27 October 2016
The Guangdong Technion Israel Institute of Technology in Shantou is expected to accommodate 4,000 undergraduate and 1,000 graduate students in engineering, science and life science. Photo: Internet
The Guangdong Technion Israel Institute of Technology in Shantou is expected to accommodate 4,000 undergraduate and 1,000 graduate students in engineering, science and life science. Photo: Internet

Guangdong: The epicenter of China’s rebalancing

The forces that once fueled Guangdong’s dramatic economic boom – industrialization, booming world trade, cheap labor and low-cost manufacturing – are fading.

With the slowest growth pace in 25 years, economic anxiety is said to be spreading. That standard narrative is part of the story, but not the full story.

Today, Guangdong’s economy is a dual story about the demise of industrialization and the rise of the post-industrial society. If the focus is on the former, the story is about decline. If it’s on the latter, the story is about rejuvenation.

Last November, the US-China Joint Commission on Commerce and Trade convened in Guangzhou.

In December, the leading Israeli technology institute laid a cornerstone for the first Israeli-Chinese University in China, with the support of Shantou municipality and a US$130 million donation from business magnate Li Ka-shing.

These developments reflect Guangdong’s new strategic importance to China’s innovation-driven development strategy.

Since last March, the province has intensified efforts at industrial transformation and upgrading, while seeking to establish several industrial belts.

Guangdong leads the way in moving up the value chain from light industry to high-end manufacturing. Ranked in terms of value added, its key industries feature information and communication technology (22 percent), but it is also strong in electrical machinery (9 percent), chemicals (5 percent) and automobiles (5 percent).

The province accounts for over a quarter of China’s total utilized foreign direct investment. It is home to telecom giants Huawei and ZTE.

It is where corporate titans such as Lenovo, TCL, BYD, Apple, IBM, Philips, BGI, Lucent and Olympus house their manufacturing bases, research and development, and design capabilities.

When it comes to innovation, Guangdong is a trendsetter. In China, innovation – as measured by R&D per GDP – has climbed to 2.1 percent (higher than that of France, the UK or Australia). In Guangdong, the comparable figure is close to 2.5 percent but in Shenzhen it is estimated to be 4 percent – not far from the world leaders, South Korea (4.4 percent) and Israel (4.2 percent).

Last May, Beijing launched its “Made in China 2025” policy. Similar goals are emulated by Guangdong’s “Intelligence Manufacturing Development Plan (2015-2025)”.

In response to rising labor costs, manufacturers and the provincial government are investing in robotics and automation. To reduce polarization, local leaders also seek to develop rural areas in the next five years by encouraging labor-intensive manufacturing to relocate from cities into Guangdong’s rural regions.

Last year, Guangdong’s annual growth was about 7.9 per cent, a percentage point higher than the national average.

The growth target is set at 7 percent for 2016-2020, which is very ambitious in the current environment.

The province hopes to become a “moderately prosperous society” by 2018 – two years ahead of the national target of 2020.

Among Chinese provinces, Guangdong has the largest economy and population. In 2014, its GDP, despite a rising US dollar, amounted to more than US$1 trillion, which puts it in the same league as Mexico and makes it larger than Indonesia.

With 107 million people, including 30 million migrants, its population is bigger than that of the Philippines.

But Guangdong is fueled by its cities, particularly Shenzhen and Guangzhou which account for almost 60 percent of the delta’s GDP.

Although its image was tarnished by a recent landslide, Shenzhen is close to the top of the global City Momentum Index, which tracks the speed of change of a city’s economic base.

Shenzhen has emerged as China’s priciest real estate market, with average home prices soaring nearly 40 percent in 2015.

In barely a year or two, Shenzhen’s population has reportedly surged by 3 million, to 21 million.

The city is likely to continue to attract new internet and finance companies, and corporate giants such as Tencent and Dajiang, while foreign banks and financial intermediaries have set up shop in the city’s development zone, Qianhai.

Guangdong’s stagnating industrial indicators are a reality but these measures may no longer reflect the province’s core growth drivers, of which more than half come from services.

Moreover, the sector is not just about R&D, business services or even property markets. It is also about consumption.

Guangdong is China’s largest consumer market where disposable income continues to increase in urban households.

In the province’s rapidly changing retail distribution channels, the fading mom-and-pop stores and even traditional department stores are giving way to modern chain stores, supermarkets, warehouse markets and convenience stores, while shopping malls are fast evolving into integrated shopping and entertainment centers.

The province is a magnet to foreign retail concerns, including Wal-Mart, Carrefour, ParknShop, Watsons and Trust-Mart.

Within the province, Guangdong seeks growth, upgrading and innovation vis-à-vis the Guangdong Free Trade Zone, which covers Nansha (Guangzhou), Qianhai-Shekou (Shenzhen) and Hengqin (Zhuhai).

It aspires to become a Guangdong-Hong Kong-Macau cooperation demonstration zone, a hub of the 21st-century Maritime Silk Road and a pilot zone for China’s new reform and opening up.

For more of Dr. Dan Steinbock’ articles, see

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Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and at EU Center (Singapore).

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