22 October 2016
The move to relocate industries from Guangzhou to Qingyuan may drive up costs. Photo: HKEJ
The move to relocate industries from Guangzhou to Qingyuan may drive up costs. Photo: HKEJ

Is Guangzhou-Qingyuan integration a wrong match?

The intercity metro line between Guangzhou and Foshan has formed a closed loop, while the intercity railway between Guangzhou and Qingyuan is a small tail of that loop.

It’s the only railway that connects to cities outside the Pearl River Delta region. Once it opens in 2017, it would take only 25 minutes to travel from the downtown area of Qingyuan city to Guangzhou North Station.

The railway is part of Guangdong’s efforts to push for regional integration.

In his visit to Qingyuan last month, Guangdong’s party boss Hu Chunhua said the local government should focus on building infrastructure, industry parks and expanding downtown areas.

Study shows that the market fragmentation and restrictions in the past have resulted in twisted and unreasonable resources allocation in China.

Integration would break down barriers and benefit all parties by sharing limited resources, talents and markets.

Qingyuan may not be the biggest winner of the industry relocation from Guangzhou. In fact, Guangzhou is reluctant to give up its role as a manufacturing hub.

Some areas in Guangzhou have become well-developed, and they would not pass these benefits to Qingyuan for free, according to Qingyuan officials.

Qingyuan should study whether the policy incentive would be mutually beneficial. Relocation is very costly, and it doesn’t make much sense for all factories in Guangzhou to move to Qingyuan without good reason.

Most of the local companies in Qingyuan have outdated technology, stuck in the lower end of the global industrial value chain. They are grappling with falling profits. The status quo may not change even if more companies move into the city.

Manufacturing relocation may cause some pressure for Guangzhou to maintain its economic growth targets. However, the city could relocate some low value-added sectors and spare more room for high-end manufacturing.

Shortage of land in Guangzhou is not due to limited supply, but resulted from low efficiency in the use of land. The city has repeatedly said the quota of land for construction can only last 16 years.

However, as of 2010, one out of every two square meters of land in Shenzhen was concrete, while Guangzhou had around half that level. This shows that a substantial amount of valuable land has been wasted in Guangzhou.

The move to relocate industry from Guangzhou to Qingyuan is meant to utilize land for development. It may drive up the GDP data during that process, but in the long run it would push up the city’s operating costs.

Apart from damaging the environment, the move would require additional costs such as building and maintaining infrastructure to connect factories to markets. The extended transport distance would lead to more air pollution.

Parties participating in this “integration” initiative are usually reluctant to give up their own interests, so the move may not go anywhere in the end.

Apart from transport linkage, industrial chain integration, policy coordination and cultural recognition are keys to a successful relocation.

This article appeared in the Hong Kong Economic Journal on July 27.

Translation by Julie Zhu

[Chinese version中文版]

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Deputy researcher at China Business Centre of the Hong Kong Polytechnic University

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