The “front shop back factory” model in Guangdong, Hong Kong and Macau has started to change in the years after the financial crisis.
Guangdong, Hong Kong and Macau are starting to play new roles in accordance with China’s economic restructuring.
In the past, the three regions cooperated with each other and exported products overseas. Today, a large volume of global goods is flowing into the Pearl River Delta region through Hong Kong and Macau.
Meanwhile, manufacturers in the region are taking the lead in the nation’s “go out” strategy by setting up production bases in other nations.
China is rapidly building a consumption society. Cross-border e-commerce, logistics and online shopping overseas have already given rise to a new trend in the retail industry worldwide.
As a result, service trade between Guangdong, Hong Kong and Macau has surged. Hong Kong and Macau have recorded two of the world’s biggest tourism trade surpluses.
Cross-border shopping and travel have been driving the demand. Goods shipped to Hong Kong and Macau have spiked due to robust demand in the mainland.
For example, only 30 percent of imported goods in Hong Kong were consumed by local residents between 2010 and 2014, when the city’s imports posted an annual growth of 7 percent.
Macau’s export growth has been several times faster than import growth in recent years. Its imports were more than nine times its exports in 2014.
Also, Hong Kong’s shipping, air transport and goods network has reversed the flow from an outward direction to purchasing goods from global markets and supplying them to the domestic market.
The shift has highlighted the city’s role as an agent for global brands and international trading hub.
Meanwhile, Guangdong is the distribution center for goods from China’s cross-border e-commerce sector.
Shenzhen has cross-border warehouse and logistics hubs, while Guangzhou serves as the headquarters for cross-border e-commerce platforms and distribution centers in South China.
Since 2000, the manufacturing industry in the Pearl River Delta region has changed rapidly. That has led to shrinking processing trade, which used to be dominated by Hong Kong merchants.
The “front shop back factory” model has lost its old luster.
By the end of 2014, there were only 20,000 Hong Kong manufacturers in the region, roughly 40 percent of the 50,000 in 2005.
In the meantime, there were 25,000 Hong Kong service providers in the region, representing 53 percent of the total of 47,000 Hong Kong companies in the region.
The region has migrated from low-end consumption goods to value-added electronics and machinery products. Guangdong has also taken the lead in relocating its low-end manufacturing sector.
The province made foreign direct investment of nearly US$10 billion in non-financial industries in 2014, 70 percent of which were in Hong Kong.
As such, Hong Kong and Macau are acting as gateways for Chinese companies’ overseas expansion.
That has also injected a new growth momentum in Hong Kong’s trading, finance and shipping sectors.
The city has a key role in overseas sales, financing and logistics for Chinese firms who intend to open up overseas markets.
In 2014, Hong Kong transferred HK$898.4 billion worth of goods from Guangdong to Southeast Asia or other regions.
This article appeared in the Hong Kong Economic Journal on Feb. 1.
Translation by Julie Zhu
[Chinese version 中文版]
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