LehmanBrown Business Guides The Pearl River Delta
Pearl River Delta Overview
The Pearl River Delta (“PRD”) is a region located in Guangdong Province where the Pearl River flows into the South China Sea. Since China’s economic reforms commenced in 1979, the Pearl River Delta in Southern China has become one of the most dynamic regions of economic development, establishing itself as one of the most affluent areas in China and one of the most densely-populated urban areas in the world. The region is separated into nine prefectures and contains some of China’s largest and most economically-developed cities, including Guangzhou, Shenzhen and Dongguan. While not considered part of the Pearl River Delta economic region, the Special Administrative Regions Hong Kong and Macau are also located in close proximity. This has led to the Pearl River Delta adapting to international standards and trends more rapidly than most other regions in China as a result in particular of Hong Kong’s influence.
Pearl River Delta Economic Zone
The Pearl River Delta’s rapid economic development is largely due to the establishment of Special Economic Zones (“SEZs”) from the outset of China’s political and economic reforms. A Special Economic Zone is an area granted greater political and economic autonomy in areas such as finance, foreign trade and investment, resource distribution, labour and pricing. This had a positive impact for the region attracting large amounts of foreign investment and thus stimulating rapid economic development. The two SEZs established in the Pearl River Delta, Shenzhen and Zhuhai, were among the first created when market reforms began in 1979. Since 1979, 30% of all foreign direct investment (“FDI”) in China has been in the Pearl River Delta Economic Zone, allowing the region to develop into the regional economic powerhouse that it is today.
The Pearl River Delta region will continue to be at the forefront of the Chinese economy. The Chinese government’s vision for the region under the policies of the 13th Five Year Plan (“FYP”), Made in China 2012 and Internet Plus will transform it into a centre of advanced manufacturing, technology, modern service industries and a centre for international trade, shipping, logistics, exhibitions, and tourism. Recently, the Chinese government has released plans to continue the PRD’s development by focusing on developing 2-3 new cities, establishing 10 multinational firms, and investing in large-scale infrastructure projects including railways, ports, roads and airports scheduled to be completed by 2020. A highlight of this project is the Hong Kong-Zhuhai-Macau Bridge, which will connect Hong Kong and Macau with the PRD.
The Pearl River Delta’s economic explosion positioned it as a central pillar of the Chinese economy. While the region consists of only 0.4% of China’s total land area and 3.2% of the total population, it represents 8.7% of China’s GDP and 35.8% of total trade. In 2001, 5% of the world’s goods were produced in the Pearl River Delta. As a result of this massive economic development, the PRD as a region has the wealthiest per capita income of China.
The factories of the Pearl River Delta have been termed as the “World’s Factories” because of the large amount of foreign investment in the region. This investment has allowed the PRD to develop into a major global manufacturing hub, with each city specialising in various products which are presented in the following table.
Future Business Opportunities in the Pearl River Delta
The continuous improvement and expansion of the Pearl River Delta’s infrastructure, combined with its location in close proximity to Hong Kong, leaves the Pearl River Delta as a regional city full of opportunities for foreign investment. In 2015 the Chinese Government released a new initiative called ‘Made in China 2025’ which could potentially change the way business and manufacturing is done.
In short, ‘Made in China 2025’ is moving away from the cheap labor manufacturing and towards more technology based manufacturing of higher end goods while being conscious of environmental effects. This initiative is meant to drive domestic companies but there will still be opportunities for foreign invested enterprises (“FIEs) to aide in this transition.
With ambitions of moving to higher tech equipment for manufacturing many companies are going to need to purchase these, rather than spending the money to develop themselves. This provides an opportunity for companies in developed economies that already have this technology.
By entering new areas some companies may need help, either technically or with their business thus providing opportunities for consulting firms to support these companies deliver on their business strategies in the PRD. With the drive for new technology, Chinese companies are going to be aggressively trying to develop the newest and best products. Teaming up with these companies through joint venture partnerships (“JVs”) to help each other with the research and development can help drive the economy but also the success of the two businesses.
The Chinese Government has stated that they will fiscally support the industries necessary for ‘Made in China 2025’ but they will still need help raising capital to make the necessary reforms. With this, foreign companies are able to invest in these Chinese companies to help them grow.
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