delta Region. In the early period of reform and opening up, the Mainland was administered under the planned economic system. There was basically no international producer service industry in the Mainland. To the Pearl River Delta Region, Hong Kong was a strong partner to complement them in systems and resources, with its western-style market economic system and legal system, and the international business services and talent system. Hong Kong’s role as an “international shop front” was particularly important. However, as the Mainland’s market economic system reform deepens, coupled with China’s accession to the WTO in 2001, many Hong Kong and international service providers have set up operations in the Mainland and the function of Hong Kong as an international window to the Mainland has been affected. The burgeoning development of export industries in many Mainland regions has brought tremendous competitive pressure to the manufacturing plants in the Pearl River Delta Region. The Yangtze River Delta Region is the most active in this. Shanghai and Jiangsu endeavour to usher in international technology manufacturers, while Zhejiang strives to develop local enterprises. They are able to contend with the Pearl River Delta enterprises (including Hong Kong and the local private enterprises) in the international and national markets. Now that the competitiveness of “Front Shop” and “Back Factory” in Hong Kong and the Pearl River Delta Region is in decline, it is natural that the “Front Shop, Back Factory” model is challenged. The pressure on Hong Kong is naturally the greatest.

After the Hong Kong manufacturing industry finished shifting northward in the mid-1990s, a hollowing-out situation developed in local manufacturing and R&D. It undermines the manufacturing capability and technology level of Hong Kong manufacturers, and disrupts the manufacturing base of the “Front Shop, Back Factory” model. Because of Hong Kong’s high service costs and inaccessibility to people in the Pearl River Delta Region, the local private enterprises sprouting in the Pearl River Delta Region seldom seek Hong Kong’s international services, affecting the close cooperation relationship between “factory” and “shop”. More important, the policy factors that promoted Guangdong-Hong Kong cooperation have also soured. The WTO mechanism limits the scope and scale of national and local policies in the support of export industries. It also reduces many ‘grey areas’ favourable to

110

enterprise operations. China has therefore not only reduced the scale of policies favourable to export processing trade. It has also turned trade into a target of regulation and control. The “Front Shop, Back Factory” is therefore facing fierce challenges after operating for three decades. These challenges, however, do not mean that the Pearl River Delta industries are on a decline. Rather, this could be the start of another stage. In fact, signs of change were already becoming apparent in Guangzhou in 2000.

2. Industrial Restructuring in Guangzhou and Its Profound Effects

In the first three decades of China’s reform and opening up, Hong Kong was the economic leader of the Pearl River Delta Region. It coordinated the allocation and use of capital, talent, management, technology, and information, and led the development of the east bank of the Pearl River Delta. Guangzhou responded positively at most times with the allocation of provincial resources to support the development in the west bank.

Guangzhou initiated a series of policies in 2000 to restructure, consolidate and upgrade the society and economy. In the economic and industry sectors, it entered into cooperation agreements with Japanese enterprises to cultivate the automotive industry, developed the heavy and chemical industries, expanded the size of industries, changed the situation that Guangdong had for a long time been relatively backward in heavy industry, and fostered a new round of industrial development. In spatial layout, the Guangzhou Municipal Government started with transport infrastructural projects, and promoted the construction of an extensive transportation system that centers on Guangzhou. The system included inter-city high-speed railways, cross-provincial express railways, a network of expressways in Guangdong, the new Baiyun Airport of Guangzhou, the development of Nansha Port, etc. This series of measures has attracted people, resources, investment, technologies, and information from inside and outside Guangdong to flow to Guangzhou. It is obvious that Guangzhou hopes to evolve into the planning and administration centre for the Pearl River Delta Region’s economic development and its plan is quite comprehensive.

The Guangdong Provincial Government responded to Guangzhou’s development strategy positively, and accelerated the construction of Guangdong’s extensive transportation system. With Guangzhou as the regional transportation hub, the system will link up various districts in the Pearl River

111

Delta Region by a network of inter-city high-speed railways, and form a three to four-hour activity circle with neighbouring provinces by express railways. Guangdong at the same time proposed to develop nine major industries to change its industrial structure, accelerate the development of local service industry, and promote technology innovation activities among the local private enterprises. Guangzhou’s automotive industry and heavy and chemical industry were included in the list as a ‘potential industry’ and ‘emerging industry’ respectively. Guangzhou also enhanced its support to the technology industry. In the fundamental adjustment to the spatial and industry layout of the Pearl River Delta Region, Guangzhou played a key function. Meanwhile, the large input of Guangdong and Guangzhou to rail transport has not only enhanced the region’s communication, business, trade, and information exchange. It has also created a metropolis of integrated space in the Pearl River Delta Region. This inevitably changes the pattern of economic development. The factors of the regional innovation system have been re-combined to achieve the goal of industrial restructuring and upgrading. New development models, new lifestyles, and correspondingly new industries have emerged. They form the base for the new stage of development. The above changes have profoundly affected the relationship between Hong Kong and the Pearl River Delta Region in economic, social and cultural cooperation. Changes in the regional spatial arrangement have induced Hong Kong to contemplate in recent years its positioning in the region, and triggered Hong Kong to change its overall development strategy. Hong Kong has started to respond to the Pearl River Delta Region’s appeal for restructuring. In early August, 2008, the three governments of Guangdong, Hong Kong, and Macao reached a consensus on funding the Hong Kong-Zhuhai-Macao Bridge. The Bridge is expected to commence construction before 2010. This shows Hong Kong’s further return to the Pearl River Delta Metropolis. The two core cities of the Pearl River Delta Region are appealing to restructure. This represents another time, since China’s reform and opening up, that these two cities have conformed in development objectives and launched the new round of development in the Pearl River Delta Region. To Guangdong, this is an inevitable way to complete its task as a pioneer under the new philosophy of scientific development. To Hong Kong, this is the most important economic restructuring since the 1960s, tying up with Hong Kong’s destiny. It can be

112

expected that at the promotion of the two engines of Guangzhou and Hong Kong, the restructuring of the Pearl River Delta Region will be accelerated. The keys to success will be the formation of the Pearl River Delta Metropolis, new combinations of production factors, and synergistic development and mutual promotion of industries. Economic and industrial cooperation has always been the most important base of Guangdong-Hong Kong cooperation. It determines the fate of the Pearl River Delta Metropolis. This study will firstly analyse the latest development trends of Guangdong’s industries since 2000, and then assess the cost impact on the Pearl River Delta industries and their future opportunities.

3. Development Trends of Pearl River Delta Manufacturing Industry

After 2000 Since 2000, the Pearl River Delta manufacturing industry has witnessed four major changes to its conventional export-oriented light industries: (1) targeted development of pillar industries; (2) development of high-tech industry; (3) gradual improvement in industry support systems, and (4) strengthening and upgrading of specialised townships.

(1) Targeted development of pillar industries. In 2005, the Guangdong Provincial Government officially promulgated the Guangdong Province Development Plan for Nine Major Industries (2005-2010), to outline the blueprint of Guangdong’s future industrial development and guide the Guangdong enterprises in the direction of restructuring, upgrading and development. According to the Plan, Guangdong’s pillar industries used to be light industries like food and beverages, textiles and apparel in the 1980s, household electrical appliances and construction materials in early 1990s, and electronics, information technology, and real estate from the mid-1990s to the early 2000s. Industrial growth should surge in future following the shift from light industry to heavy and chemical industry, and further to high value-added industry. Specifically, the province will endeavour to develop nine pillar manufacturing industries. They cover three emerging industries (electronics and information technology, electrical machinery and special-purpose equipment, petrochemicals), three conventional industries (textiles and apparel, food and beverages, construction materials), and three potential industries (wood and paper products, pharmaceuticals, and motor vehicles and motorcycles). The Plan anticipates the gross output of the province’s industrial

113

enterprises above designated size to grow on average by 17.5% per annum from 2005 to 2010, and the nine pillar industries to grow by 18% per annum. In particular, the output of electronics and information technology, electrical machinery and special-purpose equipment, and petrochemicals are anticipated to grow on average by 21%, 20% and 20% per annum respectively, so that all of the three industries will have a more than 10% share each in the gross industrial output by 2010. The objective of developing these nine industries is to restructure the manufacturing sector. It is hoped that the shares of the three emerging industries and the three potential industries will increase, while the shares of the three conventional industries will decrease. Guangdong will concentrate its resources on a limited number of focus industries to accelerate its industrial restructuring and upgrading. An attempt to focus on too many industries will mean that each of them will not get enough resources to grow rapidly. In the past few years, the restructuring of Guangdong’s nine major industries has been rather successful. The share of the nine major industries in the gross industrial output increased from 52.8% in 2000 to 62.6% in 2006. The share of the three emerging industries also increased from 31.9% in 2000 to 44.3% in 2006. The potential industry of motor vehicles and motorcycles has doubled in its share. The share of the three conventional industries, meanwhile, decreased from 15.6% in 2000 to 12.0% in 2006. The results of restructuring are notable in Guangzhou’s manufacturing industry, especially in the automotive industry. In 2000, the output of Guangzhou’s transport equipment manufacturing industry amounted to RMB 46.393 billion. In 2006, the output upsurged to RMB 145.988 billion. Its share of the local industrial output increased from 10% in 2000 to 20% in 2006.

The emerging industry of electronics and information technology, however, has been greatly affected by the global economic downturn since 2007, the policies of adjustment to processing trade, and the implementation of the Labour Contract Law. The share of the electronics and information technology industry in industrial value-added declined from 22.3% in 2006 to 17.3% in the first half of 2008. As the technology standards of the electronics and information technology industry are controlled by global players in the industry and the product manufacturing is dominated by Japan and Taiwan enterprises, it is difficult for Guangdong to change its passive situation (see Table 3.1).

114

The conventional industries dominated by Hong Kong enterprises and the local private enterprises in the Pearl River Delta Region are noted to be facing a similar or even worse operating environment. Their share of industrial value-added, however, dropped only slightly by 0.6 percentage point in 2007, and rose back to the 2006 level in the first half of 2008. This contradictory situation reflects two issues. First, the electronics and information technology industry is highly elastic to production costs due to its global division of labour and sales system. Manufacturers often need to use vertically integrated manufacturing solutions to lower the production cost. When a manufacturer grows to a certain size, it will be keen to invest overseas and desert the high cost areas. As the technology of the industry changes rapidly, and the manufacturers need to invest frequently in manufacturing equipment, they can be very flexible. Every time they place new investment, they do not need to put it in the old place. They can select the location for this new investment according to the investment conditions at that time. This situation is very common among Japan and Taiwan enterprises. Because the local governments have relatively little influence on industry like this, the industry output fluctuates a lot over time. Secondly, there are a lot of hidden social costs in the production process of conventional industries. As the main trunk of production is often operated by local residents or related persons and is a member of the local economic system and social network, the investor in this kind of industry is quite ‘sticky’ to the location, with a tendency to take root in the vicinity. Given the Pearl River Delta enterprises in this kind of industry are mainly operated by Hong Kong manufacturers and local entrepreneurs, they are even more attached to the Region and persist with the operations even at adverse economic times. This provides a certain cushioning effect to the local economy.

Despite losing the notebook computer manufacturing business to its competitors in the Yangtze River Delta Region in early 2000, the Pearl River Delta Region electronics and information technology industry has still experienced growth in recent years. This was attributed to the production of telecommunication equipment by Huawei and Zhongxing of Shenzhen, and information electronics and mobile phones by international EMS manufacturers such as Foxconn Technology and Flextronics. Driven by the application of 3G/4G technology in the future, the former sector should be able to maintain its growth. For the latter sector, its future development is much dependent on the enterprises’ global investment strategic layout, and it is hard to tell. As for the development forecast of the nine major industries in 2010, it is anticipated that

115

the automotive and electrical machinery and special-purpose equipment industries will meet their targets, while there is much uncertainty in the electronics and information technology industry. In general, it is very likely that the ten-year restructuring plan of Guangdong in the pillar industries will succeed.

116

Table 3.1 Performance of Guangdong’s Nine Major Industries (From 2000 to the First Half of 2008) Gross Industrial Output Industrial Value-added

Value (RMB billion) Provincial Share Value (RMB billion) Provincial Share

2000 2006 2000 2006 2010 Forecast 2000 2007 1st Half

2008 2000 2006 2007 1st Half 2008

Guangdong industrial enterprises above designated size

1,690.4 5,113.2 100.0% 100.0% 100.0% 342.3 1,307.9 703.1 100.0% 100.0% 100.0% 100.0%

Nine major industries 892.5 3,200.3 52.8% 62.6% 77.6% 239.8 916.8 487.8 70.1% 70.9% 70.1% 69.4% Three major emerging industries 540.0 2,263.7 31.9% 44.3% 58.5% 145.6 612.5 316.4 42.5% 48.0% 46.8% 45.0% Electronics and information technology

241.8 1,189.1 14.3% 23.3% 33.8% 58.1 268.1 121.8 17.0% 21.4% 20.5% 17.3%

Electrical machinery and special-purpose equipment

162.6 661.8 9.6% 12.9% 13.7% 38.6 186.3 99.8 11.3% 14.3% 14.2% 14.2%

Petrochemicals 135.6 412.8 8.0% 8.1% 11.0% 49.0 158.0 94.8 14.3% 12.4% 12.1% 13.5% Three major conventional industries

264.4 612.6 15.6% 12.0% 10.4% 68.1 190.2 106.9 19.9% 15.1% 14.5% 15.2%

Textiles and wearing apparel 122.7 253.5 7.3% 5.0% 4.2% 29.5 73.5 40.8 8.6% 5.8% 5.6% 5.8% Food and beverages 79.9 186.9 4.7% 3.7% 3.9% 23.8 68.2 39.3 7.0% 5.2% 5.2% 5.6% Construction materials 61.8 172.2 3.7% 3.4% 8.0% 14.8 48.5 26.8 4.3% 4.1% 3.7% 3.8% Three major potential industries 88.1 324.0 5.2% 6.3% 8.7% 26.1 114.1 64.5 7.6% 7.8% 8.7% 9.2% Wood and paper products 38.8 102.1 2.3% 2.0% 2.1% 8.7 28.1 16.5 2.5% 2.2% 2.1% 2.4% Pharmaceuticals 18.4 37.2 1.1% 0.7% 1.2% 6.5 13.5 7.5 1.9% 1.1% 1.0% 1.1% Motor vehicles and motorcycles 31.0 184.7 1.8% 3.6% 5.4% 10.8 72.5 40.5 3.2% 4.4% 5.5% 5.8%

Sources: Guangdong Statistical Yearbook (2001), Guangdong Statistical Yearbook (2007), Guangdong Statistical Information Net.

117

(2) Development of high-tech industry. In early 2000, the Pearl River Delta Region failed to secure Taiwanese manufacturers’ Mainland investment in notebook computers and LCD panels manufacturing. The project went to the Yangtze River Delta Region. As a result, the Yangtze River Delta Region’s high-tech industry and exports of high and new technology products grew rapidly after 2002, and Guangdong’s share in China’s exports of high and new technology products declined correspondingly (Figure 3.1). The high-tech industry of the Pearl River Delta Region, however, did not come to a standstill. While Guangzhou resorted to the Japanese investors to restructure its industries in the direction of automotive industry, Shenzhen initiated upgrade of high-tech industry in the direction of telecommunications technology. The leading enterprises in the move were two private enterprises, namely, Huawei Technology and Zhongxing Telecom. In 2006, the industrial outputs of Huawei and Zhongxing were RMB 61.74 billion and RMB 23.75 billion respectively. They ranked third and 15th among Guangdong’s industrial enterprises. Local technology-based private enterprises and Taiwan investors like Foxconn Technology Group also contributed to the clustering of high-tech industry in Shenzhen. The high and new technology industries of Shenzhen feature in their development with local technology and innovation resources. In 1999, the industrial output of high and new technology products with autonomous intellectual property rights in Shenzhen amounted to RMB 38.36 billion. By 2006, the industrial output has grown to RMB 365.329 billion, accounting for 57.9% of the total industrial output in high and new technology products and growing on average at 38% per annum. The outstanding performance of Shenzhen in high and new technology industries is a major reason for the growing share of Guangdong in China’s gross output of high and new technology industries. Guangdong has persistently ranked top among all provinces/municipalities of China in the high-tech industry.

118

Figure 3.1 Performance of Guangdong’s High-tech Industry in Gross Industrial Output (2000-2007)

Sources: 2007 China Statistical Yearbook on High Technology Industry,

Guangdong Statistical Yearbook (2001), Guangdong Statistical Yearbook (2007), Statistical Communiqué on Guangdong’s Economic and Social Development in 2007, website of the Ministry of Science and Technology.

Table 3.2 Gross Industrial Value-added of the High-tech Industry of

Guangdong and Other Mainland Provinces and Municipalities (RMB Billion)

2000 2003 2004 2005 2006 Average Annual Growth Rate

China in total 275.9 503.4 634.1 812.8 1,005.6 24.1%

Guangdong 67.8 155.2 188.0 235.3 283.9 27.0%

Shanghai, Jiangsu and Zhejiang in total

66.9 143.2 194.7 261.5 313.0 29.3%

Shanghai 23.5 39.0 60.1 78.6 93.0 25.8%

Jiangsu 30.2 78.1 103.2 146.0 174.3 33.9%

Zhejiang 13.2 26.1 31.4 36.8 45.7 23.0%

Beijing and Tianjin in total

41.8 51.4 68.7 79.7 108.5 17.2%

Beijing 24.7 29.1 31.5 40.4 48.9 12.1%

Tianjin 17.1 22.3 37.2 39.3 59.6 23.1% Sources: 2007 China Statistical Yearbook on High Technology, Industry,

Guangdong Statistical Yearbook (2007).

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

2000 2001 2002 2003 2004 2005 2006 2007 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Gross output of Guangdong’s high-tech industry (RMB ’00 million)

Gross output

Share in China’s gross industrial output

Share in China’s total exports

Gua

ngdo

ng’s

shar

e in

Chi

na (%

)

119

Of the six science and technology-based provinces and municipalities of the Mainland, Guangdong has ranked top in industrial output of high-tech industry since 2000. In 2006, it outperformed Jiangsu Province by RMB 100 billion, broadening the difference between the two provinces in value-added (see Table 3.2). Considering the fact that the growth in value-added in Jiangsu was created by the one-sided investment of multi-national high-tech corporations, the outstanding performance of Guangdong demonstrates the leading role of Guangdong and Shenzhen’s high-tech industries in localisation. It also implies that Guangdong’s industrial base is strong enough to say farewell to the era of low technology and low value-added, and enter the stage of autonomous technology development.

(3) Gradual improvement in industry support systems. Historically, the industrial base of the west bank of the Pearl River Delta excelled the east bank. The local entrepreneurs in the west bank were keen to learn and assimilate manufacturing technologies. Many enterprises in the small- and medium-sized townships provided factories in the cities with manufacturing services and parts and components. The industry support systems of the west bank were hence better than the east bank. This also explains why there are more specialised townships in the western part of the Pearl River Delta Region.

In the early period of reform and opening up, the east bank of the Pearl River Delta industrialised with processing and compensation trades. At that time, the manufacturing base of the east bank was very weak, and there were virtually no industry support systems. Hong Kong, Taiwan and local private enterprises investing in Shenzhen and Dongguan had to import the advanced manufacturing equipment and major parts and components to meet the quality requirements of the international buyers. The Hong Kong and Taiwan enterprises hence preferred to process and assemble consumer products with shorter industry chains. They were seldom engaged in the production of intermediary products that require a high degree of industrial cooperation in the Pearl River Delta Region. Instead, they sought high precision moulds and tools from the Hong Kong and Taiwan suppliers. As the Hong Kong manufacturers moved northwards in large number, many suppliers of intermediary products and manufacturing services followed the pace of their customers in the lower stream of the industry chain and entered the east bank of the Pearl River Delta. They included international, Hong Kong, and Taiwan raw materials, equipment, and mould-making enterprises.

120

Among them, the mould-making industry was particularly critical. In the mould-making business, workers are required to have strong skills and experience. The Hong Kong and Taiwan factories must offer on-the-job training to their Mainland technicians, who were usually trained in the mode of apprenticeship by the Hong Kong and Taiwan engineers. At the beginning, the Mainland technicians could only handle mould parts of low requirements in engineering technology. The high precision moulds still had to be made in the main factories in Hong Kong and Taiwan. When the Mainland mould technicians became mature, the orders placed with the head factories of the Hong Kong and Taiwan mould-makers were transferred to the Pearl River Delta Region, to better serve the lower-stream Hong Kong customers in the vicinity. At the same time, many Mainland mould engineers left the Hong Kong and Taiwan enterprises, and set up their own businesses. This not only increased the number of mould suppliers, but strengthened the area’s industry support capability and network system. With the support of specialised markets, the mould-making industry of Changan Town of Dongguan grew rapidly. Mould-making is a necessary condition for developing the equipment manufacturing industry. The two combine to form the manufacturing base of modern industry.

In 2000, the sizes of the general-purpose and special-purpose equipment manufacturing industries in the west bank of the Pearl River Delta were 977% and 253% of their counterparts in the east bank respectively. However, after the Mainland mould-making industry of the east bank has gone through the primitive stage of experience gathering, the equipment manufacturing industry of Shenzhen and Dongguan grew at a high rate since 2000. Within six years’, the sizes of the general-purpose and special-purpose equipment manufacturing industries of Shenzhen grew by a respective 15.7 and 11 times, and Dongguan by a respective 7.8 and 13 times (Table 3.3).

121

Table 3.3 Gross Industrial Output of the General-purpose and

Special-purpose Equipment Manufacturing Industries of the Pearl River Delta Region (RMB Billion)

General-purpose Equipment Manufacturing Industry

Special-purpose Equipment Manufacturing Industry

2000 2006 Average Annual Growth

2000 2006 Average Annual Growth

Guangdong 190.8 830.2 27.8% 106.2 681.1 36.3% West Bank of the Pearl River Delta

137.8 520.4 24.8% 59.0 307.2 31.7%

Guangzhou 62.8 225.9 23.8% 22.3 80.8 23.9% Jiangmen 37.3 60.5 8.4% 10.6 14.3 5.1% Foshan 21.5 132.3 35.4% 13.4 124.6 45.0% Zhongshan 11.8 80.5 37.7% 4.8 54 49.7% Zhuhai 4.4 21.2 30.0% 7.9 33.5 27.2%

East Bank of the Pearl River Delta

14.1 176.7 52.4% 23.3 294.5 52.6%

Shenzhen 6.7 111.9 59.9% 16.1 193.8 51.4% Dongguan 7.4 64.8 43.6% 7.2 100.7 55.2%

Sources: Guangdong Statistical Yearbook (2001) and Guangdong Statistical Yearbook (2007).

From the interviews with the mould-making enterprises in Changan Town of Dongguan, we understand that the mould-making industry of Dongguan produces mainly high precision moulds. The enterprises are set up mostly by people from other provinces. They had usually worked in the Hong Kong and Taiwan mould-making enterprises before, where they learnt the international production management skills. These private enterprises are hence capable of extending their business to serve the higher-end information electronics industry, such as high precision moulds for mobile phones. The private mould-making enterprises of Dongguan have even won the accessories business in Guangzhou’s automotive manufacturing, and become second-tier suppliers of the Japanese automotive factories. As for the manufacturing service providers, they are mainly engaged in the maintenance and upgrade of manufacturing equipment, and technical services for the manufacturing processes of semi-raw materials (chemical materials). In the days of processing and compensation trades, manufacturing equipment

122

and raw materials were supplied mostly from the multi-national corporations, while the related technical services were provided by their Hong Kong branch offices or agents in Hong Kong. These companies were managed mostly by Hong Kong or overseas Mainland people. They employed young staff in the Mainland, and trained them to offer engineering services of international standards. Many of these young Mainland staff were from other provinces, with an education level of postsecondary level and above. They received training from the engineering experts of the multi-national corporations and Hong Kong and Taiwan enterprises, and participated in the daily work. With lots of on-site training and experience, they became engineering service experts in five to ten years, and joined the middle management level. Some of these experts set up their own business, and offered similar services and products to their previous clients. Some even competed with their ex-employers, causing disputes in intellectual property rights. However, looking at this issue from another angle, one can say that these entrepreneurs of private business have perfected the industry support systems in the east bank of the Pearl River Delta by leveraging on the factor of talent mobility and converting their personal working experience in the international enterprises to local resources of knowledge. It changes the Mainland’s conventional way of obtaining international advanced technologies through ushering in foreign investment. This model can be compared to the Taiwan model, in which Taiwan engineers working in the Silicon Valley of the United States went back to Taiwan’s Hsin Chu Science Park in the mid-1990s and established Taiwan’s semi-conductor design industry.

According to past industry analysis, the industry support systems in the west bank of the Pearl River Delta were more comprehensive. They were quite successful in the 1990s, as they had induced the creation of many specialised townships. As for the industry support systems in the east bank, they were barely comprehensive after 2000. This showed the deficiency of processing and compensation trades. This view neglects the fact that the east bank of the Pearl River Delta is predominated by the electronics and information technology industry. The value chain of this industry is very complicated, as technology development in the industry is very dynamic, and the competitors are developed countries or emerging industrialised regions. The industry support systems must satisfy the three major requirements of technology, cost and speed at the same time, posting a lot of difficulties to the industry support services. In contrast, the west bank of the Pearl River Delta produces mainly

123

electrical household appliances and daily consumer goods. The technologies involved are simpler, and the industry chain is shorter. The competitors are mostly developing countries. The industry support system needs mainly to lower the cost, probably followed by innovation in product design. The two industry support systems are hardly comparable in terms of technological level and system requirements.

Moreover, the manufacturing enterprises in the east bank of the Pearl River Delta are mainly set up by foreign investors and entrepreneurs outside Guangdong. The local people seldom invest in manufacturing businesses or take up the manufacturing engineering types of work. The residents of Dongguan basically work either in the service industry or at the managerial level. In the west bank of the Pearl River Delta, the manufacturing enterprises were mostly set up and managed by local residents. As far as the industry chain is concerned, the industry support system involves interactive collaboration between members from different industries. It implicitly contains a lot of social capital effectiveness. For the entrepreneurs in the west bank of the Pearl River Delta, the social network effectiveness already exists. There is no need to create another. To the manufacturing entrepreneurs in the east bank of the Pearl River Delta, as strangers entering a new investment environment at the early stage, the more desirable way is to continue to leverage on the past network resources, then quickly create a new industry network based on these past network resources. To the Hong Kong, Taiwan and other foreign investors, the processing and compensation trades are a model that is established on the base of their original manufacturing network resources. And for the non-Guangdong residents who intend to set up own social network, they need to work in the east bank for several years before grasping an opportunity to set up their own business. This is the more reasonable option. It is natural, therefore, that the establishment of the industry support system in the east bank lags several years behind the west bank. The time lag in the establishment of the industry support system was not related to the mode of industrial operations, but to the social resources owned by the entrepreneurs.

In short, the industry support system in the east bank of the Pearl River Delta has primarily become comprehensive in the new millennium, symbolising that the Pearl River Delta Region has basically completed building the framework of a regional industry system. In future, the Pearl River Delta industry will develop along the direction of optimisation, perfection, and upgrade.

124

(4) Strengthening of specialised townships. Specialised townships are a characteristic of the Pearl River Delta manufacturing industry. They sprouted in the 1980s to early 1990s, and shaped up in the late 1990s. Private enterprises form the economic trunk of the specialised townships. The development of the Pearl River Delta specialised townships is quite similar to their counterparts in Zhejiang. They are engaged mainly in labour-intensive industries like textiles, wearing apparel, food, construction materials, plastic products, footwear, toys, lamps, furniture, metal products, etc. The production technology is not difficult to master. The market demand changes swiftly. The production needs to be in large variety and small batches. The success of the specialised townships is usually attributed to the support and guidance of the local township government. In October 2006, the Guangdong Provincial Government tendered the “Opinions of Guangdong CPC Committee and Guangdong Provincial People’s Government on Accelerating the Development of Specialised Townships”. It proposed to establish a technology innovation system and an industry service system for the specialised townships by the end of the 11th Five-Year Plan period. By 2010, there will be more than 300 specialised townships in Guangdong, accounting for about 30% of Guangdong’s townships. Their gross industrial output will exceed RMB 1,000 billion. They will create more than 50 cluster brands of great influence and popularity inside and outside China. They will nurture more than 30 famous trademarks, and more than 100 of China’s top brands. They will have mastered more than 100 common technologies and critical technologies of their industries, set up more than 100 industry standards, and produced more than 3,000 products of autonomous innovation.46

46 Guangdong Science and Technology Department is one of the organizations responsible for governing the development of Guangdong’s specialized townships. In 2000, the Department proposed the use of science and technology to optimize and upgrade the specialized townships. It pioneered in launching the programme of “pilot-testing technology innovation in specialized townships”, inviting 159 towns (districts) to join the programme, and investing RMB1.155 billion in them. It has also established cooperation relationships with more than 120 universities and research institutes such as the Chinese Academy of Sciences and Tsinghua University. In June 2008, the Department proposed the tertiary institutions and research institutes to send their experts to station at the enterprises and specialized townships, so as to establish a long-term tripartite cooperation mechanism among manufacturers, academics, and research institutes. It is also setting up a Guangdong High and New Technology Industry Investment Fund of RMB 20 billion. See “Guangdong Broaden Path to Technology Innovation, High and New Technology Industry Investment Fund of RMB 20 billion Established”, Nanfang Daily (internet version) (南方日報網絡版), 4 June 2008.

125

By the end of 2006, 201 provincial-level specialised townships had been created. Their industries and products covered machinery, textiles, household electrical appliances, construction materials, livestock breeding and aquaculture, etc. (see Figure 3.2). Guangdong’s specialised townships are distributed mainly in the west bank of the Pearl River Delta and the east and west wings of Guangdong Province, where there are fewer Hong Kong, Macao, Taiwan and other foreign investors. In the east bank of the Pearl River Delta, there are only nine specialised townships. Figure 3.2 Distribution Map of Guangdong’s Specialised Townships (by the

End of 2006)

For English version, please refer to Annex VII. Source: Guangdong Science and Technology Department, Statistics

Bureau of Guangdong Province, 2007 Guangdong Science and Technology Statistical Data.

In May 2008, the team members of this study went to Dongguan for fieldwork, and conducted interviews in eight specialised townships and the city proper.47

47 Chang’an Town, Human Town, Shilong Town, Shijie Town, Houjie Town, Changping Town, and Guancheng (City Proper) of Dongguan City.

126

It was noted that the share of Hong Kong enterprises in these eight townships/districts was quite low. While Shilong and Shijie were electronics specialised townships dominated by Taiwan and Japan investment, the other six featured conventional labour-intensive products. The manufacturing activities of these six specialised townships/districts were dominated by local private enterprises. According to the officials and entrepreneurs of these specialised townships, the largest obstacles being faced by their industries were inadequate talent, difficulty of small- and medium-sized enterprises in financing, and poor capability for autonomous innovation. As for the other negative factors such as the recently promulgated Labour Contract Law, rising exchange rates, and slackened international market, they admitted that these factors had brought a lot of pressure to them in cost management and sales and marketing. However, some strong enterprises would take this as a survival of the fittest process. 48

Some high-tech enterprises were noted to raise the issue of adjustment in the policy on processing trade. The adjustment had increased the production cost burden of their low-tech suppliers, and pushed up the price of the parts and components. The negative effects of the policy on processing trade were spreading along the industry value chain to affect every industry member. Some officials mentioned that the country’s stringent controls on polluting industries had restrained them from ushering in enterprises of these industries, affecting the industry support needs of the region’s other enterprises and the comprehensiveness of the industry chain.

Tentatively, it seems that the Guangdong specialised townships are facing a lot of challenges in their development, and the situation is quite unfavourable to the local private enterprises. From the perspective of local development, the local private enterprises are more willing to assume the responsibility of promoting industrial development in the local area, and contribute more to the local government revenue. The future industrial development of the Pearl River Delta region will be determined by whether the Pearl River Delta governments can make some better institutional arrangements and provide strong support to the specialised townships.

48 For example, in order to solve the problem of labour shortage, the knitwear enterprises of Dalang Town are actively planning to purchase the latest models of knitting machinery from Germany and Japan and reduce their reliance on labour. A person in charge of the human resources department of a large Taiwan electronics enterprise in Shijie Town claimed that their offer to the workers was better than the requirements of the Labour Contract Law. Basically, the Law had not brought them any pressure in human resources management. He opined that the Law would affect more the non-conforming enterprises.

127

All in all, the Pearl River Delta manufacturing industry has entered the era of restructuring, consolidation, and upgrading after 2000, and preliminary achievements have been noted in three major sectors, namely, the nine major industries, the high-tech industry, and industry support systems. As a whole, the future prospects for the Pearl River Delta manufacturing industry look bright. Although in the past ten years, the Yangtze River Delta manufacturing industry has attracted more attention, it is noted that while the gross industrial output of the Yangtze River Delta manufacturing industry grew on average by 2.9 percentage points more than the Pearl River Delta manufacturing industry in the period of 2000-2006, its average annual growth in industrial value-added was 2.7 percentage points lower than the Pearl River Delta manufacturing industry (see Table 3.4). This shows the fact that the Yangtze River Delta manufacturing uses a lot of international and foreign resources to grow, while the Pearl River Delta manufacturing is more dependent on the added value of its own enterprises, and the support of local industries. This phenomenon is especially notable in Shenzhen. It shows that the Pearl River Delta Region and Shenzhen have changed from the model of processing and assembly to the direction of autonomous production. The Pearl River Delta industry system has become more comprehensive, advanced, and independent.

128

Table 3.4 Gross Industrial Output and Value-added of the Yangtze River Delta and Pearl River Delta Cities (RMB Billion)

Gross Industrial Output

Industrial Value- added

Average Annual Growth Rate in 2000-2006

2000 2006 2000 2006 Gross

Industrial Output

Industrial Value- added

Yangtze River Delta in total 2,146.3 7,916.4 547.7 1,800.9 24.3% 21.9%

Shanghai 702.3 1,963.1 199.9 467.0 18.7% 15.2% Suzhou 239.7 1,253.9 58.9 307.5 31.8% 31.7% Wuxi 177.9 712.5 41.2 166.2 26.0% 26.2% Hangzhou 154.4 697.5 36.1 136.3 28.6% 24.8% Ningbo 142.8 618.8 32.6 111.3 27.7% 22.7% Pearl River Delta in total 1,219.9 3,899.8 271.9 1,016.3 21.4% 24.6%

Shenzhen 431.8 1,192.9 70.7 308.7 18.5% 27.8% Guangzhou 256.9 728.2 70.8 197.1 19.0% 18.6% Foshan 156.1 628.9 40.2 174.4 26.1% 27.7% Dongguan 91.5 483.9 25.9 131.9 32.0% 31.1% Zhongshan 53.3 275.6 13.6 69.6 31.5% 31.2% Source: Yangtze River Delta & Pearl River Delta and

Hong Kong & Macao SAR Statistical Yearbook (2007). Shanghai—Suzhou—Wuxi is the most important manufacturing corridor of the Yangtze River Delta Region. In 2006, the gross industrial output and value-added of the three cities accounted for about half of the Yangtze River Delta Region. From 2000 to 2006, owing to the investment of Taiwan’s computer industry, Suzhou recorded an average growth rate of 30% per annum. In the Pearl River Delta Region, manufacturing concentrated on two large areas and four cities in the east bank (Shenzhen-Dongguan) and west bank (Guangzhou-Foshan). The two large areas account for a similar share at around 42-44%, accounting for 85% of the Pearl River Delta Region in total. The effect of industry clustering is very explicit. Owing to the difference in target markets and industry contents between the east bank and west bank, the Pearl River Delta Region can avoid large fluctuations in its manufacturing industry system that may arise from problems in a certain industry or market. This safeguards the stability and sustainability of the manufacturing industry system. Moreover, a more balanced manufacturing layout is advantageous in easing conflicts between districts in development. It is also conducive to the localization of producer service systems, as all places have the opportunity to seek economic gain in some sectors.

129

The development model of the manufacturing corridor of Shanghai—Suzhou—Wuxi can be compared to the Pearl River Delta export manufacturing corridor of Hong Kong—Shenzhen—Dongguan in the early years. Shanghai is naturally the sea and air transport centre of its manufacturing corridor. Its position as the regional shipping hub is further strengthened by the manufacturing corridor. Shanghai, however, has not conducted any “de-industrialising” activities. Up to now, it still maintains its technology- and capital-intensive manufacturing segments, and ranks top among all Yangtze River Delta cities in industrial output. This helps Shanghai to avoid the situation of “hollowing-out”, and to maintain and further develop high-end producer services. The dual arrowhead industrial development model of Shanghai in “manufacturing--service” resembles Guangzhou’s industrial development strategy. Both endeavour to develop the automotive industry, and strive to establish an extensive regional transportation system centering on itself. Hong Kong should learn from this development model of Shanghai and Guangzhou.

II. Characteristics of the Pearl River Delta Manufacturing Industry The Pearl River Delta manufacturing industry is generally seen by many Mainland academics and policy commentators to be dominated by the processing trade, which is relatively low in the industry chain and value chain, with a high degree of homogeneity, low technology content and little added value. As explained in the above analysis, these characteristics cannot totally represent the Pearl River Delta manufacturing industry. Even the Pearl River Delta manufacturing industry bears these characteristics. It is also common to find them in the industries of many developing countries. All late-comers need to go through a path of development that carries similar advantages and disadvantages. Through many interviews during the fieldwork for this study, we have additionally found in the Pearl River Delta Region some basic characteristics of a higher degree of marketisation, such as stability, clustering, internationalism, openness, competitiveness, and systematism. Based on these characteristics, and in comparison with other areas inside or outside China, it is deemed by this study that the performance of the Pearl River Delta Region is excellent. The sustainable competitiveness and capability for innovation of the Pearl River Delta manufacturing industry will be based on these characteristics in future.

130

1. Stability and Clustering (1) The Pearl River Delta manufacturing industry is sustainably stable. In the Pearl River Delta Metropolis, Hong Kong and Macao have highly developed modern service industries, while the Pearl River Delta Region is dominated by manufacturing. Pearl River Delta manufacturing industry is basically rather mature, as the industrial structure is getting more reasonable and the leading industries are prominent and stable. Since 1996, there have been just slight changes in the ranking of the ten pillar manufacturing industries of the Pearl River Delta Region. The electronics, communications, and electrical machinery manufacturing industries have been the leading industries in the Region for more than ten years. The Pearl River Delta Region has consequently become one of China’s most prosperous regions in electronic and communications equipment manufacturing. The stability in the predominating industries increases the maturity of the manufacturing industry, which in turn safeguards against large fluctuations in the economy. The continuous high and stable growth of the Pearl River Delta Region over the past three decades is owed to this maturity in the manufacturing industry. In addition, it is commendable that the manufacturing industry matured in a spontaneous way under the market mechanism, following the basic principles of economic development. Throughout China, the market principles have been best applied in the Pearl River Delta Region.

Table 3.5 Top Ten Industries of the Pearl River Delta Region Top Ten Industries in 1999 Top Ten Industries in 2006

Electronic and communication equipment

Communication equipment, computers and other electronic

equipment Electrical machinery and appliances Electrical machinery and appliances

Wearing apparel and other fibre products

Electricity and heat production and supply

Metal products Transport equipment Non-metallic mineral products Chemicals and chemical products

Textiles Metal products Chemicals and chemical products Plastic products

Plastic products Instruments and meters, and cultural and office equipment

Transport equipment Non-metallic mineral products Leather, fur, down feather, and

related products Textiles

131

(2) The Pearl River Delta manufacturing industry is relatively clustered. The Pearl River Delta Region has formed six large industry cluster zones, where the market mechanism fully functions, and the authorities have started to show their influence in guiding development. These six large industry cluster zones include a processing manufacturing industry cluster zone, a harbor-side basic industry cluster zone, a heavy equipment manufacturing industry cluster zone, a high and new technology industry cluster zone, an international logistics base, and a leisure and sightseeing tourism zone (see Table 3.6). An electronic and communication equipment manufacturing base with an annual turnover of RMB 120-130 billion has been founded in the eastern part of the Pearl River Delta Region. It is one of Asia’s most densely clustered regions in electronics and information technology industry. Shenzhen’s production of computer magnetic heads has ranked third in the world in quantity, while its production of laser heads has ranked top in the world in quantity. Dongguan has become one of the world’s largest computer manufacturing bases. Its products have accounted for a significant share in the global market: 40% of the world’s computer magnetic heads, computer cases and semi-finished products, 30% of the world’s copper clad laminates and computer drives, 25% of the world’s high-end AC capacitors and flyback transformers, 20% of the world’s computer scanners and micro-motors, 16% of the world’s computer keyboards, and 15% of the world’s computer mainboards. Meanwhile, an automotive industry system has been formed in the Pearl River Delta Region. The industry system, led by complete vehicle production of sedan cars in Guangzhou, also comprises a number of automotive accessories industries in the neighbouring areas. Following the successive investment of three large Japanese automakers, namely, Honda, Nissan and Toyota, in Guangzhou, a Pearl River Delta automotive industry cluster centering on Guangzhou and including neighbouring cities like Dongguan, Zhongshan and Foshan is about to be formed.

The formation of industry cluster zones is a result of the functioning of market principles. It is also a result of guidance by the authorities on market behaviour. When the overall industrial development of a district reached a certain stage, the market mechanism will spontaneously transform the industrial structure. The authorities should provide the necessary guidance according to the market mechanism, so that the industrial structure will smoothly transform against its

132

deficiencies, and become more reasonable. The formation and development of the six large Pearl River Delta industry cluster zones manifest that the Pearl River Delta manufacturing industry is gradually shifting from “too light” towards the direction of “reasonable share between light and heavy”. Although the authorities guide development, market principles are respected in leading development. This is the most important characteristic of the Pearl River Delta Metropolis in comparison with other regions in China.

Table 3.6 Six Large Industry Cluster Zones of the Pearl River Delta Region Industry Cluster

Zone Type City and District

Processing manufacturing industry zone

Central Mechanical and Electrical Equipment, and

Construction Materials Industries Cluster Zone

Northwestern Foshan, southeastern Zhaoqing

Eastern Electronics and Electrical Appliances

Industries Cluster Zone

Dongguan City, Longgang District of Shenzhen,

southwestern Huizhou Western Electrical

Household Appliances, Metal Products, and

Textiles Industries Cluster Zone

Shunde district of Foshan, northwestern Zhongshan,

areas in Jiangmen along the 325 national highway

Harbourside basic industry cluster zone

Huiyang-Daya Bay Cluster Zone

Longgang Industrial Zone in Shenzhen, Daya Bay

Petrochemical Base in Huiyang of Huizhou

Jinwan—Yinzhouhu Cluster Zone

Jinwan District of Zhuhai, Yinzhouhu of Jiangmen,

southern Taishan

Heavy equipment manufacturing industry cluster

zone

Nansha Cluster Zone Wanqingsha and Longxue Island of Nansha, Guangzhou

Huadu-Baiyun Cluster Zone

Peripheral areas around Guangzhou’s new Baiyun

Airport

133

High and new technology

industry cluster zone

Central Cluster Zone

Guangzhou Science City—Guangzhou New Zone

for Colleges—Guangzhou New City/Foshan High and New Technology Industry

Development Zone—Nanhai High and New Technology

Industry Development Zone

Eastern Cluster Zone

Songshanhu, Dongguan—Guangming,

Shenzhen—Shenzhen University City—Shenzhen High and New Technology


Western Cluster Zone

Zhongshan Huoju Development Zone--Zhuhai High and New Technology


International logistics base

Guangzhou Logistics Base Nansha, Huadu, and Huangpu districts of Guangzhou

Shenzhen Logistics Base Yantian, Qianhai, and Pinghu districts of Shenzhen

Leisure and sightseeing

tourism zone

Famous mountains and sceneries tourism zone

Guangzhou’s Baiyun Mountain—Maofeng

Mountain, etc.

Coastal leisure tourism belt

Shenzhen’ Dapeng Peninsula—Huizhou’s Renping Peninsula, etc.

Traditional culture and heritage tourism line

Guangzhou’s culture, Hakka in the east bank, homeland of overseas Chinese in Jiangmen

2. Internationalism and Openness (1) The Pearl River Delta manufacturing industry is highly internationalised. An open economy is the prerequisite and base for the market mechanism to function. The Pearl River Delta Region has one of China’s most open economies. The internationalism of the Pearl River Delta industry is the consequential result of the openness of the economy. This is manifested by the role of Pearl River Delta industry, whether manufacturing industry or service industry, as a major link and node in the global economy.

134

The Pearl River Delta Metropolis is indeed China’s most highly internationalised industrial region. The internationalism of the Pearl River Delta industry is mainly evident in its higher dependence on external trade, more foreign investment actual utilised, and higher growth in the actual utilisation of foreign investment. The Pearl River Delta Region was a forerunner in taking the transferred industries and economic influence of the Asia-Pacific or even global economies. Through developing labour-intensive industries with foreign investment, the Pearl River Delta Region has turned itself into a major link in the international industry chain. The Pearl River Delta Metropolis is hence rated as one of China’s most internationalised economies. A comparison between the Pearl River Delta and Yangtze River Delta Regions shows that the Pearl River Delta Region has higher dependence ratios on external trade, exports, and imports than the Yangtze River Delta Region. The dependence ratio of Shenzhen on external trade was as high as 324% in 2006, while for Dongguan it was 255%. In the exports of the two cities, processing trade accounts for a very high percentage. In 2006, processing trade took up 76% of Shenzhen’s exports, while the share in Dongguan’s exports was as high as 94%. It is this openness that attracts an enormous amount of foreign investment to transfer their manufacturing operations to the Pearl River Delta Region.

Table 3.7 Comparison between the Pearl River Delta and Yangtze River Delta Regions in the Dependence Ratio on External Trade

Year Pearl River Delta Region Yangtze River Delta Region

Dependence Ratio on External

Trade

Dependence Ratio on Exports

Dependence Ratio on Imports

Dependence Ratio on External

Trade

Dependence Ratio on Exports

Dependence Ratio on Imports

2002 186.77% 99.29% 87.48% 73.49% 39.02% 34.47% 2003 198.10% 105.92% 92.18% 96.39% 49.22% 47.17% 2004 182.24% 96.06% 86.18% 115.29% 60.31% 54.98% 2005 186.26% 102.99% 83.27% 121.15% 66.53% 54.62% 2006 188.65% 107.44% 81.21% 125.92% 71.50% 54.42% The internationalism of the Pearl River Delta industry is also manifested by the continuous growth in exports and actual utilisation of foreign investment, and the overwhelming shares of these parameters in the whole country. From 1990 to 2006, exports from the Pearl River Delta Region increased from US$8.1

135

billion to US$ 288.7 billion, growing by nearly 36 times. Its share in the whole country more than doubled from 13% to 30%. During this period, the actual utilisation of foreign investment of the Pearl River Delta Region grew by nearly 8 times from US$1.7 billion to US$13.1 billion. The Region accounts for one-fifth of China’s actual utilisaton of foreign investment.

Table 3.8 Exports and Actual Utilisation of Foreign Investment of the Pearl River Delta Region

Year Exports Value (US$ billion at current prices)

Share of China’s Total Exports (%)

Actual Utilisation of

Foreign Investment

(US$ billion at current prices)

Share of China’s Total Actual Utilisation of

Foreign Investment (%)

1990 8.1 13 1.7 17 1995 46.1 31 8.6 18 2000 84.7 34 12.5 21 2005 227.2 30 11.5 19 2006 288.7 30 13.1 19

In the early days, the Hong Kong and Macao factor played an important role in the internationalism of Pearl River Delta Region industry, typically in its exports and foreign investment. In recent years, however, investment from Japan, Europe and the United States has increased tremendously, showing that the internationalism of the Pearl River Delta industry is moving in the direction of diversification and large variety. (2) The Pearl River Delta manufacturing industry is totally open. Whether in depth or in the scope, the Pearl River Delta is open to the whole country. It is one of China’s most open regions. First it is open to labour force. The Pearl River Delta Region takes up a massive proportion of China’s labour force. According to the statistics of the Guangdong Provincial Labour and Social Security Bureau, there were 26.2 million ‘external’ workers in Guangdong in 2007. Of all external workers in China in 2006, 41.2% worked in the cities within their province, while 20.9%, 11.6%, and 11.9% worked in the Pearl River Delta, Yangtze River Delta, and Bohai Rim Regions respectively. The share of the Pearl River Delta Region in

136

external work force was ten percentage points higher than the Yangtze River Delta Region. Second, it is open to talent and technology. Over the past three decades, the Pearl River Delta Region has attracted a large amount of excellent management and technology talent, and transformed from a talent deficit region to a talent clustered region. By the end of 2005, the pool of talent in Guangdong, mainly in the Pearl River Delta Region, amounted to 11.85 million persons, of whom 2.359 million persons were management talent, 3.34 million persons were professional and technological talent, and 6.57 million persons were technical talent. The pool of high-level talent increased from 75,000 persons in 1999 to 150,000 persons in 2005, of whom 53 persons were academicians (including 25 double-employed academicians), 4,931 persons were specialists enjoying special government allowance, 1,750 persons were postdoctoral fellows, and around 10,000 persons were doctors. At present, Guangdong has in total 113 postdoctoral research centres in enterprise, ranking top among all provinces and municipalities in China. Most of these research centres are distributed in the Pearl River Delta Region. By 2006, nearly half of the staff of the postdoctoral research centres in enterprise continued to work with the enterprise. They have worked on 1,170 technology innovation projects, and cultivated 135 patents. They are thus very important to the enterprises. Third, it is open to entrepreneurs. The Pearl River Delta Region is a good place for setting up business. Its good environment for starting business has not only nurtured a large number of local entrepreneurs. It is also the most concentrated region for foreign entrepreneurs. A comparison study on entrepreneurs between Guangdong and provinces like Jiangsu, Zhejiang, Shandong, and Fujian shows that most of the entrepreneurs in the other provinces like Jiangsu and Zhejiang are local people, while a considerable portion of entrepreneurs in Shenzhen, Dongguan, and Guangzhou are external persons from other provinces. Setting up businesses in the Pearl River Delta Region has become a trend among the external persons. In Guangzhou, one in every three private enterprises is set up by an external person. In 2004, external persons set up more than 30,000 enterprises in Guangzhou. According to the statistics of the Henan Chamber of Commerce in Guangdong Province, there were 2.8 million Henan people in Guangdong in 2006. They had set up some 9,200 enterprises by themselves. Another set of incomplete statistics shows that by 2005, there were already 400,000 entrepreneurs of Zhejiang origin in

137

Guangdong. They were mainly engaged in the leather, leather goods, services, and jewellery industries. Their total annual turnover exceeded RMB 200 billion. With this total openness, the Pearl River Delta Region is able to become the region with most frequent and effective production factors and resource integration activities. These activities sustain the Pearl River Delta industry in diversity, mutual support, and flexibility, turning the Pearl River Delta Metropolis into one of the most economically active and vigorous regions in China or even in the Asia-Pacific region.

3. Competitiveness and Systematism (1) Pearl River Delta manufacturing industry is highly competitive. The Pearl River Delta economy, and its industries, are highly competitive. A market system of perfect competition has tentatively been formed. Compared with other regions of China, Pearl River Delta industry is highly competitive in the following ways. In the first place, market principles are followed, and production factors and resources are allocated according to market demand. The market economic system has been nurtured and perfected to replace to a large extent the planned economic system in the allocation of production factors and resources. Through the flexible allocation of production factors and resources, a good environment for free competition is forged. Secondly, all economic entities are equal. All enterprises, no matter state-owned, private, or foreign-owned, enjoy relatively fair treatment. Economic entities of different types co-exist, develop and prosper together, forming a relatively harmonious industrial environment and atmosphere. A good environment of fair competition is forged through the equal status of the economic entities. Thirdly, the industries and enterprises are stable from the static perspective and transforming from the dynamic perspective. Fair competition among industries and enterprises is safeguarded by market principles, and only the fittest will survive. From the static perspective, a result of this is that the industries and enterprises are relatively stable. From the dynamic perspective, the industries and enterprises are upgrading and developing through continuous integration. A high degree of competition keeps the industries and enterprises in a virtuous circle. (2) The Pearl River Delta manufacturing industry is highly systemised. Within the manufacturing industry, high and new technology industry and

138

labour-intensive industry, centering on electronics and information technology, predominate in the eastern part of the Pearl River Delta Region, while heavy industry predominates in the eastern and western parts, and heavy industry and household electrical appliances predominate in the middle part. Complementary development among industries is replacing competition among homogenous industries. This is a characteristic of systemised industry. In addition, the various types of Pearl River Delta industries are highly linked and support each other, showing another systemised and integral characteristic of the Pearl River Delta industry. It is this systemised and integral feature that makes “cross-integration” possible, producing new industries and boosting the industries’ capability for innovation. The Pearl River Delta economy has evolved as a vigorous and innovative entity, as reflected by the outstanding performance of its high and new technology industry established upon the communications industry. Compared with other regions in China, the Pearl River Delta Region is competitive in both the communications industry and high and new technology industry.49

Among all cities of China, Shenzhen ranks top in terms of the comprehensiveness of its innovation system and the vitality in its innovation activities. It has formed an innovation system comprising mainly of enterprises. The system has a high capability for autonomous innovation. The proportion of products with autonomous intellectual property rights has continued to increase. The number of patent applications and approvals is also growing rapidly. In Dongguan, at the closure of some low-end manufacturing plants, it has started developing the high and new technology industry. Districts like the Songshanhu Development Zone have already gathered some high-tech enterprises. The share of high and new technology industry in the gross industrial output has increased from 13% in 2001 to 27% in 2006.

4. Pearl River Delta Manufacturing Industry Is Beginning to Enter the Stage of Branding

Although the Pearl River Delta Region gives to the outside world an impression of low-end manufacturing paying little attention to branding, a

49 Some scholars like Wang Zheng reached this conclusion by conducting statistical analysis and quantitative comparison on China’s information technology industry and high and new technology industry, and comparing the location quotients, steady-state probability distribution, transition probabilities, and Shorrocks indicators of various provinces and municipalities of China in information technology industry and high and new technology industry between 1998-2005. See Wang Zheng et al. ( 王錚等 ), “Analysis on Specialisation in China’s New Economy Industrial Regions”, Acta Geographica Sinica (地理學報), 8 (2007).

139

detailed analysis shows that during the past three decades of reform, opening up, and economic development, the Pearl River Delta Metropolis has created quite a number of brands. In the Pearl River Delta Region, there are locally developed private enterprises, large state-owned enterprises, and foreign enterprises. The industrial ecology of co-existence by different types of enterprise promotes mutual learning and benchmarking. It is this diversity and large variety in the Pearl River Delta industrial ecology that has induced the creation of Pearl River Delta brands.

In the Pearl River Delta Metropolis, in addition to internationally-renowned brands like Hong Kong’s HSBC, Hutchison Whampoa, Sun Hung Kai, and Li & Fung, some Mainland enterprises such as Huawei, Zhongxing, Gree, and China International Marine Containers (CIMC) have also become world famous. Of the top ten world famous brands of China, the Pearl River Delta Region accounts for four, similar in quantity to the Yangtze River Delta Region. In terms of popularity and market share, the major products of companies like Galanz, Midea, and Konka have attained a high position against their Mainland counterparts. Foxconn, the Taiwan enterprise, invested in a factory in Shenzhen in 1988, and soon grew up to be Shenzhen’s largest manufacturing enterprise with the largest export value. Mr. Terry Gou Tai-Ming has consequently become Taiwan’s richest man. Table 3.9 China’s World Famous Brands (2005-2007)

Year Manufacturing Enterprise Product Location of Enterprise

2005 Haier Group Corp. Refrigerator Qingdao Haier Group Corp. Washing machine Qingdao

Huawei Technology Co., Ltd. PABX Shenzhen 2006 Zhongxing Communication Co., Ltd. PABX Shenzhen

Shanghai Zhenhua Port Machinery Co., Ltd. Container cranes Shanghai

Gree Electric Appliances, Inc. of Zhuhai Air-conditioner Zhuhai

Jiangsu Sunshine Group Co., Ltd. Worsted wool fabrics Jiangyin

2007 China International Marine Containers (Group) Co., Ltd. Container Shenzhen

Bosideng Corp., Ltd. Down feather apparel Changshu

Wanxiang Group Company Universal joints Hangzhou

140

Because of territorial constraints and a lower number of enterprises, brand development in the Pearl River Delta Region lags behind the Yangtze River Delta Region in the absolute number of brands. After the swift development of brands like “Apollo”, “999”, and “Idall” in the 1990s, Pearl River Delta enterprises have become more practical. Learning from others’ experience in brand building, they are more prudent in brand development. Compared with the brands of Shanghai, Jiangsu, and Zhejiang, the Pearl River Delta brands are still quite competitive. Against the backdrop of transformation in the overall industrial structure of China and alteration in the philosophy of development, the Pearl River Delta Region is entering the stage of brand creation with energy and power that have been accumulated for three decades. Leveraging on the advantages of internationalism and marketisation in the economic development, the Pearl River Delta Region can certainly be expected to have bright prospects in brand creation and development. Table 3.10 Brand Development in the Pearl River Delta and Yangtze River

Delta Regions (2007) Region Province/

Municipality China’s World

Famous Brand

China’s Famous Brand

China’s Famous

Trademark

National Inspection- free Product

Most Competitive

Brand in Market

Pearl River Delta 4 254 112 560 26 Yangtze

River Delta

Shanghai 1 90 61 162 14 Jiangsu 2 208 87 505 20

Zhejiang 1 224 81 490 24 Note: The figures of Jiangsu and Zhejiang only include those cities that

belong to the Yangtze River Delta Region. Source: Database of China’s Well-known Brands,

http://www.wellknownbrand.cn. Overall, the model of processing and compensation trades promoted by Hong Kong in the east bank of the Pearl River Delta has created enormous economic benefits for the Region. In particular, it has founded a very sound base on which manufacturing industry, service industry, and infrastructure can develop. The Hong Kong enterprises’ practices in investment, management, and talent training, and the introduction of internationalised market mechanism and international management system, have indirectly fostered a large batch of private enterprises with international competitiveness, and a large batch of

141

technological and management talent of international standard. More critical, the system strengths of openness and internationalism forged by Hong Kong enterprises in the east bank of the Pearl River Delta have attracted a lot of talent from other provinces, and from among specialists studying overseas, to settle down at the Pearl River Delta Region, establishing a localised manufacturing cluster of international technology standards. Meanwhile, Pearl River Delta residents endeavour to develop the local service industry, while interacting fully with the external (from overseas and other provinces) manufacturing investment. Enterprises, organisations, and residents of different backgrounds are able to achieve great success on the common platform of the Pearl River Delta Region.

Comparing the development models of the Pearl River Delta and Yangtze River Delta Regions, the largest difference lies in their openness, particularly the degree of openness to people from other provinces. The east bank of the Pearl River Delta absorbs talent from different countries and provinces, provides a relatively open, fair, and highly marketised common platform, and permits and encourages them to compete and cooperate. The Yangtze River Delta Region relies mainly on foreign investment, state-owned enterprises, and local investment as the three major manufacturing groups. The Pearl River Delta Region clearly displays its characteristics of openness, diversity, and flexibility under the globalised system. The difference between the east bank and west bank of the Pearl River Delta reflects to certain degree the difference between the Pearl River Delta and Yangtze River Delta Regions. The development model of the west bank of the Pearl River Delta Region more resembles that of the Yangtze River Delta Region. As the Yangtze River Delta Region, the main trunk of its economy comprises the three major groups of foreign enterprises (Japanese auto-makers), large state-owned enterprises (heavy and chemical industry and petrochemical industry), and private enterprises set up by local people (specialised towns). Also, the government of the core city leads the development of the region’s infrastructure and transportation network.

If the future development of the Pearl River Delta Region only relies on Guangzhou to adopt a development model similar to that of the Yangtze River Delta Region and promote it from the west bank of the Pearl River Delta Region, then it will be a difficult challenge for the Pearl River Delta Region to

142

surpass the Yangtze River Delta Region under the leadership of Guangzhou. The power of Guangdong is already hardly comparable with the three provinces and municipality of Shanghai, Jiangsu, and Zhejiang in finance, talent, and resources. Guangzhou also lags behind Shanghai considerably in regional coordination and influential capability, administrative level, financial power, talent, financial services, and culture of innovation. As for Hong Kong, it faces the hardware constraint of inadequate linkage in transportation network, and the political system restraint of “One Country, Two Systems”. It will also be difficult for it to promote the Pearl River Delta development by itself. Therefore, the key to the future development of the Pearl River Delta Region is interactions and co-ordinations between the two large regional growth poles of Guangzhou and Hong Kong, on the platform of Guangdong. They need to complement each other. In short, the model of processing and compensation trades promoted by Hong Kong enterprises used to match the development conditions of the Mainland and Guangdong at the beginning stage of China’s reform and opening up after 1978. After three decades of development, Guangdong has evolved into an economically strong province in the Mainland, and the Shenzhen Special Economic Zone has evolved into China’s largest city in high-tech industry. All these economic, social, technological, and system accomplishments should be totally affirmed. For the future development path, it should be decided according to the future conditions for industrial development and the desire to cooperate between Guangdong and Hong Kong, and modify when and where appropriate. III. Characteristics of the Pearl River Delta Service Industry In the Pearl River Delta Metropolis, Hong Kong and Macao are highly developed regions in terms of service industry. The ratio of service industry in Hong Kong is higher than 90%. In the trade of services, Hong Kong exported HK$645.3 billion of services in 2007, more than double its import of services (HK$320.0 billion in 2007). In the Pearl River Delta Region, in tandem with the high economic growth, rapid industrialisation and urbanisation, and increase in societal wealth, service industry has also developed rapidly. The gross output (at current prices) of Guangdong’s tertiary industry increased at as much as 21.7% per annum from 1978 to 2007, higher than the 20.0% growth of the manufacturing industry. The growth in the real estate industry predominated by local enterprises was particularly outstanding, increasing at 28.6% per

143

annum (see Table 3.11). The most prominent example is Dongguan. Most of its local residents are working in service industry, including land and real estate leasing, hotels and restaurants, and conventions and trade show organising services. The service industry of the Pearl River Delta Metropolis has the following characteristics. Table 3.11 Gross Output of Guangdong Province, 1978-2007 (At Current

Prices, RMB Billion) 1978 1980 1990 2000 2007 Annual

Growth Rate

Gross domestic product 18.6 25.0 155.9 1,074.1 3,067.4 19.3%

Primary industry 5.5 8.3 38.5 98.6 174.6 12.6% Secondary industry 8.7 10.3 61.6 500.0 1,593.8 19.7% Manufacturing

industry 7.6 9.0 52.3 446.3 1,491.0 20.0%

Construction industry 1.0 1.3 9.2 53.6 102.8 17.1%

Tertiary industry 4.4 6.4 55.9 475.5 1,298.9 21.7% Transportation,

storage, postal and courier services

1.0 1.4 10.2 93.9 126.4 18.1%

Wholesale and retail trades 1.9 3.0 15.3 137.1 290.1 18.8%

Financial industry 0.5 0.6 8.2 44.4 122.1 21.3% Real estate industry 0.1 0.2 4.3 62.6 209.9 28.6%

Sources: Guangdong Statistical Yearbook (2007), Guangdong Statistical Information Net.

1. Cascading Development in the Whole Service Industry The service industries of the major cities in the Pearl River Delta Metropolis exhibit a cascading development. In the first tier are Hong Kong and Macao. Hong Kong’s service industry is notably the most prosperous and of the highest service standards. It is the best in the metropolitan region, no matter in producer services or consumer services, in the variety of service or quality of service. Macao, meanwhile, has developed mainly the leisure and recreation industry, centering on the gaming industry.

144

Table 3.12 Major Classifications of the Service Industry of Hong Kong Financial Services

Trade-related Services

Professional Services

Communications and Media Services

1. Banking 1. Licensing 1. Legal services 1. Telecommunications 2. Securities 2. Convention

and exhibition

2. Accounting 2. Information technology services

3. Insurance 3. Import and export trade

3. Design 3. Internet

4. Venture capital

4. Air transport 4. Management Consulting

4. Film entertainment

5. Debt market 5. Sea transport 5. Architecture 5. Marketing services 6. Fund

management 6. Freight

forwarding 6. Building and

construction 6. Publishing

7. Express cargo 7. Engineering 8. Arbitration

and mediation 8. Surveying

9. Environmental protection

Source: Website of the Hong Kong Trade Development Council. In the second tier are Guangzhou and Shenzhen. The many years of high growth have raised the per capita income of Guangzhou and Shenzhen to a high level. Increase urbanisation has also resulted in increased population density and therefore greater demand for services. They have created a good environment in which service industry can develop. With the location advantage of neighbouring Hong Kong and Macao, they have attracted many multi-national corporations to enter and set up offices there. Many high-end service industries have followed, and the highly competitive market has urged the local service industries to upgrade and improve their services. As a result, the internal structure of the service industries of these two cities has become more reasonable. The focus has shifted from the conventional industries to emerging service industries of high added value and high technology content. Guangzhou has evolved into a service industry-oriented city, with the contribution of the service sector getting close to 60%. Shenzhen follows just behind, ranking second in Guangdong Province. In the third tier are Dongguan, Zhuhai, Foshan, and Zhongshan. These cities have prosperous manufacturing industries and higher living standards. Their demand for producer and livelihood service industries is consistently rising. They develop mainly the manufacturing-related service industries, such as

145

logistics services, convention and exhibition services, professional services, technology services, and consumer services. In the fourth tier are Huizhou, Jiangmen, and Zhaoqing. As these cities have yet to develop their manufacturing industries and infrastructural facilities, the development of their service industries is constrained. They develop mainly those services that they can capitalise on their resources, labour-intensive service industries, and conventional service industries, such as tourism, transportation services, wholesale and retail trades, hotels, restaurants, household services, etc. In this cascading development, a number of famous enterprises offering competitive services have emerged. In the financial sector, China Merchants Bank has been rated to have the highest brand value among all banks in China, while Ping An Insurance has found a place in the world’s top 500 companies. In the information technology sector, Shenzhen’s Tencent has evolved as one of China’s most successful Internet companies. In the household electrical appliances sector, Gree and Midea have flexed their muscle in product brand, sales turnover, and market share. In the real estate sector, China Vanke and Country Garden are China’s benchmark companies.

2. Balanced Development between Producer and Consumer Service

Industries With a strong base of manufacturing industry, the producer service industry of the Pearl River Delta Region has been developing well. The producer service industry is a major intermediate input of the manufacturing industry. It is strengthening its interaction with the manufacturing industry, as manifested by the higher growth of service input over material input, and the increasing services offered in the manufacturing sector. The strong manufacturing industry of the Pearl River Delta Region not only sustains the producer service industry. It also provides a large market and broad development prospects for the producer service industry. Over the past three decades, the producer service industry of the Pearl River Delta Region has developed rapidly, and its turnover and size rank top among all regions in China. In both Guangzhou and Shenzhen, the output of the producer service industry accounts for more than 50% of the tertiary industry. In addition, they have more emerging industries like information consulting, computer applications, and science and technology research services. Their financial service functions are strengthening and

146

improving. Their science, technology and business services have developed into a significant size. Their transportation, storage, postal and courier services have long been a pillar industry.50

As for the consumer service industry, the Pearl River Delta Region has transferred Hong Kong and international advanced management experience and practices to the hotels, restaurants and tourism industries. Stimulated by ample competition, these industries have enhanced their service standards. For instance, in 1979, the Guangdong authorities cooperated with Hong Kong merchant Mr. Henry Fok Ying-tung to establish the White Swan Hotel in Guangzhou. Mr. Fok invested US$50 million, and provided management and technical know-how, while Guangdong provided construction materials, land and labour force. Soon after, Guangzhou’s China Hotel and Garden Hotel also ushered in foreign partners, and they were built into China’s first batch of Sino-foreign joint-venture five-star hotels. All three hotels experienced a process of “learn—localise—innovate” in management practices and system setup. The White Swan Hotel focused on self management, sending staff overseas to gain advanced hotel management experience. The China Hotel and Garden Hotel first solicited the services of international management groups like Marriott, Peninsula, and Lee Garden, and gradually localised either the whole management or the middle-level management. These three hotels eventually became the de facto training schools of hotel talent for Guangdong and even for the whole of China. The Garden Hotel alone has trained up more than 10,000 hotel staff in recent years. The management practices of the Pearl River Delta hotels have become a standard for China’s hotel industry. Many service industries of the Pearl River Delta Region were developed in this way. Now even many towns in Dongguan have five-star hotels. As a result of the development of the manufacturing industry, the number of high-end business visitors has grown enormously, followed by the emergence of high-end service industries. Developments in the golf and its support industries are especially notable. The golf course in Guanlan, Shenzhen is one of the world’s largest golf courses, attracting many high-end business visitors. There are some 62 golf courses densely distributed in the 11 cities of the Pearl River Delta Metropolis. They are a major symbol of the Pearl River Delta Metropolis in the development of high-end service industries. 50 See Duan Jie (段傑) and Zhang Yin (張燕), “The development of Guangdong’s producer service industry against the backdrop of economic globalisation”, Journal of Shenzhen University (Humanities and Social Sciences) (深圳大學學報—人文社會科學版), 3 (2008).

147

Table 3.13 Distribution of Golf Courses (Club) in the Pearl River Delta Metropolis

City Name of Golf Course Guangzhou (15) Sanshui Spring Golf Club, Guangzhou Luhu Golf Country Club,

Guangzhou Bougainvillea Golf & Country Club, Guangzhou International Golf Club, South Palms Golf Club, Guangzhou The Masters Golf & Country Club, Panyu Nansha Golf Club, Guangzhou Dragon Lake Golf Club, Sino Golf & Country Club, Nanhai Peach Garden Golf Club, Nanhu Golf Club, Conghua Hot Spring Golf Club, Lotus Hill Golf Club, Golden Lake Golf Club, Guangzhou Purple Clouds Country Club

Shenzhen (14) Shenzhen Tycoon Golf Club, Shenzhen Airport Golf Club, Mission Hills Golf Club, Firestone Golf Club, Shenzhen Golf Club, Shenzhen Green Bay Golf Club, Shenzhen Xili Golf & Country Club, Sand River Golf Club, Jiulong Hills Golf Club, Shenzhen CITIC Green Golf Course, Shenzhen Long Gang Public Golf Club, Century Seaview Golf Club, Shenzhen Noble Merchant Golf Club

Hong Kong (8) Hong Kong City Golf Club, Clearwater Bay Golf & Country Club, Shek O Golf and Country Club, Discovery Bay Golf Club, Hong Kong Golf Club (Deep Water Bay), Jockey Club Kau Sai Chau Public Golf Course, Hong Kong Golf Club (Fanling), SkyCity Golf Course

Dongguan (6) CITIC Changping Golf Club, Long Island Golf & Country Club, Dongguan Hillview Golf Club, Yinli Foreign Investors Golf Club, Dongguan Harbour Plaza Golf Club, Camdor Harbour Golf Club

Zhuhai (5) Pine Valley Sports & Country Club, Zhuhai Golf Club, Zhuhai Golden Gulf Golf Club, Zhuhai Lakewood Golf Club, Orient (Zhuhai) Golf Club

Huizhou (5) Huizhou Tangquan Golf Club, Huiyang Palm Island Golf Club, Huizhou Golf & Resort Club, Huizhou Garbotax Country Club, Huizhou Lakefront Golf Club

Macao (2) Orient Golf (Macau) Club, Macau Golf & Country Club Zhongshan (2) Zhongshan Agile Golf & Country Club (Changjiang Golf Club),

Zhongshan Hot Spring Golf Club Foshan (2) Foshan Golf & Country Club, Gaoming Silver Ocean Golf Club

Jiangmen (2) Wuyi Fountain Palm Golf Club, Heshan Golf & Country Club Zhaoqing (1) Zhaoqing Resort and Golf Club

Note: The table is compiled from different sources of information, incomplete statistics.

148

3. Synergistic Development between Service and Manufacturing Industries

There are a large number of Hong Kong enterprises in the Pearl River Delta Region. Most of them are manufacturers. In the view of Guangdong Province, there exists a problem of distinguishing the internal sources from the external sources in its economy. From the perspective of the Pearl River Delta Metropolis, Hong Kong enterprises are also enterprises of the Pearl River Delta Metropolis, and the classification of internal and external sources becomes vain. The service industry of the Metropolis should serve all these enterprises. Internal synergy in the service industry of the Pearl River Delta Metropolis already happens. A pattern has been formed within the service industry of the Metropolis, with Hong Kong and Shenzhen excelling in financial industries, Guangzhou excelling in producer service industries, and Macao and Zhuhai excelling in leisure and recreation industries. The main indicator of the synergistic development between service and manufacturing industries is that the manufacturing industry of the Pearl River Delta Metropolis can select the service providers from any city of the Metropolis according to their own needs. In addition, as the manufacturing industry restructures and upgrades, and the wealth of economic organisations and individuals in the region increases, the quality and variety of the service sector also improves and expands, forming a service industry system with complementary and synergistic effects. To a certain extent, the service sector seems to experience “fission” development. That is, it has expanded into new markets, improved service quality, and extended the industry chain. Even for the producer service industry, which targets the manufacturing industry, development is more complementary and synergistic than competitive. An example is the construction of five major airports in the Pearl River Delta Metropolis. The development of five major airports in the Metropolis has not caused detriments to each of them. Instead, it has boosted the management standards and service quality of the airports, achieving a multi-win and co-win situation. Another example is Macao’s allocation of an additional 150,000 sq.m. of land to develop the MICE industry. Although it has led to some negative comments from some Hong Kong people in the trade, it does not enter into competition with the MICE industries of Hong Kong and the Pearl River Delta Region. Instead, they jointly create a comprehensive MICE industry chain in the Pearl River Delta Metropolis with global competitiveness.

149

Meanwhile, the synergistic development between service and manufacturing industries has created a good benefit-sharing arrangement within the Pearl River Delta Metropolis. After a long period of open economic development, the Pearl River Delta Metropolis has come up with an explicit division of labour among its industries. For instance, in Dongguan, the external investors (mainly Hong Kong investors) are engaged in the manufacturing industry, while the local entrepreneurs are engaged in producer and consumer service industries to serve these foreign investors. At present, half of the manufacturing enterprises are wholly or partially owned by Hong Kong investors. These enterprises set up 57,000 factories, and employ 9.6 million workers. Of which, foreign-owned enterprises, Sino-foreign joint ventures, and Sino-foreign cooperative ventures with the base in Hong Kong employ 5 million workers, while enterprises of other types employ 4.6 million workers. Whereas those engaged in consumer service industries like commerce, hotels, and entertainment in the Pearl River Delta Region are mainly local enterprises. Meanwhile, most Hong Kong and foreign enterprises lease the land and factories from the local residents and governments for their manufacturing operations. Although the time span of some contracts can be quite long, they are still different from land sales. This practice safeguards the interests of the local residents and governments. They can share a reasonable portion of the benefits of economic development. Moreover, it can enhance the turnover and effective use of land and factories as a production factor, and boost the vitality of the economy and industry. The complementarity in the division of labour between production and services, and the relatively balanced arrangement in the sharing of benefits between various stakeholders in the region, are reasons for the long-term balance and stability of the Pearl River Delta Metropolis. 4. The Pearl River Delta Service Industry Has the Characteristic of

“Across the Boundary but Not Across Districts” Regarding trade in services, for all the four modes of service supply covered by the WTO, namely, Cross-Border Supply, Consumption Abroad, Commercial Presence, and Presence of Natural Persons, or as defined in the General Agreement on Trade in Services (GATS), cross-border service flows, service consumers moving across borders to obtain service, service suppliers establish territorial presence across border, and persons moving across border to supply services, there is a tremendous volume of activities in the Pearl River Delta Metropolis. With the continuous liberalisation and implementation of CEPA, there will be more cross-border service suppliers. More external service

150

consumers can be expected at the ease of border crossing. The level of commercial presence and presence of natural persons will also consistently grow. However, it is noted that the service industry of the Pearl River Delta Metropolis has the characteristic of “across the boundary but not across districts”. This characteristic is unique to the Pearl River Delta Metropolis. By “across the boundary”, it refers to the boundary between the different customs regimes of Guangdong, Hong Kong, and Macao. The service suppliers exist under different economic systems. Their services differ in quality, standards, and format. The large flocks of people flowing across the boundary are the consumers of these non-conforming services. By “not across districts”, it refers to those service providers that exist in the same geographical space and have the span of services belonging to the same district. Therefore, it is inappropriate to use purely the WTO definition of trade in services to analyse the service industry of the Pearl River Delta Metropolis. This is because when WTO formulated the rules for trade in services, they did not contemplate the situation of such a large amount of people flowing across the boundary to a nearby district to consume services of different standards. (The discrepancy in service standards among European Union members is far smaller than that between Guangdong and Hong Kong.) In other words, the trade in services under the WTO framework and CEPA can only be used to solve some of the development problems of the Pearl River Delta Metropolis service industry, mainly the market opening and entry problems. But they cannot be used to solve all problems, even for the major conflicts, in the integration of the Pearl River Delta Metropolis service industry.

The well-integrated manufacturing industry (light industry, to be exact) between Guangdong and Hong Kong has promoted a large volume of trade in services (e.g. logistics, storage, trading finance, cargo insurance, headquarters economy, technology support, etc.) between the two territories. In the future, because of infrastructural development and linkage between the two territories and more flows of people across the border, there will be more trade in services related to “movement of natural persons”, such as food and beverages, tourism, education, finance, legal, accounting, and medical services. These are the major conflicts that need to be resolved by the Pearl River Delta Metropolis.

Therefore, in our opinion, the analysis on the service industry of the Pearl River Delta Metropolis should go back to the primitive concept of service

151

industry. 51

It is not about whether the service industry conducts trades according to the classification and methods of the WTO, but about how the service industry of a region can better integrate. The integration of service industry is highly related to the industrial level of manufacturing industry, needs of production and livelihood, and condition of societal and personal wealth. The core issue is standards, that is, whether the service industry within a region can standardise its standards. In other words, it is about whether at this stage the service standards of the Pearl River Delta Region can keep abreast of their Hong Kong (Macao) counterparts. Against the increased and upgraded demand for services in the Pearl River Delta Metropolis, it is likely that the service industry of the Pearl River Delta Region, being flexible and synergistic, will soon be able to meet the demand. The high standards of the industries of Hong Kong are disseminated into the Pearl River Delta Region very quickly. The management and services of star-rated hotels and restaurants serve as a good example.

51 The concept of service industry is still arguable in the theoretical sector. In general, the service industry is deemed to be the aggregate of production units and enterprises in the production and sales of services as traded goods. The service industry can be classified into service businesses and service undertakings. Service businesses are the aggregates of production units and enterprises that supply services as products for added value. Service undertakings are the aggregates of government behaviours that supply services as products to satisfy social and public needs. In the compilation of national income statistics in China, the service industry is generally taken as the tertiary industry. It includes 48 industry categories under 15 industry sectors, covering virtually all industries in the industrial classification of national income statistics other than agriculture, manufacturing industry, and construction industry (in the national income statistics, the merchandise industries are classified into five large production sectors: 1. Agriculture, 2. Mining, 3. Manufacturing industry, 4. Production and supply of electricity, fuels and water, and 5. Construction industry). Specifically, they include: 1. Transport, storage, and postal services sector: rail transport, road transport, urban public transport, water transport, air transport, pipe transport; loading, unloading, hauling, and other transportation services; warehousing and storage, postal services; 2. Information, communications, computer services, and software sector: telecommunications and other communication services, computer services, software; 3. Wholesale and retail trades sector; 4. Accommodation and food services sector; 5. Finance sector: banking, securities, insurance, other financial activities; 6. Real estate sector; 7. Rental, leasing and business services sector; 8. Scientific research, technical services, and geological prospecting sector: research and development, special technical services, exchange and promotion services on science and technology, geological prospecting; 9. Water conservancy, environment, and public facilities administration sector; 10. Personal services and other services sector; 11. Education sector; 12. Health care, social security, and social welfare sector; 13. Culture, sports and recreational services sector: press; radio, television, motion pictures, and audio-video programmes; culture and arts, sports, recreational services; 14. Public administration and social organisations sector: agencies of the Chinese Communist Party, government agencies, People’s Political Consultative Conference and democratic parties; mass organisations, social organisations and religious organisations; basic mass autonomous organisations; 15. International organisations sector. This is different from the WTO classification of service sectors, which include: business services; communication services; construction and related engineering services; sales services; educational services; environmental services; financial services; health and social services; services related to tourism; recreational, cultural and sports services; transportation services; and other services.

152

5. Advantages and Inadequacies of the Pearl River Delta Region in Developing Service Industry

The Pearl River Delta Metropolis has unique advantages but at the same time inadequacies in developing the service industry. It should make good use of its advantages while circumventing its inadequacies. This is particularly important to the Pearl River Delta Region where there is a pressing need to develop service industry.

The Pearl River Delta Region has the following advantages in developing the service industry: in the first place, it has location advantage. The Pearl River Delta Region is situated at the southeastern coast of China, where the East Asia plate joins the Southeast Asia plate. It is the economic centre of South China, and at the same time the hub for cross flows between the two plates. It has therefore the innate condition to develop the service sector. Secondly, it has system advantage. The Pearl River Delta Region is the most economically vigorous region in the Mainland. Continuous improvements to the market economic system and transformation of government functions create favourable conditions and suitable environment for service industry to develop. Thirdly, it has a good development base. At present, the share of service industry in GDP of the Pearl River Delta Region is distinctly higher than the national average. Meanwhile, the Pearl River Delta Metropolis ranks high in China in wealth concentration. As societal and personal wealth increases, the demand for services will increase geometrically. This will foster a broad market space for the continuous development of service industry. Fourthly, urbanisation in the region has accelerated. The city is the spatial carrier, and urbanisation is a prerequisite, for service industry development. An urban system has been formed in the Pearl River Delta Region with municipalities, cities of various sizes, and satellite townships. The public infrastructure has been well developed, and the level of modernisation is high. The high concentration of population further increases the demand for services, which is favourable to the development of the service industry. Fifthly, the global service industry is being transferred to the Region. A lot of overseas service suppliers have entered the Region. They excel in technology and systems. While being competitors, they at the same time bring in with them advanced operation and management styles. The local service industry is driven to upgrade their technologies and innovate in their systems. They quickly elevate their own standards through learning and benchmarking.

153

The Pearl River Delta service sector has the following inadequacies: first, both its overall standard and the standard of economic development falls far behind international standards. Secondly, there is imbalance in the internal structure of the service industry, and the progress of upgrading and restructuring is slow. The development of modern service industries like business services, finance and insurance, and real estate, and public service industries like education, public health, and social security and social welfare needs further reinforcement. Thirdly, there is limited marketisation and the market entry threshold is high, resulting in the problem of excessive monopolisation. In addition, the Pearl River Delta Region has to compete with other Mainland regions like the Yangtze River Delta Region. In order to safeguard the distinct position of Pearl River Delta service industries inside and outside China, practicable strategies should be formulated to cope with all these advantages and inadequacies, leveraging on the advantages while circumventing or making up for the inadequacies.

6. Service and Manufacturing Industries in Accord: Comparison

between the Pearl River Delta and Yangtze River Delta Regions On comparing the overall performance of the service industries of the Pearl River Delta and Yangtze River Delta Regions, Shanghai and Hong Kong of course lead in the development of their regions. The financial services sectors of the two municipalities are highly developed, due to the national factor of Shanghai and international factor of Hong Kong. As economic benefits have spilling out effects, the two municipalities have been promoting regional developments with their advanced producer service industries. However, not all members of the regions are really benefited from it, particularly those manufacturing economic entities predominated by foreign investment. Typical examples include Suzhou of the Yangtze River Delta Region and Shenzhen and Dongguan of the Pearl River Delta Region. In contrast, those cities with service sectors dominated by local investment are more liable to enjoy the economic benefits. Excluding the service industries of Shanghai and Hong Kong, the Pearl River Delta Region on average performs better than the Yangtze River Delta Region in tertiary industry.

Taking the largest (in terms of the value-added of tertiary industry in 2006) five cities of the Pearl River Delta and of the Yangtze River Delta Regions as an example, while Suzhou ranked top in the Yangtze River Delta Region with a

154

value-added of RMB 157.4 billion in its tertiary industry, it lagged behind Guangzhou and Shenzhen. Nanjing and Hangzhou are the provincial capitals of Jiangsu and Zhejiang. The value-added of their tertiary industries, however, amount to less than half of Guangzhou, the provincial capital of Guangdong, or even to 56% and 48% that of Shenzhen respectively. Moreover, the average value-added of the nine cities of the Pearl River Delta Region was RMB 109.2 billion, higher than the average value-added of the 15 cities (excluding Shanghai) of the Yangtze River Delta Region (RMB 74.2 billion) by as much as 47% (see Table 3.14). Considering that the geographical space of the nine cities of the Pearl River Delta Region is far smaller than the Yangtze River Delta Region, the Pearl River Delta service industry excels its Yangtze River Delta Region counterpart in both density and intensity. Table 3.14 Value-added of the Tertiary Industries of the Pearl River Delta and

Yangtze River Delta Cities in 2006 (RMB Billion) Value-

added of Tertiary Industry

Transport/Storage

and Postal Services

Information, Communications/

Computer Services, and

Software

Accommodation and Food Services

Finance Real Estate

Average of the 15 cities

(excluding Shanghai) of the Yangtze River Delta Region

74.2 6.7 4.3 3.2 8.3 8.5

Suzhou 157.4 8.5 13.9 6.6 16.1 17.1 Hangzhou 155.2 10.7 9.6 6.2 24.8 21.4 Nanjing 133.2 5.9 7.7 5.9 13.5 12.4

Wuxi 128.1 10.7 5.7 6.4 10.0 10.9 Ningbo 115.2 13.5 5.6 4.4 18.2 14.6

Average of the nine cities of the

Pearl River Delta Region

109.2 14.1 7.8 5.4 10.1 16.3

Guangzhou 349.9 66.4 26.4 15.4 23.5 41.2 Shenzhen 275.8 25.5 17.3 11.3 47.0 56.6 Dongguan 108.7 3.5 9.1 5.4 6.3 20.0

Foshan 101.0 15.6 5.2 7.1 6.4 12.6 Zhongshan 36.6 2.4 3.5 2.9 1.5 4.9

Source: Yangtze River Delta & Pearl River Delta and Hong Kong & Macao SAR Statistical Yearbook (2007).

155

In other words, the economic benefits of the Yangtze River Delta and Pearl River Delta Regions should not be evaluated purely based on the performance of their manufacturing industries. The contribution of the tertiary sector should be taken into account. If the benefits from the tertiary industries of Shanghai and Hong Kong are incorporated, on considering the geographical spatial and population factors, the benefits generated by the service industries of the Pearl River Delta Region are the highest among all Mainland regions. Interestingly, it is noted that Shanghai-Suzhou-Wuxi account for 54% of the Yangtze River Delta Region in the tertiary industry, while the four cities of Guangzhou-Foshan and Shenzhen-Dongguan account for 91% of the Pearl River Delta Region. Both proportions are very similar to their proportions in the manufacturing industry. This manifests the high interaction between manufacturing industry and service industry, and the strong effect of manufacturing industry in promoting service industry. If the output of Hong Kong’s service industry is incorporated, the total output of the Pearl River Delta service industry derived from the manufacturing industry will be tremendously large, showing a much higher multiplier effect than in the Yangtze River Delta Region.

An important feature of the Pearl River Delta manufacturing industry is export processing and manufacturing, which is also the most active manufacturing activities of Hong Kong manufacturers in the east bank of the Pearl River Delta. From another perspective, the use of Hong Kong as an agent and bridge by multi-national corporations in pursuing lowest production cost globally through processing trade under the international division of labour system has not only created a rudimentary but relatively comprehensive manufacturing base in the Pearl River Delta Region. A more profound effect is that it has forged a Pearl River Delta service system with international management vision. The Yantian and Shekou Ports of Shenzhen, and the hotel, convention and exhibition industries of Dongguan, are newly added international service sectors under the export processing and manufacturing mechanism. They are excellent by-products of the model of processing and compensation trades. Indeed, as in Zhejiang, the specialised townships and specialised markets of the Pearl River Delta Region grow interactively. The specialised markets have induced a series of service industries like local commerce, wholesale and retail trades, logistics, conventions and exhibitions, food and beverages, hotels, etc. They have improved the revenue of the local residents, enhanced the quality of the people in the trades, and elevate the overall development level of the local

156

economy and society. Nevertheless, as the Pearl River Delta specialised markets mainly serve Mainland clients, the service industry still has a lot of room for improvement in the level of management.

Obviously, the development model of the Pearl River Delta Region has transformed from “made in the Pearl River Delta Region” to “served by the Pearl River Delta Region”, and the two have integrated with each other. A key to success for the Guangdong-Hong Kong model of “Front Shop, Back Factory” was the interactive collaboration between shops and factories in the early years, instead of segregated and divided functional arrangements in the later period. If the current arrangement persists, branch shops will emerge in the vicinity of the factories, and they will use the opportunity of producing the latest products to challenge the leading position of the head shops. From international experiences, it is noted that the Tokyo Metropolis, as the national commercial and innovation centre of Japanese manufacturers, still retains a certain capability for manufacturing. This enables trial production and sales of new products to be conducted within the Tokyo Metropolis. The controlling role of Tokyo in market information and consequently in the allocation of the Japanese enterprises’ production, talent, and innovation resources in Japan and in the world is hence safeguarded, and Tokyo’s influential position in Japan is consolidated. Hong Kong should contemplate the balanced relationship between manufacturing and service, and re-deploy its industrial development.

IV. Challenges and Opportunities for the Pearl River Delta Industries 1. Objective Evaluation of the Pearl River Delta Region’s Processing

Trade and Industrial Structure To analyse the industrial development of the Pearl River Delta Region, one cannot ignore the processing trade. From the industrial development in the Pearl River Delta Region to the take-off of the Guangdong economy, to a certain extent, they are attributed to the processing trade. The processing trade plays a very important role in the economic development and upgrading of industries in the Pearl River Delta Region. At present, Guangdong’s processing trade exports account for 76% of the province’s total exports and 44% of China’s total processing trade exports. Over the past three decades, the processing trade has gone through various development stages, first growing out of nothing, then growing from a small trade to a large trade and from a weak trade to a strong trade. The quality and standards of the processing trade

157

have been improving, and the industry chain has been extending. It has played an important role in fostering the economic development of the Pearl River Delta Region, increasing China’s fiscal revenue and foreign exchange revenue, and creating jobs for China’s large labour force. Through the export-oriented economic development, the Pearl River Delta Region has ushered in a number of multi-national corporations, which have set up enterprises, R&D centres, regional headquarters, and procurement centres in the Region. At the influence and promotion of these multi-national corporations, some local enterprises of the Pearl River Delta Region transferred, assimilated, and innovated the know-how through the processing trade business, and have gradually evolved into large consortia with autonomous intellectual property rights and global competitiveness. The current processing trade of the Pearl River Delta Region is no longer the primitive form of processing and compensation trades at the beginning stage of China’s reform and opening up. It is also no longer appropriate to sum up its diversified development levels and business modes with negative comments like low-end, technologically backward, and low value-added. Therefore, there is a need to make an objective and fair evaluation of the processing trade. Firstly, processing trade is an effective way for less developed regions to advance rapidly. The economic development of the Pearl River Delta Region demonstrates that the processing trade is an important way by which a region can participate in the global division of work. It is a fast lane for the less developed regions to receive the world’s industries in transfer and accelerate their economic developments. It is also an effective mode for more reasonable and effective allocation of global resources, and better utilisation of the two resources of national and international markets, in promoting continuous and rapid economic development. In the coming ten years or an even longer period of time, the processing trade will still be a major pillar for the industrial development of the Pearl River Delta Region. Secondly, processing trade is a normal phenomenon against the global backdrop of division of labour and industry collaboration. As globalisation continues, the multi-national corporations will increase placing the various production processes of a product to regions of lower cost and higher efficiency through industry transfer. The more industry chains that a product has, the more it is necessary to use the mode of processing trade. General trade products that

158

are manufactured wholly in one country or region from raw materials to finished products will account for a lower share in the international trade. Meanwhile, the more production processes that a product involves, the more necessary it is to globalise its procurement, processing and sales. Hence, processing trade will become a mainstream and normal phenomenon in international trade. If a developing country or region leverages on its comparative advantages, correctly selects and endeavours to develop suitable types of processing trade, then it will be able to swiftly establish a manufacturing industry with global competitiveness and deeply merge with the global network of division of labour. The Pearl River Delta Region particularly needs to grasp this opportunity. Thirdly, processing trade is a more feasible option for the developing countries and regions. In spite of the prominent position of China manufacturing in the world, it still falls miles behind the manufacturing industries of the developed countries. Therefore, processing trade should not be abandoned. Instead, its development should be accelerated. “Not only is the United States the world’s largest manufacturer, but US manufacturing output in 2007 set an all-time record. While there are more than 3 million fewer manufacturing jobs than in 2000, our productivity has grown so rapidly that today 75 workers produce what it took 100 workers to produce then.”52

One should be clear-headed to see this discrepancy, and accord good treatment to processing trade. To the major location of processing trade, that is, the Pearl River Delta Region, it is important that an accurate and objective analysis of its situation in processing trade is made.

The upgrading and restructuring of the processing trade will be a major component of the Pearl River Delta Region’s upgrading of industries. In response to the policy requirements of the Central Government on restructuring the processing trade of Guangdong, the Guangdong Provincial Government announced on 19 August 2008 its consent to select Dongguan as the pilot-test city for Guangdong’s initiates to set up “Demonstration Zones for the Restructuring and Upgrading of China’s Processing Trade”. A conclusion on the experiences collected in Dongguan will be made and disseminated to the 52 John Engler, “American industry can stay ahead of China”, Financial Times, 17 August 2008, cited in “A Long Way for China Manufacturing to Overtake the United States”, Can Kao Xiao Xi (參考消息 ), 19 August 2008. In the article, John Engler, President of the National Association of Manufacturers of the United States, said he “strongly disagrees” with the prediction of a report in the Financial Times that “China is now reverting to form as the world’s workshop and will overtake the United States as the world’s largest manufacturer next year”.

159

whole province in early 2009. Through 5-10 years of efforts, the Guangdong Provincial Government hopes that Dongguan’s processing trade enterprises will transform their businesses from labour-intensive and resource-intensive operations to capital and technology-intensive, their modes of operations from OEM (original equipment manufacturing) to ODM (original design manufacturing) and further to OBM (original brand manufacturing), and their ways of operations from the processing and manufacturing segments to the sales and services segments. It also hopes that their products and industries will be upgraded, with own brands and autonomous intellectual property rights, and the global competitiveness of their industries will be elevated.53

At present, there are 14,382 processing trade enterprises in Dongguan, accounting for 29.9% of Guangdong’s around 48,000 enterprises in the trade. Some 7,300 enterprises in Dongguan are engaged in the processing of supplied materials, accounting for 38.8% of Guangdong’s around 19,000 enterprises in the trade. The processing trade enterprises of Dongguan imported US$93.2 billion worth of materials, accounting for 23.6% of Guangdong’s US$403.4 billion, and exported US$56.3 billion worth of finished goods, accounting for 22.9% of Guangdong’s US$24.61 billion. The majority of Dongguan’s processing trade enterprises are Hong Kong and Taiwan enterprises, of which Hong Kong enterprises take up a major share. In fact, the Hong Kong enterprises placing investment in Dongguan are also the largest cluster of Hong Kong enterprises placing investment and setting up factories in the Mainland. They have decisive effects and functions on the cooperation between Hong Kong and Mainland industries. The true meaning of the Guangdong Provincial Government’s decision to set up “Demonstration Zones for the Restructuring and Upgrading of China’s Processing Trade” is to request the Hong Kong enterprises to restructure and upgrade. It would like to see the Hong Kong enterprises in the trade to make fundamental changes to their businesses, modes of operations, and ways of operations. 2. The Pearl River Delta Industries Are Facing the Challenge of Rising

Costs In recent years, as China deepens its economic development, the supply of production factors like land, raw materials, energy, labour force is getting tight, triggering a new round of restructuring and transformation of industries. As a 53 “Why is Dongguan Selected to be the Pilot-test City for the ‘Restructuring and Upgrading of Processing Trade’”? Nanfang Metropolis News (南方都市網絡版), 20 August 2008.

160

highly developed region of China in marketisation of economy, the Pearl River Delta Region is particularly sensitive to changes in a series of external factors, such as revaluation of renminbi, rising costs of raw materials, labour force and land, unification of the two corporate income tax laws, implementation of the new Labour Contract Law, and transformation in the national policy on processing trade. The rising costs have posed tremendous pressure on the Pearl River Delta Region to restructure the industrial structure and upgrade the industries. The Pearl River Delta Region’s restructuring of the industrial structure and upgrading of industries is a development process and an inevitable process. The upgrading of industries must be coupled with the transfer of industries. In theory and practice, there are three types of industry transfer and industry upgrade, namely, “division of labour by factor endowment-type of industry transfer” and the corresponding “system-led industry upgrade”, “division of labour by technology-type of industry transfer” and the corresponding “technology-led industry upgrade”, and “cost driven-type of industry transfer” and the corresponding “cost-led industry upgrade”. The major challenge being faced by the Pearl River Delta Region at present is cost-driven industry transfer and cost-led industry upgrade. In the current situation, it is not just “rising costs” or “changing costs”, but “pounding costs”. By “pounding cost”, it means only individual costs are changing, but a “basket of costs” are changing. The basket of costs is rising together at present, without any indication of when they will fall again. There is no sign of “falling costs” in the near future. “Pounding costs” may accelerate industry transfer and industry upgrade, foster the sustainable growth of economic system, and enhance competitiveness. It may also impede industry upgrade, and lead to hollowing-out or even extinction of industries. If the latter situation appears, it will affect economic growth and employment, inducing social problems. The “basket of costs” that is challenging the Pearl River Delta Region comprises basically five “hard costs” (direct costs of production factors) and five “soft costs” (costs caused by policy changes) (Table 3.15).

161

Table 3.15 The “Basket of Costs” Currently Pounding the Pearl River Delta Region

Category of Cost

Serial Number Type of Cost

Hard Costs

1 Increase in wages 2 Increase in land costs 3 Increase in raw material costs 4 Increase in interests after tight monetary policy 5 Increase in the costs of exchanging foreign currencies after

revaluation of renminbi

Soft Costs

6 Policy on unification of the two corporate income tax laws for local and foreign investment, with the basic rate set at 25%

7 Implementation of the new Labour Contract Law, requiring enterprises to sign open-ended contracts with employees, and to raise the overtime payment

8 Lowering of export tax rebate rates (2,831 merchandise affected by the new export tax rebate policy effective on 1 July 2007)

9 Changes in the processing trade policy (Circular No. 44 promulgated by the Central Government in July 2007 added 1,853 restricted items for export processing trade, and changed the bank guarantee deposit system from nominal transfer to actual transfer)

10 Implementation of mandatory policies on energy saving and discharge reduction, raising the cost of environmental protection

When changes and rises in individual costs transform to “changes and rises in a basket of costs”, the situation of “pounding costs” emerges. This is nothing strange, as most countries (regions) have experienced such a period of “pounding costs” in a specific period of time during the course of industry transfer and industry upgrade. This period is usually the period with the most frequent changes in the industrial structure. Japan went through this development stage in the late 1970s and early 1980s. Hong Kong went through this development stage in the early and mid-1980s. South Korea, Taiwan, and Singapore also went through such a development stage. Under the effect of “pounding costs”, industry transfer and industry upgrade are conducted in the Pearl River Delta Region simultaneously. According to the situation of Shenzhen and Dongguan, industry upgrade has been carried out in different ways: closure of enterprises, outward transfer of enterprises, restructuring and upgrading of export processing trade enterprises. Judging

162

from the actual data collected in Shenzhen and Dongguan (Table 3.16), the industry transfer and closure of enterprises are still well managed and under control. There is no evidence to proof that a phenomenon of massive transfer and closure of enterprises is happening, or the macroeconomic stability is being affected. Meanwhile, the local governments have introduced various policies and support measures to help the enterprises transfer and upgrade smoothly, so as to reduce the pain imposed by the “pounding costs” on the enterprises and society. Table 3.16 Changes in the Land Costs of Shenzhen and Dongguan

(2001-2007)

Year

Price of Industrial Land (RMB/m2) Within Shenzhen

Special Economic Zone

Outside Shenzhen Special

Economic Zone

Dongguan

2001 1,679 324 180 2002 2,647 329 200 2003 1,803 472 220 2004 --- 376 240 2005 3,270 709 265 2006 --- 1,158 301 2007 --- 668 375

The table is compiled from Shenzhen Municipal Bureau of Land Resources and Housing Management and Dongguan Planning Bureau. From 1 July 2007 onwards, the minimum selling price of Dongguan’s industrial land is adjusted to RMB384 per sq.m.

More important, the industry transfer in the Pearl River Delta Region induced by the “pounding costs” is just at the beginning stage. In the next two to three years, or even a longer period of time, the “pounding costs” will continue to affect the Region. Therefore, it is critical for the Region to prepare for the future impact, which may be more severe. For this reason, when the Central Government and local governments formulate related policies, they should try not to aggravate the impact of the “basket of costs” but to rein in the “rising costs”. It will not be appropriate for them to produce many policies in a short period of time. They should pay attention to the rhythm of producing policies.

163

3. The Pearl River Delta Should Grasp the Opportunity to Upgrade Its Industries

The challenge of “pounding costs” also provides the Pearl River Delta Region with a historical opportunity to upgrade its processing trade and all other industries. If the Pearl River Delta Region is able to grasp this opportunity, it will see further optimisation and improvement in its industries. Firstly, it has been a trend in global industry transfer that more and more technology- and capital-intensive industries are being transferred from the developed countries and regions to the developing countries and regions. The global industry transfer is also expanding in scale, and more high-end industries are being transferred. It even happens that some industry chains are transferred wholly. With large demand for high-end products, a rapidly upgrading consumer structure, and consistently enhanced capability for autonomous innovation, China should take the initiative in exchanging market for technology, and usher in those high-end industries in transfer. Secondly, the standards of the Pearl River Delta industries have been rising. As the advanced manufacturing, high and new technology, and modern service industries accelerate their developments, an industry system has rudimentarily been formed in the Region with high and new technology industry in the leading role, tertiary industry growing rapidly, and heavy and light high-end industries in more balanced proportions. This is favourable to the Region in taking in the global high-end industries in transfer and in creating a modern industry system. Thirdly, even under the effect of “pounding costs”, the Pearl River Delta Region has still been able to attract a number of high technology content, high value-added, low energy consumption, and low pollution projects with its good market mechanism and business environment. Many industry cluster zones are being established and the industrial structure is being upgraded rapidly. The Pearl River Delta Region only has to follow the market principles and grasp the opportunities to transfer its industries. In the past few years, many labour-intensive low-end manufacturers and processing trade enterprises in Shenzhen have started industry transfer. As a result, the proportion of labour-intensive industries in Shenzhen has declined and the proportion of capital- and technology-intensive enterprises has increased. The high and new technology industries of Dongguan are also showing a significant development trend. The restructuring of industries and industrial structure has also commenced in other PRD cities.54

54 The research team interviewed the persons in charge of several trade associations in Shunde. In general, they are of the opinion that the pounding costs will only affect them in the short term. For

164

Table 3.17 Changes in the Ratio among Various Types of Industries in Shenzhen’s Industry (2001-2006)

Year Labour-intensive Industries (%)

Capital-intensive Industries (%)

Technology-intensive Industries (%)

2001 25.97 22.53 51.50 2002 23.69 22.00 54.31 2003 19.66 18.85 61.50 2004 18.01 19.75 62.24 2005 18.54 23.32 58.16 2006 16.54 22.87 60.59

Sources: Shenzhen Statistical Yearbooks (2001-2007). Table 3.18 Share of the High and New Technology Industries in Dongguan’s

Gross Industrial Output (2001-2006) Year Gross Industrial

Output (RMB billion)

Gross Output of High and New Technology

Industries (RMB billion)

Share in the Gross Industrial Output (%)

2001 184.7 24.5 13.26 2002 229.6 43.0 18.73 2003 287.5 55.6 19.34 2004 368.4 71.1 19.30 2005 447.0 106.2 23.76 2006 553.0 153.5 27.76

Sources: Dongguan Statistical Yearbooks (2002-2007). It will take a considerable period of time to restructure and upgrade the industries of the Pearl River Delta Region. The market should be allowed to fully exert its functions and effects, while the government authorities could guide the market forces through their administrative functions. It is not appropriate for the government authorities to interfere in industry by adopting non-differentiable polices and forcing enterprises to change. Before a new industrial framework is shaped, it is not advisable to disrupt the existing industrial structure and framework. Otherwise, if the existing industrial ecology becomes imbalanced before a new industrial ecology is formed, the effect to long-term competition, they need to pay attention to brand creation under autonomous innovation. A person in charge pointed out that some product manufacturers have already started restructuring their product structure and increasing the technology content of their products. This can be illustrated by the changes in the orders of a gas stove accessory manufacturer.

165

the whole Pearl River Delta industry could be fatal. For the processing trade of the Pearl River Delta Region, a direction for its industry upgrade should be to suitably change the industrial structure that skews towards the light industry by adding heavy industry to it. Meanwhile, it should gradually conquer the higher value-added segments of the global industry chain. Specifically, it should gradually enter into four major areas: (1) develop towards the upper stream by enhancing the capability for technological R&D and product design; (2) select at the mid-stream those high value-added processing and manufacturing segments; (3) extend towards the lower stream by developing international logistics and distribution businesses; (4) explore industry support industries like critical parts and components and equipment manufacturing (see Figure 3.3).

Figure 3.3 Four Major Areas for the Industry Upgrade of the Pearl River

Delta Processing Trade55

55 Cited from “Shenzhen furniture industry faces hierarchical transformation”, Shenzhen Commercial Daily (中國經濟出版社), 7 December 2007.

Core technologies

R&D

Design Assembly & production

Critical equipment

Location of assembly Labour force

Logistics hardware Investment environment

Living environment

Critical parts and components

Logistics &

distribution

Software

Develop towards the upper stream

Explore the industry support industries

Select at the mid-stream

Extend towards the lower stream

Brands

166

V. Future Industry Layout of the Pearl River Delta Metropolis and

Major Areas of Development As mentioned above, the industrial development blueprint of the Pearl River Delta Metropolis is to develop the Metropolis into a world-class advanced manufacturing base, and to create and upgrade the regional innovative system. The future industry layout of the Pearl River Delta Metropolis and its major areas of development should be planned and implemented according to these goals. 1. Future Industry Layout of the Pearl River Delta Metropolis In sum, the future industry layout of the Pearl River Delta Metropolis includes three facets, that is, to establish three industrial development poles, to form a triangular industrial network, and to develop industries in the inner and outer rings. First, to establish three industrial development poles. In the Pearl River Delta Metropolis, because of the special status of Hong Kong in the national strategy, the system difference under “One Country, Two Systems”, and factors like economic output, Hong Kong will integrate with Shenzhen and develop into a major development pole in the future. It will promote the externally-oriented economy of the Metropolis. The further integration of Hong Kong and Shenzhen, on one hand, will enhance the economic power of Hong Kong, turning it into a core city of a world-class metropolitan region comparable to New York, Tokyo and London. On the other hand, it will enable Shenzhen to act as the inevitable transit, and to complement Hong Kong in developing the east bank of the Pearl River Delta. This will enlarge the influence of Hong Kong. Considering the economic output and internal demand of industry chains, another central city of the Pearl River Delta Metropolis, Guangzhou, will integrate with Foshan and develop into another major development pole. It will promote the internally-oriented economy of the Metropolis. The two development poles will divide the city functions between themselves and collaborate with each other. Together they will cater for the local and international markets, and effectively integrate local and international resources. In addition, following the commencement of the construction of the Hong Kong-Zhuhai-Macao Bridge and accomplishments in other cross-boundary infrastructure, Zhuhai and Macao will gradually develop into a

167

third development pole. Given that the Zhuhai-Macao development pole is at present relatively weak in promoting the development of the west bank of the Pearl River Delta, the two development poles of Shenzhen-Hong Kong and Guangzhou-Foshan should provide support to the Zhuhai-Macao development pole, so that it can promote the development of the west bank of the Pearl River Delta, narrow down its difference with the east bank, and foster a balanced and coordinated development across the whole Pearl River Delta Metropolis. Second, form a triangular industrial network. The development poles of Hong Kong-Shenzhen, Guangzhou-Foshan and Zhuhai-Macao should complement each other in economic and industrial development. As the Hong Kong-Shenzhen development pole will be the externally-oriented economic centre of the Pearl River Delta Metropolis, it should focus on providing high-end services and producer services such as finance and logistics to the Metropolis’ externally-oriented economy. As for the Guangzhou-Foshan development pole, since it is the internally-oriented economic centre of the Metropolis and an important pillar and leader for the internally-oriented economy, it should focus on developing advanced manufacturing and producer service industries. Close collaboration between the two large development poles to promote restructuring and upgrading of the Metropolis’ industries will promote integration among the industries. This will internalise the externally-oriented economy and externalise the internally-oriented economy, resulting in a more balanced industrial development in the Metropolis. The Zhuhai-Macao development pole should leverage on its late-comer advantage and usher in industries like clean manufacturing, ecological industry, and business and leisure tourism. It should focus on developing consumer services. Through the complementary developments of the three development poles, a triangular industrial network will be formed.

Third, develop industries in the inner and outer rings. In consideration of the geographical space and economic development potentials, a circular, double-layer spatial pattern will be formed in the Pearl River Delta Metropolis, with Hong Kong, Shenzhen, Dongguan, Guangzhou, Foshan, Zhuhai, and Macao in the inner ring, and Huizhou, Jiangmen, and Zhaoqing in the outer ring. In the inner ring, the economic activities highly cluster together, and the economic development standards are higher. In the outer ring, the level of industrialisation is relatively lower. Therefore, within the Pearl River Delta Region, the industries should be gradually spread from the inner ring to the

168

outer ring, to promote industrial development in the outer ring. At present, it is most critical to strengthen the planning and construction of the transport infrastructure, so as to enhance the efficiency and lower the cost of cross flows of production and livelihood factors between the inner and outer rings. Once the economic and social communication between the two rings improves, the discrepancy between them will be gradually reduced, and they will integrate more tightly.

Figure 3.4 Future Industry Layout of the Pearl River Delta Metropolis It will take a considerable period of time and tremendous effort to form the future industry layout of the Pearl River Delta Metropolis. To succeed, a consensus needs to be reached within the Metropolis. It is important for all stakeholders to take the issue from a more macro perspective, consider the interests of the whole Metropolis, and join hands to foster the formation of this industry layout.

2. Major Areas of the Pearl River Delta Metropolis’ Future Industrial

Developments While elevating the standards of the whole industry in all aspects, the Pearl River Delta Metropolis should identify the major areas for its future industrial

Three development poles:: Hong Kong-Shenzhen Guangzhou-Foshan Zhuhai-Macao Triangular network:: Guangzhou—Shenzhen— Hong Kong Guangzhou—Zhuhai—Macao- Hong Kong-Shenzhen—— Zhuhai-Macao Inner ring: Hong Kong, Shenzhen, Dongguan, Guangzhou, Foshan, Zhuhai, Macao OOuutteerr rriinngg:: HHuuiizzhhoouu,, JJiiaannggmmeenn,, ZZhhaaooqqiinngg

169

developments. Based on the overall situation of the industry, the Metropolis’ future industrial development should focus on the following three areas: First, develop the modern service industries. The problem of the Pearl River Delta Region in industrial development is essentially the problem of poor adaptation of the original development mode to changes in the internal and external environments. From the perspective of global industrial development, industry transfer is shifting from manufacturing industry on a large scale to service industry on a large scale. The developed countries are gradually changing the way of transferring manufacturing industry. They have started transferring heavy and chemical industries and the extended segments at the lower stream of the industry chains. International transfer of service industry, led by producer service industries, has begun. According to related information from the United Nations, from 1990 to 2002, global foreign direct investment (FDI) inflows into the manufacturing sector increased by 2.03 times, of which the inflows to the developed countries and developing countries increased by 1.46 times and 3.81 times respectively. During this period, global FDI inflows into the service sector increased by 3.6 times, of which the inflows to the developed countries and developing countries increased by 2.99 times and 5.74 times respectively.56

The change in the structure of global industrial capital inflows shows that, after the manufacturing sector, the service sector is the new mode by which global capital industrial flows into various countries and regions. The increasing trend of global service transfer requires the Pearl River Delta Region, on the successful base of taking in global manufacturing industry in transfer, also to grasp this historical opportunity of global service industry transfer, and explore a new development mode compatible with this international market.

While the producer service industries are a major area of development, it does not mean that the Pearl River Delta Metropolis should develop solely the producer service industries. Consumer service industries and other service industries need to be developed at the same time. “With the diversity and multi-scalar properties of societal demand, the relativity between modern and traditional concepts, and the conversion between modern service industries and traditional service industries, the traditional service industries and modern service industries are destined to co-exist in the long term. This is no exception to the developed countries. For instance, traditional shops and supermarkets,

56 Cited from the web-site of the United Nations New Centre (http://www.un.org/chinese).

170

and family guest houses and five-star hotels co-exist in the western world. In the course of upgrading the internal structure of the tertiary industry, one should not neglect the necessary existence of traditional service industries and their development prospects, cast the traditional service industries into the “restricted category” for development, and “compress” the development of tertiary industry to development of modern service industries.”57

Secondly, develop new industries based on high and new technology. The development of new industries based on high and new technology is related to the formation of a regional innovation system and modern industrial system in the Pearl River Delta Metropolis. Currently, the Pearl River Delta Region already possesses the base to develop new industries. High and new technology and information network industries are beginning to cluster, forming rudimentary industry chains led by the communications manufacturing industry. They gradually extend towards the high-end segments of the industry chains, such as design and R&D of core technology, critical components and materials, and high-end software development. The development of new industries can change the low-end status of the Pearl River Delta industries, increase the technology content of the products, and accelerate the upgrading of traditional industries. The development of new industries that emphasize high and new technology, information technology, knowledge and service will become the core impetus in the upgrading of the Pearl River Delta industries, and drive the upgrading of the industries in total. The “Hong Kong-Shenzhen Innovation Circle” should serve as a major handhold for the Pearl River Delta Metropolis to develop new industries. A “technology corridor” led by high and new technology industries such as information technology, and a development belt with high and new technology R&D and industry support services, are being formed from the middle part of the Pearl River Delta Region to its eastern part, along the line of Guangzhou, Dongguan, Shenzhen, and Hong Kong. They will induce the restructuring and clustering of related industries. During this process of development, a major area is to deepen the “Hong Kong-Shenzhen Innovation Circle” cooperation. In May 2008, DuPont, the US chemical industry giant, was the first enterprise to sign a cooperation agreement with the “Hong Kong-Shenzhen Innovation Circle”. DuPont will locate its Global Thin Film Photovoltaic

57 Li Jiang Fan (李江帆), “Some Thoughts and Strategies to Accelerate the Development of Guangdong’s Service Industry”, Nanfang Daily (南方日報), 28 August 2008.

171

Business / R&D Centre in the Hong Kong Science Park, and establish a production base for solar energy products in Shenzhen’s Guangming New District. The Hong Kong Science and Technology Parks Corporation will take the lead to establish a Solar Energy R&D Support Centre to assist the development of solar energy and related technologies in Hong Kong and the Pearl River Delta Region. The Shenzhen Municipal Government will collaborate with Hong Kong to provide land and other facilities to support the downstream development and manufacturing of solar energy products.58 This DuPont project is the first major industrial project that has been fostered in the east bank of the Pearl River Delta since Guangzhou secured investment from Japanese auto-makers. The successful ushering in of the DuPont project shows that the international system of Hong Kong59

and the science and technology base of Shenzhen can be combined to create favourable conditions. International technology-based industrial projects like this will promote the restructuring and upgrading of Shenzhen and Hong Kong’s industries. Through the “Hong Kong-Shenzhen Innovation Circle” cooperation and gradual expansion in its scope, a new regional innovative system can be formed in the Pearl River Delta Metropolis, providing technology and impetus to the upgrading and restructuring of the Pearl River Delta industries.

Third, foster the division of labour and collaboration within the industries. This includes two facets. First is the division of industry chains among the Pearl River Delta districts, mainly with the east bank of the Pearl River Delta focusing on the high and new technology and service industries, the middle

58 “Hong Kong and Shenzhen collaborate with DuPont to develop solar energy technologies”. See the HKSAR Government’s news.org.hk, 5 May 2008. 59 Indeed, Hong Kong does not lack science and technology talent. Many elite students of Hong Kong study in science and engineering in the famous universities of the western world. Because Hong Kong lacks jobs in advanced technology, they have to stay in the western world. Those who return to Hong Kong mostly work in the tertiary institutions. Since early 2000, the universities of Hong Kong started commercialising applied technologies, and invite their professors to set up business. Owing to various reasons, however, there have been just a few successful cases. An example of these cases is Googol Technology. Googol Technology (Shenzhen) Ltd. is the first high-tech company in the Asia-Pacific region specialising in high speed, high precision motion controllers and controller based systems. It was set up in 1999 by two professors from the Hong Kong University of Science and Technology, based on the Silicon Valley new business model of the United States. With breakthroughs in the critical technologies of the manufacturing equipment and apparatus industry, Googol Technology provides good solutions to Shenzhen’s bottlenecks and technology blanks in computer numerical controlled machines, electronic processing and inspection equipment, and automated production industry. In an interview, the management of Googol Technology mentioned that for every one dollar of its sales, it could induce 100 dollars of sales in the whole industry. Another characteristic of Googol Technology is its generosity in nurturing engineering talent. Many of its engineers join the other manufacturing equipment enterprises of Shenzhen after leaving the company, accelerating the dissemination of the technologies.

172

part of the Pearl River Delta focusing on the advanced manufacturing and producer service industries, and the two wings at the eastern and western parts of the Region (chiefly Zhuhai and Huizhou) focusing on the heavy and chemical industry. Secondly, it refers to division of industries among the Pearl River Delta cities. The core cities should focus on the producer services industries (such as finance, trade, logistics, communications, information, consulting, etc.) and high and new technology industries. The central cities should focus on a balanced development in the secondary and tertiary industries and the availability of industry support services. They should emphasize the tertiary industry, as a major function of them is to lead the economic development of the peripheral areas and serve the industries of these peripheral areas. For the other cities, they should focus on the clustering and size of the industries, as some of their service functions can be taken up by the core cities or central cities.

3. Interactions between Guangzhou and Hong Kong: Create a New

Industry Framework for the Pearl River Delta Region The Guangdong-Hong Kong industry cooperation mode of “Front Shop, Back Factory” is cooperation in the manufacturing (producer) and producer services segments of the industry value chain system. A complete industry value chain system includes design, R&D, consumer services, after-sales services, and even scrap recycling services.

From the perspective of industry value chain, the challenge faced by Guangdong and Guangzhou in early 2000 was that their wish to upgrade their industries was constrained by the standstill Hong Kong industries at the lower stream of their industries. As a result, their industries did not have much room for development. To go around this, in addition to reinforcing its own industry segments, Guangdong filled itself with those industry segments controlled by Hong Kong. For instance, Guangzhou endeavoured to develop Nansha Port, while Dongguan planned to expand the Humen Port. In the view of regional resource allocation, this could easily lead to waste because of excessive investment. Undeniably, however, Guangzhou’s efforts in the pursuit of change have wakened up Hong Kong, which becomes more active in looking for new directions in the new era and at the new stage.

To the Pearl River Delta Metropolis, the successive pursuit of change by the two large leading cities in the first decade of the new millennium is likely to

173

bring better and larger room for its development in the next 10-15 years. Therefore, for the future of industrial cooperation between Hong Kong and Guangdong, it is not necessary to change the existing mode of cooperation completely and create a new industry system. A more desirable way is to “make up and expand the industry segments”, such as expanding from general services to ecological, cultural, and leisure consumer services, and from processing and compensation trades to design-oriented and R&D-oriented manufacturing. Of which, it is the most critical to coordinate and promote industrial development through the establishment of a regional innovative system. This includes leveraging on the special system factor and international linkage (as a component of the global city network) of Hong Kong. The regional innovation system includes the knowledge, science and technology, talent, economic, social, cultural, and system sectors. It represents the social capital component of an industry value system, the learning benefits in the outspread of knowledge, and the re-allocation of industry benefits as the talent flows in a region. However, a regional innovative system can only exert its effect under the condition of considerable regional integration. The nearly completed inter-city rail transport network will give birth to the Pearl River Delta Metropolis. This highly spatially integrated Metropolis will be the best hatchery for a regional innovation system. Because of this spatial integration of the Metropolis, regional innovation can appear in any node to interact, collaborate, and even compete with the other members of the region. According to the transport infrastructure layout of Hong Kong and the Pearl River Delta Region, the Guangdong-Shenzhen-Hong Kong Express Rail Link is likely to be completed by 2014 or 2015. The Hong Kong-Zhuhai-Macao Bridge will also be completed by about that period of time. By then, the transport layout of the Pearl River Delta Metropolis will break away from the conventional A-shape layout with Guangzhou at the top. It will be circular in shape, with Guangzhou and Hong Kong located at the opposite sides of the circle. This circular transport layout will enable every member of the region along the transportation ring to flow autonomously and conveniently along the ring in accordance with the requirements of one’s industry, work and consumption. The circular layout will facilitate the dissemination and re-allocation of regional interests, and reconcile the willingness of the region’s members to cooperate, instead of concentrating the interests at a singular pole.

174

According to the current base and conditions of industrial development, most of the Pearl River Delta high-tech products are produced in the east bank (Figure 3.5). A technological industry belt has rudimentarily been formed in the east bank. As for the west bank, because the technological level of its industries is not high, and Macao and Zhuhai are basically leisure and living cities, it does not possess the talent and technology base to develop high-tech industry. The two large leading cities of the Metropolis, Guangzhou and Hong Kong, are commercial cities in economic nature. Hong Kong is special in neighbouring the science and technology city of Shenzhen.

Figure 3.5 Distribution of Guangdong’s High and New Technology Products

by Output Value Source: Guangdong Science and Technology Department, Statistics

Bureau of Guangdong Province, 2007 Guangdong Science and Technology Statistical Data.

In consideration of the regional positioning and development potential, the eastern part of the Pearl River Delta Region along the axis of Guangzhou,

Maoming 58.25 ↑16.3%

Yangjiang 34.68 ↑22.9%

Yunfu 58.59 ↑11.5%

Shaoguan 48.02 ↑10.1%

Shenzhen 8346.38 ↑29.1%

Heyuan 37.17 ↑150.8%

Meizhou 27.23 ↑4.7%

Chaozhou 92.44 ↑67.6%

Shantou 205.93 ↑3.5%

Shanwei 55.83 ↑39.5%

Zhuhai 773.29 ↑28.7%

Zhongshan 897.21 ↑54.4%

Jiangmen 356.93 ↑22.6%

Qingyuan 103.82 ↑150.8%

Guangzhou 2284.83 ↑22.3%

Dongguan 1447.55 ↑43.1%

Jieyang 42.6 ↑51% Foshan

1610.02 ↑21.2%

Zhaoqing 91.91 ↑27%

Huizhou 931.8 ↑53.1%

Zhanjiang 130.98 ↑22.8%

175

Shenzhen and Hong Kong is more suitable to be developed into the Metropolis’ “Technology Belt” and “Knowledge Belt”. It will transform Dongguan industry to knowledge-oriented industry, and influence Huizhou’s production of consumer electronic products. The western part of the Pearl River Delta Region, along the axis of Guangzhou—Jiangmen—Zhuhai—Macao, is more suitable to be developed into a “Leisure Belt” and “Ecological Belt”. It will influence the ecological rural development of the mountainous areas and west wing of Guangdong. In addition, the Pearl River Delta Metropolis should develop a cultural system to cope with these developments. It should unite the district members of the Metropolis with social and cultural elements. The circular development of an “Innovation and Cultural Ring” could connect all district members to live in harmony. In the new round of interactions between Guangzhou and Shenzhen, Hong Kong could have three major missions: (1) The strategy of “Technology Belt” and “Knowledge Belt” along the eastern ring. Hong Kong could reinforce its knowledge and technological capabilities, and interact and cooperate closely with Shenzhen. It could leverage on its advantage in advanced international systems, and be responsible for the intellectual property management of the Pearl River Delta Region. Specifically, it could participate in the management and exchange of international intellectual property rights and patents, and provide legal services. It could make use of its international consulting experts, and provide industry information and consulting services. It could capitalise on its international living style, and attract global science and technology talent to stay in the Pearl River Delta Region through Hong Kong. Given that the current cost of residing and living in Hong Kong is very high, Hong Kong could cooperate with Shenzhen and assess the feasibility of setting up a dwelling mechanism for science and technology talent. Hong Kong could also leverage its advantage in international finance, and provide venture capital services to the high and new technology industries of the Pearl River Delta Region. This will increase the diversity of Hong Kong’s financial products. (2) The strategy of “Leisure Belt” and “Ecological Belt” along the western ring. Form a Hong Kong Disneyland—Macao—Hengqin Leisure Belt linked up by the Hong Kong-Zhuhai-Macao Bridge (see Chapter Seven for detailed analysis). Hong Kong could develop an ecological and environmental

176

protection industry and establish a food safety surveillance system to serve ecological rural consumption in the western part of the Pearl River Delta Region. It could nurture the medical and healthcare industry, and provide medical and healthcare for elderly services by combining the modern western medical systems of the University of Hong Kong and Chinese University of Hong Kong, the experience of the Hong Kong Polytechnic University in physiotherapy, and the Chinese healthcare concepts of Guangzhou University of Chinese Medicine. (3) The strategy of “Innovation and Cultural Ring” in the Pearl River Delta Metropolis. Using fashionable and cultural factors, Hong Kong could upgrade the conventional consumer industry and establish a “designer-led” fashion industry. Hong Kong could collaborate with Guangzhou, the former retaining its international market linkage, while the latter tracks trends in the Mainland, and nurtures talent in design. Hong Kong could cooperate with the specialised townships of the Pearl River Delta Region, and establish an international display platform for their fashion products. Under the business concept of ‘test markets’, it could promote the latest Pearl River Delta products directly to overseas consumers. This will accelerate the renewing and upgrading of products. Hong Kong could make use of the cultural factors, and create a diversified culture with the polycentric characteristics of the Pearl River Delta Metropolis. It could establish a “Neo-Lingnan (South China) Culture” and “Neo-Lingnan Living Style” with global vision, and develop a cultural innovation industry.

All in all, when Hong Kong faces northwards at the Pearl River Delta Region, it should use its right arm of technology and talent strategies, and its left arm of living and ecological strategies, to hold the hands of Guangzhou. It should uphold the whole Pearl River Delta Metropolis with scientific, harmonious, sustainable, and more humane development philosophies, and create another marvelous three decades for the Metropolis.

177

Chapter Four: The Planning and Construction of Infrastructure

Facilities in the Pearl River Delta Metropolis

The planning and construction of infrastructure facilities will dictate whether the factors inside and outside of a metropolis can move effectively. Only when the mobility of the factors is in an ideal state can the economy of a metropolis maintain its creativity and vitality. The extents to which the public infrastructure is well developed and unified, and factor mobility is highly efficient and cost-effective, are measures of the standard of the metropolis. With the globalization of economy, product value chains have been more and more fragmented. Different component parts are manufactured in different cities to make full use of their superiority in competitiveness in the relevant manufacturing process. The completion of a product relies on the collaboration of the different cities, linking up different production processes through logistics arrangements before the final product is eventually delivered to the consumers. The competitiveness of a product in the market is no longer dependant on the costs of production in a particular city, but on the overall superiority of the concerted system of production. Under this kind of competition, the spatial layout of enterprise has changed. On the one hand is regionalization. On the other hand, is the high degree of localization of similar enterprises, using the effect of clustering to enhance the production efficiency60

. Each city still needs to seek its superiority in competition, yet the key is the relative superiority of a region over the other.

The regional production network is an invisible one, being linked up by logistics measures or by different manufacturing processes. However, it has to be supported by a visible regional transportation network involving sea, land and air transportation. Therefore, the overall efficiency of the whole network is not just dependant on the speed of an individual mode of transport, but also on the inter-connectivity of the different modes. Only via a high-speed means of transport coupled with a seamless connectivity can an effective transportation network be formed. The well-planned layout of a transportation network is of 60 Kenichi Ohmae, The next global stage: challenges and opportunities in our borderless world (Upper Saddle River, N.J.: Wharton School Publishing, 2005); Michael J. Enright, “The Globalization of Competition and the Localization of Competition: Policies Toward Regional Clustering”, in N. Hood and S. Young (eds), The Globalization of Multinational Enterprise Activity and Economic Development (London: Macmillan, 2000).

178

vital importance. A network is interwoven by cities linked. If these cities in the nodal points of the network are linked to other cities, it will increase the density of the network, thus enhancing the details of the network, giving foundation to more effective specialization. Considered from another angle, the effectiveness of the links of a city to the network affects the role it can play and its prospects of development.

The previous “Front Shop, Back Factory” cooperation model between Hong Kong and Guangdong is an elementary regional production system. The East Coast Highway of the Pearl River Delta, railway artery system and the port facilities of Hong Kong initially linked the base of production to the world market. With the economic development and the improvement of transportation facilities, the production of the Pearl River Delta production base has continued to expand, promoting the development of many seaport clusters and airport clusters. Since the 1990’s, competition from other areas has rendered the enhancement of competitiveness of the region an imminent issue. In recent years, Guangdong province has been actively facing the challenge of the regional competition by investing on a large scale in the construction of railways, highways, civil aviation and seaports in order to achieve integration in total transport. In the most recent development, the most significant point is that the construction of railways has shifted from route planning to network construction, integrating it with the national network. Areas with Guangzhou as the center will be served by an effective network, important infrastructures of seaports and airports will also be closely linked with the network. The future challenge of the Pearl River Delta Metropolis is how to effectively link up Hong Kong, being one of the nucleus cities and the most internationalized, with this growing network, so as to fully utilize the Pearl River Delta network to develop the economy and to enhance the competitiveness of the Pearl River Delta using its international network. I. The Present Condition and Characteristics of the Infrastructure

Facilities of the Pearl River Delta Metropolis The Pearl River Delta Metropolis is economically the strongest metropolis with the most developed and internationalized cities, well developed in market economy. The average distance between cities in the metropolis is less than 10 km, with a density of 100 cities in 10,000 km2, the highest density in the country. The distances between main cities in the metropolis with

179

Hongkong/Shenzhen, Guangzhou/Fuzhan, and Macau/Zhuhai as nuclei average about 100 km. The 3-dimensional transportation network including sea, land and air is basically formed with land transportation served mainly by the highway system, reaching out in all directions. The railway system in the central and eastern part is comparatively well developed. Hong Kong, Shenzhen and Guangzhou are all served by Metro systems; in air transport, the five big airports including Hong Kong, Guangzhou, Shenzhen, Zhuhai and Macau together form an air transportation network, with the one in Hong Kong being the most advanced in international standard. In sea transportation, there are more than sixty seaports densely distributed in the Pearl River system and the estuary of the Pearl River, with Hong Kong, Shenzhen and Guangzhou being well known internationally.

Figure 4.1 Distances between Major Cities in the Pearl River Delta

Metropolis

Hong Kong

Shenzhen

Dongguan

Guangzhou

Foshan

Jiangmen

Huizhou

Macao

Zhuhai

Zhongshan

Zhaoqing

180

Figure 4.2 Three-Dimensional Transportation Network in the Pearl River Delta Metropolis

1. The Network Development of Highway Transportation System The highway system in the Pearl River Delta Metropolis has formed a well-developed network. As at the end of 2006, the mileage of the network in the metropolis totaled 43,704 km, with high speed system mileage amounting to 1,857 km., giving a density of 105 km in highway mileage per 100 km square.

Figure 4.3 Highway Systems in the Pearl River Delta Metropolis

181

99725 102241 112493 119439 126148

0 20000 40000 60000 80000 100000 120000 140000

2002 2003 2004 2005 2006

Figure 4.4 Volume of Highway Passenger Traffic during 2002-2006 in the Pearl River Delta Metropolis (Unit in 10,000 Persons)

46615 49740

52646 59037

66869

0 10000 20000 30000 40000 50000 60000 70000

2002 2003 2004 2005 2006

Figure 4.5 Volume of Highway Cargo Traffic during 2002-2006 in the Pearl River Delta Metropolis

2. The Rapid Development of Railroad Transportation System Firstly, the railway system is presently the artery of land transport of the Pearl River Delta, connecting to the outside with the Beijing/ Guangzhou line as the trunk line of passenger and cargo transport. The Guangzhou-Sanshui-Maoming route connects the region to western Guangdong, forming the two arteries of

182

Beijing/Guangzhou and Beijing/Kowloon, running longitudinally into the hinterland of the region, with the Guangzhou/Shenzhen railroad connecting the two metropolitan areas of Guangzhou/ Foshan and Shenzhen/Hong Kong. Railroad traffic volume of passengers and cargoes is constantly on the rise, reaching 91.91million people and 75.89 million tons respectively in the year 2006. Four new routes will be constructed for the Wuhan/ Guangzhou Passenger Line, Guangzhou/ Zhuhai Railroad, Xiamen/ Shenzhen Railroad and Guangzhou/ Shenzhen Railroad. The two new routes of Guangzhou/Heyuen have commenced construction. These construction items will further strengthen and improve the connection between the Pearl River Delta Metropolis, the inland and the eastern coastal region. Secondly, the speeding up of municipal railroad transport system construction makes municipal public transport quicker and more convenient. The Metro system in Guangzhou has developed into 4 routes with a total mileage of 116 km, with an average daily passenger traffic volume of 1.5million, basically forming a municipal railway network, linking up the city within a time space of 30 minutes. All regions are reachable within 45 minutes. The construction of Guangzhou railway transportation system routes 4, 5, 6, 2/8 extension, northern extension of route 3, the automated passenger transportation system of Zhujiang New Town, and the Guangzhou/Fozhen route of the Pearl River Delta Inter-city Express are being sped up. The construction of the first stage of the Shenzhen Metro has been completed with route 1 and its branch already in service, moving a daily passenger volume of over 300,000. The second stage of the construction has already commenced.

183

6923 6750 7893

8517 9191

0

2000

4000

6000

8000

10000

2002 2003 2004 2005 2006

Figure 4.6 Volume of Railroad Passenger Traffic during 2002-2006 in the Pearl River Delta Metropolis (Unit in 10,000 Persons).

5400 5560

7819 7350 7589

0

2000

4000

6000

8000

2002 2003 2004 2005 2006

Figure 4.7 Volume of Railway Cargo Traffic during 2002-2006 in the Pearl River Delta Metropolis (Unit in 10,000 Tons)

3. Acting as the Hub of Air Transport in the Asia Pacific Region The Pearl River Delta region possesses the biggest airport in the Asia Pacific region, with 5 airports in Hong Kong, Guangzhou, Shenzhen, Zhuhai and Macau in an area of 200 km sq, the density and grade can be rated as on the top level. There are 550 international flights and 600 domestic flights on a daily

184

average, effectively covering the Chinese and Asian markets. Meantime, it is also the hub of transit connecting the markets in Europe, America and Oceania and those in Asia and China. The Pearl River Delta Metropolis has established and will continue to strengthen its position as the hub of air transport in the Asian Pacific region. The Hong Kong International Airport: It is one of the busiest airports in the world and is also one of the three biggest air cargo transport stations in the world. It moved a total volume of 3.742 million tons of air cargo and carried a total of 47.738 million passengers in the year of 2007, with over 85 airline companies operating about 800 flights daily, reaching over 150 cities in the world.

Figure 4.8 Volume of Passenger and Cargo Traffic of the Hong Kong

International Airport during 2001-2007 Guangzhou International Airport: The Guangzhou Baiyun International Airport started operations on 5 August 2004. Presently it has business connections with 33 airline companies, operating about 50 international routes and over 120 domestic routes to over 140 domestic and international cities. It also acts as cargo handling agents for over 200 domestic and international cargo routes. The cargo/mail and passenger volumes handled in the year of 2007 were up to 894,900 tons and 30.96 million people respectively.

4778.3

3306.5

4444.3 4074

3714.2

2743.3 3431.3

374.2 358 340.2

309.39 264.21

247.88

207.43

0

1000

2000

3000

4000

5000

6000

2001 2002 2003 2004 2005 2006 2007

Uni

t : 1

0,00

0 pe

rson

s

0

50

100

150

200

250

300

350

400

Uni

t :10

,000

tons

Volume of passenger traffic

Volume of cargo traffic

185

Figure 4.9 Volume of Passenger and Cargo Traffic of the Guangzhou Baiyun

International Airport during 2001-2007 Shenzhen International Airport: The volumes of passenger, cargo/ mail traffic and the number of aircraft landing/ taking off handled in the year of 2007 was 20.62 million people, 616,000 tons, and 181,500 respectively, reflecting an increase of 12.3%, 10.2% and 7.1% over the year. There were also increases in 7 domestic destinations (seven), airline companies (one), and destination cities (68). The number of operating airlines reached 16. Internationally, there were 9 passenger routes and 21 cargo routes reaching 19 international cities as of the year-end in 2007.

Figure 4.10 Volume of Passenger and Cargo Traffic of the Shenzhen Baoan

International Airport during 2001-2007

2062 1836

1628 1425

1084 935

777

61.6 55.9

46.3 42.3

35.4 28.9

20.9

0

500

1000

1500

2000

2500

2001 2002 2003 2004 2005 2006 2007

Uni

t : 1

0,00

0 pe

rson

s

0

10

20

30

40

50

60

70

Uni

t :10

,000

tons



2622 2340

1383 1601 1501

3096

2033 54.40 59.26 53.16

89.49 82.49

75.06 63.24

0

500

1000

1500

2000

2500

3000

3500

2001 2002 2003 2004 2005 2006 2007

Uni

t : 1

0,00

0 pe

rson

s

0 10 20 30 40 50 60 70 80 90 100

Uni

t :10

,000

tons



186

Macau International Airport and Zhuhai International Airport: Both started operations in the year 1995 equipped, with full passenger and cargo handling facilities, connecting over 30 domestic and international cities, with an emphasis on routes to Taiwan. They can handle 6 million passengers and 160,000 tons of cargoes annually. In the year 2007, the Macau International Airport handled a cargo volume of 180,900 tons and 5.4988 million passengers. The Zhuhai International Airport commenced operations in 1995, aimed at connecting 13 domestic cities. It handled 754,000 passengers and 13,700 tons of cargo. Although it is low in utilization and slow in development, it has begun to improve since its cooperation with the Hong Kong Airport Authorities. 4. A Seaport Cluster of International Standard Has Been Formed The Pearl River Delta Metropolis has already formed a seaport cluster of international standard, having over 60 seaports in close proximity to each other, with the support of the wide inland economic hinterland and convenient water/overland transport system. In 2007, the total throughput of the three ports including Hong Kong, Shenzhen and Guangzhou has reached almost 5,000 TEUs among which Hong Kong shared a total of 23.539 million TEUs, ranking the third in the world, with Shenzhen sharing 21.09 TEUs ranking the fourth.

Figure 4.11 Ports Distribution in the Pearl River Delta Metropolis

187

Figure 4.12 Volume of Cargo Traffic of Ports in Hong Kong, Shenzhen and

Guangzhou (Unit: TEUs/10,000 Tons)61

5. The Close Interconnection of Cross-border Infrastructure Facilities

with Control Point Facilities Following the return of sovereignty of Hong Kong to China and the implementation of CEPA, the traffic and business connections between Mainland China and Hong Kong/Macau are getting closer with time. The construction of customs control point facilities and cross-border infrastructure facilities has seen considerable progress. Taking the Shenzhen/Hong Kong control point as an example, there were only two control points, at Lowu and Man Kam To, prior to the opening-up and reform.

Presently, there are many overland control points, including those at Man Kam To, Wong Kong, Sha Tao Kok, Shenzhen Bay, and Fu Tien, with a control point at Lien Tang-Hsien Yuen Wai under planning. Out of the above, the control point at Shenzhen Bay adopts a “co-location” mode of clearance. The Wong Kong control point is open 24 hours. In 2007, the number of people and vehicles passing through reached 178 million and 15.39 million respectively.

61 The ports of Shenzhen and Hong Kong mainly move containerized cargoes while Guangzhou mainly moves bulk cargoes. In fact, the volume of cargoes handled in Guangzhou port in 2006 reached 326,000,000 tons, being more than that of Hong Kong which was 230,000,000 tons, ranking the fifth in the world.

1914.4 2044.9 2198.4 2260.2 2353.9 2399.8

2109.9

761.8 1065.2

1365.9 1619.7

1847

36864.4

30281.7 21519.8

17187.2

12119.5

25035.9

0

500

1000

1500

2000

2500

3000

2002 2003 2004 2005 2006 2007 0

5000

10000

15000

20000

25000

30000

35000

40000

Hong Kong

Shenzhen

Guangzhou

188

Table 4.1 Number of Travelers and Vehicles Using Shenzhen/Hong Kong Overland Cross-border Control Points (2007)

Control Point Number of Travelers Number of Vehicles Lo Wu 9471.8 ---

Man Kam To 287.8 254.6 Sha Tau Kok 3311.6 98.3

Shenzhen Bay 467.2 58.3 Wong Kong 5185.4 1127.9

Fu Tien 489.5 --- Source: Office of the Shenzhen Municipal Port Management. Concerning cross-border traffic, one point particularly worth mentioning is that the Guangzhou/Shenzhen Railway heavily used by the Hong Kong people has tended to adopt a mode of operation close to that of the MTR, after its elevation of speed in 2007, with train frequency of every 10 minutes. It takes less than an hour to travel from Shenzhen to Guangzhou via Dongguan with one to two stopover stations, carrying a traffic volume ranking the first in the world. ( Table 4.2a, 4-2b and 4.3) Table 4.2a Volume of Passenger Traffic of Guangzhou/Shenzhen Railway

2005-2007 Year Daily

Departures -Passenger

Trains (both

directions)

Guangzhou /Shenzhen- Passenger Express

(both directions)

Guangzhou /Kowloon-

Direct Service (both

directions)

Guangzhou /Shenzhen -Passenger

Trains (both

directions)

Long-distance passenger

trains (both

directions)

Guangzhou /Shenzhen- passenger

traffic volume (10,000)

Guangzhou/ Kowloon-

Direct Service passenger

traffic volume (10,000)

2005 122 67 13 2 40 2152.9 306.5 2006 123 67 13 2 41 2224.3 320.7 2007 195 80 13 0 102 2472.5 319.2

Note: As from 18 April 2007, maximum train speed has been elevated to 200 km/hr (with train speed mostly below 200 km/hr) producing a transportation volume of every 10 minutes. However due to the commencement of construction of the fourth route of the Guangzhou/Shenzhen service, the volume of traffic was affected and was on the low side in 2007.

189

Table 4.2b Volume of Passenger Traffic of Guangzhou/Shenzhen Railway (January-April, 2008)

Intercity Train Service Direct Service (10,000 persons) Change over

previous year (%) (10,000 persons) Change over

previous year (%) 1035.77 +65.5% 107.49 +4.4%

Note: As there was no growth in the frequency of the direct train service, there was no growth in the volume of traffic. The intercity Shenzhen/ Guangzhou service was different, relative to the same period in 2007, due to the effect of construction of additional routes; there was a higher degree of growth. Based on the January-April figures, the year growth in volume of traffic should reach 30%.

Source: www.gsrc.com/gsyw.aspx?YX_ID=6. Table 4.3 Guangzhou/Shenzhen Railway Inter-station Transit Time and

Train Schedule (2008) Guangzhou Shilong Dongguan Zhangmutou Shenzhen

Mins Frequency Mins Frequency Mins Frequency Mins Frequency Mins Frequency

Guangzhou --- --- 23 81 31 89 36 86 52 160

Shilong 23 81 --- --- 11 35 16 56 32 81

Dongguan 31 89 11 35 --- --- 8 34 25 89

Zhangmutou 36 86 16 56 8 34 --- --- 20 86

Shenzhen 52 160 32 81 25 89 20 86 --- ---

II. The Planning and Construction of Infrastructure Facilities in the

Pearl River Delta Metropolis From the angle of infrastructure construction, the highway network in the Pearl River Delta Metropolis is comparatively developed, particularly the express highway system, which has superiority in allowing for higher car speeds, bigger flow of traffic, lower costs of transport, better safety and enhanced comfort. But from a long-term point of view, there are numerous constraining factors on the construction of highway networks. Firstly, it takes a lot of land, which poses a particularly serious problem in the Pearl River Delta Metropolis, which suffers from a growing pressure on land resources. Secondly, from the

190

angle of safety and energy resources, China is a net importer of energy. With the rising costs of oil, the costs of car use will rise. Thirdly, China being a developing country, people’s income levels remain moderate, making it difficult for them to fully utilize the express highway and higher grade road systems. Fourthly, the environmental situation is not optimistic, mainly due to exhaust emissions. Therefore, the emphasis of infrastructure facilities of the Pearl River Delta Metropolis is on rail traffic, the planning and construction of cross-border bridges and tunnels, and the continued optimization and upgrade of the planning and construction of airports and seaports. Through this kind of planning and construction, the aim is to construct a Pearl River Delta Metropolis which allows for a life and work circle within a one-hour traffic coverage. 1. Railroad Traffic Planning Firstly, construction of the intercity railroad network should be sped up, thus normalizing communications in the Pearl River Delta Metropolis. According to the Short-term and Long-term National Railroad Traffic Network Plan and the Pearl River Delta Economic Zone Intercity Express Railroad Traffic Network Plan (as approved by the Guangdong Provincial Government in 2001), by the year 2020, the Pearl River Delta Economic Zone will have Guangzhou as a center, and Guangzhou to Shenzhen and Guangzhou to Zhuhai as axes, covering main cities in the Zone radially and circularly, connecting the intercity transportation network of Hong Kong/ Macao. Commuting between the 9 cities will take not more than an hour. According to the Plan, the intercity railway transportation routes between Guangzhou/ Shenzhen, Guangzhou/ Zhuhai, Giangmen/XiaoLan, Guangzhou/ Foshan, and Xiao Lan/Humen will be completed in 2010, forming the main axis of the intercity railway traffic of the Pearl River Delta Economic Zone, operating a mileage up to 383 km. In 2020, the intercity railway lines between Dongguan/ Huizhou, and Guangzhou/ Zhaoqing will be completed with a mileage up to 600 km. According to the Preliminary ideas on the Pearl River Delta Economic Zone Intercity Express Railroad Transportation System and Urbanization Plan, the framework of the railroad network of the Pearl River Delta Economic Zone will be formed by two main axes, three radial lines and two linking lines, the two main axes being Guangzhou/ Shenzhen and Guangzhou/ Zhuhai, and the

191

three radial lines being Guangzhou/Zhaoqing, Zhongshan (Xiao Lan)/ Jiangmen, and Dongguan/ Huizhou. It is proposed to build two links for Shunde/Panyu/ Dongguan and Zhongshan/Humun between the two axes of Guangzhou/Shenzhen and Guangzhou/ Zhuhai, with the size of the linking network scaling to 599.6 km. The Pearl River Delta Economic Zone will establish a “three circles and eight radial lines” framework of railroad traffic network with 20 planned routes reaching a total mileage of 2000 km, basically covering all cities above the provincial levels in the Pearl River Delta Economic Zone. Adding the municipal railroads and ordinary railroad network, the density of railroad transportation network in the Pearl River Delta Economic Zone will reach 12.2 km/100 sq.km, close to the standard of the Paris and Tokyo municipal circles. In the long-term, the extension into the eastern, western and northern parts of Guangdong can be realized. One point particularly worthy of mentioning is that this idea upgrades the development target of the intercity railroads to city integration. The plan will be completed in 2015. According to the research results of the project team, railway transport between Zhongshan/ Zhuhai and Guangzhou will be operational in about 2010. The western part of the Pearl River Delta will become integrated. In the meantime, the planning and construction of the Metro is now in active progress. There are two significant effects of the most recent development of the railroad transportation system in Guangdong. Firstly, the layout of the railroad transportation system of the Pearl River Delta Economic Zone will no longer be based on discrete routes but on a network basis. The linking of cities with discrete routes can only link the two adjoining cities and the distance between a city and the nucleus city will determine its role and position. A network layout will enable a multi-linkage between cities, increasing the possibility of specialization and cooperation between cities. Moreover, more cities will be able to compete on relatively equal footings, resulting in better integration of resources and higher efficiency. The railroad in Guangdong will be linked up with the national high-speed railroad system, enabling the expansion of its economic hinterland into the inland cities, speeding up the interflow of people and cargoes. This will also have an impact on the planning of infrastructure facilities including airports and seaports in the Pearl River Delta Economic Zone.

192

Figure 4.13 Preliminary Ideas on the Pearl River Delta Economic Zone

Intercity Express Railroad Transportation System and Urbanization Plan

Figure 4.14 The Shenzhen Metro System in 2010 Source: Planning Bureau of Shenzhen City,

http://www.szplan.gov.cn/main/jqdt/main.html.

http://www.szplan.gov.cn/main/jqdt/main.html�

193

Fig. 4.15 Interconnection of the Donguan Railroad Transportation Network

with the Regional Railroad Transportation Network Source: http://www.chinautc.comTResultupfilenews20069149515765.pdf. To speed up the planning and construction of direct train service, making a speedier and more convenient connection with the inland transportation network. Major routes include the following: WuGuang (Wuhan-Guangzhou) Passenger Service: Expected to be completed and operational in 2010, designed speed of 250km/hr (maximum 320 km/hr), aimed at relieving the heavy load on the Beijing-Guangzhou line. It will shorten the transit time of Wuhan-Guangzhou from 11 hours to 4 hours, and Changsa-Guangzhou from 8 hours to 3 hours, thus shortening to a great extent the distance to the inland areas and expanding the economic hinterland of the Pearl River Delta. GuangZhu (Guangzhou-Zhuhai) Intercity Express Rail: Construction commenced in December 2005 and expected to be completed and operational in 2009, with designed speed of 200km/hr (speed with stop-over at all stations 140 km/hr). As planned, the construction of GuangZhu Intercity Express Rail will be simultaneous with the Panyu New Guangzhou Station, and will be seamlessly connected with national networks like the Beijing-Guangzhou line,

194

municipal networks like the Metro, making it possible for passengers to transfer between different modes of transport with zero distance. This will greatly increase the speed of commuting between the cities of Guangzhou, Foshan, Zhongshan, Zhuhai and Jiangmen, tightening up the economic connections between cities. GuangZhu(Guangzhou-Zhuhai) Railway: GuangZhu Railway starts at the southern part of the hub station of Guangzhou, the Jiangchuen station, with Kaolangang in Zhuhai as terminus. There are 11 stations on this line with dual traffic for the section Jiangchuen-Jiangmen Southern Station, one-way traffic for the section Jiangmen Southern Station- Kaolangang, and total length of the line being 187 km. It was built according to the National Class I Standard, fully electrified with a designed speed of 120 km/hr., initially for cargo service with provisions for passenger service. It is expected to be completed and operational in 2011. Xia Zhen(Xiamen-Shenzhen) Railway: It starts from the hub station of Xiamen Railway, Xiamen New Station, serving Jiangzhou, Jiangpu, Wunxiao, Jaoan, Zhaozhou, Zhatau, Jiyang, Zhawei and Huizhou with the hub station of the Shenzhen Railway, the New Shenzhen Station as terminus. There are 19 stations on this line with a total length of 502.4 km, designed speed of 200km/hr (maximum speed 250km/hr). The designed frequency is 120/ day (both directions), cargo capacity at 12 million tons/ yr. This line is part of the Shanghai-Shenzhen Expressway for passengers and helps to facilitate the economic radiation of Shenzhen/Hong Kong into the eastern area. The Xia Zhen Railway has commenced construction and is scheduled to begin operations by the end of 2011.

195

Figure 4.16 The Proposed Xia Zhen Railway 2. Planning of Bridges, Tunnels and Cross-border Facilities The planning and construction of bridges, tunnels and cross-border facilities will penetrate through the eastern and western coasts of the Pearl River, integrating them as one entity and facilitate the cross-border traffic between Guangzhou-Hong Kong-Macao, thus promoting the cross flows of factors and cooperation in the Metropolis. Hong Kong-Zhuhai-Macao Bridge: The National Development and Reform Committee and the Hong Kong SAR Government jointly appointed a research institution in January 2003 to conduct the relevant research. In August 2003, the State Council agreed that the three governments of Guangzhou, the Hong Kong Special Administrative Region and the Macao Special Administrative Region shall establish the Hong Kong –Zhuhai-Macao Bridge Advance Work Co-ordination Group for the project and start the advance work for the construction of the Bridge. The Central Government also announced on 9 January, 2007 the establishment of a Project Committee, led by The National Development and Reform Commission, with members comprised of representatives from the Ministry of Transport, the Hong Kong-Macao Affairs Office of the State Council and the three governments of Guangzhou, Hong

Xiamen

Quan zhou

Shantou

Meizhou

Longzhou Chaozhou

Jieyang

Shanwei

Hong Kong

Zhuhai Macau

Guangzhou Huizhou

Zhangzhou

Zhuangzhou Longan

Shen -zhen

Constructed railroad

To be constructed railroad

196

Kong and Macao. In June 2008, the “Hong Kong-Zhuhai-Macao Bridge Feasibility Study” was approved, adopting the “single Y” proposal, connecting Hong Kong- Macao- Zhuhai via highway bridge. According to the proposal, the full length of the bridge will be approximately 30 km, constructed in the form of a bridge-cum-tunnel structure, with 3 lanes of traffic in each direction. The exit in Hong Kong will be at Shek Wan near the new airport, in the form of a tunnel, i.e. vehicles arriving at that point will be directed to a constructed island, and after passing through the tunnel, will emerge to road surface via Shek Wan. Exits at Macao and Zhuhai will be at Ming Chu Island opposite Zhuhai and Macao and traffic will then be diverted to Zhuhai and Macao. After the completion of the bridge, driving with a speed of 110km/hr, it will take only 15 minutes to travel between Hong Kong-Macao-Zhuhai, saving 3/4 of the time required for high speed ferries. Custom clearance will be on a “3 clearances-3 localities” basis. Presently 25 engineering feasibility studies have been completed. It was decided by the Guangdong-Hong Kong Joint Committee on 5 August 2008 that the Central Government would be jointly responsible for the financing. The estimated construction costs will be $37.8 billion, of which $6,750 million to be contributed by Hong Kong, $1,980 million by Macao, $7,000 million by the Central Government and Guangdong, with the remaining 58% fulfilled by a loan. The Bridge is scheduled to commence construction in 2010 and will be completed in 2016.

197

Figure 4.17 Hong Kong Zhuhai-Macao Bridge Source: Transport and Housing Bureau, HKSAR Government, “Cross

Boundary Traffic”. Last revision date: 11 May 2009. Downloadable from: http://www.thb.gov.hk/eng/policy/transport/issues/cbt_3.htm.

Hong Kong-Shenzhen Airport Railway: This will enter the northern part of the N.T. of Hong Kong via Shenzhen Bay (Hau Hoi Wan) after passing through a tunnel at Shekou, with one route going to the Hong Kong Airport, the other linking up with the central areas of Hong Kong. After its completion, transit time will be reduced to about 20 minutes. The project has been listed as one of the ten big cross-border infrastructures in the 2007-2008 Executive Statement delivered by the Head of Administration, Mr. Donald Tsang. According to the most recent design, this railway will be merged with the Guangzhou-Dongguan-Shenzhen railways and a big passenger transport centre will be constructed at the shorefront of Shenzhen. GuangShenKong (Guangzhou- Shenzhen -Hong Kong) Express Rail Link: The section Guangzhou-Shenzhen will be operational by 2010. The designed speeds are in the range of 350 to 250 km/hr, mainly responsible for the high-speed intercity passenger transport between Shenzhen and Hong Kong. It

198

is one of the two axes of the intercity railway network in the Guangzhou-Shenzhen region and is also an extension of the special passenger service of the Beijing-Guangzhou route. The construction of the Hong Kong section will start in 2010 and is expected to be operational in 2014. By then, the Guangzhou-Shenzhen-Hong Kong Express Rail will have a length of 142 km, with 5 stations from south to north and the terminus in Hong Kong (the “West Kowloon Terminus”). It will pass through Futen, Longwa in Shenzhen, Humen in Dongguan and terminate on the Mainland at the “New Guangzhou Station” of Sebi, Guangzhou. By then, the transit time from Hong Kong to Futien, Shenzhen will be 14 minutes, and to Guangzhou will be 48 minutes. The Guangzhu-Shenzhen -Hong Kong Express Rail Link, apart from improving the integration of the Pearl River Delta region, will also link up Hong Kong with the high-speed railway network nationwide. The transit time from Hong Kong to Beijing will take only 10 hours, to Hangzhou or Shanghai via Shenzhen will take about 8 hours. The transit to other major inland cities will also be drastically reduced. The Guangzhu-Shenzhen-Hong Kong Express Rail not only creates favorable conditions for the economic cooperation between Guangdong and Hong Kong, but also strengthens the integration of Hong Kong with the cities in the Mainland. Henceforth, Hong Kong can develop more routes to these cities, thus expanding the radiation effect of Hong Kong as an international city to various regions in the eastern, central and western part of China.

199

Figure 4.18 Routing of Guangzhu-Shenzhen-Hong Kong Express Rail Source: Hong Kong Legislative Council Brief “Northern Link and Hong

Kong section of Guangzhou-Shenzhen-Hong Kong Express Rail Link”. Downloadable from: http://www.legco.gov.hk/yr05-06/english/panels/tp/tp_rdp/papers/tp_rdpcb1-etwb_t_cr_1_16_581_99-e.pdf.

Lintang-Heung Yuen Wai boundary control point: The authorities in Hong Kong and Shenzhen began a study on the construction of the Lintang-Heung Yuen Wai boundary control point in December 2006. With the control point as a start, it links southwards with Hong Kong Route 1 and northwards along the cross-boundary express highway with the east of Shenzhen and radiates outwards. The construction of the control point will reinforce the link between Hong Kong and the eastern coastal hinterlands. Cross-border land-crossing constructions: These include Sha Tau Kok crossing, the extension of Beijing-Kowloon route to Yentien, conversion of the Sha Tau Kok-Fanling section to standard track, opening up of the Fanling-Kwai Chung coastal line, passage from Futien to Lok Ma Chau, connection of Line 4 of Shenzhen Metro with the Lok Ma Chau branch of the Hong Kong Railway, loop passages, and connection of the loop with urban road systems of Futien,

200

Shenzhen and Lok Ma Chau. Regarding the Western Passage of Shenzhen-Hong Kong, it includes the cross-sea connection of Tuen Mun with Lantau Island in Hong Kong and the connection with the Coastal Express Highway System in Shenzhen. ShenZhong tunnel/ bridge: This proposal is still under study. There exists a logistics bottleneck between the two coasts of the Pearl River. There is no railway in the Hong Kong-Zhuhai-Macao Bridge “single Y” proposal; the Bridge will not pass through Shenzhen; and it goes through 4 control points. The Humen Bridge will be saturated by about 2012, being situated far to the north; it is therefore not able to fulfill the function of a coastal express railway. Consequently, it is necessary to construct a cross-river tunnel or bridge in between Shenzhen and Zhongshan. The people and cargoes from the western coast of the River and western Guangdong can pass through the tunnel or bridge to access the Shenzhen airport and Yentien harbour. 3. Planning of an Express Highway System According to the 2004-2030 Plan of Highway Systems in Guangdong Province, the planned highway mileage of the Pearl River Delta Economic Region will reach 3000 km in 2010, 3300 km in 2020, and 3500 km in 2030, shouldering the internal and external traffic loads of the Greater Pearl River Delta Region including Hong Kong/Macao, forming a “9-longitudinal, 5-transversal, 2-circular” framework and a “3-hour express highway transportation circle”, providing a convenient logistics network for the Pearl River Delta Metropolis.

201

Figure 4.19 Express Highway System of the Pearl River Delta Region (2004-2030)

4. Airport Planning In 2020, the number of runways of the five airports in the Pearl River Delta Metropolis will total 11-13. Presently, the Hong Kong International Airport is studying the construction of a third runway. Aircraft movements are 54 per hour and will reach 58 in 2009. The Hong Kong Civil Aviation Department has promised to improve the various facilities. Aircraft movements will hit 68 per hour by 2015. Despite increasing the aircraft movements, the Airport will probably be saturated in about 5 years. The Hong Kong SAR Government has announced that it will commence a feasibility study for a third runway in early 2008, and has also decided with the concerned national authorities on some operational guidelines. If it is found practicable, aircraft movements will reach 102 per hour. The second runway in the Shenzhen Airport will be completed in 2009 and will be operational prior to 2011. The construction of a third runway is under planning. The long-term objective of Shenzhen Airport will be “equal emphasis on cargo and passenger traffic, with cargo traffic as the nucleus of operations.” In June 2007, Air China signed an agreement with Shenzhen Airport to construct a cargo-handling base in Shenzhen, and to gradually increase its cargo handling capacity before 2015. More importantly, UPS from the United States has decided to transfer its Pan Asia Aviation Transit Centre

202

from the Philippines to Shenzhen Airport, and is scheduled to begin in 2010. The initial aircraft movements will be 108 weekly. On passenger traffic, the Shenzhen Airport is actively developing low- price flights, which contribute to 50% of its traffic volume. It commenced the construction of a second runway and relevant structures for a third aviation building in July 2007; all are expected to be operational in 2011. The Airport, after expansion, will attain passenger traffic volume of 30 million people. Due to the rapid growth of Guangzhou Airport in recent years, the third runway originally scheduled to commence construction in 2010 has been started earlier, and is expected to be operational in 2010 so as to catch the Asian Games. The Baiyun Airport mainly serves domestic routes and the number of routes has reached over 120 in 2007. It is also actively developing international routes and hopefully will increase 15 routes yearly over three years. Passenger traffic in 2007 has exceeded 30 million. Cargo traffic volume still remains low, being less than 700,000 tons, less than 20% of the volume handled by Hong Kong. However, it has gained the agreement of FedEx to build three cargo-handling centers, to be operational in late 2008 or early 2009. By then, cargo aircraft movements will be 150 per week, with cargo volume up to 600-800 thousand tons and the cargo volume handled will be doubled. By 2020, Guangzhou Airport will have completed 5 runways. Macao Airport will have lengthened its runway from 3360 m to 3860 m by 2008. The plan for the five major airports will render the Pearl River Delta Metropolis a world-class aviation hub. On division of responsibility and specialization, Hong Kong will specialize on large aircraft and long-distance inter-continental routes and serve as international aviation and logistics center with equal emphasis on passenger and cargo traffic. Guangzhou Airport will specialize in domestic and international logistics, with emphasis on domestic movements, southern China passenger traffic and cargo handling centre construction, and act as a centre of aviation for the Asia-Pacific region, with emphasis on being an Asian Pacific station for big aircraft while attending to inter-continental routes providing both passenger and cargo handling services, with emphasis on the former. Shenzhen Airport will specialize on domestic and international cargo handling, with emphasis on domestic logistics movements, passenger transit service for domestic and international routes. Macao Airport will emphasize international passenger services and cargo transit services, acting as a branch for the cargo transit service of the Hong Kong International Airport. Zhuhai Airport will act as a branch for the domestic cargo transit services of the Hong Kong

203

International Airport and as a small-scale airport serving domestic passengers and providing inter-continental cargo transit services. 5. Port Planning According to the “National Planning of Coastal Ports” as approved in 2006, the future direction of port clusters in the Pearl River Delta Metropolis will be: while strengthening the position of Hong Kong as an international maritime centre, it is necessary to take advantage of the Hong Kong’s superior position in economy, trade, finance, information to act as an international maritime center, and to fully utilize the functions of the ports in Guangzhou, Shenzhen and Zhuhai so as to complement Hong Kong, acting on the basis of division of responsibility, fair competition, and concurrent development and to constitute an integrated transportation system using the railroads, highways inside and outside of the Metropolis, the Western River and the air transport facilities. Ports in Hong Kong, Shenzhen and Guangzhou will serve as trunk line ports fed by ports on the branch like Huizhou, Humun, Zhongshan, Zhuhai so as to form a system of container transportation system. Guangzhou, Shenzhen, Zhuhai, Huizhou, and Humun will constitute a system for the import/export and transit/storage of petroleum and natural gas. Guangzhou and Zhuhai will constitute a system for the import and transit of ferrous minerals. Guangzhou port is to serve as a transportation system for motorcars. Ports in Shenzhen, Guangzhou and Zhuhai will provide domestic and international passenger transit services and transportation facilities for passenger liners. According to The Cooperation of Pan Pearl River Delta Region- An Outline of the Planning of Highway and Waterway Infrastructure Facilities, Yientien, Da Chan and Sekou port of Shenzhen, and Nansha port of Guangzhou are listed as major items for reconstruction prior to 2010. The planned throughputs of container traffic will be 70 million TEUs for the three major ports of Hong Kong, Shenzhen and Guangzhou, with 28 million TEUs attributable to Hong Kong, 28 million TEUs to Shenzhen and 15 million TEUs to Guangzhou. Based on the above-mentioned plan, the position of the Pearl River Delta Metropolis as the world’s greatest port cluster will be secured.

204

III. The Development Prospects of Public Infrastructure Facilities in the Pearl River Delta Metropolis

1. Forming a Generalized Transportation Network in the Pearl River Delta Metropolis with Railway Traffic as Nucleus

By 2030, a transportation network with railway traffic as nucleus will be formed in the Pearl River Delta, supplemented by ordinary highway and express highway systems and other means of transport. A generalized transportation network in the Pearl River Delta Metropolis will basically be in shape, making it more expedient to travel, live and work in the region. By 2010, the GuangZhu Railway and Guangzhou-Hong Kong-Shenzhen Railway will be completed. Cities along the two axes of Guang-Zhu-Macao, and Guang-Shen-Kong will realize a 1-hour life circle. By 2020, the Hong Kong-Zhuhai-Macao Bridge and Shenzhen-Zhongshan Bridge/ Tunnel will link up the two coasts of the Pearl River. Interconnection between the intercity railway network with cities like Guangzhou and Shenzhen will be realized, resulting in a railway network, with Guangzhou-Foshan, Hong Kong-Shenzhen, Zhuhai-Macao as the hubs of transportation. The link up of the two coasts of the River will enable a 1-hour life circle to be formed for cities on the two coasts. By 2030, railway networks will connect the various provinces in the Pearl River Delta Metropolis. The two coasts will be linked with many tunnels and become unified, forming a triangular transportation network with Hong Kong-Shenzhen, Guangzhou-Foshan, and Zhuhai-Macao as the hubs. The municipal railway transport system (Metro) of the major cities will be able to connect seamlessly with the intercity railway system. Cities and counties above the provincial level will realize a 1-hour life circle. Commuting will be more convenient and expedient in the region. The Metropolis will expand into the periphery and other areas through its highly developed transportation network, resulting in the Metropolis as nucleus, radiating into inland provincial areas like Jiangxi, Hunan, Hubei and Guangxi.

205

Figure 4.20 Prospects of Public Infrastructure Facilities in the Pearl River

Delta Metropolis in 2010

Figure 4.21 Prospects of Public Infrastructure Facilities in the Pearl River

Delta Metropolis in 2020

206

Figure 4.22 Prospects of Public Infrastructure Facilities in the Pearl River Delta Metropolis in 2030

2. Becoming a Significant International Hub of Communication and

Transportation By 2030, the passenger and cargo transportation volume by air, by land and by sea in the Pearl River Delta Metropolis will rank the first in the world-class metropolitan areas and become a significant international hub of communication and transportation. This study forecasts that by 2030, the overland cargo traffic volume of the Metropolis will reach 6.06 million tons/day and passenger traffic volume will reach 8.49 million/day. The growth rate of railways in the Pearl River Delta Metropolis will be higher than other metropolitan areas before 2020 and becomes steady thereafter. The projected cargo traffic volume will have an average annual growth rate of 8% during the period 2007-2010, 6% during 2010-2020, 2% during 2020-2030.By 2030, the aggregate cargo traffic volume via highway and railway systems of the Metropolis will reach 3,094.11 million tons/year, passenger volume 3099.31 million people/year and 6.06 million tons/day, 8.48 million people/day respectively.

207

Figure 4.23 Forecast of Highway and Railway Cargo Traffic Volume of the Pearl River Delta Metropolis (Unit in 10,000 Tons)

Figure 4.24 Forecast of Highway and Railway Passenger Traffic Volume of

the Pearl River Delta Metropolis (Unit in 10,000 Persons) By 2010, the air passenger traffic volume of the Pearl River Delta Metropolis will exceed that of the present level of the London Metropolis. China has the highest growth in aviation market in the world. According to the forecast of The Boeing Company, the growth rate will reach 8.1% during the period 2006-2020. Based on the experience of other metropolitan areas in the world, the Pearl River Delta Metropolis, being one of the most economically

135339 171763

254251 309931

0

50000 100000 150000 200000 250000 300000 350000

2006 2010 2020 2030

74458 101299

181412 221140

0

50000

100000

150000

200000

250000

2006 2010 2020 2030

208

developed areas in the country, will maintain a high speed of growth prior to 2020 and the growth rate will become steady thereafter. Based on the average growth rate of cargo and passenger traffic volume in the Pearl River Delta Metropolis in 2000, and compared with those of the American airports, the forecast of average annual growth rate in cargo traffic volume during 2007-2010 is 8%, 5% in 2010-2020, and 2% in 2020-2030. The corresponding forecasts for passenger traffic volume are 12%, 9% and 5%. By 2030, the air cargo traffic volume in the Pearl River Delta Metropolis will reach 12.97 million tons and passenger traffic volume will reach 603.45 millions. Compared with other metropolitan areas in the world, the cargo traffic volume in London and New York airports in 2005 were under 2 million tons. The airports in the Pearl River Delta Metropolis are already in a leading position in the movement of air cargo. On airport passenger traffic volume in 2006, the London Airports have a volume of 125 million; the Pearl River Delta Metropolis has a volume of 95.98 million. By 2010, the air passenger traffic volume of the airports in the Pearl River Delta Metropolis will exceed that of the present level of the airports in the London Metropolis.

Figure 4.25 Forecast of Airport Cargo Traffic Volume in the Pearl River Delta

Metropolis (Unit in 10,000 Tons)

480 653

1064

1297

0

200 400 600 800

1000 1200 1400

2006 2010 2020 2030

209

Figure 4.26 Forecast of Airport Passenger Traffic Volume in the Pearl River

Delta Metropolis (Unit in 10,000 Persons) CCoonnttiinnuuiinngg ggrroowwtthh iinn tthhee tthhrroouugghhppuuttss ooff sseeaappoorrttss,, mmaaiinnttaaiinniinngg tthhee lleeaaddiinngg ppoossiittiioonn aass tthhee bbiiggggeesstt ppoorrtt cclluusstteerr iinn tthhee wwoorrlldd.. The Pearl River Delta Metropolis as an important area of exports in the country will have a lot of space for development. In 2006, the cargo traffic volume of the seaports in the Pearl River Delta Metropolis was 46.78 million TEUs, taking the leading position in the movement of sea cargoes among the metropolitan areas in the world. It is forecast that there will still be some future growth in cargo traffic volume in the Pearl River Delta Metropolis, though the growth rate may be very much reduced. However, there is no doubt that the leading position as the biggest port cluster in the world can be maintained.62

62 Pearl River Delta ports in the past only competed with each other for resources in the region. China’s development of high-speed railway networks will bring opportunities and challenges for the region’s ports. High-speed railway networks will provide the prerequisites for the mainland cities to become logistics centers. The cities serve a certain radius of the market and become a distribution center on land (land-based load Center) (see related literature, Beck P.Y. Loo and Kai Liu, “A geographical analysis of potential railway load centers in China”, The Professional Geographer 57:4 (2005), pp. 558-579.) Linking up the ports along the coast with high-speed railway can achieve rail- sea combined transport;, import and export activities can be conducted with higher logistics efficiency. At present, China has seen a trend of making more and more use of inland cities to develop its economy. The establishment of inland ports is in fact the extension of the functions of coastal ports to the inland hinterland. The facilities of inland customs, commodity inspection, sanitation inspection and other services provided by these inland cities enable the inland logistics centers to provide better customer services. Shippers in inland ports can complete the formalities and the goods can be shipped directly to the coastal ports and out of the country. This expands the cargo base of coastal ports to reach the hinterland; inland ports will also provide more comprehensive logistics services to the coastal ports, which can only benefit from transit services. At present, some regions have already started to make progress such as Dalian Port which has signed cooperation agreements with

9598 15649

37047

60345

0

10000 20000 30000 40000 50000 60000 70000

2006 2010 2020 2030

210

The Pearl River Delta Metropolis Will Become a World-Class International Trade Center by 2030. Since joining the WTO, China’s position as “Manufacturing Centre of the World” is further established. The business of import and export has seen a high speed of growth. In 2007, China surpassed Germany and became the second biggest trading country in the world, hopefully surpassing the United States and become the first in 3-5 years. The utilization of foreign capital and foreign exports occupies a very significant position in the Pearl River Delta Metropolis. It is the most important export base of China, characterized by its being export-oriented, with huge amounts of foreign capital and foreign exports. It is expected that the growth of trade of the Metropolis will maintain a steady growth, keeping the position as China’s most significant trading center. On this basis, it will become a world-class international trade centre. 3. Gradually Becoming a High-efficiency Operating System of

International Standard On the planning, construction and operational management of public infrastructure, Guangdong, Hong Kong and Macao will fully cooperate with each other, mainly to borrow from Hong Kong the advanced methods and concepts in operational management, modern and satisfying mode of service, mature experience in management, in order to gradually become a high-efficiency operating system of international standard. The integration of public infrastructure in the Pearl River Delta Metropolis includes hardware and software, both being indispensable, with the latter being most significant. The more competitive the Pearl River Delta Metropolis is, the higher the demand will be on the operational efficiency of the transportation system in the region. Shenzhen port has successfully brought in the Hong Kong major sea terminal operators like Hutchison Whampoa Ltd, China Merchants Ltd and Modern northeastern cities such as Shenyang, Changchun, Jilin and Harbin, as well as the related railway sector so that Dalian can absorb more inland cargoes. A greater impact on the Pearl River Delta is the establishment of the inland Chengdu Port. Chengdu has planned at the end of last year to make use of inland ports for the development of logistics centers through multimodal transport in order to become a distribution center of goods for the central and western regions. Chengdu will invest 2.0 billion to build a railway container freight station, the size of which being the largest among the country’s 18 similar stations as planned by the Ministry of Railways, with possible annual throughput of 220-250 million TEUs. After the completion of the inland port, direct service will be launched to connect Shanghai, Guangzhou, Shenzhen, Qingdao, Tianjin and Lianyungang port, in the form of “five fixed”, (i.e., fixed points for the freight trains, fixed lines, fixed schedules, fixed time and fixed prices). In other words, Hong Kong, Guangzhou and Shenzhen will have the opportunity to expand the sources of cargoes to western China. But they have to compete with other ports. It can be anticipated that other inland Chinese cities may also develop inland ports like the Chengdu Port. The future development of ports in the Pearl River Delta Metropolis depends on their ability to seize the opportunity.

211

Terminals Ltd, realizing the transition into the international standard. This successful mode of cooperation has been effectively duplicated in the port cluster in the Pearl River Delta Metropolis, and is expanding into Beibuwan in Guanxi. Since the cooperation between Hong Kong International Airport and Zhuhai Airport in 2006, the latter has improved its facilities according to international standards, enhanced its management level and is offering a superior aviation service to customers. This contributed as beneficial trials on the construction of an international-standard operational management system in the Metropolis. The rich experience in the planning, construction and management of public infrastructure and the advanced mode of service of Hong Kong is usable and valuable to the Metropolis. With the resources and experience of Hong Kong, the Metropolis will form a cross-border integrated general transportation network and a world-class public infrastructure operational and servicing system. International competition is getting intense. Construction of an integrated transportation network in a region to support the local production network is a worldwide trend63

. Using a high-speed and expedient transportation network to link up neighboring cities to realize an integration in space, and enable enterprises to design their layouts and construct a local production network, have become an indispensable condition for survival everywhere. A city will be isolated if it fails to link up with the network. The world is putting more and more emphasis on the construction of transportation networks to strengthen economic integration. Recently, in order to enhance economic integration, there has been a strong move in various cities in China towards intercity integration. These cities include Changchun, Jilin, Sanyang, Fushun in the Northeast, Cheng-Zhu-Tan region, Chengzhou, Kaifung of Henan in the Central, Xian and Hsienyang in the West etc. This move can be considered a product of the pressure of competition.

The construction of transportation infrastructure in the Pearl River Delta Metropolis is experiencing rapid growth, creating favorable conditions for participation in global competition. Presently, the biggest challenge is that while the construction of transportation network and economic integration within Guangdong is relatively easy, there is a higher degree of difficulty when

63 United Nations Economic and Social Commission for Asia and Pacific (ESCAP) & Asian Institute of Transport Development, Toward an Asian Integrated Transport Network (New York: United Nations, 2007). Downloadable from: http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_2399-2/pub_2399-2_fulltext.pdf.

212

Hong Kong/ Macao are involved. Coordination on the construction of transportation infrastructure is the necessary condition for the further integration of Hong Kong/Macao into the Metropolis.

213

Chapter Five: Analysis and Forecast of the Economic Repercussions of

the Pearl River Delta Metropolis

I. Forecast on the Static Growth of the Pearl River Delta Metropolis

In order to understand further the prospects of development in the Metropolis, it is necessary to design a model and apply a projected quantitative analysis on the economic development of the Metropolis. Consequently, this report will be directed at a selective analysis, based on the present situation of the Metropolis. The model will be used together with the major economic indicators for conducting a static economic development forecast and a dynamic analysis of economic effects. The so-called static economic development forecast is aimed at analyzing the impacts of the construction of the Metropolis on the economic development of the whole area. (This report will emphasize an analysis of the dynamic economic impacts of the Metropolis) Based on this, a brief comparison is made between the Metropolis and the three major metropolitan areas of New York, Tokyo and London. 1. Presumptions Made on the Economic Effects of the Pearl River

Delta Metropolis In order to forecast of economic effects of the integration of the Metropolis, scholars have made an analysis on the economic effects of the integration of Hong Kong with the Mainland, on both Hong Kong and the Mainland, through constructing several indices on the economic integration. They conclude that if the degree of integration is increased by 1%, then the GDP per capita in Hong Kong, the Inland, Guangdong, and Shenzhen will be increased by 0.31%, 0.39%, 0.73% and 0.87% correspondingly64

64 Chen Xiu Zhen (陳秀珍), “The Quantitative Assessment of The Degree of Economic Integration Between Hong Kong and the Mainland”, Open-leader (開放導報), 4 (2005).

. Some scholars have made use of the VAR model to analyze the correlation of economic growth of Guangdong-Hong Kong with economic cycles, and considered that the degree of synchrony of economic growth with economic cycle between Guangdong-Hong Kong, and Guangdong-Macao, is weaker than that between Hong Kong-Macao. There exists no Granger cause-consequence relationship in economic growth between Guangdong, Hong Kong and Macao: but on economic fluctuations, there exists between Hong Kong-Macao an obvious Granger cause-consequence relationship for the same periods. There is a weak

214

correlation between Guangdong-Hong Kong and Guangdong-Macao65

. We consider that despite the weak correlation, there still exists some degree of cause-consequence relationship, with a certain extent of economic impacts. This report forecasts the following three impacts on growth:

Impacts on economic growth: Geographic contiguity, strong mutual economic complementarities and economic potential difference drive the shift of optimization of factors, forming a bottom-to-top mode of “mobility and infiltration of factors”. Factor efficiencies, factor prices and factor returns become homogeneous. Through the further optimization of the productive structures and allocation of factors in the less developed areas, we aim at the synchronization of economic growth of different regions and the improvement of economic efficiencies. If the Pearl River Delta Metropolis is to achieve free mobility of factors, spread of technology, speedier mobility of human resources, capital and cargo, the marginal returns of the productive factors will then be increased. Meanwhile, the optimization of allocation of factor resources will increase the efficiency of utilization of factors, thus fully enhancing economic efficiency. Impact on trade growth: Through trade liberalization, the cancellation of tariffs or other similar kinds of control between the members will bring expansion of trade and improve the standard of well-being via a “trade creation effect”. By reducing imports of goods from non-members and increasing imports of goods from members, it will bring expansion of trade among members, resulting in the “trade transfer effect”. Through the construction of the Pearl River Delta Metropolis, it can contribute to regional economic integration, achieve trade liberalization between Hong Kong, Macao and the Pearl River Delta, and promote bilateral trade between Hong Kong/Macao and the Pearl River Delta. At the same time, as Hong Kong and Macao are free ports in themselves, trade liberalization will result in trade creation effect rather than trade transfer effect. Impact on investment growth: Regional economic integration and development will create investments and their transfers. Investment creation means the replacement of local low-efficiency investment items by external high-efficiency investment items. Investment transfers mean the transfers of

65 Chen Jun Cai (陳軍才) and Bai Shu Yun (白淑雲), “The Empirical Analysis of the Economic Integration of Guangdong, Hong Kong and Macao”, Economy of the South (南方經濟), 12 (2006).

215

external investments to the local region. The construction of the Pearl River Delta Metropolis will promote the local economic, social and productive integration, bringing in huge opportunities and hot spots for investments. There will be an influx of foreign investments into the region, replacing the local low-efficiency investment items. The favorable investment environments of Hong Kong and Macao will attract international capital, forming an investment creation effect. Meantime, under the attraction of local favorable investment environments, Hong Kong-Macao and the Pearl River Delta will mutually increase their scale of investments in one another; transferring external investments back to the region, resulting in the investment transfer effect. 2. Static Economic Growth of the Pearl River Delta Metropolis The design of model for the forecast of economic effects of the Pearl River Delta Metropolis and the selection of parameters for analysis and forecast of the static economic growth of the Pearl River Delta Metropolis will be omitted in this report. Please refer to the Fourth Special Report: Analysis of the economic impacts of the Pearl River Delta Metropolis. Only the preliminary conclusions of the forecast of the static economic growth of the Pearl River Delta Metropolis are given here: The forecast of GDP static growth: By 2008, the GDP of Hong Kong-Macao area will reach 4.8-6.5 trillion Hong Kong dollars, the Pearl River Delta will reach 16-23 trillion RMB, and that of the Pearl River Delta Metropolis will reach 2.7-3.8 trillion US dollars. Forecast of static population growth in the Pearl River Delta Metropolis: By 2038, the population of permanent residents in Hong Kong/Macau will be 8.3 million66

; in the Pearl River Delta will be 52 millions; and will exceed 60 million in the whole of the Pearl River Delta Metropolis.

66 It is worth mentioning that the Hong Kong Census and Statistics Department of Hong Kong forecasts that the Hong Kong population will reach 7,840,000 in 2020 and 8,360,000 in 2030. The Hong Kong Chief Executive Donald Tsang indicated that the population in Hong Kong should be increased to 10,000,000 in 2020. This report is inclined to consider that the population growth of Hong Kong and Macao will be relatively stable and projections above were made on this basis. If the Hong Kong Government is to adopt a more favorable population policy to attract people, as well as a series of measures to encourage birth, then Hong Kong’s total population and population growth rate will change.

216

Forecast of static export growth in the Pearl River Delta Metropolis: By 2038, the volume of exports in Hong Kong/Macau will exceed 10 trillion HKD, and that of the Pearl River Delta will exceed 12 trillion RMB. For the whole of the Pearl River Delta Metropolis, it will be close to 3 trillion US dollars. II. Dynamic Economic Analysis of the Pearl River Delta Metropolis The analysis is based on the following concepts: The construction of the Metropolis is a gradual process. In 2010, it is assumed that there will be concrete progress in social-economic integration between the Pearl River Delta and Hong Kong/Macao, the construction of the Metropolis will be formally started, the logistics flows, flows of human resources, capital and information are sped up and integration in the region starts in all aspects. By 2020, the Pearl River Delta Metropolis will have come into shape, mobility of factors will have become more expedient, and the integration will go into a more extensive and profound stage. By 2030, the Pearl River Delta Metropolis will have been basically formed, with full mobility of factors; local economies and markets in the Metropolis will have integrated. In 2038, the formation of the Pearl River Delta Metropolis will be complete, with good economic, social and cultural integration at all levels, and all indices will have reached or exceeded the standards of any worldwide first-class international metropolitan areas.

From this point, this report will firstly simulate the quantitative correlation between GDP, trade and investment, and the influential factors, and then conduct a trend analysis on these influential factors and estimate the relevant indicators concerning the impacts of the integration of the Pearl River Delta Metropolis (2008 – 2038); finally, the factors so affected will be input into the model to obtain the affected indicators on GDP, trade and investments, which will then be compared with the results of the static analysis. Consequently, the dynamic economic efficiency of the construction of the Pearl River Delta Metropolis can be assessed. 1. Analysis of the Effects on Economic Growth (1) Effects on economic growth of the Hong Kong/Macau region: Will

exceed HK$30 billion by 2038. An impact model can be deduced as follows from the historical figures of the Hong Kong/Macao region:

InGDP =-8.0288+0.5223* lnCF +0.4134* lnTF +0.1711* lnLF

217

GDP stands for the local Gross Domestic Productions, CF stands for the liabilities of the Region owed to the Inland, TF stands for the region’s trade volume with the Inland, LF stands for traffic volumes of visitors from the Inland. These are the bases of the model for analyzing the effects on economic growth of the Region. While substituting for the estimated factor values successively for the years 2008 to2038 to forecast the effects on economic growth, results show that by 2038, the absolute effect of the Pearl River Delta Metropolis on the economic growth of the Hong Kong/Macau Region will exceed HK$30 billion. Table 5.1 Effects of the Pearl River Delta Metropolis on the Economic

Growth of the Hong Kong/Macau Region Year GDP without

considering impacts (in 100 million

HKD)

GDP in considering impacts

(in 100 million HKD)

Absolute effect (in 100 million

HKD)

Relative effect (%)

2010 20983 21014 31 0.15

2020 33372 33452 80 0.24

2030 49399 49582 183 0.37

2038 65049 65368 319 0.49

(2) Effects on economic growth of the Pearl River Delta: Will exceed 150

billion RMB by 2038. An impact model can be deduced from the historical figures of the Region as follows:

lnGDP =-2.1760+0.7299* lnCF +0.4751* lnLF +0.7576* lnTF

GDP stands for the local Gross Domestic Productions, CF stands for the direct investments in the Pearl River Delta from Hong Kong/Macao, LF stands for the traffic volume of visitors between Hong Kong/Macao and the Inland, TF stands for the Region’s exports to Hong Kong/Macao. These are the bases of the model for analyzing the effects on economic growth of the region, while substituting for the estimated factor values successively for the years 2008 to 2038, we forecast the effects of economic growth. Results

218

show that by 2038, the absolute effect of the Pearl River Delta Metropolis on the economic growth of the Pearl River Delta will exceed 150 billion RMB. Table 5.2 Effects of the Pearl River Delta Metropolis on the Economic

Growth of the Pearl River Delta

Year

GDP without considering

impacts (in 100 million

Dollars)

GDP in considering

impacts in 100 million

Dollars)


Dollars)

Relative effect (%)

2010 36357 36441 84 0.23

2020 86034 86388 354 0.41

2030 154074 154906 832 0.54

2038 227738 229287 1549 0.68

(3) Effects on the overall economic growth of the Pearl River Delta

Metropolis: Will exceed 27 billion US Dollars by 2038. Combining the effects of economic growth of Hong Kong/Macau and the Pearl River Delta, the effects on the overall economic growth of the Pearl River Delta Metropolis can be deduced. Results show that by 2038, the construction of the Pearl River Delta Metropolis will have an absolute effect on overall economic growth exceeding 27 billion US dollars, relative effect over 0.6%.

Table 5.3 Effects on the Overall Economic Growth of the Pearl River Delta

Metropolis

Year GDP without considering

impacts (in 100 million

USD)

GDP considering impacts

(in 100 million USD)


USD)

Relative effect (%)

2010 7457 7472 15 0.20

2020 15569 15626 57 0.36

2030 26559 26692 133 0.50

2038 43411 43688 277 0.64

219

2. Analysis of the Effects on Trade Growth (1) Effects on trade growth of Hong Kong/Macau Region: Will exceed 54

billion HK Dollars by 2038. An impact model can be deduced from the historical figures of the Region as follows:

lnTrade =2.4677+1.6302* lnRGDP +0.2130* lnDistance+1.8462 lnLabor

Trade stands for the total exports of Hong Kong/Macao to the Pearl River Delta, RGDP stands for the GDP per capita in Hong Kong/Macau, Distance stands for the distance variable, Labor is the number of people employed in Hong Kong/Macau. These are the bases of the model for analyzing the effects on trade growth of the Region, while substituting for the estimated factor values successively for the years 2008 to 2038, we forecast the effects on trade growth. Results show that by 2038, the absolute effect of the Pearl River Delta Metropolis on the trade growth of the Hong Kong/Macau Region will exceed 54 billion HK dollars. Table 5.4 Effects of the Pearl River Delta Metropolis on the Trade Growth

of the Hong Kong/Macau Region

Year Exports without

considering impacts

(100 million HKD)

Exports considering

impacts (100 million HKD)

Absolute effect (100 million HKD)

Relative effect (%)

2010 2600 2675 75 2.9

2020 4400 4602 202 4.6

2030 6500 6871 371 5.7

2038 7616 8164 548 7.2

(2) Effects on trade growth of the Pearl River Delta: Will exceed RMB 170

billion by 2038. An impact model can be deduced from the historical figures of the Region as follows:

lnTrade =-6.2745+1.0612* lnRGDP +0.4083* lnDistance

220

Trade stands for the total exports of the Pearl River Delta to Hong Kong/Macao, RGDP stands for the GDP per capita of the Delta Region, Distance stands for the total highway mileage of the Delta Region.

These are the bases of the model for analyzing the effects on trade growth of the Delta Region, by substituting for the estimated factor values successively for the years 2008 to 2038, we forecast the effects on trade growth. Results show that by 2038, the absolute effect of the construction of the Pearl River Delta Metropolis on trade growth of the Delta Region will exceed RMB 170 billion. Table 5.5 Effects of the Pearl River Delta Metropolis on the Trade Growth

of the Pearl River Delta


considering impacts

(100 million Dollars)

Exports considering

impacts (100 million

Dollars)

Absolute effect (100 million

Dollars)

Relative effect (%)

2010 16000 16100 100 0.63

2020 37800 38200 400 1.06

2030 67700 68800 1100 1.63

2038 92652 94357 1705 1.84 (3) Effects on the overall trade growth of the Pearl River Delta Metropolis:

Will exceed US$33 billion by 2038. Combining the effects of trade growth of Hong Kong/Macau and the Pearl River Delta, the effects on the overall trade growth of the Pearl River Delta Metropolis can be deduced. Results show that by 2038, the absolute effect of the construction of the Pearl River Delta Metropolis on overall trade growth will exceed US$33 billions, relative effect is over 2%.

221

Table 5.6 Effects on Overall Trade Growth of the Pearl River Delta Metropolis


considering impacts (100 million USD)

Exports considering impacts (100 million USD)

Absolute effect (100 million USD)

Relative effect (%)

2010 2470 2493 23 0.93

2020 5610 5689 80 1.42

2030 9868 10063 195 1.97

2038 13340 13638 334 2.24

3. Analysis of Effects on Investment Growth (4) Effects on investment growth of Hong Kong/Macao: Will be about

US$ 9 billion by 2038. An impact model can be deduced from the historical figures of the Region as follows:

lnINV =-24.8230+4.3374* lnGDP +3.1659* lnTrade +5.4483* lnLabor

INV stands for the total value of foreign investments in Hong Kong/Macao, GDP stands for the local GDP, Trade stands for the total local exports, Labor stands for the total local employment. These are the bases of the model for analyzing the effects on investment growth of the Delta Region, by substituting for the estimated factor values successively for the years 2008 to 2038, we forecast the effects on investment growth. Results show that by 2038, the absolute effect of the construction of the Pearl River Delta Metropolis on investment growth of the Hong Kong/Macao Region will be about US$ 9 billion.

222

Table 5.7 Effects of the Pearl River Delta Metropolis on Trade Growth of

the Hong Kong/Macao Region

Year FDI without

considering impacts (100 million USD)

FDI considering impacts

(100 million USD)

Absolute effect (100 millions USD)

Relative effect (%)

2010 536 556 20 3.7

2020 756 796 40 5.3

2030 922 986 64 6.9

2038 1040 1129 89 8.6 (5) Effects on investment growth of the Pearl River Delta: Will exceed

US$20 billions by 2038. An impact model can be deduced from the historical figures of the Region as follows:

lnINV =4.9394+0.5362* lnGDP +0.4751* lnTrade +1.6435* lnLabour

INV stands for the total value of foreign investments in the Pearl River Delta, GDP stands for the local GDP, Trade stands for the total local exports, Labour stands for the total local employment.

These are the bases of the model for analyzing the effects on investment growth of the Delta Region, by substituting for the estimated factor values successively for the years 2008 to 2038, we forecast the effects on investment growth. Results show that by 2038, the absolute effect of the construction of the Pearl River Delta Metropolis on investment growth of the Pearl River Delta will exceed US$20 billion.

223

Table 5.8 Effects of the Pearl River Delta Metropolis on Investment Growth

of the Pearl River Delta

Year FDI without considering

impacts (100 million

USD)


(100 millions USD)

Absolute effect (100 millions

USD)

Relative effect (%)

2010 199 210 11 5.4

2020 493 527 35 7.0

2030 970 1083 113 11.6

2038 1544 1751 207 13.4

(6) Effects on the overall investment growth of the Pearl River Delta

Metropolis: Will be about US$30 billion by 2038. Combining the effects of investment growth of Hong Kong/Macau and the Pearl River Delta, the effects on overall investment growth of the Pearl River Delta Metropolis can be deduced. Results shows that by 2038, the absolute effect of the construction of the Pearl River Delta Metropolis on overall investment growth will be about US$ 30 billion, relative effect is over 11%.

Table 5.9 Effects on Overall Investment Growth of the Pearl River Delta

Metropolis Year FDI without

considering impacts

(100 million USD)


(100 million USD)

Absolute effect (100 million USD)

relative effect (%)

2010 199 210 32 4.2

2020 493 527 75 5.9

2030 970 1083 178 9.4

2038 1544 1751 296 11.5

224

III. Comparison of the Pearl River Delta Metropolis with the Three Major International Metropolitan Areas

1. International Comparisons on the GDP Indicator (1) Based on current exchange rates, the GDP of the Pearl River Delta Metropolis will be equivalent to that of New York by 2038. With estimates on the future scales of GDP based on the trend of economic expansions of the metropolitan areas in Tokyo, London and New York, comparisons were made with related measures of the Pearl River Delta Metropolis. We forecast on the future change in the international position of the Pearl River Delta Metropolis and the results are as follows (GDP: in 100 millions USD, based on exchange rates in 2007): Short- term (2010): As a conservative estimate, the GDP of the Pearl River Delta will be about 700 billion USD, with an economic scale equivalent to that of the metropolitan area of London in 2006. Mid term (2020): As a conservative estimate, the GDP of the Pearl River Delta will be about 1.3 trillions USD, with an economic scale equivalent to that of the metropolitan area of New York in 2006. Long term (2038): As a conservative estimate, the GDP of the Pearl River Delta will be about 2.7 trillions USD, with an economic scale equivalent to that of the metropolitan area of New York.

Figure 5.1 GDP Comparisons of the Pearl River Delta Metropolis with the

Three Major International Metropolitan Areas (1)

0

10000

20000

30000

40000

2010 2020 2038

Tokyo Metropolitan Area London Metropolitan Area

New York Metropolitan Area

Pearl River Delta Metropolis

(conservative estimates) Pearl River Delta Metropolis (optimistic estimates)

225

(2) Average Conversion of Purchasing Power: The purchasing power of the Pearl River Delta Metropolis will exceed those of the three major international metropolitan areas. According to the average indices of purchasing power published by the World Bank in 2005, purchasing power of these areas are 129.55 (JPY), 0.65 (GBP), 3.4 (RMB) and 5.66 (Hong Kong/Macau). Based on these, the estimated average purchasing power of the GDP indicator with comparisons made between the Pearl River Delta Metropolis and the three major international metropolitan areas are as follows:

Short term (2010): As a conservative estimate, the GDP in the Pearl River Delta will reach 1.3 trillion USD, with an economic scale equivalent to that of the metropolitan area of New York in 1997. Mid term (2020): As a conservative estimate, the GDP in the Pearl River Delta will reach 2.6 trillions USD, double that of the metropolitan area of London, with a scale of economy surpassing the three major international metropolitan areas Long term (2038): As a conservative estimate, the GDP in the Pearl River Delta will exceed 5.5 trillion USD, approximately equivalent to 1.8 times , 1.9 times and 3.5 times those of the metropolitan areas of New York, Tokyo and London correspondingly.

Figure 5.2 GDP Comparisons of the Pearl River Delta Metropolis with the

Three Major International Metropolitan Areas (2)

0

20000

40000

60000

80000

2010 2020 2038

Tokyo Metropolitan

Area

London Metropolitan Area


(Pearl River Delta Metropolis (conservative estimates)

Pearl River Delta Metropolis (optimistic estimates)

226

2. International Comparisons on the GDP Per Capita Indicator (1) Based on current exchange rates, The GDP per capita of the Pearl River Delta Metropolis will be equivalent to that of London Metropolis in 2038. Short term (2010): As a conservative estimate, the GDP per capita in the Pearl River Delta will exceed 13,000 USD, equivalent to 1/4 of the average of the three major international metropolitan areas. Mid term (2020): As a conservative estimate, the GDP per capita in the Pearl River Delta will reach 23,000USD, close to 40% of the average of the three major international metropolitan areas. Long term (2038): As a conservative estimate, the GDP per capita in the Pearl River Delta will reach 45,000USD, surpassing 50% of the average of the three major international metropolitan areas and will be equivalent to the level of the London Metropolis in 2005.

Figure 5.3 GDP Per Capita Comparisons of the Pearl River Delta Metropolis

with the Three Major International Metropolitan Areas (1)

0

20000

40000

60000

80000

100000

120000

2010 2020 2038

Tokyo Metropolitan Area


New York Metropolitan

Pearl River Delta Metropolis (conservative estimates) Pearl River Delta Metropolis (optimistic estimates)

227

(2) Average Conversion of Purchasing Power: The GDP per capita of the Pearl River Delta Metropolis will hopefully reach that of the Three Major International Metropolitan Areas by 2038. Short term (2010): As a conservative estimate, the GDP per capita in the Pearl River Delta will reach 24,000USD, approximately equivalent to 1/3 of the average of the three major international metropolitan areas.

Mid term (2020): As a conservative estimate, the GDP per capita in the Pearl River Delta will reach 45,000USD, which is 60% of the average of the three major international metropolitan areas. Long term (2038): As a conservative estimate, the GDP per capita in the Pearl River Delta will reach 100,000USD, surpassing the average of the three major international metropolitan areas.

Figure 5.4 GDP Per Capita Comparisons of the Pearl River Delta Metropolis

with the Three Major International Metropolitan Areas (2)

0

50000

100000

150000

2010 2020 2038

Tokyo Metropolitan Area



Pearl River Delta Metropolis (conservative estimates) Pearl River Delta Metropolis (optimistic estimates)

228

Chapter Six: Obstacles and Problems to Be Resolved in the

Construction of the Pearl River Delta Metropolis

Although the existence of the Metropolis is already a fact, yet we need to know that the integration and construction of the Pearl River Delta Metropolis are still at a primary stage. There is still a long way to go before its full realisation. After having the necessary understanding of the road to integration of Guangdong/Hong Kong, the present situation on the progress of the Pearl River Delta Metropolis, the strategic values and the targets of development, the core supports for the construction of the Metropolis, and the feasibility and the future competitiveness and strength of the Metropolis, we still need to pay attention to the differences that exist in the mechanisms of the Metropolis, the obstacles and problems that exist in the course of its construction, and the consequences if these are unresolved. On this basis, we still need to see the formation of common desire for, and common interest in, concerted development within the Pearl River Delta Metropolis. With the common basis for concerted development, we can decide on the lines of thoughts and methods for the resolutions of these obstacles and problems. I. The Differences in Systems and Mechanisms in the Pearl River

Delta Metropolis Hong Kong and Macao, since their return to China, have been ruled under the principles of “One country, two systems and high degree of autonomy”. With the exception of state sovereignty, Guangdong, Hong Kong, and Macao have different political systems, economic policies, legal systems, public administration systems, etc., making the Pearl River Delta Metropolis the most special region in the country, involving one country, two systems, and three independent administrative regions. These differences are not entirely negative. Rather, because of China’s guarantee to maintain special systems for Hong Kong and Macao, the two cities can leverage their soft advantages towards the integration of the Pearl River Delta Metropolis. There is no necessity for change of some of these differences, as they are not obstacles to the progress of the integration of the Pearl River Delta Metropolis. Some differences are due to the non-uniformity of progress within the Metropolis, requiring the less developed areas to improve and to bridge the gap. On the contrary, the satisfactory and advanced systems and mechanisms in Hong Kong can contribute as a model for reference. It is conducive to the integration of the

229

Pearl River Delta Metropolis in acknowledging these differences and identifying areas for further improvement and upgrade.

The differences within the Metropolis are general, not partial. They exist in the political systems, legal systems, public administration systems, economic systems, and social systems.

1. Differences in Legal Systems Constitutionally, Hong Kong has legislative power, independent and final jurisdictions, already forming a complete legal system. The system has a history of over a hundred years, with clear and strict legislative procedures, a totally independent and highly effective judiciary. Its flawless legal system is autonomously coordinated. For a long period of time, Hong Kong has ranked high among the most attractive international cities. One of the reasons is that its legal system is based on common laws. Based on this system, the judiciary is independent of the executive and legislative machineries. Guangdong has initially established its legal system, but still needs improvement. There exists a difference in standards compared with that of Hong Kong on effectiveness of law enforcement and clarity. In legal concepts, the people of Hong Kong are comparatively stronger, due to the healthy local legal system; in Guangdong, although there has been an elevation, yet there still exists some distance compared with the Hong Kong people. The environments of legal enforcement and conditions and the lack of experience in Guangdong result in a long way to go in the construction of a society under the rule of law. 2. Differences in Economic Systems There exist differences in the economic systems between two places and also in the governments’ functions. On systems and policies, the economy of Hong Kong is market-oriented and a ‘laissez-faire’ policy is adopted on economy. The development of industries is entirely market-oriented, markets being competitive and highly open. Hong Kong has remained for years as the freest economic system. The economy of Guangdong is government directed and is customary and within authority for it to intervene in economic affairs. The government guides production policies, the market is imperfectly competitive, and freedom of the economy and degree of openness are relatively inadequate.

230

On taxation systems, Hong Kong and Guangdong belong to different tax regions. Hong Kong has an independent system and is autonomous on the decisions regarding tax items, tax rates, tax allowances and other taxation affairs. Direct tax is the main body of tax. Hong Kong executes jurisdiction on unitary tax source and is financially independent with no obligation to pay any part of the tax receipts to the Central Government. On the other hand, Guangdong is obliged to do so annually according to regulations. It follows the unified national taxation system, i.e. a composite taxation system based mainly on circulation tax, with indirect tax as represented by value-added tax as the main body, supplemented by income tax. Financially, Hong Kong is totally autonomous but the Pearl River Delta is under the strict control of the Central Government. 3. Differences in the Systems of Public Administration On the style of management, Hong Kong adopts the principle of “big market, small government”, with government actions strictly controlled. In the various cities in Guangdong, due to the deficiencies of market mechanisms and the retarded development of social intermediaries, it is very difficult to achieve “small government” in the real sense. On the roles of government, the Hong Kong government’s major role is to create favorable environments for continuing development, generally without setting long-term targets for economic development. Industrial growth and enterprise activities are adjusted by the mechanisms of the free market. On the other hand, the role of the Guangdong government is to plan for the general development of the economy, with targeted 5-year plans and annual plans, emphasizing policy directions on industries. On executive actions, the Hong Kong government is directed by established procedures, which are to be strictly followed. Decisions are made only after the completion of the procedures. The Guangdong government officials’ actions are directed by the local development requirements, with more flexibility, though lack of scientific bases and procedures. Moreover, the clarity of government executive actions of Hong Kong is higher compared with Guangdong.

231

On city planning, the decision-making mechanisms are separated from the executive mechanisms in Hong Kong. The decision-making departments are mainly the City Planning Committee and the Land Development Committee. City planning is done on 3 different levels; on Hong Kong as a whole, on sub-regional and local level. The city planning in Guangdong is mainly done on the government level; the government is the organizer of city planning and construction, and the executor of city management. 4. Differences in the Systems of Social Services On the systems and policies of social services, there also exist big differences between the two Governments. There are certain degree of deficiencies in Guangdong compared with Hong Kong, in the provisions of public services/products including public safety, educational resources, health services, social securities, public transport, opening of new companies, cultural qualities and control of information. The above-mentioned differences in mechanisms and systems are gradually being changed and integrated, apart from the differences in political systems in the two places. From the initial introduction of “compensatory” enterprises to the construction of a “socialistic market economy”, Guangdong has achieved remarkable results in city management, public management, construction of legal system, education and medical services through adopting the examples of Hong Kong and continuing perfection and improvement of systems and mechanisms. Although local governments cannot make breakthroughs in some differences and it takes time to reduce the differences in some areas, yet the fact that the differences in systems and mechanisms are being reduced is indisputable. It is not enough to rely solely on market forces and people’s support for the construction of the Pearl River Delta metropolis. Governments at all levels of the region need to give full play to subjective initiatives under the unified leadership of the Central Government, on the basis of seeking common ground while reserving differences in the field of exploring the formation of a new model for cooperation and integration. In this regard, the coordination of the local governments in the region becomes most significant. Presently there is a favorable trend for cooperation in the governmental adjustments. For example, in the functions of government, based on Hong Kong’s “big market, small government” concept, Hong Kong Chief Executive Donald Tsang made

232

it clear that there should be “no dichotomy in viewing the relationship between the government and the market” and that “in some policy level, the Government should play a leading role, for example, in the areas of promoting the economic integration between Hong Kong and the Mainland, construction of cross-border infrastructures and the Metropolis67

”. Guangdong and the Pearl River Delta city governments in particular, have to adapt to the requirements of economic development and carry out the reforms and adjustments on governmental functions, so as to give foundation to various governments in the Delta for full play of the institutions and policies.

II. Main Issues to Be Addressed in the Construction of the Pearl River Delta Metropolis

In the construction of the Pearl River Delta metropolis, there are some obstacles and problems. Their existence is partly due to the abovementioned differences within the Metropolis. On the other hand, there are other factors. Firstly, all stakeholders in the region develop their own economic development plans, often only focused locally rather than on the overall situation and integrating themselves into the common development of the metropolis; secondly, stakeholders in the metropolis, in particular Guangzhou, Hong Kong, and Zhuhai-Macau should further deepen their exchanges and communication. Their mutual understanding and trust also need to be strengthened; thirdly, many cities in the region look at each other as competitors rather than as partners, resulting in the existence of over-competition and even hostile competition in a considerable part of the industry; fourthly, stakeholders in the region view concerted development differently. Some even adopt a zero-sum game mentality with the idea of judging one's development as a threat to another. The existence of the above-mentioned phenomena in the Pearl River Delta Metropolis is not conducive to a healthy development. So in the future, it is necessary to properly address these problems. They include:

67 Donald Tsang Yam-kuen, 2007-08 Policy Address: A New Direction for Hong Kong.

233

1. Issues to Be Addressed Regarding the Mobility of Factors The smooth flow of factors including people, goods, capital, and information as principal items is the key component for the development of the metropolis. The Pearl River Delta Metropolis as a whole needs to achieve the smooth flow of factors first. This is a guarantee to the optimization of resource allocation and improvement of resource utilization efficiency. However, there is a lot of obstruction to the mobility of factors in the Pearl River Delta Metropolis. In the movement of personnel, for Hong Kong and Macao people, there has been easy access to the Mainland for a long time. The fact that, for Mainland people, access to Hong Kong is restricted by “one-way free flow”, remains unchanged. Customs clearance procedures are relatively complex, continue to be traditional, and are relatively inefficient. Despite substantial improvements made, in-depth interviews made by this study show that between Guangdong and Hong Kong, there still exists a lot of inconvenience in the mobility of factors. Cooperation between the two places should first be reflected in the smooth flow of factors, so it is hoped that the facilitation of customs clearance, settlement of accounts, and interactions between enterprises and associations will meet the needs of business operators and commercial activities68

68 Detailed analysis in Special Report II: Report of the Interview with Pearl River Delta Business and Industrial Associations.

. For example, after the implementation of CEPA, the Mainland is more open to the service sector of Hong Kong and Macao, but there still is a wide gap between the policy and the actual operations. There are a lot of difficulties for the Hong Kong and Macao professional services sector in entering Guangdong. Some of the existing provisions were not adapted to the signing of CEPA and adjustments were not made accordingly. Even if the lawyers of Hong Kong have passed the qualifying examinations and obtained qualification certificates, they are still unable to operate in the Mainland because the relevant provisions do not permit a lawyer to practice simultaneously in two firms. One has to give up practicing in Hong Kong if practicing in the Mainland is desired, putting him/her in a dilemma. Similar situations in the health care, real estate and financial service industries also exist, to varying degrees. From the angle of Guangdong, personnel in middle to senior level management of private enterprises in the Pearl River Delta generally still face inconvenience in gaining access to Hong Kong. This is because most of them do not have a

234

household registration in Guangdong and a certificate from the original household registration office is required for getting the permit to enter Hong Kong, the procedures being relatively complex. Yet these are often precisely the people who need to carry out business activities in Hong Kong. This causes the region’s economic ties and cooperation to be disrupted by man-made barriers, which is unfavorable to the development of the metropolis. Although it is very simple for the Guangdong enterprises to establish and register in Hong Kong, the managers and management personnel of the Mainland enterprises cannot get travel documents for free access to Hong Kong, thus greatly reducing the values of Hong Kong to them and significantly slowing down the process of service market integration for both places. In the flow of goods, most of the current general cargo import and export restrictions have been canceled. The current main issues to be addressed are customs clearance efficiency and improvements in management. For example, differences in the classification of goods lead to disputes in the valuation of goods, tax rates, contractual terms in the import and export contracts, and delays. Mainland authorities on customs clearance, inspection, quarantine and so on fail to achieve the exchange of information among themselves, shippers must be responsible to different departments related to the completion of the clearance procedures. Traders must also provide the necessary documents to different departments causing duplication of data reporting, increased costs and delay. There is also the problem of customs delay due to low efficiency of clearance and road traffic problems. Concerning capital flows, the current financial control of the Mainland is in the hands of the Central Government, it is very difficult for Guangdong to obtain authorization to make special regional financial arrangements. Capital flows in the region must be carried out within the monetary policy framework decided by the Central Government. There is need for improvement on capital flows. For example, the minimum registered capital has been reduced to 500,000 dollars for distribution companies in Hong Kong, but in practice those with a registered capital of 500,000 dollars are generally not allowed to operate, as it will still be dependent on the company's nature of business. It can be seen that there is a big gap between the threshold of registered capital and the threshold of approval in the services sector. In addition, for Hong Kong capital to enter the Pearl River Delta, there are still problems in the approval procedures, being

235

tedious, complex, and time-consuming. For the services opened-up by CEPA, a considerable part of them require applications to be made in the Mainland. Such applications should be made to the Ministry of Commerce and other related ministries. Processing time of CEPA applications in accordance with the “Certificate of Hong Kong’s Service Industry Providers” is about one month in Hong Kong but much longer in the Mainland. There are also similar obstacles for the Pearl River Delta enterprises to enter Hong Kong although the authority for approval has been decentralized to the provincial level for some industries. It is still necessary to make submissions to the relevant state departments for records and declarations, procedures being relatively complex. Remittance in and out of the Mainland is complicated in procedures and there is a lack of transparency in the foreign exchange policy. There has been a comparatively larger improvement on information flows and information sharing in recent years between Guangdong and Hong Kong in general, but in the areas of professional information and government policy, the flow of information is far from being smooth. The problem confronting the business community on both sides is that while hoping to engage in cross-border business, they are handicapped by a lack of understanding of the local programs, details of operations, and where to seek help. Advice can only be sought from local government departments and non-governmental advisory bodies, who are not adequately supplied with relevant information. On integrity, degree of openness and transparency, there is a big gap. 2. To Address the Issues of Major Public Infrastructure Planning and

Construction Coordination The infrastructure planning and development in the Pearl River Delta Metropolis needs coordination for maximum efficiency. Currently, independent planning and construction is more common. It is difficult to achieve sharing of public resources, resulting in waste of human, material and financial resources. Concerning road construction in Guangdong, as highways and urban roads are under different departments of management, this result in conflicts in the planning, construction, and network convergence and the choice between highways and express ways. In particular, the payment of tolls involves the interests of local governments. This situation results in irrational functions of some projects and unsatisfactory network convergence between cities. The lack of uniformity of the road marking system in the Metropolis causes confusion in

236

road directions. A large number of toll stations elevate the traveling costs of vehicles and personnel and reduce the efficiency of travel. There is an inadequacy in convergence on cross-border infrastructure planning and construction. The Shenzhen side of the Futian control point only has the Shenzhen Metro as a major means of connection, without space provisions for private cars and taxis. Although there is a waiting area for taxis, the potential for improvement is limited. In addition, the number of public bus routes is also very limited. Transit personnel do not have much choice due to the lack of provision of a comprehensive transport service. The Hong Kong-Shenzhen Western Corridor is not well utilized because there is no synchronous construction of a coastal Guangzhou-Hong Kong expressway or the Hong Kong Tuen Mun to Lantau Island cross-harbor tunnel, making the vehicle traffic volume much lower than the designed flow. Due to the problems of lack of public bus routes, taxi restrictions and so on, transit personnel do not have much choice. In harbor and airport planning and construction, there is competition rather than cooperation. At present, port development is saturated and becoming excessive. However, some cities are still acting in their own interests, striving for constructions of ports, container terminals and professional terminals. This is not only detrimental to the continuing, steady, concerted development of the Pearl River Delta port clusters and the elevation of the overall competitiveness, but is also causing tremendous waste of resources. At present, the five airports in the Pearl River Delta are more biased to independent planning, development, and subjective competition; which result in neglecting cooperation, and delaying the formation of a healthy division of labor. This will adversely affect the competitiveness of the logistics and transportation industries of the whole metropolis. In the introduction of major projects and layouts, the cities only concern themselves with present interests rather than long-term interests of 20 or 30 years ahead, with local interests rather than the interests of the metropolitan area as a whole. This attitude leads to the development of the oil industry, the heavy chemical industry, and large-scale terminals in the core of the Pearl River Delta, which may create a heavy impact on the environment. Undoubtedly, the introduction of such projects and layout will be a hidden danger to the future sustainable and harmonious development of the Pearl

237

River Delta Metropolis. 3. Solving the Problems of Homogeneous Structure and Excessive

Competition in Industries In a market economy, enterprises are the main body of a market; the government is the main representative of local interests. Under the constraints of targeted consideration on GDP, tax revenues and employment, the choice of the government as the main body of action is bound to be market-oriented. The starting point of the administrative game is to maximize the interests of the local people. Through undertaking the transfer of Hong Kong, Macao and international industries, the Pearl River Delta cities have made great progress, particularly in manufacturing industry. But the industrial competition among cities is also an indisputable fact. From Table 6.1, we can see the homogeneity in major industries in these cities Table 6.1 Major Manufacturing Industries in Cities in the Pearl River

Delta City Major Manufacturing Industries

Guangzhou Transport equipment, machinery equipment, raw materials and chemical products manufacturing, real estate construction

Shenzhen Communications equipment, electrical machinery and equipment, instruments and meters, office machinery, metal manufacturing

Zhuhai Communications equipment, machinery and electrical equipment, chemical raw materials and products, instruments and meters ,office machinery

Dongguan Communications equipment, machinery and electrical equipment, plastic products industry, cultural and educational products, sporting goods manufacturing

Foshan Electrical machinery and equipment, non-ferrous metal smelting and processing, non-metallic mineral products, food manufacturing

Zhongshan Electrical machinery and equipment, textiles, garments, plastic products, textiles

Zhaoqing

Metal products, communications equipment manufacturing, electric power and heat production and supply, ferrous metal smelting and processing

Huizhou Communications equipment, chemical materials and chemical products, electrical machinery and equipment manufacturing,

238

thermal power production

Jiangmen Metal products, communications equipment, transportation equipment manufacturing, electric power and heat production and supply

Source: Based on the Statistical Yearbook of Guangdong (2007) and the Statistical Yearbooks of relevant localities in 2007.

In addition, it is possible to make a comparative analysis of a city’s industrial structure through the LQ indicators69

of the various cities of the Pearl River Delta Metropolis. If the index is greater than 1, it shows that the industry in the region has relative structural advantages. It has disadvantages if the index is less than 1. Results show that, apart from Guangzhou and Jiangmen adopting transport equipment manufacturing as a leading industry, the other nine industries are adopted by three or more cities as a city-led industrial development, indicating a higher degree of industrial homogeneity in most cities of the Pearl River Delta.

Table 6.2 Location Quotients of Cities in the Pearl River Delta (2006)

Industry Guang- zhou

Shen- zhen

Zhu- hai

Fo- shan

Hui- zhou

Dong- guan

Zhong- shan

Jiang- men

Zhao- qing

Communications equipment and other electronic equipment

manufacturing

0.34. 2.01 1.12 0.16 1.71 0.98 0.41 0.14 0.37

Electrical machinery and equipment manufacturing

industry

0.51 0.60 1.94 2.00 0.69 0.98 1.60 0.81 0.22

Electricity, heat production and supply

industry 1.25 0.82 0.80 0.76 0.74 1.58 0.67 1.36 1.49

69 Location Quotient (Location Quotient, referred to as LQ): It is also known as industrial concentration index. Location Quotient can be used to reflect the structure and direction of the regional economic connections through its indication on relative degree of regional specialization. Commonly used indicators are measured output value, production, employment, and fixed assets. The formula is as follows: Location Quotient (LQ) = (output value of industry A in a certain locality ÷ local GDP) / (output value of industry A in a certain region ÷ regional GDP), the location being in the region. Employment, production and fixed assets can be substituted for ‘output value’ in the above formula to calculate the corresponding LQs, showing local concentration of output, employment concentration, concentration of production and fixed assets. If LQ> 1, it shows that the degree of specialization of industry A in the locality is higher than the region, belonging to the professional sector in the locality; if LQ = 1, it shows that the degree of specialization of industry A in the locality is the same as the region; if LQ <1, it shows that the degree of specialization of industry A in the locality is lower than the region.

239

Chemical materials

and chemical products industry

3.78 0.22 0.33 0.43 0.56 0.13 0.26 1.75 0.41

Chemical materials and chemical products

industry 2.26 0.30 1.28 0.76 2.35 0.50 0.90 1.07 1.60

Fabricated metal products 0.66 0.51 0.31 1.70 0.66 0.86 1.41 3.43 3.64

Plastic products 0.73 0.65 0.94 1.62 0.84 1.37 1.52 0.88 0.30 Instrumentation,

cultural and office machinery

manufacturing

0.37 1.15 1.92 1.09 0.39 1.46 1.49 0.06 0.15

Non-metallic mineral products industry 0.67 0.29 0.30 3.39 0.44 0.49 0.74 1.34 2.81

Textile Industry 1.02 0.22 0.48 1.27 0.74 1.63 1.94 2.52 2.42 Source: Based on the Statistical Yearbook of Guangdong (2007) and

the Statistical Yearbooks of relevant localities in 2007. The homogeneity in industrial structure of cities of the Metropolis, and inadequate intercity industrial cooperation, coupled with the improper intervention of local governments, are bound to prevent desired results in industrial cooperation in the Pearl River Delta Metropolis, and may even lead to excessive and cut-throat competition in certain aspects. This is not conducive to the concerted development within the Region. There should be enhanced communication in the Region, and more rational division of labor so as to form a favorable situation for more complementary activities than competitive activities. 4. To Resolve the Problem of Lack of Coordination on Functional

Positioning of Cities The functional positioning of cities is a product of economic development at a certain stage. Only up to a certain level of economic development will this be a problem. The functional positioning of a city is both a culmination of its comprehensive advantages and an embodiment of its specificity in the region. Therefore, it does not concern just the city itself. Its repercussions on the integral development of the region should also be considered.

240

Competition among the cities in the Pearl River Delta metropolis will be long-standing. The problem is how to make such competition beneficial, promoting common development and creating more complementary effects in the competition. The current situation is that every major city positions its functions from their own point of view, without strategic vision on a regional basis, resulting in “economic leaders”, each intending to become a “singles champion” rather than the joint champion and unite with the other cities. Each city fights for its own interests. This problem exists in both the industrial development and the hardware facilities construction of the cities. The rise of “warlords”, with will be inevitable at certain stages. Some shortcomings are emerging. The fight for the leading position in the Pearl River Delta Metropolis leads to the lack of beneficial interactions between the two major core cities - Hong Kong and Guangzhou, thus severely restricting their radiation energy, resulting in the difficulty of a full play of the promoting functions and a decline in the overall competitiveness of the Metropolis. The gains and losses of an individual city will equally affect the whole of the Pearl River Delta Metropolis as an integral economy. Joint consultation is necessary for the functional positioning of individual cities of the whole Metropolis so as to achieve the realization of complementary functions and concerted development. This is the key issue to be resolved in the future development of the Metropolis 5. Addressing the Consequences of these Issues The above-mentioned problems create very adverse consequences for its future development. They need to be attended to properly. Firstly, low efficiency and low returns of economic development: Differences in legal, economic, administrative and social management systems between Guangdong and Hong Kong have hindered interflows of production and people’s livelihood. Economic development, without “one-stop” operation, has wasted time, resources and opportunities and resulted in low efficiency. Low efficiency and low returns increase the Pearl River Delta Metropolis’s economic and social development costs, subject the market forces to a great deal of constraint, lead to a slow down of the Metropolis’ economic growth and a decline in quality, and impact competitiveness. Secondly, fragmentation and non-integration of the industrial chain: The industrial development of the Pearl River Delta Metropolis has mainly relied

241

on cheap labor and land resources, international industrial transfer, positioning in the middle processing segment of the industry value chain with a higher proportion of export-oriented industries, and a lower degree of domestic reliance. Industries developed on these bases are more susceptible to the impact of external factors, being shorter in the industrial chain and requiring a long time to integrate into a longer and complete chain. As a result, “fragmentation” occurs in parts of the industrial chain. If these industries transferred out, it would be difficult to effectively carry out the transition of existing industries to new industries. Thirdly, Inconvenience of commercial activities, enterprises cannot make use of the maximum size of the market: Due to special situations between Guangdong, Hong Kong and Macao, exchanges, communication and mobility of factors in the area are not as convenient as those in between cities in the Mainland due to customs clearance and access constraints. This condition will continue to exist for at least the middle-term, causing inconvenience in commercial activities and a great reduction in efficiency of business. Many opportunities, especially in the services sector, cannot be opened up as per the analysis made above, due to asymmetry in management between Guangdong and Hong Kong. Therefore, enterprises cannot make use of the full scale of the market as formed by the two places. Fourthly, weakening of the international position of the Mainland: Internationally, with the high costs of manpower, resources and other factors of production, as well as the increasingly demanding conditions on environmental practices and mode of development, the Pearl River Delta has begun a large-scale exodus of enterprises. Meanwhile, the ongoing industrial restructuring and upgrade will also be a long-term process. The past superiority formed by the export-oriented economy is fading. The Pearl River Delta Metropolis is facing competition and challenges from neighboring countries in Southeast Asia. From the domestic point of view, the Pearl River Delta Metropolis is part of the “one country”, but relative to other metropolitan areas, it has its own uniqueness and limitations. The existing obstacles hinder the development of the Pearl River Delta Metropolis. In particular, in the formation of the Yangtze River Delta with Shanghai as the leading pattern of development, the convergence of transportation facilities and mobility of factors are important areas of excellence and offer a clear advantage over the Pearl River Delta. In addition, the development of Bohai Sea area, Northeastern and Central China,

242

and the Chengdu-Chongqing region all pose competition and challenges to the Pearl River Delta. If not handled properly, the international and domestic status and functions of the Pearl River Delta Metropolis will be gradually weakened. Therefore, it must be given close attention. Fifthly, Inconvenience in cross-border flow of people affecting the potential for cooperation in social life and livelihood of people in the two places. The growing cross-border flows of people between Guangdong and Hong Kong, and Guangdong and Macau, involve problems in education, social security, health care, pensions, employment qualifications, communications integration and other issues. Many items connected with the people’s livelihood requiring cooperation are confronted with difficulties due to various constraints. For example, the cooperation between the Octopus, Shenzhentung, and Yangchengtung transportation consumer payment systems not only involves the distribution of profits and market share, but also costs. Bearing in mind the people’s expectations of the Pearl River Delta Metropolis, this is a very a practical issue to be resolved. There still exists a large number of similar inconveniences, prejudicing social harmony in the Metropolis. An urgent need exists for the central and local governments at all levels, together with the relevant stakeholders, to adopt a pragmatic and innovative approach towards their resolution. III. The Specificity, Uniqueness and Common Interests of the Pearl

River Delta Metropolis From the global perspective, the above-mentioned differences and problems exist in the Pearl River Delta Metropolis with both specificity and uniqueness. They are special because the Pearl River Delta Metropolis is a geographical entity, and has therefore become the frontline of “one country, two systems”. The integration of Guangdong, Hong Kong and Macao is different from the integration of Hong Kong-Macao with other areas. The cooperation of Beijing -Hong Kong and Shanghai-Hong Kong is more focused on economic cooperation. The integration of Guangdong, Hong Kong and Macao involves aspects of community and livelihood, in addition to the economy. The uniqueness is due the existence of different levels and types of experience, customs territories, political and legal systems, and public administration, in the memory of the same metropolitan area of a country. There is no precedent in the world for reference. It is a must to have in-depth understanding of this specificity and uniqueness of the Pearl River Delta Metropolis and it is

243

necessary to adopt special and innovative wisdom to deal with problems. 1. The Specificity and Uniqueness of the Pearl River Delta Metropolis Recently, an associate professor of Beijing University, Shi Gong Qiang published a series of articles named “Reflections on the edge of Hong Kong”, offering an in-depth discussion on “one country, two systems”, and providing a clear perspective for understanding the issue. In “The mystery of “One country”, Country vs. State - Reflections on the Edge of Hong Kong, No.8” Shi Gong Qiang analyzed the difference between country and state. “Nation” in English can be named with the terms “state” and “country”. A nation is a political organization linked to a specific piece of land, stressing the intrinsic relationship between the territory and the people who are united together based on the people’s natural feelings for the land. This includes the meanings of motherland, territories and villages. “State” is a political organization constituted on an abstract legal system stressing on the internal relationship between the citizens and the country’s political body, relying on laws to bind the people together. This includes the implications of government, public power and political body. The modern state is based on the premises that all citizens are deprived of natural factors including domain, origin, ethnic, religion and tradition, and abstracted as rational human beings with natural rights, motivated by self-interest among themselves. A nation is constructed on social contract through legal mechanisms. As a result, the foundation of political philosophy of modern countries is based on state, rather than country.70

Shi Gong Qiang pointed out that according to modern theory of state, the “country” in the context of “one country, two systems” is not clearly described. “For example, the Basic Law as a ‘mini-constitution’ has given Hong Kong people a variety of political rights, but they are not citizens of Hong Kong, they are ‘Hong Kong residents’ as per the Basic Law. The Basic Law annex provisions proclaim that the nationality provisions in the laws of the Mainland are applicable to Hong Kong, Hong Kong people are Chinese citizens, but they do not enjoy basic constitutional rights of Chinese citizens and are not obliged to fulfill the prescribed civic duties. Our country does not recognize dual nationality, but many people of Hong Kong are British overseas citizens

70 Qiang Shi Gong (強世功), “The Mystery of ‘One country’: Country vs. State - Reflections on the Edge of Hong Kong No.8”, Dushu (讀書), 7 (2008).

244

(BN[O]), and even have British passports. Furthermore, in accordance with the basic standards of a modern state, unity of sovereignty not only includes military and foreign affairs, but also financial and economic sovereignty (tariffs and monetary unions), judicial sovereignty (the central government has final jurisdiction) and cultural sovereignty (unified national educational system). In ‘one country, two systems’, although the Central Government has a military garrison in Hong Kong, it is subject to special restrictions different from those of the Mainland; the Hong Kong Special Administrative Region Government has considerable diplomatic autonomy and is represented in international economic and social organizations as an independent entity (such as the Asia-Pacific Economic Cooperation Council); Hong Kong customs and currency are independent of the central authorities. It does not pay taxes to the Central Government; apart from provisions as listed in Annex III of the Basic Law concerning nationality and national flag, the vast majority of the national law does not apply to Hong Kong. Hong Kong and the Mainland are two completely different judicial areas, the Central Government does not have any judicial jurisdiction over Hong Kong. Judicial cooperation between Hong Kong and the Mainland is usually more troublesome than international judicial cooperation. Hong Kong has a separate educational system, with Cantonese as native language; Putonghua and English are considered as foreign languages. As for the border immigration control, have you ever seen in history such mobility of people within a country in any other country? Shi Gong Qiang believes that “Behind these different concepts, it seems to imply the distinction between “country” with natural territory and “state” constructed on a political system. In English, ‘one country, two systems’ has been translated as “one country, two systems”, this seemed to mark a difference between national sense and self-identity. Why the ‘country’ in ‘one country’ has been translated into “country” instead of “state”? This is not a misunderstanding; it is an accurate grasp of the essence of thoughts in ‘one country, two systems.’71

The emphasis made here on “country” is precisely the emphasis on the unity of territory between the Mainland and Hong Kong, which has an “integral body of fate” formed naturally through cultural and historical heritage. Integration in the natural form of ‘fate’, rather than a man-made country, provides a very strong legitimacy for the resumption of China’s sovereignty over Hong Kong. In other words, Hong Kong has been part of China since ancient times. As a result, the ‘country’ in ‘one country, two systems’ is structurally an

71 As above.

245

anti-modern state, its political philosophy is an anti-modern state theory, and this kind of political structure and thoughts full of imagination is precisely derived from Chinese classical political heritage.72

It shows that the effective distinction between the natural territorial sense of ‘country’ and the political sense of ‘state’ is indeed a fine grasp of the essence of thinking in “one country, two systems”, as well as a way of finding a “third road” between the modern state theory and the classical Chinese political tradition, reflecting China’s rich political imagination and a high degree of political wisdom. In this sense, the “one country, two systems” is a great creation, and is a great political contribution of China to the world. On the other hand, we also need to see that “one country, two systems” in solving the complex political issues also develops a kind of limitation and constraint. The “two systems” out of this principle is an artificial division, which in reality could be more specific. On the artificial division of “two systems”, Qiang’s article also made a detailed analysis: “For example, on the tenth anniversary of the return of Hong Kong to China, a survey was conducted on the sense of identity of the people of Hong Kong and found that the degree of their acceptance as being Chinese has only risen by a limited scale compared with 10 years ago. It was generally concluded that there was a need for strengthening national education. Yet Hong Kong residents cannot join the army to defend their homeland, cannot participate in the national college entrance examination to receive education, and cannot participate in the national qualifying examinations to join as civil servants. Studying in the Mainland is considered studying overseas; investments in the Mainland are considered foreign investments. As ‘Two Systems’ constitute such strict mandatory civic identity segregation, how can the loyalty to the country of the people of Hong Kong be cultivated? Citizenship identity is not just an abstract legal concept, but natural emotions are connected with one’s own life and destiny. Yet under the ‘one country’ idea, national and citizenship identities are hanging in the air, being distant and abstract legal concepts, separate of practical experience and life experience. Even if national education is implemented, Hong Kong being independent of the mainland’s educational system and cultural concepts, how can the people of Hong Kong share the same sense of national and individual identity? As a result, patriotic education is easily reduced to cultural exchanges or sightseeing:

72 As above.

246

progress is slow. Naturally and conversely, since the Central Government opened up free travel to Hong Kong, Mainland and Hong Kong people have intermingled with each other on the streets all day in the crowds, each with a critical eye sizing up the other side, engendering a kind of natural feeling for each other. English is the ‘prestige’ language of Hong Kong; Mainlanders speaking Putonghua may be discriminated against. After the ‘Return’, only some of the high-ranking government officials learned Putonghua in order to deal with the central authorities. Now that free travel to Hong Kong has opened up, it has become the most important language of communication. Some Hong Kong intellectual elites are appealing for the use of Putonghua as the mother-tongue of education. The major achievement in just a few years in the construction of ‘one country’ with a common language is precisely because of the breakdown by law of the man-made division of the ‘two systems’.73

The so-called “two systems”, refer to the implementation of the Mainland’s socialist system alongside the capitalist system in Hong Kong and Macao. Indeed the two systems differ. However, this division should not be absolutized and exaggerated. With the passing of time, we should be able to see the similarities in “two systems” under “one country”, on the basis of the understanding the differences between the two. In other words, while acknowledging the division inherent in “two systems” there is more space for its gradual reduction. The key is that cross-border exchanges between Guangdong, Hong Kong and Macao cannot be equated with that between countries. Now, there are hundreds of thousands of people passing through the cross-border control points between Hong Kong- Macao and the Mainland each day. These people can no longer be covered under the category of simple sightseers or occasional visitors, as daily-life and social activities are involved. Such large-scale cross-border flows of people are unique in the world. Actually, the Pearl River Delta Metropolis has become a preliminary integrated work and life area, despite the need for cross-border control. To many of the people of Hong Kong and Macao, their business, jobs, housing, family, children growth, casual dining and entertainment, business and daily life activities have been gradually integrated into the Pearl River Delta, their work and life radius has been extended far beyond Hong Kong and Macao, and their space of day-to-day activities has been integrated with the Pearl River Delta as a whole. Conversely, those Mainlanders working in Chinese-funded companies in Hong Kong, people in the Pearl River Delta and the middle class in the Mainland

73 As above.

247

consider Hong Kong and Macao as an important part of their work and life. If there were no cross-border restrictions, there could be a higher degree of integration between Guangdong and Hong Kong on people’s social activities and livelihood. Under the circumstances, unitary economic cooperation has been far from being enough to meet the needs in work and life arising from economic activities. For people working and living across the border, they need convenience in public services in medical care, insurance and children’s education, and barrier-free customs clearance and fast passage, as a kind of public service with uniform standards. Such requirements can still be met even under the premises of the “two systems” division with no impact on “one country, two systems”. As a result, serious attention must be given to the specificity and uniqueness of economic integration of the Pearl River Delta Metropolis as well as the multi-level integration of the people’s livelihood, adopting an innovative and unique wisdom to make special arrangements. Not only we have to see the Hong Kong and Macao side of the “one country, two systems”, but also the side reflecting internal positions in the Mainland. If Hong Kong and Macao are summarily considered as a pure “outside”, all of Hong Kong and Macao affairs are handled “as foreign (territories)”, this may not be in line with the broad principle of “one country, two systems”, or “one country, two systems” implemented rigidly. Not only is it in conducive to the prosperity and development of the Pearl River Delta metropolis, but also contrary to the long-term national development strategies. 2. The Common Interest in, and Common Ground for, Guangdong-

Hong Kong Cooperation Since the return of Hong Kong in 1997 and Macao in 1999, it has been 10 years. During these 10 years, Hong Kong and Macao have gone through the Southeast Asian financial crisis and the SARS attack. The development in these 10 years in the political, economic and social areas, and in particular, the continuing development and breakthrough in the co-operation between Guangdong, Hong Kong and Macao fully proves that the “one country, two systems” policy is successful. As for the return of sovereignty to China, Hong Kong’s polls repeatedly show that after reunification, Hong Kong people’s sense of identity and sense of belonging continue to strengthen. The success of the Beijing Olympics and the Chinese gold-medal-winning athletes’ arrivals in Hong Kong has greatly strengthened the national pride of the people of Hong

248

Kong. There is a growing demand in Hong Kong to deepen cooperation with the Mainland. After the release of the country’s 11th Five-Year Plan, the specialized organization, the “National” 11th Five-Year “Plan and the Development of the Hong Kong Summit” constituted by the Hong Kong Special Administrative Region Government, put forward 207 specific action plans, focusing on how to coordinate Hong Kong’s development with the country so as to fully utilize its superiorities. It should be said that, before and after the reunification, a lot of the people of Hong Kong were worried about the “assimilation”, but in recent years, more and more people have become worried about Hong Kong being “marginalized” in the process of development of the Mainland. Hong Kong’s space for urban development, industrial development and market development all create varying degrees of sense of crisis to the knowledgeable elites. The delayed construction of the Hong Kong-Zhuhai-Macao Bridge strengthens the feelings of being marginalized. It should be said that, after the handover in 1997, Hong Kong’s previous existence under the barriers of the colonial system have been removed and “one country, two systems” ensures Hong Kong’s legal and political systems will be maintained, keeping the competitive advantages of Hong Kong, which are also brought about by the special institutional differences between Hong Kong and the Mainland. The rest of Hong Kong and the Mainland’s economic differences are gradually being eliminated after China’s accession to the WTO and the formation of CEPA with the Hong Kong SAR Government. The development of Hong Kong becomes more dependent on the Mainland, economic, social and cultural integration with the Mainland is speeding up. Hong Kong-China relations were firstly established through the Pearl River Delta, and were mostly concentrated in the Pearl River Delta. Hong Kong and the Pearl River Delta are now inseparable and integrated. Fundamentally, the “one country, two systems” framework of the laws of Hong Kong and its political and legal system are to enhance the competitiveness of Hong Kong. Including Hong Kong and Macao, the Pearl River Delta in terms of its diversity and evolution of innovative capacity does not constitute an obstacle to the integration development of the Pearl River Delta, or constraints to the Pearl River Delta economic and social integration, cultural exchanges and co-evolution. In fact, regional economic integration has become the mainstream of political consensus in the world today. A number of European countries have broken through the ideological, system and management barriers, played down the traditional concept of national sovereignty, and are

249

driving rapidly towards economic and market integration, even beginning to extend to the political front, enjoying great strategic benefits. If even different countries can achieve market integration, the Mainland, Hong Kong, and Macao, belonging to the same country, can surely adopt it, and further emancipate their minds in order to maintain Hong Kong’s long-term prosperity and stability. In surveys of the residents conducted in this study, we found that people in Guangdong and Hong Kong are all positive on the future development and integration of the Pearl River Delta Metropolis. According to the questionnaires returned by the people of Hong Kong, 40% of the respondents are ‘very confident’ or ‘comparatively confident’ about the prospects for cooperation between Guangdong and Hong Kong, 40% of them having a definite degree of confidence. Those who have no confidence or are completely without confidence sum up to 10%. (Those who did not respond or had no opinion take about 10%.) The report pointed out that “based on the past 30 years of development, in particular the financial crisis of 1997 and the SARS attack in 2003, Hong Kong’s economy has been integrated with Mainland China, particularly Guangdong Province, sharing the same destiny. With the increasing flows of people, materials, funds and information between the two places, the cooperation between Hong Kong and Guangdong will transition from economic integration to a full-scale social integration. Against such a background, the people of Hong Kong are justified to have full confidence in the prospects of joint development between Hong Kong and Guangdong.”74

74 See details in the Special Report VI.

250

Figure 6.1 Hong Kong Respondents’ Confidence in the Future Cooperation

between Guangdong and Hong Kong On the competitiveness of the Pearl River Delta metropolis, more than half of the respondents (61.3 percent) reckon that it is very strong or comparatively strong; 3.9% reckon that the metropolis is not competitive. Although over 20% (20.9 percent) of respondents still think that its competitiveness is moderate, it is still considered a blueprint of good prospects but also an arduous task, to construct a world-class metropolis comparable to developed countries through regional cooperation. It should be noted that for cooperation between Guangdong and Hong Kong, the confidence ratio is as high as 80.8%; those who are without confidence represent less than 10%. With such support from the people, the two Governments should sincerely cooperate together and plan together for the realization of the people’s good wishes.75

75 Of course there is much room for research and exploration on the area of co-operations in governments, industries and the private sector. However, these contents cannot be reflected in the opinion polls. They will be conditionally analyzed in other reports of this research, with solutions given. No further discussion will be made here.

16%

24%

40%

8% 2%

9% 1% Very confident

Comparatively confident

Confident to a certain extent

Not confident

Being totally without confidence

Not sure/giving no comment

Unwilling to respond

251

Figure 6.2 Hong Kong Respondents’ Evaluations on Competitiveness of the

Pearl River Delta Metropolis Similarly, Guangdong’s survey shows that more than 80 per cent of respondents are confident of the cooperation between Guangdong and Hong Kong, of which 44% expressed confidence to the highest degree, and 39% to a moderate degree. During the visit, 40% of the respondents thought that the Pearl River Delta will become a world-class metropolitan area, and 35% thought that the Pearl River Delta would be a major city in Asia, totaling 75%. This shows the people of the Pearl River Delta have confidence and expectation in the construction of a world-class metropolis. The special report of the survey pointed out that at the initial stage of reform and opening-up, cooperation between Hong Kong-Guangdong started from non-governmental organizations, forming the well-known ‘Front Shop, Back Factory’ model. Cooperation at the government level originated in 1998, from the first Hong Kong-Guangdong Cooperation Joint Conference, elevating Hong Kong-Guangdong cooperation to government policy level for the first time. In the past 10 years, the cooperation between Hong Kong and Guangdong has accumulated rich experience and has also formed a stable cooperative mechanism. So there is reason to believe that Hong Kong-Guangdong cooperation will achieve a good results, and efforts will be made to enhance cooperation to a higher level”.76

76 For details see Special Report III: The Survey Report of the Guangdong Residents.

27%

34%

21%

4% 13% 1%

Very competitive

Comparatively competitive

Unwilling to respond

Not competitive


Moderately competitive

252

Figure 6.3 Guangdong Respondents’ Confidence on the Cooperation of

Guangdong and Hong Kong

Figure 6.4 Guangdong Respondents’ Attitude towards the Prospects of the

Pearl River Delta Metropolis It should be said that in the past 10 years since Hong Kong’s return, vast changes in social values have taken place. In the early stage of the return, highlighting the difference of the “two systems” under the framework of “One country” was in the right direction. But there is a lot of work to do under the framework of retaining ‘two systems’ on seeking compatibility, complementarity, highlighting the effects of cross-border mobility of factors and optimal allocation of resources, strengthening the harmony of cross-border movements of residents on a large-scale, and highlighting the common interests of Guangdong, Hong Kong and Macao under ‘one country’. In this sense, the recent positive response of Guangdong to the construction of Hong

44%

39%

10% 3%

Very confident, good prospects for the Guangdong-HK cooperation Confident to a certain extent, Guangdong-HK cooperation will face some difficulties

Not confident, Guangdong-HK cooperation will be very difficult


Comparatively confident, Guangdong-HK cooperation will progress gradually

40%

35%

15% 4%

1% 5% One of the metropolitan area, very

Major Metropolis in Asia, comparatively competitive

First Metropolis in China, highly competitive

One of the Chinese Metropolis, moderately competitive Not competitive, needs no special attention


4%

253

Kong-Zhuhai-Macao Bridge, as well as the support of the country, is of great strategic significance. On the basis of “one country, two systems” being unchanged, the issues of how Guangdong, Hong Kong and Macao can create a common market, how to build a common life circle, and how to create a common environment and culture are precisely the vast space for the future development of “one country, two systems”. It is also the fundamental guarantee to the long-term prosperity and stability of Hong Kong and Macao, and an important driving force for the long-term progress of China.

254

Chapter Seven: The Policy Recommendations on the Construction of the

Pearl River Delta Metropolis

To realize a convenient life and work circle, and construct a world-class Pearl River Delta Metropolis to serve as commercial, tourist/leisure, and Green Quality Life Zone, Guangdong and Hong Kong need coordination and cooperation in the areas of economic, social, people’s livelihood, and other aspects. To promote economic cooperation from single to multi-level convergence, and speed up the overall integration of the Pearl River Delta Area to eventually become a famous world-class metropolitan area ranking on the same level as New York, London and Tokyo, is the common goal of both Guangdong and Hong Kong. To achieve this common goal, Hong Kong and Guangdong need to adopt a global national strategic point of view to construct a world-class metropolitan area, and strengthen the sense of cooperation and coordinate the planning of the Pearl River Delta Metropolis. We need to ensure that the metropolis can play an important role in the national economic and social development in the new round of global competition and regional competition. In view of the many complex issues involved in the integration of the metropolis, 22 specific policy recommendations on 11 aspects are selected from this research in order to achieve innovation and breakthrough as soon as possible. I. To Plan Jointly the Strategy for Future Development of the Pearl

River Delta Metropolis

1. To Strengthen and Realize the Connection and Echoing of the Strategic Development Planning of Guangdong, Hong Kong and Macao

Strategically, the long-term development plan of Guangdong, Hong Kong and Macao (reflected mostly in terms of urban planning in Hong Kong and Macao) needs to be strengthened via connection and echoing. Connections in long-term development plans not only enable the future development of the three places to develop into a closer unity, but more importantly will provide a legal framework to be followed in their development in order to avoid man-made, unnecessary adjustments and changes. On strategic planning, Guangdong Province currently has the Eleventh Five-Year Plan and is about to

255

start the Twelve Five-Year Plan. Hong Kong has completed the Hong Kong 2030 Vision of Planning and Strategy, the Macao SAR Government has also launched, in July 2008, public consultation activities on the Outlines of Macao City Conceptual Planning. The three places should be in close cooperation and communication, so as to take into consideration the development of the others in their planning. Strengthening and achieving the connection and echoing of long-term development planning between Guangdong, Hong Kong and Macao opportunely is the subject of research and preparation initiated by the country under the preparation of The reform and Development Plan of the Pearl River Delta. At present, such work is being carried out in Guangdong by the National Development and Reform Commission Organization, with more than 180 experts on ministerial and commission levels and academics participating. The local research is divided into 17 groups, on a scale unprecedented in 30 year history of China’s reform and opening-up, whether in terms of the number of personnel or the scope of the project. This shows that the planning of the Pearl River Delta will rise to the level of national strategy, echoing with Hong Kong Chief Executive Donald Tsang’s so-called Hong Kong’s “vision of the world,” in his talk on the cooperation between Guangdong and Hong Kong. Although Hong Kong and Macao is not within the scope of the Pearl River Delta plan, yet Hong Kong and Macao will be important factors to be taken into consideration in the plan. The convergence of planning of the three places will be one of the foci.77

As a result, the research and preparation of “The Reform and Development Plan of the Pearl River Delta” will provide a broad platform for the convergence of long –term planning of Guangdong, Hong Kong and Macao. All the three places should actively participate and fully reflect their interests claims, reach a consensus on the strategic level and provide a strong legal support on the sustainable development of the Pearl River Delta Metropolis.

77 It is understood that one of the 17 working group is “Guangdong-Hong Kong Joint Working Group” focused on studying the meaning, path, problem areas to be overcome and ways that the country can support on Guangdong-Hong Kong cooperation.

256

2. To Set Up the Industrial Transfer Parks Zone in Beibu Gulf, Guangdong, Hong Kong and Guanxi to Form the “10+1” New Heights Together

In terms of economic geography, the Pan-Pearl River Delta region is the economic hinterland of the Pearl River Delta Metropolis, and the Metropolis plays an important role in the Pearl River Delta. At the national level, it is related to the successful completion and development of the free trade Area of China - ASEAN (10 +1). Since 2005, with the development of China - ASEAN Free Trade Area, The Beibu Gulf region in Guangxi has risen to the level of national strategy. The growing importance in the region is becoming obvious. However, in practice, the significance of the Beibu Gulf region of Guangxi in the “10 +1” cooperation is more reflected in its geographical position and long-term potential. Guangxi’s current economic strength alone is not strong enough to shoulder the strategic role of Beibu Gulf in the “10 +1” Free Trade Area. It is necessary, and there also exist favorable conditions for Guangdong, Hong Kong and Guangxi to strengthen their cooperation on a win-win basis, which is to the benefit of all parties. The cooperation of Hong Kong and Guangxi can be further extended by making full use of the experience of Hong Kong-Guangdong co-operation over the past 30 years, with funds, technology, and international network directed into a limited area of Guangxi’s Park (for example, to select an area of several tens of square kilometers in the coastal areas of Guangxi such as Beihai, Qinzhou, Fangcheng), and construct the “Beibu Gulf Guangdong-Hong Kong Cooperative Zone for transfer of industries”. 78

Related industries in Guangdong and Hong Kong can be transferred there, and make full use of the superiorities in manufacturing industry of Guangdong and service industry of Hong Kong, resulting in focal and radiation effects. This move can resolve the bottleneck problem in the industrial development of Guangdong and Hong Kong and improve the economic strength and development of competitiveness of Beibu Gulf in Guangxi. If properly operated, the results of this industrial park will be seen within five years, thus forming a basic mode of co-operation between Guangdong, Hong Kong and Guangxi, which can be duplicated to other parts of the Pan-Pearl River Delta.

78 It is worth mentioning that on October 5, 2008 Premier Wen Jiabao, while inspecting Beibu Gulf Economic Zone, made particular reference to the transfer of Guangdong enterprises to the Zone.

257

Of course, due to institutional differences, Guangdong is stronger in administration; Hong Kong has a leading market position. Therefore, the compensation mechanisms for their participation in the industrial cooperation area are different, requiring satisfactory resolution by the two places with the consensus of Guangxi. It should be emphasized that the construction of the “Beibu Gulf Guangdong-Hong Kong Cooperative Zone for Transfer of Industries” will achieve convergence of national development strategies of the Pearl River Delta and national development strategies of Beibu Gulf, and speed up the construction of a new platform and for the “10 +1” Free Trade Area. This is of important strategic meaning to the development of the country and regional development, being very worthy of a serious study and a bold attempt. II. To Implement the CEPA First Test Mechanism While Establishing

the Guangdong, Hong Kong and Macao Cooperation Zone 1. To Implement the CEPA First-Test Mechanism and Establish the

Guangdong, Hong Kong and Macao Cooperation Zone In June 2008, the CPC Guangdong Provincial Party Committee and the Provincial Government proposed to establish a district for the close cooperation between Guangdong, Hong Kong and Macao and it was met with positive responses from Hong Kong and Macao. The Guangdong Provincial Party Committee considers it a necessity also to create new advantages in international competition; implement the directive of one country, two systems with the principle of mutual benefit, win-win, and equality; innovate ideas and ways of cooperation; give full play to market-oriented functions; promote all-round close co-operations among Guangdong, Hong Kong and Macao; strengthen activities on the CEPA first- test mechanism; deepen the cooperation in upgrading industrial transformation; give full play to the role of Hong Kong and Macao as a bridge in the optimization and upgrade of industries in Guangdong; combine the advantages of Hong Kong and Macao with Guangdong; speed up the development of high-end services; improve the international competitiveness of Guangdong; promote financial services and innovation in cooperation among the three places; establish mechanisms for tighter regional financial coordination and cooperation; strengthen the coordination on spatial and city cluster development planning; strengthen infrastructure constructions and resource integration; actively promote the reform of cross-border clearance; promote all-round exchanges and

258

cooperation among Guangdong, Hong Kong and Macao in the areas of economic, social and cultural affairs, science and technology, education, public health; expedite free flows of factors of personnel, capital, goods, and information between the three places; and give full play to the piloting roles of the provincial capitals and cities neighboring Hong Kong in the cooperation of Guangdong, Hong Kong and Macao79

.

The key to close cooperation for Guangdong, Hong Kong and Macao lies in the fact that Guangdong has the right to the CEPA first test mechanism, being the first to establish the sub-regional cooperation mechanisms. The so-called sub-regional cooperation mechanism is relative to regional economic cooperation and refers to the phenomenon where natural or legal persons, over borders between countries and territories, carried out over a longer period of time, economic cooperative activities in the field of production, through a variety of mobility of factors of production based on the principle of equality and mutual benefit. From an economic development point of view, the essence is that the factors of production in “sub-regional” geographic areas tend to move freely, thus bringing the effective allocation of production factors and a corresponding increase in productivity, mainly in the liberalization of trade and investment in the geographical zone. This characteristic of sub-regional cooperation mechanism is the core idea of CEPA, first tried and executed in Guangdong. From the terms of CEPA, two characteristics can be seen; one is that the threshold for market access is lowering; access is getting easier; the other is the gradual decentralization of the power of examination and approval from state ministries and commissions to local governments. This was reflected most clearly in 2008 when the Fifth Supplementary Agreement to CEPA was signed. In a total of 29 commitments, there were 16 Guangdong pilot projects which are subject to local prior tests and approval. This fully reflects the above line of thoughts. Guangdong, Hong Kong and Macao need to make full use of existing power of the first-test mechanism to fully implement the CEPA with more obvious results. On this basis, Guangdong should continue to fight for greater authorization from the State for more authority on examination and approval of CEPA. For CEPA involving special project approval, Guangdong should try to 79 The Guangdong Provincial CPC Committee and Guangdong Provincial People’s Government, On the Striving to be the Vanguard of Concept of Practical Science Development. Downloadable from: http://www.gd.gov.cn/gdgk/sqwx/200806/t20080620_57820.htm.

259

adjust its authority in accordance with the actual situation after reporting to the State for examination and approval; projects not covered in CEPA but involving the practical needs of the three places are subjects to fight for. In addition, according to the needs of the implementation of CEPA, Guangdong may appropriately adjust the policy, raise the standard of administration in economy and executive management, and at the same time, ensure that the first-test mechanism of CEPA would also serve as reference for other areas, with replicability. 2. To Renovate the System of Joint Conference for Hong

Kong-Guangdong Cooperation, Serving to Guarantee the Implementation of CEPA

The implementation of CEPA in Guangdong and the construction of the Pearl River Delta Metropolis, require a mechanism and platform through which Guangdong, Hong Kong and Macao can study the issues of CEPA, the trend of development of the Pearl River Delta Metropolis, co-ordinate on related issues in the Metropolis, and promote cooperation and progress on major projects. It is necessary to renovate the Hong Kong-Guangdong Cooperation Joint Conference system so that it can play a bigger role. Compared with the Beijing-Hong Kong cooperation and Shanghai-Hong Kong cooperation, the Hong Kong-Guangdong Cooperation Joint Conference is more characteristic of a “cooperation mechanism”. Over the past 10 years, the Hong Kong-Guangdong Cooperation Joint Conference system has played a very important role in promoting cooperation between Guangdong and Hong Kong. At the same time, it should be noted that on the construction of the Pearl River Delta Metropolis, there exist inadequacies in the present Hong Kong-Guangdong Cooperation Joint Conference system. First of all, it is too long between meetings, basically only once a year, which is not conducive to the settlement of the many practical problems. This is followed by that fact that issues under discussion are either too macro, or too micro, rarely touching on those at the strategic level. The third one is the narrow base of participation which can be seen from the lists of representatives of previous sessions. Most of the members of the Guangdong delegation are from the Guangdong provincial government departments, with only one local government leader each from Guangzhou, Shenzhen, and Zhuhai, who are in close cooperation with Hong Kong. Dongguan and Huizhou, who likewise are in closer cooperation with Hong Kong, are disqualified from participation. Weak

260

participation of related cities, to a certain extent affects the actual results of the joint Conference. Fourthly, the Hong Kong and Guangdong Joint Conference still lacks an effective executive unit for implementation, and a follow-up system. Due to the difference in social systems and economic systems in the two places, this results in inconsistent degrees of actual implementation by both sides. It leads to discussions without action. This phenomenon has existed for a long time, affecting to a certain extent the efficiency of the system of the Hong Kong and Guangdong Joint Conference. With the full extent of cooperation between Guangdong and Hong Kong and the in-depth integration of the Pearl River Delta Metropolis being carried out, cooperation will certainly continue to be refined, broken down into many specific areas and specific regions. Each and every different area and region has its own issues on cooperation to be discussed, a variety of issues to coordinate and resolve, a variety of systems and machineries to reform and renovate. Cooperation between Guangzhou and Hong Kong, Shenzhen and Hong Kong, and Dongguan and Hong Kong has a great deal of content in different fields; cooperation between Zhuhai-Macao, Guangdong-Macao and Hong Kong-Macao, and of Macao with other areas, is of a similar situation. Hong Kong and Macao need to cooperate over many areas in Guangdong, on a broad spectrum of concrete cooperation projects. There are many different issues to be studied, discussed, coordinated and resolved. So there is an urgent need for an innovative system for the Hong Kong-Guangdong Cooperation Joint Conference. The future economic integration of the Pearl River Delta Metropolis will take the form of a sub-regional economic integration based on the “one country, two systems” framework: an economic integration between the Pearl River Delta Economic Zone and the Hong Kong and Macao Special Administrative Regions. Therefore in designing the co-operation mechanisms and systems, both domestic breakthroughs of the existing administrative divisions and institutional framework, and factors on CEPA and WTO and other international laws, will have to be considered. Only in this way can the Pearl River Delta Metropolis be the first region in China to realize sub-regional economic integration in accordance with international standards making useful pioneering attempts in sub-regional economic integration for other parts of the country. The idea of an innovative system for the Hong Kong-Guangdong Cooperation Joint Conference is to continue to improve and appropriately

261

adjust the existing model of the system, so as to ultimately form a scientific and rational structure, based on prioritization according to degree of difficulty. A scientific and rational framework for the operation is an important carrier of the cooperative mechanism. Taking the existing Cooperation Joint Conferenceas the first level, the following levels are to be added according the following lines of thoughts: Second level: Joint Meetings of regional Chief Executives. Participants should be Chief Executives from Guangdong, Hong Kong, Macao and from relevant cities in the province. The meeting should be held regularly every year, at least one or two times. The main function is to conduct high-level exchanges and dialogue on some major issues; to study, discuss and decide on programs of cooperation submitted to the Joint Meeting; to carry out consultations, organization, and arrangement on issues of regional cooperation requiring coordination at this level; sign of agreements on major items of cooperation; and so on. Third level: Joint Meetings of Chiefs of regional departments. Participants should be from Guangdong, Hong Kong, and Macao, and Chiefs of regional departments (bureau or departments, ministries, commissions, offices) from relevant cities in the province. Meetings should be held at least once every quarter, the main function being to allow the heads of departments to carry out dialogue and exchange; to make preparations for the Joint Meeting of Chief Executives; arrange for the deployment and implementation of decided policies made in the Joint Meeting of Chief Executives; to conduct research, discussion and decision-making on matters which can be decided at this level; and to conduct consultations and resolutions on matters of cooperation requiring coordination at this level. Fourth level: the Joint Secretariat. This is the most important department and the core of the system of cooperation mechanism. The agency should be a permanent body constituted of designated staff from Guangdong, Hong Kong, Macao and the major cities including Guangzhou, Shenzhen, and Zhuhai. Despite the fact that the secretariat is not located in a fixed place, the composition of the Secretariat staff should be resolved through a virtual office network so as to function in a permanent and fixed form. The head of the Secretariat is to be appointed by the Joint Conference of Chief Executives, on a

262

rotational basis for a certain period of years. Apart from the necessary funding for research and conferences, the operational funding and working conditions of the Secretariat staff are to be the responsibility of the respective parties. Their main functions have the following specific areas: The collection of issues to be examined, discussed, coordinated and decided by the Joint Conference of Chief Executives and Joint Conference of regional Chief Executives. The presentation to relevant expert committees of Joint Conferences of Regional Chief Executives topics requiring in-depth study and formulation into programs in the form of research studies for their scrutiny; preparation of programs to report to the above-mentioned two levels of Joint Conferences on proposed action plans formulated by the Specialist Committees and Professional Committees according to decision programs for discussion and decisions. The implementation, supervision, inspection and feedback to the above-mentioned two levels of Joint Conferences on the implementation progress on items of cooperation relating to decision-making, coordination and cooperation. The selection of Guangdong, Hong Kong, Macao domestic and foreign experts and scholars, as well as important members of the public, for the formation of an expert database; provide a list of membership and prepare the action programs for the constitution of the Specialist Committees and Professional Committees as approved by the Joint Conferences of Chief Executives. The communication and liaison work at all levels of the framework of the cooperation mechanism, including the communication and liaison work between the above-mentioned three Joint conferences of Executives; communication and liaison work between groups of experts and professionals with the above-mentioned three Joint Conferences of Executives; the communication and liaison work between groups of experts and groups of professionals; the preparations for meetings for the above-mentioned three levels of Joint Conferences including the preparation of documents and agenda for the conferences. The necessary administrative, secretarial, financial, filing and other internal management functions are mandatory for the entire operation of mechanisms of cooperation. Other important issues include the establishment of research projects and tendering, utilization and management of research funds, and other important matters. Fifth level: Expert Group and the Professional Committee. The relatively fixed expert groups and the professional committees of different sectors are the

263

important components of the cooperation mechanism. They may be constituted differently according to contents and domain, for example financial, physical distribution, trade, traveling, high tech, energy, infrastructure construction, port clearance, education, hygiene, security, environmental protection, judicial, city tube, culture and so on. The expert groups differ in their being composed of research institutes and different domain experts. Their primary duties are to conduct research and prepare solution and action programs for the Joint Conferences of Chief Executives. In the area of their constitution, members are mainly selected from the ranks of government officials, business circles, public figures, and experts and elites of the relevant fields. The main objective is to construct a platform for discussion, research and formulation of topics of cooperation in the related field, for the participation of different sectors of the community. Expert groups and professional committees are composed of designated organizations or personnel. Expert groups work on a project basis while the professional committees work on the basis of regular meetings In practice, we must insist on walking on two legs. On the one hand we should form the overall framework for an early start on the test run of the Guangdong, Hong Kong and Macao cooperation mechanism, on the other hand, we should adopt the approach of tackling the easier parts first, move on a step- by- step basis, seek gradual improvement without being overly embracive or too big, and be realistic instead of being empty. Proposed items for cooperation should be launched one by one, while allowing and encouraging all cities in Guangdong, Hong Kong and Macao to set up bilateral and multilateral cooperation mechanisms between themselves in accordance with the above-mentioned framework.80

80 In our interview, we have opinions from related government departments as follows: First, the existing Guangdong-Hong Kong, Guangdong -Macau Co-operation Joint Conferences are led by top leaders in Guangdong, Hong Kong and Macao, covering areas of Guangdong Province, Hong Kong and Macau; the Pearl River Delta is a part of Guangdong Province led by local officials, reporting to the leadership of Guangdong Province. There are efficient communication mechanisms for Guangdong-Hong Kong-Macao after years of cooperation and communication. The three places can also make use of the “Pan-Pearl River Delta Regional Co-operation Forum” as a platform for communication and coordination. If other mechanisms are to be established according to the report’s recommendations, it may result in the adverse effect of an overlapping structure, which is not cost-effective. Second, if we are to increase participation from cities in the Delta region, Guangdong can consider inviting representatives from the cities to join the delegation and attend meetings under the existing cooperation mechanism. Third, under the general direction of enhanced productivity and sustainable development, we should proceed from streamlining the existing structure and work for its improvement rather than continuing to create more tiered structures, resulting in the incessant expansion of the mechanism of cooperation, making it difficult to function.

264

III. Establishment of Public Governance Structure in People’s

Livelihood in Guangdong and Hong Kong 1. To Explore the Establishment of Public Governance Structure in the

Pearl River Delta Metropolis From the perspective of contemporary economic and social development, market, society and the government are the three columns of a modern social system. The resources of economic development depend mainly on market allocation based on the principle of efficiency; the basic public life of people is principally maintained by the community based on the principle of autonomy; the systems and order of the development of an economic society and public products rely on the supply by the government according to principle of the rule of law. Only by following such a role and functional positioning, and dealing with the relationship among the three properly according to structural mechanism can a rational pattern of allocation of resources, community self-management, and governmental scientific regulations be formed. According to the China Industrial Classification, tertiary industry is service industry and includes circulation and servicing as two major parts, divided into four layers: First, the circulation sector, including transport, post and telecommunications, catering businesses, materials supply, and marketing and warehousing; the second is for the production and life services sectors, including finance, insurance, geological survey, real estate, utilities, residential services, tourism, consulting services and various types of technology services; the third are departments dedicated to enhancing scientific and cultural standards and quality of life of residents, including education, culture, radio and television broadcasting, scientific research, public health, sports, social welfare and so on; fourth, departments offering necessary services, including the state organs, party and government organs, social organizations and the army, police and so on. Based on the roles and functional positioning of the market, society and government, and making reference to the above-mentioned categories, we will find that commitments in services and trade involved in CEPA are more on economic and production-related services, with much less involvement in education, culture, health, social welfares and others that concern the residents. The necessary public services are basically not covered. Many facets of social

265

services and people’s livelihood in Guangdong, Hong Kong and Macao are not covered by CEPA. The specificity and uniqueness in the world of the Pearl River Delta Metropolis, formed under “one country, two systems”, as well as people’s practical livelihood needs in the Metropolis, generate an urgent need for a special systemic arrangement of the above-mentioned categories of service. If we say that the “Hong Kong (Macao) Basic Law,” is a political arrangement made between Guangdong (Mainland), Hong Kong and Macao and CEPA is an economic arrangement made between Guangdong (Mainland), Hong Kong and Macao, then there is now an urgent need for the establishment of a Guangdong (Mainland), Hong Kong and Macao public policy framework for the governance of livelihood-related affairs, from the level of the Central Government to Guangdong, and Hong Kong; and to make institutional arrangements for social and livelihood issues within the Pearl River Delta Metropolis. 2. To Establish a Pilot Point of Cooperative Public Governance

Concerning the Livelihood of People from Guangdong, Hong Kong and Macao

To establish a public administrative policy structure concerning the livelihood of people from Guangdong, Hong Kong and Macao at this stage, we need to address the social needs derived from the large number of Hong Kong people working, living and residing in Guangdong, and consider how to facilitate visits to Hong Kong by permanent residents in Guangdong, and Guangdong’s non-household population, for business or private reasons. These issues can neither be covered nor interpreted by the WTO rules on trade and services, nor by CEPA. For example, the new establishment of schools, hospitals and so on to provide service mainly to Hong Kong people who live and work on the mainland on a long-term basis rather than to the local people. This is different from traditional service industry. Recognizing and giving due attention to these kind of differences will help in solving the problem. With their special geographical locations, Guangdong, Hong Kong and Macao can explore further scope of cooperation in the area of people’s livelihood, based on CEPA. Through such cooperation, we can improve administrative standards in the field of Guangdong people’s livelihood, and perfect the administrative machineries and mechanisms of the society, thus providing examples for other localities. With the geographic advantage that Shenzhen and Hong Kong are separated only by a river, we can carry out pioneering cooperative projects in the field of social services and people’s livelihood. The focus of cooperation

266

may be in the fields of postal and courier service, health care, cross-border pensions, education and the like. - Establishing Hong Kong-style hospitals: To provide health care services to Hong Kong people living in Shenzhen and the Mainland, to implement Hong Kong’s system of medical care, to introduce Hong Kong’s hospitals and health care management system and service delivery model. Through the spillover effects of this model, the hospital and medical services management standards in Shenzhen and the Mainland can be elevated rapidly, making the service standards uniform throughout. - Establishing Hong Kong-style schools: To solve the current problems confronting the 10,000 students who need to cross the Hong Kong border to attend schools. On the one hand, they can be guaranteed of the Hong Kong-style education and educational welfare. On the other hand, these children can enjoy the benefits of both places more conveniently, and develop their national identity and loyalty. In the process, Shenzhen schools may observe and experience at close range the uniqueness of Hong Kong education and raise the standard of education in Shenzhen.

- Establishing branches of Hong Kong colleges and universities in Shenzhen: To strive for State approval for Hong Kong universities to set up branches in Shenzhen, so as to foster talent for the long-term sustainable development of the Pearl River Delta Metropolis. Higher education development in many cities (excepting Guangzhou and Hong Kong) of the Metropolis is comparatively retarded, and the extraordinary economic development in the metropolis will require a lot of talent. If the supply is fractured, the development of the Pearl River Delta Metropolis will be seriously affected. Through adopting a more flexible approval system to facilitate the establishment of branches of Hong Kong universities in other parts of the Pearl River Delta and introducing high-quality resources in higher education, the problem of shortage of qualified personnel can be addressed.

The above pioneering projects, when matured in Shenzhen as pilots, can be extended to other cities in the Pearl River Delta.

267

IV. Hong Kong and Guangdong to Optimize Together the Industrial Ecology and to Create a World-class Regional Innovation System

1. To Promote the In-place Transformation and Upgrade of Processing

Trade Enterprises in the Pearl River Delta Metropolis Guangdong and Hong Kong are to join hands to promote the in-place transformation and upgrade of Hong Kong-based processing trade enterprises in the Metropolis, to give full penetration effect of the high-tech industry into the manufacturing sector, to give full play to the role of productive service industry in the manufacturing sector in value-adding and upgrade, and to enhance the position of the Pearl River Delta manufacturing industry in the global industrial chain. -- Change and Conversion in the thinking of processing trade policy. In the past, the starting point of the policy was to strengthen “closed” management of the processing trade. The new policy should be emphasized on the strengthening of “integration” and merging of processing trade with general trade. The original conflicts should not be solved on a piece-meal basis, but by adopting the “integration” idea and using a new technique of fully digitalized monitoring system on component part imports, to form new management concepts. The new policy is not focused on the increase of production, but on volume of inventories. The challenge of increasing production can be met by following the original “captive” model and by speeding up the development of export processing trade zones and bonded areas. The new policy is not a complete denial of some of the original limitations, but there are pressures and protections., It is necessary to control those industries that are polluting, high energy consuming, and highly wasteful of resources,; in the adjustment of government policy on processing trade, it is necessary to attend to the balance of pressure between that from government directives and that from the market itself. The sequence of introduction of the policies should be matched with the trend of factor prices. - Grouping the power of customs, taxation and local governments to further optimize customs clearance. We are to test new digital models of control of the entire process in selected areas in the Pearl River Delta Metropolis and to make a breakthrough as soon as possible. Information technology has enabled large enterprises including Wal-Mart to implement full digital control of goods in the logistics systems and in the course of retail.

268

Digitally controlled logistics system used by Federal Express, Wal-Mart, and Li & Fung of Hong Kong and so on can be adopted and implemented successfully by departments of China including customs, taxation, foreign trade, quality inspection, financial and other departments. In situations like Shenzhen and other places, electronic customs clearance has been rather effective as implemented by the relevant departments towards large enterprises like Hongfujin. We can therefore select Shenzhen and Dongguan, being two of the most concentrated areas for processing trade industries in the region, for implementation and optimization of customs clearance. With the easier part first, the implementation is to take effect from the enterprises already with the system in place, and to be gradually extended to a large number of small and medium-sized enterprises. Necessary funds are to be jointly contributed by the central and local governments and enterprises to meet the relevant expenses in the customs clearance, with a deadline set for the implementation. The key is to form a cohesive force and exert great efforts in the integration of software and in administration (for example, whether it is possible to fully introduce RFID technology for control in the processing trade, so as to track each imported item of raw materials and spare parts). After being successfully tested in Shenzhen and Dongguan, the system is to be extended to other areas with large inventories of the trade in the Pearl River Delta Metropolis. - Processing trade policy adjustment, in the direction from restriction of “low value-added” processing trade, to encouragement of local procurements of raw materials and parts and extension of the industrial chain. If the above–mentioned mode of customs clearance could technically provide a basic solution to the carry-processing problem, the entire processing trade policy adjustment should be directed towards encouraging processing trade enterprises in local procurement of raw materials and the extension of the industrial chain. Under the new policy environment, the change can similarly be started from the reputable enterprises so that in-time full tax rebate can be made for local procurements of raw materials and parts and in-time tax payment for internal sales can be made without overpayment of supplementary tax. We should sum up Dongguan’s relevant experience of the transformation trial in processing trade, and implement it more widely as soon as possible.

269

2. Using the Shenzhen-Hong Kong Innovation Circle to Grasp the

Construction of the Regional Innovation System We are to deepen the “Shenzhen-Hong Kong Innovation Circle” cooperation and gradually expand the scope of the formation to become a regional innovation system and provide technology and motive force for the transformation and upgrade of industries in the Pearl River Delta. The transformation and upgrade of industries in the Pearl River Delta should be on a demand-driven path, to be driven by the incubation of a large number of advanced manufacturing and high-tech industries. We may consider using the development of the Hong Kong Science and Technology Park, and affect its smooth convergence with Shenzhen’s high-tech resources. At the same time, we should make use of the opportunities of the Loop development and to take full advantage of the characteristics of “separation of the two powers” to create conditions for it to become a financing platform of science and technology projects and effective venture capital grafting, fully integrate domestic and international resources for innovation, and promote the radiation effect of the “Hong Kong and Shenzhen Innovation Circle” to other parts of the Pearl River Delta. Case I. Hong Kong Science and Technology Parks (HKSTP) Corporation –

The trial of Hong Kong in innovation and technology HKSTP Corporation was a statutory body set up by the Hong Kong Special Administrative Region Government, operational on May 7, 2001 to support the innovation and science and technology development of Hong Kong. The corporation is responsible for the management of the Hong Kong Science and Technology Park in Pak Shek Kok, Tai Po; the three industrial villages in Tai Po, Yuen Long and Tseung Kwan O and the InnoCentre in Kowloon Tong. HKSTP has an area of 22 hectares, with a campus-style environment, emphasizing four areas of science and technology including electronics, information technology and telecommunications, biotechnology and precision engineering. It offers supportive services in infrastructure, shared use of equipment for R&D, and laboratories. Through its Incubation Programs, it provides support services to newly established companies in the fields of science and technology. The total investments in the Park amounts to US$2

270

billions with Phase I and II completed in 2002 and 2007 respectively, facing the global science and technology enterprises and cooperating with the mainland IT sector. HKSTP Corporation is an important Hong Kong member of the “Shenzhen/Hong Kong Innovation Circle” DuPont will join the center in May 2008 as the first anchor tenant by locating its global thin film photovoltaic business, research and development center in the science park. The base of manufacture will be located in Guang Ming, Shenzhen. Although there have been negative comments on HKSTP Corporation, its performance cannot be neglected. We are to give full play to the edge of the existing “Shenzhen/Hong Kong Innovation Circle” as a financial base, being concentrated with high-tech enterprises, to create conditions to provide good services in terms of hardware and software and related services, to construct a complete service chain for innovation industries, from incubation to GEM Listing, including transfer of ownership and registration, technology transactions, venture capital, corporate restructuring, corporate governance business incubators, financing, credit guarantee, brokerage services, consulting, legal, accounting and other related services. This will attract and foster the gathering of headquarters, or regional headquarters, of financial institutions with emphases on risk, venture capital equity investments at home and abroad, and nurturing high-tech industries and companies to be listed on the GEM. It will also lead to the construction of a scientific and technological innovation and venture capital financing platform for venture capital enterprises, based in Shenzhen, serving the nation and facing the world. We are to improve people’s livelihood and environment to attract high-end talents to the PRD Metropolis. For knowledge-intensive, technology-intensive industries, talent is the key to the development of the business and occupies an extremely important position. The Pearl River Delta Metropolis, with non -household population as the main body in the jobs market, should provide a “green passage” to them in housing, health care, pensions and education which are connected with their livelihoods, and make gradual breakthroughs on restrictions on household registration, giving citizen treatment to the non -household population so as to facilitate their travel to Hong Kong and Macao.

271

We are to renovate and construct a new industrial park, build a platform for industrial transformation and upgrade, a public platform for key industries and supportive facilities for the industrial chain including public technology, a platform of public services, public business and comprehensive utilization of resources and central pollution control with the cyclical economy as its core. We should also include platforms for education, health care, housing, F&B, cultural and entertainment supportive services, while realizing the effects of concentration of enterprises and synergy. Case II. Huawei Technologies Company Limited, the most internationally

influential Chinese brand. Huawei Technologies Company Limited was founded in Shenzhen in 1988. The company has developed as a world-leading provider of telecommunication solutions to provide innovative and customized products, services and solutions to create long-term value and growth potential for its customers. It has established many research centers in India, the United States, Sweden, Russia, Beijing, Shanghai and Nanjiang, with 43% of the 80,000 employees engaged in research and development. As of June, 2008 its cumulative number of patent applications is over 29,666 and it has been the leading unit in patent application for several years consecutively. It has established over 100 branches worldwide, with products and solutions applied in over 100 countries, as well as 35 of the world’s top 50 strong operators. Huawei is the most internationally competitive Chinese brand. In 2007, it obtained 45% of new contracts in WCDMA / HSPA, ranking the first. It also ranks the first in its 43.7% market share in mobile soft switch solutions. Its market share for the new city contract CDMA is 44.8%, also ranking the first in the industry. Huawei has gradually grown into an all-IP leader in the world. Many advanced operators in the world including Vodafone, China Mobile, British Telecom, Spain Telecom, French Telecom/Orange Royal Dutch Telecom and German Telecom have already partnered with Huawei in the future business development of network transformation. The success of Huawei is directly related to the opening and reforming of the Pearl River Delta and the competitive environments it is facing. In this enterprise, the characteristics of internationalization, marketisation, openness and competitiveness in the Pearl

272

River Delta are fully reflected. This also proves that the fertile soil of the Delta region is fully capable of giving birth to world-class enterprises.

V. To Learn from Hong Kong-Zhu Airport Cooperation Model and

Promote the Fissioning Development of Service Industry in the Pearl River Delta

1. To Innovate the Mode of Cooperation of the Service Sector in the Pearl River Delta Metropolis

In 2006, the Hong Kong International Airport (China) Co., Ltd. invested $198 million and set up jointly with the Zhuhai Municipal Government the Zhu Hong Kong Airport Management Company Limited, with Hong Kong accounting for 55% of registered capital. It officially took over the management of the Airport. By virtue of the service and management advantages of the Hong Kong Airport Authority, the injection of a new concept, introduction of new projects and new business, Zhuhai Airport has significantly improved the standard of service. The number of routes, number of flights, and passenger and freight traffic all increased. Zhuhai Airport adopted a synchronous pricing strategy with department stores in the urban areas, and introduced value-added projects such as the renowned Chinese-style fast food brand and convenience stores of Hong Kong, with a service-oriented approach focused on competitive activities and value-added services as targeted growth areas.81

81 From the international experience, more than 60% of the annual revenue of Singapore’s Changi International Airport comes from non-aeronautical revenue, which means that the transit or entry/exit passengers have a very strong level of consumption there. This is also the direction of the continuous efforts of the Changi Airport so that the Airport is no longer just a transportation hub; it also provides a wide range of services to travelers.

The service towers were renovated in order to introduce business clients from Hong Kong, and advertising sponsorship programs, into the airport. The Airport also aims to expand through diversification and is preparing to connect the two airport terminals with sea and air transport facilities for connection by sea and air so that check-in facilities both in Zhuhai and Hong Kong can be provided and passengers can check-in directly to the two airports to achieve a seamless connection. The cooperation between Hong Kong Airport and Zhuhai Airport enhances on the one hand the Hong Kong Airport’s handling capacity, and consolidates Hong Kong’s position as a regional hub airport of the

273

Asian-pacific Region. On the other hand, Zhuhai Airport has directly introduced the advanced management concepts and international standards of operational management of Hong Kong Airport, This has resulted in the expansion of the domestic and international aviation markets. Case III. Zhuhai Airport - Hong Kong’s export of management In 1995, Zhuhai City Invested $4 billion in the Zhuhai Airport, with projected annual passenger traffic of 12 million. But as the economy was not as expected, the utilization rate of Zhuhai Airport was only up to 6% of the designed capacity. In 2006, with the approval of the State General Administration of Civil Aviation, the Airport started to cooperate with Hong Kong Airport with the formation of the Zhu-Hong Kong Airport Management Co Ltd to cooperate on management. Zhuhai Airport accepted the management, operational experience and radiation of business from Hong Kong Airport and focused on cargo business. Hong Kong Airport is to rent the facilities of Zhuhai Airport, with a lease for 20 years. On this basis, the Hong Kong Airport will consider taking a stake in Zhuhai Airport. After cooperating with Hong Kong for one year, Zhuhai Airport’s passenger traffic, air traffic and cargo volumes hit new highs, recording more than 25% of growth. Passenger traffic for the first time hit 100 million; total freight was 10,683 tons and air traffic movement was 9,289. These figures reflected rises of 36%, 31% and 26% respectively in the three categories while compared with the same period in the previous year. In that year, Zhuhai Airport actively opened up the aviation network and increased frequency of flights, started to spend more to upgrade airport facilities and at the same time introduced a number of retail outlets, giving passengers a new airport experience. The changes in Zhuhai Airport show a successful case of export of superiorities in service industry and management from Hong Kong. The co-operation demonstrated by Zhu-Kong Airport provides a model for future cooperation between the two places. It is also the best way to export Hong Kong service industry. The focus of cooperation of service industries between the two places should be on the consuming and public services sector, apart from the productive sector. Hong Kong’s mature management style contributes to the service industry in the PRD Metropolis as a new impetus.

274

The overall synergy and complementarity among the service industries in different cities and regions of the Pearl River Delta will promote the fissioning development of the Pearl River Delta Metropolis, from seaports to airports, from exhibition business to tourism. The transfer of Hong Kong’s service industry to Guangdong is different from the initial transfer of the manufacturing industry. In the true sense of the transfer of Hong Kong’s service industry, it is, through various ways including equity cooperation and commissioned operations, to graft Hong Kong’s international norms and standards of service and service management into the service sector of Guangdong, to be followed by copying, fissioning and expansion, thus forming a unified service market in the Pearl River Delta Metropolis. The Guangdong and Hong Kong governments should make great efforts to innovate the mode of cooperation in service industry, unify service industry standards in the Metropolis, and promote its magnitude and standards to an international level. 2. To Promote All-round Cooperation between Hong Kong’s Public

Sector and the Guangdong Government At All Levels Hong Kong’s public sector is government-funded, set up and operated by the Hong Kong Special Administrative Region, in charge of specific public services or work in which the government considers it necessary to have more community participation. The sector is an aggregate of quasi-government organizations but not government departments. Some of these organizations were set up according to by-laws and regulations (they can be referred to as a statutory bodies) and some were not. Although their functions are similar to government departments, they are not part of the government system, members do not belong to the civil service, and they have more autonomy compared with government departments. Key decision-makers are community figures invited by the Government or the Chief Executive to ensure government influence on these organizations. Most of the organizations in Hong Kong’s public sector are funded by the Government: Some are self-financing; and a small number of them are operating at a surplus. Some of them are commercial in nature and run on commercial principles. Some are listed companies. As profits of public listed companies are shared by investors, the government can only have their share of profits through equity holdings. In order not to interfere with the interests of other investors, the Government cannot gain full control of these companies in the name of public interest. These companies with profit as their primary

275

objective are not considered part of the public sector. Hong Kong’s public sector is different from public utilities, which provide important public services such as electricity and telecommunications, and can be privately owned and operated for profit. Table 7.1 Major Public Organizations in Hong Kong Category Name of Public Organizations Bureau

Urban Renewal Authority ; Estate Agents Authority; Legal Aid Services Council; Construction Workers Registration Authority; Construction Industry Training Authority; Export Credit Insurance Corporation; Hong Kong Productivity Council; Examinations and Assessment Authority Council; Logistics Development Council; Hong Kong Monetary Authority; Tourism Board; Trade Development Council; Maritime Industry Council; Port Development Council; Airport Authority; Academic Accreditation and Vocational qualifications Council; Arts Development Council; Mandatory Provident Fund Schemes Authority; Financial Reporting Council; Employees Retraining Board; Broadcasting Authority; Hospital Authority; Occupational Safety and Health Council; Vocational and Training council

Public organization

MTR Corporation Limited; Hong Kong Science and Technology Parks; The Hong Kong Mortgage Corporation Limited; Hong Kong Note Printing Limited; Applied Science & Technology Research Institute Company Limited; Tradelink Electronic Commerce Limited; Hong Kong International Theme Parks Limited; Hong Kong Link 2004 Limited

Other Registration of Persons Tribunal; The copyright Tribunal; Hong Kong International Arbitration Centre; Hong Kong Arts Centre; Hong Kong Institute for Monetary Research; Transport Complaints Unit; Review Body on Bid Complaints; Official Solicitor’s Office; Office of the Privacy Commissioner for Personal Data Quality Education Funds; Hong Kong Sports Institute

Source: Encyclopedia Wiki (http://www.wkwiki.com). Judging From the functions of Hong Kong’s public organizations, they are similar to some of the bureau offices in the Mainland, and also to some of the state-owned enterprises and institutions, i.e. the government decides on the functions of public administration with implementation of market-oriented and enterprise operations. The uniqueness of these public bodies dictates their important role in the process of integration between Guangdong and Hong Kong, enabling the full utilization of scarce resources in the process. Although in the past, the public sector has also played a role in the cooperation between Guangdong and Hong Kong, yet in general, the

http://www.wkwiki.com/�

276

emphasis is first placed on enterprises, followed by government. The functions of the public sector have aroused insufficient attention. As a result, during the construction of the Pearl River Delta Metropolis, the promotion of a full scale cooperation between Hong Kong’s public sector with counterparts at all levels of the Guangdong government is of great significance. For example, full cooperation of relevant government departments in Guangdong with public organizations in Hong Kong like the Hong Kong Trade Development Council and the Hong Kong Productivity Council will play an important role in assisting enterprises in the PRD Metropolis to “go out”. VI. Guangdong and Hong Kong to Enter into Partnership in Financing,

Construction and Operation of the Pearl River Delta Rail Transit 1. To Seize the Favorable Opportunity to Speed Up the Pearl River

Delta Rail Transit Construction At present, the U.S. economy is undergoing a recession. Its leadership in the global economy is weakening. Additionally, the crisis initiated by the subprime-mortgage crisis triggered turmoil in the global economy. The global pace of development will slow. Under this international economic environment, the domestic economy will face challenges. There is an urgent need to launch a large-scale project to sustain economic development. Therefore, from now and through the next one to two years is the best time to start large-scale infrastructure projects in China. Chongqing Municipality took the lead in an all-round adjustment of the layout of the rail transportation to create “a 1-hour economic circle”.82

According to the plan of Guangdong Province, an intercity rail transport network will be constructed in the Pearl River Delta Economic Zone linking all cities above county level in the Zone. It will comprise up to 2,000 km of track

In June 2007, the State Development Bank and Chongqing Municipality signed a loan agreement for RMB140 billion, with 16 financing platforms. The loans are to be used in five areas, of which the first priority is given to the construction of infrastructure including transportation, electricity, hydraulic engineering and urban infrastructure constructions.

82 According to Executive Vice Mayor of Chongqing, Huang Qifan, currently the main urban area of Chongqing is over 500 square kilometers, length of railway network is 300 km, and the budgeted total investment is RMB 100 billion. With the “one-hour economic circle” of the layout, the city of Chongqing will conduct a comprehensive adjustment on the main Rail Transit so as to form a railway network, linking 23 districts and counties. If so, the city railway transportation system will require additional investments of 100 billions.

277

in the form of “three-ring, eight-shot”. On its completion the rail network density will be close to that of the Paris metropolitan area and the Tokyo metropolitan circle. This is a huge infrastructure project. The work of this large cross-regional rail transit planning, construction and operation is a very complex and systematic project. First of all, it is necessary to consider the choice of access points and routes, as well as the seamless connection of the intercity rail with city metro and urban transport. This must be followed by financing to the scale of hundreds of billions of RMB. Such large-scale fund-raising has a bearing on the intercity rail construction process. It also affects construction progress in the Pearl River Delta Metropolis. Finally, there is the problem of operation after the completion of the project. The security and high efficiency mandated by such complex transportation networks needs reference to successful international experience. The Hong Kong railway is recognized as the world’s leading rail transport system with the highest passenger concentration, well known for safety, reliability, superior customer service and high efficiency. Hong Kong Railway Corporation is the world’s most profitable rail company, and recognized by the people of Hong Kong as the most satisfactory public transport services company. The main businesses of the company include rail transportation, property development, marketing, business consulting services, and so on. It possesses rail construction and transportation capacity up to an internationally high standard. Hong Kong Railway Corporation has come out of Hong Kong and entered the Mainland, expanded overseas, and gained construction and operations projects in many cities including Beijing, Shenzhen and London. These include the construction and operation of Beijing Metro Line Four, the Shenzhen collaboration agreement (awaiting approval of the National Development and Reform Commission) of Subway Line Four, as well as the Shanghai railway construction project. Internationally, Hong Kong Railway Corporation, together with its associated companies, gained the proprietary rights in June 2007 to operate five of the routes in the Greater London area. The value of this amounts to a total amount of 10.9 billion Hong Kong dollars. Electronic payment systems in the Netherlands and Dubai are also managed by Octopus, which is a subsidiary of the Corporation. In addition, the Hong Kong Railway Company provides consultancy services to a number of city railways including Kaohsiung High Speed Railway of Taiwan, and railway projects in New South Wales, Australia.

278

Case IV. MTR Corporation Limited - The world’s most profitable railway

company On 2 December 2007, the MTR Corporation Limited and Kowloon-Canton Railway Corporation merged operations to form the MTR Corporation Ltd, (referred to as Hong Kong Rail). Its main business is the operation of rail-based transport systems, including local and transit service, the Airport Express High-speed and Light Rail Systems in Hong Kong. As of 2007, the entire length of the system in Hong Kong was 211.6 km, with 82 railway stations and 68 Light Rail transit stations. The total annual passenger volume was 948.3 million, taking 41.6% of the Hong Kong-franchised public transport market share. The biggest shareholder of HK Rail is the Hong Kong Special Administrative Region Government. The Secretary for Financial Affairs holds 76.65% of equity. The business scope of the Corporation includes property development. In the early years of the MTR Corporation, it operated the railway and property development at the same time .At that time, it was also involved in the development of underground stations and superstructure projects. By using the MTR to improve the traffic situation in the city and increase the value of real estates on top of the stations, it made profits in property development. This not only provided part of the construction funds and reduced the government’s financial investment in railway construction, but also eased the pressure for fare increases. The total profits in property development of HK Rail in 2007 was 8.304 billion HK dollars, which was 56.5%.of its total profits. Hong Kong companies could be introduced into the construction and operations of the Pearl River Delta Intercity Rail Transit. According to the degree of difficulty of cooperation, three modes of cooperation can be considered: First, Guangdong and Hong Kong jointly constitute a Pearl River Delta rail transportation group and cooperate fully in the planning, construction, operations, and other aspects, making full use of the Hong Kong railway’s financing capacity in the capital markets and its position as a listed company to address the issues of financing the construction of Pearl River Delta Rail Transit. Second, by the method of commissioning, the Hong Kong Railway is to be responsible for the operational management of the Pearl River Delta Intercity Rail, to establish in the Pearl River Delta Metropolis a unified,

279

international Inter-city rail operating system of high efficiency. Third, Hong Kong Rail is to cooperate with relevant cities in the Pearl River Delta Metropolis, and be responsible for the planning, financing, construction and operational management of the inter-city rail in concerned districts and areas. At present, the Guangzhou-Shenzhen-Hong Kong passenger line is under construction, targeted to begin operations in 2014. The line is one of the important lines in the country’s Long to Short-term Railway Network Planning, mainly responsible for the transportation of long-distance passengers in the direction of Shenzhen, Hong Kong and Beijing, and high-speed intercity passenger transport between the cities of Guangzhou, Shenzhen and Hong Kong. In 2006, a Guangzhou-Shenzhen-Hong Kong passenger transportation company, the Guang-Shen-Kong Passenger Transportation Company Ltd, was formally established by the Ministry of Railways and the Guangdong Provincial Government, each contributing 50% of the share capital in its formation. Guangzhou Railway (Group) Corporation and the Guangdong Railway Construction and Investment Group Co., Ltd. act as shareholder representatives for the corresponding authorities to join in the construction of the Guangzhou-Shenzhen-Hong Kong Passenger Railway Line. In the course of its construction, as it involves the routes in Hong Kong and the operations between Guangzhou-Shenzhen-Hong Kong, it is proposed to introduce the participation of Hong Kong Rail. The three parties are to jointly form an organization for the line’s operational management so as to lay the foundation for further cooperation in future rail transport construction in the Metropolis, and to accumulate experience. In addition, we can also consider the function of the Guangzhou-Shenzhen Railway Corporation, in view of the fact that it is now listed in the Stock Exchange of Hong Kong Limited (SEHK), the New York Stock Exchange (NY Stock Exchange) and the Shanghai Stock Exchange, as of December 2006, in the form of A-share listings. 2. Guangdong and Hong Kong to Set Up Financial Holding Company

as a Means of Major Cross-border Infrastructure Financing In project investment, financing and operational management, the practice of the Singapore Temasek financial holding company is a worthy reference for Guangdong and Hong Kong. Temasek is an investment company formed under the “Singapore Companies Act” in June 1974, holding shares in 20 large “government-linked companies” (GLC), reflecting 12% of the GDP of Singapore. According to its Annual Report in 2004, the company owns a total

280

value of S$90 billions in portfolio (approximately 441 billions RMB), with over 1000 subsidiaries, holding shares of 65% in Singapore Telecommunications, 28% in DBS Bank, 61% in CapitaLand, and 100% in Singapore Power, covering communications, finance, aviation, science and technology, and real estate, embracing all kinds of industries and enterprises which are connected with the livelihood and work of Singapore’s citizens. In view of the fact that participants in the rail transportation business in Pearl River Delta are mostly state-owned enterprises (Guangdong) and government agencies, all falling into the category of “government-linked companies”, it makes sense for Hong Kong-Guangdong to refer to the practice of Temasek and set up financial holding companies to take full responsibility for the overall coordination of the financing and operations. On this basis, consideration in setting up similar organizations can be made to participate in the Hong Kong-Zhuhai-Macau Bridge and other large-scale cross-border infrastructure projects. These financial institutions, apart from having local governmental participations from the three places and other cities of the Pearl River Delta as shareholders, will also attract a wide range of other investors to participate. Their mode of governance and operations will be in accordance with the rules of market operations. 3. Pearl River Delta Rail Transit Planning Should Reflect the Visions

of the Pearl River Delta Metropolis The Pearl River Delta Rail Transit planning is presently confined to Guangdong province alone. Hong Kong and Guangzhou are working on an independent basis. It is not able to coordinate on rail transportation systems in the Pearl River Delta from the perspective of the Metropolis. This is mainly because Hong Kong has not been incorporated into the national plan.. Recently, this situation has changed. In August 2008, Hong Kong Chief Executive Donald Tsang pointed out in the 11th Hong Kong-Guangdong Cooperation Joint Conference that the development of Hong Kong and the Pearl River Delta Economic Zone have been intimately connected, and he “fully supports the joint proposal from Guangdong and Hong Kong to the Central Government to include cooperation between Hong Kong and the Pearl River Delta in the national development plan” Hong Kong-Guangdong cooperation should be multi-dimensional, striving for more breakthroughs on an all-round basis; promoting complementarity with each other; elevating economic and social development to world-class level and transforming the Pearl River Delta

281

Metropolis into an economic area with world-class competitiveness.83

As a result, Guangdong, Hong Kong and Macao have the need for, and the prerequisites for, joint planning of Rail Transit Systems in the Pearl River Delta Metropolis with a forward-looking strategic vision, taking into full account the possible situations and demands from economy, society, and integration of people’s livelihood in Guangdong, Hong Kong and Macao over the next 20 or 30 years.

- Rail transit should give full consideration to the traffic of convergence in cross-border control points. Over the next 10 - 20 years, cross border passenger and vehicular traffic will become more frequent, and the number of cross-border control points will correspondingly increase. Due considerations must be given in rail transit plans which have to be formulated scientifically and rationally. - Rail transit should give full consideration to the traffic connections of the five major airports. With the speeding up of industrial upgrade in the Pearl River Delta Metropolis, over the next 10 - 20 years, passenger and cargo flows in airports will increase dramatically. It is necessary to realize seamless connection among the five airports, using rail traffic. Among other projects under study and awaiting policy formulation, the Hong Kong and Shenzhen Airport Railway Link should be better integrated into the Pearl River Delta rail transit system. At the same time, it is also proposed that the Hong Kong - Shenzhen Airport Railway should build a transit point on the Shenzhen seafront, with establishment of a check- in channel for the two airports so that passengers can go directly to either of the two airports, thus resulting in a real integration between Hong Kong Airport and Shenzhen Airport and “one airport, two lounges”, giving full play to the Hong Kong-Shenzhen Airport Railway. Case V. Hong Kong and Shenzhen Airport Railway - to create a

super-international airport The Hong Kong and Shenzhen Airport Railway is a planned high-speed cross-border railway to connect Hong Kong Airport and Shenzhen Airport. Hong Kong Chief Executive Donald Tsang, in his 2007-2008 annual policy address, proposed the rail connection between Hong Kong Airport and 83 “Donald Tsang: Building a World-class Economic Zone”, Wen Wei Po (文匯報), 6 August 2008.

282

Shenzhen Airport and was met with a positive response from the city of Shenzhen. Hong Kong and Shenzhen have set up two expert groups, one of which is to study the feasibility of an airport rail link, the other is to study business cooperation of the two airports. Both are expected to be completed in 2008. The planned Hong Kong and Shenzhen Airport Railway originates from Tai Ho, Hong Kong, and proceeds to the Chek Lap Kok Hong Kong International Airport. An under-sea tunnel constructed from the Tuen Mun seabed returns to the ground at the seafront in Shenzhen and connects with the Shenzhen Metro to proceed to Shenzhen Airport. The total length will be about 50 km. The transit time between the two airports will be about 20 minutes, using the “co-location” mode of customs clearance. The construction of the Hong Kong and Shenzhen Airport Railway is equivalent to linking up the Hong Kong’s international air network with the Mainland’s aviation network. It will dramatically promote economic activity.. It is an important infrastructure projects which will enhance the overall competitiveness of Hong Kong and Shenzhen. It will further strengthen Hong Kong’s position as an international aviation hub, and promote the development of the Shenzhen Airport at the same time. Hong Kong Airport and Shenzhen Airport will become the world’s leading super-air airports. It is worth mentioning that the Bauhinia foundation Research Center Report in 2007 systematically raised the idea of the construction. VII. To Speed Up the Construction of the Hong Kong-Zhuhai-Macao

Bridge So As To Open Up the Two Sides of the Pearl River

1. To Start Building the Hong Kong-Zhuhai-Macao Bridge As Soon As Possible

The Hong Kong-Zhuhai-Macau Bridge was first proposed by the private sector. There was a long dispute in the community over the choice of the “single-Y” or “double-Y” program. It took 20 years for the Central Government, and the Governments of Guangdong, Hong Kong and Macao to reach a final decision. At present, there is a consensus on the “single-Y” program. The feasibility study has been approved by the experts.

283

Guangdong, Hong Kong and Macau have also reached agreement on financing and the project has been put on the agenda. But the controversy over Hong Kong-Zhuhai-Macau Bridge has not died down. This report strongly recommends that the Hong Kong-Zhuhai-Macao Bridge construction should be started as soon as possible First of all, the strategic significance of the Bridge is to open up the east and the west coasts of the Pearl River so that Hong Kong’s economic radiation effect can be extended to the west coast of the Pearl River. To a certain extent, it addresses the uneven development of the two coasts of the River. Now there exists a lot of development difference, based on city economic aggregate, urban construction and population development, among cities in the Pearl River Delta Metropolis. The construction of the Pearl River Delta Metropolis will narrow the development gap between the east coast and the west coasts .In particular, the metropolitan circle of Zhuhai-Macao has major progressive advantages and development potential. Through the construction of the Hong Kong-Zhuhai-Macau Bridge, the joint motive force of the east coast with Hong Kong as nucleus, and the central part with Guangzhou as nucleus, will more effectively promote the development of the Pearl River in the west coast, through which further extension into the hinterland can follow. Though the planned Pearl River Delta Rail Transit has already offered solutions to some extent to the connectivity between the east and west coasts, the role and significance of the Hong Kong-Zhuhai-Macau Bridge are irreplaceable. As an editorial pointed out, “in important cross-boundary infrastructure constructions between Hong Kong and Guangdong, Hong Kong must take part. The short-term interest is not the primary consideration. The main consideration is to avoid the marginalization of Hong Kong in the course of changes in national and regional situations.” “If we look from a strategic height at the Hong Kong-Zhuhai-Macao Bridge, the return of this project will no longer be a major concern. In fact, according to the finalized program, after the financing has been paid up, toll levy will be stopped, and the bridge will be returned to the people. Prior to that, because the bridge is government-owned by the three places, profits are not considered and the toll should be lower. It can be said that the construction and operation of the Hong Kong-Zhuhai-Macau Bridge is not a business, but an investment in infrastructure construction aimed to achieve the integration of Guangdong, Hong Kong and Macau”. 84

84 “Strategic infrastructure in Hong Kong to avoid marginalization, return not a primary consideration”, Ming Pao Daily News (明報), 3 July 2008, P. A3.

284

On the other hand, Guangdong, Hong Kong and Macau should, from the pragmatic point of view, work together on the proper settlement of problems arising from the construction planning and management of the Hong Kong-Zhuhai-Macau Bridge so as to promote the early start of the building and completion of the Bridge. The disputes over the choices of “single-Y” or “double-Y” in bridge orientation, and “three clearances in one location” or “three clearances in three locations” in cross-border customs clearance mode have caused a lot of delay. These issues, which may be adjusted according to practical situations may be “set aside” with provisions for future adjustments such as the reservation of the “Y” interface in Shenzhen and setting aside areas for reclamation for the “three clearances in one location”. In short, the construction of the Bridge should not be affected because of the existence of these pending issues. It should be noted that the construction of the Hong Kong-Zhuhai-Macao Bridge has exceeded its meaning as being a pure item of construction or its function as a passage. To a certain extent, it has become a meter rule to measure whether the three places can adopt a broad sense on the overall situation, high political wisdom, and pragmatic spirits of cooperation to solve problems facing the three places. It has also become an indicator on the sincerity of cooperation in the Pearl River Delta Metropolis for the assessment of the people of the three places. Thirdly, the construction of public infrastructure in the Pearl River Delta metropolis is a large-scale public works involving different dimensions and aspects, through the joint construction and management of the Hong Kong-Zhuhai-Macao Bridge, the different parties involved can accumulate a lot of experience in co-operation in a number of areas, such as project planning, tender, construction, supervision, consulting, management and customs clearance arrangements. This will speed up the unification and full convergence of standards in infrastructure planning, supervision and engineering consulting, engineering and construction for Guangdong, Hong Kong and Macao and lay a good foundation for future cooperation. In addition, different sectors of the communities in Guangdong, Hong Kong and Macao have been very concerned about the construction of the Bridge, so different costings have been put forward, including economic, social and environmental. As a result, the construction of the Bridge is not only to contribute to the economic development of the west coast of the Pearl River, it should also be conducive to the balanced development of the regional society, and even more,

285

to the development of human society under the prerequisite of respect for nature (especially marine life). This kind of full social participation is bound to be conducive to social harmony and is beneficial to human sustainable development. As a result, when we see the Pearl River Delta being connected into a genuine triangular piece of land through the bridge, at the same time, we will also find new directions for the harmonious economic, social and natural development. Finally, we should take advantage of the opportunity of the bridge construction to promote reform of vehicle licensing systems in Hong Kong and Guangdong (Macao), so as to ensure the utilization rate after its completion. The clearance problem due to different vehicle licensing has severely restricted the flows of people and physical distributions between the two places. In order to maximize the benefits from the Bridge, the system of vehicle customs clearance for both places must be reformed. For example, issues on access threshold, licensing fees, switching of haulers, vehicle clearance control, etc., need to be studied in detail and in advance for resolution.85

On the basis of the Hong Kong-Zhuhai-Macau Bridge, other cross-river connections should be considered. Presently the Humen Bridge connecting the two coasts of the River is close to saturation and the crossing and transportation expenses are high. There is an urgent need to launch a study on the construction of new cross-river connections. The planned rail transit line, though designed for cross-river transport, is mainly for the purpose of addressing the issue of passenger flow. Logistics problems have not been fully taken into account. Therefore, it is necessary to speed up the study on constructing other bridges and tunnels for the connection of the two coasts. The connection between Shenzhen and Zhongshan with bridges and tunnels should 85 In the course of research, many respondents referred to the case of the Hong Kong-Shenzhen Western Corridor and other cases of cross-border infrastructure constructions and operations. The pioneering policy of “co-location” in the Western Corridor provides valuable experience in areas such as the collaboration among engineers, technicians, managers, and cross-border law enforcement. But at the early stage, utility rate was low. This also serves as a lesson for the Hong Kong-Zhuhai-Macao Bridge. A simple analysis of the low utility rate of the Western Corridor can be attributed to the following reasons. Firstly, the western part of the Pearl River is under-developed in export processing industry, a large volume of cargo flows are still focused in Wong Gong; another reason is management. The Corridor is not open 24 hours a day; it has by poor traffic connections, unlike Wong Gong where connections extend in all directions; management is still too “serious.” Some drivers expressed that the Western Corridor is good, well equipped and not congested, but it is precisely for this reason that controllers conduct “careful” check on each vehicle, taking 10 minutes each, the advantages of having less traffic is annulled. Furthermore the documentary formalities scare the drivers away. This kind of operational problem will serve as valuable experience and lessons for the construction of the Hong Kong-Zhuhai-Macau Bridge.

286

be the focus of research. Decisions should be made prudently and as soon as possible, taking full account of the impacts on the environment, the ports at the Pearl River estuary, and geological factors. If we consider the flows of people and cargoes as well, and the frequency and density of movement in the next 20-30 years in the Pearl River Delta Metropolis, the capacities of the Humen Bridge, the Hong Kong-Zhuhai-Macao Bridge, the planned cross-river rail transit as well as the bridges and tunnels under study for connection between Shenzhen and Zhongshan may not meet future demand. Therefore, in the future, there is a possibility of having numerous cross-river passages. Preparation should be made in advance accordingly. VIII. Guangdong, Hong Kong and Macao to Jointly Plan the

Development of Hengqin Island in Zhuhai and the Development of the Pearl River in the West Coast

1. Guangdong, Hong Kong and Macao to Jointly Plan the

Development of Hengqin Island in Zhuhai Hengqin Island in Zhuhai is a piece of “virgin land” not yet fully developed, but valuable, in the Pearl River Delta Metropolis. Hengqin Island has an area of 86 square kilometers, of which 53 square km can be developed. Neighboring Macao, it takes only 10 minutes and 40 minutes to Macao and Zhuhai Airport respectively, 50 minutes to Zhuhai sea port. Even if going To Guangzhou and Shenzhen Airport, it takes only 90 minutes. After the Hong Kong-Zhuhai-Macao Bridge is opened to traffic, the distance from Hong Kong to Zhuhai and Hengqin will be significantly reduced. However, due to the special features and the lack of economic impetus in Macao’s industry, as well as the natural barrier of the Pearl River, the radiation effect of Hong Kong is unable to work. The development of Hengqin is very slow. As a result, it is necessary to start building the Hong Kong-Zhuhai-Macao Bridge as soon as possible on the one hand, enabling the expedient access of Hong Kong capital, Hong Kong enterprises, and Hong Kong people to Zhuhai. On the other hand, Hengqin Island needs to be jointly developed by Guangdong, Hong Kong and Macao. There is an urgent need to strengthen Hong Kong’s participation and attract the participation of the Hong Kong consortia. Through the development of Hengqin Island, the favorable

287

situation where the two metropolitan areas in the east coast and central part of the Pearl River Delta Metropolis jointly lead the development of the west coast metropolitan areas can be achieved. Case VI. Hengqin Island in Zhuhai – a piece of “virgin land” highly worthy

of development. Hengqin Island in Zhuhai is located on the west side of the Pearl River estuary, bordering the South China Sea in the south, 4 Nautical miles away from the Great Western Channel of the international waterway, connecting in the east with Macao through the Lotus Bridge, 3 km away from Macao International Airport; and is 41 nautical miles away from Hong Kong. In 2005, Chinese Premier Wen Jiabao inspected Hengqin Island, giving directives on the development of Hengqin Island: Hengqin planning is to converge with the overall development plan of Zhuhai, and should only be acted on after good preparation. Hengqin development has been under discussion for many years without decision, mainly due to changes and adjustments in the mode of development and industrial positioning for the last 10 odd years. In 1992, Hengqin Island was designated as one of the four key development zones for further opening-up in Guangdong; it was proposed by Zhuhai City in 1999 that Hengqin Island is to be developed as a “tourist development cooperative area,”; later, senior officials in Guangdong and Macao proposed cooperation in constructing Hengqin Island into an international, comprehensive and open tourist resort to serve as an extension hinterland of the dominant industries of Macao. Since 2004, with the acceleration in pace of cooperation in the Pan-Pearl River Delta, it was proposed that different parties of “9 +2” should jointly set up a “Pan-Pearl River Delta Hengqin Economic Cooperation Zone” on the basis of “joint development, joint utilization of benefits.” With the construction and completion of the Hong Kong-Zhuhai-Macau Bridge, Hengqin Island, with its unique geographical advantage, will become a treasure among Guangdong, Hong Kong and Macao with high potential for development. Hengqin Island development needs huge amounts of capital, high standards of overall planning and the introduction of the international projects. Zhuhai alone is not capable to undertake this important task. It should be led by the

288

Guangdong Provincial Government, and joined by the governments of Hong Kong and Macao and big consortia. Through forums, promotions and the constitution of specialized organizations etc., efforts can be made to attract investment and provide comprehensive and in-depth introduction on the special advantages of Hengqin Island. In particular, it is necessary to make full use of Hong Kong as an international platform. Not only should we mobilize the active participation of all circles in Hong Kong, we should also make use of its extensive international network to attract international consortia, so as to turn Hengqin Island into a world-class service industry and a high-quality living area. 2. To Develop a Sea Front Leisure Belt on the West Side of the Pearl

River Metropolis

In November 2007, Guangdong Province passed the Development of Hengqin Island Master Plan Outline. In accordance with the overall planning, the development goal of Hengqin is to “transform it into an eco-innovating island with Hong Kong and Macao going hand in hand, serving the PPRD, sharing resources of the region, showing as a national model and converging with the international community.”

The Hengqin development positions are: State Science and Technology Innovation Zone; Pan-Pearl River Delta Regional Cooperation Demonstration Zone; Guangdong, Hong Kong and Macao Functional Interaction Coordinating Zone; Pearl River Delta Industrial Upgrade Motivating Zone; and New Zone for Cross-boundary Development of Zhuhai. Hengqin Island will develop four major functions including science and technology, R & D, high-tech industry, conventions and exhibitions, and tourism and leisure; as well as five ancillary functions including logistics trade, training and exchanges, culture and creativity, business services, and eco-styled living. The objectives, orientations and functions of Hengqin are very comprehensive, but are too broad as a result. The five orientations and the four major functions are too embracive, lacking of logical connections. In fact, because of the late development of Hengqin, it has an advantage. It provides a rare opportunity for Hengqin Island in the choice of industry and shifted development. While considering the positioning of the functions of Hengqin, the functions and industries surrounding the area must be taken into account to avoid

289

duplications. The population in the Pearl River Delta Metropolis will rise to more than 50,000,000 over the next 20-30 years. The strength of social and personal wealth of the region will result in amazing power of consumption in the region. From the long-term development strategic point of view, Hengqin Island and the west coastal area of the Pearl River should focus on the consumer services sector, and be a world-class business and leisure holiday consumption center. Therefore, this report proposes that Hengqin Island should focus on the development as a leisure and business resort, as well as eco-industrial park, being functionally complementary with the gambling and conventions and exhibitions business (mainly conventions) of Macao. It should also focus on the development of golf courses and F&B with special features, as well as the leisure and tourism business. It should integrate life chain services with Guangdong, Hong Kong and Macao so as to create synergy among the three places. With the opening of the Hong Kong-Zhuhai-Macau Bridge, Hong Kong will be in closer contact with the west coast of the Pearl River Delta, creating more room for development and market demand for the daily life consumption industry of Hengqin Island.

From Figure 7.1, we can see the opening of Hong Kong-Zhuhai-Macao Bridge will form a consumer service industrial belt of Hong Kong Disneyland Theme Park – Macao Tourism and Gaming - Hengqin Business Leisure, which is a leisure industry belt in the west coast of Pearl River Delta. With the Pearl River Delta metropolitan area’s economic development and upgrade of industries, the number of tourists and the flow of high–end business clients will also increase dramatically. By then, extension can be made from Hengqin Island to Zhuhai Airport and Zhuhai Gaolan Port in the west. The Island has the advantages of being blessed with countryside and water, undeveloped and unspoiled, and with good ecological environment. We can proceed with the planning and construction of a large shopping mall according to the needs of the high-end passenger flow, on the piece of land between Hengqin Island and Zhuhai Airport. Yachting industry can be developed in the waters between Hengqin Island and Gaolan. The Zhuhai Airport, being short of passenger trade, can also be transformed into an aircraft service center for business and private jets while maintaining steady growth in its passenger and freight business. By then, this leisure industry belt to the west coast of the Pearl River Delta extending from Hong Kong to Macau and Zhuhai will be able to attract customer flows from all over the world with its special and distinctive daily life consumption industry providing leisure, resorts, entertainment, catering and other services.

290

Figure 7.1 The West Pearl River Delta Sea Front Leisure Belt IX. To Establish a Committee for the Overall Planning of Collaboration

and Development of Sea Ports and Airports in the Pearl River Delta Region

1. To Establish a Pearl River Delta Metropolitan Port Collaboration

Committee Port construction and development in the Pearl River Delta metropolis should reflect national strategies. Unlike city development, port facilities are national strategic facilities and play a fundamental role in the development of the national economy. They are of great significance for regional and global allocation of resources. At the same time, there is a need to play the role of market regulation within the framework of the national strategy. It should be noted that the greatest benefit of market competition is improved efficiency, promotion of diversity in the main body of investment, introduction of advanced management experience and further reduction in port transportation costs. Competition and cooperation among ports in the Pearl River Delta metropolis co-exist. At present, some of the local governments in the Pearl River Delta

291

region are incessantly proposing to speed up the construction of their local ports, which is a kind of shortsightedness. As the practice of regional integration mandates the flow of resources in the most optimal direction, the blind acts of port construction without comprehensive consideration of one’s own natural and economic conditions should be stopped. In the Pearl River Delta Metropolis, the port of Hong Kong has a clear advantage over the other cities in high-end services such as international shipping trade and ship management. The port of Hong Kong’s position as an international shipping center in the Pearl River Delta is indisputable. But at the same time, the functions of the ports of Shenzhen and Guangzhou should also be attended to. Shenzhen and Guangzhou should be developed as a regional hub port with focused effort. In recent years, Shenzhen ports, through investment from Hong Kong, have enhanced their level of port management. To realize Pearl River Delta regional co-operation of ports through equity participation is a good way of cooperation and coordination. In fact, such mode of cooperation in the Yangtze River Delta has been a great success. For example, the government encouraged equity participation of enterprises in ports along the Yangtze River. The use of market participation and other means of capital operations have resulted in regional cooperation. Case VII. Yantian Port- a model of Hong Kong-Shenzhen cooperation The development of Shenzhen Yantian Port is closely related with Li Ka-shing’s Hutchison Whampoa Group, In January 1985, the Shenzhen Yantian Port Group Limited was set up. In 1993, Yantian Port Group set up a joint venture with Li Ka-shing the Yantian International Container Terminals Ltd., for the joint construction and operation of five 50,000-ton container berths in phase I and II of the project. In 2001, Yantian Port Group and Hong Kong Hutchison Yantian Port Investment and Development Co., Ltd. signed a joint venture contract for phase three development of Yantian Port container terminal, and work has been started. In 2005, Hutchison International Port Group and Shenzhen Yantian Port Group conducted jointly the Yantian Port District Container Terminal Expansion project. In 2008, Hutchison Whampoa Ltd and the Yantian Port joint venture - Shenzhen Yantian West Port Terminals Limited was approved by the State to increase capital in the construction and operation of the Western Operations Area of Yantian Port Container Terminal, with a total investment of 3.838 billion RMB.

292

From the co-operation between Hong Kong and Shenzhen in 1993 to the completion of the three phases of construction in 2005, Yantian Port has reached, in just 12 years, a size and throughput, only reached after decades or even centuries by some of the major world ports. But in 2008, it had an year-on-year decline in growth .In the first quarter, the Yantian Container traffic volume was 2.013 million TEUs, representing a 5.4 percent decline from the same period of last year. Container throughput in the first half of the year was 4.26 million TEUs, representing a 5.3 percent decline from the same period of last year. This phenomenon is not only due to the U.S. economic slowdown, but also due to a surplus of ports resulting in excessive competition. Presently, there two areas that warrant attention in port development in the Pearl River Delta Metropolis. The first is to avoid disorderly competition and over-competition. The enormous challenge and the most urgent and arduous task facing port development in the Pearl River Delta metropolis is to effectively curb the industry’s disorderly, excessive and unhealthy competition, and reconstruct rules of development and a new order for the industry. Without coordinating the unified common interests within the industry, it will be very difficult for the Pearl River Delta port area to win in the new round of international competition. Second, we need to cast a new look on collaboration among the ports, and the status quo on complementarity and competition, and respond to the possible surplus of container terminals. In 2006 Hutchison Whampoa sold 20% equity of Hong Kong International Terminals, which is an important signal of port surplus in the Metropolis. In 2008, Shenzhen container cargo volume experienced a negative growth. , Port surplus to a certain extent has become a reality, and this situation may continue and sustain for a certain period of time. Due attention must be given by the various sectors in the Pearl River Delta metropolis. Case VIII. Dongguan International Binhai New Town - a high-end service city

area under planning The Dongguan International Binhai New Town under planning refers to the Pearl River coastal area at the town of Changan in Dongguan. It is situated between the Shenzhen International Airport and the Humen deep-water port, with an area close to 20 square km. The area is surrounded by the most developed towns like Changan, Humen, and Houjie. This area was originally a

293

deep-water zone of Humen reserved for future development. Due to changes in the Pearl River Delta region, particularly the trend of port surplus, Dongguan City has initially designated this area for the construction of the International Binhai New Town to provide high-end services as a pillar industry. It is intended that it will resolve the current problems of city functional defects and industrial structural defects that confront the city’s further elevation of development standards and activate the city’s industrial upgrade, urban upgrade, and the upgrade of the community. To that end, the city will spend 8.6 billion yuan for the reclamation of nearly 29,000 acres in the southern part of Changan Town, with about 12,585 acres of land and about 16,000 acres of water. The Dongguan International Binhai New Town under planning includes four main features: First, the international business area, including the headquarters of international trade and e-trade business center; second, the international creative industries, including animation industry, animation peripheral industry, television cultural center, cartoon training base and so on; third, the international service outsourcing base, including the base of CEPA and the international service outsourcing base; fourth, the international leisure-living quarters. According to the planning of Dongguan, the Dongguan International Binhai New Town will be completed over the next five years. With regard to the formation of the Pearl River Delta Metropolitan Port Collaboration Committee, the proposal has been on the table for a long time, but still remains in the conceptual stage. In view of the future challenges and present situation of port development in the Metropolis, the formation of the Collaboration Committee for the overall planning of port development has become an urgent practical need. Regarding the case of New York-New Jersey Port Commission is a direct reference to be made to. Although the Commission experienced twists and turns from its establishment to its playing a role, yet in the end it is a model of regional cooperation. The New York-New Jersey Port Development Committee was established in 1917. In 1921, it was re-named as New York Port Commission. The New York Port Commission Agreement was drafted in that year and approved by the legislative authorities of the State of New York and New Jersey, prescribing for the authority and constraint of the Commission.

294

Table 7.2 Rights and Constraints of New York Port Management Committee Rights Constraints

1. Rights of constitution with legal personality, rights to purchase, construct, lease or operate any transport facilities, rights to levy on users, rights to borrow, issue bonds and mortgage properties in its possession or to be owned.

2. Rights to formulate development plans binding on the two States after approval by the two States’ legislative authorities.

3. Rights to propose to the State Governments or the United States Congress plans on promoting trade in the ports of the area, improvement of transport facilities and trade activities .

4. Rights to establish rules and regulations for the development of shipping and trade, subject to compliance with the Constitutions of the United States and the two States, such rules and regulations shall be binding after approval by the two States’ legislative authorities.

1. The above-mentioned powers can only be exercised after approval by the state legislature.

2. No term of the agreement shall weaken the authorities’ power in the development and improvement of ports and port facilities.

3. Decisions of the Committee to take effect subject to consent of the majority of Members.

4. Each State retains the right to authorize by law the Governor’s power of veto on State Committee Members’ decisions.

Source: New York Port Commission Agreement. The Pearl River Delta Metropolis should learn from the successful model of the New York - New Jersey port cooperation, and proceed with the formation of the Pearl River Delta Port Collaboration Committee so as to coordinate the overall planning and development of the coastline resources of the port clusters; coordinate toll systems and professional division of labor; share resources on information, logistics support and technology; plan the overall port traffic system; establish river-sea transport and sea-rail transport; and coordinate the construction of transportation stations, transit hub construction and other major issues. 2. To Establish the Pearl River Delta Metropolitan Air Port

Management Committee The five airports in the Pearl River Delta Metropolis each have their own advantages. Only by maintaining and developing these advantages can we increase the overall competitiveness of the airports in the Metropolis. So far, it can be said that the competition among the airports in the Pearl River Delta Metropolis is benign, and there exists complementarity and synergy among them. As can be proved by profitable results in recent years, healthy competition promotes the elevation of airport management standards and

295

quality of service, realizing a win-win situation. It is worth emphasizing that the mode of cooperation of airports between Hong Kong- Shenzhen and Hong Kong-Zhuhai, i.e., based on business cooperation or establishment of a joint body by mergers and acquisitions to coordinate and combine the airport resources has proved to be a successful model of cooperation. After the take-over of Zhuhai Airport by Hong Kong Airport, Zhuhai Airport has undergone major changes. The standard of service has significantly improved; the complementarity of the two Airports is strengthening with time and the incremental market has expanded through cooperation. Both airports have benefited from it. It should be said that the high international standard of operational management of the Hong Kong Airport is a special resource in the development of the metropolitan area airports, being valuable and worthy of full utilization. Even so, it is still necessary for the Pearl River Delta Metropolis to set up an airport management committee to enhance the standard of collaboration and cooperation and to effectively deal with possible future crises and challenges. The future problems confronting airport development in the Pearl River Delta Metropolis that need to be resolved are the effective collaboration and coordination between the airports and air domains in the Pearl River Delta metropolitan area; coordination of the five airports in the Pearl River Delta and the Civil Aviation Administration of China; expansion the use of air space; coordination of the division of labor of the five airports of the Metropolis; implementation of the shifted development; dealing with the possible changes due to the “three direct links” with the Taiwan Strait and grasp the opportunity to further tightening the economic exchanges and relations of the Pearl River Delta metropolis with Taiwan; planning and construction of transportation infrastructure systems between the airports, such as a rail transit system linking the five airports in the metropolis with related track access routes in order to promote the free movement of factors between the airports; and so on. In the formation of the Pearl River Delta Metropolis Airport Management Committee, we can make reference to the airport management mode and practice of the London metropolitan area. There are also five airports in the London metropolitan area. The multiple airport operational management system is executed by the British Airport Group, (BAA, British Airport Authority) the predecessor of which was the British Airport Authority, which was privatized in 1987 and listed on the London Stock Exchange, becoming

296

the world’s first privatized airport management company operating completely in accordance with the rules of market the and the model of enterprise. But the British Government, through holding “golden shares” and other means, exercises regulatory control and power of veto on the company’s major policies including investments and equity transfers. The main features of London airports’ operational management are in-depth market segmentation and the sustained promotion of the specialization of airport operations. The airports in the system implement a flexible charging policy with emphasis on improving ground traffic in order to achieve integration of the scope of services. Each airport in the system is designated a clear position. Table 7.3 Functional Divisions of the Airports in the London Airport System

Name Market Positioning Type of Services

Heathrow Airport

Intercontinental, long-distance, transit passengers

Conventional airlines, charter flights low-cost airlines, a major hub airport of the United Kingdom

Gatwick Airport Partly intercontinental, remote chartered flights, Low-cost passengers

Conventional airlines, charter flights low-cost airlines

London City Airport

Business travelers and private flights

Commercial airlines

Stansted Airport Low-cost air services, air Cargo transportation

Low-cost airlines and air cargo companies, air base of Lyon, air cargo center of FedEx and Japanese cargo companies in the United Kingdom

Luton Airport

Low-cost air services, business flights

Chartered flights, low-cost airlines and private aircraft passengers

At present, the air transport market in the Pearl River Delta Metropolis is still in the fast-growing stage. Demands at different levels of air transport provide the independent development of airports with plenty of passengers and cargo sources. At present, the airports still have sufficient space for development and

297

room for collaboration. That may obscure the existence of some of the problems and acute and white-hot competition. But if we delay the coordination until there is very sharp contradiction among the airports, then collaboration will become a passive cooperation, with costs dramatically raised. As a result, the earliest formation of the Pearl River Delta Metropolitan Airports Management Committee is a strategic choice with foresight. The operational management model of the London airport system is most worthy of reference for the Pearl River Delta Metropolis, in its experience in market segmentation and professionalised operations, i.e., the cooperation of the five airports is dependent on the growth of strength in the local economy and characteristics of airport-based resources, and coordinated division of functions is achieved through the market mechanism, giving full play to individual merits, thus achieving optimization of resources of the airports in the region. In the Metropolis, promotion of rail transport infrastructure construction will reduce dramatically the weight of the factors on geographical location and time of land transport in the evaluation of airport services. Meantime, the weighting of factors such as route coverage, frequencies and others will be magnified in the selection function of the travelers. Therefore, the future market segmentation of the five major airports in the Metropolis and professionalisation in operations will be a definite trend. In view of this trend, we need to address the situation via an airports management committee, to coordinate and collaborate together.86

X. To Generalize the Use of “Octopus” and Promote the Integration of People’s Daily Life Consumption in Guangdong, Hong Kong and Macao

1. To Promote the Extension of the “Octopus” Network into the Pearl

River Delta Metropolis As long as borders and customs are in place, the mobility of factors in the Pearl River Delta Metropolis cannot achieve absolutely free and barrier-free mobility. Therefore, there is always space for improvement on the flow of factors. Under the current policy framework, the Pearl River Delta Metropolis needs to

86 See Zhang Yue (張越) and Hu Hua Qing (胡華清), “Regional Multi-airport System, the British model”, Comprehensive Transportation (海外視窗), 6 (2007).

298

continue to improve the efficiency of customs clearance, to speed up as far as possible the movement of factors in order to enhance economic vitality. From the social point of view, we can focus on promoting the extension of Hong Kong’s “Octopus” network into the Pearl River Delta Metropolis, particularly a generalized use in Guangdong in order to facilitate the residents of Guangdong and Hong Kong in making payments of their daily life expenses. The Octopus system was officially launched in September 1997 in Hong Kong. The Octopus card was a smart card initially used by the citizens in public transport including MTR, buses and other modes of transport. Now its uses have been greatly expanded to become a kind of widely used electronic money. It can be used in convenience stores to buy newspapers, in fast-food restaurants, in Starbucks Coffee and in Giordano for buying clothes. Its current circulation is more than 17,000,000 cards with more than 50,000 readers in Hong Kong, accepted in Hong Kong by more than 12,000 outlets, including car parks, swimming pools and horse racing tracks. Case IX. Hong Kong Octopus - a miracle of development The Octopus is Hong Kong citizens’ most commonly used smart card, utilizing non-contact top-level RFID digital technology. When it was first operational in 1997, it was only usable in buses and the MTR, extending later to almost all modes of transport, car parks, retail shops, street markets, self-help services, schools, recreational facilities and entry/exit security systems. At present, 95% of Hong Kong people between the ages of 16 and 65 own the Octopus card, and visitors can use it all through Hong Kong. The total number of daily transactions under the system exceeds 10 million, annual turnover is over 30 billion HK dollars and it is accepted by over 2000 service providers. Octopus integrates the different control systems with the requirements of the service providers into a central system, enhancing efficiency, and effectively collecting data on customer behaviors. With its infiltration rate, volume of transactions and variety of uses, Octopus leads the world. Octopus Cards Limited and China UnionPay signed a memorandum of cooperation in the hope to expand the business service network of Octopus into the Mainland so as to serve the people commuting between China and Hong Kong. Preliminary

299

discussions on cooperation between Octopus and Shenzhentung are also in progress. Promoting the extension of the Octopus network into the Pearl River Delta Metropolis can facilitate the Hong Kong people to go north for consumption, but the significance is not just limited to this. Octopus’s circulation is almost double the resident population of Hong Kong, it can be concluded that many frequent visitors to Hong Kong also hold an Octopus card. But these cards can only be used in Hong Kong and will be in a state of hibernation when the holders return to the Mainland. This not only causes inconvenience but also a waste of resources. Presently, the entry of Octopus into the Pearl River Delta economic zone is no longer faced with policy and technical constraints. In terms of policy, the China People’s Bank based in Guangdong Province with branches in relevant cities can grant approval to the entry. Even if Octopus is considered as electronic money, it will not impact on the financial order in the Mainland. On the one hand, Octopus only involves a mode of payment of daily life expenses and does not touch on the areas of investment and financial management. On the other hand, the system only involves small-sum payments. In February 2008, “Cafe de Coral” restaurant in Shenzhen started to accept payments by Octopus (customers in Shenzhen cannot refill with cash, but can do so through the credit card and ATM functions). This shows that there is no technical problem. As for the Octopus to achieve double-currency clearing and foreign currency refills, these are also technically feasible. At present, Octopus is exploring the possibility of cooperating with Shenzhentung. In April 2008, Shenzhen’s deputy Mayor in charge of traffic, Zhang Si Ping said that Shenzhen was speeding up the interconnection and convergence of the operations of Shenzhentung-Octopus. He also indicated that Shenzhen-Hong Kong should form a transport system to promote economic development of both places and promote the convenience of people in their daily life. In addition to hardware, the integration of traffic software of the two places also needs to be strengthened. Regarding the interconnection of the two systems, Shenzhen has always been supportive and has done a lot of preparation. Shenzhen Transportation Bureau has been delegated the responsibility to lead and it has formed a cooperation committee for the promotion of the interconnection, studying on various aspects and ways to

300

speed up the interconnection so as to provide more convenience for the people of Shenzhen and Hong Kong.87

The interconnection of Octopus and Shenzhentung involves two main issues. One is the necessary huge investments for system reconstruction. Octopus adopts SONY technology and Shenzhentung adopts a technology commonly used in the Mainland. The interconnection of the two systems requires the modification of nearly 50,000 equipments, several hundred million dollars in funding and the sharing of capital investments. Second is the policy bottleneck .The present fare reduction in public transport is effected in Shenzhentung. If the two systems are to converge in operations, whether the Hong Kong people using Octopus in Shenzhen will also be able to enjoy the reduction is an issue to be resolved. Third is the coordination required on exchanges settlement. Octopus clearing is based on Hong Kong currency while Shenzhentung is based on RMB .The fluctuations in exchange rates are further problems to be resolved. There are many proposals from the community. For example, since the modification of equipment involves a lot of expense, the more effective way is for Shenzhentung to give up its system, as it has a shorter history, and the amount of equipment and people using the facilities is relatively low. Alternatively, Octopus may invite relevant organizations to participate by taking shares in it, or a merger of Octopus with Shenzhentung can be considered. A more effective way may be for Octopus to cooperate with Shenzhentung and issue “Shenzhen Octopus” cards within the system of Shenzhentung, which is technically achievable. After proves successful, Octopus can also cooperate with “Yangchentung” in Guangzhou and issue “Yangcheng Octopus” cards so that Octopus can achieve interconnection, and on this basis cross-equity holdings can be achieved. 2. To Promote the Convenient Customs Clearance for People in the

Pearl River Delta Metropolis Among all flows of factors, the flow of human factors is of utmost importance. The existence of clearance issues within the country is a focal reflection of the specificity and uniqueness of the Pearl River Delta Metropolis. As a result, it is 87 “The Speeding up of the Interconnection of Shenzhentung with Octopus”, Guangzhou Daily (廣州日報), cited in Sina.com, 11 April 2008.

301

necessary to improve customs clearance software while strengthening the relevant hardware infrastructure construction, so as to expedite customs procedures for the people of the Pearl River Delta Metropolis and improve the efficiency of customs clearance. There is still a lot of inconvenience while applying for entry permits to Hong Kong and Macao in Guangdong as special requirements are imposed on applicants’ household registrations (applications must be made in the place of household registration), with higher thresholds for commercial endorsements. The endorsement cycle is longer and multiple entry applications are not entertained. Such phenomena are obvious among enterprises. Business staff of Mainland enterprises stationed in Hong Kong can only apply for individual entry permits. As most employees do not have a local Pearl River Delta household, it is difficult for them to apply in Guangdong. Furthermore the individual entry permit system is not open to all residents in the Mainland, making it very difficult for some employees of enterprises to engage in business activities in Hong Kong, which require high mobility and frequent travel between Shenzhen and Hong Kong. Due to entry restrictions, multiple entries cannot be realized. In customs clearance, there still exist the problems of cumbersome procedures and delay. The general view from enterprises is that the existence within a country of such a high threshold of customs procedures is rare. Barrier-free entry procedures have been effective among the European Union countries. The customs barriers and current customs clearance thresholds between Guangdong and Hong Kong are even higher than those between states, with each clearance usually taking at least tens of minutes and up to more than an hour. During holidays or special time segments, it may take even longer. While science and technology are so developed, the use of such outdated paper-based customs procedures needs to be replaced by more advanced means using modern technology. As a result, in the simplification of customs procedures for personnel, the following measures should be taken: First, gradually open up the household restrictions of residents in Guangdong and they should be allowed to apply for travel and business entry permit locally based on identification cards. For ease of control, qualification verifications can be carried out if necessary. Second, the electronic entry permit system of customs clearance is not only convenient

302

and safe, but also resources saving. It should become the dominant method of customs clearance between the Mainland and Hong Kong / Macao. It should be carried out on a trial basis and extended for national application after maturity. Third, gradually relax restrictions on residents of Guangdong to enter Hong Kong, conditionally realize the facilitation of bi-directional entries on a step-by-step basis for these people so as to change the mode of unidirectional flow of people between Guangdong and Hong Kong. Fourth, adapt to the changes and demands in the flow of people and vehicles through customs, speed up the planning and construction of cross-border infrastructures and a cross-border rail-based public transport system. We should also provide an integrated transport system to achieve easy passage through customs. Fifth, through the reduction of road and bridge tolls in the Metropolis, reduce the costs of travel of vehicles and people and through the use of technical means to achieve high efficiency in check point clearance. In addition, we should provide supportive services (such as education and health) to speed up integrated lifestyle in the metropolis through the introduction of the media (television), reciprocal media coverage to achieve information sharing and exchanges, and so on. XI. To Seek Sustainable Regional Development by Strengthening the

Coordination on Planning and Environmental Protection 1. Strive to Include “Quality Living Circle in the Green Greater Pearl

River Delta Region” in the National 12th Five-Year Plan for Environmental Protection, and Make the Pearl River Delta Metropolis an Example in Environmental Management for China

The cooperation concept on the formation of a “Quality Living Circle in the Green Greater Pearl River Delta” was endorsed at the 11th Plenary of the Hong Kong-Guangdong Cooperation Joint Conference. The Guangdong Provincial Government Environmental Protection Bureau responded positively and commissioned the Policy Research Center for Environment and Economy and the Chinese Academy of Environmental Planning of the Ministry of Environmental Protection to conduct research. The Study Group conducted research activities targeting on the subject of “Deepening the cooperation on environmental protection between Guangdong Hong Kong and Macao, forming a Quality Living Circle in the Green Greater Pearl River Delta”.88

88 “Hong Kong and Guangdong to Build a Pearl River Delta High-quality Living Circle, Environmental Protection to Go forward in a All-round Approach”, Nanfang Daily (南方日報), 27 September 2008.

303

Environmental protection cooperation between Guangdong and Hong Kong has shifted from post-environmental work to cross-border monitoring and control and even to the present level of quality living environments. A big breakthrough in the philosophy of cooperation came when the two sides moved from “pollution-free production” to “green living”. The “environmental cooperation” between Guangdong and Hong Kong has thus been raised to the level of “ecological cooperation”. This echoes the concept of “ecological civilization” proposed by the Central Government. In view of the idea of “Quality Living Circle in the Green Greater Pearl River Delta Region” still being under study, the deputy director of Environment of the Hong Kong Special Administrative Region Government, PAN Jie, in her article in Wen Wei Po put forward four main areas of cooperation including: First, the two sides will explore the setting of indicators for air quality and targets for reduction of emissions after 2010, which are practical and forward-looking, fully acceptable to people in the two places while reserving differences. Second, reduce emissions of pollutants at source and develop clean energy. Third, make common use of the environmental protection industry, to turn wastes into energy and encourage cooperation on recycling. Fourthly, the two places should actively respond to the problem of global climate changes in light of the actual situation, to match the general direction of state policy in the reduction of energy consumption.89

According to the latest progress in environmental protection and ecological cooperation between Guangdong and Hong Kong, there exists a lot of space for expansion in the concept of ecological cooperation and contents of work. The details of cooperation in this area must be enriched and deepened. We propose to make breakthroughs in five aspects: (1) Formulating regional environmental cooperation blueprints and ecological development plans In the past, on Hong Kong-Guangdong cooperation in environmental protection, many environmental protection projects are emergency-type solutions with less emphasis on long-term and strategic cooperation. This situation results in fragmented cooperation rather than cooperation integrated 89 Poon Kit, “The Green Greater Pearl River Delta: a New Milestone in the Cooperation Between Guangdong and Hong Kong”, Wen Wei Po (文匯報), 20 August 2008.

304

into a common platform. However, ecological cooperation involves all levels of economic, social and human development aspects, which cannot be resolved by a single department of environmental protection. It requires inter-departmental collaboration. The development of the blueprint for regional environmental cooperation can upgrade ecological protection to the level of basic principles of regional development, so as to serve as reference for various departments in the formulation of future targets, thus avoiding unnecessary conflicts. This not only reflects the decision of the two governments in environmental protection, but in the course of formulating the plan, can also incorporate the wisdom of the community so that the development plan will include the social wishes from below and in the meantime, reflects the integration of government objectives with financial resources from above. (2) Transforming the concept of regional ecological cooperation from “environmental management” to “green living”, linking up “production” and “lifestyles” At present, cycling economy, cycling industry and clean production popular in the Mainland and Hong Kong are generally based on the production and environmental governance point of view. This development concept is still subordinate to the concept of industrialization, paying more attention to economic benefits. However, the ecological considerations cover both “life” and “production”. If the promotion of ecological cooperation is purely based on the industrial development and economic benefits, not only will it give no consideration to the social nature of “life” and health factors, it will not be in co-existence with the green concept of “Nature” either. Therefore, Hong Kong-Guangdong cooperation should be based on ecological green living “as the prerequisite for pushing the region’s sustainable development.” Hong Kong as a city of consumption and daily life will have a lot of consumer waste, such as electronic refuse and glass bottles. In fact, these waste products can be recycled into a new program of production using high-tech means, supplemented by labor-intensive back up. In Hong Kong, due to the absence of basic industrial activities, the minimum scale required for recycling and the Mainland policy preventing the import of garbage, some of the waste worthy of recycling are forced to be sent to landfill and buried, resulting in a waste of resources. Guangdong and Hong Kong can consider trans-regional cooperation on recycling some of the daily life and business wastes worthy of recycling, for

305

example, the centralized handling of the wastes by enterprises certified by the two governments and to effect the recycling in a specified area according to regulations, with the support from the Governments. This will reflect the support of the two Governments on regional ecological development. The support package may include government procurement and tax incentives, etc. (3) Unifying and agreeing on the regional environmental standards The obstacles that exist in environmental protection cooperation between Guangdong and Hong Kong are mainly due to inconsistencies in environmental standards, resulting in operational problems of Hong Kong business in the Pearl River Delta. Guangdong and Hong Kong, as advanced areas in the country, should progress according to international environmental standards, particularly in the case of Hong Kong. While checking environmental indicators, the two Governments should consider reciprocal acceptance of laboratory reports and exchanges of the latest progress in testing on a regular basis and make timely amendments and enhancements on environmental standards. (4) Coordinating and managing the regional polluting industries Large segments of the polluting industries of the Pearl River Delta are owned by Hong Kong residents, such as the electroplating industry. However, these industries are an indispensable part of the package of the Pearl River Delta industrial system. A total ban on these operations will have an impact on the integrity of the industry, and will increase production costs, slow down the speed of production and eventually reduce the overall returns of industries in the Delta region down the system of industrial value chain. The two Governments should actively make reference to Japan and the European Union on the region’s industrial pollution control model. They should ,on the one hand, raise the standard of monitoring, and increase punitive efforts; on the other hand, centralize the enterprises concerned in the designated areas for unified management. In fact, some of the raw materials in the emissions can be recovered. The Governments can make use of the market mechanisms to encourage environmental protection enterprises to localize the sewage disposal and operate recycling business in the meantime so as to create greater economic efficiency. This can avoid uncontrolled small and

306

medium-sized enterprises in the Pearl River Delta conducting recycling business on a piece-meal basis and hiding their arbitrary emissions. The two Governments should closely exchange information on the regulation of industrial pollution in order to strengthen the region’s industrial pollution management and prevent imports of polluting industries and products. (5) Strengthening “green living” and ecological development “Green living” can be extended to two major parts, food and housing construction. “Food” covers regional food security and supply of green or organic food. “Housing construction” means the enhancement of the indicators of building constructions on energy-saving and emissions reduction. These help promote the development of green building materials so as to achieve “quality life”. Generally speaking, the Pearl River Delta Metropolis should uphold the ideal of “protecting the environment through the course of development, seeking development through environmental protection”, and consider environmental protection as a development strategy as well as an investment strategy that will increase the economic competitiveness of Guangdong and Hong Kong. The Pearl River Delta Region should follow the development direction of the National 12th Five-Year Plan for environmental protection and strive to make the region’s cooperation on environmental protection a leading example for China.90

90 In a city with an area of 86 square kilometers, the highest building only has eight storeys. There will be enough space in the city to walk around. Buses are powered by fuel cells; urban catchment, water treatment and recycling systems will be constructed and 80% of the solid waste is recycled. In this regard, there are many successful experiences at home and abroad worthy of learning. The city of Freiburg, Germany is considered one of the world’s “greenest cities”. It is Germany’s “environmental capital”; Vaxjo in southern Sweden is a university city well known for its successful green policy; in Brazil, Parana state capital Curitiba is known as the “ecological capital of Brazil”; Masidaer, the capital of Abu Dhabi of United Arab Emirates is building the satellite city in order to achieve the goals of carbon-neutral, zero-emissions and ‘no-car’ and become the world’s most environmentally friendly city. In China, the world’s first “eco-city” will be built in Dongtan of Shanghai’s Chongming Island. In this area sea breeze and the burning of organic waste is used for power generation. Dongtan of Chongming Island will become the world’s first zero-emissions of carbon dioxide city. In Shandong Rizhao city benefits from the widespread use of solar energy, air quality and water quality of coastal waters are maintained at the national level. Dongsheng District of Ordos City in Inner Mongolia Autonomous Region has cooperated with Sweden for the construction of zero emissions cities and towns, with buildings all using the advanced eco-sanitary systems recommended by Stockholm International Research Institute of Environmental Health. Human wastes, sewage, household garbage are treated ecologically to achieve harmless recycling and zero emission of pollutants in small districts.

The Pearl River Delta Region should become a pioneer in realizing China’s development goal of “ecological civilization”. Furthermore, the

307

Guangdong and Hong Kong regions should be developed into a world-class quality living environment, accomplishing dual changes in economic development and lifestyle. 2. To Transfer Heavy and Chemical Industries to the Peripheral Areas

of the Pearl River Delta Metropolis

From the perspective of environmental protection and sustainable development, presently the larger ports of the Pearl River Delta Metropolis are now concentrated at the estuary of the Pearl River. The three major ports of Hong Kong, Shenzhen, and Guangzhou, for instance, are situated in the inner circle of the Pearl River Delta Metropolis. The large volume of logistics and transportation activities at these ports cause serious pollution problems. A more serious issue is the existence of heavy and chemical industries in the core areas of the Pearl River Delta Metropolis. This will put pressure on the Pearl River Delta Region’s central districts to support transportation, as well as protect people’s safety and the environment. The distribution of industry in the Pearl River Delta Metropolis should not be decided only with local interests in mind. Rather, it should be assessed from a more macro perspective, considering the interests of the whole Pearl River Delta Metropolis. In the planning of infrastructure facilities, the important logistics centers should be located in the peripheral areas of the Pearl River Delta Metropolis supported by planning for road networks. In other words, while people flow mainly through the central districts of the Pearl River Delta Metropolis, cargoes will flow mainly through the peripheral areas of the region. By separating the flow of people from cargoes, space is more effectively used. Hence, port developments should be focused in Zhuhai and Huizhou in the east and west wings of the Pearl River Delta Metropolis, making them important logistics nodal points in the Delta Region. From a long-term planning point of view, heavy and chemical industrial projects should be located in the peripheral and coastal areas. This would not only protect the environment but also help in driving development of the peripheral areas. The first choice would be the western part of Zhuhai and the eastern part of Huizhou. In December 2004, The Development Plan of Nansha Area was adopted by the People’s National Congress of Guangzhou, which becomes the first outline plan with legal significance. According to the plan, the positioning of industrial development and layout of Nansha is: “Make full use of the Nansha’s

308

geographical and natural advantage and water transport resources along the shoreline, with ‘big industries, huge flow of materials and commodities, heavy traffic’ as strategies for industrial development, with ‘construction of base, large-scale, intensiveness, and supportiveness’ as principles, using the eco-layout where professional terminal constructions are integrated with industries neighboring the port, functionally precise in forming a modern industrial base neighboring the port with petrochemical, steel, industrial machinery and equipment industries as emphases; at the same time, develop high-tech industries and information service industries with emphasis on IT industry, vigorously promote economic cooperation between Hong Kong and Guangdong and construct a science and technology industrial base with complementarity in superiorities, forming a Pearl River Delta manufacturing and R & D center of hi-tech and information products as well as a base of information technology education.”91

On the surface, such positioning of industrial development is without problem, but in the Nansha geographical location, such positioning merits careful scrutiny. According to Guangzhou Nansha Plan, “The Nansha Region is located in the Pearl River Delta geographical geometric center. Within a radius of 60 kilometers, there are more than 10 large and medium-sized cities; if extended to 100 km, almost the whole of the city cluster is covered”. With such a key geographical position, its industrial selection and development must be handled with the utmost care. In June 2006, a tentative decision was made to locate in Nansha a large petroleum refinery project jointly owned by Guangdong Province, Sinopec and Kuwait Petroleum Corporation. The US$5 billion investment project is expected to be completed and operational in 2010. The annual processing capacity of the refineries will be 15 million tons of crude oil (processing 300,000 barrels daily). If implemented smoothly, the project will exceed the previous “CSPC project” in Huizhou, which amounts to 4.3 billion U.S. dollars of investment, and become China’s largest Sino-foreign joint venture project. The project has attracted much controversy.92

91 See Nansha Stevedoring Co., Ltd of Guangzhou Port, Briefing on investment advantages of Nansha District. Downloadable from: http://www.gnict.com/cn/tzys5.jsp.

Concerns center on its effects on the region’s ecological, environmental and industrial safety problems. The subject sparked heated debates in The National People’s Congress and the CPPCC session. The focus of attention is on what kind of ecological, environmental and psychological impacts on the society will be

92 In the in-depth interviews with the group of government officials and experts, it was also considered very controversial and difficult to reconcile. Diametrically opposed views existed within the Group.

309

brought about by the introduction of such a large project in the heart of the Pearl River Delta Metropolis and whether it would become a potential hazard to the region. From the point of view that the Pearl River Delta Metropolis is targeted to be developed into a region for world-class green living and considering its prospects of development over the next 20 to 30 years, it does not seem appropriate to introduce this project as it is such a big one that concerns protection of the ecological environment and the quality of life of the future population of 50 to 60 million people in the Metropolis. Whether this project should be implemented should not be decided solely by the city of Guangzhou. It is a major issue for the whole Pearl River Delta Metropolis to resolve together. In fact, there have already been changes in the plan for Nansha. The steel industry originally envisaged was adjusted. There is still room for adjustment of the project. Either Zhuhai’s Gaolan Port or Huizhou’s Daya Bay Port has the right environment and capability to take up the project. If the various parties involved in the issue are able to reach an agreement on the sharing of benefits such as taxation, this project could be moved out of the core of the Pearl River Delta Metropolis.

310

Annex I Pearl River Delta Regional Development Model and Basic Characteristics

Mode of Development Basic Characteristics Dongguan Model It is typical of export-oriented development model. It has

the geographical advantage of being close to Hong Kong, using compensatory trade as a breakthrough in economic development. By improving infrastructure, using “business attracting business” approach, it gathers a large number of small and medium enterprises from Hong Kong and has gradually developed into a “New International Base of processing industry”.

Shunde Model It implements the strategy of “public ownership economy, with emphasis on industries and big backbone enterprises”, with a weak base of provincially-owned and social enterprises. It adopts debt financing to industrialize. However, the sustained economic development of Shunde is maintained by its reform of enterprise ownership. The Government retreated from competitive industries which enabled the fast development of the private economy and the formation of a household electrical appliance-oriented industrial cluster.

Zhongshan Model A hybrid economic model. In the initial stage of opening-up and reform, public ownership had some foundation and the expansion of its economy relied on the expansion of public ownership economy. In the late 1980s and early 1990s, county/town and foreign enterprises expanded quickly. “One town one enterprise” has been the target, rendering the gradual decline of the status of public ownership economy.

Nanhai Model The rapid development of small and medium-sized enterprises and the growing private economy result in non-public ownership economy as the main body. The traditional industries are dominant and constituted by clusters of small and medium-sized enterprises.

311

Dongguan Model - On the Road to East Coast (Wang Fu Hai, 2007) (Only Chinese Version Available)

Shunde Model - On the Road to West Coast (Wang Fu Hai, 2007) (Only Chinese Version Available)

312

Annex II Comparison of WTO with CEPA in the Field of Service Industries

Field WTO Services Classifications and Programs

CEPA Services Classifications and Programs

I. Commercial Services A. Professional Services (1) legal services

(2) accounting, auditing and bookkeeping services

(3) tax services (4) construction services (5) engineering services (6) integrated engineering

services (7) urban planning and

landscape construction services

(8) medical and dental services

(9) veterinary services (10) services provided by

midwives, nurses, doctors and nursing staff

A. Professional Services: (1) legal services (2) accounting, auditing

and bookkeeping services (4) construction services (5) engineering services (6) integrated engineering

services (7) urban planning and landscape

building services (8) medical and dental services

B. Computer and Related Services:

(12) advisory services related to computer hardware assembly

(13) software implementation services (14) data processing

services (15) database service (16) others

Agreement 1 : (B) Computer and Related

Services Information Technology Services

Agreement4: b. software implementation

services c. data processing services

313

C. Research and Development (R & D):

(17) natural science research and development services

(18) community science and humanity sciences research and development services

(19) cross scientific research and development services

D. Real Estate Services: (20) property ownership or

leasing (21) real estate services on fee

or contract basis

Appendix 4: D. Real Estate Services: (20) property ownership

or leasing (21) real estate services on fee or

contract basis

E. Leasing Services without Intermediaries:

(22) ship-related (23) radio-related (24) related to other means of

transport (25) related to other machinery

equipment (26) others

F. Other Business Services: (27) advertising services (28) market research and poll

services (29) management consulting

services (30) services relating to

consulting staff (31) technical testing and

analysis services (32) hunting and agriculture,

forestry-related services (33) staff placements (34) security check (35) science and technology

Appendix 4: F. Other Business Services: (27) advertising services (29) management

consulting services (41) conference services

and exhibition services Supplementary agreement 1.: K, staff placement service Agreement 3.: project costs consulting services

314

advisory services (36) equipment repair and

maintenance (excluding ships, radios and other means of transport)

(37) building cleaning services

(38) photo service (39) packaging service (40) printing and publishing (41) conference services (42) Others

Agreement 4: b. market research services d. management consulting

related services project management services (except constructional projects) public utilities services building cleaning services photo service printing and publishing services translation and interpretation services

II Communication Services

A. Postal Services B. Express Services

C. Telecommunications Services:

(43) voice telephony services (44) switch portfolio data

transmission services (45) circuit switching data

transmission services (46) telex services (47) telegram services (48) fax services (49) private leased circuit

services (50) E-mail (51) voice mail (52) wired information and

information retrieval (53) electronic data exchange

(EDI) (54) enhanced /value-added fax

services (including storage and delivery, storage and retrieval)

(55) laws and regulations, protocol change

(56) online information or data processing (including

Appendix 4: C. Telecommunications

Services: value-added telecom services (1) internet data center

business; (2) store-and-forward type

of business; (3) call center operations; (4) internet access service

business; (5) business information

services.

315

transaction processing) (57) others

D. Audio-visual Services (58) film and video production

and wholesale services (59) film screening services (60) radio and television

services (61) radio and television

transmission services (62) recording service (63) others

Appendix 4: D. Audio-visual Services Video

Distribution Services Distribution Services of Sound Recordings Cinema Service Chinese Film and Joint Production of Film

Agreement 1.: cable TV technical services joint production of TV series

E. Others

III. Construction and Related Engineering Services

(64) general building construction works

(65) general civil engineering construction works

(66) installation and assembly works

(67) building improvements and decoration works

(68) Others

Appendix 4: Construction and Related Engineering Services

IV Sales Services (69) agency services (70) wholesale trade services (71) retail services (72) special agency services (73) others

Appendix 4: Distribution Services A. commission agency services

(excluding salt and tobacco) B. wholesale services (excluding

salt and tobacco) C. retail services (excluding

tobacco) D. franchising

V. Educational Services

(74) primary education services (75) secondary education

services (76) higher education services (77) adult education (78) other education services

316

VI. Environmental Services

(79) sewage services (80) waste disposal services (81) health and related

services (82) others

Agreement4: environmental services (excluding environmental quality monitoring and pollution sources checking): sewage services solid waste disposal services exhaust gas clean-up services noise reduction service protection of natural environment and landscape services other environmental protection services health services

VII. Financial Services

A. All Insurance and Insurance- related Services:

(83) life, accident and health insurance services

(84) non-life insurance services (85) reinsurance and return (86) insurance-related services

(including brokerage and agency)

Appendix 4: A. All Insurance and Insurance- related Services a. life insurance, health

insurance and pension / annuity insurance

b. non-life insurance c. reinsurance d. insurance ancillary services

B. Banks and Other Financial Services (Except Insurance):

(87) public deposits and redemption of funds

(88) all types of loans, including user credit, commercial transactions agency and financing

(89) financial leasing (90) delivery service of legal

tender (91) guarantees and

commitments (92) transaction of private

accounts or customer accounts

Appendix 4: B. Banks and Other Financial Services (Except Insurance): a. accept public deposits and

funding to meet the public needs

b. all types of loans, including consumer credit, mortgage credit, commercial agency and financing

c. financial leasing d. all tools for payments and

remittance, including credit cards, check cards, traveler’s checks and bank draft (including import and export settlement)

317

(93)participation in the issues of

a variety of securities, including undertaking and arrangement as agents (public or private)and related services on securities issuance

(94) loan brokers (95) assets management (96) closing and clearing of

financial assets services (97) advisory services and other

auxiliary financial services (98) financial information,

financial data processing , provision and transfer of related software as provided by other financial service providers

e. guarantees and commitments f. foreign exchange (transactions

on their own or on behalf of customers) securities services

Agreement 1: futures services

C. Others

VIII. Health and Social Services

(99) hospital services (100) other human health services (101) social Service (102) others

Protocol 4: Social Services (1) social welfares

provided through residential institutions to the elderly and disabled

(2) social welfares provided through non-residential institutions

IX Services Related to Travel and Tourism

(103) hostels and hotels (including catering)

(104) travel agents and travel agency services

(105) tour guides (106) Others

Appendix 4: Tourism and Travel and Related Services A. hotels (including

apartment buildings) and restaurants

B. travel agents and tour operators

D. others

318

X Entertainment and Sports Services

(107) entertainment services (including theater, band and acrobatics performance, etc)

(108) news agency services (109) libraries, archives, museums

and other cultural services

(110) sports and other entertainment services

Agreement 1. : A. Cultural Services

(Audio-visual Services Excepted)

Agreement 4: D. Sports Services

XI Transportation Services

A. Maritime Services: (111) passenger (112) cargo (113) ship chartering (114) ship maintenance and

repair (115) tug boat

Services (116) maritime support

services

Appendix 4: 11. transportation services A. Shipping Service

B. Inland Water Transport: (117) passenger (118) freight (119) ship chartering (120) ship maintenance (121) tugboats services (122) river shipping support

services

C. Air Transportation Services: (123) passenger (124) cargo (125) chartering (126) radio repair (127) passenger support services

Agreement 1.: C. Air Transport Services Airport Management Services (Excluding Cargo Handling) Other Air Support Services Agreement 2: sales and marketing services of air transport services Agreement 4: air transport services d. aircraft repair and maintenance services, other air support services, computer reservation

319

systems (CRS) services, sales and marketing services of air transport services

D. Space Transport

E. Railway Transport Services: (128) passenger (129) freight (130) pushing and hauling of

locomotives (131) repairs of rail transport

equipment (132) railway transport support

services

F. Road Transport Services: (133) passenger (134) cargo (135) car rental (136) repairs of road transport

equipment (137) road transport support

services

Appendix 4: F. Road Transport Services Highway Freight Truck and Freight Transportation by Car, Highway Passenger Traffic Agreement 3: freight stations (Field) vehicle maintenance Agreement 4: regular intercity passenger services

G. Pipeline: (138) fuel transportation (139) transportation of other

goods and materials

H. Auxiliary Services for All Modes of Transport: (140) cargo handling services (141) warehouse and storage

services (142) freight forwarding services (143) others

Appendix 4: H. Support Services international transportation (freight and passenger) (except coastal mid-stream transport services) container freight station services

320

warehousing services freight agents services (excluding freight inspection)

I. Other Services Others Notes: 1. This classification was approved by the WTO Council for Services and Trade, according to the GNS (General National Standards) Services Classification, classifying the world’s service sector into 11 broad categories of services and 143 projects. 2. The table only covers the domains opened-up in CEPA, not the degree of openness. 3. CEPA listed services not listed in categories (GNS/W/120) are set out as follows: (1) logistics services; (2) qualifying examinations for professional and technical personnel; (3) trade mark agents; (4) patents agents; (5) individual industrial and commercial households. 4. WTO classification of services listed in bold type basically cover items already opened-up in CEPA, others are not yet opened-up Source: http://www.wtolaw.gov.cn and the relevant CEPA Agreements.

321

Annex III Special CEPA Arrangements Concerning Guangdong

Source of Provisions Category of Service Regulations

CEPA Appendix 4 (2003)

Legal services No minimum residential requirement on representatives from Hong Kong for law firms established in Shenzhen and Guangzhou; if outside of these two cities, minimum resident requirement is two months.

Retail services (excepting tobacco)

Allowing Hong Kong service providers in the Mainland to set up retail enterprises in areas up to the level of city; and up to provincial level in Guangdong

Allowing Hong Kong permanent residents with Chinese citizenship to set up individual industrial and commercial households in accordance with the relevant Mainland laws and administrative Regulations in Guangdong Province, without going through the foreign investment approval procedures ,in the scope of commercial retails, but does not include franchised operations; business area not more than 300 square meters.

Services related to travel and tourism

Allowing residents from Beijing, Shanghai and Guangdong Province (covering cities of Guangzhou, Shenzhen, Zhuhai, Dongguan, Zhongshan,

322

Jiangmen, Foshan, Huizhou) to travel to Hong Kong , policy to be implemented no later than July 1, 2004 throughout Guangdong.

Supplementary Agreement 1 (2004)

Cable TV Technology Service

Hong Kong cable television network operators if approved by the Mainland authorities may provide cable television network professional technical services in pilot provinces.

Road transport services

Franchised and non- franchised (Guangdong and Hong Kong through bus) bus operators of Hong Kong allowed to set up joint venture companies in Guangdong, Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou, and Sichuan to operate through-bus service between Hong Kong and the nine provinces.


Chinese language films and joint production of films

Films of Cantonese versions jointly produced by Hong Kong and the Mainland are allowed to be released and on show after obtaining approval from the Mainland authorities. Such films, after scrutiny by the Mainland authorities, may be imported (through a centralized channel), release and on show.

323



Hong Kong travel agencies in Guangdong, whether sole proprietorship or joint venture, are allowed to apply for pilot operations of travel business for residents of Guangdong Province (with official household registration) to travel to Hong Kong and Macao.


Convention and exhibition services

Hong Kong service providers using cross-border delivery are allowed to organize exhibitions in Guangdong and Shanghai on a trial basis. Wholly-owned or joint venture enterprises from Hong Kong service providers set up in Guangdong, Shanghai are allowed to operate overseas exhibition business, on a trial basis, participating enterprises should be enterprises registered in the province or city.

Social services Hong Kong service providers owned by private non-enterprise units allowed to operate in Guangdong on a trial basis to provide old-age services.


Hong Kong-owned or joint-venture travel agencies in provinces/ autonomous regions of Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan allowed to apply for operating on a trial basis

324

traveling business for residence (with official household registration) to travel to Hong Kong and Macao.

Cultural and recreational services (excepting audio-visual)

Hong Kong performing agencies or organizations allowed to perform on a trial basis in Guangdong and Shanghai, subject to approval of the authorities, on basis of cross-border delivery, performing agencies and institutions need to seek prior approval from the Ministry of Culture.


Commercial services (accounting, auditing and book-keeping)

Examinations are to be processed and conducted in Shenzhen City and Dongguan City in Guangdong Province for Hong Kong residents to take the accounting qualifying Examination; certificates to be issued to successful candidates by the Guangdong Province.

Commercial services (professional services)

Professionals from Hong Kong who acquired the urban planners qualifications are allowed to register in Guangdong Province without regard to his status of registration in Hong Kong; Professionals from Hong Kong who have acquired the supervision engineer qualifications are allowed to register in Guangdong Province without regard to his status of registration in Hong Kong.

325

Commercial services (medical and dental)

Hong Kong service providers are allowed to offer out-patient service on a sole-proprietorship basis and there is no restriction on the proportion of share holdings between Hong Kong and Mainland operators if operated on a joint venture or cooperative basis, no requirement on the amount of investments on out-patient service provided by Hong Kong service providers on a sole-proprietorship basis or on joint venture or cooperative basis; relevant Guangdong provincial health administrative departments are responsible for the approval of items of out-patient service on sole-proprietorship or joint venture or cooperative basis

Commercial services (personnel placements)

The minimum capital requirement for Hong Kong service providers to set up employment agencies in Guangdong will be similar to those required for Mainland operators in Guangdong;

the minimum capital requirement for Hong Kong service providers to set up talents intermediaries in Guangdong will be similar to those required for Mainland operators in Guangdong.

326

Environmental services Guangdong Province is to be responsible for the examination and approval of establishments by Hong Kong service providers of environmental pollution control facilities.

Social services

Hong Kong service providers in the form of sole-proprietorship, private non-enterprise are allowed to establish social service organizations for the disabled, using Guangdong as a pilot point.


Guangdong Province is commissioned for the examination and approval of establishments by Hong Kong service providers of wholly-owned, joint venture or cooperative travel agencies in Guangdong.

Transportation services (maritime services)

Hong Kong service providers and its wholly owned subsidiaries are allowed to provide ship agency services. to ship operators of Guangdong-Hong Kong/Macao routes in Guangdong pilot points.

Transportation services (road transportation)

Guangdong Province is commissioned for the examination and approval of the Hong Kong productive enterprises invested in Guangdong in offering cargo

327

over-land transportation services; Guangdong Province is commissioned for the examination and approval of the establishment by Hong Kong service providers of service items of repair, driver training, passenger and cargo transit stations in Guangdong.

Classification not listed (private industrial and business households)

Hong Kong permanent residents with Chinese citizenship are allowed to set up, in accordance with the relevant Mainland laws, regulations and administrative rules, individual industrial and commercial households in Guangdong Province without going through the procedures for approval of foreign investments, business not including franchising. The number of employees is not to exceed 8. Business areas cover trade brokerage, agency (excluding auction) and leasing (not including rental services).

Source: Compiled by the research team from clauses in the CEPA Agreements.

328

Annex IV Main Topics Covered in the 1st-11th Hong Kong-Guangdong Cooperation Joint Conferences

Order Main Topics

The 1st Meeting (March 1998)

Guangzhou

Explored the mode of joint conference; exchange of information on the two places; decided to have conference held in Hong Kong and Guangzhou by rotation.

The 2nd Meeting (September 1998)

Hong Kong

The link up of information networks of the two places; To reinforce the cooperation on cross-border environmental protection; announced the extension of Lo Wu and Hong Kong port operating hours.

The 3rd Meeting (September 2000)

Shenzhen

Mainly on environmental issues including the East River Reservoir.

The 4th Meeting (July 2001)

Hong Kong

Joint development of Nansha, Zhuhai Airport and Hong Kong Airport co-operation, port cooperation, Shenzhen Western Corridor.

The 5th Meeting (March 2002)

Zhuhai

Agreed on “co-location” at the Shenzhen Western Corridor control point, explored the connection between the two places with fast track transport system, the expansion of tourism cooperation.

The 6th Meeting (August 2003) Hong Kong

On the general idea of co-operation between Guangdong and Hong Kong, a consensus was reached in accordance with the guiding principle of “forward-looking, overall, pragmatic, of mutual benefit” in the framework of CEPA, decided to seize the opportunity to complement each other and strengthen cooperation; to further promote the complementary advantages, better integration of resources of the two places; to integrate the manufacturing industries, technology, markets, labor and resources advantages in Guangdong with

329

the advantages of Hong Kong in international commerce, finance, management, and human resources, to jointly create a situation of parallel development of manufacturing industry and service industries in the “Greater Pearl River Delta”.

The 7th Meeting (August 2004) Guangzhou

Stressed that cooperation between Guangdong and Hong Kong requires “three strengthening” and “three advancing”, i.e., strengthening cooperation in the manufacturing sector, strengthening cooperation in the service sector, and strengthening cooperation in ports; advancing the “Pan-Pearl River Delta” regional cooperation and jointly promoting the “Greater Pearl River Delta,” advancing large-scale cross-border infrastructure construction and preparatory work, and advancing exchanges of personnel between Guangdong and Hong Kong and cooperation in science, technology, and education.


Stressed that cooperation between Guangdong and Hong Kong requires “four further” and “five close integration.” i.e., further strengthening cooperation, further expanding areas of cooperation, further expanding cooperation in the hinterland, and further enhancing the level of cooperation; promote the close integration of the cooperation in the manufacturing and service industries, promote the close integration of cooperation in the “Greater Pearl River Delta” with the cooperation in “Pan-Pearl River Delta region”; promote the close integration of Hong Kong business investments in Guangdong with Guangdong investments in Hong Kong, promote the close integration of cross-border infrastructure constructions with control points cooperation and promote the close integration of economic and trade cooperation with cooperation in science, education, cultural exchange and healthcare .


Stressed the need to focus on the “five new standards.” The first is to promote economic and trade cooperation to a new standard and raise the level of manufacturing of Guangdong, expand the space for development in Hong Kong’s service industries, deepen the implementation of the CEPA,

330

strengthen cooperation in professional services. The second is to promote cooperation to a new standard of the people’s livelihood, focused on food safety monitoring, major epidemic prevention and environmental protection. Third, to advance the cooperation in construction of large-scale cross-border infrastructure and control points to a new standard, focused on the Western Corridor, the Guangzhou-Shenzhen-Hong Kong passenger traffic route and the Hong Kong-Zhuhai-Macao Bridge preliminary work, strengthen the electronic customs clearance and improve the capacity of customs clearance efficiency and the customs environment. The fourth is to advance the cooperation between Greater Pearl River Delta and the Pan-Pearl River Delta Region to a new standard. Fifth, to promote the cooperation in science and technology, education, arts and cultural affairs to a new standard.


To advance focally on 30 cooperation projects in six areas: first, to deepen economic and trade cooperation between Guangdong and Hong Kong; second, to deepen cooperation on affairs connected with the livelihood of the people of Guangdong and Hong Kong; third, to deepen the cooperation in construction of large-scale cross-border infrastructure and control points; fourth to deepen the Greater Pearl River Delta and the Pan-Pearl River Delta Regional cooperation; fifth, to deepen cooperation between Hong Kong and Guangdong in science and technology, education and cultural affairs; sixth, to deepen cooperation in the transformation and upgrade of the processing enterprises . Six cooperation agreements were signed: “Cooperative Agreement on Deepening the Implementation of CEPA, Jointly Promote Cooperation in the Service Sector of Hong Kong and Guangdong”; “Cooperative Agreement on the Promotion of Hong Kong and Guangdong Enterprises to Develop Energy-saving, Cleaner Production and Comprehensive Utilization of Resources”; “Arrangements on the Cooperation of Hong Kong-Guangdong on Social Welfares”; “Agreement on the Imposition of Inspection and

331

Quarantine seals on Means of Transport of Pond Fish to Hong Kong”; “Agreement on Cooperation between Guangdong and Hong Kong on Intellectual Property for 2007 to 2008”; “Arrangements Related to Strengthening Co-operation Between Guangdong and Hong Kong in Information Technology .”


Clarified the foci of the next stage of cooperation between Guangdong and Hong Kong: To deepen cooperation in the service sector, in the transformation and upgrade of Hong Kong processing trade, in affairs connected with the livelihood of the people, in large-scale infrastructure construction, in financial cooperation and cooperation in the community. Eleven agreements were signed related to promoting the implementation of CEPA, transformation and upgrade of processing industry and trade, and cooperation between Guangdong and Hong Kong in education, health care, tourism, construction, social services, scientific and technological innovation, talent agencies, emergency management and other fields. At the same time, Hong Kong and Guangdong will jointly propose the incorporation of cooperation between Hong Kong and the Pearl River Delta into the Country’s development plan.

Source: Compiled by the research team from various sources of information.

332

Annex V Economic Characteristics of the Tokyo Metropolitan Area and the Pearl River Delta Metropolis

Economic characteristics of the eight capitol/counties in the Tokyo Metropolitan Area

Capitol/County Economic Characteristics

Tokyo Met The biggest industrial city in Japan, ranking the first in the country in industrial production. Major industries include metalworking industry, shipbuilding, machinery manufacturing, chemical industry, leather, electrical, textile, oil, printing and publishing, precision instruments and others. It is also Japan’s commercial and financial center and the Japanese cultural center, with a total of more than 190 universities, representing 50% of universities in the country. The publishing sector accounts for 80% of the country.

Kanagawa Prefecture

It has the largest trade port - Yokohama, rich tourism resources, good industrial environment, dense population, providing good conditions for the agriculture and fishery industries and the development of the tertiary industry. Its industrial and agricultural output values are only second to that of Aichi Prefecture, being the second in the nation; the city of Yokohama and Kawasaki City are two industrial centers in the Keihin Industrial Zone. They play a leading role. It is highly developed in heavy industries; transport machineries (cars, ships), electrical machineries and food processing are the three major industrial sectors representing the city’s total industrial output value of more than half; residential areas have developed rapidly in recent years.

333

Chiba Prefecture It is well developed in agriculture, fisheries and industry. Agricultural products such as peanuts, potato, flowers and livestock are first in the country. Along Tokyo Bay is the Chiba industrial area, concentrated with a lot of energy, chemicals, iron and steel enterprises. Near the Tokyo side, a lot of people who go to work in Tokyo live along the railway line.

Saitama Prefecture The main agricultural activities are cultivation of vegetables. Industries are affected by the Tokyo, being basically the processing zone for Tokyo and it is difficult for it to be self-contained. Major cities like Urawa, Omiya, Kawaguchi, Tokorozawa, Kawagoe are the satellite towns of Tokyo, being densely populated locations in the Tokyo’s commuter circle.

Gunma Prefecture

Being surrounded by mountains in the north, east and west, rail transport is not developed. Silk-processing and mechanical industry are developed, cocoon production represents one-third of the total production in the country.

Li Mu Prefecture Agriculture is relatively developed, showing the characteristics of the outer suburbs of agriculture, the main products are wheat, rice, and strawberries. Animal husbandry of cows is also more developed, mainly for sale to Tokyo. Industrial development began with the construction of the highway, localized in the middle.

Ibaraki Prefecture Agriculture and fisheries are developed, area of crop cultivation ranks the second in the nation. Fruit trees, vegetables, flowers, and breeding are very well developed industries; the scale of the pig industry ranks the first in the country.

Yamanashi Prefecture Known as the kingdom of fruit trees, production of peach, plum, grape and wine ranks the first in the country. Precious metal and precious stone processing technology are developed with jewelry processing industry being famous country-wide.

334

Economic Characteristics of the 11 Cities in the Pearl River Delta Metropolis

City Economic Characteristics

Hong Kong The top five centers in the world economy (trade center, financial center, shipping center, tourist center and information center), mainly specialized in integrated services of high grade production and consumption , high grade tertiary industry.

Macao Mainly based on gaming industry, together with financial services, export processing, construction, and real estate constitute the four pillars of industry.

Guangzhou The political, economic, culture and transportation center of Guangdong Province, with heavy industry as a clear trend; automobile, petrochemical, and information technology are the three pillar industries with a leading role; the development of high-tech industries is comparatively advanced; logistics, exhibition, finance, tourism, information and other modern service industries; city type agriculture.

Shenzhen Export-oriented, an internationalized nucleus city, high-tech industries, modern finance, modern logistics industry are the “three pillar industries”, communications equipment, computers and other electronic equipment manufacturing industry, the world’s fourth largest container port and the fourth national airport; urban agriculture and marine industries.

Zhuhai Industries with comparative advantages including electronic information, electrical appliances and petrochemical industry have come into shape. The trend of growing structural sophistication and being heavily industrialized is obvious; near-sea heavy chemical industries with electric power, petrochemical, iron and steel as representative are developing rapidly; export-oriented service industry, logistics, real estate, tourism, exhibition and other pillar industries, traditional service industry like F&B, catering.

335

Foshan Completed the initial manufacturing base, a trend in heavy industrial structure and high grade industry development, rapid development of high-tech industries; modern service industry focused on logistics; city type of agriculture and high-efficiency agriculture including fishery, animal husbandry, vegetables, flowers, and fruit showing special features.

Jiangmen Service industries including tourism, transportation, wholesale and retail services; motorcycle spare parts, paper and other industries, traditional industries such as textiles, metal products, food, household electrical appliances, building materials and so on; modernized agriculture.

Dongguan

Electronic information, electric machinery as superiority pillar industries, textile and garment, furniture, paper, food and drinks, toys as traditional pillar industries; commercial retailers, professional wholesale market, regional convention and exhibition center (electronics fair, prestigious furniture exhibitions, Humen clothing fairs, etc.), logistics base (Songshanhu, Humen port and the “Greater Beijing-Kowloon and tourism.

Zhongshan

Industries with greater potential include equipment manufacturing, medicine, new materials, new types of environmental protection, optical- mechanical and electrical integration, fine chemicals, printing and packaging, electrical machinery, metal products, textiles and garments, foodstuffs and other traditional superiority industries; modern circulation, tourism, real estate; agricultural eco-tourism and farm produce processing industry.

Huizhou Traditional industries include heavy chemical industry, electronic information industry, marine economy, textiles, clothing, footwear, food, pharmaceutical; large-scale professional markets, thrift, leasing, auctions, and tourism.

336

Zhaoqing

Gradual formation of industries like electronic information, bio-engineering, metal processing, machinery manufacturing and auto accessories, textile and garment, food and beverage, building materials, forestry products and chemical industries; strong agricultural production capacity, featured agriculture is strong, industrialized operations of agriculture have begun to take shape, forming the 10 featured agricultural base.

Source: Economic plan of the various cities in the 11th Five-Year Plan of the National Economy (excepting Hong Kong and Macao).

337

Annex VI Comparison of Institutional Mechanisms within the Pearl River Delta Metropolis

Category Item Hong Kong Guangdong

Political system Nature of society

Capitalist system with high degree of freedom

Socialist system

Political system

In accordance with the “Basic Law”, Hong Kong people ruling Hong Kong with a high degree of autonomy and a parliamentary form of government

System of People’s Government under the leadership of the Communist Party of China

Legal system Legal system Enjoy legislative and independent judicial power, with authority on final jurisdiction. People have relatively stronger legal concept

Comparatively sound legal system, establishment of Guangdong Provincial High People’s Court, the legal concept of the public is gradually strengthening

Intellectual property

Satisfactory measures of protection

Gradually and continuously improving

Public administrative system

Administrative level

Special Administrative Region of the country, directly under the Central Government; the main government officials are the Chief Executive, the three

Provincial Administrative Region, government formed by the Governor, General Offices, the functional bureaux

338

Secretaries and 11 Directors of Bureau

and related departments

Management Special Administrative Region Chief Executive is nominated by election or through consultations, appointed by the Central People’s Government, following the system of responsibility by the Chief Executive

Following the system of Provincial People’s Congress System under the leadership of the Communist Party of China, implementing the Provincial Government system of collective leadership

Immigration control

With autonomy on immigration control, more than 170 countries and regions enjoy visa-free entries to Hong Kong for a period ranging from 7-180 days

In accordance with the relevant provisions of “Immigration Control of Citizens” and “Entry and Exit Control of Aliens Act”

Urban planning and management

Urban planning and decision-making mechanism and implementation mechanism are separated , the main decision-making departments are Urban Planning Commission and the Planning and Land Development Committee, town Planning in 3 levels, i.e. the whole of Hong Kong, sub-regional and regional levels

Urban planning mainly done at the provincial and municipal levels. Government is both the organizer and executor of urban planning and construction. Departments responsible for the implementation including functional departments of those

339

connected with land planning, construction, and urban management

Economic system

Taxation system Independent taxation system legislating on its own taxes, tax rates, tax relieves and other tax services; mainly based on direct taxes; exercising jurisdiction on a single source of revenue; financially independent, without revenue obligation to the Central People’s Government; the Central People’s Government does not levy tax on the SAR Government

Following the unified national taxation system, implementing the composite taxation based on commodity tax, with indirect taxes as represented by value-added tax as the main body supplemented by income tax; tax revenues to be handed over to the Central Government annually in line with the relevant provisions

Currency Mainly HK currency; RMB is essentially in circulation

Mainly RMB; the Hong Kong currency is in circulation to a certain extent

Economic control

“Positive non-interventionism”

Government “interference”

Industrial Policy Market-led industrial development

Government-led industrial policy

Market competition

State of perfect competition Imperfect competition

Degree of openness of market

Market completely open; the world’s freest market economy

A high degree of economic freedom and openness to be furthered

340

Financial

control Complete freedom

Central control

Stock market

Stock Exchange of Hong Kong set up according to “Company Law”; organization in the form of limited liability company and responsible for the approval of listing applications from enterprises

Shenzhen Stock Exchange is a legal entity; listing in the Stock Exchange is subject to the approval of China Securities Regulatory Commission

Social services system

Public Safety Social stability, better security

Too much floating population, security efforts need to be strengthened

Educational Resources

Rich; comprehensive system of higher education

Satisfactory; standards of higher education need to be raised

Health care system

System managed by the Department of Health and the Hospital Authority; the Department of Health is responsible for public health; the Hospital Authority is responsible for the management in terms of investment and operations; medical institutions can be categorized into three : government-run, subsidized, and private; government-run hospitals provide low-cost medical services to residents

Provincial and municipal governments are responsible for the management of the health sector; hospitals are of two kinds, i.e., government -run hospitals, and private hospitals (including clinics); medical fees and charges are more or less the same, private clinics are relatively cheaper; government medical institutions accepts payments by medical

341

insurance, private hospitals do not

Medical insurance

Standard of protection comparatively higher, financed by the Government and enjoyed by all residents

Protection according to extent of insurance coverage; enjoyed by the insured

Company formation

Simple; convenient; transparent

Relatively complex with specified procedures

Public transport Highly efficient and convenient

Needs development and perfection

Information control

Completely open With necessary controls

Cultural factors Mixed with Chinese traditional and Western culture; both in full play

Chinese traditional culture and southern Guangdong culture; immigrant culture and innovative culture

Social services With numerous social services organizations; system of social assistance complete

Social organizations are gradually improving and in orderly development

342

Annex VII Distribution Map of Guangdong’s Specialised Townships

Chaozhou (12) Chaoanguxiang (Ceramic and bath accessories ), Chaoananfu (Food and printing), Chaoanfenghuang (Tea leaf), Chaoancaitang (Stainless Steel), Raopinghuanggang (Agriculture and aquatic products), Chaoanjinshi (Flower), Fengxi (Ceramic), Raopingjingzhou (Aquatic product), Raopingsanrao (Daily-used ceramic), Chaoanfengtang (Ceramic and paper making), Raopingxinfeng (Daily-used ceramic), Raopingfubin (Tea leaf) Foshan (30) Chanchengnanzhuang (Ceramic), Chanchengshiwan (Ceramic), Chanchengzhangcha (Knitting), Chanchenglanshi (Stainless steel), Chanchengzumiao (Children wear), Nanhaidanzao(Stainless Steel), Nanhaishishan (Electrical appliance, toy and car accessory), Nanhaixiqiao (Textile), Nanhaiguicheng (Machinery equipment and shoe industry), Nanhaijiujiang (Metallic product), Nanhailishui (Sock), Nanhaidali (Aluminium), Nanhaiyanbu (Underwear), Nanhailuocun (Lamp), Shundechencun (Flower), Shundejunan (Jeans), Shundelunjiao (Machinery manufacturing), Shundebeijiao (Electrical appliance), Shundelecong (Furniture market), Shundelongjiang (Furniture manufacutring), Sanshuidatang (Vegetable), Shundeleliu (Metal and electrical appliance), Shundedaliang (Electrical machine), Gaominghecheng (Plastic materials), Gaomingyanghe (Metal materials), Gaominggenghe (Cultivation and stainless steel) Meizhou (12) Dapugaopu (Daily-used ceramic), Meixianyanyang (Pomelo), Fengshuntangkeng (Electronic equipment ), Xingningxinwei (Craft), Meixianjiang (Craft and knitting), Fengshuntanjiang (Ceramic), Fengshuntangxi (Breeding), Pingyuandazhe (Wooden industry), Xingningningxin (Textile), Fengshunliuhuang (Green olive), Jiaolingxinpu (Construction materials), Xingningyetang (Poultry) Jieyang (9) Dongshan (Stainless Steel), Jieyangxichang (Food and machinery), Jiedongyuhu (Common yam rhizome and taro), Jiexihepo (Electronic piano), Rongchengxianqiao (Shoe), Rongchengmeiyun (Metal and Stainless Steel), Jieximianhu (Metal and electronic appliance), Rongchengrongdong (Micro motor), Jiedongpaotai (Tyre mould) Guangzhou (1) Huadoushiling (Leather product)

343

Zhaoqing (11) Gaoyaojinli (Small-sized metal), Sihuidongcheng (Jade processing), Duanzhouhuanggang (Inkstone), Gaoyaoxiangang (Vegetable plantation), Dinghufenghuang (Tourism), Huaijilengkeng (Herbal Medicines), Huaijiqiaotou (Tourism), Deqingmawei (Queen tribute tangerine), Huaijizhongzhou (Iron mine), Gaoyaolubu (Lychee), Deqingguanwei (Fruit) Huizhou (4) Huidonghuangfu (Shoe manufacturing), Boluoyuanzhou (Clothing), Huidongtieyong (Potato), Huichenghengli (Preserved Chinese cabbage) Zhongshan (11) Huangpu (Food processing), Nantou (Electrical appliances), Xiaolan (Metal), Guzhen (Lamp), Shaxi (Leisure clothes), Dayong (Redwood furniture), Minzhong (Fruit and vegetable plantation), Dongfeng (Small-sized electrical appliances), Dongsheng (Office furniture), Banmei (American furniture), Nanlang (Cultural tourism) Shaoguan (5) Chengjianglishi (Plantation and cultivation), Qujiangdatang (Vegetable), Wengyuanjiangwei (Flower), Nanxiongpingtian (Ginkgo), Qujiangmaba (Oilcake) Yangjiang (4) Yangdongdongcheng (Metal cutting tools), Jiangchengpinggang (Aquatic product cultivation), Yangdongdongping (Fishing), Yangchunheshui (Silkworm and mulberry cultivation) Zhuhai (1) Doumenbaijiao (Aquatic product) Jiangmen (16) Penjiang (Motorcycle and accessory), Penjiangduruan (Metallic bath accessories ), Jianghai (Electronic materials), Xinhuadabie (Cargo container), Xinhuisiqian (Metal and stainless Steel), Shangxiachuan (Fishery), Kaipingshuikou (Water heating equipment), Kaipingshagang (Textile and clothing), Heshanshaping (Shoe manufacturing), Enpingencheng (Microphone), Xinhuishadui (Aquatic product cultivation), Xinhuiluokeng (Textile), Kaipingyueshan (Chemical industry), Heshantaoyuan (Umbrella manufacturing), Penjianghetang (Glass and lamp), Heshanzhishan (Metal and bath accessories )

344

Maoming (11) Maonanshange (China clay), Gaozhougenzi (Lychee), Dianbaibomao (Fishing), Xinyihuaixiang (Bamboo weaving), Maonangongguan (Luofei fish), Dianbailintou (Peanut plantation), Gaozhousishui (Beiyun vegetable), Huazhounawu (Planting and cultivation), Xinyidongzhen (Temperature-controlled product), Dianbaidiancheng (Aquatic product cultivation), Gaozhouxieji (Banana) Heyuan (6) Lianpingzhongxin (Peanut and garlic), Dongyuanchuangtang (Dongyuan chesnut), Dongyuanshangwan (Xianhu tea leaf), Hepingxiache (Macaque peach), Longchuanshangping (Tangerine), Lianpingshangping (Dried peace slices) Shantou (22) Chaoyanggurao (Textile and clothing), Longhuwaisha (Knitting and crafts), Jingpingyongxiang (Packing and printing), Haojiangdahao (Craft pack), Jingpingshipaotai (Light machinery), Chenghaichenghua (Knitting and crafts), Chenghaifengxiang (Toy), Chaonanliangying (Knitting and clothing), Longchaoxinjin (Packaging and printing), Chaonanxiashan (Fine chemicals), Chaoyangheping (Music and video product), Jinpingtongyi (Food), Jingpingtuopeng (Aquatic product), Haojiangbishi (Building industry), Chaoyangguiyu (Metal and electrons separation), Chaonanchendian (Electrons and electrical appliances), Chenghaidongli (Metal), Jingpingwuqiao (Electrons), Jingpingqishan (Paper and plastic manufacturing), Jingpinghaian (Medicine chemistry), Chenghaipengxia (Daily-used chemical products), Haojianghepu (Aquatic product) Qingyuan (6) Qingchengyuantan (Ceramic), Qingchenglongtang (Metal and electrons), Fogangshijiao (Electronics), Qingxinfeilaixia (Crystal sugar tangerine), Qingxinlongjing (Electrical ceramic parts), Qingxinshantang (Polishing) Yunfu (15) Yunchenghekou (Stone industry), Xinxingxincheng (Stainless Steel), Xinxingtiantang (Vegetable and flower), Yunanjiancheng (Wampee, Shatang tangerine), Yunannansheng (Fruit plantation), Luodingluocheng (Textile and clothing), Xinxinglezhu (Planting and cultivation), Xinxingtaiping (Dried green plum), Yunchengyuncheng (Stone and machine), Yunandongju (Silkworm and mulberry industry), Yunanliudou (Cement manufacturing), Luodingjiulun (Bamboo product), Yunandoucheng (Battery-related business), Luodinglinbin (Cinnamon, aniseed and rosin)

345

Dongguan (9) Shilong (E-medical), Shijie (Electronic information), Changping (Logistics), Houjie(furniture), Changan (Metal and electronics), Humen (Clothes), Dalang (Knitwear), Zhongtang (Paper-making), Zhangmutou (Business and commerce) Shanwei (5) Haifengketang (Jewelry), Haifenggongping (Clothes), Lufengjieshi (Christmas decoration), Lufengdonghai (Seahorse breeding), Luhedongkeng (Green plum) Zhanjiang (11) Mazhang (Feeding stuffs, aquatic Products), Leizhouyingli (Pineapple), Lianjiangluozhou (Rice cooker), Lianjiangshijing (Red orange), Wuchuanbopu (Plastic shoe), Wuchuantangwei (Down), Potoulongtou (Rice cooker), Lianjiangchangshan (Tea leaf), Lianjiangliangdong (Fruit), Xuwenqujie (Pineapple), Lianjianghengshan (Shipping)

creating a world-class pearl river delta metropolis

Documents