Light Industry in Pearl River Delta

1. Light Industry in Pearl River Delta Group 4:Zoe(1) Kitty (4) Kevin Lai (12) Marco (15) Mandy (16) Kevin Tsang (23)

2. Pearl River Delta -Content • Background information of Pearl River Delta • Dominant industries and their characteristics • Locational factors assist the existence of industries • Future Development of PRD • Western PRD • Front Office-Back Factory

3. Pearl River Delta -background information • Location: • southern part of China • Guangdong Province • at Pearl River mouth where the river enters the South China Sea • Area: 41698 sq.km • Population size : 64 million

4. Cities in Pearl River Delta PRD is made up by 9 cities: • Central district • Guangzhou* • FoShan • Zhouqing • East district • Shenzhen* • Dongguan • Huizhou • West district • Zhuhai* • Zhongshan • Jiangmen *Centre of each district

5. Relief and Resources in PRD • Relief • Gentle flat land • With spare isolated small hills • None of lands exceed 1000m • Water resources • PRD as a drainage basin of Zhu Jiang • Sufficient water from the river streams • Annual rainfall of South China is over 2000mm • Rainfall concentrated in Summer • Electricity resources • Thermal power is the main source of electricity • Combustion of fossil fuels • 2 nuclear plants at Daya Bay and Ling’ao • Some factories may install their own power generators

6. Value of China Trade From 2003-2007, • the value of exports, imports and GDP (excluding imports and exports) are increasing steadily, • showing an optimistic economic environment in China

7. Importance of PRD to China In 2007, PRD accounted for • 10.2% of China’s GDP • 29.1% of China’s total export • 11.8% of China’s gross industrial output • PRD also receive 11.6 billion US dollars of foreign investment PRD is greatly crucial to the economic development of China Reference: http://www.hktdc.com/info/mi/a/mp/en/1X003JXI/1/Market-Profiles/PRD-Economic-Profile.htm

8. History of development –Before 1978 • PRD was an agricultural base • There are less industries because, • government focus on heavy industry like Iron and Steel • BUT PRD lack of coal mines, iron ore mines or oilfields • Development on heavy industry was in the inland part of China, not the coastal part. • Other factors like • lower education level, • Lack of technology knowledge, • and Lack of managerial skills.

9. History of development –since 1978 • Change in government economic policy – Open Door policy • Opened up special economic zones like Shengzhen and Zhuhai • Earning large amount of foreign investment • Rising of local entrepreneurs • Contribution of Hong Kong • Industrialists in HK facing problems like, • Rising production cost • Limited land provided • Rising labour wages • Since PRD provided huge supply of flat land and cheap labour (because of Rural-urban migration), HK Industrialists keen on setting up labour-intensive factories like textile and garment industry in PRD

10. Types of Industries in PRD • Mainly light industries • Difference between East and West • Eastern PRD • machinery manufacturing • Hi-tech electronic equipment • chemical products • automobile • Western PRD mainly • traditional industries, including • domestic machinery • textiles and garment • ceramics

11. East Due to adequate capital for foreign investment mechanization Research & Development Less labour-intensive -e.g. Automobile, computer manufacturing Better infrastructure linked with HK Shekou Terminal (Sea) Kowloon-Canton Railway (Rail) West Lack of external innovation Rely more on local enterprises count on labour force (more labour-intensive) Not required high-technology -e.g. Textile and garment Lack of infrastructure linked with HK Hong Kong-Zhuhai-Macau Bridge (not constructed) Sea transport (not directly accessible) Characteristics of the Industries

12. west east

13. Further discuss on particular industry–Textile and garment Guangdong statistic Yearbook 2009

14. Locational Factor of textile and garment industry Government Transportation Pearl River Delta Labour Market Raw-material Power

15. Locational Factor –labour Textile and Garment industry is labour-intensive, it requires • HIGH Quantity • Due to large population size, abundant and cheap labour will be easily found • LOW Quality • unskilled labour is required, therefore low education level accepted • BUT there is low stability • Frequent strikes Chinese labour strike

16. Incentives For Special Economic Zones Low profit tax rate (15%) Exemption of export duties Exemption of import tax of raw material Etc. Penalties Increase charge on discharging air pollutants such as SO2 & NOx Pass new law requiring factories to meet the tighter emission standards, otherwise will be punished or closed Restrict illegal dumping of waste and sewage into rivers and seas Locational Factor –Government Reference: http://www.hktdc.com/info/mi/a/mp/en/1X003JXI/1/Market-Profiles/PRD-Economic-Profile.htm

17. Locational Factor–Government (Incentives) • Despite of the internal improvement, China also strove to improve the PRD through different means. • Following China’s entrance into the WTO and the signing of “Closer Economic Partnership Arrangement (CEPA)” with Hong Kong, • PRD steps up to welcome the foreign bankers • continues to improve the banking system. • Increasing numbers of trade shows, exhibition with the growing scale and influence, • Private companies will contributed significantly to the PRD • maintain the sustainable development of the PRD.

18. Locational Factor –Government (Incentives) • In the early 1980s, • Shenzhen and Zhuhai became the Special Economic Zones (SEZs) • Hoping Hong Kong and Macau can give support and assistance to them • With the above government supports, it shows the impressive willingness of the Government to further develop the PRD.

19. Locational Factor-Transports • As the PRD are proximity to Hong Kong, • takes 2 hours from Guangzhou to Hong Kong by train. • The Hong Kong-Shenzhen Western Corridor had been put to use • 4th road crossing between Shenzhen and Hong Kong. • A key project – Hong Kong-Zhuhai-Macau Bridge • new “Y-shaped” bridge • constructed for connecting Hong Kong, Zhuhai and Macau • aim of boosting the economy in west PRD by improving accessibility to Hong Kong

20. Locational Factor-Transports • Cities in the PRD are interconnected by highways and railways • Improving the transport network to strengthen linkages among cities • 5 well-developed airport in PRD (include Hong Kong and Macao). • New Baiyun Airport in Guangzhou, one of the 3 air hubs of China, is the largest and most advanced airport in China. • Top three container ports in China: • Shanghai ports, • Shenzhen ports • Guangzhou ports 2 ports are in the PRD Increase in mobility of labour Decrease in transportation cost of production in the textile and garment industry

21. Locational Factor–Market • Products from Textile and garment industries are mainly exported to foreign countries, like US and UK • Yet, growing market demand for consumer goods in China • growing income & better living condition • Influx of tourists. • For example, • retail sales of consumer goods in the region reached RMB 781 billion in 2007, grew by 16.9% from 2006. • Major consumers markets are in Guangzhou and Shenzhen, accounting for 33.2% and 24.5% of PRD ‘s retail sales respectively. Reference: http://www.hktdc.com/info/mi/a/mp/en/1X003JXI/1/Market-Profiles/PRD-Economic-Profile.htm

22. Challenges faced by textile and garment industry Textile and garment, as a labour-intensive industry, might no longer survive in PRD because of • Labour shortage and machines as a substitutes • Since enterprises pay low wage to workers, PRD is less attractive comparing with other developing areas like the Western China • Internal competitors, Western China • Improvement in transport network • Lower rent • Entrepreneurs keen on open new market • Invest in inland/ west regions

23. Challenges faced by textile and garment industry • Rise of capital-intensive industry • Changes are begin in the East PRD • Turned to be capital-intensive to tackle the labour shortage problem • Machines will be used widely rather than workers e.g. Automobile, petro-chemical industries, electronics, IT industry

24. Future Development –Western PRD- Western PRD -Zhuhai珠海 -Zhongshan中山 -Jiangmen江門

25. Future Development –Western PRD- • Difference & imbalance of economic and Industrial development • Eastern and Central part of PRD • receiving plenty of foreign investment (36.1%/47.3%) • Larger proportion of export volume (19.9%/67.4%) • Western part • 16.6% of foreign investment • 12.8% of PRD total export

26. Future Development –Importance of Developing W. PRD • Increasing competitiveness of PRD • Competitors: Southeast Asian Countries Yangtze River Delta (w/ Shanghai cooperation) • As a linkage between Southwest part of China • Guangxi; Yunnan; Sichuan; Guizhou • Growing of large market • Sufficient labour force • Abundant energy and raw-material available Enhance inter-provinces trading • Over-emphasis on Eastern and Central PRD

27. Future Development-Zhuhai • emphasize on land use planning and greening • the Best Model of International Residential Environment Improvement" awarded by the United Nations • Most suitable place to develop IT industry, because • Well-planned land use • Peaceful working environment with less pollution • Highly accessible as Zhuhai is a port city, the only terminal on the W. PRD

28. Future Development-Zhuhai • Once the HK-Zhuhai-Macau Bridge completed, • Become the only city which links with HK and Macau • Enhance the relationship and aborb the experience from HK and Macau • Assist the SW China economic development by exporting their local products overseas also act as another entrepot

29. Future Development-Zhongshan • Suitable to be a world-class domestic machinery manufacturer • Nowadays a few of famous brands set factory in Zhongshan • Japan: • Mainland: • Tainwan: • Zhongshan Government • keen on inviting foreign investors, • especially Hong Kong entrepreneurs which contribute over 50% of total inflow captial in Zhongshan • With great promotion of the government, way to become world-class domestic machinery manufacturer is not difficult to achieve Reference: http://www.cmab.gov.hk/doc/study_report_on_the_development_of_western_prd_chi.pdf

30. Future Development - Jiangmen • Jiangmen includes numerous important types of indutry • Nylon (artificial fiber) • Motorbikes • Tissue paper • Jiangmen may continue its multi-aspect to develop since significant brand have established their factories in there.

31. Future Development- Front Office-Back Factory HK Front Office • In the past two decades, Hong Kong and the Pearl River Delta (PRD) complement each other based on a general framework of "Front Office-Back Factory" (前店後廠). • Most manufacturing companies have established a profitable mode of operation under such regional scheme. PRD Back Factory Reference: http://www.ust.hk/HKUST_Forum/session_1_description_english.htm

32. Future Development- Front Office-Back Factory HK Front Office • However, since the business environment has rapidly changed, there are serious concerns on the future development of this scheme. • Factors such as • PRD's rising capability • growing Chinese Mainland market • WTO assistence may lead to collpase of the partnership. PRD Back Factory

33. Future Development- Front Office-Back Factory Shenzhen Front Office • Once suggestion is that HK should be Back Factory of China • Provide well-developed infrastructure • Better banking service • Since competitiveness of HK may be lower than PRD in the future, HK may rely on China’s promotion • Reputation of an International Financial Centre may be totally vanished • ..Really? ? HK Back Factory

34. Pearl River Delta