Economy of Pioneer Guangdong is Sagging

Mark O'Neill August 29, 2025 22:28

“You have never seen bargains like this,” Leung Lam shouted to clients in a shopping centre in Mei Foo. “Three casual shirts for just 70 dollars. Buy more and I will give you an even better price.”

Leung buys his merchandise in Guangzhou and brings it to Hong Kong to sell. “These items were made for export to the U.S. But that is impossible now. So the manufacturer sells them for what he can get.”

This is one result of the tariffs of President Donald Trump on China. For goods from China, they are currently 30 per cent and may go higher. The two countries are still negotiating.

No province has been hit harder by tariffs than Guangdong, which has since 1980 been the champion of China’s reform and open-door. It has had the highest GDP and the biggest exports of any province for more than 35 years.

Its economy is larger than that of South Korea. It contributes more to central government revenue than any other province.

In the first half of 2025, its GDP grew a modest 4.2 per cent year-on-year to 6.87 trillion yuan and industrial production rose only four per cent.

In the same period, its exports rose 1.1 per cent to 2.89 trillion yuan. Exports to all major markets rose, but those to the U.S. declined 8.1 per cent.

Last year Guangdong exported US$7 billion worth of textile and apparel to the U.S., out of the US$25 billion of such exports from China as a whole.

The uncertainty over tariffs is a nightmare for both exporters and importers. Without knowing the final level of tariffs, Guangdong firms cannot calculate their volume or profits nor decide whether or not to export to the U.S. at all.

For American importers also, it is a nightmare. President Donald Trump does not want them to pass the higher costs to the consumer. So who will pay the tariff – manufacturer, shipper or importer?

Qiu Mei, a textile worker in Panyu, a district of Guangzhou, said: “the whole textile industry is struggling, and now there is a high tariff on Chinese goods because of the trade war. Many foreign clients have decreased their orders from China.”

In Panyu, Yang Ruiping has run his small clothes factory, which specialises in tops and employs about 20 people, for two decades. He exports about 30 per cent of his orders, mostly to Shein and Amazon, down from more than 50 per cent before the pandemic.

“I have little confidence in the U.S. If the tariffs go up, we need to lower the production costs to combat it,” he says. “It leaves little room for profit”.

Unable to cut wages any lower, Yang said he was losing money on every top he sells. He keeps accepting the orders to keep the factory open. But, with the domestic market becoming increasingly competitive, he may not be able to operate much longer.

The boss of a denim clothes factory in another district of Guangzhou said that, when tariffs were suddenly increased, the entire US-focused production stopped. No one dared to continue.

Another blow for Guangdong is Trump’s cancellation of the exemption of “de minimis” tax for small-value shipments. Shein and Temia are two of the largest users of this loophole – a large number of suppliers to these two firms are based in Guangdong.

Tariffs are not the only negative factor for Guangdong companies.

Its four decades of prosperity mean that wages have risen significantly. This has persuaded companies to move their factories to regions with lower wages and lower costs.

Workers in Guangdong are demanding higher wages, better conditions including air conditioners and shorter hours.

Firms fearful of a Sino-US trade war have adopted a “China Plus One” strategy – moving plants to Vietnam and other countries in Southeast Asia or India, to diversify their risk.

Also negative is consumer spending in Guangdong. In the first half of this year, it grew just 3.5 per cent. Fixed asset investment fell 9.7 per cent, reflecting a long-term property slump that has made people reluctant to spend.

Guangdong is home to several of China’s most prominent indebted developers, including Evergrande, Kaisa, Vanke and Country Garden.

The companies worst hit in Guangdong are those in industry and small private companies. The government is no longer supporting them. It wants investment to go into hi-tech industry, like AI and semiconductors.

An official report said that, in the first half of this year, output of civilian drones in Guangdong rose 58.2 per cent over a year earlier. “Production of new energy vehicles, industrial robots and lithium batteries saw particularly strong growth,” it said.

This is the future Beijing sees for Guangdong.

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.