Since the launch of China's reform program in 1979, the Pearl River Delta has been the country's most economically dynamic and fastest growing region. With steady double-digit growth rates over the past 20 years, the Delta has been a crucial driver of China's economic growth, a key destination for foreign investment, and a platform for the country's growing integration into the global economy. The area in the southern part of Guangdong Province is home to less than 3 percent of China's population, but contributes almost 7 percent of the nation's gross domestic product. Twenty years ago, the Pearl River Delta was largely undeveloped agricultural land. The region's economic significance stems from early economic reforms, initiated experimentally in the Shenzhen and Zhuhai special economic zones, that rapidly spilled over to neighboring cities and towns. The Pearl River Delta has become the country's richest region, with incomes in large cities such as Guangzhou and Shenzhen almost four times the national average. As one of the most dynamic and affluent regions in the Chinese Mainland, the Pearl River Delta has also developed into an important market.

Manufacturing Powerhouse

Since the late 1970s, large influxes of foreign direct investment have fueled rapid manufacturing growth and exports in the Pearl River Delta region. Thriving manufacturing industries were moved from densely populated Hong Kong across the border to the low-cost, land-rich Pearl River Delta. In less than 10 years, Hong Kong shifted more than 70 percent of its industrial capacity to the neighboring region. Since the mid-1990s, large amounts of foreign direct investment have originated from other parts of the world including Japan, the United States, and the European Union. Foreign-invested enterprises now account for about 60 percent of the area's industrial output. The Pearl River Delta is one of the world's major manufacturing centers and has the largest production base for light industries in China. The area is a world leader in the production of electrical products, electronic goods, electrical and electronic components, toys, watches and clocks, textiles and garments, plastic products, and a wide range of other goods. It is also a growing center for medium and high value-added manufacturing industries, particularly in the automotive and related sectors. The region's new- and hi-tech industrial belt was established in 1991. Focusing on electronics, information technology, biotechnology, new materials, and opto-electromechanical products, the belt has posted an average annual growth of over 40 percent. The output value of electronics and communications equipment accounts for more than 30% of the country's total. While the Pearl River Delta is not the most inexpensive location in China for manufacturing activities, it has certainly become the most professional, efficient and therefore cost-effective.

Competition from the Yangtze Delta

Competition from other parts of China and emerging structural issues within the Pearl River Delta are threatening to gradually erode its legacy as an economic powerhouse. The area is facing fierce competition from the Yangtze Delta region with Shanghai as the head of a huge dragon extending into the hinterland. The Yangtze Delta has established itself as a viable manufacturing base and also as a potential consumer market. Its export-oriented economy has been growing rapidly in recent years. According to customs statistics, the Yangtze Delta's gross import and export volume in the first quarter of 2004 surpassed that of the Pearl River Delta for the first time. The gross import and export volume of the Pearl River Delta was US$ 69.28 billion, 24.3 percent over the same period in 2003. The gross import and export volume of the Yangtze River Delta, however, grew by as much as 60 percent and reached US$ 83.03 billion. Its growth rate is far ahead of that of the Pearl River Delta. With foreign investment increasingly moving northward, the Yangtze River basin and the Pearl River Delta now each account for roughly 40 percent of China's exports.

Common Market in the Pan Pearl River Delta Region

Struggling to keep up economically with Shanghai and the rest of the Yangtze River basin, the leaders of nine provinces and two special administrative regions in southern China last year announced the creation of a regional forum to coordinate economic policy and fuel growth. At the beginning of this month, the first Pan-Pearl River Delta Regional Cooperation and Development Forum was held in Hong Kong, Macao and Guangzhou, initiating a new era of regional cooperation and economic integration in southern China. The pan-delta concept envisions a regional economic system encompassing Fujian, Jiangxi, Guizhou, Sichuan, Yunnan, Hunan, Guangdong, Hainan and Guangxi Zhuang Autonomous Region, Hong Kong and Macao special administrative regions. Vowing to eliminate local protectionism, unreasonable interference, and market barriers, the leaders signed an agreement aimed at creating a common market in the Pan-Pearl River Delta region. The agreement highlights co-operation in infrastructure, industry and investment, commerce and trade, tourism, agriculture, labor and manpower, science and culture, information technology, environmental protection, sanitation and epidemic prevention. A coordination system for the nine provincial governments, Hong Kong and Macao will be established to enhance commodity distribution, integrate regional resources, strengthen industrial cooperation and promote market compatibility. By building a sophisticated road and waterway network the region's leaders plan to remove barriers to the movement of people, goods and information and facilitate the two-way free flow and integration of economic fundamentals. The construction projects include new trans-city railway lines with increased passenger transportation capacity, 22 expressways with a total length of 30,000 kilometers and 9 major ports.

The "9+2" region occupies one fifth of China's land mass and has a population of about 460 million people, comparable to the European Union and NAFTA. With a gross domestic product of about 5 trillion yuan (US$ 604 billion), its economic strength exceeds one third of the Chinese mainland's total. The regional GDP is forecast to surpass US$1,000 billion by 2010 and reach US$2,000 billion by 2020. The region boasts versatile production elements, vast areas of land, abundant supply of labor , natural resources, capital, skills and talent as well as a huge domestic market and an extensive international network.

Within the Pan Pearl River Delta region, Guangdong is the major economic powerhouse, ranking first in the nine Mainland provinces in terms of the level of economic advancement. As the initiator and architect of the Pan Pearl River Delta concept, Guangdong is expected to be at the helm of the Pan Pearl River Delta regional co-operation. Hong Kong, on the other hand, has always been the biggest source of foreign investment in the region. At the end of 2003, about 120,000 Hong Kong businesses had been set up in the nine Mainland provinces, with actual investment amounting to some US$150 billion, constituting more than 50 percent of the actual intake of foreign investment. As an international, high value-added services center, Hong Kong plans to help upgrade the regional economy and link the Pan-Pearl River Delta Region to the rest of the world.

Support from the Chinese government

The Chinese government fully supports the Pan Pearl River Delta Concept, which will be the largest ever scale of regional economic cooperation in China since the founding of the People's Republic of China in 1949. So far, the country's regions largely operate economically as a loose confederation of states. Traditionally, governments in Beijing have always discouraged the development of regional alliances in China. In the nation's next five-year plan, however, the State Development and Reform Commission will give priority to regional development plans. The pan-delta accord is expected to accelerate the implementation of the Closer Economic Partnership Arrangement (CEPA) signed between the Chinese mainland and the two Special Administrative Regions Hong Kong and Macao in 2003. In addition, the Pan Pearl River Delta region should be developed into the core area of the China-ASEAN (Association of Southeast Asian Nations) free trade zone planned for 2010. China's accession to the WTO, the implementation of CEPA, and the anticipated establishment of the China-ASEAN Free Trade Zone have created the necessary conditions for the Pan-Pearl River Delta region to maximize its opportunities and become one of the most economically dynamic regions in the world.

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