Light Industry in Pearl River Delta

Group 4:Zoe(1) Kitty (4) Kevin Lai (12) Marco (15) Mandy (16) Kevin Tsang (23)

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

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

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

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

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

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

Reference: http://www.hktdc.com/info/mi/a/mp/en/1X003JXI/1/Market-Profiles/PRD-Economic-Profile.htm

PRD is greatly crucial to the economic development of China

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.

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

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

Characteristics of the Industries 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)

westeast

Further discuss on particular industry –Textile and garment

Industrial Enterprises Number in Guangdong Province

Manufacture of Textile and Garments, Footwear and Headgear

6528

Manufacture of Electrical Machinery and Equipment

5469

Plastic Products 4244

Manufacture of Raw Chemical Materials and Chemical Products

2669

Guangdong statistic Yearbook 2009

Locational Factor of textile and garment industry

Pearl River Delta

TransportationGovernment

Market

Labour

Raw-material

Power

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

Locational Factor –Government

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

Reference: http://www.hktdc.com/info/mi/a/mp/en/1X003JXI/1/Market-Profiles/PRD-Economic-Profile.htm

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.

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.

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

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 ports2 ports are in the PRD

Increase in mobility of labour Decrease in transportation cost of production in the textile and garment industry

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

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

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

Future Development –Western PRD-

Western PRD

-Zhuhai珠海

-Zhongshan中山

-Jiangmen江門

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

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

availableEnhance inter-provinces trading

Over-emphasis on Eastern and Central PRD

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

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

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

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.

Future Development - Front Office-Back Factory

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.

Reference: http://www.ust.hk/HKUST_Forum/session_1_description_english.htm

HK Front Office

PRD Back Factory

Future Development - Front Office-Back Factory

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.

HK Front Office

PRD Back Factory

Future Development - Front Office-Back Factory

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

Shenzhen Front Office

Pearl River Delta