23 October 2016
Premier Li Keqiang says China is not a source of risk but a source of growth for the world. Photo: CNSA
Premier Li Keqiang says China is not a source of risk but a source of growth for the world. Photo: CNSA

How innovation will drive the Pearl River Delta

Premier Li Keqiang addressed market concerns about a hard-landing for China’s economy during the Summer Davos Forum on Sept 10.

China’s economy is growing within a reasonable range and going through a transitional period.

“Ups and downs in growth are hardly avoidable, as they are natural in a period of adjustments and transitions,” Li said.

He said China is not a source of risk but a source of growth for the world.

Li also stressed that the government will fully explore the country’s potential through structural reform and innovation to maintain medium to high economic growth.

The State Council had unveiled a plan to promote innovative reform in selected regions two days before the opening of the Davos Forum.

The plan states that the government intends to create several regional reform and innovation platforms across the nation.

Guangdong was one of four provinces picked to pilot the reform.

As China’s largest regional economy, Guangdong should play a key role in the nation’s drive to deepen reform and drive innovation.

The plan outlined six basic conditions for a region to qualify for the pilot program.

First, its innovative resources and activities should rank among the top.

Second, its economic growth is in a transformation stage driven by innovation.

Third, the region should already have established or been included in the state-level innovation and reform pilot areas such as the National Independent Innovation Demonstration Area, Comprehensive Supporting Reform Pilot Area or Free Trade Zones.

Fourth, it should be a leader in the reform of relevant systems.

Fifth, the region should be a pillar in stabilizing growth and restructuring the economy.

And lastly, it values protection of intellectual property rights.

Guangdong meets all six conditions.

Its GDP is one-seventh of the nation’s total and the province is regarded as a world manufacturing hub.

The region has a sizable market and strong demand for technological innovation.

However, Guangdong also faces many challenges given the economic fluctuations across the country.

It has close links with global markets and depends 95 percent on foreign trade.

Exports account for nearly 60 percent of its GDP, so it’s not immune to external weakness.

Last year, Guangdong’s economic growth slowed to 7.8 percent and its foreign trade fell 1.4 percent.

Against that backdrop, its structural issues, unbalanced growth among different areas and increasing constraints on energy and resources became more pronounced.

Guangdong has limited strength in self-innovation and lacks first-class competitiveness in higher education, research and technology.

The region still faces bottlenecks in various professional and intermediary services, intellectual property rights protection and it also lags in business environment.

Fortunately, Guangdong is close to Hong Kong and Macau.

Regional cooperation has been Guangdong’s biggest advantage and a catalyst for its rapid growth.

Hong Kong relocated labor-intensive industries to the Pearl River Delta region in the 1970s.

It has switched to a service economy and developed a global financial service industry, shipping and various professional services.

As a result, Hong Kong has become one of the most developed economies in Asia.

The integrated regional innovation system jointly built by Hong Kong and Guangdong means both sides will leverage their own resources.

Guangdong could use the Pearl River Delta region to get a head start while Hong Kong could combine its advantages in the service economy to become a hub for regional innovation.

This article appeared in the Hong Kong Economic Journal on Sept. 14.

Translation by Julie Zhu

[Chinese version中文版]

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Associate professor, College of Economics, Jinan University

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