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The Saw Centre for Financial Studies was established at the National University of Singapore on 1 December 2003. The Centre is named after a distinguished NUS alumnus Professor Saw Swee-Hock, whose generous endowed gift has enabled the founding of this Centre. The Saw Centre is situated within the vibrant community of the renowned NUS Business School. The Saw Centre’s purpose is to conduct quality research, educational activities and training programmes related to the financial services industry in the Asia Pacific region. With the resources of the university and active contribution from industry professionals, it is a resource centre that will benefit both academics and practitioners. The Saw Centre also hosts visiting academics with the Department of Finance at the NUS Business School for the purpose of teaching and research. The East Asian Institute (EAI) was set up in April 1997 as an autonomous research organization under a statute of the National University of Singapore. It is the successor of the former Institute of East Asian Political Economy (IEAPE), which was itself the successor of the Institute of East Asian Philosophies (IEAP), originally established by Dr Goh Keng Swee in 1983 for the study of Confucianism. The main mission of EAI is to promote academic and policy-oriented research on contemporary China, including Hong Kong, Taiwan and Macau, and other East Asian economies. The long-term vision of EAI is to develop into the region’s foremost research institution on East Asian development, with a strong focus on China. For more information on EAI, please visit . The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world. ii

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Saw

Edited by Swee-Hock and John

Wong

Institute of Southeast Asian Studies Singapore

First published in Singapore in 2009 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: jointly with Saw Centre for Financial Studies NUS Business School National University of Singapore BIZ 2 Building, #04-01 1 Business Link Singapore 117592 and East Asian Institute National University of Singapore 469A Bukit Timah Road, Tower Block #06-01 Singapore 259770 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2009 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters.

ISEAS Library Cataloguing-in-Publication Data Regional economic development in China / edited by Saw Swee-Hock and John Wong. 1. Economic development—China. 2. China—Economic policy—1976– I. Saw, Swee-Hock, 1931– II. Wong, John C. H., 1939– HC428 R33 2009 ISBN: 978-981-230-941-9 (hard cover) ISBN: 978-981-230-942-6 (PDF) This book is meant for educational and learning purposes. The author(s) of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the author(s) has/have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action.

Typeset by International Typesetters Pte Ltd Printed in Singapore by Utopia Press Pte Ltd iv

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Contents List of Tables List of Figures Preface The Contributors List of Abbreviations

vii x xiii xv xix

1

China’s Regional Economic Development: An Overview Saw Swee-Hock and John Wong

1

2

New Trends in China’s Regional Economic Development Liu Feng

9

3

Regional Economic Development in China: Agglomeration and Relocation Wei Houkai

28

4

Cost Impact and Industrial Upgrading in Pearl River Delta Region: Case Study on Shenzhen and Dongguan Guo Wanda and Feng Yueqiu

53

5

Development of Pearl River Delta as a Mega-city Region Li Yongning

79

6

Comparing Two Economic Regions: Indonesia-MalaysiaSingapore Growth Triangle and Pearl River Delta Region Toh Mun Heng and Shandre Thangavelu

96

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Contents

vi

7

Shanghai and Yangtze River Delta: A Revolving Relationship Jun Zhang and Yong Fu

123

8

Recent Developments in Yangtze River Delta and Singapore’s Investment Chen Wen and Sun Wei

155

9

Bohai Rim’s Regional Development: Problems and Policy Options Zhou Liqun and Ping Shu

179

10

Qingdao’s New Development Strategies Han Limin, Lin Chao and Chen Ziqiang

211

11

Sino-Singapore Tianjin Eco-city: Features of a Model of Sustainable Living Yang Mu and Lye Liang Fook

235

12

FDI, Capital Formation, and Economic Growth of Western China: A Comparison Across Three Regions Zhao Changwen and Du Jiang

260

13

Chongqing’s Development Strategy and Its Role in China’s Development Wang Chongju and Zhu Lifen

277

14

Regions with Net Outward Migration: Issues and Challenges Lu Ding

295

Index

319

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List of Tables Table 2.1 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8

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The Contribution Ratio to GDP Calculated by Expenditure, 2005 Division of Chinese Economic Regions Since the Reform and Opening-up Percentages of Major Economic Indicators for China’s Four Regions in National Totals (%) The Changing GRP Growth Rates in the East, Northeast, Central and West Regions Growth Rates and Regional Distribution of Investment in Fixed Assets in China FDI Actually Utilized in Different Regions of China Dependence Degree on Foreign Trade, 2001–07 Proportion of Processing Industry in the Export of Shenzhen, Guangdong and the Whole Country, 2001–06 Total Output of Hi-tech Industry and Output of Hi-tech Products with Chinese Intellectual Property Rights in Shenzhen, 2001–06 Change of Land Price in Shenzhen, 2001–07 Change in Factory Buildings and Warehouse Rentals Inside/Outside Shenzhen Checkpoint, 2005–07 Overall Cost Rise of Shenzhen Manufacturing Industry, 2006–07 Change Forecast on Comprehensive Cost of Shenzhen Manufacturing Industry, 2008–10 Moving-away Shenzhen Enterprises for the Past Three Years, 2006–08

18 30 32 35 46 48 58 59 59 61 62 63 64 65

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Table 4.9 Table 4.10 Table 4.11 Table 4.12 Table 4.13 Table 4.14 Table 4.15 Table 4.16 Table 5.1 Table 6.1 Table 6.2 Table 6.3 Table 6.4 Table 6.5 Table 6.6 Table 6.7 Table 7.1 Table 7.2 Table 7.3 Table 7.4 Table 7.5 Table 7.6

List of Tables

Proportion Change of Labour-intensive, Capital-intensive and Technology-intensive Industries in Shenzhen Industry, 2001–06 Shenzhen’s Policies to Support Industrial/Enterprise Upgrading, 2002–07 Degree of Dependence on Foreign Trade of Dongguan, 2001–07 Proportion of the Processing Trade in Foreign Trade (Export) of Dongguan, Guangdong and the Whole Country, 2001–06 Land Price Change in Dongguan, 2001–08 Overall Cost Rise of Dongguan Manufacturing Industry, 2006–07 Percentage of Hi-tech Output in the Industrial Output in Dongguan, 2001–06 Policy List of Dongguan Government to Support the Industrial Upgrading, 2002–07 Competitiveness of Three Mega-city Regions Major Economic Indicators, 2006 Economic Growth of Riau Islands Province and Indonesia, 2001–06 Total Area of Riau Islands Province Total Foreign and Domestic Companies in Riau Islands Province, 2006 Business Activities & Opportunities in the IMS-GT Comparison of Key Statistics between Batam and Guangzhou Top Contributors to FDI in Each Region Changes in the Number and Size of Township Enterprises in Jiangsu Province Development of Non State-owned Enterprises in the Yangtze River Delta, 1978–2000 (%) Comparative Growth Rates of the Yangtze River Delta, 1978–2001 The Economic Statistics of Shanghai, Jiangsu and Zhejiang Similitude Coefficients of Industrial Structures in the Yangtze River Delta Composition of GDP in the Yangtze River Delta, 2000

67 68 70 70 72 73 74 75 84 101 107 108 108 110 114 115 133 135 136 142 147 148

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List of Tables

Table 7.7 Table 8.1 Table 9.1 Table 9.2 Table 9.3 Table 9.4 Table 9.5 Table 10.1 Table Table Table Table Table Table

10.2 11.1 11.2 12.1 12.2 12.3

Table 12.4 Table 12.5 Table 12.6 Table Table Table Table Table Table

12.7 12.8 12.9 12.10 12.11 13.1

Table 14.1 Table 14.2 Table 14.3

ix

Comparison of the Degree of Economic Opening-up (%) of Jiangsu, Zhejiang, Shanghai, and Guangdong, 2000 Population of Cities in Yangtze Delta, 2005 Comparison of the Composition of GDP Economic Indexes Comparison between Beijing and Tianjin Similarity Coefficients of the Manufacturing Industries of the Provinces and Municipalities in the Bohai Rim Regional Comparison of Energy Consumption per unit of GRP, 2006 (equivalent value) Ambient Sea Water Quality of Bohai Sea, 2003–07 (sq. km) Main Indexes of Economic and Social Development of Qingdao during the Eleventh Five-Year Plan, 2006–10 Trade between Qingdao and Singapore since 2003 Comparison of Some Eco Projects Key Project Milestones Local Fiscal Revenues and Expenditure, 1992–2006 Fixed Assets Investment, 1992–2006 Balances of Loans of Financial Institutions, 1992–2006 Balances of Deposits of Financial Institutions, 1992–2006 Deposits of Residents, 1992–2006 Equity Financing of the Listed Companies, 1992–2006 FDI Crossing Regional Distribution, 1995–2006 FDI Amount in Sichuan Province, 1995–2006 The GDP, 1990–2006 (billion) Stationary Test Results Results of E-G Approach Economic Development of Chongqing between 1996–2007 Key Statistics of Selected Provincial Economies with Largest Net Migration Ratios, 2005 Changes in Demographic Structure, 2000–06 Impact on Per Capita Income ( yˆ )

149 160 182 189 191 198 200 220 222 239 246 265 266 267 267 268 269 270 270 271 273 274 283 299 306 316 ix

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List of Figures Figure 2.1 Figure 2.2 Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.5 Figure 3.6 Figure 3.7 Figure 3.8

The Overall Strategy for China’s Regional Development The Trajectory of How the National Economic Gravity Changed The GDP Growth Rates of the Big Four Plates, 1990–2005 The Comparison of GDP, Incremental GDP and Growth Rate Investment Growth Rate and GDP Growth Rate of All Provinces Over China Space Concentration Ratio Change of Chinese Manufacturing Industry from 2000–2005 Three Times Main Changes in the Economic Division of China in Recent Years Comparisons Between GDP and GRP Growth Rates in China During the 1980–2006 Period Changes in GRP Growth-Rate Differentials for the Four Regions of China Relative Levels of the Per-capita GRP for the Four Regions of China Changes in Per-capita GRP Relative Disparity in the Four Regions of China Changes in Per-capital GRP Disparities among Provinces in China Growth Rate of Population in Various Regions of China between 2005 and 2006

10 15 16 17 19 21 31 33 36 38 39 40 41

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List of Figures

Figure 3.9 Figure 3.10 Figure 3.11 Figure 3.12 Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure Figure Figure Figure

5.1 5.2 5.3 5.4

Figure 5.5 Figure 5.6 Figure Figure Figure Figure Figure

6.1 6.2 6.3 8.1 8.2

Figure 8.3 Figure 8.4 Figure 8.5 Figure 8.6 Figure 8.7 Figure 9.1

xi

Changes in the Share of GRP in Various Regions Trend of Spatial Changes of the Manufacturing Industry in China Changing Share of Manufacturing Gross Output Value in East Region The Shares of Three Coastal Regions in China’s Total Value of FDI Actually Utilized Change in Shenzhen’s Minimum Wage, 1992–2007 Average Monthly Salary of Workers in Shenzhen, 1990–2006 Change of Dongguan Minimum Salary, 1994–2008 Average Monthly Wage of Worker in Dongguan, 2000–06 (RMB/Month) The Entrepreneurial/Exchange Framework The Connectivity of World Cities The Concept of Landscape Expansion of PRD Mega-city Region with Spatial Changes Taigu Quay Warehouses Designed as “798” Artistic Centre Changed from Beijing Bauhaus) in Guangzhou Mega-city Region Development with Spacing and Placing Functioning Map of the PRD Region Growth “Triangles” in Southeast and East Asia The Triangle of Complementarily in IMS-GT Yangtze River Delta Region Space Structure Model Distribution of Non-Agricultural Population in the Yangtze River Delta Region Regional GDP and Per Capital GDP in the Yangtze River Delta Area Expansion of Construction Land in the Yangtze River Delta Region Construction Density of the Yangtze River Delta Region, 2005 Nature Ecological Restrains and Economic Development Demand Division of Spatial Development Function Bohai Rim’s Share of China’s GDP in Different Years

42 43 44 47 60 61 71 72 80 81 82 90 91 93 99 106 111 157 159 161 163 164 165 174 181 xi

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List of Figures

xii

Figure 9.2 Figure 9.3 Figure 9.4 Figure 9.5 Figure 9.6 Figure 9.7 Figure 9.8 Figure 9.9 Figure 9.10 Figure Figure Figure Figure Figure Figure Figure Figure Figure

10.1 10.2 11.1 11.2 13.1 13.2 13.3 13.4 14.1

Figure 14.2 Figure 14.3 Figure 14.4 Figure 14.5 Figure 14.6 Figure 14.7

Regional GDP Growth Rate Comparison Regional Shares of Total Investment in Fixed Assets, 1980–2006 Regional Distribution of FDI in China (Number of Enterprises) Regional Distribution of FDI in China (Total Investment) Comparison of Value-Added in Industry between Beijing and Tianjin, 1952–78 The Comparison of Per Capita Disposable Income of Urban Households between Tianjin and Beijing Curve of the Averages of Similarity Coefficients Gini Coefficients for Beijing, Tianjin and the Eight Cities 196 of Hebei Province, 1984–2005 (GRP) Gini Coefficients for Beijing, Tianjin and the Eight Cities of Hebei Province, 1989–2004 (Per Capita Income) Qingdao in Shandong Province Location of Qingdao Port in East Asia Overview of Supervisory Mechanism Basic Layout of Eco-city Chongqing Municipality within China The Administrative Map of Chongqing 3D Image of Core Urban Districts of Chongqing The Strategy of “One Circle Two Wings” Regional Disparity of Per capita Income, 2005 and Migration Ratio, 2000–05 Correlations between Provincial Shares of Factor Allocation and Marginal Factor Productivity Changes, 1995–2006 Birth Rate, Death Rate, and Natural Growth Rate of Population, 1949–2005 China’s Juvenile, Elderly and Overall Dependency Ratios, 1970–2050 Regional Disparity of Per Capita Income and Dependency Ratio, 2005 Changes of Demographic Structures, 2000–06 Provincial Per Capita Income and Per Capita Household Consumption, 2005

182 183

184

190 192 196 196 212 213 249 252 278 278 279 287 298

302 304 305 307 310

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Preface In May 2008, the Saw Centre for Financial Studies, NUS Business School, and the East Asian Institute, National University of Singapore jointly organized the International Conference on China’s Regional Economic Development: Cooperation, Challenges and Opportunities. The fourteen chapters included in this book consist of a selection of thirteen papers presented in the conference and subsequently revised for publication. Chapter 1 was specifically written by the volume editors to present the salient features of the subject covered in the book. We would like to thank the chapter writers for their excellent cooperation for presenting their papers in the conference and for revising the papers for publication. Our thanks go to Mrs Triena Ong of ISEAS Publications Unit for overseeing the publication of the book. Saw Swee-Hock and John Wong

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The Contributors Chen Wen is Professor and Head of the Centre for Regional Development and Planning, Nanjing Institute of Geography and Limnology, Chinese Academy of Sciences, Nanjing. Chen Ziqiang is a graduate of the Ocean University of China, Qingdao, majoring in the management of agricultural economics. Du Jiang is Professor in the College of Economics at Sichuan University. His research is on foreign direct investments and international finance. He has a Ph.D. in Management. Feng Yueqiu is Director of the International Cooperation Department at the China Development Institute, taking charge of public affairs, and relations with international organizations and think-tanks. She was formerly a lecturer in the English Department of Qiqihar University. She has a special interest in regional economy and development. She has a M.A. degree in Economics. Guo Wanda was Head of the research project on Study on the Important Areas and Regions in the New Round of Chin’s Opening for the Ministry of Commerce of China and also the project on Study on the Development Strategies for Cooperation between Shenzhen and Hong Kong for the Shenzhen Municipal Government. He received his Ph.D. in Economics from Nankai University. Han Limin is Professor in the Management College of Ocean University of China, Qingdao. He specializes in foreign economy and trade, port economics and agricultural economics. xv

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The Contributors

Jun Zhang is Cheong Kong Professor of Economics and Director of the China Centre for Economic Studies at Fundan University, China. Li Yongning is Professor and Director of the Institute of International Studies at the Guangzhou Academy of Social Sciences. His research area is on economic sociology, focusing on regional management and development studies. He is the author of many policy research reports on international cooperation between the Pearl River Delta and other mega-cities in East Asia. Lin Chao is a graduate of the Ocean University of China, Qingdao. He specializes on management of agricultural economics. Liu Feng is Senior Research Associate in the Department of Development Strategy and Regional Economy in the Development Research Centre of the State Council. His research interests are regional economics and tourism. He has served as a consultant to many local governments in China. He obtained his Ph.D. from the Chinese Academy of Sciences. Lu Ding is Professor of Economics and Senior Research Associate at the University of Fraser Valley University, Canada. He had previously worked in Sophia University, National University of Singapore, and University of Nebraska at Omaha. His research interests include international trade and investment, economic system, and regional economic development. He received his Ph.D. from Northwestern University, United States. Lye Liang Fook is Research Fellow in the East Asian Institute, National University of Singapore. He manages the Secretariat of Singapore’s Network of East Asian Think-Tanks, a Tract 2 body under the ASEAN+3 framework to foster regional economic cooperation. He was previously working in the Ministry of Foreign Affairs, Singapore. His research interests include China’s central-local relations, leadership changes, and political stability in China. Ping Shu is Associate Professor at the School of Economics, Nankai University, Tianjin. Saw Swee-Hock is Professorial Fellow in the Institute of Southeast Asian Studies, Singapore, and Honorary Professor in the University of Hong Kong and Xiamen University. He is also an Honorary Fellow of the London School of Economics. He was the Founding Professor of Statistics in the University of Hong Kong and National University of Singapore. His publications are xvi

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The Contributors

xvii

mainly on statistics, demography and finance. Among his major books are ASEAN-China Relations: Realities and Prospects (co-editor), ASEAN-China Economic Relations (editor), and Southeast Asian Studies in China (co-editor). He received his Ph.D. from the London School of Economics. Sun Wei is a Ph.D. candidate at the Nanjing Institute of Geography and Limnology, Chinese Academy of Sciences, Nanjing. Shandre Thangavelu is Associate Professor in the Department of Economics, National University of Singapore. He was formerly attached as the Head of the Economics Unit in the Ministry of Manpower under the Economist Service to the Ministry of Trade and Industry. He is now assisting as a consultant to the Ministry of Manpower. He obtained his Ph.D. from Queen’s University, Canada. Toh Mun Heng is Associate Professor in the Department of Business Policy, National University of Singapore. Among his major research interests are human resource development and development strategies of emerging economies in the Asia-Pacific region. He obtained his Ph.D. in Economics and Econometrics from the London School of Economics. Wang Chongju is President of Chongqing Technology and Business University. He is also Director of the Research Center of the Economy of the Upper Reaches of Yangtze River at the University, a key research base of human and social science under the Ministry of Education Study on Regional Economics. Wei Houkai is Professor and Deputy Director of the Centre for Urban Development and Environment, and Director of the Centre for Development of Western China in the Chinese Academy of Social Sciences (CASS). He is also Head of the Department of Urban Development at the Graduate School of CASS. John Wong is Research Director in the East Asian Institute, National University of Singapore. He was formerly Director of the Institute of East Asian Political Economy, Singapore, and Lecturer in Economics in the University of Hong Kong. He has published widely on the development of China and other East Asian economies. Among his major publications are The Political Economy of China’s Changing Relations with Southeast Asia, China-ASEAN Relations: Economic and Legal Dimensions (co-editor), and Southeast Asian xvii

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The Contributors

Studies in China (co-editor). He obtained his Ph.D. in Economics from the University of London. Yang Mu is Senior Research Fellow in the East Asian Institute, National University of Singapore. He was Deputy Director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences. Also, he was formerly Chief Executive Officer and Executive Vice President of several companies in Hong Kong and China. His research focuses on global financial crisis and China’s economic development. Yong Fu is Research Associate and Section Chief of Financial Market Research Division, Statistics and Research Development, Shanghai Head Office, the People’s Bank of China. Zhao Changwen is Professor and Vice-President of Sichuan University and Director of its Institute of Financial Studies. He is also Director of Science and Technology Finance and Mathematical Finance of Sichuan Province. He is Chief Editor of Western China Development Review and the China Journal of Finance. His research focuses on Corporate finance, venture capital, small business financing, and international finance. Zhou Liqun is Vice-Dean and Managing Director of Binhai Development Institute of Nankai University and Secretary of the Teaching Advisory Committee of the Ministry of Education. He was formerly Dean of the School of Economics, Nankai University. He has authored Innovation, Integration and Cooperation: Beijing/Tianjin Metro-integration Zone Economic Development and Bohai Rim Area Economic Development Report. Zhu Lifen is Vice Professor in the Research Center of the Economy of the Upper Reaches of Yangtze River at Chongqing Technology and Business University. Her research is on regional economics and management.

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List of Abbreviations AFTA APEC BVI CEPA CEPT CSSD CSSIP EAI EDB EPZs ETDZ FTA IMT-GT ISI JSC JWC PRD SARs SEZs SIP SND TBNA YRD

ASEAN Free Trade Area Asia-Pacific Economic Cooperation British Virgin Islands Closer Economic Partnership Arrangement Common Effective Preferential Tariff China-Singapore SIP Development Corporation China-Singapore Suzhou Industrial Park East Asian Institute Economic Development Board export processing zones Economic Technological Development Zone Free Trade Agreement Indonesia-Malaysia-Thailand Growth Triangle Integrated Outsourcing Initiative Joint Steering Council Joint Working Committee Pearl River Delta Special Administrative Regions Special Economic Zones Suzhou Industrial Park Suzhou New District Tianjin Binhai New Area Yangtze River Delta

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Regional Economic Development

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1

China’s Regional Economic Development: An Overview Saw Swee-Hock and John Wong

The Chinese economy has grown at breakneck speed since it started economic reform and the open door policy in 1978. Economic growth for the past three decades averaged at 9.7 per cent. China’s economy, with its total GDP for 2007 at US$3.4 trillion, is about to replace Germany as the world’s third largest economy after the United States and Japan. The country is also enjoying surging foreign reserves totaling US$2 trillion in 2008 on the back of rising exports and foreign direct investment. China today is the world’s third largest trading power after the United States and Japan. For a huge and diverse continental economy like China, regional development has always been a critical issue in the nation’s development policy. In fact, all large economies face a serious problem of economic disintegration because of geographical barriers and high transport costs. Before World War II, China’s coastal region was much more developed than its interior, and Shanghai was economically more externally integrated than internally integrated as it was cheaper for it to import food and raw materials from other countries by sea than to bring them over from the inlands. After Mao took power in 1949, he tried to balance China’s development by developing parts of Northwest China and Northeast Asia. This is helped by bringing development away from China’s coastal provinces to some new areas in the interior. However, Mao’s strategies were marred

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Saw Swee-Hock and John Wongi

by his obsession with excessive regional self-reliance — at one time, even a small commune in the countryside had to be largely self-reliant. On the eve of Deng Xiaoping’s economic reform and open-door policy in 1978, China’s economy was, therefore, highly disintegrated and fragmented, thanks to years of central planning and the implementation of the self-reliant policy. It was not just provinces and cities that tried to be as economically self-reliant as possible, even a large industry or a large state-owned industry tried to produce everything, completely oblivious to the basic economic principle of comparative advantage. The economy was rife with inefficiencies and local protectionism. Simply put, Deng’s economic reform means the introduction of the market system, while the open-door policy means reconnecting China with the global economy for more trade and investment. Naturally, the coastal provinces had quickly re-asserted themselves, exploiting their inherent comparative advantage in terms of their great human resources, better infrastructure, and closer overseas market connection. Coastal provinces were soon on the forefront of China’s post-reform development. Guangdong province, in particular, spearheaded growth and development because of its proximity to Hong Kong and Macau as well as the establishment of several Special Economic Zones (SEZs) there. Not surprisingly, after over two decades of high growth, China’s development patterns were back to the old historical coastal-interior divide with growing regional disparities. Back in the late 1990s, Premier Zhu Rongji called for the development of China’s vast western region and the revitalization of old industries in the northeast, as a way of reducing regional economic disparities. But regional development gaps continued to get widened in the 2000s, particularly after China’s accession to the WTO, which facilitated trade and investment and hence further reinforced the natural comparative advantage of the more developed coastal provinces. Accordingly, China’s 11th Five-Year Plan (2006–10) calls for greater efforts to rebalance China’s development patterns and reduce both regional and income disparities. And regional development is once again seen to be an effective strategy to boost not just national economic development but also reduce regional disparities. This makes a lot of good economic sense as long as the government takes the lead in providing long-term basic infrastructure development, with the rest being driven by market forces. It should be noted that China’s regions are huge geographic entities on their own — some large provinces like Guangdong and Shandong are even

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Regional Economic Development

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bigger than Germany in terms of population. Each region can contain many different industrial clusters, big enough for them to exploit the economies of scale as well as the Marshallian external economies. In fact, regional or local governments in China have all along played an extremely important role in China’s development. Historically, China’s regions or localities have always had a kind of delicate relations with the central government. On paper, China is supposed to be a unitary state; but all through the dynasties, China was governed much like a de facto federation, with each region or locality carving out a distinctive pattern of relationship with the centre. This is particularly the case after the decentralization move that started with the introduction of economic reform. Each region or locality is supposed to be mainly responsible for its own economic and social development. It has been argued that China’s success in economic reform and development over the past three decades has been largely the product of China’s regional or local initiatives. Local governments (particularly those in the coastal provinces), in alliance with local interest groups and local businesses, all push for higher economic growth by vying for more domestic and foreign investment. In this way, such local competition has actually added a lot of dynamism to China’s overall economic growth. It is therefore not hard to see that regional development will continue to be the main feature of China’s overall development. China’s national economic growth will continue to be the sum total of all its regional growth, with each region over time developing its distinctive economic and social characteristics based on its own comparative advantage. Regional disparities will also continue to persist. For overseas investors looking for business opportunities in China, regional focus should remain their main reference point. Specifically for the past three decades, four regionally based clusters have helped propel China’s economic growth. First, the Pearl River Delta (PRD) was a crucial platform in China’s experiment with the market economy and integration with the world economy. Its Special Economic Zones of the 1980s progressed from attracting labour-intensive assembly plants to becoming suppliers of important electronic components. Second, the Yangtze River Delta (YRD) is home to many high-tech companies as well as suppliers of basic materials such as steel, chemical and petrochemical products and machinery in the automobile, shipbuilding and aircraft industries. Third, the Bohai Rim is China’s largest R&D and production base for telecommunication products, as well as largest production and marketing base for computer manufacturing. It is also China’s leading distribution centre for electronic goods and an important market for

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integrated circuits. Fourth, China’s western region, the largest land mass in China that contributes only a fraction of its GDP, is striving to attract more investments to take advantage of its abundant labour, rich natural resources and beautiful scenery. Chapter 2 by Liu Feng argues that China’s overall regional development strategy is to focus on developing its four great regions (the “Four Plates”) in a distinctive way, that is, to continue with the large-scale development of the western region, to revitalize northeast China and other old industrial bases, to accelerate the development of the country’s central region, and to bolster the leading role of the more developed eastern region. The strategy also includes improving the mechanism of regional coordination and interaction. The end goal is to bring about a proper regional development pattern for the country as whole within the so-called “1-3-3-4” framework: one is for balanced development for each region; three is to establish a unified national market, to equalize basic public services, and to implement nationwide environmental regulations; another three is to develop regional policies for the “Four Plates”, to start functionally-oriented zones, and to provide support for less developed regions; and four is to set up four kinds of coordination mechanisms (market mechanism, cooperation mechanism, mutual aid mechanism, and support mechanism). In the meanwhile, some new trends in Chinese regional economic development have come about, including the gradual shift economic activities from the south to the north, the narrowing of growth gaps of the “Four Plates”, and the increasing importance of the energy, raw material and heavy chemical industries as a major factor in the economic growth and structural change of each region. Wei Houkai in Chapter 3 focuses on the metamorphoses of China’s regional economic growth patterns and regional disparities since the start of economic reform with the open-door policy, from the perspective of industrial agglomeration and corporate relocation. The author argues that China’s regional economic development has entered a “watershed” period, as the northward and westward relocation of enterprises and foreign investment from the eastern coastal region is becoming a new trend. Guo and Feng, based on their case studies of Shenzhen and Dongguan, observes in Chapter 4 that rising labour and land costs in recent years, along with the revaluation of the RMB, have brought to the fore the need for industrial transition and industrial upgrading, which are taking place concurrently in the Pearl River Delta (PRD) region. There are three ways for industrial upgrading, namely, bankruptcy (in Dongguan), moving away (from Shenzhen), and upgrading of the processing enterprises (in Dongguan and Shenzhen). At this stage, industrial transition and enterprise bankruptcy

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are still under control, with no serious impact on the macro economy yet. Local governments have introduced various policies to facilitate industrial upgrading, including helping enterprises to cope with rising costs. But it should be noted that industrial transition and industrial upgrading for the whole PRD region are just in their early phases, and the process is expected to continue. In Chapter 5, Li analyses the development path of PRD and argues that the PRD is fast developing as one of the three mega-cities in China on account of its rapid economic growth and regional planning. Such developments were further facilitated by the return of Hong Kong and Macau to China. His main conclusions are: first, the PRD region is already a mega-city in shape, being able to compete with any other national and international mega-cities. Second, integrated resources and the new landscape plan in the PRD mega-city region are characterized by post-industrial spatial and social structures. Finally, the PRD mega-city development is an ongoing dynamic process, and the flows of resources bring about not only challenges but also opportunities to many other mega-cities around. Toh and Shandre discuss in Chapter 6 the similarities and differences between two different economic regions in a comparative perspective: the Indonesia-Malaysia-Singapore growth triangle and the PRD Region. Having analysed each economic zone in detail, particularly the key inter-regional statistics of the PRD and BBK (Batam, Bintan, Karimum — three special economic zones in Indonesia) regions, they come up with five major findings. For instance, the two regions face different outer environments in the evolution of their manufacturing industries, with the PRD region superior to the BBK region in this regard, as Hong Kong transfers its manufacturing industry into the PRD region and focuses on the development of its service industry, while the manufacturing industry is still Singapore’s and Malaysia’s economic pillar. Also, in the greater PRD region, because all the entities involved are part of the same country, this makes coordination and problem-solving much easier. On the other hand, the BBK region has more difficulties in achieving agreements with Malaysia and Singapore, because its home country and the other two countries have different political situations, legal systems, cultures, languages, races and ideologies, which could result in huge obstacles in negotiation. Zhang and Fu in Chapter 7 examine the changing relations between Shanghai and the Yangtze River Delta from a historical perspective. Before 1949, the rapid growth of Shanghai initially benefited a lot from its prosperous hinterlands of Jiangsu and Zhejiang. Subsequently, as Shanghai continued to grow, its economic relations with Jiangsu and Zhejiang reversed,

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with Shanghai acting as the leader and its hinterland as the follower. Still later, Shanghai spearheaded development of the whole Yangtze River Delta. After 1949, government intervention and central planning made the Shanghai economy more self-sufficient and reduced its economic interactions with the Yangtze River Delta. Following economic reform and the open-door policy in the 1980s, Shanghai and the Yangtze River Delta had once again become economically more integrated. The development of Pudong in the 1990s was another turning point in the integration process. Today, Shanghai has emerged clearly as the unchallenged leader and the indispensable locomotive of economic development of the whole Yangtze River Delta. Looking back, Shanghai’s changing economic relations with its hinterlands were partly the outcome of changing government policies and partly the working of the economic forces based on a win-win situation. In Chapter 8, Chen and Sun pointed out that the Yangtze River Delta region, under the impact of globalization, particularly global capital, is one of China’s most developed and urbanized coastal areas. They discuss the changes in the spatial distribution of the population, land use and economic activities, which display the agglomeration of five growth poles: Shanghai, Nanjing, Hangzhou, Suzhou, Wuxi, and Ningbo. Singapore’s investment in Jiangsu, especially in Suzhou, has greatly promoted the growth of modern Suzhou. Zhou and Shu argue in Chapter 9 that following the Pearl River Delta and Yangtze River Delta, the Bohai Rim has become a new hotspot in China’s economic growth in the twenty-first century. The Bohai Rim has great potential to be the new engine of growth. But it is also beset by problems. Self-centred development plans of every level of administrative authority have led to overlapping construction, unhealthy competition and uneven development, and these have caused a substantial loss of benefits to the entire region. Meanwhile, the fast growing economy has caused damage to the ecosystem. The Bohai Sea’s environmental quality is rapidly deteriorating and becoming a bottleneck in the region’s sustainable development. Improving regional coordination and cooperation apart, the Bohai Rim needs to modify its traditional growth-oriented development model to make it more sustainable. There are signs that the Bohai Rim is preparing for a rebirth on such a new development pattern. Qingdao, the leading city of Shandong province, plays an extremely important role in the reform, opening-up and economic development of the whole Shandong area. Qingdao and Singapore have quite similar economic policy and industry structure. However, Qingdao falls far behind Singapore not only in economic growth, but also in its industrial

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structure, and management experience. These make it possible for Qingdao to improve its economic and trade cooperation with Singapore, and fields such as trade, port, service and education might become the hotspots of cooperation in the future. All these facets are discussed by Han, Lin and Chen in Chapter 10. According to Yang and Lye in Chapter 11, environmental considerations are assuming greater importance in the planning processes of an increasing number of governments around the world. One aspect of this increasing mainstreaming of environmental needs is the development of eco-cities that seeks to reduce the amount of resource inputs and keep waste outputs to a minimum. Similarly, the Sino-Singapore Tianjin Eco-city aims to be environmentally friendly, socially harmonious and economically sustainable. However, the purpose of the Sino-Singapore Tianjin Eco-city project has actually gone beyond the commercial and environment aspects to include strategic and political objectives. The project offers a platform where leaders, officials and businessmen from both China and Singapore can interact and get to know each other better. This would lay the basis for stronger political and economic ties. In terms of its key features, the Sino-Singapore Tianjin Eco-city is practice-oriented with realistic targets set. More importantly, and unlike other eco-cities, it is strong in its emphasis on the social considerations of an eco-city project. Using the Cobb-Douglas production function in Chapter 12, Zhao and Du analyse capital formation and its impact on regional economic growth in western China, and they compare this with other two regions, central and eastern China. Their empirical results show that the ability of capital formation in western China is generally weaker than in eastern and central China. Furthermore, local fiscal capital spending has significant positive effect on the GDP growth in central and western China. The fixed assets investment has significant positive effect on the GDP growth of eastern and western China. Bank loans do not have a significant effect on the GDP growth of the three regions while equity financing has a significant effect on the GDP growth in eastern China and central China, but no evidence in western China. The effect of FDI on the GDP growth is stronger in western China than eastern China. Chongqing, the only municipality under the direct jurisdiction of the central government in Western China, an important city of the Upper Reaches of the Yangtze River, plays an extremely important role in the reform, opening-up and economic development of the whole western and Yangtze River economic areas. On one hand, Chongqing has made major strides in the last ten years as a municipality under the direct jurisdiction of

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the central government and has an important role in China’s development; on the other hand, Chongqing falls far behind not only economically, but also in its industrial structure, and management experience compared with Singapore. The development strategy of Chongqing and industrial advantages of Singapore make it possible for Chongqing and Singapore to improve their economic and trade cooperation further. Trade, port, services and education will be the broad space for cooperation between Chongqing and Singapore in the future. All these aspects are discussed in Chapter 13. In Chapter 14, Lu argues that a disturbing feature of China’s hyper economic growth has been its uneven economic growth across the country’s vast regions. He sees an important link between demographic structures and levels of per capita income in various regions. This points to the impact of labour migration on income growth via changes of demographic structures. In general, the poor inland regions have been the major sources of fast growing “floating population” of lower-paid migrant workers. With massive net outward migrations, the demographic structures in those provincial economies have increasingly become unfavourable for growth. This raises a serious concern about the chance for these regions to catch up with the rich ones. Lu also discusses the migration patterns across Chinese provincial economies and the socio-economic consequences of labour migration in the context of uneven demographic transitions across China.

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2

New Trends in China’s Regional Economic Development Liu Feng

OVERALL STRATEGY AND BASIC POLICY FRAMEWORK OF CHINA’S REGIONAL DEVELOPMENT China is a developing country with a vast territory, long history and large population. Different regions have different natural, economic, social and cultural conditions. The problem of regional imbalance has been considered for a long time, and therefore the overall strategy for regional development has always been a concern. At present, the overall strategy for China’s regional development is to continuously carry out large-scale development of the western region, revitalize Northeast China and other old industrial bases in a comprehensive way, boost the development of the central region, support the eastern region in taking the lead, and improve the regional coordination and interaction mechanism so as to form a proper regional development pattern (see Figure 2.1). It can be generalized as a 1-3-3-4 framework, that is, to implement one general requirement, to perfect three basic environments, to promote three types of regional policies, and to improve four kinds of coordination mechanisms.

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Figure 2.1 The Overall Strategy for China’s Regional Development

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

BALANCED REGIONAL DEVELOPMENT At present, the general requirement and major content of the overall strategy for regional development is to promote balanced regional development. China has to ensure optimal resources allocation among regions, bring the advantages and enthusiasms of various regions into full play, develop their potentials, and help them establish harmonious relationships through mutual advantage complement, division and cooperation, mutual promotion and positive cooperational interaction. This includes the following three aspects: 1. Bringing the comparative advantages of various regions into full play and improve their efficiency. 2. Ensuring that people in various regions enjoy equal basic public services, and controlling the GDP per capita gap within a certain range so as to reduce inequality. 3. Maintaining a harmonious relationship between people and nature, and implementing proper, orderly and sustainable development in order to protect the environment.

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THREE BASIC ENVIRONMENTS (1) To Establish a Nationwide Unified Market China should make good use of the basic power of market to allocate resources, and eliminate systematic and artificial factors that hinder the free flow of factors of production. Through promoting the free flow of production factors across regions, allocation of resources increase the inputoutput efficiency of resources, and maximize their returns. (2) To Improve the Equalization of Basic Public Services It is an important principle in framing the regional policy to reduce the disparity in public services and per capita income gap between different regions. This change demonstrates the “people-oriented” development philosophy. China should not expect that the less-developed regions in the mainland to have the same economic development level as the developed coastal areas. However, the country should have similar standard in public service level (as the eastern areas) across regions. (3) To Implement Nationwide General Environmental Regulations China will implement strict and uniform environmental protection standards and environmental protection regulations on controlling total pollutant emissions nationwide. The emphasis of the environment governance policy should be on the control of the root causes of pollution. In the meanwhile, China should classify total pollutant emissions into different categories according to various factors such as characters of environmental problems and background, carrying capacity, environment capacity, and ecological function of different function areas. THREE TYPES OF REGIONAL POLICY (1) Overall Regional Development Policy Supported by “Four Platforms” “Four Platforms” is the basic spatial framework and outline for the overall regional development strategy. The concept allows different development positions, emphases and policy orientations. The western region should strengthen its self-development ability, with emphasis on

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infrastructure and environment. Moreover, it should improve its investment environment, cultivate key industries supported by competitive resources (energy, mineral, tourism and human resources), and increase human resource investment. The northeast region should rejuvenate itself in the opening-up, with emphases on structural adjustment and reorganization of state-owned enterprises. It will further open up to the outside world, especially via strengthening the economic and technological cooperation with neighbouring countries. In the process, the region may eventually become a base establish deep processing bases of equipment manufacturing, raw material and agricultural products with comparative advantages, and promote economic transition of resource city. The central region should rise with its role in connecting the west and the east and through its industries’ advantages, with emphases on improving industrial competitiveness, building a comprehensive transportation system, developing logistics and commercial services and a perfect market system. The eastern region should improve its international competitiveness and sustainable development ability, with emphases on strengthening its independent innovation ability, create a series of independent intellectual property rights, core techniques and famous brands, promote the upgrade of the processing businesses, improve its export-oriented economy and increase its international competitiveness. (2) Differential Management Policy Based on Functionoriented Zones Function-oriented zones can be divided into development priority zones and special-function zones. Development priority zones can be further divided into optimization development area, major development zones, restricted development zones and forbidden development zones. Special function zones can be further divided into several types, including environment protection zones, flood detention basin zones, main grain producing zones, energy zones, pollution prevention and governance zones, infrastructure construction zones, and tourist and leisure zones, etc. The “Eleventh Five-Year Plan” brings forward the requirement to establish development priority zones, dividing land into four types of major function zones: optimization development zones, major development zones, restricted development zones and forbidden development zones. Because of different carrying capacities, current development intensities, development potentials, the major function zones should have different strategies. Optimization

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development zones should make efforts to increase upgrade the technological level of the industries, eliminate bottle-neck of resources and environment and improve the participation of global competition. Major development zones have to improve infrastructure, absorb capitals, techniques, concentrations of industry and population, speed up industrialization and urbanization, and improve the regional radiation function. Restricted development zones should implement the guideline of “protection first and proper development”, strengthen environment governance, develop special economy properly and transfer overcrowded populations in an orderly manner. Forbidden development zones should implement compulsory protections in accordance with laws and regulations and prohibit development and construction activities that do not fit the function. As a complete regional development policy, it should constitute certain policies for environment protection zones, flood detention zones, major food supply zones, energy zones, pollution prevention and governance zones, infrastructure construction zones, and tourist and leisure zones in order to promote their positive development. (3) Regional Policy on Governing and Supporting Problem Regions In accordance with international experiences, most of the central government regional policies are designed specifically for various regions with different problems. The purpose is to narrow the regional gap and promote balanced regional development. At present, the problem regions in China can be categorized into five types: less-developed regions (including poverty-stricken areas, former revolutionary areas and ethnic areas), depressed regions (resource-exhausted cities and declining old industry bases), border regions with various conflicts, ecological fragile regions or environment polluted regions, and expanding regions. FOUR TYPES OF COORDINATION MECHANISMS (1) Market Mechanism In order to promote balanced regional development, China should first break regional blocks, speed up the establishment of a nationwide uniform and realize the free flow of production factors and industry transfers among the regions. It should not rely on administrative orders and planned projects to realize resources allocation.

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(2) Cooperation Mechanism The government should set up the stage for the enterprises to put on a show among regions. It should try to establish a regional cooperation mechanism and carry out multi-level regional cooperation in various ways. It has to strengthen overall coordination to avoid overlapping constructions and waste of resources. It should also encourage and support regions to carry out various forms of regional economic, technological and intellectual cooperation and “let the east promote the west and promote the common development of eastern, middle and western regions”. (3) Mutual Aid Mechanism Regions that become rich first should help other regions, in line with the excellent tradition of mutual aid. China has to encourage developed regions to help the less developed regions by way of one-to-one aid and social donation. It should further increase technological and intellectual cooperation by way of capital flow, interregional projects and external aids. (4) Support Mechanism Apart from bringing the above three mechanisms into full play, government, especially the central government, should resolve to better promote social equality and ensure that all people are able to share the fruits of reform and development. It has to increase government support for less developed regions in accordance with the principle of public service equalization. NEW TREND IN THE DEVELOPMENT OF CHINA’S REGIONAL ECONOMY Regional Growth Moves North The most prominent change in the regional economic development structure is that the geometric gravity of the economy1 has been shifting north in recent years. Since the 1980s, the geometric gravity of the Chinese economy has moved rapidly from its starting point in the southwest where the Pearl River Delta is located. This reflected the fast development of the southern coastal areas with the Pearl River Delta as the centre. However, the direction has changed greatly since 1991, from the southwest to the southeast. The change was partly caused by the accelerated development elsewhere and, in

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particular, the fast expansion of the total economic output of the Yangtze River Delta. After 1999, the geometric gravity of economy headed in another direction as the northern coastal areas developed step by step. It moved to the northeast. It was in 2004 that the direction first changed from east to west since 1984. This change showed that the impact of the central-western region’s economy was being greatly strengthened. At the same time, the geometric gravity was heading north and was moving rapidly. The direct reasons for this are the increase in the growth rates of the northern coast areas and the rapid growth of the central-western provinces, with those richest in energy resource joined the first-tier of fast developing provinces even as the economy of the whole country and the southeast coastal areas continued to grow rapidly.

Figure 2.2 The Trajectory of How the National Economic Gravity Changed

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

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The big “Four Plates” keep on developing, while the differences in growth rates are getting smaller as the growth rate of some regions have been significantly accelerated As shown in Figure 2.3, the eastern, northeastern, central and western areas have kept a fast pace of development. Among them, the eastern region still possesses the fastest growth rate. Nevertheless, in comparison with 2004, the difference in growth rates between the east and the other areas are getting narrower. The growth rates of the central area and the west have increased while the east’s and northeast’s have decreased. The northern coastal areas and some of the central-western provinces show accelerated growth rates and some central-western regions have joined the first-tier of rapid development. The Bohai Rim region constituting Beijing, Tianjin, Shandong, Hebei, and Liaoning has a remarkable growth rate. Besides, some central-western provinces such as Henan, Jiangxi, Guangxi, Sichuan, Shanxi, Shaanxi, Anhui enjoy accelerated growth rates.

Figure 2.3 The GDP Growth Rates of the Big Four Plates, 1990–2005

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

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Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

Figure 2.4 The Comparison of GDP, Incremental GDP and Growth Rate

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Investment as the Main Driver for Most Regions’ Development Investment is the main driver for most regions’ development, according to local data. As demonstrated in Table 2.1, apart from Heilongjiang and Guangdong, the investment ratios of all other provinces surpass Table 2.1 The Contribution Ratio to GDP Calculated by Expenditure, 2005 City

Beijing Tianjin Hebei Shanxi Inner Mongolia Liaoning Jilin Heilongjiang Shanghai Jiangsu Zhejiang Anhui Fujian Jiangxi Shandong Henan Hubei Hunan Guangdong Guangxi Hainan Chongqing Sichuan Guizhou Yunnan Tibet Shaanxi Gansu Qinghai Ningxia Xinjiang Average

The contribution rate of each item of GDP Invest

Consume

Net Export

52.0 57.1 45.2 51.0 70.7 47.6 42.6 33.9 48.4 51.7 51.1 41.2 47.3 49.6 49.2 44.1 42.3 40.2 39.7 40.5 47.6 59.8 41.6 54.7 49.0 82.2 64.0 46.9 69.3 84.9 61.9 51.9

51.4 40.8 42.7 47.6 44.0 47.7 51.7 48.3 48.3 41.2 47.4 56.2 50.2 52.1 43.0 50.6 55.9 62.0 51.6 60.8 52.4 57.3 59.0 82.2 66.9 73.5 45.8 63.0 66.4 64.5 48.6 54.0

–3.4 6.0 11.4 –0.7 –17.0 2.2 –0.9 16.2 6.0 7.9 4.6 –0.2 5.0 –0.9 6.9 2.0 –1.1 –1.5 11.0 –3.6 0.2 –18.9 –4.0 –34.0 –24.2 –46.8 –3.3 –10.4 –34.4 –43.0 –10.3 –5.8

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

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Figure 2.5 Investment Growth Rate and GDP Growth Rate of All Provinces Over China

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

40 per cent. Among them, the investment ratios of thirteen are more than 50 per cent. They are Ningxia, Tibet, Inner Mongolia, Qinghai, Shanxi, Xinjiang, Chongqing, Tianjin, Guizhou, Beijing, Jiangsu, Zhejiang and Shaanxi. As illustrated in Figure 2.5, a rather strong correlative relationship exists between the investment growth rate and GDP growth rate in most regions. It shows that investment is, to a very large extent, the major driving force of economic growth in most areas. Fast growth of energy, raw materials and heavy chemical industries has become a major driving factor for structural changes of regional growth There are many causes leading to the shift in the economic geometric gravity centre as well as the structural changes of regional growth. In terms of regional differences in industrial growth, since 2003, the fast growth of the mining and resource industries such as coal, electricity, steel, non-ferrous metal, oil and gas and chemical industry has led the economic growth of most provinces with abundant energy resources. This has greatly influenced the change in the regional growth structure. It can be observed that among the fourteen provinces with the highest GDP growth rates, according to the location quotients of the major industries

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in manufacturing, three types of areas can be obviously categorized. The first category is the newly developing, fast growing regions in the central and western areas of China, including Inner Mongolia, Henan, Jiangxi, Guangxi, Shanxi, Shaanxi, etc. The common characteristic is that energy, raw materials and their related industries form a relatively high percentage in the region’s total economy. Industries such as ferrous and non-ferrous metal mining and dressing, smelting, rolling processing, as well as coal, oil, gas and chemicals are large-scale, intensely located and growing fast. The second category is the traditionally more developed eastern coastal regions, including Jiangsu, Guangdong, Zhejiang, etc. The common characteristic is that the rather advanced manufacturing industries — among them electronic and communication apparatus manufacturing, metalwork manufacturing, general-purpose equipment manufacturing — are of great importance in the industrial structure. The third category is the newly developing, fast-growing coastal regions, represented by Tianjin, Hebei, Shandong, Liaoning, etc. Among them, Hebei and Liaoning provinces are more similar to the first category. Tianjin and Shandong provinces are between the first and second category, with the structural characteristics similar to both categories. Their fast growth is a result of the growth in energy, raw material industry and manufacturing industry. Since most regions of the first and third categories are located in the northern coastal and midwestern areas, their development has also sharply expanded the total economic volume in these areas, resulting in the shift in the economic geometric gravity centre towards these areas. In recent years, continuous rapid economic growth of China has resulted in constant change in the industrial structure, fast development of energy and heavy chemical industries, and thus the rapid increase in demand for energy and raw materials, which has led to the rapid development of mining and other related industries in the energy- and resource-rich provinces. On the other hand, the strategies of developing the western regions, revitalizing the old industrial bases in northeast China, and promoting the rise of the central region, provide supports for the development of midwestern and northeastern regions. Deepening of Regional Industrial Differentiation In recent years, the space concentration ratio of most manufacturing industries in China has apparently increased. Overall, it shows the characteristic of “high industrial agglomeration”. In spite of their

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continuous presence in the developed eastern coastal regions, the tendency of manufacturing industries moving northward is enhanced. The change of the space concentration ratio in the manufacturing industry represents the shifting tendency in industrial differentiation among regions. It can be observed from Figure 2.6 that, since 2000, the space concentration ratio for most of the industries in manufacturing keeps increasing. The average increase of the space concentration in twenty industries reached 2.5%. Among them, the industries that increased more than 10% are: ferrous metal smelting and rolling processing (29.6%), non-ferrous metal smelting and rolling processing (15.5%), chemical fiber manufacturing (10.7%), chemical raw material and chemical products manufacturing (10.6%); the industries that reach over 5% are: non-metallic mineral products (8.6%), textile industry (8.2%), electronic and communication apparatus manufacturing (7.8%), paper making and paper products (6.1%) and food processing (5.6%). The level of specializing differentiation based on market competition and economies-of-scale keeps increasing, but some industries (except those highly dependent on the locality of raw material, automobile, pharmaceutical, tobacco and alcohol are evident cases) are still widely scattered as a result of regional protectionism and inadequate industrial policy. Figure 2.6 Space Concentration Ratio Change of Chinese Manufacturing Industry from 2000–2005

Source: Development Department in Research Center of the State Council, Regional Scientific Development in China (China: Chinese Development Press, 2007).

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Manufacturing industry is mainly located in the eastern coastal regions. For example, Guangdong, Shandong, Jiangsu, Zhejiang and Shanghai have become the most densely located regions. In terms of the output value concentration ratio of the top three provinces with the highest total industrial output, the concentration ratio difference of the twenty industries in 2005 was quite sharp, that is, between 0.28 and 0.73. Apart from food manufacturing (Henan), beverage manufacturing (Sichuan), tobacco processing (Yunnan, Hunan), non-metal mineral products (Henan), ferrous metal smelting and rolling processing (Henan) non-ferrous metal smelting and rolling processing (Henan), the total industry output of provinces from the midwest are all out of the three top. Most industries are highly concentrated in the eastern coastal area. Among these areas, Guangdong, Shandong, Jiangsu, Zhejiang and Shanghai take up more than half of the total industrial output of the twenty industries. In accordance with the changes in industrial concerntration in recent years, it can be observed that the output value ratio of the Circum-Bohai-Sea region kept increasing. In 2000, among the twenty manufacturing industries, the number of industries with the highest total output value ratio of Pearl River Delta, Yangtze River Delta and the Circum-Bohai-Sea area is 9 : 7 : 3; in 2005, the number turned to 5 : 4 : 9. The industrial concentration ratios of the group of Shandong, Hebei and Liaoning provinces have all increased. Generally speaking, the eastern region currently has industries with competitive advantages; the western and the most northeastern regions are competitive in some industries; while the central region lacks industries with any clear advantages. RISE OF REGIONAL COOPERATION Regional Economic Bond Strengthens Since the reform and the opening-up, the regional economic bond in China has generally been strengthened. In recent years, the percentage of intra-provincial trade volume keeps decreasing in the total national trade volume, while inter-provincial trade volume keeps increasing. According to related research results (Li Shantong and others, “Extent of interprovincial trade bonds: An Analysis based on “Value-added Tax Statistics of Golden Taxation Project”), the percentage of the value-add tax (VAT) of intra-provincial trade of the total national output tax has dropped from 58.04 per cent in June, 2003 to 56.82 per cent in June 2005, while the

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percentage of the inner-provincial trade of the same period has increased from 41.96 per cent to 43.18 per cent. At the same time, inter-provincial commodity trade dependence (inter-provincial commodity trade dependence = total volume of inter-provincial commodity trade/ GDP × 100%) shows that inter-provincial economic bonds have enjoyed a trend of continuous increase. From the third quarter of 2003 to the third quarter of 2004, the inter-provincial commodity trade dependence of the five quarters are: 65.43%, 61.60%, 79.49%, 78.48% and 75.89%, respectively, each surpassing the international trade dependence of China that year. This indicates that the opening-up of domestic market has reached a new level. Strengthening Cooperation among the Three Coastal Economic Zones Due to the regional economic development of the past two decades, a number of closely-tied economic zones (regions) appeared in China. These economic zones (regions) have become the centre of element conglomeration, information, talent, creation and trade. Among them, the Pearl River Delta, Yangtze River Delta and Bohai Rim region have become three critical economic zones that stimulate the national economic development. Expansion of Pan-regional Cooperation based on Hinterland Competition While the Pearl River Delta and Yangtze Rive Delta economic zones actively push forward the integration process within the region, the stimulus to adjust the industrial structure has obviously strengthened due to the lack of productivity, rise of labour cost and environmental pressure. Local initiatives carry out complementary economic cooperation with neighbouring regions, especially inner regions, also increases. This is illustrated in the intensifying competition of the expanding hinterlands of the two economic zones. Both have made new steps in promoting cooperation with the inner regions. Since 2004, Pearl River Delta has been actively pushing forward regional cooperation framework of “Pan-Pearl River Delta” and “Nine-plus-two”. Moreover, Yangtze River Delta is discussing the possibility of extending the margin along the Yangtze River and even the inner hinterland, in its drainage area. They are also putting forward a proposal for the cooperation between the twenty-nine cities along the Yangtze River, which includes the “Fifteen-plus-one” cities in Yangtze River Delta, the geographical area of cooperation extending from the coastal area to the midwestern regions.

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Emergence of the Metropolitan Area Concept Most regions pay great attention to the development of key areas within their administrative map. Nowadays, building a metropolitan area or city groups with a core city as the centre, of all types and different ranges, has become an important content in regional development and regional cooperation promotion. Apart from the Pearl River Delta, Yangtze River Delta and Jingjinji metropolitan areas, many provinces and regions have confirmed the development of a metropolitan area and city groups within the province. Through the enhancement of infrastructure construction and industrial planning within these areas, the level of industry conglomeration can also be increased so that key areas that stimulates the regional development can come into being. Experimenting with Trial Reform-testing Districts In terms of promoting coordinated regional development, an important approach is to implement trial reform-testing districts. The different trial districts would have different strategic goals, functions and missions. All trial districts can have access to all kinds of comprehensive policy advantages, thus making them one of the most important policy areas. The conditions to become a trial district are that the testing contents must be “nationwide” and “breakthrough”; the district must be “typical”; of strategic importance in the region; with good foundations and conditions; and take into consideration regional balance. The current trial reform-testing districts include: Pudong, Shanghai, Binhai, Tianjin, Chengdu and Chongqin region, Wuhan cosmopolitan area; and Changzhutan city group. This indicates the changing directions of development from south to north, from coastal areas to the inland, from opening-up to the integration of urban and rural areas, to a dual-oriented society. OPPORTUNITIES FOR SINGAPORE To conclude, China’s regional strategy has become more and more clear and the direction of its regional policy has changed in the following manner: 1. Regional development emphasis: from supporting costal areas to balanced regional development. 2. The direction of regional carriers: from administrative zones to functionoriented zones.

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3. Major development regions: from development zones to comprehensive, supporting reform-testing areas. 4. The requirement and evaluation of regional development: from economic development to overall harmonious and sustainable social development. As for Singapore, besides the three eastern costal megalopolis circles mentioned, the major regions and key industries in the regions formed by the new policy trends will offer significant fields for cooperation. Subsequent regions will be classified as key development areas in the development priority zones. In addition, related supporting policies will also be implemented. Hence, these regions have great potential. In May 2006, Tianjin Binhai New Area (TBNA) was established. Foreign capital is welcomed in the development to find a new way of industrialization, develop a high-tech industry, modern service sector and further promote the regional economy. Singapore has seized the opportunities and will be building an ecological city together with TBNA in China. On 14 June 2007, the Chengdu-Chongqing reform-trail district was established. Its purpose is to find a way to change the dual economic structure of China’s urban and rural areas, and set up a mechanism to balance urban and rural development in order to make rural residents, migrant workers and their relatives enjoy equal rights, public services and the same living conditions as urban citizens. It will also further promote a western development strategy. For example, Chongqing plans to achieve rapid economic development in the next five years with doubled GDP and RMB2,000 billion (S$400 billion or US$270 billion) investment. This creates a great potential market for the development of Singapore’s information technology (IT) industry in the ChengduChongqing region. On 14 December 2007, the Wuhan megalopolis circle and Changsha, Zhuzhou and Xiangtan megalopolis circles were established. Centred on a “dual-oriented society”, its establishment aims to find solutions to the conflicts between resources, environment and economic development, establish appropriate endogenous development pattern for China and promote the rise of the “middle regions”. Resource conservation and environmental friendliness will be the major development targets for the advantageous industries in Changsha, Zhuzhou and Xiangtan megalopolis circles. These cities will attempt to reform enterprises with high energy consumption and high pollution and upgrade traditional techniques in heavy chemical industry. Pillar industries like construction machinery, rail

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transit, non-ferrous metals and mass media, and electric vehicle and power generation equipment industries, will have great competitive advantages. Changsha, Zhuzhou and Xiangtan megalopolis circles are actively developing a high-tech industry and a service sector to enhance the upgrading and transition of the medium industrial structure. The establishment of some model projects will promote a trend of energy conservation and pollution reduction in other areas in China. In February 2008, the State Council approved the “Economic Development Plan for Guangxi Tonkin Gulf Economic Zone” and the Tonkin Gulf economic zone became a state strategic region. It is the only continuous coastal line that has not been developed on a large scale. There is also going to be a new modern export zone and industry group in a coastal area plan and important region to build cities with high-quality amenities. The Tonkin Gulf economic zone is the only coastal region in the west, located in the converging point of many regional cooperation organizations such as the China-ASEAN Free Trade Area, Pan-Beibu Bay Area Economic Cooperation Region, Greater Mekong Sub-region, ChinaVietnam “two-corridor and one-circle”, Pan-Pearl River Delta economic area and Cooperation in six-Provinces (region or city). With good location and prominent strategic position, it is an important chance to promote overall cooperation between China and ASEAN and has great potential. The goal is to establish logistics, trade and processing bases and information communication centre for the open cooperation between China and ASEAN. In ten to fifteen years’ time, it will become an important economic growth region in coastal areas and becomes the new pole of China’s economic development. Major industries include agricultural processing industry, petrochemical, paper industry, metallurgy, light industry, food, high-tech and marine industry and modern service industries such as logistics, finance, information services, exhibition and conference, real estate and tourism. On the basis of the new sub-region cooperation within the framework of China-ASEAN cooperation, Singapore has great opportunities in important fields such as transportation, marine industry, agriculture, forestry and fisheries, energy development, transnational tourism and environmental protection. On 5 March 2008, “The Letter about Related Issues on Supporting Hainan’s Tourism Development” issued by the general office of the State Council is a response to the proposal to build an international tourism island. Hainan Province has unique advantages in developing modern tourism. Its ecological environment and weather condition make it the only province that can develop tropical island resorts. With a rapidly developing

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economy, Hainan Province is close to Hong Kong, Macau, Pearl River Delta, and ASEAN. It is also neighbouring Singapore, Vietnam, Malaysia, Thailand and Indonesia. Hainan Province has become more famous in the world in recent years. For instance, Boao is the permanent location for “Boao Forum of Asia” and Sanya has held the “Miss World Contest” four times. During the past twenty years, tourism has become the leading modern service industry in Hainan Province. In comparison with 1988, Hainan’s total tourism revenue in 2007 increased from RMB287 million to RMB17,137 million, a sixty-times growth rate. Hainan Province is developing international financial services, tourism products, reception facilities and service management. It will implement the large-enterprise entry strategy, which is aimed to introduce a large number of foreign tourist agents to Hainan’s tourism market, and attract world famous hotels to participate in the building of a “national coast” — an international high-level recreation tourism region in Haitang Bay of Sanya. All these regions are eager to learn the advanced concepts and management patterns of Singapore and Singapore’s experience in economic development, city building and public management. In the meanwhile, they would also be more involved in the regional economic integration. There is great potential for cooperation between Singapore and China in fields such as information industry, environmental protection, education, talent training, staff exchange, tourism, the improvement of scientific and technical content, and modern service sectors. NOTE 1. The geometric gravity of the economy refers to a point in space of the regional economy, where the economic power to each direction can maintain equilibrium. The trajectory of its change can reflect how the gravity of economic activities changes comprehensively. The way to calculate a geometric gravity is: take the proportion of economic output of province i to the total GDP as Gi; the geographic coordinate of this province is (Xi , Yi) in which Xi and Yi represent the longitude and latitude; so the geographic coordinate of the economic gravity of the whole country should be:

X=

GiXi Gi

, Y=

GiYi Gi

The factors that determined the economic gravity are the geographic position and local economic output.

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3

Regional Economic Development in China: Agglomeration and Relocation Wei Houkai

Regional economic development in China has been undergoing a strategic transition from disequilibrium to coordination since 1978, the year the nation adopted the reform and opening-up policy. In the light of major changes that have taken place in the intervening years, following the nation’s guidelines for regional development, the metamorphosis of relevant strategies and policies can be roughly divided into three periods: 1979–90, during which the economy developed in favour of the eastern region; 1991–98, when strategies were initiated to coordinate the economic development of the central and western region; and the post-1999 period, when strategies have come into full swing to coordinate the regional economic developments. In the Eighth Five-Year Plan published in March 1991, the Chinese government adopted coordinated regional development as a top national strategy. Afterwards, the government adopted a strategy in September 1999 to accelerate the development of western region, initiated another strategy in October 2003 to rejuvenate old industrial bases in the northeast, and issued a call in January 2004 to hasten the economic take-off of the central region, indicating that the decision to achieve equilibrium in regional economic

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development had entered a period of all-round implementation. From the perspectives of industrial agglomeration and relocation, this chapter takes a look at the trend of changes in China’s regional economic development since the reform and opening-up. DIVISION OF ECONOMIC REGIONS AND THEIR ECONOMIC DEVELOPMENT China is a large developing nation with a comparatively large economic disparity among its regions. In the Sixth Five-Year Plan (1981–85), which came underway shortly after the adoption of the reform and opening-up, the government followed the old tradition to divide the country into coastal and inland regions, reflecting the difference indevelopment.1 Based on this traditional dichotomy, and in light of different geographic location and regional economic development levels, the Seventh Five-Year Plan (1986–90) divided the nation into three economic regions — eastern, central and western regions — to provide the government with guideline to follow when determining economic development priorities and setting up a pecking order for resource allocation. This division of three economic regions, though somewhat simplistic and rough, has had a major impact on regional statistical work and policy-making. The central and western regions used to be mentioned as the “inland region”, and this is why they are usually collectively called “central and western region”. Under the Eighth Five-Year Plan (1991–95), the old classification of the country into two broad areas continued to be used so that the division of the nation into coastal region and inland region continued. The Ninth Five-Year Plan (1996–2000) renamed the two regions “eastern region” and “central and western region”. What is noteworthy is that in the Ninth Five-Year Plan the government planned to set up seven economic regions to bypass provincial, municipal and autonomous regional boundaries, but the plan failed because of its questionable wisdom and, more importantly, its ill-defined purposes. Moreover, the seven-region plan was patterned after the former Soviet Union’s blueprint for synthesized economic regions under central planning, whereas China was already in transition from central planning to a market economic system the central government had practically lost the ability to construct the synthesized economic regions. To coordinate regional economic development, the government adopted the strategy to develop the western region in a big way in 1999. Apart from the ten western provinces (municipalities and autonomous regions included, thereafter shortened as “provinces”) listed in the Seventh

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Table 3.1 Division of Chinese Economic Regions Since the Reform and Opening-up State Plan

Period

Regional Division

Sixth Five-Year Plan

1981–85

Coastal region and inland region

Seventh Five-Year Plan

1986–90

Eastern coastal region, central region, and western region

Eighth Five-Year Plan

1991–95

Coastal region and inland region

Ninth Five-Year Plan

1996–2000

(1) The Yangtze River Delta and the areas along the river, Bohai Sea Rim, southeastern coastal region, southwestern region and some provinces and autonomous regions in South China, northeastern region, five provinces and autonomous regions in central region, and northwestern region; (2) eastern region, and central and western region.

Tenth Five-Year Plan

2001–05

East region, central region, and west region

Eleventh Five-Year Plan

2006–10

(1) Western region, northeastern region, central region, and eastern region; (2) four categories of mainstream functioning regions are developed with priority, where needed, or their development is restricted or banned.

Source: The Five-Year Plans for National Economic and Social Development of the People’s Republic of China.

Five-Year Plan, the policy covered Guangxi (originally part of east region), Inner Mongolia (originally part of central region), the Yanbian Korean Autonomous Prefecture of Jilin Province, the Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, and the Xiangxi Tujia and Miao Autonomous Prefecture of Hunan Province. In the administrative unit of provincial level, this arrangement gave rise to the concept of “ten plus-two” great western region and divided the nation into new three major economic regions. The government afterwards adopted the strategy to rejuvenate the northeast region, and another strategy to facilitate the economic take-off of the central region. By the time of the Eleventh Five-Year Plan (2006–10), the nation has been divided into four regions: east region, central region,

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Figure 3.1 Three Times Main Changes in the Economic Division of China in Recent Years

East 10 Coastal Region

East

Liaoning

East 10 East

East

East 10

Central

Central 6

Liaoning

Guangxi Central 6 Central 6 Central

Central

West 10

Heilongjiang West

Heilongjiang

Jilin

Inner Mongolia

Jilin

Inland Region

Inner Mongolia West

West 10

The old three regions during the 7th Five Year Plan period

West 10 Great west

Guangxi Inner Mongolia

The new three regions under western development

Guangxi

Heilongjiang Northeast

Jilin Liaoning

The four regions today

Note: Of this, the ten eastern provinces (East 10): Beijing, Tianjin, Hebei, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, and Hainan; the six central provinces (Central 6): Shanxi, Henan, Anhui, Hubei, Hunan, and Jiangxi; the ten western provinces (West 10): Sichuan, Chongqing, Shaanxi, Guizhou, Yunnan, Tibet, Gansu, Ningxia, Qinghai, Xinjiang. Source: Wei Houkai et al., A Study on the Readjustments of Industrial Location in China (China: Institute of Industrial Economics, Chinese Academy of Social Sciences, December 2005).

western region and northeastern region, with ten provinces in the eastern region, and six provinces in central region (see Figure 3.1). Judging from the economic relations and degree of economic integration, the central region as it stands today cannot be counted as an integral region, still less an economic zone. Economic disparity is an outstanding problem in both east and west regions. In the west region, there is a yawning gap between its southwest and northwest areas; in east region, development is lopsided among the Yangtze River Delta, the Pearl River Delta, the Shandong Peninsula and the Beijing-Tianjin-Hebei region.2 Only northeast region appears to be a relatively integral economic zone.3 In this chapter, Eleventh Five-Year Plan’s division of China into four regions is adopted. The eastern region includes Hebei, Beijing, Tianjin, Shandong, Shanghai, Jiangsu, Zhejiang, Fujian, Guangdong and Hainan;

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Table 3.2 Percentages of Major Economic Indicators for China’s Four Regions in National Totals (%) Nation

East Region

Northeast Region

Central Region

West Region

Population

100

36.3

8.4

27.3

28.0

Gross Regional Product (GRP)

100

55.7

8.5

18.7

17.1

Industrial value added

100

59.0

8.7

17.7

14.6

Total investment in fixed assetsa

100

49.7

9.5

19.0

20.0

FDI actually utilized

100

87.3

3.9

5.3

3.5

Exports

100

88.8

4.0

3.6

3.6

Economic Indicators

b

Notes: a. Investment not classified by regions account for 1.8%; b. Computed by the origin of commodity supplies. Source: China Statistical Yearbook, 2007, and China Economy & Trade Yearbook, 2007.

northeast region spans Liaoning, Jilin and Heilongjiang; central region covers six provinces: Shanxi, Henan, Anhui, Hubei, Hunan and Jiangxi; and west region consists of 12 provinces: Inner Mongolia, Guangxi, Shaanxi, Gansu, Ningxia, Qinghai, Xinjiang, Chongqing, Sichuan, Guizhou, Yunnan and Tibet. According to Table 3.2, the eastern region has 36.3 per cent of the country’s total population but makes up 55.7 per cent of the nation’s total gross regional product (GRP) and 59.0 per cent of the total industrial value added, 49.7 per cent of the total investment in fixed assets, 87.3 per cent of the total value of FDI actually utilized and 88.8 per cent of the nation’s total exports. By contrast, the percentages of economic aggregates of both the central and western regions in the national total are much smaller than their respective portions in the nation’s total population. This disequilibrium in the distribution of economic activity and population is a major cause behind the serious disparity in regional economic development in China. In 2006, the eastern region registered a per-capita GRP of US$3,518, as against US$2,339 for the northeastern region, US$1,573, for central region, and US$1,403 for the western region. A comparison among the provinces reveals that the per-capita GRP of Shanghai was the highest nationwide; it is ten times that of Guizhou Province. The gap can be even more pronounced when comparisons are drawn among cities and counties and among townships and towns.

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DISEQUILIBRIUM IN REGIONAL ECONOMIC DEVELOPMENT: A GROWING TENDENCY A prevalent misconception in the academic world and among government departments is to compare different regions’ GRP growth rates directly with the nation’s GDP growth rate announced by the National Bureau of Statistics of China. This unavoidably leads to mistaken judgements because of the incomparability between GRP and GDP statistics. In fact, the total GRP for the thirty-one provinces, autonomous regions and municipalities is a lot higher than the GDP released by the National Bureau of Statistics of China. Before the statistics were adjusted according to economic survey figures, GRP outstripped GDP by 9.7 per cent, 11.7 per cent, 15.5 per cent and 19.3 per cent respectively in 2001, 2002, 2003, and 2004. Even after the statistics were adjusted, GRP still exceeded GDP by 8.0 per cent in 2005 and 9.6 per cent in 2006. Of the thirty-one provinces, autonomous regions and municipalities, only the GRPs of Yunnan and Hainan fell below the national GDP growth rate in 2005, and only Xinjiang registered a GRP growth rate slightly lower than that of GDP in 2006. Figure 3.2 indicates that the differentials between GDP and GRP have kept growing since 1992.4 According to the National Bureau of Statistics Figure 3.2 Comparisons Between GDP and GRP Growth Rates in China During the 1980–2006 Period 18 16 13.4

Growth rate (%)

14 12

13.7

10.1

10

11.1

8 6 4 0

GRP

GDP

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2

Source: China’s Regional Economies in 17 Reform and Opening-up Years, A Compendium of Statistics for New China’s 50 Years, and the China Statistical Yearbook concerning various years, compiled by the National Bureau of Statistics of China.

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of China, the national 2006 GDP growth rate stood at 11.1 per cent, while the GRP growth rate averaged 13.7 per cent, with a difference of 2.6 percentage points.5 For this reason, the summarized figures concerning all the thirty-one provinces, municipalities and autonomous regions must be used when comparing the GRP growth rate or the per-capita GRP of a given region. Failing to do so can only lead to illogical conclusions. Table 3.3 gives an overview of the GRP growth rates of the four regions during the 1980-2006 period. It indicates that with forceful government policy support, the economy of central and western region and northeastern region is picking up speed. The western region witnessed its GRP growth rate rise steadily for seven consecutive years, from 7.3 per cent in 1999 to 13.2 per cent in 2006. During the same period, the GRP growth rate went up from 7.9 per cent to 13.1 per cent in central region, and from 7.9 per cent to 13.5 per cent in the northeastern region. By comparison, the central, western and northeastern regions trailed the eastern region in this regard, revealing a lopsided growth pattern until 1999 in which the fast growth of eastern region was in sharp contrast with the slow growth of the other three regions. During the 1980–90 period, the annual GRP rate averaged 10.2 per cent in the eastern region, 8.8 per cent in the central and western region, and a meagre 8.1 per cent in the northeastern region. In the post-1991 years, the growth rate disparity between the eastern region and the other regions began to expand drastically as the nation speeded up its transition towards the market economy. During the 1991–98 period, the eastern region registered an average annual GRP growth rate of 14.7 per cent, whereas the figures were 12.0 per cent for the central region, 10.4 per cent for the western region and 9.5 per cent for the northeastern region. The disparity between the eastern region and the rest of the country has somewhat narrowed since 1999, as a result of the implementation of the aforementioned government strategies for the western, northeastern, and central regions. During the 1999–2006 period, the eastern region’s annual GRP growth rate averaged 12.2 per cent while those of the northeastern, central and western regions were fairly close by a 10.5–10.7 per cent margin. We thereby set the average GRP growth rate for all the regions at 1 to calculate the relative GRP growth rate for each region. A comparison between the 1999–2006 period and the 1991–98 period, as indicated in Table 3.3, shows that the relative GRP growth rate dropped in the eastern region, went up in the northeastern and western region, and remained stable in the central region. By 2006, the relative GRP growth rates for all the four regions gradually converged. Obviously, the GRP growth rates

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Table 3.3 The Changing GRP Growth Rates in the East, Northeast, Central and West Regions Relative Growth Rate (with the national average rate at 1)

Growth Rate (%) Year

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1980–1990 1991–1998 1999–2006

Nation

East

Northeast

Central

West

East

Northeast

Central

West

8.8 5.9 9.8 11.0 15.3 13.5 7.4 11.3 11.6 4.0 4.9 9.8 15.6 16.5 14.7 12.9 11.9 11.0 9.7 8.8 9.6 9.4 10.6 12.1 13.4 12.8 13.7 9.4 12.7 11.3

10.1 6.9 10.0 10.4 16.3 14.8 8.4 12.8 13.8 4.0 5.8 13.3 19.2 19.5 17.1 14.7 12.2 11.6 10.5 9.9 10.5 10.2 11.6 13.4 14.4 13.5 14.2 10.2 14.7 12.2

9.0 1.6 6.2 13.1 14.0 9.6 6.5 13.2 11.6 2.9 2.2 6.3 10.5 12.2 10.9 8.4 10.2 9.3 8.4 7.9 8.7 9.1 10.1 10.8 12.3 12.0 13.5 8.1 9.5 10.5

6.7 7.4 9.4 11.9 15.5 13.5 6.9 9.1 8.3 4.7 3.9 5.6 14.1 15.1 14.5 13.6 13.3 11.5 9.0 7.9 8.9 9.0 9.8 10.8 13.0 12.7 13.1 8.8 12.0 10.6

8.3 4.8 12.0 9.8 13.7 13.0 6.6 9.4 10.3 4.0 5.7 8.6 11.8 13.2 11.2 9.9 10.3 9.6 8.8 7.3 8.5 9.0 10.3 11.5 12.9 13.1 13.2 8.8 10.4 10.7

1.15 1.17 1.02 0.95 1.07 1.10 1.14 1.13 1.19 1.00 1.18 1.36 1.23 1.18 1.16 1.14 1.03 1.05 1.08 1.13 1.09 1.09 1.09 1.11 1.07 1.05 1.04 1.09 1.16 1.08

1.02 0.27 0.63 1.19 0.92 0.71 0.88 1.17 1.00 0.73 0.45 0.64 0.67 0.74 0.74 0.65 0.86 0.85 0.87 0.90 0.91 0.97 0.95 0.89 0.92 0.94 0.99 0.86 0.75 0.93

0.76 1.25 0.96 1.08 1.01 1.00 0.93 0.81 0.72 1.18 0.80 0.57 0.90 0.92 0.99 1.05 1.12 1.05 0.93 0.90 0.93 0.96 0.92 0.89 0.97 0.99 0.96 0.94 0.95 0.94

0.94 0.81 1.22 0.89 0.90 0.96 0.89 0.83 0.89 1.00 1.16 0.88 0.76 0.80 0.76 0.77 0.87 0.87 0.91 0.83 0.89 0.96 0.97 0.95 0.96 1.02 0.96 0.94 0.82 0.95

Note: All the post-2001 statistics have been revised according to economic survey data. The same is true with the figures and tables below. Source: Same as Figure 3.2.

of all the regions are closing in on the average level over the last few years, registering a relative balance. Figure 3.3 also clearly indicates that both the GRP growth rate differentials between the four regions and the GRP growth rate disparity between the eastern and the western regions are

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36

dwindling. The GRP growth rate of the western region was lower than that of the eastern region by 2.6 per cent in 1999, 1.5 per cent in 2004, and a negligible 0.4 per cent in 2005. From 1999 to 2006, the coefficient of variation for the GRP growth rates of the four regions went down from 0.138 to 0.037. All the five provinces with an average annual GRP growth rate of above 14 per cent during the 1991–98 period were in the eastern region: Fujian at 17.2 per cent, Zhejiang at 16.1 per cent, Guangdong at 15.8 per cent, Jiangsu at 15.7 per cent and Shandong at 14.3 per cent. These newly rising industrial bases were the dynamos behind the sustained high-speed growth of the Chinese economy throughout the 1990s. By contrast, all the eight provinces whose GRP growth rates averaged below the 10 per cent mark during that period were all located in the western and northeastern regions: Yunnan at 9.8 per cent, Gansu at 9.7 per cent, Liaoning at 9.6 per cent, Shaanxi at 9.4 per cent, Ningxia at 9.3 per cent, Guizhou at 8.7 per cent, Heilongjiang at 8.5 per cent, and Qinghai at 8.1 per cent. Nevertheless, the newly rising industrial bases in coastal east region have been caught in an economic slowdown since 1999, with their average annual GRP growth rates ranging from 11.0 per cent to 12.6 per cent, while some provinces in the west and northeast regions have entered a period of gradual economic acceleration (see Figure 3.4). This is particularly the case with Inner Mongolia: With its average annual GRP growth rate zooming from Figure 3.3 Changes in GRP Growth-Rate Differentials for the Four Regions of China

4.0

0.5 0.4

2.0

0.3

0.0

0.2

-2.0

0.1

-4.0

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Differentials of growth rates

6.0

0.6 Coefficient of variation

Differentials of growth rates between east and west China (percentage points) Coefficient of variation

8.0

Source: Same as Figure 3.2.

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Figure 3.4 Changes in the GRP Growth Rates in 31 Provinces, Municipalities and Autonomous Regions 18 17 16 Growth rate (%)

15

1991-1998 1999-2006

14 13 12 11 10 9 8 Fujian Zhejiang Guangdong Jiangsu Shandong Hainan Hebei Guangxi Anhui Shanghai Jiangxi Hubei Henan Tianjin Beijing Hunan Jilin Sichuan Tibet Xinjiang Chongqing Shanxi Inner Mongolia Yunnan Gansu Liaoning Shaanxi Ningxia Guizhou Heilongjiang Qinghai

7

Note: In the curve for the 1991–98 period, the statistics for Chongqing pertain to the 1996–98 period. Source: Same as Figure 3.2.

10.0 per cent to 15.0 per cent, the region has led the nation in economic growth for consecutive years. As a matter of fact, Inner Mongolia’s recent high economic growth has been generated by local resources, investment and the rise of local famous brand names — a number of famous local brand names, including Yili, Mengmilk, KingDeer, and Erdos, play a pivotal role in the fast economic growth of Inner Mongolia. METAMORPHOSIS OF CHINA’S REGIONAL ECONOMIC DISPARITY Imbalanced regional economic development goes hand-in-hand with an ever-widening regional disparity between the eastern and the western regions. Although this disparity did not start to widen after the reform and opening-up, the transition towards a market economy since 1978 has unquestionably triggered it.6 Figure 3.5 indicates clearly that during the 1980–2003 period, with the exception of the eastern region whose percapita GRP kept rising steadily, the other three regions all experienced a

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Figure 3.5 Relative Levels of the Per-capita GRP for the Four Regions of China 180 East region

Northeast region

Central region

West region

Relative disparity (%)

160 140 120 100 80 60 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

40

Note: The per-capita GRPs for the four regions are calculated on the basis of collected data concerning the population and GRP of the provinces in every region; and relative levels are derived by setting the average level of all the regions at 100. Source: Same as Figure 3.2.

downturn in their relative per-capita GRP growth. The situation with the northeastern region was the worst, with its relative per-capita GRP level falling from 150.8 to 109.3. However, this situation has changed to a certain degree since 2004, when the per-capita GRP level began to descend in the eastern region and ascend in the central and western regions; the northeastern region is the only region to see its per-capital GRP level drop further, reaching 102.6 in 2006, which was only slightly higher than the average level of all the regions. During the 2003–06 period, the relative per-capita GRP level went down from 159.8 to 153.0 in the eastern region, and rose from 65.7 to 68.6 in the central region and from 59.2 to 61.2 in the western region. Figure 3.6 indicates that with the exception of a few years, the per-capita GRP coefficient of relative disparity between east region and central and west region has been on the rise since the reform and opening-up. From 1980 to 2003, it grew by 18.7 per cent from 44.7 per cent to 63.0 per cent between the eastern and western regions, and by 20.0 per cent from 38.9 per cent to 58.9 per cent between the eastern and central regions. The coefficient of variation of the average per-capita GPR for all the four regions grew steadily, despite repeated fluctuations, from 0.334 in 1985 to 0.465 in 2003. The east-west disparity widened by noticeable margins

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65

Relative disparity (%)

60

Relative disparity between east and west China

0.48

Relative disparity between east and central China

0.46

Per-capita GRP coefficient of variation

0.44

55

0.42

50

0.40

45

0.38 0.36

40

0.34 35

Coefficient of variation

Figure 3.6 Changes in Per-capita GRP Relative Disparity in the Four Regions of China

0.32

30 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0.30

Note: Coefficient of relative disparity between the eastern region and central and western region = (Targeted value for the eastern region — Targeted value for the central and western region)/Targeted value for the eastern region x 100%. Source: Same as Figure 3.2.

mainly during the 1986–89, 1991–94, 1997–99, and 2001–03 periods, and began to narrow down after 2004, which was roughly consistent with these region’s per-capita GRP levels. Two points must be made here, however. Firstly, the coefficients of variation pertaining to the post-2001 situations have been revised according to economic survey data, and are slightly higher than before they were revised. This has resulted in a marked increase in the 2001 figure over what it was in 2000,7 but it follows basically the same trend of changes. Secondly, the disparity between the eastern and western regions has been widening non-stop since the 1960s, and it was the case even during the period in which third-line strategic areas were being constructed. It is fair to say that the widening east-west disparity in the reform years is a continuation of what happened in previous historical periods. Now let us take a look at the disparities among the provinces in China. Since the reform and opening-up, the per-capita GRP disparity among the provinces has taken a U-turn with 1990 as the point of inflexion (see Figure 3.7). In the early years of the reform and opening-up, economic stagnation in the high-income northeast and north China and in such old industrial bases as Shanghai and Liaoning, plus robust economic growth

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in the middle- and low-income provinces such as Guangdong, Zhejiang and Fujian, catalysed a gradual reduction in the per-capita GRP disparity among the provinces. The coefficient of variation for per-capita GRP disparity dropped by 38.3 per cent from 0.974 in 1978 to 0.601 in 1990, and the weighted coefficient of variation declined by 33.4 per cent from 0.635 to 0.423. It has been noticed that with the economies of eastern Chinese provinces growing robustly in a sustained and all-round way, the per-capita GRP disparities among the provinces have once again begun to climb up since the 1990s — such disparities’ coefficient of variation and weighted coefficient variation rose by 26.8 per cent and 30.7 per cent respectively during the 1990–2003 period before they started to drop to a certain extent in 2004. However, in 2005, both coefficients still fell 18.3 per cent and 0.6 per cent respectively below their 1978 levels but were 12.5 per cent and 22.7 per cent higher respectively than their 1990 levels. Despite the fact that east region continues to grow faster than central, west and northeast region, the regional disparity benchmarked by per-capita GRP has obviously taken on a favourable narrowing trend since 2004. If this trend can stay stable, regional development of China will arrive at a Figure 3.7 Changes in Per-capital GRP Disparities among Provinces in China 1.05 0.95

Coefficient value

0.85 0.75 0.65 0.55 0.45 0.35 0.25

Per-capita GRP coefficient of variation Per-capita GRP weighed coefficient of variation 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0.15

Note: The per-capital GRP weighted coefficient of variation is weighted according to populations. Source: Same as Figure 3.2.

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“turning point” or a “point of inflection”, entering into a new period in which disequilibrium gradually gives way to relative equilibrium. The mitigation of regional disparity since 2004 is attributed to three major reasons. Firstly, government policies and investment continue to boost economic growth in the central, western and northeastern regions; secondly, under the pressure of rising costs and the needs for industrial upgrading and environment protection, the enterprises and industries of coastal regions are speeding up their northward and westward relocation; and thirdly, the impact of changes in the way statistics on population census and population migration. In the past, the populations in different regions were counted according to official resident registrations. Since 2005, surveys on the basis of a 1 per cent sample population have been giving consideration to the floating population — in other words, population statistics are collected according to the actual number of people living permanently in a given region. As a result of this statistical change, the population in 2006 exceeded what it was in 2004 by 12.0 per cent in Guangdong, 5.9 per cent in Beijing, 5.5 per cent in Zhejiang, 5.0 per cent in Tianjin, and 4.2 per cent in Shanghai, and diminished by 10.1 per cent in Chongqing, 6.4 per cent in Sichuan, 5.4 per cent in Anhui and Hubei, 5.3 per cent in Hunan, and 3–4 per cent in Guizhou, Guangxi and Henan (see Figure 3.8). Figure 3.8 Growth Rate of Population in Various Regions of China between 2005 and 2006 15

Growth rate(%)

10 5

Growth Rate Natural Growth Rate

0 -5 -10 Chongqing Sichuan Anhui Hubei Hunan Guizhou Guangxi Henan Gansu Heilongjiang Jilin Inner Mongolia Shaanxi Shanxi Liaoning Jiangxi Hebei Fujian Shandong Yunnan Jiangsu Qinghai Hainan Tibet Ningxia Shanghai Xinjiang Tianjin Zhejiang Beijing Guangdong

-15

Source: China Statistical Yearbook, 2005–07.

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CONCENTRATION OF ECONOMIC ACTIVITIES AND ITS INFLUENCES As is mentioned above, for a considerable period of time since the reform and opening-up, regional economies in China had been under the sway of an imbalanced growth pattern, and regional disparity was widening constantly, both of which were the outcomes of the relocation and high concentration of economic activities — the manufacturing industry in particular — towards the coastal eastern region. During the 1980–2006 period, the share of GRP in the national total increased by 12.1 per cent from 43.6 per cent to 55.7 per cent in the eastern region, but dropped by 5.2 per cent from 13.7 per cent to 8.5 per cent in the northeastern region, by 3.6 per cent from 22.3 per cent to 18.7 per cent in the central region, and by 3.3 per cent from 20.4 per cent to 17.1 per cent in the western region. Figure 3.9 sheds some light upon the Chinese economic activities’ trend of geographical concentration, that is, under the impact of the market force, economic activities are being constantly relocated and agglomerated to the prosperous east region. This trend is a result of the nation’s transition to the market economy, which finds expression in the gravitation of diverse production factors and industries, the manufacturing Figure 3.9 Changes in the Share of GRP in Various Regions

Percentage in total GRP (%)

55

45

East region Northeast region

35

Central region West region

25

15

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

5

Source: Same as Figure 3.2.

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industry in particular, toward the eastern region.8 According to the study of Wang Yeqiang and Wei Houkai, changes were not obvious in the Chinese manufacturing industry’s degree of geographical concentration during the 1980s.9 But at the beginning of the 1990s, the steady acceleration of the market-oriented reform and the vastly increased mobility of capital and human resources intensified the growing trend of concentration. As Figure 3.10 demonstrates, the gravitation of the manufacturing industry to east region reached a peak after 1991. During the 1991–2003 period, the eastern region’s portion in the nation’s gross output value snowballed by 19.8 per cent from 53.5 per cent to 73.3 per cent. At the same time the share of the northeastern region in the nation’s gross output value plummeted by 5.5 per cent from 12.3 per cent to 6.8 per cent; the central region, by 7.4 per cent from 18.2 per cent to 10.8 per cent; and western region, by 7.0 per cent from 16.1 per cent to 9.1 per cent. It goes without saying that Chinese manufacturing industry’s agglomerating towards the eastern region is incremental — it does not take the form of inventory transfers. As a result, approximately three-fourths of the country’s manufacturing industry has been concentrated in a few areas in the eastern region. The geographical concentration of the manufacturing industry in the eastern region is greatly discrepant. The region maintained a stable share in manufacturing industry’s national output value throughout the 1980s,

80 70 60 Northeast region East region Central region West region

50 40 30 20 10

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1986

1985

1984

1983

1982

1981

0 1980

Percentages in the gross output value (%)

Figure 3.10 Trend of Spatial Changes of the Manufacturing Industry in China

Source: Wang Yeqiong and Wei Houkai, 2006.

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while Bohai Sea Rim saw its share diminish somewhat, and the Pearl River Delta’s portion expanded to a certain extent. Since 1991, the eastern region’s share in the manufacturing industry’s national output value rose by a remarkable 21.2 per cent from 52.1 per cent in 1990 to 73.3 per cent in 2003. Of this, the increase in the Pearl River Delta was the highest as it grew by 13.0 per cent from 5.7 per cent to 18.7 per cent; the Yangtze River Delta came secondly, rising from 26.4 per cent to 31.6 per cent or 5.2 per cent, the Bohai Sea Rim remained relatively stable, with its portion hovering between 17.5 per cent and 20.0 per cent (see Figure 3.11). All but one of the twenth-eight branches in the manufacturing industry showed the same tendency of gravitating toward east region with varying degrees, during the 1985–2003 period. The only exception is the tobacco industry, which was relocating to Yunnan, Sichuan and Anhui in the central and western region. Among those branches whose share in the manufacturing industry’s national output value expanded by more than 5 per centage during this period, eighteen were located in the Pearl River Delta, thirteen in the Yangtze River Delta, and seven in the Bohai Sea Rim (See Wang Yeqiang and Wei Houkai, 2006.) Figure 3.11 Changing Share of Manufacturing Gross Output Value in East Region

Percentages in the gross output value (%)

35

Bohai Sea Rim

Yangtze River Delta

Pearl River Delta

Other regions

30 25 20 15 10 5 2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1986

1985

1984

1983

1982

1981

1980

0

Note : The Bohai Sea Rim covers Beijing, Tianjin, Hebei and Shandong; the Yangtze River Delta includes Shanghai, Jiangsu and Zhejiang; the Pearl River Delta consists of Guangdong; the other regions refer to Fujian and Hainan. Source: Same as Figure 3.6.

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In a way, the trend of agglomeration in Chinese economy is conducive to overall resource allocation under the impact of the market force, but at the same time it tends to aggravate regional economic disparity and to the detriment of regional economic equilibrium. The experiences of developed market economies in Europe and North America prove that high concentration of factors and industries in a few developed regions can cause either over-denseness or over-sparseness in an economy. If this tendency is allowed to run unchecked in China, the benefit from the reform and opening-up and the robust progress of industrialization can be hogged by a few dominant eastern coastal regions, while the underdeveloped regions are in danger of being marginalized. Moreover, over-agglomeration of factors and industrial activities in a narrow geographic space can easily lead to uneconomical scales, thereby boosting costs, straining resource and energy supplies, damaging the environment, and spoiling local residents’ quality of life. More than anything else, the fact that nationwide distribution of the Chinese population remains largely unchanged while the nation’s economic aggregates and manufacturing activities keep relocating to east region in these reform years, has lead to spatial disequilibrium in the distribution of population and industrial activities. The disharmonious coefficients for the distribution of population and GRP in the four regions averaged 14.6 per cent in the 1980–90 period, but rose to 18.1 per cent in the 1991–2000 period, and further to 20.3 per cent in the 2001–05 period.10 The high degree of disequilibrium in the distribution of population and economic activities are among major causes behind incompatibality between processing capacities and resource-producing areas, major nationwide transfers of resources, one-way flow of the labour power, and the widening regional disparity. Especially, as the nation’s significant economic regions, the Pearl River Delta and the Yangtze River Delta have failed to agglomerate their populations on a large scale when concentrating their industries on a large scale. As a result, the huge armies of migrant workers in both regions can only be considered as members of a “floating population” or “farmers-turned workers”. In spite of their enormous contributions to the local economic boom, they find it hard to settle down as local residents, join the mainstream of local society, and share the benefits of industrialization they have personally laboured and sweated for. It is fair to say that the disequilibrium in the distribution of the jobs, industries and population is crucial indetermining the disequilibrium in the Chinese regional economic development.

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FROM CONCENTRATION TO DIFFUSION: A NEW TREND IN INDUSTRIAL RELOCATION IN CHINA “Moving up north or going west” has been a spatial pattern for industrial development in China over the last few years. “Moving up north” denotes the relocation of FDI and domestic capital from the Pearl River Delta to the Yangtze River Delta and further north to the Bohai Sea Rim and northeastern region. “Going west” describes the move of companies and foreign investors from coastal regions to the central and western region. This trend signals that the regional economic development has entered a watershed period. A prime sign is that in the distribution of the Chinese economy, the relocation of factors and industrial activities is being steered from the coastal southeastern region to the central, western and northeastern regions. This new pattern of industrial relocation and diffusion can be observed from three points of view. Firstly, from the viewpoint of the nation’s total investment in fixed assets. As a result of the strategies to develop the western region in a big way, rejuvenate the old industrial bases in the northeastern region and other regions, and bring about an economic take-off in the central region, northeastern region and central and western regions have markedly accelerated Table 3.4 Growth Rates and Regional Distribution of Investment in Fixed Assets in China

Not classified by regions

17.2 19.0 27.3 26.8 28.3 24.2 23.7

West

West

14.2 16.6 27.2 32.1 28.9 29.5 24.6

Central

Central

14.2 12.9 20.8 32.5 37.6 37.0 25.4

North-East

North-East

11.3 16.1 33.2 24.5 21.9 19.6 20.9

East

East

13.0 16.9 27.7 26.8 26.0 23.8 22.2

Year

2000 2001 2002 2003 2004 2005 2006 2001–2006

Regional Distribution (%)

Nation

Growth Rate (%)

53.1 52.3 51.9 54.1 53.1 51.4 49.7

8.2 8.3 8.0 7.6 7.9 8.6 9.6

17.0 17.2 17.1 17.1 17.8 18.2 19.0

18.6 19.2 19.6 19.5 19.5 19.9 19.9

3.1 3.0 3.4 1.7 1.7 1.9 1.8

Source: China Statistical Yearbook pertaining to relevant years, compiled by the National Bureau of Statistics of China.

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their rate of growth in investment, and steadily expanded their shares in the nation’s total investment. In the meanwhile, the eastern region’s growth rate of investment in fixed assets, which has been shrinking on a yearly basis after reaching an impressive 33.2 per cent in 2003, has dropped below that of the other regions. During the 2001–06 period, the growth rate of investment in fixed assets averaged 24.6 per cent in the central region, 23.7 per cent in the western region, and 25.4 per cent in the northeast region, as against 20.9 per cent in the eastern region. At the same time, the northeastern region and central and western regions gradually expanded their shares in the nation’s total investment in fixed assets, while the shares of the eastern region went on a decline (see Table 3.4.). Secondly, from the viewpoint of foreign direct investment. Since the 1990s, the FDI inflow in China has begun to move from the Pearl River Delta to the Yangtze River Delta and further up north to the Bohai Sea Rim. During the 1999–2003 period, the Bohai Sea Rim’s share in the nation’s

Figure 3.12 The Shares of Three Coastal Regions in China’s Total Value of FDI Actually Utilized

Shares in the nation’s total FDI (%)

45 Yangtze River Delta 40

Pearl River Delta

35

Bohai Sea Rim

30 25 20 15

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

10

Note: The Bohai Sea Rim includes Liaoning, Beijing, Tianjin, Hebei and Shandong; the Yangtze River Delta covers Shanghai, Jiangsu and Zhejiang; and the Pearl River Delta consists of Guangdong. Source: China Statistical Yearbook pertaining to relevant years, China Economy & Trade Yearbook (2007) and statistics from the Ministry of Commerce.

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total value of FDI actually utilized shrank by 14.4 per cent from 29.2 per cent to 14.8 per cent, whereas the share of the Yangtze River Delta rose by 14.3 per cent from 25.4 per cent to 39.7 per cent. (See figure 3.12.) The share of the Bohai Sea Rim increased from 20.3 per cent in 1999 to 31.5 per cent in 2004. After 2004, the share of the Bohai Sea Rim has somewhat dropped, while those the Pearl River Delta and the Yangtze River Delta have grown to some extent. In the FDI’s westward relocation, the share of the central region in the nation’s total value of FDI actually utilized grew from 7.5 per cent in 1999 to 9.3 per cent in 2004, the share of the northeastern region rose from 4.1 per cent to 9.0 per cent, but the share of the western region decreased from 4.5 per cent to 2.6 per cent (see Table 3.5). The FDI inflow began its relocation from the eastern region to the central and northeastern regions during this period; and it has speeded up its move toward the western region since 2005. As a result, western region’s share in the total FDI inflow increased from 2.6 per cent in 2004 to 3.5 per cent in 2006, whereas the shares of the northeastern region and central region declined. A comparison between the 2001–06 and 1979–2000 periods, however, reveals a certain degree of increase in the FDI shares of both the central and northeastern regions. Table 3.5 FDI Actually Utilized in Different Regions of China

East

Central

West

North-East

3.06 1.84 2.96 1.85 3.43 1.92 4.40 2.02 5.32 1.72 6.15 1.74 4.09 1.94 3.37 2.18 23.21 17.24 26.81 12.70 50.02 29.94

Regional Total

West

34.42 34.89 40.34 45.72 45.95 52.10 53.56 55.01 292.45 291.02 583.47

Central

41.00 42.38 48.89 56.15 56.32 65.93 62.63 63.02 354.27 352.57 706.84

Geographic Distribution (%) North-East

1999 2000 2001 2002 2003 2004 2005 2006 1979–2000 2001–2006 1979–2006

East

Year

Regional total

Actually Utilized Value (US$ billion)

1.68 2.68 3.20 4.01 3.33 5.94 3.04 2.47 21.37 22.05 43.42

100 100 100 100 100 100 100 100 100 100 100

83.9 82.3 82.5 81.4 81.6 79.0 85.5 87.3 82.6 82.5 82.6

7.5 7.0 7.0 7.9 9.4 9.3 6.5 5.3 6.6 7.6 7.1

4.5 4.4 3.9 3.6 3.1 2.6 3.1 3.5 4.9 3.6 4.2

4.1 6.3 6.6 7.1 5.9 9.0 4.9 3.9 6.0 6.3 6.1

Source: Same as Figure 3.8.

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Thirdly, from the perspective of non-governmental domestic investment, enterprises in the coastal regions have raised their speed of relocation to the central and western regions in recent years. According to statistics from the Office of the Leading Group for Western Region Development of the State Council (2007), some 200,000 enterprises from the eastern region invested a total of RMB1,500 billion in west region from 2000 to June 2007. Of this, RMB170 billion came from enterprises in Shanghai, and 130 billion yuan was invested by enterprises from Zhejiang and Fujian. This shows that with government policy support, private businesses in China are quickening their entry into the western region, thereby playing an active role in the great initiative to develop the western region. The accelerating westward advance of coastal enterprises and foreign investors can be attributed to three factors. Firstly, the forceful support from government policies. On August 2007, in order to encourage coastal enterprises to move to the western region, the National Development and Reform Commission, Office of the Leading Group for Western Region Development of the State Council and four other ministries and commissions jointly issued the “Proposals on Stepping Up Interaction between East and West Regions and Promoting Large-scale Development of the Western Region”. The Ministry of Commerce has implemented the “Project for Enterprises Going West” (Wanshang Xijin Project), which encourages businesses in the central and western regions to accommodate the industrial, processing and trade undertakings to be relocated from the coastal regions, and urges enterprises and economic and technological development zones in the coastal regions to open business in the western region. Secondly, the rising costs of factors in the coastal regions. Large-scale industrial agglomeration over the recent years has markedly boosted the costs of diverse factors, strained land and energy supplies, and reduced the sustainability of the resources and environment in the Pearl River Delta and the Yangtze River Delta. This has prompted Guangdong, Zhejiang, Jiangsu and other coastal provinces to raise their entry threshold of industries and step up their industrial upgrading and environmental protection efforts, thereby forcing local resource-intensive and labour-intensive processing firms to move to the central and western region. Thirdly, the improved investment environment and efficiency in central and west region. Thanks to the implementation of strategies to develop the western region and to facilitate the economic take-off of central region, both regions have considerably ameliorated local investment environments and administrative efficiency. In 2006, the ratio of total assets to industrial output value of all state-owned and non-state-owned industrial enterprises above a designated

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50

Wei Houkai

size in the western region averaged 13.7 per cent, or 1.1 per cent higher than for in the eastern region; and their ratio of profits to industrial cost averaged 11.3 per cent, or 6.2 per cent more than in the eastern region.11 It can be predicted that, with the reform and opening-up process going in depth in the foreseeable future, coastal enterprises and foreign investors will speed up their move to the central and western regions. CONCLUSION In light of the analyses in the foregoing, this chapter reaches the following conclusions. Firstly, since the adoption of the reform and opening-up, regional economic development in China has come under an imbalanced growth pattern, and regional disparity has been widening continually. This is especially the case with the disparity between the eastern and western regions, which has been growing at a higher speed after the advancement of nation’s market-oriented reform in response to the remarks made by Deng Xiaoping during his January 1992 south China inspection tour. This indicates that the market force is a major factor leading the growing regional disparity in the current reform years. In other words, the ever-widening regional disparity is an outcome of the nation’s transition from central planning to market economy. It should be noted, however, that this phenomenon occurred in the context of a robust economic growth throughout China since the adoption of the reform and opening-up. It is a kind of widening disparity in the midst of high-speed economic growth. Secondly, as things stand today, regional economic development in China has entered a pivotal or “watershed” period in recent years. A few major indications are the high growth in investment in the central, western and northeastern regions; a relative equilibrium that has been on the horizon at a time when regions are drawing closer to each other in terms of economic growth rate; narrowing disparities between the eastern and western regions and among provinces; and the fact that foreign investors and coastal enterprises are quickening their relocation in the western region. These encouraging changes are closely related to changes in the stage of, and environment for, the Chinese economic development. They are also a result of supportive government policies. If this watershed period can bring about a smooth strategic transition, it can further promote sustained and stable high-speed growth of the Chinese economy. The robust Chinese economy will maintain its high speed of growth at least for fifteen to twenty years.

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Thirdly, with coastal enterprises and foreign investors headed north and west, and with the central, western and northeastern regions tapping into their inherent growth potentials, the regional economies in China will enter an age of a diversified competitive pattern marked by the emergence of a host of competing economic dynamos. Since the adoption of the reform and opening-up, China’s high-speed economic growth has been sustained by the Pearl River Delta, the Yangtze River Delta and a few other regions, which have emerged as the second generation of economic pace-setters for China in the wake of such old industrial bases as Shanghai and Liaoning. Judging from the future pattern of development, a number of “latecomers”12 are likely to become new economic pace-setters and growth poles for China, thereby bringing about a diversified competitive pattern marked by the emergence of a host of competing economic dynamos. NOTES 1.

2.

3.

4.

5.

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China adopted this method of dichotomy as early as the First Five-Year Plan period (1952–57). Mao Zedong elaborated on the relationship between the coastal region and the inland region in his 1956 thesis, “On Ten Major Relationships”. See Mao Zedong (1999). In the past, the “Bohai Sea Rim Economic Zone” was a much-vaunted concept in the academic circles. The region consists of Shandong Peninsula, Liaodong Peninsular, and the Beijing-Tianjin-Hebei area, which are distinctively different from, and independent of, each other, and in a loose economic relationship. For this reason, Bohai Sea Rim is unlikely to become an economic zone in the immediate future. According to the Programme on Rejuvenation of the Northeast Region, endorsed by the State Council in August 2007, the region covers Liaoning Province, Jilin Province, Heilongjiang Province, as well as the Inner Mongolia Autonomous Region’s Hulun Boir City, Hinggan (Xing’an) League, Tongliao City, Chifeng City, and Xilin Gol League. The GRP and the growth index of each region in a given year are calculated according to the constant price of the previous year to derive that region’s GRP in the previous year. Then the statistics pertaining to all the regions’ GRP in both years are collected to derive the nation’s average GRP growth rate. There are at least five reasons behind this difference: 1) While most regions used the 1990 constant price in calculating statistics concerning industrial products, the National Bureau of Statistics had already readjusted the relevant data when checking these statistics; 2) personnel, materials and funds are trans-regional circulating at ever-expanding scales, and difficulties in sorting out the relevant statistics often result in overlapping calculations; 3) many regions were still using overall report forms on non-state-owned industrial enterprises whose annual sales

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revenues were below 5 million yuan; 4) China’s incomplete statistical network is yet to cover all aspects of the tertiary industry; and 5) while the statistics submitted by regions were doctored to different degrees, the National Bureau of Statistics’ calculations were as a rule based on adjusted statistics (Li Deshui 2004). 6. Wei Houkai, “Regional Economic Disparity in China’s Transition to Market Economy: Social Impact and Policy Readjustments”, Research on Development, no. 4 (2007). 7. Before they were revised according to economic survey data, the coefficients of variation for the per-capita GRPs of the four regions in the 2001–04 period stood at 0.431, 0.440, 0.451, and 0.446 respectively; after they were revised they have increased by roughly 2–5 per cent to 0.450, 0.457, 0.465, and 0.456. 8. Wei Houkai, “Industrial Agglomeration in China: Characteristics, Problems and Countermeasures”, Economics Information, no. 9 (2004). 9. Wang Yeqiang and Wei Houkai, “An Analysis of Time-Spatial Characteristics of Industry’s Geographic Agglomeration – A Case Study of 28 Two-digit Manufacturing Industries”, Statistics Research, no. 6 (2006). 10. Disharmonious coefficient in regional distribution of population and GRP 1 = – |GRP – P | , which GRP denotes the percenttage of a region in the 2 nation’s total GRP volume, and P indicates that region’s percentage in the nation’s total population. The formula reflects the degree of deviation of the geographic distribution of economic activities from the geographic distribution of population. 11. Both indicators are calculated according to the arithmetic mean value of the index values of the provinces concerned. 12. Such as the Beijing-Tianjin-Hebei Metropolitan Ring, the Shandong Peninsula City Cluster, the Harbin-Dalian Industrial Belt in the northeastern region, the Central Plain City Cluster, the Wuhan Metropolitan Belt, the ChangshaZhuzhou-Xiangtan City Cluster; the Chengdu-Chongqing Metropolitan Belt, and the Central Shaanxi City Cluster.

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4

Cost Impact and Industrial Upgrading in Pearl River Delta Region: Case Study on Shenzhen and Dongguan Guo Wanda and Feng Yueqiu

BACKGROUND Being at the forefront of China’s reform and opening-up, the Pearl River Delta (PRD) region at large faced problems with its industrial transitions and upgrading in the recent two years as a result of the Chinese renminbi (RMB) appreciation, rising raw materials cost, increasing labour and land cost etc. Moreover, a series of regulatory changes such as the implementation of the new Labour Contract Law and “Unified Tax System” as well as policy adjustment in the processing industry, brought about unprecedented “cost impact” to the PRD region. International experiences indicate that there are mainly three types of industrial upgrading and transition, that is, through technological innovation, institutional and cultural evolution, and cost considerations. Since the recent industrial transition in the PRD region is a combination of the above three

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types, the industrial upgrading could progress towards an ideal state after ten to twenty years’ of natural evolution. The industrial transition and upgrading of the PRD has aroused the attention of the international community. On 25 February 2008, the Wall Street Journal published a long article titled, “Has the Prosperity of PRD Become Yesterday’s Dream?” It reported that 10 per cent of 70,000 Hong Kong invested factories will stop their production by the end of this year because of increased cost and strict supervision. This article sparked a debate in mainland China. The authority of Guangdong Province said that the data was inaccurate and the facts exaggerated. Industrial transition and industrial upgrading are important to the improvement of the competitiveness of the PRD and the Chinese central authority have also paid much attention to it. After an inspection of Shenzhen and Dongguang in late April, Wang Yang, party secretary of Guangdong Province said, “If you don’t adjust the industrial structure today, you will have to be adjusted by the industrial structure tomorrow.” The first “adjustment” in his speech means “positive” action, while the latter means “passive”, that is, it will hinder the local economic development if you don’t adjust the industrial structure. Wang, a member of the Political Bureau Committee, proposed that all the government officials should further “open their minds”, after he took up his post as party secretary of Guangdong Province. This study takes Shenzhen and Dongguan, two cities in the PRD region, as the examples to analyse the industrial transition under the “cost impact”. Shenzhen and Dongguan are both highly export-oriented economic entities which are also the national centres of “low-cost industries”, that is, the processing trade. According to statistics, the processing trade accounts for 76 per cent of Shenzhen’s total export volume and up to 94 per cent of Dongguan’s in 2006. How the “cost impact” to deal with under the circumstance of such a high proportion of “low-cost industries”? Will the natural evolution of industrial transition and upgrading be interrupted by the “cost impact”? What should the government do about it? These are the questions to be explored in this chapter. LITERATURE REVIEW Three Types of Industrial Transition and Upgrading According to the literature review of previous studies on industrial transition and upgrading, there are three types of industrial transition and upgrading.

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In the first type, industrial division among states or regions is explained from the perspective of initial factor endowment. Such division brings about industrial transition and upgrading, or “factor division-type industrial transition”. The early factor endowment theory by Eli Heckscher and Bertil Ohlin, and the later “flying-geese pattern of development” by Japanese economists are such explanations. Factor division is the basis for international trade. The decision of large-scale international trade and the method of participation in international trade are, on the one hand, related to the national economic system (such as planning or market economy, open or closed economy) and on the other hand, related to the supply chain among regions or cities (such as regional monopoly, and administrative blockade). Therefore, the industrial transition and upgrading among states or regions resulting from factor division is defined here as “system-oriented industrial upgrading”. In the second type, the industrial transition and upgrading resulting from product life-cycle and intra-product specialization is defined as “technology division-type industrial transition”. The Product Cycle Hypothesis by R. Vernon typically represents such a type, dividing the product life-cycle into three stages, namely, new product stage, maturity stage and standard stage. Industrial transition begins in the product maturity stage where the product and technology are completely standardized, and the domestic market is almost saturated. At this stage, the state with technological inventions will start industrial transition on a large scale. The industrial clusters resulting from such industrial transition will lead to path dependence and lock-in which would then raise new requirements in the industrial upgrading. When the industrial clusters are embedded into the global industrial value chain, the industrial upgrading will evolve into the upgrading of all industrial clusters. Starting from the perspective of the global value chain, Humphrey and Schmitz divide the industrial upgrading into four types: process upgrading, that is, improvement of production efficiency; product upgrading, that is, product sophistication, and improvement of unit value; functional upgrading, that is, possession of more links with added value, such as transition from OEM to ODM and OBM; and inter-sectoral upgrading, that is, entry into new sectors because of certain advantages in the original sectors. As product life-cycle and intra-product specialization are related to technological evolution, this pattern is defined as “technology-oriented industrial upgrading”. In the third type, industrial transition and upgrading is analysed from the perspective of the production cost factor, defined here as the “cost-push industrial transition”. Arthur Lewis analyses the reason why developed

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countries transfer their industries into developing countries from the perspective of the labour cost. Paul Krugman analyses regional industrial transition from the perspective of geographical regional difference, in particular, the influence of the transportation cost on the regional transition of the manufacturing sector. The “Smiling Curve” resulting from cost-push may explain the division in the industrial chain (relationship between lowend and high-end industries) as well as the industrial added-value orientation (relationship between high added-value sectors and low added-value sectors), which we term “cost-oriented upgrading”. Based on the above analysis, the following three types of industrial transition and upgrading were studied: Type A: Type B: Type C:

Factor division-type industrial transition → System-Oriented Industrial Upgrading. Technology Division-Type Industrial Transition → TechnologyOriented Industrial Upgrading. Cost-Push Industrial Transition → Cost-Oriented Upgrading.

This study focuses on type C, that is, the cost-push industrial transition and cost-oriented industrial upgrading. The term “cost impact” has been introduced, in stead of “cost rise” or “cost change”. The reasons are as follows: First, by “cost impact”, we do not mean the unit cost, such as labour cost or cost of land rent but rather the ten factors in the “package of costs” including five direct factors (hard costs) and five more resulting from policy adjustments (soft costs). These ten cost factors are as follows: 1. 2. 3. 4.

Rise of labour cost; Rise of land rent; Rise of raw material price; Rise of interest cost after a tightened monetary policy (in 2007, the central bank adjusted the loan rate six times, and in total, the base interest rate for a one-year loan rose by 1.35 per cent); 5. Rise of exchange rate cost after The renminbi appreciation (up to 24 March 2008, the renminbi has risen by 13.05 per cent against the U.S. dollar); 6. The “Unified Tax System” policy where the income tax rates for Chinese and foreign enterprises are united. After implementation of the policy, the basic rate for enterprises is 25 per cent; 7. Implementation of the new Labour Contract Law by which employers are required to sign non-fixed term contracts with employees, and the overtime salary is increased;

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8. Decrease of export tax rebate (since 1 July 2007, China began to implement a new policy of export tax rebate that affects 2,831 items of commodities); 9. Change of processing trade policies (in July 2007, China issued Bulletin No. 44 where 1,853 items of taxes were added and the deposit account was changed from “empty transfer” to “actual transfer”; 10. The government has implemented compulsory policies of energy-saving and emission reduction, so the cost of environmental protection is increased. When a single cost change or rise evolves into a package-cost change or rise, then it is said that cost impact has occurred. It has been noticed that in the process of industrial transition and upgrading of each state or region, cost impact probably occurred during the period when the industrial structure saw the most rapid change. For example, this kind of period occurred at the end of the 1970s and beginning of the 1980s in Japan, and at the beginning and middle of the 1980s in Hong Kong, South Korea, Taiwan and Singapore. The reason for using the term cost impact is that the ten cost factors occur at the same time, and we do not know when the cost will fall, or in other words, we do not see a trend of cost decrease. Therefore, some people argue that the ten cost factors are ten threats, which reasonably reflect their worries. The cost impact can have an influence on the adjustment of the industrial structure: it could accelerate the industrial transition and upgrading, improve the sustainable growth of the economic system, and enhance the competitiveness. Or it might also lead into another situation, that is, it could prevent the industrial upgrading, cause industrial stagnation or even lead to industrial elimination. If the latter situation occurs, the local economic growth, employment or even social problems could be affected. And if this situation becomes worse, cost impact could affect the stability of the macro economy. This chapter uses the term of cost impact and its related framework in order to analyse the two cases of Shenzhen and Dongguan. The main purpose of this empirical study is to investigate into the degree of influence cost impact has on the industrial transition and upgrading in the PRD region, and then provide strategic suggestions for the decision-making of the governments.

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COST IMPACT AND INDUSTRIAL TRANSITION: STUDY ON SHENZHEN Economic Profile of Shenzhen As the largest Special Economic Zone (SEZ) in China, Shenzhen is adjacent to Hong Kong with an area of 2,000 square kilometres, which is about the same size as Hong Kong. In 1979, Shenzhen was only a small fishing village and now it has become a metropolis with a population of 14 million, among whom only 8.5 million are permanent residents. The total GDP of Shenzhen was RMB685 billion in 2007, ranking fourth among China’s cities, and nearly the same as Guangzhou’s (RMB710 billion) which ranked third. Shenzhen is the first city with a per capita GDP surpassing US$10,000 in mainland China. Important characteristics of Shenzhen’s economy are as follows: 1. Highly foreign-oriented. Shenzhen’s degree of dependence on foreign trade in 2007 amounted to 300 per cent (see Table 4.1). 2. The processing industry makes up a big proportion in exports. In 2006, it accounted for 76 per cent of total exports, which is 20 per cent higher than the average level of the whole country. It is probable that Shenzhen will be hit by increasing costs since the processing business is a typical “cost-driven industry” (refer to Table 4.2). 3. The hi-tech industry is developing fast and its proportion in Shenzhen’s industry keeps increasing through industrial upgrading and adjustment of the industrial structure. In 2006, the proportion of the hi-tech industry in Shenzhen’s gross industrial output surpassed 50 per cent, of which Table 4.1 Dependence Degree on Foreign Trade, 2001–07 Year

Export/GDP

Import & Export/GDP

2001 2002 2003 2004 2005 2006 2007

125% 130% 145% 150% 168% 186% 167%

229% 243% 271% 285% 302% 324% 301%

Source: Based on data from Shenzhen Statistical Yearbooks (2002–07) and data for 2007 is from the announcement of the Shenzhen Municipal Government.

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Table 4.2 Proportion of Processing Industry in the Export of Shenzhen, Guangdong and the Whole Country, 2001–06 Year

Shenzhen

Guangdong

Whole Country

2001 2002 2003 2004 2005 2006

89.07% 87.98% 87.30% 86.38% 83.35% 76.41%

82.70% 81.69% 80.89% 80.17% 77.62% 73.51%

57.96% 58.17% 58.47% 58.94% 58.65% 57.05%

Source: Based on data from Shenzhen Statistical Yearbooks, Guangdong Statistical Yearbooks, China Statistical Yearbooks (2002 to 2007).

Table 4.3 Total Output of Hi-tech Industry and Output of Hi-tech Products with Chinese Intellectual Property Rights in Shenzhen, 2001–06

Year

2001 2002 2003 2004 2005 2006

High-Tech Output Gross Industrial Total Output of Hi- Percentage in with Independent Proportion in Output Tech Industry Gross Industrial Intellectual Hi-Tech (RMB100 million) (RMB100 million) Output (%) Property Rights Output (%) (RMB100 million) 3,748 4,682 6,798 8,589 10,175 12,278

1,321.4 1,709.9 2,482.8 3,266.5 4,885.3 6,306.4

35.26 36.52 36.52 38.03 48.01 51.36

745.6 954.5 1,386.6 1,853.1 2,824.2 3,653.3

56.43 55.82 55.85 56.73 57.81 57.93

Source: From Shenzhen Statistical Yearbook, 2007.

hi-tech with Chinese intellectual property rights accounted for nearly 60 per cent. It indicates that industrial upgrading can help Shenzhen reduce the influence of “cost impact” (refer to Table 4.3). Analysis of “Cost Impact” in Shenzhen (1) The Wage Cost of the Labour Force Has Risen Dramatically The minimum wage standard, which is issued by the government, increased rapidly after 2004. Inside the checkpoint of Shenzhen, the minimum wage

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Figure 4.1 Change in Shenzhen’s Minimum Wage, 1992–2007 900 800 700 600 500 400 300 200

特区内

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

0

1992

100

特区外

Source: Based on data from the websites of Shenzhen Industry and Trade Bureau. The refers to inside the Check point and the refers to outside the checkpoint

of RMB610 (about US$100) in 2004 was increased to RMB850 in 2007, arise of 40 per cent within four years. In the same period, outside the checkpoint of Shenzhen, the minimum salary of RMB480 was enhanced to RMB750, an increase of 60 per cent (see Figure 4.1). According to government data, the monthly salary for workers in Shenzhen has seen rapid growth in recent years, or 50 per cent increase from 2001 to 2006 (see Figure 4.2). (2) Land Cost and Rental Has Risen Rapidly Land rental and other related fees have risen rapidly because of limited land area and rapid development in Shenzhen. In 2007, comparing with 2001, the average land price rose by 420 per cent within the checkpoint, and by 338 per cent outside the checkpoint of Shenzhen. Within the same period, industrial land prices rose by 106 per cent outside the checkpoint of Shenzhen (see Table 4.4). The rise of land prices will definitely result in the rise of factory building costs (see Table 4.4).

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Figure 4.2 Average Monthly Salary of Workers in Shenzhen, 1990–2006 3000 2500 2000 1500 1000 500 0

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Shenzhen Statistical Yearbook, 2007.

Table 4.4 Change of Land Price in Shenzhen, 2001–07 Average Land Price

Industrial Land Price

Year

Inside Checkpoint

Outside Checkpoint

Inside Checkpoint

Outside Checkpoint

2001 2002 2003 2004 2005 2006 2007

5,075 7,521 3,906 6,155 2,301 6,877 26,390

1,043 1,444 2,096 2,203 3,966 7,283 4,578

1,679 2,647 1,803 — 3,270 — —

324 329 472 376 709 1,158 668

Source: From Shenzhen Planning and Real Estate Bureau.

(3) Appreciation of the Rmb, Price Rise of Raw Materials and Other Factors Have Worsened the Cost Burden of Enterprises in Recent Years As a result, the overall cost of enterprises is soaring. According to the survey on various industries in Shenzhen, including battery, machinery, leather,

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Generally RMB20–30 m2 for the whole building (second floor above), RMB40–60 m2 for the first floor.

Generally RMB25–35 m2 for the whole building (second floor above), RMB45–65 m2 for the first floor.

2006

2007

Source: Base on investigation material.

Increased 30% than year of 2004

Inside Checkpoint

2005

Year

Generally RMB9–17 m2 for the whole building (second floor above), RMB13–26 m2 for the first floor.

Generally RMB7–14 m2for the whole building (second floor above), RMB10–21 m2 for the first floor.

Increased 30% to 50% than year of 2004

Outside Checkpoint

Table 4.5 Change in Factory Buildings and Warehouse Rentals Inside/Outside Shenzhen Checkpoint, 2005–07

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The cost increased 15–30% analysed by the experts The cost increased 20–30% reflected by business owners The cost increased 10–30% estimated by the experts The cost increased 15–25% reflected by business owners The cost increased 10–20% analysed by the experts The cost increased 10–20% reflected by business owners The cost increased 15–30% analysed by the experts

Machinery Industry

Leather & Shoe-making Industry

Furniture Industry

Food Industry

Home Electric Appliances

Mold Industry

Textile & Garment Industry

Source: Based on the reports of Shenzhen Economic Daily.

The cost increased 15–50% reflected by business owners

2007

Battery Industry

Industry

2006

The cost increased 5–15% reflected by business owners

The cost increased 10–15% analysed by the experts

The cost increased 10–15% analysed by the experts

The cost increased 10–30% reflected by business owners

The cost increased 10–25% reflected by business owners

The cost increased 10–20% reflected by business owners

The cost increased 15–25% analysed by the experts

The cost increased 10–20% analysed by the experts

Table 4.6 Overall Cost Rise of Shenzhen Manufacturing Industry, 2006–07

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Table 4.7 Change Forecast on Comprehensive Cost of Shenzhen Manufacturing Industry, 2008–10

Year

Factor Cost: Cost of Labour Force, Land Price, RMB Appreciation, Price Rise of Raw Materials

Policy Cost: Policy Adjustment on Processing Trade, Export Tax Rebate, Energy Saving and Emission Reduction etc.

Comprehensive Cost

2008 2009 2010

10–20% 10–25% 15–30%

5–10% 5–10% 5–10%

15–30% 15–35% 20–40%

Source: Based on the reports of Shenzhen Economic Daily.

furniture, food, home electric appliances, mold, and textile and apparel, the overall cost in 2006 rose by 10–25 per cent, and overall cost was generally estimated to have risen by 15–30 per cent (see Table 4.6). It is worth noting that, according to the estimates from the manufacturing industry in Shenzhen, for this year and the coming year, the overall cost will continue to rise at the annual rate of 15-40 per cent (see Table 4.7). Analysis of “Cost Impact” on the Industrial Transition and Upgrading in Shenzhen Because of the above-mentioned cost impact, for the past three years, every year a number of enterprises in Shenzhen would move to other cities. In 2006, 119 enterprises moved away, but accounted only for a very small percentage of Shenzhen enterprises. However, in 2007, the pace of relocation increased. For the first half of the year, almost 500 enterprises moved away. This trend seems to have accelerated in 2008. In Bao’an District, in March 2008, more than 200 enterprises have moved or will move away (see Table 4.8). The emigrant enterprises are mainly from the labour-intensive sectors of low-end manufacturing and processing trade. The destinations include mainly the neighbouring Dongguan, Huizhou, Zhongshan, Heyuan, outer edge of the PRD region, and neighbouring regions of Guangdong Province. All of these locations are more cost-effective than Shenzhen.

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Industry or Sector

Mainly labour-intensive enterprises, 58 per cent of the relocating industries are from machinery, toys, instrumentation and plastics.

Mainly low-end manufacturing sector. 69 per cent are foreigninvested enterprise and enterprises involving processing and assembly with supplied materials and parts. Also include electronic information, automobile, electric bicycle, etc.

Year

2006

2007

Destination Dongguan, Huizhou, Zhongshan, and Heyuan in Guangdong Province; Hunan Province; Jiangxi Province; and Jiangsu Province.

Dongguan, Huizhou, etc. in Guangdong Province, and Tianjin, Wuxi, and Zhejiang Province.

Number of Relocations Only a few enterprises moved away. A total of 119 industrial enterprises have moved away or will move away, accounting for RMB9 billion, and about 2.3 billion industrial increased value. Relocators are from eighteen sectors, accounting for less than 1 per cent of the industrial increased value in Shenzhen (Shenzhen Industry and Trade Bureau). Organized and large-scale relocation. For the first half of this year, Shenzhen established twenty Shenzhen Industrial Transition Zones. Up to June 2007, 499 enterprises moved away from Luohu, Nanshan, Bao’an and Longgang districts (Shenzhen Industry and Trade Bureau).

Table 4.8 Moving-away Shenzhen Enterprises for the Past Three Years, 2006–08

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Processing trade sectors

2008

The year of 2008 saw a clear turning point. According to data from Shenzhen Bao’an District, 231 enterprises have moved away or intend to move away, while on average 146 enterprises moved away annually from 2000 to 2004. Enterprises involving processing and assembly with supplied materials and parts moved away from Shenzhen at a rate 30 per cent faster than that of the same period in the preious year. (Bao’an Bureau on Economy and Trade)

Number of Relocations

Outer edge of the PRD region and neighbouring regions of Guangdong Province

Destination

Source: Based on data from the websites of Shenzhen Industry and Trade Bureau as well as Bao’an Bureau on Economy and Trade.

Industry or Sector

Year

Table 4.8 (continued)

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Table 4.9 Proportion Change of Labour-intensive, Capital-intensive and Technology-intensive Industries in Shenzhen Industry, 2001–06 Year

Labour-intensive Industry

Capital-intensive Industry

Technology-intensive Industry

2001 2002 2003 2004 2005 2006

25.97% 23.69% 19.66% 18.01% 18.54% 16.54%

22.53% 22.00% 18.85% 19.75% 23.32% 22.87%

51.50% 54.31% 61.50% 62.24% 58.16% 60.59%

Source: Based on the data from Shenzhen Statistical Yearbooks, (2002–2007)

As a result of the industrial transition in Shenzhen, there have been some adjustments in Shenzhen’s industrial structure with a trend towards industrial upgrading. There is important evidence that, in recent years, the percentage of labour-intensive industry has fallen, from 26 per cent in 2001 to 16 per cent in 2006, while at the same time, the percentage of capital and technology-intensive enterprises is increasing (see Table 4.9). Related Policies of the Shenzhen Government Shenzhen’s practice can be summarized as “four wheels turning together”. What are the four wheels? First, develop high-end service industry. Encourage the manufacturing industry to upgrade from low end to high end. And increase the percentage of the productive service industry (develop high-end service industry including finance and logistics, and encourage headquarters economy). Second, actively realize industrial transition. Change foreign processing trade enterprises into domestic processing trade enterprises (more than 300 enterprises); develop own brands and independent R&D (in Shenzhen, 30 per cent processing trade enterprises do ODM, and 10 per cent have own brands); change into “incoming materials processing” enterprises, and reduce “imported materials processing” enterprises. Third, implement favourable industrial policy. Encourage the processing trade enterprises to sell their products in China, and use the governmental industrial aid funds to help enterprises in the transition stage to overcome difficulties.

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Table 4.10 Shenzhen’s Policies to Support Industrial/Enterprise Upgrading, 2002–07 Year

Name of Policy

2002

Shenzhen fund management method on industrial advance (Shen Cai Qi [2002] No. 15)

Push technological advance, encourage enterprises to renovate traditional advantaged industries with high technologies, or advanced suitable technologies.

Shenzhen implementation plan on industrial structure adjustment November 2002

Emphasize the development of strategic industry including electronic information, emerging industry including biomedicine, and traditional advantaged industry including watches, and establish eleven hi-tech zones and seven functional zones.

Opinions on strengthening development of modern commercial logistics (Shenzhen government [2002] No. 145)

Offer strong financial and tax supports to modern commercial logistics, and strongly support local exhibition industry and local market development by enterprises.

Methods to support major information projects for Shenzhen’s enterprises (Shenzhen Bureau of Trade Industry [2004] No .62)

Offer special supports to enterprises’ major information projects, and push development of enterprise information projects.

Shenzhen temporary methods on management of public technology platform for industrial sectors (Shenzhen Bureau of Economic Development [2004] No. 30)

Standardize the construction and management of public technology platform for industrial sectors, make full use of its service functions in research, etc., improve the overall technology level for enterprises, and support and push the development of SMEs.

2004

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Table 4.10 (continued) Year

Name of Policy

2005

Shenzhen catalog on recommended industries (2005–06)

Encourage the development of automobile, auto electronics and parts.

2006

Rules to support industrial transition of Hong Kong and Taiwan-invested enterprises with processing trade, June 2006

Support industrial transition, but high pollution, high energy consumption, or low efficiency enterprises will be closed or moved out.

Promotion rules on the recycling economy in Shenzhen Special Economic Zone (深 发[2006] No. 9)

The rules have established planning and evaluation of the development of recycling economy, as well as the approval mechanism of waste recycling and clean production.

Shenzhen catalog on industrial structure adjustment and optimization and recommended industries (2007)

Attach recycling economic industries with the highest priority in the encouragement industries, and forbid thirty-five high pollution or high energy consumption enterprises to set up in Shenzhen, including printing and dyeing, papermaking, tanning, electroplating.

Opinions on hastening the development of highend service industry [2007] No. 1

Based on strategic planes such as website, service outsourcing, idea industry, Shenzhen and Hong Kong cooperation, improve high-end service sectors such as innovated finance, modern logistics, special professions, network information, creative design, etc.

Opinions on hastening the development of headquarters economy [2008] No. 1

Establish three headquarters economic bases, namely, Futian Financial Centre, Luohu Financial Centre and Nanshan Financial Centre, and Downtown CBD. Arrange RMB50 million to support the development of headquarter economy.

2007

2008

Contents of Policy

Source: Based on the website of Shenzhen Bureau on Industry and Trade.

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Fourth, encourage industrial clustering, and move enterprises in the transition stage into industrial parks. COST IMPACT AND INDUSTRIAL TRANSITION: STUDY ON DONGGUAN Economic Profile of Dongguan As China’s leading centre for export processing in labour-intensive and light manufacturing industries, Dongguan’s GDP in 2007 was RMB315.1 billion and per capita GDP is US$5,500. There are more than 10 million people in the city, among which 7 million people are permanent residence. Like Shenzhen, the economy of Dongguan is highly export-oriented. In 2007, the degree of dependence on foreign trade was 256 per cent, and Table 4.11 Degree of Dependence on Foreign Trade of Dongguan, 2001–07 Year

Export/GDP

Import & Export/GDP

2001 2002 2003 2004 2005 2006 2007

159% 166% 160% 161% 154% 143% 144%

288% 309% 297% 296% 279% 255% 256%

Source: Based on data from Dongguan Statistical Books, 2002 to 2007 and Government Statistical Bulletin.

Table 4.12 Proportion of the Processing Trade in Foreign Trade (Export) of Dongguan, Guangdong and the Whole Country, 2001–06 Year

Dongguan

Guangdong

The Whole Country

2001 2002 2003 2004 2005 2006

98.53% 98.25% 97.58% 95.70% 94.39% 94.06%

82.70% 81.69% 80.89% 80.17% 77.62% 73.51%

57.96% 58.17% 58.47% 58.94% 58.65% 57.05%

Source: Dongguan Statistical Books, Guangdong Statistical Yearbooks and China Statistical Yearbooks, 2002 to 2007.

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the percentage of the processing industry (94 per cent) in exports was the highest in China, which was 18 per cent higher than that of Shenzhen (see Table 4.11 and 4.12). These data prove that the industrial structure in Dongguan is also “cost-impacted”. Thus it can be said that Dongguan is more “fragile” than Shenzhen. Analysis of Cost Impact in Dongguan First, labour cost and the cost of land increased dramatically. The minimum salary standard, which is issued by the government, increased rapidly especially from 2005. The minimum wage of RMB350 in 1994 was increased to RMB770 in 2008, a rise of 120 per cent (see Figure 4.3). From the statistics of the average monthly wage of a worker, wage rate rose from RMB647 in 2000 to RMB965 in 2006, an increase of nearly 50 per cent within six years (see Figure 4.4). With regard to the land cost, rapid urbanization in Dongguan led to the rise of land prices. The price of land deals increased 4.6 times in 2007 compared to 2001. Moreover, the overall cost of enterprises and other sectors has risen sharply. In the sectors such as textile, apparel, furniture-making, electronic Figure 4.3 Change of Dongguan Minimum Salary, 1994–2008

800 700 600 500 400 300 200 100 0 1994

1996

1998

2000

2002

2004

2006

2008

Source: From Website of Gongguan Bureau of Trade & Industry

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Figure 4.4 Average Monthly Wage of Worker in Dongguan, 2000–06 (RMB/Month) 3000 2500 2000 1500 1000 500 0 2000

2001

2002

2003

全市职工平均工资

2004

2005

2006

城镇在岗职工平均工资

Source: Guangdong Statistical Yearbooks 2007.

Table 4.13 Land Price Change in Dongguan, 2001–08 Year

Average Price of Land Deal (RMB/m2)

Industrial Land Price (RMB/m2)

2001 2002 2003 2004 2005 2006 2007 2008

700 800 950 1,100 1,355 1,778 3,941 —

180 200 220 240 265 301 375 Above 384

Source: Internet data and Dongguan Bureau of Land and Resources. Since July 2007, the minimum land price of industrial land in Dongguan has been set as RMB384 per square metre.

information, toy making, paper-making, food and drink, chemical products, and shoe-making, the overall cost of enterprises rose by 10–20 per cent in 2006 and 15–30 per cent in 2007.

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The cost increased 25–35% analysed by the experts The cost increased 5–30% reflected by business owners The cost increased 20–30% reflected by business owners The cost increased 15–30% analysed by the experts The cost increased 15–25% reflected by business owners The cost increased 20–30% analysed by the experts The cost increased 10–20% analysed by the experts

Furniture-making

Electronic & Information Industry

Toy-making

Paper-making and Paper Product

Food & Beverage

Chemical Products

Shoe-making

Source: Based on the Financial and Economic Report from .

The cost increased 15–30% analysed by the experts

Year of 2007

Textile & Apparel

Industry





The cost increased 10–20% reflected by business owners

The cost increased 20–40% reflected by business owners

The cost increased 20–30% reflected by business owners

The cost increased 5–15% analyzed by the experts

The cost increased 15–30% reflected by business owners

The cost increased 5–15% reflected by business owners

Year of 2006

Table 4.14 Overall Cost Rise of Dongguan Manufacturing Industry, 2006–07

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Analysis Cost Impact on the Industrial Transition and Upgrading in Dongguan Let us look at the consequencies of the industrial transition in Dongguan. According to governmental data, in 2007, 909 enterprises closed, 88 enterprises moved away (40 enterprises moved out of the city, and 48 in the city). In total, fewer than 1000 enterprises closed or moved, accounting for a little more than 6 per cent of the processing trade enterprises in the city. However, public opinion differs from the government, leading to some arguments between the two sides. A leading official with Dongguan Taiwan Investors Association argues that more than 1000 Taiwan-invested enterprises had moved away, accounting for 10–20 per cent of the total Taiwan-invested enterprises. According to the data provided by Asian Shoe Industry Association, 200–300 shoe-making enterprises went bankrupt, accounting for 10–20 per cent of the total shoe-making enterprises. Dongguan and Shenzhen are different however, in that among the affected enterprises, many Shenzhen enterprises relocated while a lot of Dongguan enterprises went bankrupt. Although we do not have precise data to prove how many enterprises went bankrupt because of the cost impact, it can be concluded from the facts that cost should be an important factor. It was also noticed that the industrial upgrading in Dongguan has seen some obvious effects, the most notable being the Songshanhu Development Zone, where many hi-tech enterprises have clustered there (some of them came from Shenzhen). According to statistical data, the hi-tech industry in Dongguan rose to 27 per cent in 2006 from 13 per cent in 2001 in the total industrial output, which is developing very fast (see Table 4.15). Table 4.15 Percentage of Hi-tech Output in the Industrial Output in Dongguan, 2001–06

Year

Gross Industrial Output (Hundred Million)

Total Output of Hi-tech Industry (Hundred Million)

Percentage in Gross Industrial Output (%)

2001 2002 2003 2004 2005 2006

1847 2296 2875 3684 4470 5530

245 430 556 711 1062 1535

13.26 18.73 19.34 19.30 23.76 27.76

Source: Based on the data from Dongguan Statistical Yearbook, 2002 to 2007.

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Relevant Policies of the Dongguan Government In recent years, the Dongguan government has explored ways to help enterprises undergo the industrial transition and upgrading, by actively helping them develop high-end services, innovative industries and own brands (see Table 4.16). Since 2005, the Dongguan government has invested RMB1 billion every year to implement the Technological Dongguan Project,

Table 4.16 Policy List of Dongguan Government to Support the Industrial Upgrading, 2002–07 Year

Name of Policy

Contents of Policy

2002

Opinions on strong development of modern service industries (Dong Fu Ban [2002] No. 37)

Facilitate optimization of service industries, that is, change from traditional type to modern type, and from labour-intensive type to knowledge-intensive type.

2003

Implementation plan of Dongguan to embark on a new industrialization road (Dong Fu Ban [2003] No. 59)

Ten measures in total. For example, push the adjustment of industrial structure, implement the strategy to focus on industrial zones, and achieve full utilization of resources.

2004

Notice to issue the implementation opinions on development of modern logistics in Dongguan (Dong Fu Ban [2004] No.16)

Focus on development of chain stores, actively develop modern logistics, expand openness of the distribution sector, etc.

Implementation plan of the strategy to use wellknown brands to lead the industry

Develop large-scale enterprise groups that produce famous brand products, and optimize and upgrade the product structure.

Notice to issue the opinions on implementation of the industrial concentration strategy (Dong Fu Ban [2004] No.108)

Integrate existing industrial clusters, including five industries, namely, electronic information, apparel, textile, furniture, metal mold, and fasten upgrading of the clustered industries.

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Table 4.16 (continued) Year

2006

2007

Name of Policy

Contents of Policy

Notice to issue the implementation rules on development of enterprises with own brands

Adopt measures including priority technological innovation, public preferable land use, funding for international market development, and reduction or exemption of administrative fees, in order to help the enterprises with own brands to grow into large scale and improve competitive edge.

Opinions to implement “commercial and trade” Dongguan project (Dong Fu [2006] No. 56)

Mainly include five measures: focus on development of chain stores, develop middle and high-end wholesale markets, fasten the development of modern logistics, improve the level of the exhibition and conference sector, and pay more attention to development of electronic commerce.

Notice to report the technological renovation and innovation projects in 2006 (Dong Jing Mao [2006] No. 186)

Make good use of the technological advancement funds, and push industrial upgrading.

Notice to report the imported technology and absorption projects in 2007 (Dong Jing Mao [2007] No. 307)

Encourage enterprises to import advanced technologies and equipment, improve independent innovation capability, and increase of equipment technology.

Notice to report the technological centres of city-level enterprises in 2007 (Dong Jing Mao [2007] No. 258)

Strengthen the technological centers in enterprises so that they can play exemplary roles in the industrial structure adjustments and upgrading.

Source: Dongguan Bureau of Trade and Industry, and Internet sources.

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which greatly benefits SMEs in the city. Moreover, the Dongguan government has established some risk loan guarantee companies that guarantee loans given to investors. In 2007, the government provided RMB17 billion of guaranteed loan for the SMEs. The Dongguan government has also studied many new methods to provide services for the enterprises. CONCLUSIONS AND POLICY SUGGESTIONS: THE INFLUENCE OF “COST IMPACT” IN PRD’S INDUSTRIAL TRANSITION Based on the two cases of Shenzhen and Dongguan, we have come to some initial conclusions and put forward some policy suggestions. The PRD region faces real cost impact. According to the observations on Shenzhen and Dongguan, the costs of labour, land and rent have risen dramatically. And in the recent two years, appreciation of the RMB and adjustments of national policies also led to rising cost. Thus the overall cost has risen greatly, which can be seen as an event of cost impact. Therefore, the basic hypothesis in the study is substantiated. 1. Due to cost impact, the industrial transition and upgrading in the PRD region happened at the same time. However, industrial upgrading took different paths in Shenzhen and Dongguan. There are three ways of industrial upgrading, namely, bankruptcy (in Dongguan), moving away (from Shenzhen), and transition and upgrading of the processing trade enterprises (in Dongguan and Shenzhen). 2. According to empirical data from Shenzhen and Dongguan, the industrial transition and enterprise bankruptcies are still under control. There is no evidence for large-scale change or severe impact on the stablility of the macro economy. On the contrary, the local government has implemented various kinds of policies to support and help or actively implement the transition and upgrading, in order to relieve the pain of the enterprises and society due to cost impact. 3. However, it has also been noted that the industrial transition resulting from cost impact may be just beginning in the PRD region, and cost impact will stay in the next two to three years. So perhaps the local and even the central government should pay attention to its possibly fiercer impact on the PRD region in the future. When making relevant policies, the local and central governments should not increase the intensity of the “package cost”, by controlling rising costs judiciously. In other words, policies should be released at a suitable pace.

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REFERENCES Huang Jiankang. “The Direct Investment of Foreign Businessmen and the Thinking on the Adjustment of China’s Industry”. Journal of Modern Economic Research, no. 1 (2002). Liu Hongyi. “The Cause and Countermeasure of Upgrading Slowly in Our Industry Structure’. Journal of Liaoning Business College, no. 1 (2001). Li Songzhi and Yang Jie. “Overall Study on the Industrial Transition in China”. Business Review, no. 370 (2008). PEI Chang-hong. “Absorbing Foreign Direct Investment and Upgrading Industrial Structure-Pondering over the Target of Utilization of Foreign Capital Policy”. China Industrial Economy, Beijing January 2006. Yao Yang and Zhang Ye. “Study on Domestic Technological Upgrading of Chinese Products: Evidences from All Over China, Jiangsu Province and Guangdong Province”. Articles for Discussion in Chinese Economy Research Centre, Beijing University, No. C2007013. Zhe Ru. Industrial Upgrading: China’s Policy Option under the Circumstance of Opening. China: China Economic Publishing House, 2006. . . .

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5

Development of Pearl River Delta as a Mega-city Region Li Yongning

CONCEPTUALIZATION OF MEGA-CITY REGION AND THE RELATED APPLICATION Mega-city region is not a new concept, but with the rapid process of globalization, it has acquired a new definition. According to recent studies, the mega-city region can be treated as cities without considering the new urban forms that are emerging into spaces under conditions of current globalization. For instance, they can be regarded as global city-regions rather than global or world cities that are the growth nodes of the world economy.1 Also called mega-city regions, these urban forms can often include several cities and therefore may be polycentric in structure.2 The interlocking network model has been applied to analysis of mega-city regions in the POLYNET project.3 If we make a comparison of the development models of the traditional and the contemporary integration of resources for urban regional development, we can simply divide them into two categories the traditional model and contemporary mega-city.

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The Traditional Models of Development For years, the most influential theories concerning regional development used to be centre-periphery and “flying geese” concepts. Take the PRD studies, for instance, among all these works, Ezra Vogel’s analysis of a development model using the “theory of dependence” has been so popular that they have received a lot of attention from regional planning specialists as well development researchers.4 In a summary of the PRD’s development approaches, Zhang even concluded in accordance with Vogel’s research results that Hong Kong as the economically powerful centre has greatly pushed forward the whole regional change, or the region as periphery has otherwise been dependent on Hong Kong in a stage from simple economic growth to the overall development.5 The other sub-centres in PRD around the main ones like Hong Kong and Guangzhou have then obviously had a role-play of “one-step-ahead” effect as earlier “flying geese” for the whole country in China. Another model from the historical and structural study of cities in the past focuses on centrality and related resource structures. The centrality, according to Piet Saey, arises from activities of the entrepreneurs, who may be a merchant, trader, retailer, wholesaler, or banker. This study based on Bobek-Christaller-Barton approaches which were composed of Bobek’s network of flows, Christaller’s spatial structure and Barton’s agency concepts, depict the neoclassical framework.6 From that the received theory of central places is formulated and based on an entrepreneurial/exchange framework based on neo-classical economics (see Figure 5.1). Figure 5.1 The Entrepreneurial/Exchange Framework

SOCIETY management workers

CENTRALITY

labour wages

ucts prod nue reve fit pro

go spe ods nd inte ings inve rest stm ent

AGENTS OF EXCHANGE ENTREPRENUERS merchants/traders retailers/wholesalers banking

PRODUCTION Industry

Source: Piet Saey, “The Study of Cities: Historical and Structural Approaches”. In 2nd GaWC Student Workshop, Globalization, World Cities and History, in conjunction with the 10th GaWC Annual Lecture, 14 January 2008, .

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Contemporary Concepts of Mega-city Regional Development With the adaptation of the mega-city as a way of analysing and planning urban development, many new concepts have emerged. Since the research here is designed to discuss just one mega-city region in south China, we will use just three of them as analytical tools for an overall understanding of the development tendency, namely, the connectivity of the urban world, the space of flows, and the landscape methodology. First, in order to define the connectivity of city space by value rather than location, an earthwise atlas (see Figure 5.2) was created and developed by Jared Lang, Danny Dorling and Peter Taylor. In this atlas, the research group developed an entirely new space of relationships. They used the raw connection values to develop a space which depends entirely on connection. Essentially, the researchers disregarded absolute geography to create a world in which strength of connection solely determines spatial location. Peter Taylor calls this the new “landscape of globalization”.7 Accordingly, three points are focused for the understanding of a totally new urban system in a different world map which can be elaborated with the following explanation. 1. The visualizations show a new world geography based on connectivity. Cities closest to the centre are the best connected to the other world cities, and cities on the edges are least connected. 2. The points shown in the visualization are the new relative city locations based solely on connectivity values. Considering that connectivity is the Figure 5.2 The Connectivity of World Cities

Source: Peter Taylor, World City Network: A Global Urban Analysis (London: Routledge, 2004, p. 123.

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only thing that matters, this is a new map of the world. The higher a city’s z-value and the closer it is to the centre, the stronger its world city connection. 3. The earthwise views show what the world looks like from the point of view of a specific city. They picked optimal views from a few different cities to give the best overall view of new city locations, relative to the rest of the world. Secondly, in the application sense of space study for regional development, the specific framework that Manuel Castells has worked out is his “social theory of space and the space of flows”. By defining the space as the expression of society with the material support of time-sharing social practice, he made the construction of it in spatial forms and processes as flow: flows of capital, flows of information, flows of technology, flows of organizational interaction, flows of images, sounds and symbols. Flows in his elaboration are not just the one element of the social organization: they are the expression of processes dominating our economic, political and symbolic life, they influence people living in places as a locale, rather than the whole realm of human experiences, whose form, function and meaning are self-contained within the boundaries of physical contiguity.8 Thirdly, the landscapes methodology is a newly developed tool in analysing rural-urban division and especially mega-city regional spatial change. The frequently cited diagram (see Figure 5.3) created by Detlev Ipsen can be a conceptual system for many of the researches conducted in the field. Figure 5.3 The Concept of Landscape Work

Nature

CULTURE

Social Regulation

Source: Detlev Ipsen, “Urban Landscape and Landscape Urbanism”, in The Genesis of Urban Landscape: The Pearl River Delta in South China, edited by Detlev Ipsen, Yonging Li and Holger Weichler (Germany: University of Kassel, 2005), p. 10.

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In fact, what can be read from this triangle is that the relationships between “nature, work and social regulations” are centralized with “culture” as a system of interpretation and evaluation of a region, including not only the landscape image but also the landscape development, both in rural and urban spaces. In spatial development, the landscape image construction then would often involve change of nature, input of work and implementation of social regulations, which is based on human culture and values accumulated over time. With this diagram in mind, the creator himself often applies it to some related analytical work, one of them being his findings on the spatial structure in the PRD mega-city region with five models, namely centreperiphery, segmentation, insularity, space of flows, and placeless spaces. Rome was not built in a day. The mega-city concepts as a new trend of academic and policy research are ways of thinking for a process from an industrial to a post industrial society. Along with the above, J. Friedmann, S. Sassen, H. Lefebvre, and many others also made significant contributions. Their names are mentioned here to emphasize the importance and significance of a multi-disciplinary viewpoint for the study. COMPETITIVENESS OF MEGA-CITY REGIONS IN CHINA In past thirty years of reform and opening-up to the outside world, great changes have taken place in China not only in its economic growth with extremely high output value, but also its successful model of rural and urban construction. Indeed, the rapid process of urbanization has brought about the renovation and construction of so many old and new cities as never before in its history. These resulted, on the one hand, in new characteristics of regional and industrial development effects; on the other hand, they pushed forward the shaping of some global mega-cities. At present, at least the PRD region, the Yangtze River Delta region, the region of Beijing-Tianjin with parts of the Bohai-Sea Ring and the newly formed central-western Chongqing region have already gained the status as mega-city and attracted world attention for their development trends. To understand the mega-city model for both its academic and policy significance, some detailed and meaningful studies on both its micro as well as macro levels have been conducted. One of them, for example, is “The Dynamics of Peri-urbanization in the Pearl River Delta” done from 2006 to 2008. In this joint research by German-Sino scholars, the researchers disregarded the geographic features and looked into the issues of development models mainly on the basis of emerging land use patterns and urban villages and their linkages to the global mechanism. Employing

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spatial theories and landscape concepts, the first phase of research findings from the effects of internal administrative changes and external financial flows as capital investment, have already delinated the mega-city development process and interconnections with global resources. In short, the megachallenge in the PRD can be recognized as part of the informal dynamics of global change. Another research is carried out by native Chinese scholars. A macro analysis and comparative study was organized and mainly conducted by China Academy of Social Sciences, resulting in a series of yearly publications (Blue-cover Books) of city and urban regional competitiveness reports. Among these, the 2008 report had, for the first time, an inclusion of a competitive power comparison of urban agglomerations between urban regions. The following lists the top three urban regions as mega-cities. In spite of the ranking of over fifty cities, the 2008 report had thirty of them defined as urban agglomerations. The first three shown in Table 5.1 can be regarded as mega-cities. This is because they are internationally recognized with development in a global sense. They are all in a global spatial level with strong connections to other world cities; and they are taking the lead in China’s and even Asia-Pacific’s regional economic growth and urban development. In terms of the indicators, “predominating” means when the natural and social resources are combined, while “actual power” and “growing power” of competitiveness indicate present and future potentials of development. “Comprehensive power” is meaningful as research references and conclusions. Table 5.1 Competitiveness of Three Mega-city Regions (Blue-cover-Book of City Competitiveness 2008) Indicators Comprehensive Predominating Actual power Growing power Number of cities Spatial level Development level Central cities

PRD

Yangtze Delta

Beijing-Tianjin

2 2 1 3 11 World level mature Guangzhou

1 1 2 1 15 World level mature Shanghai

3 3 3 2 9 World level mature Beijing

Source: Quoted from Guangzhou Daily, 6 May 2008, A2, (translated by the author).

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According to Ni Pengfei, the person in charge of the 2008 Blue-cover Book programme, who had many talks to press, the overall urban planning and institutional arrangement of the urban spatial structure would be the key issues for development as China has long been in administrationdominated industrialization and urbanization. He also pointed out that the next round development will rely on human resources competition between each region.9 These constructive suggestions can be adopted here for more detailed analysis of the PRD development as a mega-city model in our research next. HOW PRD BECAME ONE OF THE MEGA-CITES IN CHINA There are two clues to the formulation of Pearl River Delta as one of the three mega-cities in China, namely, the economic growth as a driving factor and regional planning by institutional arrangement, (Li 2005).10 Institutional Arrangement for Rural and Urban Economic Growth The first push for economic growth, when we recall the effect to the PRD, was the institutional arrangement by the central government to inaugurate its essential opening-up policy by the establishment of Special Economic Zones (SEZs). In 1980, the first four SEZs of Shenzhen, Zhuhai, Shantou and Xiamen initialled the establishment with actual construction overnight. With three in Guangdong Province and one in Fujian, the SEZs are strategically located near anticipated sources of foreign capital. In the Pearl River Delta, Shenzhen borders Hong Kong, and Zhuhai borders Macau. Meanwhile, Shantou and Xiamen lie across the coast from Taiwan. As it is not intended that all the opening-up policies will be discussed here — which may include the opening-up of the other fourteen coastal cities in 1984 and the island of Hainan which became a provincial level SEZ, only the two early ones would be enough to show the model for economic growth in the region. SEZ’s became the engines of growth as intended. For over ten years, the zones transformed their economies as designated territories for accelerated economic growth and the controlled imports of foreign technology and capital. The SEZs offered skilled, non-unionized labour, preferential tax rates, and other financial incentives. In the 1980s, people were astonished by the so-called “Shenzhen speed”, because just in 1985, a year after Deng Xiaoping’s first tour to encourage the SEZs, the volume of building

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construction almost doubled that the previous year in Shenzhen. At the same time, in order to make the engine of growth more powerful, another institutional arrangement by the State Council was the approval to establish the “PRD Open Economic Region”, whereby a greater area and more cities would be involved in economic growth in the region. Since the early 1980s, the same time as the establishment of the SEZs in the delta, the municipality and county governments have always made it a priority to make institutional arrangements for introducing foreign investment. As a result, the whole region becomes in a real sense “the world’s factory”, with capital, technology and even raw materials imported and products exported on a very large scale. The policy package, the then so-called “outward economy” was very comprehensive. In general, it was initially just a formulation of the processing industry in some appointed areas located in and out of the SEZs, for there were very few economic entities in the real sense, involved as enterprises. Instead, with thousands of local people manufacturing to meet trade orders mainly from Hong Kong, the business became longer and more formal. After the open economy policy (OEM) form started, many joint venture with companies and foreign investors emerged and later on, so did policies for some sole-investment enterprises as well. The policy package has been so successful in introducing investment sources that in just one decade in the 1990s, the FDI flow to the PRD increased from US$15.6 billion to US$124.65 billion, which rapidly made it the largest area to utilize of foreign capital for industrial development and economic growth. The economic growth thus resulted in gradual changes in the spatial development of the region. On the one hand, the urban space expanded with urbanization more than ever before. The reasons why the level of urbanization in the PRD is higher than others in the country and even in the province are many, but the most important cause is the large-scale development of industrialization. Unlike any hinterland regions where urbanization relies mainly on growth of the rural economy, the PRD’s industrialization gets a powerful push from FDI. With about 99 per cent of the investment in the service sectors and industries, and along with the establishment and construction of medium-sized cities, almost all of the counties turned into small cities and some villages into towns or manufacturing centres. By changing their way of working, many rural people became urbanites overnight. Some suburban villagers even had to have their household registration changed from rural to urban because of the loss of land by the expansion of new urban centres.

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On the other hand, the integration of regional resources for development with the expansion of special flows between centres has also been decisive. Apart from the institutional arrangements for economic growth in the periphery of the PRD, the central government never forgets to do more for the centre. CEPA (Closer Economic Partnership Arrangement between Hong Kong and the Chinese mainland) is one such important case. It is a document prepared by the central government and signed between the State Council and Hong Kong SAR government. Effective from 1 January 2004, CEPA is a boost to Hong Kong people’s first-mover advantage in the mainland. It is a free trade agreement under WTO rules which gives preferential access to the mainland market for Hong Kong companies. As there should be zero tariff on 90 per cent of Hong Kong domestic exports to mainland with 273 types of Hong Kong-made products initially covered, and easier market access for eighteen service sectors, the practice of CEPA is merely an increase in competitiveness in the mainland market. CEPA is meant to strengthen Hong Kong’s economic growth. This can bring about not only more opportunities for Hong Kong’s development as a centre, but also the PRD’s peripheral areas as well as South and Southwest China. Spatial Expansion with Strategic Planning of the PRD The PRD in the original sense was based mainly on physical or geographic considerations. The underlying principle of demarcation is the natural mechanism of delta formation, essentially a result of the interaction between tide and flow. It used to be suggested that the boundaries of the delta should cover the places where the river waters meet and interact with the ocean tide. In this sense, the geographic tide-river interaction actually takes the form of a so-called transitional zone with an area of 17,200 square kilometres.11 In the past two decades or so, the sense of natural and geographic boundary has become dimmed and less meaningful. To make it from growth to development, or to be more exact, from an economic region to a mega-city, there have been constant planning. The first was the official recognition of the delta with source integration in 1985. For the purpose of deciding which counties should offer preferential treatment to foreign investors following the policies by Shenzhen, the central and provincial governments put forward the strategic plan for the Pearl River Delta Open Economic Region. This officially demarcated the region then, covering 22,800 square kilometres, including four

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medium-sized municipalities (Foshan, Jiangmen, Zhongshan and Dongguan) and thirteen counties at that time (Doumen, Baoan, Zengcheng, Panyu, Nanhai, Shunde, Gaoming, Heshan, Xinhui, Taishan, Kaiping, Enping, and Shanshui, which was initially excluded but added in 1986). From then on, the government-defined delta was commonly called the “Inner Delta” or “Small Delta” by local officials as well as researchers from home and abroad. Subsequent strategic plans were always extensions of this first official recognition in the mid-1980s. About then years later, another strategic planning of the PRD came into being as the Small Delta became more and more dynamic with rapid economic growth. In November of 1987, the State Council announced that the previous designated Pearl River Delta Open Economic Region would be expanded by three more municipalities and eight more counties in an effort to hasten the economic growth of the mountainous area surrounding the delta. Therefore, by the late 1980s and early 1990s, two medium-sized cities, Dongguan and Zhongshan, and two county-level small cities, Shunde and Nanhai, began to be nicknamed four “Little Dragons” or “Four Tigers” of the region like the four famous “Little Dragons” of Hong Kong, Taiwan, Singapore and South Korea in East Asia. The region’s accelerated growth and development thus made other cities eager to join in, and an integrated sense of the delta called for a newer demarcation of it. Accordingly, later in 1994, the Guangdong provincial government launched a programme of strategic planning for the PRD, whereby the delta (1996) virtually became a larger region covering 41,596 square kilometres. For the first time, the government tried to plan it as a defined urban agglomeration. Besides the ten medium-sized cities of Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Zhongshan, Dongguan, Huizhou, Zhaoqing, Huiyang, there were also about fifteen county-level small cities included. From then on, the Small Delta became known as the Greater Delta. In this plan, published in 1996, it stressed for the first time, on balanced and sustainable development in the region with a carefully planned functional system and spatial integration. The plan marked the two economic development axis or corridors from Guangzhou to Shenzhen and Guangzhou to Zhuhai and three urban rings as the central zone, and the east coast zone and the west coast zone were mapped out in detail. By the full use of the infrastructure and resources of the delta, with the inner connectivity of places considered an urban spatial development condition, a mega-city concept was already shaping up. Finally, the handover of Hong Kong from Britain in 1997 and Macau from Portugal in 1999 and the new-century competition between China’s

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three main urban agglomerations led to the latest and much more scientific strategic plan for the development model of the region to being more like a mega-city. In 2003, in order to take one step ahead again, the provincial government for the first time organized a joint research group with experts and planners from the State Ministry of Construction and from some local planning organizations started the third strategic planning for the PRD. By the end of the same year, the work was almost done based on the second version. In this plan, the planners pointed out that the two Special Administrative Regions (SARs) are not only closely related to the PRD economically; spatially and culturally they are also interdependent. Furthermore, they found that the infrastructure at the turn of the century had greatly improved. The bridges between the eastern and western parts, for instance, have made the whole region much more integrated than ever before. According to some news media comments, the plan also had other considerations of the following points: First, there is the new term of “Grand Delta”, where its boundary is not as important as before, but the impact of Hong Kong and Guangzhou as twin centres in the region to reinforce the fast development of the PRD is emphasized. Secondly, the metropolitan area such as Guangzhou-Foshan, Shenzhen-Huizhou within an hour’s reach of transportation based on a better railway system is attracting people’s attention. Thirdly, flows of capital, goods, information, human resources, even culture in and out of the region being carried by much more convenient infrastructure as advanced logistics centres, airports, seaports, etc., are especially noticed. Finally, sustainable development characterized by more reasonable land use, protection of the environment and natural landscape, and more careful planning of towns or villages have been put on the agenda since then. In addition, it should be mentioned that since late 2003, there has been discussion of a pan-delta or an extensive PRD covering a very large area in South and Southwest China. That is the model of “nine-plus-two” which refers to nine provinces (Fujian, Jiangxi, Hunan, Guangdong, Guangxi, Hainan, Sichuan, Guizhou and Yunnan) plus two SARs (Hong Kong and Macau). Though this cannot strictly be regarded as a delta region, the virtual cooperation of the model however, proves again the spatial development, for this can be beneficial for growth and development by the sharing of a larger market and richer resources for a new type of the centre and periphery relationship. In short, the mechanism for administrative integration by the market and mega-city formulation has just been shown in the PRD model of planned regional changes by institutional arrangement (see Figure 5.4).

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Li Yongning Figure 5.4 Expansion of PRD Mega-city Region with Spatial Changes

Source: Li Yongning, “From Growth to Development: The Institutional Arrangement and Strategic Planning for the Pearl River Delta”, in The Genesis of Urban Landscape: The Pearl River Delta in South China, edited by Detlev Ipsen, Yonging Li and Holger Weichler (Germany: University of Kassel, 2005), p. 21.

CREATIVE INDUSTRIES AS SPATIAL AND DEVELOPMENT INITIATIVES IN THE PRD In a Sino-German joint research done recently on urban spatial dynamics in the PRD, one of the three well-known mega-cities in China, a new approach named “urban-cell analysis” was adopted. The discussion focused on how the different “urban cell” types with their ecological, socio-economic and spatial characteristics and especially their dynamics, can be described as the “basis structure” for the overall system of a “Mega-urban Pearl River Delta” (Ruckert 2007).12 Using the term “informal” factors as sources for urban development, this research introduced a new view of landscape study which could lead to a newer and better understanding of the PRD megacity region’s spatial and development initiatives.

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Due to the basis structure of a mega-city region such as the PRD, the accumulation and flow of economic and human capital from the rapid growth period have at least drawn a roadmap for a new round of development in the following areas with spatial and developmental significance. First, the region can be one of the most important centres for flows of capital, commodities, culture and technology, etc., either in converging or spreading modes. The world-famous Guangzhou trade fair twice a year in spring and autumn is over and above the regional advantage for connectivity to other global parts. In addition, the logistics centre role played by the new airport, the new harbour and many others through the solid infrastructure within the PRD region can be effective as well, together with Hong Kong and Macau functioning as the network nodes. Secondly, with the declining of certain manufacturing industries in the PRD, the design and service industries as post-industrial drivers are being set up in the region. This new trend can be found not only in the software designing workshops in the hi-tech parks in Guangzhou, but also from the landscape changes in urban villages or traditional factory Bauhaus. One particular example of the new cluster of industries as a planned development initiative in Guangzhou is the renovation of an old warehouse quay. Figure 5.5 Taigu Quay Warehouses Designed as “798” (Artistic Centre Changed from Beijing Bauhaus) in Guangzhou

Source: Photographer, Gao Hetao, Guangzhou Daily A19, 6 May 2008.

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Borrowed from the operation of “798”, a well-known and successful artistic centre transformed from an old Beijing old army factory Bauhaus, the Taigu Quay will be renovated with the construction of a new production base for the design industry. The riverside landscape will be protected as the city’s sitting room, with workshops for designers from all over the world working and living around. Some traditional villages segregated in urban spaces so far are developing with their own informal characteristic driving forces in new industries such as folk culture or handcraft centres. Thirdly, social needs are the new points of growth for mega-city development. Taking advantages of profits from traditional manufacturing, new pillar industries, with universities, plants and research institutes combined as a whole economic force, are booming. For instance, the pharmaceutical industry, especially traditional Chinese medicine production, is one of them. According to a newly conducted case study of an enterprise named Zhongzhi Pharmacy Group Ltd in Zhongshan City, PRD, a hi-tech industry with resources from traditional and modern modes of production, it can make the output value double every three or four years. The trained staff and workers armed with new equipment and technologies are creating a totally new landscape in one of the two national level health bases in Zhongshan, from R&D laboratories to assembly lines, and from herbal planting fields to medical service markets. There are many other new initiatives for the new round of megacity development to be discussed. In all the industrial sectors, even in traditional agricultural area, new modes of production with new products are emerging. Only a few of them are mentioned here because these new developmental modes are changing very rapidly the spatial structure, with both natural and social effects. Hence the PRD mega-city region will no longer be functioning as it used to and a new urban form will influence the regional, inter-regional and international development in a tremendous way soon. CONCLUSION AND SOME PERSPECTIVES FOR COOPERATION WITH SINGAPORE After the review and comments on the related theoretical concepts, a comparison of three mega-cities in China and discussion on the developmental process and trends in the PRD mega-city region, some conclusions can be drawn as follows. The first is that the PRD region is an emerging mega-city, whether it is defined as an economic delta, urban zone, urban agglomeration or whatever,

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its connectivity with the world economy, and its integration with local resources and its development and growth initiatives have greatly improved the regional feature as a whole which can compete with any other national and international mega-cities. Secondly, the inner resources of the PRD mega-city region, with rapid changes taking place from urbanization and industrialization, can be integrated for modernization process, and the newly formulated landscapes will be increasingly characterized by post-industrial spatial and social structures. This will very soon bring about totally new production modes and lifestyles which may cause the breakdown of China’s traditional dual rural-urban structure and lead to a new planning system for a mega-city development. Finally, the PRD mega-city development is an ongoing and endless dynamic process, in which the flows of resources from other regions both nationally and internationally are always pushing forward the mega-regional changes in economic and social construction. These flows, while moving in and out of the mega-city, will not only function together with other factors such as market mechanism, political mechanism and pluralistic local natural and cultural resources, but also bring about the challenges and opportunities to many other mega-cities of its kind. These new trends, in Figure 5.6 Mega-city Region Development with Spacing and Placing Functioning Market Mechanism

Flows of Forms of Capital

Pluralistic Local Resources

Politics Mechanism

Source: The author’s own creation.

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spatial research terms, are setting the stage for all of the strategic planning as well as policy-making in the future. These conclusions, especially the third, suggest strong sense of connectivity of a mega-city to others. From their geographical and economic relations to many Asia-Pacific regions, some mega-regions and would-be mega-cities in Southeast Asian countries can find their ways for closer cooperations. For instance, Singapore as a new hub with flows from both the East and West, bridging global exchanges between mega-city regions in the world, already has traditional ties with the PRD mega-city. As a city- state with the strongest developmental potential in Southeast Asia, the country can take some new measures to enhance even further cooperation based on the achievements made with many other Chinese mega-regions. The main policy implications for Singapore can thus be considered from the following lines of action for mutual benefits: 1. Share with the PRD its successful experience of regional or megaurban management. For mega-urban management, the PRD is in a period that Singapore faced in the 1990s. This is an opportunity for Singapore to export cultural capital as administrative and commercial expertise. 2. Cooperation with the PRD mega-city can find new ways of world resource integration for Singapore. While the PRD is moving towards becoming international region, the relevance of the Singapore development model has left a space for strengthening the ties between these two regions. 3. The PRD mega-city is changing from being the world’s factory to being of the world’s service centres. Service industries such as banking, logistics operation, landscape design, etc., offer new areas of cooperation between Singapore companies and their counterparts in the PRD. 4. Due to formal and informal relations with the Cantonese culture and the advantage of easy accessibility from the PRD mega-city to Singapore, education and training programmes launched for both children and adults in English language learning and in innovative technology application can be increasingly important and feasible in the future. Indeed, there should be more perspectives on policy implications. The above four areas in fact can be points of departure for further rumination, which is beyond the scope of this research.

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NOTES 1. 2.

A.J. Scott, ed., Global City-Regions (Oxford: Oxford University Press, 2001). P. Hall, “Planning for the Mega-city: A New Eastern Asian Urban Form?”. In East-West Prespectives in 21st Century Urban Development, edited by J. Brotchie, P. Newton, P. Hall, and J. Dickey (Aldershot: Ashgate, 1999). 3. P.J. Taylor, D.M. Evans, and K. Pain, “Organization of the Polycentric Metropolis: Corporate Structures and Networks”. In The Polycentric Metropolis, edited by P. Hall and K. Pain, (London: Earthscan, 2006). 4. Ezra F. Vogel, One Step Ahead in China: Guangdong under Reform (Cambridge, Mass. and London: Harvard University Press, 1989). 5. Zhang Dunfu, Quyu fazhan moshi de shehuixue fenxi [Sociological Analysis of Regional Development Models] (Tianjin People’s Press, 2002). 6. The approach including studies done by H. Bobek, Grundfragen der Stadtgeographie, Geographischer Anzeiger 28, no. 7 (1927): 213–24; Christaller W., Die Zentralen Orte in Süddeutschland (Jena: Gustav Fischer, 1933), (translated by C.W. Baskin, Central Places in Southern Germany (Englewood Cliffs, NJ: Prentice-Hall, 1966)); and B. Barton, “The Creation of Centrality”. Annals of the Association of American Geographers, no. 68 (1978). 7. Peter Taylor, World City Network: A Global Urban Analysis (London: Routledge, 2004). 8. M. Castells, The Rise of Network Society (Oxford: Blackwell, 1996). 9. Ni Pengfei’s keynote speech in the 2008 China City Competitiveness Conference, 28 March 2008. 10. Li Yongning, “From Growth to Development: The Institutional Arrangement and Strategic Planning for the Pearl River Delta”, in The Genesis of Urban Landscape: The Pearl River Delta in South China, edited by Detlev Ipsen, Yonging Li and Holger Weichler (Germany: University of Kassel, 2005), pp. 15–25. 11. K.Y. Wong and S. Tong, “Geography of the Pearl River Delta: An Intoduction”. In Resource and Development the Pearl River Delta, edited by V.E. Sit (Hong Kong: Wide Angle Press, 1984). 12. Christoph Ruckert: “Metamorphocity” Pearl River Delta: A Multidimensional Spatial System and Its Local Driving Forces, paper to ENHR 2007 International Conference “Sustainable Urban Areas”, Rotterdam, 25-28 June 2007.

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Comparing Two Economic Regions: Indonesia-MalaysiaSingapore Growth Triangle and Pearl River Delta Region Toh Mun Heng and Shandre Thangavelu

INTRODUCTION With the success of the “miracle growth” of the East Asian Tigers by adopting openness or export-oriented strategies, several developing countries including China and India are also adopting the strategy of openness as part of their economic and industrial development. As part of the such strategy to attract multinational corporation investment, most countries develop special economic zones or export processing zones. In line with domestic industrial policy, countries have embarked on several regional economic cooperative arrangements to promote trade with neighbouring countries. The key idea of these regional economic arrangements is to increase the synergy within the region and to create greater economic spillovers. Multinationals could take advantage of different endowments of regional countries and create greater

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spillover in technologies and international networks. Several prominent examples of growth triangles include the IMS Growth Triangle (Singapore, the Malaysian state of Johor, and Batam Island in Riau, Indonesia)1 and the Pan Pearl River Economic Zone (including Guangdong Province of China, Hong Kong and Macau). The Pearl River Delta (PRD) Economic Zone accounted for almost 10 per cent of China’s GDP and more than a third of total trade in 2005. The rate of growth of GDP in the PRD is higher than the national growth rate. One of the objectives of this chapter is to identify the factors contributing to the sterling economic performance recorded in the PRD, and reflect on how the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), and in particular the Batam, Bintan, Karimun (BBK) SEZ, can possibly adopt some of the strategies and emulate. The Singapore, Indonesia, Johor (SIJORI) growth triangle and Pearl River Delta region will be discussed further in the later sections. The theoretical foundation for the formation of such regional zones will be explored in the next section. REGIONAL ECONOMIC DEVELOPMENT THEORIES Researchers and scholars have propounded several theories of economic growth and development over the last few decades, the earliest of which is the Growth Pole Theory introduced by French scholar François Perroux (1950). He believed that growth in an economy is derived from disequilibrium and domination, and thus occurs unevenly.2 In this concept, “the pole” is referred to as an industrial group, namely the motor industry or a key industry. By means of re-investment and multiplier effects to the extent, it could accelerate regional economic growth. Initially, the Growth Pole Theory was designed for the study of industry, however since the industrial park shares similar characteristics, this principle can be applied to various industries and economic zones as well. Based on the Growth Pole Theory, Myrdal (1957) developed the Principle of Cumulative Causation, which states that economic development in one region will engulf another region. The productive efficiency and employment opportunities in the relatively wealthier areas will attract capital and workforce from less developed areas. Also, the industrial production of more developed regions may undercut the output from the less developed areas. This phenomenon is known as the “backwash effect”. On the other hand, the development of the prosperous regions can also bring about advancement in less developed areas through the spread effect. This occurs when the prosperity of the developed central areas trickles down to the

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peripheral areas, creating stronger demand for raw materials in the less developed areas. However, Myrdal believed that the impact of the backwash effect will be greater than that of the spread effect. As such, the difference in the level of development between urban and rural districts will widen over time. Hirschman (1994) highlighted a different view of the growth pole. Based on the growth pole principle, he advocated that prosperous districts would expand development to idle ones, also known as the “trickle-down effect”. In contrast, the polarization effect sees the movement of production factors from rural areas to urban areas. This will lead to the uneven development between urban and rural districts. However, Hirschman believed that the trickle-down effect will be greater than polarization effect. Thus, contrary to the idea proposed by Myrdal, Hirschman’s theory was that the gap between urban and rural districts will be reduced. Another approach to economic development invokes the concept of agglomeration economies. Nearly a century ago, Alfred Marshall (1920) attributed the effects of agglomeration in his book, Concentration of Specialized Industries in Particular Localities. Marshall attributed concentration or agglomeration to three factors: (1) the availability of specialized labour, (2) the development of specialized suppliers of intermediate goods and services, and (3) the flows of technology between industries. Hoover (1948) classified the agglomeration economies with three economic effects: (1) large-scale economies: the expanded scale of production decreases the production and management costs; (2) localization economies: interdependent locaters in the industrial park create the advantages of flexible production and accessible marketing; (3) urbanization economies: industrial cluster generates the overall benefits for urban income, output and prosperity. Spatial interdependence and growth are the main concerns of the core-periphery model. It can be viewed as a modern form of the Growth Pole Theory. Core-Periphery theory is based on the notion that in order for one region or state to achieve sustained economic development, it will involve and influence the neighbouring areas to develop as well. The area of high growth will be known as the core, and the neighbouring area is the periphery. Further elaboration of the theory has helped the establishment of the New Economic Geography (NEG) model championed by Fujita, Krugman, and Venables (1999), and Krugman and Venables (1995). These authors used the NEG theory to explain the development of cities, urban concentration, and the differences in the economic development across regions of a country.

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PEARL RIVER DELTA (PRD) ECONOMIC REGION: AN OVERVIEW The Pearl River Delta region has played an important role in the strong economic performance of China. The gross domestic product (measuring in purchasing power parity terms) of China hit US$7 trillion in 2007 and its economy is second to the United States of America. Part of China’s economic rise can be attributed to the development of the Pearl River Delta region, a multi-faceted area with an increasingly dynamic economy. In this section, we provide a brief summary of PRD in terms of its economic contribution to China. Historical Background Since Deng Xiaoping’s economic reform in 1978 that initiated the creation of the PRD Economic Zone, China opened up the region to foreign trade and investment. Looking at Figure 6.1, the PRD covers nine prefectures of the Guangdong Province, namely Guangzhou, Shenzhen, Zhuhai, Dongguan,

Figure 6.1 Map of the PRD Region

Source: .

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Zhongshan, Foshan, Huizhou (only includes Huizhou City, Huiyang, Huidong, Boluo), Jiangmen and Zhaoqing (only includes Zhaoqing City, Gaoyao and Sihui), and the Special Administrative Regions (SARs) of Hong Kong and Macau. Geographically and geologically speaking, Macau and Hong Kong are not part of the PRD; however economically and culturally they are considered part of the PRD. As part of the economic strategy, the PRD area focused on attracting export-orientated foreign investment and began to engage in export-led development. Until around 1985, the PRD had been mainly dominated by farms and small rural villages, but after the economy was reformed and opened, foreign investments poured in and turned it into the mainland’s economic powerhouse. Today this region is the wealthiest and fastest growing in all of China. In particular, the eastern side of the PRD (Shenzhen, Dongguan, Guangzhou) is the most developed economically. The western areas (Zhuhai, Zhongshan, Jiangmen) are open for development and these areas will be important when we look at the expansion of the PRD in the future. Hong Kong played an important role in the transformation of the PRD into the manufacturing powerhouse it is today (Enright, Scott, and Chang 2005). According to the core-periphery model discussed in Section 2, Hong Kong is the pole while the prefectures in the Guangdong Province make up the periphery. The PRD’s impressive growth was fuelled by foreign investment coming largely from Hong Kong manufacturers that moved their operations from Hong Kong into the PRD in the 1980s. In a 2002 survey, over 50,000 Hong Kong companies have plants in the PRD region, employing 11 million workers in total. Some 1.5 million new jobs were also created in Hong Kong because of the opportunities in the PRD region. It is evident that there exists a symbiotic relationship between Hong Kong and the PRD. Economic Performance From 1980 to 2000, of the GDP of the PRD grew from just over US$8 billion to US$89 billion. During that period, the average real rate of GDP growth in the Pearl River Delta Economic Zone exceeded 16% (refer to Table 6.1), more than 6% higher than PRC’s average growth rate. At the start of the 1990s, almost 50% of foreign investment in China was in Guangdong, and 40% of total investment was concentrated in the PRD. In the 2000 Census, the PRD had a population of 40.8 million people. Although the PRD encompasses only 3.2% of the national population and 0.4% of the

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GDP (RMB bn)

GDP growth (%)

Per Capita GDP (RMB)

Added value of industry (RMB bn)

Retail Sales (RMB bn)

Export (US$bn)

Actual FDI (US$bn)

Guangzhou Shenzhen Zhuhai Foshan Huizhou Dongguan Zhongshan Jiangmen Zhaoqing

Population (mn)

City

Land area (sq.km)

Table 6.1 Major Economic Indicators, 2006

7,434 1,953 1,688 3,849 11,158 2,465 1,800 9,451 14,856

7.60 7.01 1.24 5.34 3.22 6.45 2.36 3.95 3.38

607.4 581.4 74.8 292.8 93.5 262.7 103.6 94.2 51.6

14.8 16.6 16.4 19.3 16.6 19.2 16.8 15.6 14.5

79,921 69,450 52,185 50,232 25,043 39,468 42,058 22,936 13,991

197.1 308.7 41.5 174.4 40.4 131.9 69.6 43.9 11.4

218.3 167.1 25.6 77.6 29.7 58.5 33.1 35.2 16.8

32.4 136.0 14.8 21.1 12.3 47.4 15.6 7.4 1.8

2.5 3.3 0.8 1.1 1.0 1.8 0.7 0.7 0.7

Note: (a) The figures in value terms are calculated at current prices; (b) Statistics of valueadded of industry cover all state-owned and non-state-owned enterprises with an annual sales revenue over 5 million yuan. Source: Guangdong Statistical Yearbook 2007 and various reports.

land area, it constitutes 8.7% of the mainland’s GDP, 35.8% of its total trade, and 29.2% of utilized foreign capital in 2001. These figures illustrate the remarkable level of economic development that the PRD has achieved and the international orientation of the region’s economy. This orientation attracted numerous investors from all over the world who use the PRD region as a platform for serving global and Chinese markets (Kwok and So 1995). Again, much of this growth can be attributed to the influence of the core over the periphery. The PRD is an important economic asset to the PRC economy and has been a success story in economic restructuring and international outlook. Shenzhen and Zhuhai are two of the initial Special Economic Zones (SEZs) set up to transform the PRC from a planned to market economy. Being the pioneer in developing private enterprise, manufacturing capabilities and foreign trade, the PRD tapped on its proximity with Hong Kong to become the manufacturing stronghold in China. As the PRD region has a history of being an area for experimenting with new industries, it is feasible to continue this practice by allowing the development of new industries in this region. This will be highlighted again later in the recommendations.

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The Pearl River Delta has become the world’s manufacturing base for products such as electronic goods, toys, garments and textiles, plastic products, and a range of other merchandise. Much of this output resulted from the large amounts of foreign direct investment (FDI) and is geared towards the export market. In 2001, approximately 5 per cent of the world’s goods were produced in this region, with a total export value of US$289 billion. The Pearl River Delta Economic Zone accounts for approximately one-third of China’s trade value. Initially, state-owned enterprises led the development in the PRD region. However, since the turn of the century, the Chinese government has relaxed regulations for investments by privately-owned companies. As such, these firms are now playing an increasingly important role in shaping the region’s economy. Hong Kong as a Growth Pole for PRD Prefectures in the PRD have benefited from its close geographical proximity to Hong Kong. Hong Kong has been the source of over 70% of the cumulative FDI in the region since 1978. To put this into perspective, Hong Kong’s FDI is approximately eight times the investment of North America, Japan, and Europe combined. Hong Kong has played a key role in the PRD development because it connects the region with the global market. Hong Kong manages 70–80% of the PRD’s seaborne exports and an even greater percentage of its airborne exports. Hong Kong serves as a gateway for firms to tap onto the vast manufacturing hub in the PRD region. Many multinational firms also use Hong Kong as a regional headquarters for their PRD operations and develop coordination between its management, finance and communication departments on the island. This is complemented by having manufacturing activities in one or more areas within the PRD region. Hong Kong provides excellent logistical, financial, legal, design and marketing services that allow companies to export their output from the PRD region to the rest of the world. Business Prospects in PRD As Hong Kong attracts greater investments from the rest of the world and transforms its economy to rely primarily on the service industry, the manufacturing sector in the PRD region will increase in size. Low labour cost, advantageous investment environment and vast domestic market actively

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promote the development of manufacturing industry of the region, which has already become the manufacturing base and international purchasing centre in the world. The advancement in infrastructure development also helps to support the growth of the region. After years of continuous investment in and development of infrastructure construction, there forms a comprehensive and complete network of railway, airports, ports, highways, water transportation, mail system, telecommunication and electricity. New transport links between Hong Kong, Macau and Zhuhai in the PRD are expected to open up new areas for development and facilitate trade within the region. The proposed twenty-nine-kilometre Hong Kong-Zhuhai-Macau Bridge will be among the longest in the world to equip the region with the necessary infrastructure it needs as it embarks on a new phase in its economic development. The development of the bridge will serve to improve the logistical infrastructure and is likely to boost trade within the region. With the increased connectivity, the PRD area is set to include more cities into its periphery and the cooperation of these three places will lay a foundation for the continued expansion of the PRD region. With Hong Kong concentrating on the service industry, the likelihood of cooperation between Hong Kong and the PRD is very high. Guangdong Province has seen a surge in demand for service in recent years. With the introduction of the Closer Economic Partnership Arrangement (CEPA), signed between Hong Kong SAR and the Central People’s Government, the service sector is expected to open up. Due to Hong Kong’s expertise in this area, cooperation between Guangdong, Hong Kong and Macau will shift from primarily manufacturing industries to include service industries in its industry mix as well. In addition, Guangdong Province’s Tenth Five-Year Plan expects the added-value of the service industry in the province which is more than RMB400 billion in 2003, to grow at 13–14% annually for another decade. Thus, in the near future, a sharp rise we can expected in the development of service industries in the PRD region. Due to the close proximity between Hong Kong and the PRD, Hong Kong handles most of the logistical support needed by the PRD. It is predicted that the total volume of logistics of Guangdong Province will see an annual average grow of 11% in the next several years. The rapidly developing manufacturing industry and continuous construction of logistic infrastructure in the PRD region provides many opportunities for the logistics industry in Hong Kong. Since the logistics firms in Hong Kong are familiar with international practices, are equipped with the latest technologies, and possess dense customer networks, they are in the best position to take advantage of this increase in demand in the PRD. Coupled

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with the local knowledge that firms in Guangdong possess, firms in these two regions can cooperate to provide a more comprehensive and efficient service for customers. Going back to the Core-Periphery Theory, the development of the PRD region will inevitably bring about developments in the neighbouring regions. The “Broader PRD region” is one of the possible extensions of the original PRD region. This enlarged region refers to the original Guangdong Province and the other eight provinces around it, namely Fujian, Jiangxi, Guangxi, Hainan, Hunan, Sichuan, Yunnan, Guizhou). Located in the southern part of China, these nine provinces cover a vast territory and are closely connected with each other. The region accounts for approximately 20% of the total land area and 35% of the country’s total population respectively. This region is endowed with abundant natural resources, tourism and historical resources. With a long history of economic communication and cooperation, economic and trade cooperation in this region is becoming closer than ever before. At present, an economic zone with various functions, relatively close connections and an integrated economy has already taken shape. Future economic cooperation shows a trend of favourable development. Spurred by the creation of the China-ASEAN Free Trade Agreement (FTA) and the implementation of CEPA, the enhanced PRD region will become one of the most vigorous and prosperous regions in the world. BATAM, BINTAN, KARIMUN ECONOMIC (BBK) REGION: AN OVERVIEW The economic region consisting of the Riau Islands of Batam, Bintan and Karimun (BBK) was formed less than two years ago. However, the relationship between Singapore and the BBK region goes as far back as the late 1980s. Thus, it is useful to also discuss earlier economic agreements such as the SIJORI Growth Triangle and the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT) to better understand the BBK economic region. It is pertinent to note that the relationship between these three countries is a dynamic one and therefore is in a constant state of flux. The next section discusses the history of the economic cooperation between these three areas. Historical Background The SIJORI Growth Triangle was created out of two earlier agreements, one connecting Singapore with Johor and the other between Singapore

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with the Riau islands. The beginnings of joint initiatives in the Riau Islands in turn caused concern and resentment in Johor. To appease the emerging grievances and to expand further cooperation, Singapore coined the term “Growth Triangle”. This arrangement was later expanded and became commonly known as the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT). The amount of investments generated in the IMS-GT is substantial and involved primarily the machinery, basic metals, chemical and electronic industries, trade and services, and agribusiness industries. However, much of the earlier arrangements were more informal in nature. Since the early 1990s, the three governments have been moving towards more detailed agreements. In January 1992, ASEAN heads of state adopted the Common Effective Preferential Tariff (CEPT) agreement, which lead to the establishment of the ASEAN Free Trade Area (AFTA). In September 1992, a modest institutional framework was created for the Asia-Pacific Economic Cooperation (APEC) forum as a vehicle for regional economic cooperation. Since November 1994, APEC leaders signed the Bogor Declaration at a summit meeting in Indonesia to create a framework to ensure that countries within the group continue to pursue free trade in the next two decades. On 25 June 2006, Singapore and Indonesia signed a memorandum of understanding on “The Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun”. The framework agreement formalizes the aim of Indonesia and Singapore to develop economic cooperation in SEZs in the BBK region, so as to promote and enhance economic growth in these islands by attracting foreign investment, creating employment, enhancing productive capacity, and increasing trade in goods and services. The SEZs will lay the groundwork for both islands to become investor-friendly and cost-competitive manufacturing zones. This is because the proximity of markets helps reduce costs. The three regencies are located near Singapore, with Batam the closest at only twenty kilometres away or one hour by ferry. FDI that are export-oriented should therefore find these growth areas attractive. Existing infrastructures will be improved to support the expansion of economic activities. The success of the IMS-GT has led to the development of other growth areas. Figure 6.2 shows the various growth triangles within the region. The Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) represents the second major ASEAN effort at linking three complementary areas that belong to different participating countries. The natural resources of the IMT-GT represent a vast economic potential that could be realized through

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Figure 6.2 Growth “Triangles” in Southeast and East Asia

Source: Adapted from World Technology Evaluation Centre ().

sub-regional cooperation. As in the IMS-GT, multinational corporations may be interested in expanding their resource-based investments by opting to relocate their industries to the sub-region, thereby increasing their competitiveness.3 Other prominent growth regions include the Tumen Delta Triangle, Greater Mekong Sub-region and the Yellow Sea Economic Zone. Economic Performance With intense competition from countries such as China, India and Vietnam, many companies moved their operations away from the Riau islands of Batam and Bintan and the business climate there began to freeze in early 2000. Nevertheless, growth in the Riau Islands is consistently higher than the Indonesian average growth rates. Table 6.2 shows the economic growth of the Riau Islands with respect to the average growth rates in Indonesia.

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Table 6.2 Economic Growth of Riau Islands Province and Indonesia, 2001–06 Year

Riau Islands Province

Indonesia

2001 2002 2003 2004 2005 2006

6.7 7.4 6.3 7.4 7.16 6.78

3.44 3.66 4.1 5.13 5.6 5.6

Source: Government of Riau Islands Province

It is hoped that these three cities will regain its status as the thriving hub of business activity that it once was with the help of the BBK SEZ. This cooperation between Singapore and Indonesia also underlines the close bilateral relationship, one which is expected to bring mutual economic benefits. Even though Singapore is not part of the economic zone, the Governor of the Riau Islands, Ismeth Abdullah, commented that Singapore plays an important role in the BBK SEZ. All of Batam has been declared a free trade zone while certain enclaves in Bintan and Karimun will enjoy the special status for seventy years. Import taxes, customs and excise duties, value-added tax and luxury goods sales taxes will all be abolished. Under the latest plan, Batam will concentrate on developing the shipyard, electronics and mechatronics industries. Bintan, with its 4,063square-kilometres industrial zone, will focus on textile products, footwear and tourism. Karimun, covering an area of 8,000 square kilometres, is wellknown for its deepsea port. This will be suitable to focus on the shipyard, metal, components, agriculture and fishing industries. Table 6.3 shows the breakdown of total area for each of the three cities within the BBK. Prior to the setting up of the BBK SEZ, foreign investors have already been investing in the region. By December 2006, approximately 900 foreign companies had established operations in Batam, with direct investments totaling US$719 million. Table 6.4 shows the total number of foreign and domestic companies taken as a snapshot in the BBK at the end of 2006. Singapore is the largest investor, with 279 companies in operation in the BBK and direct investments of US$453 million in total. However, since the development of the BBK SEZ less than two years ago, the level of investments in the area has been exceptional. The BBK SEZ is expected to

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Table 6.3 Total Area of Riau Islands Province Regency/City Batam Bintan Karimun Others Total Area of Riau Islands Province

Land (sq km)

Sea (sq km)

Total (sq km)

715.00 1,946.00 1,524.00 5,460.16

855.00 57,905.00 6,460.00 177,161.54

1,570.00 59,851.00 7,984.00 182,621.70

9,645.16

242,381.54

252,026.70

Note: Others include Natuna, Lingga and Tanjungpinang Source: Regional Planning & Development Board of Riau Islands Province

Table 6.4 Total Foreign and Domestic Companies in Riau Islands Province, 2006 Region Riau Islands Province Batam Bintan Karimun

Foreign Companies

Domestic Companies

Total

1,011 894 62 21

212 145 41 6

1,223 1,039 103 27

Source: Riau Islands Investment Coordinating Board and Regional Investment & Promotion Board

attract US$15 billion in investments within four to five years. In total, the SEZ has already raked in approximately US$10 billion in investments in the past two years. Also, the investments in the Riau Islands are expected to generate 100,000 new jobs. Singapore as a Growth Pole for BBK Singapore plays a crucial role in the development of the BBK SEZ in promoting the three cities overseas and providing them with the necessary training to provide better service. Singapore’s competitive advantage lies in its experience in attracting foreign investors, city planning and maintaining a corruption-free and efficient administration. These will come in handy in designing a training programme for the SEZ’s administrators. In return,

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Singapore and other foreign investors can enjoy investment opportunities that reap high profit margins due to the lower manufacturing costs and low taxes. This role is re-emphasized by Singapore’s Prime Minister Lee Hsien Loong: Singapore will have three main roles in this collaboration. Firstly advisory — because we are close to the investors, we know what they want, we know what their problems are. We will communicate these requirements to Indonesia, and suggest ways how Indonesia can change its rules to be more investor friendly. And we can draw on our experience with other SEZs in Suzhou, Vietnam.

Singapore will also help with investment outreach, using the Economic Development Board’s network to match potential investors to Batam and Johor and even help train workers. Table 6.5 shows the different roles that Singapore plays in the various industries with respect to the Johor and Riau regions. As discussed earlier, it is sometimes difficult to separate the BBK region with the bigger Indonesia-Malaysia-Singapore Growth Triangle. Debrah et al. (2000) demonstrates the key roles that each of the three countries play in the synergistic relationship in Figure 6.3 below. Singapore provides the capital, access to world markets, and advanced technology and infrastructure while Malaysia supplies the raw materials and mid-level technology. Indonesia has an abundance of cheap resources such as undeveloped land and unskilled labour which reduces cost of operations. Each of the three countries complements one another and thus a beneficial relationship can be formed to achieve a win-win situation for each country. With the push for the establishment of more FTAs, Singapore makes it a point to include the Integrated Outsourcing Initiative (ISI) clause into its FTAs to benefit these SEZs. This ISI clause is included in the U.S.-Singapore FTA which came into effect in January 2004. This clause recognizes the fact that many of Singapore’s products have components that are outsourced to the neighbouring regions. By including the ISI into the FTA, 266 types of IT and medical related products produced in off-shore production bases such as Batam, can be treated as originated from Singapore. Hence, these products are eligible for tariff free importation into the United States. This will make products manufactured in BBK more competitive and undoubtedly benefits the BBK SEZ. It also helps Singapore because the tariff free imports now make Singapore’s exports more competitive in the United States. FTAs

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Refining/petrochemical processing, trading, storage and distribution Full range of ship-building, repair, and maintenance activities World-class information technology infrastructure and wide range of business service; operational headquarters of many large MNCs Excellent telecommunication/Transportation facilities and logistics management services Large pool of R&D scientists and engineers; R&D manpower training facilities & supporting infrastructure Excellent air travel gateway for tourists; emerging regional sea-cruise centre; cosmopolitan shopping centre; multicultural city Food processing technology and biotechnology R&D capability

Oil

Maritime Services

Telecommunications and Distribution

Logistics and Distribution

Research and Development

Tourism

Agribusiness

Source: Compilation from EDB (2008), BIDA (2007) and USFCS (2008).

Major regional base for manufacturing; major international procurement office

Singapore

Electronics

Business or Activity

Johor/Riau

Abundant land resources for agriculture and animal husbandry

Abundant leisure resources such as beach resorts, golf courses, etc.; cultural diversity

MNC products requiring applied R&D and design for local market adaptations; MNC operations requiring process improvement R&D

Wide range of export manufactures requiring transportation and logistics management support

Many manufacturing, marketing, marketing, procurement and technical support activities by MNCs requiring coordination

Johor and Riau Islands (for example, Singkep) offer sites for shipbuilding/repair

Riau Islands (for example, Karimun Island) offers environmentally isolated space for oil storage

Lower labour/land costs for labour/land-intensive assembly operations

Table 6.5 Business Activities & Opportunities in the IMS-GT 110

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Figure 6.3 The Triangle of Complementarily in IMS-GT

Singapore -capital -skilled labour -advanced technology -access to world markets -advanced physical infrastructure -advanced commercial infrastructure

Indonesia -unskilled labour -basic technology -natural resources -undeveloped land

Growth Triangle

Malaysia -land -natural resources -semi-skilled labour -intermediate technology -basic infrastructure

Source: Adapted from Debrah et al. (2000)

have helped Singapore remain competitive in a time when countries such as China and India are vying for foreign investments. Business Prospects in the BBK Region Looking at the manufacturing industries, the BBK region can expect to continue attracting investments from Singapore because of its proximity and its relatively cheap labour. The competitive business environment in Bintan and Batam has entrenched global players in a variety of industries, with prominent companies such as Philips, Thomson, Siemens and Seagate benefiting from the Singapore-BBK cooperation. The foreign companies in the BBK region come from industries as diverse as precision engineering, plastic moulding, chemicals and garment fabrication. These players will aid in attracting other related industries to move to the BBK region, forming industry clusters. In time to come, higher value-added jobs will be shifted to the BBK region when labour costs increase in other countries. In fact, Coordinating Minister for Economic Affairs, Mr Boediono claims that

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the BBK region is currently focusing on textiles and electronics because of an agreement with Singapore. In the future, the BBK region is expected to open to all industries. The impact of this statement will be discussed further in the next section. In addition, once firms are satisfied with the quality of the workforce and the level of bureaucracy in the government, more firms will be tempted to invest in the region to take advantage of the cheap, plentiful supply of resources. The outlook for the BBK region looks good and investments are expected to continue flowing into the region at least for the next few years. This bodes well for the Riau Islands in hitting their US$15 billion target for the next five years. In terms of infrastructure, industrial facilities at the Riau Islands are conducive to manufacturing. There are modern amenities and selfsufficient services, including utilities (water and electricity), waste disposal and telecommunications. Systems are also in place to ensure that there is minimal disruption to services essential for business operations. However, Boediono also revealed that Indonesia needs foreign and domestic investment for upgrading infrastructure, estimated at US$150 billion in the next five years. Currently, the government has set aside a sum of S$343 million (about US$240 million) to develop infrastructure and these funds are meant to further entice foreign investors from setting up operations in the country. In particular, Mr Wiluan of PT Citra Tubindo (a leading Indonesian company in the oil and gas industry) expects the Riau islands to complement Singapore and Johor’s Iskandar Economic Zone to turn the region into an oil and gas hub. Indonesia has large untapped reserves of oil and gas and would need about US$10 billion of investments to extract these valuable resources. However, since most of these infrastructure investments involve huge amounts of financial resources and long term commitment, stability of the Indonesian government as well as consistency of business regulations will be essential before foreign investors embark on these investments. A new area of cooperation in the future can be in the tourist industry. The Chinese Ambassador to Indonesia, Lan Lijun has urged the Riau provincial administration to capitalize on its regional proximity by inviting Chinese tourists to visit Singapore and call at Batam and Bintan. These could come in the form of group discounts to lure tourists to visit the BBK while visiting Singapore. With the development of the integrated resorts and various international sporting events in Singapore such as Formula One racing and Youth Olympics, Singapore will also stand to gain as more tourists will visit Singapore at the same time. This synergy will create a win-win situation for both the Riau Islands and for Singapore.

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However, the BBK SEZ is not without its problems. Labour regulations have caused several companies to pull out altogether from the SEZ. Lack of clear regulations, corruption, bureaucracy and the poor business climate in Batam and Bintan have also caused companies many unnecessary headaches. Unlike Malaysia where the prime minister enjoys the full support of the parliament, the president in Indonesia may not receive the same level of support from the House of Representatives. To make matters worse, there are sometimes conflicts between the federal government and the provincial regulators. For example, it took the administration more than a year to decide on the legal structure for the SEZ. These problems can deter companies from investing in the region and are therefore important to be sorted out sooner rather than later. In addition, labour unions are not cooperative and are difficult to work with. They have been raising the minimum wage levels so much that labour costs are now significantly more expensive than countries such as Vietnam and Thailand. This increases operating costs and the BBK lose a critical competitive advantage if this trend is not reversed. Therefore, for the BBK to continue to succeed, governments in the region must not be complacent and they should constantly find new ways of improving the business environment to attract new investors. They should also continue to find alternatives to keep business costs down. Finally, Singapore and Indonesia have both agreed that the BBK SEZ is a pilot project and its success will see the creation of up to eleven more SEZs within the country. Barring the possible corruption and bureaucracy issues, the outlook for the SEZ looks promising and it is plausible to expect that more SEZs will be in the pipelines in time to come. INTER-REGIONAL COMPARISON Table 6.6 shows a comparison between the cities with the largest GDP within each SEZ. Batam and Guangzhou are chosen for the BBK and PRD respectively. As shown, Guangzhou’s GDP is more than forty times the size of Batam’s economy and GDP per capita in Guangzhou is also about five times larger. This clearly indicates that the BBK SEZ has a long way to go in catching up with the PRD development. It is interesting to note that despite the gulf in GDP per capita, the minimum wage is almost similar at US$96 for Batam and US$98 for Guangzhou. There is perhaps some basis when foreign companies in Batam complain that the minimum wage is high for a newly developing region. The FDI to GDP ratio is much higher for Batam as compared to Guangzhou. This shows that

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Table 6.6 Comparison of Key Statistics between Batam and Guangzhou

GDP (mil US$) GDP per capita (US$) Population Minimum Wage (US$ per month) FDI (mil US$) Export (mil US$) Area (Sq km) Main Foreign investors

Main Industries

BATAM

GUANZHOU

1,919 2,688 713,960 96 446 5,160 415

79,860 10,508 7,600,000 98 2,457 32,377 7,434

Singapore, Japan, Malaysia

Hong Kong, Virgin Islands, Japan

Electronics, Audio-Video Eqpt, Oil Exploration Eqpt. Leather & Garment

Electronics, Petrochemical, Automobile, Iron and Steel

Source: Batam Investment Board; Guangzhou Statistical Yearbook.

Batam is very much more dependent on foreign investments for growth. This difference is possibly due to the short history of the BBK region. In time to come, when more domestic industries are set up in Batam, she is likely to require less FDI for the same level of output. Batam’s export to GDP ratio is also much larger than that of Guangzhou’s and this shows that Batam is more dependent on trade as compared to its Chinese counterpart. The main industries in each city show that Guangzhou is relatively more advanced in manufacturing higher value added products as compared to Batam. Table 6.7 shows where a breakdown of FDI contribution by country into each city. For Batam, the largest contributor to their FDI is Singapore, who makes up almost one-third of the total FDI. In contrast, Hong Kong makes up more than half of Guangzhou’s FDI. This is consistent with our earlier discussion that Singapore and Hong Kong are key growth poles in each region. In Guangzhou, the British Virgin Islands (BVI) can be seen as a proxy for investments by local Chinese companies because many Chinese companies are incorporated in the BVI for tax incentives. Having analysed each economic zone in detail in the earlier sections and discussed key inter-regional statistics, this final section compares the PRD with respect to the BBK and five main conclusions will be drawn

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Table 6.7 Top Contributors to FDI in Each Region Top 10 FDI Contributors by Country Batam Country Singapore Japan Malaysia Taiwan USA Korea British Virgin Islands England Ausralia Hong Kong

%

Guangzhou

%

65.54 16.16 6.31 4.19 2.40 1.30 1.09 0.42 0.41 0.36

Country Hong Kong, China British Virgin Islands Japan Macau, China Samoa Taiwan, China Singapore United States of America Cayman Islands Mauritius

51.42 18.14 4.18 3.37 3.14 2.54 2.24 1.77 1.76 1.27

Source: Same as Table 6.6

from the differences between the two regions. The first relates to the evolution of the manufacturing industries while the second considers the political issues hampering the progress of the BBK SEZ. The third looks at the role of the government in the newly formed economic zones and the possible cooperation between the two regions is examined. Finally, there will be a discussion about the implications of these conclusions with respect to income inequality. Evolution of Manufacturing Industries In the greater PRD region, Hong Kong’s focus on the services industry coupled with the PRD’s improvements in infrastructure will see a gradual hollowing-out of manufacturing industries from Hong Kong. This will spell good news for the PRD Economic Zone because they will now take on the full responsibility of producing goods while Hong Kong can concentrate on trading this merchandise. This is likely to lead to the development of a full range of manufacturing industries in the PRD. In contrast, the BBK region is unlikely to see the development of high end manufacturing because manufacturing will still be one of Singapore’s key pillars of the economy and it will not be prepared to give up any of these key industries to the SEZ. This can clearly be seen from the initial

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agreement where the Riau islands are requested to not venture out of textiles and electronics in the initial phases. This demonstrates that Singapore is fiercely protective of its higher value-added manufacturing industries and these industries are still an integral part of Singapore’s economic policy. In this case, Singapore and the BBK region can continue to tap onto each other’s complementary advantages as long as each of them develops within their own boundaries. Whenever one party breaks the agreement, the result may not only lead to the breakdown of the cooperation, but also turn these partners into fierce competitors. This is a distinct possibility since the Riau islands have publicly announced that they will expand their operations to the entire range of industries in time to come. In order to prevent the conflict from arising, the administration from both parties must continue to communicate effectively to build trust in the relationship. Only then can both parties continue to benefit from the partnership. Institution and Governance In the greater PRD region, because all the entities involved are part of the same country, this makes coordination and problem solving much easier. Even though there are differences to the legal structures at the moment, these problems are expected to be solved over time when Hong Kong reverts to the Chinese legal system. On the other hand, Singapore faces many obstacles when working with both the BBK region and with Malaysia because these countries are suspicious over Singapore’s intensions and are worried that Singapore gets a better deal out of the agreement at their expense. As such, negotiations can sometimes take a long time and every time a new party or leader comes into power, the degree of cooperation may change accordingly. Also, culture, language, race and ideologies can potentially result in disagreements on how things should be done. In addition, different legal systems and tax laws can lead to complications and unnecessary inconveniences for the foreign investors. These differences are inherent and are difficult to eliminate. Thus, care must be taken at every level to ensure that negotiations are stated as clearly as possible and all potential conflict areas are pre-empted. Even then, both parties must be committed to finding a solution if they want to see progress in the cooperation. An over-reliance on laws and guidelines would make Singapore seem petty and inflexible, leading to suspicion and mistrust. It is thus important to strike a balance between formal agreements and unspoken rules. Each party must feel that they stand to gain from the partnership and that they are not exploited by the other party.

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Rivalry and Competition between Core and Periphery For the PRD region, even though they do not have problems with international relations, there could be potential politicking among the various economic zones within the same country. Shanghai and the Pudong region in the Yangtze Delta have a strong economic zone that has experienced a high level of growth over the last two decades. Due to the success of both the Pudong Economic Zone and the PRD, these regions could become competitive for resources and recognition if the central government does not manage expectations well. Both regions will be proud of their previous achievements and neither is expected to give in if a conflict arises. In addition, the types of industries each zone is engaged in could be overlapping in time to come. As a result, duplication of efforts may lead to either competition or inefficiencies. These potential problems must be dealt with as soon as they arise to prevent them from spiralling out of control. For the BKK region, this problem of internal competition is not as immediate because the SEZ is only in its infancy and other SEZ have yet to be developed. Indonesia has time to look at the PRD region to gain some lessons on how to manage these areas separately. However, Indonesia faces competition on an international level from countries such as Vietnam and Thailand. In order to be competitive, Indonesia must leverage of the expertise of Singapore and possibly Malaysia because they do not have the necessary experience or know-how to develop on their own as yet. Therefore, as mentioned earlier, it is perhaps wise on their part not to compete directly with Singapore or Malaysia on industries that the latter countries are entrenched in or this may indirectly hurt the level of cooperation in the region. Role of Growth Poles Hong Kong has always shown a more laissez faire approach in dealing with the economy. In the case of the PRD, the level of government intervention is much less compared to the BBK region. Many private companies in Hong Kong spontaneously partner other firms in the PRD region to take advantage of the lower cost of operations. This is especially so since the relaxation of investment guidelines as discussed earlier. In contrast, many private firms in Singapore are less commercially driven as their Hong Kong counterparts in actively investing in the BBK region. In Singapore, the role of the government is very strong, and the Economic Development Board (EDB) of Singapore uses a structured

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decanting approach to determine which industries should or should not invest in the SEZ. Apart from the generally more interventionist role of the Singapore government, this could also be because the cooperation with the BBK administration is far from being seamless. Thus, cooperation in the BBK cannot just rely on the functioning of the market. A stronger hand is needed to cajole the private firms into action. Looking ahead, there is little evidence to suggest that the role of the government will change drastically. Hong Kong and the PRD are moving in the correct direction and any strong government influence might end up being counter-productive. Comparatively, Singapore cannot afford to rely on market forces alone because there is more at stake than just the future of the local firms. Due to its small size, any loss of strategic industries will mean the loss of competitiveness of the Singaporean economy and this could be detrimental in light of the stiff competition in the region. For the BBK region, appropriate government intervention is crucial because the success of the BBK will have an impact on the development of future SEZs in the country. The BBK region is still very much in its infancy and requires a great deal of supervision from the local and federal administration to ensure that it is moving along in the ideal direction. Areas of Cooperation In 2004, then Deputy Prime Minister Lee Hsien Loong used the PRD as a benchmark to compare the potential of cooperation between Singapore and the Riau islands. In his press conference, he appeared to view the PRD as a competitor more than an ally. Indeed, since the formation of the BBK, there have been few Chinese companies investing in the BBK and cooperation between the two regions is virtually non-existent. This is probably because the factor endowments of the BBK are similar to the PRD and its periphery. As such, there are few complements that the two regions can tap onto. However, with the large amounts of oil and gas reserves available in Indonesia, Chinese companies could be keen to explore cooperation opportunities due to the PRC’s immense appetite for energy needs. With the huge amounts of financial capital in its disposal, PRC state institutions are the ideal candidates for investing in the infrastructure necessary to harness these reserves. Another area of possible cooperation is the tourism industry. The growth of the Chinese middle class has created a boom for tourism in China. Singapore, Malaysia, the BBK and future SEZ in Indonesia can tap onto

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this group of tourists by organizing group packages to all these locations. With Singapore and Malaysia being popular tourist destinations, the Riau islands can tap onto the opportunity to offer tourists a different experience to its ASEAN counterparts. Social Impact of Regional Development Thus far, we have discussed some of the differences between the PRD and the BBK region. Our earlier analysis also showed the possible developments for the two regions for the next few years. While economic development and growth are important to any country, the distribution of the benefits is also an important social consideration. Thus, a national extension will be to discuss the possible income inequality repercussions of the various arguments brought up earlier. In the PRD region, with Hong Kong pulling out entirely from manufacturing, the region can now focus on both low-end and high valueadded jobs. Since the amount of value add is different, the wage rate is also expected to differ significantly between jobs in different industries. As such, there will be greater income inequality across industries. This inequality situation will be made worse as trade in the PRD region is set to increase. Also, as the government is not expected to interfere much, there will be minimal measures by the government to redistribute wealth to the poorer workers. Finally, cooperation with other economic zones might lead to the loss of jobs especially for the lower skilled workers and create even more inequality problems. In contrast, the BBK region will continue to focus on the textile and electronic industries for some time. Unlike the PRD region, the BBK SEZ only focuses on a few industries resulting in a lower wage differential across sectors. However, there will be a growing difference between the wage rates when comparing workers in the BBK region to workers overseas. In addition, the labour unions and the government play an active role in the BBK region. As a result, more efforts will be made to ensure that income is equitable among Indonesians across industries. Finally, as Indonesia suffers from a lack of demand for its labour force, the increase in cooperation between BBK and other economic zones could potentially reduce the income inequality for the BBK region. This is because the BBK region is involved in low to medium value-added industries. By partnering other economic zones, lower-ended jobs may be outsourced from these industries to the BBK region, thus increasing the demand for its workers and creating more employment. This benefits the lower-skilled workers and minimizes the

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income gap between the BBK regions. Once the other SEZs in Indonesia are set up in the future, the effects of the increase in labour demand may help to reduce income inequality across geographical regions. CONCLUSION This chapter has given a detailed description of the PRD and the BBK region from its history to the possible future opportunities. Five distinct differences between the two areas are highlighted and analysed. The analysis looked at the possible evolution of the manufacturing industries in each area; the future development of the areas as well as the likely conflicts due to sovereignty differences and competition; differences in the role of government; possible areas of cooperation between the two regions; and ended off by determining how the development influences income distribution. The PRD region is expected to remain a major growth region while the BBK region requires strong governmental influence to succeed. Cooperation in oil and gas and tourism has been recommended as there are potential synergies to be reaped. Finally, it is believed that income inequality within the BBK will remain under control while the distribution of wealth in the PRD region should be monitored closely by the local and central administration. Little has been mentioned about Malaysia. Indeed in 2006, Malaysia has launched the Iskandar Development Region (IDR), which is just about an hour’s drive from Singapore. The IDR covers 2,216.3 square kilometres of land area within the southern-most part of Johor. The development region encompasses an area about three times the size of Singapore and covers the entire district of Johor Bahru. The two main economic growth sectors in IDR is currently are manufacturing and services. The key sectors in the manufacturing sector that drives the IDR economy are electrical and electronic (E&E), chemical and chemical products (petrochemical, plastics, oleo chemicals) and food processing sub-sectors. They contribute 60 per cent of the total value-added in manufacturing. These key sectors lead to the emergence of supporting or induced sectors such as retail, wholesale, hotels, restaurants and finance. In manufacturing, the induced sectors include fabricated metal products, non-metallic products and transportation equipment. The set-up of the IDR seems to indicate a convergence of view on regional development strategies in Malaysia and Indonesia. Both countries have embraced the need to establish SEZs to further attract investment and stimulate economic growth. As much as BBK needs to learn from the experience of PRD, the same can be said of IDR.

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NOTES 1.

Initially, the regional economic zone has popularly known as SIJORI Growth Triangle. As the geographical coverage expanded, it was renamed as IndonesiaMalaysia-Singapore Growth Triangle (IMS-GT). The acronym BBK stands for Batam, Bintan, Karimum. They are the three Indonesian islands in the IMS-GT which have most vibrant economic activities and government effort to develop as a special economic zone (SEZ).

2.

For more detail discussion on growth poles and economic planning, see Parr (1999).

3.

Further discussion in the development and competitiveness of the IMS-GT can be found in Abonyi (1994), AIESEC (1991), Yeoh et al. (1992), Lee (1991), Toh and Low (1993), and Toh (2005).

REFERENCES Abonyi, G. The Institutional Challenges of Growth Triangles in Southeast Asia. Singapore: The Centre for Advanced Studies, 1994. AIESEC. The Growth Triangle — Opportunities and Challenges. Singapore: AIESEC Singapore, 1991. BIDA. Investment Guidelines in Indonesia. Republic of Indonesia: Batam Industrial Development Authority, 2007. Debrah, Y.A., McGovern I., and Budhwar P. “Complementarity or Competition: The Development of Human Resources in Southeast Asian Growth Triangle: Indonesia, Malaysia and Singapore”. International Journal of Human Resource Management 11, no. 2 (2000): 314-35. EDB. “Guide to Investing in Singapore”. Economic Development Board, Singapore, 2008 . Enright, M.J., E.E. Scott, and K.-M. Chang. Regionl Powerhouse: The Greater Pearl River Delta and the Rise of China. Singapore: Saik Wah Press, 2005. Fujita, M., P.R. Krugman, and A.J. Venables. The spatial economy: Cities, Regions and International Trade. Cambridge: MIT Press, 1999. Hirschman A.O. “The Intermittent Connection between Political and Economic Progress”. Estudios Publicos, 56 (1994): 5-14. Hoover, E.M. The Location of Economic Activity. New York: McGraw Hill Book Company, 1944. Krugman, P.R. and A.J. Venables. “Globalization and the inequality of nations”. Quarterly Journal of Economics, 110 (1995): 857-80. Kwok, R.Y.-W., and A.Y. So. The Hong Kong-Guangdong Link: Partnership in Flux. New York, USA: M.E. Sharpe, 1995. Lee, T.Y. Growth Triangle: The Johor-Singapore-Riau Experience. Singapore: Institute of Southeast Asian Studies, 1991.

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Marshall, A. Principles of Economics. London: Macmillan Press, 1920. Myrdal, G. Economic Theory and Underdeveloped Regions. Essex: Gerald Duckworth, 1957. Parr, J.B. “Growth Pole Strategies in Regional Economic Planning: A Retrospective View”. Urban Studies 36, no. 7 (1999): 1195–1215. Perroux, F. “Economic Space: Theory and Applications”. Quarterly Journal of Economics 64, no. 1 (1950): 89-104. Toh, M.H. and L. Low. Regional Cooperation and Growth Triangles in ASEAN. Singapore: Times Academic Press, 1993. Toh, M.H. “Development in the Indonesia-Malaysia-Singapore Growth Triangle”. Asian Review, 18 (2005): 43–60. USFCS. Doing Business in Malaysia: A Country Guide to US Companies. United States of America: US Foreign Commercial Service, 2008. Yeoh, C., G.T. Lau, M. Goh, and J. Richardson. Strategic Business Opportunities in the Growth Triangle. Singapore: Longman Singapore Publishers, 1992.

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7

Shanghai and Yangtze River Delta: A Revolving Relationship Jun Zhang and Yong Fu

INTRODUCTION On 1 May 2008, the whole line of the 36-kilometre cross-sea bridge, spanning Hangzhou Bay, was opened to traffic. As the world’s longest cross-sea bridge to date, it has cut the land-route distance between Ningbo and Shanghai by more than 120 kilometre. It is estimated to produce over RMB2.2 billion worth of social benefit by reduced transportation cost, etc. On 11 April, the world’s largest long-span cable-stayed bridge, Sutong Yangtze River Highway Bridge officially passed the acceptance testing, and will be put to use soon. This 32.4-kilometre Sutong Bridge, connecting the cities of Nantong and Suzhou, would lead Nantong into Shanghai’s “onehour economic circle”. Moreover, with the rapid development of the projects of the seabed tunnel between Changxing Island and Chongming Island of Shanghai, and the Chongqi Great Bridge between Chongming Island and the city of Qidong in Jiangsu Province, the far end of Jiangsu Province where it stretches into the Yellow Sea will also have an unprecedented close relation with Shanghai.

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Meanwhile, the existing transportation lines are also being upgraded. With a speed of 200 kilometre per/hour, the Nanjing-Shanghai Intercity Express Railway, which is to be finished in three years, will allow people to travel from Nanjing to Shanghai in only nintety minutes. It is vividly called “a railway taxi”. The transportation blueprint of the Yangtze River Delta1 for the next two years is as follows: by 2010, a Shanghai-centred economic circle with a 300-kilometre radius consisting of sixteen cities from the Yangtze River delta, including cities like Suzhou, Nanjing, Hangzhou, Kunshan, Songjiang, etc., will be established. All connected by express highway, these sixteen cities will form a “three-hour city circle”, which would be a “Great Shanghai” with an area thirty-four times and population eight times of the current Shanghai. The enthusiasm to build large infrastructure projects reveals a shared wish of all the cities in the delta, which is to decrease the distance between Shanghai and themselves. Clearly they are competing vigorously with each other for this. To many, the leadership position of Shanghai has never been threatened. Taking the initiative to get close to Shanghai has always been a common understanding of other areas in the delta. This can be seen from a complaint in recent years about Shanghai, which is that Shanghai only cares about itself, and is not willing to take the responsibility of being a leader. It is even said that this has something to do with native Shanghai people’s personality. During his visit in Shanghai in 1991, Deng Xiaoping made the following remarks: The development of Pudong would have great impact. It is not just about Pudong. It is also a problem concerning the development of Shanghai and an opportunity to use Shanghai as a base to develop the Yangtze Delta and Yangtze valley. We should make great efforts to develop of Pudong, and never have second thoughts about it until it is done.

Not long ago, some media noticed that the first sentence of Deng’s explanation for the strategic meaning of the development of Pudong was left out of a public poster. Driving from Puxi to Pudong by way of the tunnel in East Yan’an Road, as soon as you get out of the tunnel, there is a board reading exactly: “We should make great efforts to develop Pudong, and never have second thoughts about it until it is done.” A reporter wrote: “Pudong only cares about its own growth. Shanghai is not really serving the Yangtze River Delta and serving the nation.”2 However, the Yangtze River Delta has not always followed the lead of Shanghai. Shanghai was an oblivious leader once. For a long time, even

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though Shanghai was indeed the most important economic centre of China, other regions in the Yangtze River Delta did not see it as a leader at least in a period of over a decade, which was especially obvious from 1980s to the mid-1990s. And during the long period of planned economy, there was not much division of labour between Shanghai, an industrial centre, and the Yangtze River Delta. In retrospect of the development of the relations between Shanghai and the Yangtze River Delta, it can be seen that the status of present-day Shanghai is a historical regression. Since its opening-up in 1843, Shanghai had been rising rapidly, becoming an economic, trade and financial centre of China and the Far East. Production factors flew into Shanghai. During the long period of planned economy, though the industrial position of Shanghai was enhanced, it did not have much interactive effect on the Yangtze River Delta. At the beginning of China’s reform and opening-up, Shanghai was burdened by the system and had lagged policies, which made it Shanghai a burden to the whole Yangtze River Delta, so that when the concept was mentioned again, many people in Jiangsu and Zhejiang had the following question in mind: “Who should be the one to be integrated?” After several decades’ development, the relationship between Shanghai and the Yangtze River Delta finally regressed to an organic kind. It was only in recent years that the situation of Shanghai’s leadership in the development of the delta developed on a large scale. Noting the power behind the relations between Shanghai and the Yangtze River Delta is important. As we know, China’s economy had a very serious segmentation problem. Young (2000) is very well-known in this respect. Studying the savings and investment correlation among China’s provinces and regions, Boyreau-Debray and Shang-Jin Wei (2004) found that capital mobility among China’s regions is even smaller than that among the OECD countries. Regional segmentation is also one of the biggest obstacles to the integration of the Yangtze River Delta. In October 2007, a delegation from Jiangsu Province attended a meeting about service outsourcing in New York, where enterprises from Nanjing, Changzhou, Suzhou, Wuxi, Nantong, etc., all tried to introduce their own locations, but in fact they all belong to Jiangsu Province. This confused many people, but it also reveals to us that although the Yangtze River Delta’s scale of economy and trade is very impressive, it has not formed a brand as a whole. The Silicon Valley which includes quite a number of medium-sized and small cities on the two sides of 101 Expressway in the south of San Francisco Bay, is a success in this respect.

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In view of this, some scholars (Hong Yinxing et al., 2003) lamented: Why do regions so rich in culture, so similar in resource endowments, so complementary in economic structure, and with so many close connections in history fall apart in economic development instead of getting integrated? We cannot help asking: European countries with independent sovereignties can still give up sovereignty in certain important economic areas to an international institution, organizing and publishing a single European currency. Why can’t there be an integrated harmonious development within a certain economic region of a single nation? How long will or can this situation of fragmented regional economic development last?

For a long time, the important mission of the Yangtze River Delta integration was put on Shanghai. But the task of changing China’s fragmented economic and administrative status quo is not what just one place can accomplish, unless Shanghai can provide benefits big enough for other areas in the Yangtze River Delta. In the development of the relations between Shanghai and the Yangtze River Delta, the cooperative surplus has to come mainly from the pushing of the central government and better development of Shanghai itself. This chapter will analyse the development of the relations between Shanghai and the Yangtze River Delta, so as to provide a historical perspective for the changes that are currently taken place in the delta. Between the lines, we will try to figure out how this process is made possible and to show the role that government, especially the central government as well as the market force, has been playing in China’s economic development. HISTORICAL DEVELOPMENT OF THE RELATIONSHIP: 1843–78 1843–49: From “a Little Bother” to “a Big Brother” The historical development between Shanghai and the Yangtze River Delta does not date back very far. When the Opium War broke out in 1840, Shanghai (county) was a county of Songjiang Prefecture, Jiangsu Province. Today, Shanghai municipality still includes only Songjiang and the majority of Taicang division. Compared with other cities in the Yangtze River Delta, Shanghai was medium-sized. In the delta area, there were three places — Nanjing, Jiangsu, and Hangzhou — which were where a government of a province is located. The prefecture capitals like Hangzhou, Jiaxing, Huzhou,

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Suzhou, Songjiang, Changzhou, etc., were also well-known nationally for their prosperity. Whether from the perspective of hierarchical level or from the degree of development, Shanghai could never be compared with them. The potential of Shanghai as a port was developed to some degree by the Westerners. According to the Nanjing (Jiangning) Treaty between China and Britain, Shanghai was opened as a port in 1843. From then on, the political status of Shanghai began to grow. The local officials in Shanghai became diplomatic delegates for the Qing Dynasty to deal with countries like Britain and French. At the end of the Qing Dynasty, Shanghai had already become a second political centre of China. Delegates from the North and South after the Xinhai Revolution reached an agreement within the British concession. Even the “Abdication Rescript” of the Qing emperor was drafted in Shanghai. As the entry point of international capitalism, the economic status of this region was promoted further. It became the birthplace of China’s modern industry, especially the light textile industry. And Shanghai became the largest industrial and international financial and trade centre. In 1927, not long after the victory of the Northern Expedition War, the Nanjing government made Shanghai a special city. Three years later, the municipality of Shanghai came into being. At this time, Shanghai had become an international metropolis which was number one in China and also ranked high in Asia. The special position of Shanghai was also revealed by the concessions which existed from its opening-up as a port to 1942. From Tai Ping Tian Guo, wars among warlords, the Northern Expedition War, to the Anti-Japanese War, the two provinces of Jiangsu and Zhejiang suffered a lot, and the Yangtze River Delta became unrecognizable. However, those concessions in Shanghai never went through any damage. When the Anti-Japanese War broke out, they stood “neutral”. It was not until 1942 when the Pacific War took place was it occupied by Japan. In a century’s time, whenever there was war, there would be a lot of refugees flocking into Shanghai, bringing to it much wealth, talent, and labour force. Many of them settled in Shanghai from then on. Many landlords from Jiangsu and Zhejiang therefore became investors in Shanghai. Even at peacetime, the Yangtze River Delta was also a major contributor to Shanghai’s population growth. In 1843, there were only over 500,000 residents in Shanghai, but by 1949 when it was liberated, the number had reached nearly six million, with a majority of immigrants or their offspring. Jiangsu and Zhejiang were always major sources of immigrants to Shanghai, with a majority of the immigrants from the Yangtze River Delta. This not only greatly increased Shanghai’s population within a short period, but also

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provided Shanghai with immigrants of a much higher quality, compared with other cities of China. This is because the Yangtze River Delta had always been one of China’s most developed economic and cultural regions for the last millennium. In addition, with the highest population density in the country, the commodity economy in the Yangtze River Delta had already become quite developed, with its trade, handicraft industry and service industry all quite prosperous as well. So it was much easier for immigrants from the delta to get used to the life of Shanghai and to finally become a part of this metropolis. Shanghai’s rise changed the Yangtze River Delta, and even the whole nation’s economic situation. Before its opening-up, Shanghai was just the entrepôt of the Yangtze River, whose job was no more than transmitting some commodities and materials to the coastal ports. The only legal port for foreign trade in China was Guangzhou. But as foreign trade grew, Shanghai soon overtook Guangzhou as China’s number one port of foreign trade. In 1843, only ten years after its opening-up, Shanghai already had the same foreign trade value as Guangzhou. By the end of the 1860s, Guangzhou’s import value had declined to be only one-ninth that of Shanghai. Most of China’s main exports such as tung oil and bristle were transported to Shanghai, where they would be exported collectively. On the one hand, the development of foreign trade made Shanghai a distributing centre for exports in the Yangtze River Delta, and stimulated the local economy. On the other hand, it also let Shanghai take the place of the Yangtze River Delta’s role in the fields of commerce and foreign trade. For example, the region of Hang Jia Hu in Zhejiang Province was always an important base for raw silk export, but after the Tai Ping Tian Guo War, export was already diverted to Shanghai. At the same time, while traditional commercial cities like Suzhou, Hangzhou, Huzhou, Yangzhou, etc., and lots of towns declined gradually, Wuxi, became a prosperous “Little Shanghai”. Newly developed industries and commerce, such as the textile, commodity production, general merchandise industries, etc., took the place of the traditional handcraft workshops, family businesses and merchants in the old times. This drove even more pedlars, craftsmen and employees into bankruptcy, forcing them to migrate to Shanghai and become a new source of labour force there. In conclusion, there are two aspects worth noting on the relations between Shanghai and the Yangtze River Delta before 1949. At first, the rapid growth of Shanghai benefited from the long-time accumulation of the prosperous economy of Jiangsu and Zhejiang, which is to say that in the

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early stages, it was Shanghai that was influenced and integrated by Jiangsu and Zhejiang, not the opposite. Then, as Shanghai rose, the role of Jiangsu and Zhejiang was changed from a leader into a follower. While breaking the work division in the Yangtze River Delta, Shanghai also injected a new impetus for the development of this region. 1949–78: “Centre” on an Isolated Island The advantageous position of Shanghai in the Yangtze River Delta continued and was even enhanced after 1949. After liberation, Shanghai was where the East China Military and Political Committee, East China District and East China Bureau of the Communist Party of China and the central government were located. The whole area of the Yangtze River Delta was under the control of Shanghai. As a municipality directly controlled by the central government, Shanghai, Jiangsu and Zhejiang were on the same level of ranking, but usually, the secretary of Shanghai was also the first secretary of East China Bureau, or undertook an important position in the central government. For example, from 1955 to 1965, Ke Qingshi, first secretary and mayor of Shanghai, was also a commissioner in the Political Bureau of the CPC Central Committee, first secretary of East China Bureau, first commissar of Nanjing Military District, vice premier of the State Department, which was not only unique in the Yangtze River Delta, but also in the whole of eastern China. Though Shanghai continued to play an important role, its powerful government and the planned economy made Shanghai a self-sufficient economy, thus reducing the economic and social connection between Shanghai and the Yangtze River Delta. In 1958, one of the richest special administrative areas of southern Jiangsu Province, Songjiang Special Administrative Area, which previously belonged to Jiangsu, became a part of Shanghai municipality, increasing the area of Shanghai by over 6,000 square kilometres, which included China’s third largest island, Chongming Island. This change was to make Shanghai a larger suburb, like that of Beijing, so that it could provide most of the vegetables, oil, meat and part of the grains it needed by itself. For the same reason, to make fish available to Shanghai, Chengsi Island, formerly a part of Zhejiang Province was also given to Shanghai. To ensure the supply of industrial raw materials, the “enclave” Shanghai received even stretched outside of the Yangtze River Delta. The Meishan iron ore mine at Nanjing suburb, the coal mine of Jiangsu, etc., all belonged to Shanghai. To facilitate the reform of criminals

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in Shanghai through labour, labour farms were established in Dafeng of Jiangsu Province, Baimaoling and Juntianhu of Anhui Province, etc. In the 1970s when Shanghai was building the Jinshan Petrochemical Plant, a port was set up at Chenshan in Zhejiang Province. The re-allocation of the resources and factors in the Yangtze River Delta certainly enhanced the unique status of Shanghai. But these seemingly Shanghai-centred changes also reduced the degree of dependence between Shanghai and the Yangtze River Delta. To the delta, Shanghai to a large extent was just a taker. While various resources poured into Shanghai almost for free under the planned economy, Shanghai did not do much for the economic development of other areas in the Yangtze River Delta. As the planned economy continued, the enhancement of administrative districts and the inhibition of free movement among cities and between cities and the countryside rendered the relations between Shanghai and the Yangtze River Delta into a new period, which was completely different from before. During the period of the planned economy, the Yangtze River Delta received extra attention, but the role that the central government’s instructions played in resource allocation was also comparatively significant. Though still the largest economic centre of China, Shanghai lost its role as an international financial and trading centre, and was reduced to a national industrial centre (a manufacturing centre), with the proportion of the secondary industry too high (in most of the years, it is above 70 per cent). Meanwhile, the degree of industrialization of the whole Yangtze River Delta was above the national average by 10–15 per cent for a long period. As a manufacturing base, the Yangtze River Delta, especially Shanghai, provided light industrial products such as detergents, clothes, bicycles, watches and so on to the whole nation. The proportion of the publicly owned economy was very high in the delta, reflecting the development of the planned economy. Take its main industry — the secondary industry — for example, after the short but rapid “socialization” in the late 1950s, private enterprises in the Yangtze River Delta almost disappeared. State-owned industries reached as high as about 90 per cent. During this period, if the various historical links between Shanghai and the Yangtze River Delta did not disappear completely, they must have largely entered into a period of hibernation. However, although there was not enough interaction between Shanghai and the Yangtze River Delta, the planned economy, which lasted for over twenty years, left Shanghai and the delta a very important economic legacy: a relatively complete industrial system, well-trained industrial workers, lots of talented people with knowledge

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of science and technology, etc., are especially worth mentioning. These are all advantages for further economic development of the Yangtze River Delta. What is really valuable was the early development of commune/production team enterprises in Jiangsu and Zhejiang, which provided experience, talent and capital for the rise of township enterprises during the twentieth century. As commune/production team enterprises grew in Jiangsu and Zhejiang, the proportion of collective ownership began to rise steadily from the early 1970s. By 1978, it had risen by 8 per cent. This is a phenomenon that deserves attention. Meanwhile, the proportion of non public-owned economy also started rising since 1975. However, there was no such change taking place in Shanghai, which anticipated a different period of relations between Shanghai and the Yangtze River Delta. YANGTZE RIVER DELTA IN THE 1980s: A DECADE WITHOUT A LEADER The Regional Industrialization of Jiangsu and Zhejiang Provinces in the 1980s The economic development of the Yangtze River Delta in 1980s was mainly an endogenous growth. With too many people and too little land (Shanghai and Zhejiang) or too high a proportion of collectivity (Jiangsu), the effect of the nationwide reform of the countryside (reform within the system) on the Yangtze River Delta was not so obvious as other regions. To avoid the reform risks, those elements within the system in big cities like Shanghai hesitated carrying out substantial measures; in contrast, township enterprises and private enterprises, which had already appeared in the 1970s, rose as a new force and became a major promoter of economic growth. In effect, in 1978 when the reform was just starting, there were more than 40,000 non state-owned industrial enterprises in the districts of Xiang and above of Yangtze River Delta, which counted for over 80 per cent of the total number of industrial enterprises. There were also quite a number of non state-owned commercial enterprises. Though all of them were organized as collective economies, they were non state-owned as far as property rights are concerned. The operation of these enterprises was influenced more by market force rather than plans. As for the emergent, family-based individual private economy, it should be definitely categorized as market economy. As policies loosened gradually, these elements outside the system developed rapidly. First it was commune/production team enterprises, then it was individual private

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enterprises in cities and the countryside. Eventually, they were generally called non state-owned economy “township enterprises”. The development of all these enterprises gave rise to a tide of marketization and industrialization in the Yangtze River Delta. By 1990, the ratio between non state-owned enterprises above a certain scale to the total output value rose to over 50 per cent in Jiangsu and Zhejiang. The ratio was even two-thirds in Zhejiang alone. If the innumerous village, group and individual enterprises under a certain level were counted, the development process would become even more magnificent. During the economic reform and development of the Yangtze River Delta in the 1980s, Jiangsu and Zhejiang developed their own growth model individually. These models were meant for the whole nation and had little to do with Shanghai. Because these two provinces had different starting points, they had different ways of growing. These differences were especially obvious between the areas of southern Jiangsu and its north and southeast (Wenzhou and Taizhou). Thus came about the contrast and debate of the “South Jiangsu Model” and “Wenzhou Model”. The “South Jiangsu Model” was brought forward by Fei Xiaotong in 1983. It refers mainly to the growth model in southern Jiangsu, where under the promotion of regional and community government, economic development was driven by collectively-owned enterprises consisting mainly of township enterprises. Southern Suzhou, including Suzhou, Wuxi, Changzhou, was one of the origins of modern China’s national industry. They had a historical and cultural tradition of engaging in market-oriented economic activities. This model prevailed in the 1980s in southern Jiangsu Province, whose major characteristic was that its farmers developed township enterprises on their own. Suzhou, Wuxi and Changzhou were the most typical regions with this model. The ownership structure was mainly composed of the collective economy. Government of villages and towns dominated the development of township enterprises. Table 7.1 indicates that the township enterprises of Jiangsu developed at an unprecedented speed in the later half of the 1980s, leading to a rapid increase in the number and scale of enterprises. By the 1990s, the number of township enterprises decreased, while the scale of enterprises expanded. “Wenzhou Model” was a model developed in Wenzhou of Zhejiang Province, which was a market-oriented regional economic growth model based on family-run firms. Low transportation cost and wide market scope were the advantages of these small enterprises.

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Table 7.1 Changes in the Number and Size of Township Enterprises in Jiangsu Province 1985

1987

1989

1990

1992

1995

1998

7.8

9.9

9.7

9.5

9.2

8.3

8.1

Average total industrial output value

45.4

61.7

101.1

115.2

300.3

625.4

916.9

Averaged net value of fixed assets

10.2

14.3

23.6

26.7

42.1

137.8

189.3

Total number (10,000)

Source: Shen and Wang (2000).

However, whether it was Zhejiang or Jiangsu, their development was not inspired or promoted by Shanghai at all, neither did it happen for the sake of Shanghai. “China’s Little Commodity City” in Yiwu of Zhejiang, “China’s Light Textile City” in Shaoxing of Zhejiang, “Oriental Silk City”, etc., were all second to none in similar markets of the country. These markets were mainly oriented for the internal market, and were extended all over the country. To them, Shanghai was no more special than other big cities. The Leader: Not Doing Very Well During the whole of the 1980s, the marketization of the Yangtze River Delta took place mainly in Jiangsu and Zhejiang provinces, which had much to do with a number of factors. For example, Shanghai had too many elements within the system; the financial burden of the central government was heavy; the process of opening-up was slow. In the 1980s, Shanghai did not receive any favourable opening-up policy as the Pearl River Delta, nor did any large-scale village, town, and individual enterprises come up like Jiangsu and Zhejiang provinces. So it could only do things within the traditional economic system. While market elements increased in Jiangsu and Zhejiang, Shanghai did not make any progress in this aspect. State ownership still dominated in the ownership structure. The “conservatism” of Shanghai had its special historical reason: it was China’s industrial centre and main source of fiscal revenue. The reform of the

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central government could only begin at the peripheral (such as Guangzhou and Fujian), which was a necessary premise to ensure a reform under a stable fiscal condition. Table 7.2 shows that in 1980s, non state-owned enterprises in Shanghai developed slowly. In 1985, its proportion declined from 56 per cent in 1980 to 41 per cent. As for output value, it declined from 33 per cent to 22 per cent. Both of these numbers were lower than that of 1978. During the same period, the number and output value of Jiangsu and Zhejiang were very stable, which were over 85 per cent and 60 per cent respectively. The development of non state-owned economy in Shanghai also lagged behind that of Guangdong Province. But thanks to Jiangsu and Zhejiang, the non state-owned economy in the whole Yangtze River Delta during this period was still ahead of that of the Pearl River Delta. The non state-owned economy in Shanghai did not really get onto the fast lane until the 1990s. In the 1980s, while the Pearl River Delta was making every effort to implement the reform and opening-up policy, Shanghai was experiencing the painful process of transition. During 1949–78, with about 1/1500 of land and 1/100 of population of the whole China, Shanghai contributed about one-sixth of the fiscal revenue and one-tenth of the industrial output value. In the 1980s, 80 per cent of Shanghai’s fiscal revenue was handed to the central government. So Shanghai had a strategic position and played a special role in the economy of China. As China did not have any example to follow in the aspect of opening-up to the outside world, nor did it have any experience in establishing economic special districts, the stability of Shanghai during the co-existing period of the old and new systems was especially important for the development of China as a whole. This was why Shanghai did not get as many favourable policies from the central government as Guangdong during the first ten years of reform and opening-up. It was in these ten years that Shanghai’s economy got “marginalized”. Constrained by policies and the system, Shanghai lost its convergence advantage in the Yangtze River Delta. The impact of the relative lag of Shanghai in the process of economic transition of the Yangtze River Delta was obvious. In 1978–91, the average annual growth rate of GDP of Shanghai was 7.43 per cent, far below the national average level of 9.04 per cent in the same period. The numbers for Jiangsu and Zhejiang in the same period were 10.82 per cent and 12.15 per cent respectively, both above the national average. But as the total GDP of Shanghai was relatively large, the rapid growth of Jiangsu and Zhejiang was not enough to

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58 83 85 76 74

Number

23 39 39 24 27

Output value

1978

56 85 88 83 77

Number 33 59 63 47 43

Output value

1980

41 89 92 87 79

Number 22 59 63 46 44

Output value

1985

66 89 86 84 87

Number 30 66 69 56 60

Output value

1990

77 88 88 86 84

Number

62 79 86 77 82

Output value

1995

93 90 93 92 89

Number

2000

87 87 92 89 91

Output value

Notes: (1) Only enterprises in villages (towns) and above are counted; (2) “Number” means the number of enterprises. “Output value” means total industrial output value (prices not adjusted). Source: Hong et al. (2003).

Shanghai Jiangsu Zhejiang Yangtze River Delta Guangdong

Region

Table 7.2 Development of Non State-owned Enterprises in the Yangtze River Delta, 1978–2000 (%)

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Table 7.3 Comparative Growth Rates of the Yangtze River Delta, 1978–2001 Year 1978–1991 1992–2001 1978–2001 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Yangtze River Delta

Shanghai

Jiangsu

Zhejiang

Pearl River Delta

National average

8.40 13.15 10.44 21.0 19.3 17.1 15.5 12.5 11.9 10.5 10.1 10.8 10.2

7.43 12.48 9.60 14.8 14.9 14.3 14.1 13.0 12.7 10.1 10.2 10.8 10.2

10.82 14.25 12.30 25.6 19.8 16.5 15.4 12.2 12.0 11.0 10.1 10.6 10.2

12.15 14.21 13.04 19.0 22.0 20.0 16.7 12.7 11.1 10.1 10.0 11.0 10.2

13.90 12.40 13.24 22.1 22.3 19.1 14.9 10.7 10.6 10.2 9.5 10.8 9.5

9.04 9.77 9.35 14.1 13.1 12.6 9.0 9.8 8.6 7.8 7.2 8.3 7.3

Source: Hong et al (2003).

set off the relative lag of Shanghai, so that the growth rate of the whole area of the Yangtze River Delta (8.4 per cent) was only a bit lower than the national average. It was even lower by 4.5 per cent compared to the Pearl River Delta, which had the highest growth rate. Thus the proportion of the GDP of the Yangtze River Delta decreased from 17.8 per cent to 16.5 per cent (see Table 7.3). Over ten years’ growth rate difference changed the GDP distribution of the Yangtze River Delta and the whole nation conspicuously. The long-held national “leader” status of Shanghai in the period of planned economy was soon overtaken by Jiangsu in 1979. It was also surpassed by Shangdong in 1981, Guangdong in 1982, and even Zhejiang in 1986. By the early 1990s, Shanghai was reduced to number ten. The proportion of GDP of Shanghai in the Yangtze River Delta decreased from 42.2 per cent in 1978 to 25 per cent in 1991. This was the first time that the position of Shanghai in the Yangtze River Delta was downgraded since its opening-up. Who is the One to be Integrated? As relative growth rates and economic strengths of Shanghai, Jiangsu and Zhejiang changed, Shanghai in effect had lost its power as the centre of the Yangtze River Delta. Though it tried to reunite the Yangtze River Delta

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around it, Shanghai did not have the strength to do so any more. As for the relations between Shanghai and the Yangtze River Delta in this period, it was not that the former had abandoned the latter, but the latter, with its growing strength, was trying to take off without Shanghai. The Yangtze River Delta integration action in the 1980s was unfruitful because of the downgraded position of Shanghai. In fact, in the early 1980s, the central government had already tried to integrate the Yangtze River Delta around Shanghai. On 22 December 1982, the State Department issued a notice, that it had decided to set up a cross-province and comprehensive Shanghai Economic Zone by breaking segmentation, regional blockage and industrial barriers. On 22 March the next year, an office for the economic zone was set up at the Bund, with over ten staff members. The then undersecretary of the Department of Electric Power, Wang Lin, was appointed the director. The scope of the Shanghai Economic Zone then was almost the same as its scope now: Shanghai was the centre. Around it, there were ten cities including, initially, Suzhou, Wuxi, Changzhou, Hangzhou, Jiaxing, Huzhou, Ningbo, etc. By 1986, it was expanded to include five provinces and one municipality. These were Shanghai, Jiangsu, Zhejiang, Anhui, Jiangxi, and Fujian. The chief executive of the Shanghai Economic Zone acted in turn, each with a tenure of half a year. The first chief executive was the mayor of Shanghai at that time, Wang Daohan. But under the “shortage economy“ in the 1980s, the economic development of Shanghai was stymied, making this idea hard to realize. By 1988, the initiative was abandoned. When the concept of a Shanghai Economic Zone was first raised, the governor of Jiangsu Province then, Gu Xiulian, questioned it. On the one hand, she admitted that establishing the Shanghai Economic Zone would be a reform of the administration system and administrative division’s economic management; on the other hand, she emphasized that as long as no fundamental reform took place in the management system of plans, finance, materials, prices, etc., the idea of an economic zone would be hard to realize. The right to plan was just a hollow power. Though the Shanghai Economic Zone had the authority to make plans for transportation, energy, foreign trade, technological renovation, and for the comprehensive treatment of the mouth of the Yangtze River, Huangpu River and Taihu Lake, different places had their own different interests. There were always controversies and friction, which made the Shanghai Economic Zone doomed. For five years, not even one concrete plan was implemented. By 1 June 1988 when it was discountinued, the expressway planning was not finished yet. Unwilling to give it up, Wang Daohan had no choice

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but to request the National Planning Committee to follow it up. The remarkable legacy left by the “Shanghai Economic Zone” experiment was “the system of joint meeting of mayors”, which later became the “economic coordination meeting of Yangtze River Delta cities” in 2004. The latter was attended by the mayors of sixteen cities in the Yangtze River Delta, and played a very important role. During the 1980s, another major policy concerning Shanghai was the approved delivery of the “Notice on the Outline of the Report of Shanghai’s Economic Development Strategy” by the State Council on 8 February 1985, aimed at transforming Shanghai into a great socialist modern metropolis, which was open, multi-functional, highly civilized, and had a reasonable industrial structure, advanced science and technologies. But again, this strategy was not carried out. Besides the difficulty of clearing the relations between Shanghai and Jiangsu and Zhejiang, the atmosphere in the Yangtze River Delta then was more akin to competition rather than cooperation. What people mainly discussed was about the “South Jiangsu Model” and “Wenzhou Model”, about which one of them was more sustainable, more representative, as if they could only be a substitution of each other. In short, people then seldom paid much attention to the integration of the whole Yangtze River Delta. FROM THE 1990S TO THE NEW CENTURY: INTEGRATION IS THE ONLY CHOICE In the relations between Shanghai and the Yangtze River Delta, the early 1990s was a turning point. The combination of many factors led China’s reform and opening-up into a new historical phase, from a stage of decentralization and exploration in the 1980s to a stage of comprehensive promotion in the 1990s. In the latter stage, Shanghai with Pudong came to spearhead the reform and opening-up. Shanghai gradually regained its dominance in the Yangtze River Delta. The Story of the Spring The development of Pudong became the turning point in the relationship between Shanghai and the central government, changing Shanghai’s disadvantage in the aspect of policy in the 1980s. From the later part of the 1980s onwards, the opening-up of Shanghai became part of the Deng Xiaoping’s strategic plan. Since 1988, Deng had spent a consecutive seven years’ spring festivals in Shanghai. Each year, he would discuss the

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development problem of Shanghai with major leaders of Shanghai. It was during this period that he made the important strategic decision of openingup Shanghai to the outside world. On 3 March 1990, when talking to leaders of the central government, Deng indicated that China needed to reinforce the reform and openingup process and maintain a robust economic growth rate. He said: “For example, the development of Shanghai is a big decision. Shanghai is our trump card. To activate Shanghai is a short cut.” This was soon translated into favourable policies given to Shanghai by the central government. On 18 April 1990, Premier of State Council Li Peng announced that the establishment of the Pudong Development District was another significant arrangement in the process of deepening reform and extending the scope of opening-up, which was not only of strategic importance to Shanghai, but also to the whole nation. The Communist Party of China, the central government, and the State Council agreed that Shanghai should speed up the development of the Pudong district, to implement the policies for the economic and technological development areas and some special economic zones. On 30 April, a department of the State Council and the government of Shanghai municipality held a press conference, announcing nine policies concerning the development and opening-up of the Pudong New District. The development of Pudong officially began. In 1991, Deng further indicated: “The opening-up of Shanghai is a little late, so we should do more about it. We should make great efforts in the development of Pudong, and never have second thoughts about it until it is done. I hope the Shanghai people would have a more liberated mind, more courage, and make faster progress.” Later, Deng’s “Speech When Visiting the South” received its first positive response in Shanghai. For Deng’s effort, the “Fourteenth Session” of the Communist Party of China issued a document clearly presenting the strategic position of Shanghai in the development of the Chinese economy, putting forward the positioning of Shanghai as “One Head, Three Centres”, which meant: Under the lead of the development and opening-up of Pudong, we should further open cities along the Yangtze River, and make Shanghai an international economic, financial and trading centre, leading to a new leap of the economy of the Yangtze River Delta and the whole drainage area of the river.

In the spring of 1994, Deng again said to the then municipal leaders Wu Bangguo and Huang Ju: “The 1990s is the last opportunity for Shanghai. Don’t lose it, and make some bold moves.” In the same year

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when Deng said this, major leaders of China such as Jiang Zemin, Hu Jintao, Zhu Rongji, etc., visited Shanghai. With these events, the Yangtze River Delta entered into the 1990s. Its economic growth model changed greatly since then. Shanghai’s reform and opening-up policy in the whole of the 1990s therefore had very good interactive relations with the central government, which was a privilege that no other areas enjoyed. From 1990 to 2002, Secretary General of the Communist Party of China and the central government, Jiang Zemin, visited Shanghai nineteen times. In 2000, the central government indicated further that China should make Shanghai a modern socialist international metropolis and international economic, financial, trade and shipping centre. Several important decisions not only changed the role of Shanghai in China’s reform and opening-up from a “backfielder” to a “vanguard”, but also repositioned Shanghai from the perspective of national development strategy. In terms of policy process, it can be seen that the development and opening-up of Pudong was from the top down, which was far different from the method of “crossing the river by groping for the support stones”, which was a practice from the bottom up that was Guangdong’s experience in its opening-up process in the 1980s. Shanghai was promoted directly by the central government through important strategic measures. A powerful local government (Shanghai municipality committee and government) also played an important role. The decision to develop and open Pudong by the central government in 1990 had a very profound meaning, the influence of which was no less than the special policies the central government gave to Guangdong and Fujian and the establishing of special economic areas in 1978. The rise of Shanghai and the Yangtze River Delta was the second wave in the opening-up and development of the Chinese economy, which was also the second stage in the construction of China’s market economy system. The development and opening-up model of Pudong was a turning point for the reconstruction of the relations between Shanghai and the Yangtze River Delta. This model featured the following characteristics: (1) it was started and promoted by the government, which made the development plans and relevant economic policies; (2) it developed mainly the finance and trade-centred tertiary industries and new high-tech industries; (3) combining the process of development and opening-up, it formed an assembling and distribution centre to facilitate cross-border and cross-region flow of production factors and products; (4) it aimed to establish an international and market-oriented growth centre with clustering

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effect. It was an export-oriented growth model, intended to bring along the development of the Yangtze River Delta and the whole economic belt along the river; and (5) it emphasized the cultivation of international market competitiveness and creativity of the region. These characteristics made clear the positioning of Pudong’s development, which was to make Shanghai an economic leader of the Yangtze River Delta and the whole drainage area of the river. As the development of Pudong proceeded, the factor market of Shanghai developed rapidly. On 29 November 1990, the same year when the development of Pudong was announced by the central government, the Shanghai Stock Exchange — the first stock exchange of China since the reform process began — was set up. From then on, the development of various factor markets in Shanghai speeded up gradually. The stock market, real estate market, wholesale spot and futures market for production materials, capital lending market, etc., rose within two to three years. Shanghai gradually became an economic, financial, and trade centre for capital assembling and distribution and got the attention of enterprises and investors at home and abroad. The Return of Leadership The rejuvenation of Shanghai’s economy and the transformation of Jiangsu and Zhejiang provinces raised the position of the Yangtze River Delta in the global economy. The internal growth rate differences within the Yangtze River Delta were reduced gradually. The growth rate had surpassed the Pearl River Delta comprehensively. From 1991 to 2001, the annual GDP growth rates of Shanghai, Jiangsu and Zhejiang were all above 10 per cent. Their GDP average growth rates were 12.48 per cent, 14.25 per cent, and 14.21 per cent respectively, which were all above the 12.4 per cent level of the Pearl River Delta. The growth rates of these three regions were also getting more stable. Moreover, they were even converging. The growth rates in 2001 were almost the same level (10.2 per cent), while that of the Pearl River Delta fluctuated more, with two years (1999 and 2001) even below 10 per cent. This was a sign of harmony among the Yangtze River Delta cities. Meanwhile, Jiangsu and Zhejiang both made much progress in their own way, extending the space for cooperation in the Yangtze River Delta. The difference between the two growth models of “South Jiangsu Model” and “Wenzhou Model” was also reduced gradually. The proportion of GDP of the Yangtze River Delta in the nation’s total GDP became higher and higher, which means its contribution to the

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Table 7.4 The Economic Statistics of Shanghai, Jiangsu and Zhejiang

Year

1978 1980 1985 1990 1995 2000

Total GDP (100 million yuan) 3,624 4,518 8,964 18,548 58,478 89,404

GDP of the Yangtze River Delta (100 million yuan) Shanghai

Jiangsu

Zhejiang

Total

273 312 467 756 2,463 4,551

249 320 652 1,417 5,155 8,528

124 180 428 898 3,525 6,036

646 812 1,547 3,071 11,143 19,115

Percentage (%) 17.83 17.97 17.26 16.56 19.06 21.38

Source: NBS, 2001, and various years.

national economic growth was also larger. In 1978, the GDP of the two provinces and one municipality in the Yangtze River Delta was RMB64.577 billion, which was 17.82 per cent of the nation’s total GDP. By 2000, with only 2.2 per cent of the country’s land area and 10.4 per cent of the total population, the delta created 21.4 per cent of the total GDP of the whole nation (see Table 7.4), which was 1.6 per cent higher. It also contributed 24.5 per cent of the total fiscal revenue and 28.5 per cent of the total value of imports and exports. Under these circumstances, Shanghai needed a larger hinterland, while Jiangsu and Zhejiang needed Shanghai as a leader. Since the 1990s, the economy of Shanghai had increased from below the national average growth rate to become a leader. Its position in the Chinese economy was enhanced. The development of Pudong also promoted the Shanghai-centred economic integration of the Yangtze River Delta. In the 1980s, there was no leader in the delta. Though Jiangsu and Zhejiang developed relatively fast, they did not think much of each other nor of Shanghai either. The development of Pudong ended this situation. Shanghai has begun to integrate southern Jiangsu and northern Zhejiang, thus gradually transforming the Yangtze River Delta into a “Greater Shanghai”. With Shanghai as the leader, and Jiangsu and Zhejiang as the hinterland, the work division and cooperation in the Yangtze River Delta in economic structure, market system, infrastructure and city planning are becoming a trend. The influence has been spreading to include the whole Yangtze River drainage area. In 2002, Shanghai attracted foreign investment of US$10 billion. Investment from other provinces also reached RMB50.6 billion, which was 84.6 per cent higher than that of 2001. Capital is flowing into Shanghai faster

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than ever. Its internal capital sources are Beijing (42.1 per cent), Zhejiang (18.5 per cent), Jiangsu (9.1 per cent). Among these, the proportion of capital in private enterprises is 42 per cent. Of course, the industrial capital of Shanghai is also expanding outward, but the monthly average was less than RMB100 million, mainly in labour-intensive and low-tech industries. These transfers are very important for the transition of Shanghai’s land resources. According to statistics, the annual direct investment from Zhejiang to Shanghai has been over RMB10 billion since 1999. The investment of enterprises from Zhejiang to Shanghai has not only helped the economic development of Shanghai, but also increased the demand for the products of Zhejiang, and extended its market. Shanghai Tries to Integrate the Yangtze River Delta Once More As for economic connection, there has always been interactive effects between the development of Shanghai and Jiangsu and Zhejiang. This relation was interrupted during the period of planned economy. Even after the reform and opening-up process, this interruption was not eliminated rapidly. It was under the background of regional competition that the two provinces and one municipality developed. Some of measures of blockage contradicted with the integration direction of the Yangtze River Delta. In the 1980s, for quite some time, Nanjing and Hangzhou were trying to compete with Shanghai for resources and status, which made it very hard to integrate them into one Shanghai Economic Zone. By the mid-1990s, the government of Jiangsu Province made some efforts to get along with Shanghai such as the construction of transportation infrastructure. But most of them were not done intentionally. The government of Zhejiang Province did not even take any measures on the construction of infrastructure as Jiangsu did. The rejuvenation of Shanghai has solved the contradictions within the Yangtze River Delta effectively. Having one municipality and two provinces with strong economies made the internal cooperation extremely difficult. During the period of Shanghai’s economic reform in the 1980s, relations between the two provinces and one municipality in the delta were more competitive. In terms of administrative ranking, Shanghai, Jiangsu and Zhejiang were equals. When the economic growth rate became higher in Jiangsu and Zhejiang provinces, it was clear that Shanghai would not be able to integrate the two economies. The failure of the Shanghai Economic Zone in the 1980s is a good example.

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The development and opening-up of Pudong in 1990 was a turning point for the relations between Shanghai and Jiangsu and Zhejiang. In 1990, the Governor of Jiangsu Province, Chen Huanyou, with a delegation visited Shanghai. He then asked the following question: “Shanghai is developing Pudong. What attitude should Jiangsu hold for the twentyfirst century?” He asked cadres and people to rethink their strengths and potentials, to rethink Jiangsu’s relation with Shanghai, to study the planning of Jiangsu again, emphasizing features like structural adjustment and export-oriented economy, to analyse Jiangsu’s economic policies again, and to enhance the vitality and vigour in the adaptation and openingup. The government of Zhejiang Province also held a plenary meeting, requesting the speeding up of the construction of the development districts and the building of the Shanghai-Hangzhou Expressway, and to strengthen the relation between the development districts of Zhejiang and Pudong development district of Shanghai. From the above mentioned, we can tell that the two provinces of Jiangsu and Zhejiang had contradictory thoughts on the economic integration with Shanghai. On the one hand, they hoped to benefit from the development and opening-up of Pudong; on the other hand, they worried about losing their own advantages during this process. Still, in the early 1990s, cities around Shanghai hesitated over the problem of whether to integrate with Shanghai. Scholars in some provinces even raised this question: “Who should be the one to be integrated?” Actually in the early 1990s, in Jiangsu and Zhejiang, only Suzhou and Jiaxing, which are located near Shanghai, had intended to get closer to Shanghai. Suzhou was the one that would get the most benefit from this. The economy of Suzhou has always had a close relation with Shanghai. The development of Suzhou’s township enterprises benefited from Shanghai to a large extent. In 1992, the Nanjing-Shanghai Expressway got started. The line from Suzhou to Shanghai was built first. When it was finished, local government of places like Kunshan set up offices in Shanghai, in order to know about the situation of foreign investment. They even tried to contact foreigners before Shanghai, thus some small-scale investment was taken away by Suzhou. As for the role of Shanghai, officials of Suzhou once pointed out: “The development of Suzhou wouldn’t be so fast without Shanghai.” Suzhou was the first benefactor from Shanghai. When making industrial planning, Suzhou followed the principle of operating differently from Shanghai and providing back-up services. The former secretary of Suzhou compared the development strategy of Suzhou

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to a “Bi Luo Chun” strategy, which means to accept the influence of the development and opening-up of Pudong, growing “Bi Luo Chun” under the shade of Shanghai’s “Big Tree”. In Suzhou, high-quality Bi Luo Chun tea always grows under trees of waxberry and lute, taking advantage of the aroma and tree shade. The local government positioned Suzhou as a base for manufacturing industry and related R&D centres. And to the government of Suzhou, the kind of work division and cooperation between Suzhou and Shanghai could have a broader scope and a higher level. In their opinion, headquarters of multinational companies could be in Shanghai. R&D centres could also be moved to Suzhou. The influence of Shanghai in this period was still limited. The economic strength of south Jiangsu was getting closer to Shanghai. The positioning of the capital of Jiangsu Province, Nanjing, which was 300 kilometres away from Shanghai was quite delicate. For historical reasons, Suzhou, Wuxi and Changzhou were closer to Shanghai in the aspects of language and customs. Suzhou and Wuxi both did a better job in the areas of GDP and foreign investment than Nanjing. They attracted two-thirds of investment in the whole province. They also depended more on Shanghai when it came to foreign economic relations and export, which reduced the position of Nanjing as the economic centre of the province. Under such circumstances, Nanjing extended its economic hinterland into places like Anhui in recent years, spreading to the east and west and constructing a Nanjing-centred “Yangtze River Economic Circle”. Like Jiangsu, relations between Zhejiang and Shanghai are also changing. In early 1990s, Zhejiang did not pay much attention to cooperation with Shanghai. It was Nongbo that was given an important position by the government of Zhejiang Province. When Shanghai was building an expressway by way of Fengze, it stretched over ten kilometres in Zhejiang Province. But Zhejiang did not try to connect with it. In fact, it constructed the expressway from Hangzhou to Ningbo first. The expressway from places like Jiaxing to Shanghai was delayed for five years. The openingup of the Jiaxing-Shanghai Expressway in 1997 enabled Jiaxing to attract more foreign investment than Hangzhou. Its economic growth rate also ranked the highest among fifteen cities of the Yangtze River Delta. As the influence of Shanghai grew, places like Jiaxing quickly adjusted their economic development strategy. Officials from Jiaxing once pointed out that Jiaxing was positioned as an important economic city, a new port city in southern Shanghai and a famous cultural city in the south of the Yangtze River. Jiaxing regarded

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the connection with Shanghai as its first priority in its five strategies. Now, Jiaxing has established long-term friendly cooperative relations with Shanghai Pudong New District, and they also reached friendly cooperative agreement in areas such as industry, agriculture, science and technology, tourism, city construction, talent exchange and the construction of a development district. About 16 per cent of Jiaxing’s agricultural products are sold to Shanghai, with its total value reaching as high as RMB2 billion annually. Over 1,300 firms and enterprises have established cooperative relations with Shanghai. There are more than 900 cooperative projects between them. It also has over RMB2.5 billion worth of industrial products sold to Shanghai. Shanghai has become an important port enabling Jiaxing’s products to enter the international market and also an important base for its investment attraction. The proportion of export through foreign trade companies in Shanghai takes up about one-third of Jiaxing’s total export. Huzhou also made similar strategic adjustment. A former secretary of Huzhou indicated: Huzhou should get itself into the Shanghai-centred Yangtze River Delta economic circle as soon as possible, to make it a supporting “industrial park” receiving industrial transfers from Shanghai, and also to become a “garden” to meet the demand for green and environmentally friendly agricultural products of Shanghai citizens, a ‘backyard’ with mountains and water for recreation and tourism.

One-tenth of Huzhou’s industrial products and one-fifth of its agricultural products are sold to Shanghai, while three-tenths of its tourists, three-tenths of its direct and indirect investment projects, four-fifths of its export are also from Shanghai. Secretary of Shaoxing Feng Shunqiao pointed out that to make Shaoxing a strong economic city, a famous cultural city, and a great tourism destination combining historical culture and modern civilization, connecting with Shanghai is the only choice. At the end of 2002, newly appointed Secretary of Zhejiang Province Xi Jinping visited cities around Hangzhou Bay including Jiaxing, Huzhou, Shaoxing, etc. He remarked: “Taking the initiative to connect with Shanghai, getting to know exactly our position in the Yangtze River Delta, and playing an active role in the economic integration and cooperative development in this area are our first priority now.” He clearly indicated to leaders of Jiaxing: “You belong to Zhejiang administratively, but economically you belong to Shanghai. So Jiaxing has to be integrated into Shanghai’s economic

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circle as soon as possible.” With this new idea in mind, the government of Zhejiang took action faster than Jiangsu. At the end of 2002, based on the development trend of economic integration in the Yangtze River Delta and its own actual conditions, Zhejiang put forward a development strategy of “taking the initiative to connect, getting integrated comprehensively, making the best use of advantages, and realizing a win-win result”, which means to actively take part in the economic cooperation and development in the Yangtze River Delta, bring into full play its location and industrial advantages, first-mover advantages in its system and second-mover advantages in its export-oriented economic development, to realize connected markets, integrated systems, and to share resources, get connected geographically, to exchange talents, to complement in industries, and finally to increase the international competitiveness of the Yangtze River Delta as a whole. The cross-sea Hangzhou Bay Bridge

Table 7.5 Similitude Coefficients of Industrial Structures in the Yangtze River Delta Year

Shanghai-Jiangsu

Shanghai-Zhejiang

Jiangsu-Zhejiang

1988 1989 1990 1991 1992 1993 1994 1997 1998 1999 2000

0.9221 0.9216 0.9044 0.8748 0.8580 0.8126 0.8158 0.8159 0.8463 0.8524 0.8621

0.8605 0.8647 0.8640 0.8005 0.7758 0.7173 0.7261 0.7273 0.7417 0.5805* 0.7447

0.9686 0.9716 0.9517 0.9670 0.9683 0.9493 0.9506 0.9671 0.9556 0.6959* 0.9114

Notes: The calculation formula for the similitude coefficients of the industrial structures is: k

Sij =

ΣXik Xjk k

k

, where Sij refers to the similitude coefficient between two industrial

ΣX ik2 ΣX jk2 structures (i and j); Xik denotes the proportion of department k in structure i; Xjk denotes the proportion of department k in structure j; K is the number of departments in an industry. (3) Data with an asterisk are singular values: because all the statistic data of Zhejiang in this year are too small, so they are not very significent for explanatory purpose. Sources: Data are calculated according to various years of Statistic Yearbook of Shanghai, Statistic Yearbook of Jiangsu, Statistic Yearbook of Zhejiang, with data of 1995 and 1996 unavailable.

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Table 7.6 Composition of GDP in the Yangtze River Delta, 2000

Areas

The whole nation The Yangtze River Delta

Shanghai Jiangsu Zhejiang

Absolute value of GDP (RMB100 million)

Composition of GDP (%)

Basic Secondary Tertiary Basic Secondary Tertiary Industries industries industries Industries industries industries 14,212

45,488

29,704

15.9

50.9

33.2

83 1,031 664

2,164 4,436 3,188

2,304 3,116 2,189

1.8 12.0 11.0

47.5 51.7 52.7

50.0 36.3 36.3

Source: NBS 2001.

that Zhejiang has decided to build becomes a major infrastructuring base in promoting the economic integration of Zhejiang and Shanghai. The economic impetus behind the relations between Shanghai and the Yangtze River Delta in the 1990s was shown in the gradually strengthened complementing industries. Before the 1990s, the industrial structures of Shanghai and Jiangsu and Zhejiang resembled one another to a large extent. The effect of work division was not obvious and there was no internal impetus for the integration of the Yangtze River Delta. Seen as a whole, the similitude coefficient of the industrial structure of the Yangtze River Delta is too high, and the closer their economic development stages are, the more obvious the similitude of their structure. The industrial structures of Jiangsu and Zhejiang resembled each other the most, then came Shanghai and Jiangsu, and Shanghai and Zhejiang. This situation was changed during the 1990s. The industrial structure similitude coefficient between Shanghai and Jiangsu fell below 0.9 only after 1991, while the coefficient between Shanghai and Zhejiang fell below 0.8 until 1992. As the economy developed, the similitude decreased and the trend of specialization and labour division was enhanced. It is easy to understand that when the industrial structures of two regions are almost the same, there is sure to be no cooperative surplus for regional economic integration. Shanghai and Jiangsu and Zhejiang also began to show complementary features in the structure of the three types of industries. Compared with the whole nation, the proportion of the basic industries in the two provinces and one municipality of the Yangtze River Delta was obviously lower that the national average level, while the proportion of tertiary industries was higher than the national average. Shanghai was especially outstanding in

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Table 7.7 Comparison of the Degree of Economic Opening-up (%) of Jiangsu, Zhejiang, Shanghai, and Guangdong, 2000 Areas Jiangsu Zhejiang Shanghai Guangdong

Degree of foreign trade dependency

Degree of opening-up in international investment

44.5 38.1 99.4 145.6

6.3 2.2 5.7 11.0

Source: Hong Yinxing et al. (2003).

these two ratios. Its tertiary industries account for half of its GDP, 14 per cent higher than that of Jiangsu and Zhejiang provinces. The strength of Shanghai in tertiary industries provides a complementary basis for the integration of the Yangtze River Delta. In the opening-up process, Shanghai and Zhejiang also played different roles. Shanghai was not doing extremely well in attracting FDI, but it did an exceptionally good job as the trading centre of the Yangtze River Delta. Its degree of foreign trade dependency was over twice of that of Jiangsu and Zhejiang. During the process of “a two-men race”, that is, the competition with the Pearl River Delta, the Yangtze River Delta was not yet open enough. Under this circumstance, the function of Shanghai as a trading centre seemed to be even more important. And there is still space for further improvement (see Table 7.7). SHANGHAI AND THE YANGTZE RIVER DELTA: ON THE WAY Having implemented the strategy of “getting close to Shanghai”, Suzhou has now become a place that attracts the most investment from Taiwan in the whole nation. In contrast, some other cities that did not get connected to Shanghai in time now regret the missed opportunities of development. There are signs that the attitude of other cities in the Yangtze River Delta towards Shanghai has become quite similar. Nanjing and Hangzhou, as the capital of two provinces with the strongest economy — Jiangsu and Zhejiang, and the second centre of the city group of the Yangtze River Delta after Shanghai, have also become more modest. Nanjing has planned to take

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important measures like “taking good care of its relations with Shanghai” and taking the initiative to “be exposed to the radiation of Shanghai” to get integrated into the Yangtze River Delta. Leaders of Hangzhou said that they had worried about getting connected with Shanghai before, because they were afraid that “no grass can grow under a big tree.”, but now they are taking an active role in the process of getting integrated with Shanghai, which is because “it is the perfect place to rest under the shade of a big tree.” To emphasize the role of Shanghai, the sponsor of the Yangtze River Delta Meeting even changed the name from “sixteen cities” into “fifteenplus-one cities”. In recent years, the Shanghai-dominated reform process of the Yangtze River Delta has been speeding up. In 2005, the development of the Yangtze River Delta was written into the Eleventh Five-Year Plan. To implement this strategy, two documents — regional Planning Outline of the Yangtze River Delta, and Suggestions for Promoting Reform and Opening-up and the Economic and Social Development of the Yangtze River Delta, will be published soon. On 15 May 2007, Chinese Premier Wen Jiabao presided over a meeting on the economic and social development of the Yangtze River Delta, and clearly indicated that the development strategy of the Yangtze River Delta will become a “national strategy”. He also asked the delta to make full use of its regional advantages to speed up its development. So what is the position of Shanghai in this strategy? The answer is to be found in the above mentioned documents. From the information now available, Shanghai will be crucial. According to officials from the National Development and Reform Commission (NDRC) on 21 November, the document, Regional Planning Outline of the Yangtze River Delta, was in the last stage of examination and approval and would be published soon. This planning describes the regional development framework as “One core, six belts”, showing the importance of Shanghai in the Yangtze River Delta from the level of national policy. “One core” means to strengthen the development of Shanghai as a development core and bring into full play the position of Shanghai as an international and national transportation hinge, a centre for resources allocation and cultural exchange, and a source of creativity. “Six belts” means to upgrade the development belt of Shanghai-Lingbo, Shanghai-Hangzhou, stress the construction of the development belts along the Yangtze River and Hangzhou Bay, actively develop the coastal development belt, cultivate the development belt of Lingbo-Huzhou-Hangzhou, and guide the development of the eco-service belt along Taihu Lake. The planning and construction of the “One core, six belts” would help build a world-class city group and system, with Shanghai

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as a core and some second-level cities like Nanjing, Hangzhou, Suzhou, Wuxi, Ningbo, etc., as support. At the end of 2007, the harmonious financial development of the Yangtze River Delta got started. Almost at the same time, a blueprint of “financial integration of the Yangtze River Delta” came out. On 1 December 2007, the governments of Shanghai, Jiangsu, Zhejiang and the People’s Bank of China signed a framework agreement in Shanghai, promoting the harmonious financial development of the delta and supporting the regional economic integration. This signalled the start of the harmonious financial development work of the Yangtze River Delta. In December 2007, six measures to facilitate “financial integration in the Yangtze River Delta” were established under the lead of Shanghai, whose task was mainly to support cross-regional services of the financial institutions in the delta. Experts say this means financial integration in the Yangtze River Delta has entered the stage of actual operation. On 19 December 2007, the Development and Reform Commission of Jiangsu, Zhejiang and Shanghai signed an agreement called Agreement on Cooperation and Development of the Service Industry in the Yangtze River Delta. Based on the principle of cooperation and mutual benefit and the Scientific Development Values, this is to promote the connection and complementing of related service industries in the delta, and to realize the common development goals of this area through communication of information, sharing of resources, complementing and connection of industries, interaction among enterprises and interdependence of institutes. The situation now seems to be that the Yangtze River Delta is willing to follow Shanghai, and Shanghai is also willing to be the leader. In 2008, before the two meetings were held, the mayor of Shanghai, Han Zheng, asked delegates of regions that had offices in Shanghai for suggestions for the draft of Report on the Government’s Work. This is an unprecedented action. The media in Shanghai reported that this was “a first time” that regions with offices in Shanghai have been given an opportunity to feel Shanghai’s kindness and get inspired. It is also the first to list the contents of cooperation and exchange separately in a formal report. “Shanghai will take an active role in implementing a general strategy for the development of the nation and regions, to serve the Yangtze River Delta, the Yangtze River drainage area and the whole nation in a better way.” Promoting an interactive development in the Yangtze River Delta is a priority. What can we learn from the above retrospect? Or, how long should the process of integration of the Yangtze River Delta into Shanghai last?

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First of all, the development of the relations between Shanghai and the Yangtze River Delta has demonstrated the guiding role that policies by the central government has played in China’s regional integration, which also means that policies by the central government are indispensable to the integration process of the Yangtze River Delta. Unlike the birth of other big city circles in the world, the integration process in the Yangtze River Delta has been promoted more by the government. It was activated more than once and it also fell into silence more than once. The direct obstacle to the integration of the Yangtze River Delta is the administrative system and friction. To harmonize the interests of regional governments of the same level, the support of the central government is needed. For a long time, there has been an ongoing comparison between the Pearl River Delta and the Yangtze River Delta. The Eleventh Five-Year Plan in 2005 favoured the Yangtze River Delta, Beijing-Tianjing-Hebei area, Chengdu-Chongqing area and the old industrial base in the northeast, but did not even mention the Pearl River Delta. This arrangement was not trying to ignore the Pearl River Delta. As officials of the National Development and Reform Committee explained, the Pearl River Delta was not mentioned separately because the problem of this area could be solved within the province, so there was no need for the intervention of the central government. This is the heart of the problem. Without the promotion of the central government, there would be no substantial integration in the Yangtze River Delta where there are more than one province. We have already seen that the development of the relations between Shanghai and the Yangtze River Delta has much to do with the positioning of the development of Pudong and Shanghai by the central government. Without the direction of the central government policies, other local governments in the delta may not have followed the lead of Shanghai. However, the dependence on the policies of the central government would become an unspoken worry of the delta. Compared to the labour division and cooperation in the Pearl River Delta and part of Zhejiang, the cooperative level in the Yangtze River Delta is not high enough. This is to a large extent because the integration of Wuxi or Shaoxing by Shanghai is not as easy as the integration of Shengzhen and Dongguan by Guangzhou. Secondly, on the level of local government, if Shanghai wants to unite the Yangtze River Delta around it, it has to maintain its advantages in economic development and the division of industrial structure. It was noted that although the central government had put forward a plan to integrate

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the Yangtze River Delta around Shanghai in the 1980s, it did not materialize because Shanghai could not provide enough cooperative incentive to attract the government of other places. This shows that not every plan of the central government will be implemented by local governments. In the late 1990s, the integration process of Shanghai went very well and smoothly, because as a rising economic and trade, financial and transportation centre, Shanghai possessed advantages which other regions in the Yangtze River Delta did not have. This also shows the power of the market. Obviously, the interactive development of the Yangtze River Delta is still dominated by the government, but this is made possible only because it is based on a win-win situation. Each party has its own interest. Otherwise it would be really hard to imagine what decision can be made with sixteen mayors getting together. We do not have to worship the power of administrative methods, even in China. NOTES 1.

2.

According to geography, the Yangtze River Delta refers to an area that reaches New Tongchang Canal in the north, Hangzhou Bay in the south, and Ningzhen Hill in the west. Around Taihu Lake, it shapes like a bowl. So it is also called “Taihu Lake Basin” (Huang 1990). According to economic geography, the Yangtze River Delta (Small Yangtze River Delta) is larger than this. Currently it includes eight cities in middle and south Jiangsu Province (Ninjing, Yangzhou, Taizhou, Nantong, Zhenjiang, Changzhou, Wuxi, Suzhou), seven cities in north Zhejiang (Hangzhou, Jiaxing, Huzhou, Ningbo, Shaoxing, Taizhou, Zhoushan) and the whole municipality of Shanghai. There are totally sixteen regional-level (and above) cities, with an area of about 100,00 square kilometres and a population of about 80 million. The Yangtze River Delta in this chapter, if not indicated, is even larger, including the two provinces: Jiangsu and Zhejiang, and Shanghai municipality, with twenty-eight cities and an area of 213,000 square kilometre and a population of about 138 million. “The Responsibility of Shanghai: Rising of a New Ideological Signal”, Window to the Southern Wind (March 2008).

REFERENCES Boyreau-Debray, G. and Shang-Jin Wei. “Can China Grow Faster? A Diagnosis of the Fragmentation of Its Domestic Capital Market”. IMF Working Paper, WP/04/76, 2004. Ge, Jianxiong. “Historial Development of Shanghai and Yangtze River Delta”. China’s Reform, (June 2004).

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Hong Yinxing, et al. Economic Development Models and Mechanisms of Yangtze River Delta. Tsinghua University Press, 2003. Huang, Zongzhi. Small Farmers and Rural Development of Yangtze River Delta. Shanghai: Zhonghua Book Store, 2000. National Bureau of Statistics. The Statistical Yearbook of China. Beijing: China Statistical Press, 2001. Shen, Lijiang et al., ed. New Theoretical Perspective of the Integration of Yangtze River Delta. Hangzhou: Zhejiang People’s Publishing House, 2003. Shen, Kunrong, Wang Jian, “Research on the Construction of the Multi-way Financing of China’s Township Enterprises”. Economic and Management Sciences, no. 4 (2000). Young, Alwyn. “The Razor’s Edge: Distortions and Incremental Reform in the People’s Republic of China”. Quarterly Journal of Economics 115, no. 4 (2000): 1091–1135. Zhu Wenhui. Towards Competitive Cooperation – A Comparative Study of the Economic Development of Pear River Delta and Yangtze River Delta. Beijing: Tsinghua University Press, 2003.

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8

Recent Developments in Yangtze River Delta and Singapore’s Investment Chen Wen and Sun Wei

INTRODUCTION Yangtze River Delta region, covers a total of sixteen cities, namely, Shanghai City, eight cities in Jiangsu Province (Nanjing, Suzhou, Wuxi, Changzhou, Zhenjiang, Yangzhou, Taizhou and Nantong), and seven cities in Zhejiang Province (Hangzhou, Ningbo, Huzhou, Jiaxing, Shaoxing, Zhoushan and Taizhou). The region is located at the juncture zone of the Yangtze River and China’s coastal regions with favourable natural condition and prominent locational advantages, which is the core of China’s coastal and riverside “T”-shaped strategic axis region. The land has an area of 110,000 square kilometres, accounting for 1.1 per cent of the country, with 97 million resident population (about 6.3 per cent of the country) and 3.39 trillion regional GDP (about 18.6 per cent of the country) by the end of 2005. Moreover, the industrial scale, technology and brands of steel, petrochemicals, automobiles, and textiles and so on as well as urban development have obvious advantages in the country. Of the nation’s economically strongest

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thirty-five cities, the Yangtze River Delta region accounts for ten; out of the nation’s top hundred counties, the Yangtze River Delta region accounts for thirty-seven. More than 400 of the world’s top 500 enterprises have settled in this region. Therefore, it can be said that Yangtze River Delta region is one of China’s leading region with the fastest growth rate, highest degree of openness, superior investment environment and competitiveness. This region most likely will be the first Chinese region to be among the top regional economies in the world. Rapid industrialization and urbanization lead to the region’s tremendous changes in population, land use, as well as economic spatial structure and patterns. Globalization and localization have exerted the greatest impact on these spatial changes. However, taking into account the effects of globalization on regional development, scholars have called for the “globalizing” of regional development (Coe et al., 2004; Yeung 2005). Globalization and the dispersion of global capital have transformed core cities in developing countries into globalizing cities. They are often the most globalized places and the focus of foreign direct investment (FDI) in these countries, and more significantly, emerging nodes of the global economy (Wei and Leung 2005). The Shanghai-centred Yangtze Delta has especially experienced a massive ongoing infusion of FDI. While increasingly competing globally as an emerging global city, Shanghai is facing severe challenges from other globalizing cities in China, especially those in the Yangtze Delta. The most serious competitor to Shanghai’s efforts to attract FDI and develop hightech industry is Suzhou, where capital from Singapore has helped set up the new townships as well as new industrial districts, which has transformed the modern city of Suzhou and driven the rapid spatial succession in the Delta. At the same time, the expansion has resulted in the rapid spread of built-up areas, the dwindling of ecological space and the excessive load on the environment. According to the 1998 and 2005 data interpreted from remote sensing images, construction land increased by 650,000 hectares in the region while arable land decreased by 1.2 million hectares. The total area of arable land was only 3.5 million hectares, and the agricultural acreage per capita is only about 0.04 hectare. About 70 per cent of the Taihu Lake suffers from serious eutrophication and the outbreak of blue algae is common in summer. More than 85 per cent of the surface water in the Hangjiahu Plain region can be categorized as undrinkable V water. This chapter will firstly show the changes in spatial distribution of the population, land use and economic gross output in this region, which give an idea of the spatial development succession process of the Yangtze River

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Delta region in recent years. The impact and role of Singaporean investment in Jiangsu’s regional economic development is then discussed, especially on Suzhou’s growth. Finally, the chapter will analyse the sustainability of spatial development and predict its future trend as an important guidance for future investment. SPATIAL SUCCESSION IN THE YANGTZE DELTA With the Yangtze River Delta area’s rapid development and spatial change, studies have been paying special attention to its spatial pattern. Researchers, from different perspectives, have suggested different spatial structures of the Yangtze River Delta, including the horizontal “V”-shape, horizontal “N”-shape, reversed “K”-shape and horizontal “W”-shape models (Zhang 2000). In the “V”-shaped model, cities grew along the Shanghai-Nanjing and Shanghai-Hangzhou corridors, which are the traditional as well as most urban-dense axis in the Shanghai-centred region. When Ningbo built the national harbour to import and transfer crude oil, iron ore and containers, and the new corridor along Hangzhou-Ningbo has been taking into account, the pattern changed to a horizontal-shape. While the bridges connecting Shanghai-Ningbo across Hangzhou Bay and connecting Shanghai-Nantong are under construction, the coastal corridor has been carved out, so as the pattern has been changed to the reversed “K”-shape. With the northern area along Yangtze River being considered for exploitation, the pattern becomes a horizontal “W”-shape. Do these models really reflect the development of Yangtze River Delta’s spatial structure? Based on the 1990, 1995, 2000 and 2005 periods of change in the population growth, economic development and the expansion of construction land in a total of eighty-five counties in the delta, this chapter Figure 8.1 Yangtze River Delta Region Space Structure Model

horizontal “V”-shape

horizontal “N”-shape

reversed “K”-shape

horizontal “W”-shape

Source: Zhang 2000.

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will examine the spatial structure succession process and developments in this region. Changes in Urban Population Growth Urban population refers to the people living in the cities and town, whose distribution shows the urban shifts and agglomeration in the region. Due to the lack of official data on the changes of the urban resident population in each county for different years, the non-agricultural population has been selected to show spatial allocation changes of urban population growth. Nonagricultural population refers to the people living in the cities and towns with non-agricultural work based on the Hukou registration system. Since the 1990s, many agricultural populations have moved to urban areas from the countryside. The number of the actual urban population in the coastal big cities is much larger than that of the non-agricultural population. The unregistered population is called the “floating population”. According to Figure 8.2, in 1990, the non-agricultural population gathered mainly in and around Shanghai, Nanjing, Hangzhou, Wuxi and other central cities, forming four main urban centres. Also, two urban centres formed in and around Nantong in the north bank of the Yangtze River and Ningbo in the south of Hangzhou Bay. The changes after that show that the scale of Ningbo, Suzhou and Changzhou gradually increased, and there were no major changes in Nantong. In 2000, cities with more than 2 million non-agricultural populations are Shanghai (9.71 million) and Nanjing (2.96 million); cities with 1 to 2 million non-agricultural populations are Hangzhou (1.76 million), Wuxi (1.19 million) and Suzhou (1.13 million). In 2005, cities with more than 2 million non-agricultural populations are Shanghai (11.28 million), Nanjing (5.13 million), Hangzhou (4.1 million), Wuxi (2.3 million), Suzhou (2.25 million), Changzhou (2.2 million) and Ningbo (2.13 million). It is obvious that Suzhou has grown quickly since 2000. In this way, non-agricultural populations formed five main accumulation regions — in Shanghai, Nanjing, Hangzhou, Suzhou-Wuxi-Changzhou, and Ningbo. These cities’ non-agricultural population accounts for 57% of the total non-agricultural population in the Yangtze River Delta region. Among them, the percentage of Shanghai’s non-agricultural population to that of the Yangtze River Delta region dropped from 29.45% to 27.10%, Nanjing’s increased from 8.98% to 9.87%, Hangzhou’s increased from 5.34% to 5.91%, Suzhou-Wuxi-Changzhou’s increased from 10.10% to 11.10%, and Ningbo’s increased from 2.67% to 2.91%.

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Figure 8.2 Distribution of Non-Agricultural Population in the Yangtze River Delta Region

1990

2000

1995

2005

Source: Authors’ calculation based on the statistical yearbooks of Shanghai City, Jiangsu Province and Zhejiang Province(various years).

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Table 8.1 Population of Cities in Yangtze Delta, 2005

City

Shanghai Nanjing Hangzhou Wuxi Suzhou Changzhou Ningbo Taizhou in Zhejiang Yangzhou Huzhou Zhenjiang Nantong Jiaxing Taizhou in Jiangsu Shaoxing Zhoushan

Non-agricultural population

Actual urban population

The proportion of transient population in actual urban population (%)

11,280,000 5,130,000 410 230 225 220 213 149 115 108 102 85 81 78 65 69

17,000,000 6,300,000 506 330 340 290 250 151 117 120 113 103 101 81 74 70

31.00 18.57 18.97 30.30 33.82 24.14 14.80 1.32 1.71 10.00 9.73 17.48 19.80 3.70 12.16 1.43

Source: Statistical yearbook 2006 of Shanghai City, Jiangsu Province and Zhejiang Province.

Moreover, after comparing the number of non-agricultural population and actual urban population, the number of actual urban population living in Suzhou is more than 30 per cent higher than that of the non-agricultural population, the difference being the “floating population” of people who came from other regions or the countryside and are unregistered in the Hukou system, as a result of the high employment demand of industrialization in Suzhou. Changes in Economic Growth Regional gross domestic production (GDP) of each area has been used to show the spatial economic growth pattern. Figure 8.3 shows that the total GDP peak areas are also in the five main accumulation regions of Shanghai, Nanjing, Hangzhou, Suzhou-Wuxi-Changzhou, and Ningbo, similar to the regional population distribution. Shanghai is the economic core of the delta, but its total share in the Yangtze River Delta region has gradually decreased. Since 1990, the average annual growth rate of Shanghai is 17.1

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Figure 8.3 Regional GDP and Per Capital GDP in the Yangtze River Delta Area

1990

1995

2000

2005

Source: Authors’ calculation based on the statistical yearbooks of Shanghai City, Jiangsu Province and Zhejiang Province (various years).

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per cent, lower than that of the whole Yangtze River Delta region’s 19.2 per cent (average). With the development and opening-up of Pudong, the suburban area around Shanghai’s urban area developed rapidly. The GDP of Pudong New District, with the support of the national strategy, jumped from RMB6.02 billion in 1990 to 41.47 billion in 1995, an increase of 59 per cent in five years. The GDP of Minhang, Jiading and Jiayin exceeded RMB20 billion in 1995. Furthermore, neighbouring cities and counties grew faster than the suburban areas. The GDP of some county-level cities, such as Zhangjiagang, Kunshan, Wujiang, also exceeded RMB10 billion in 1995. Thus, the gaps between Shanghai and Suzhou, Wuxi and Changzhou were closed gradually. Since the late of 1990s, the development of the Changzhou urban area has been relatively slow and obviously lagging behind that of Wuxi and Suzhou. Since 2000, with the Along-Yangtze River development strategy in Jiangsu and Hangzhou Bay area development strategy in Zhejiang, the Yangtze River Delta region stepped into the accelerated development period of heavy chemical industries and hi-tech industries (Chen et al. 2004). The 2005 regional distribution of GDP shows that besides the urban area of Shanghai (RMB429.35 billion) which had more than RMB400 billion GDP, the areas with more than RMB100 billion GDP were the urban areas of Nanjing (RMB223.51 billion), Hangzhou (RMB234.19 billion), Wuxi (RMB165.37 billion), Ningbo (RMB138.47 billion) and Suzhou (RMB121.45 billion). The highest distribution of per capita GDP were mainly in the areas between Shanghai and Nanjing, and Hangzhou-Ningbo area. Cities between Shanghai and Suzhou-Wuxi, such as Jiading, Qingpu, Songjiang, Kunshan, Taicang, Changshu, Zhangjiagang, and Jiangyin, etc., and cities between Hangzhou and Ningbo, such as Shangxing, Shangyu, Zhuji, Cixi and Yuyao, etc. all had high non-agricultural production per capita, which have been at the top of the Yangtze Delta region since 1990. The GDP of the cities on the north shore of the Yangtze River were relatively low. Changes in the Expansion of Construction Land Remote sensing of TM has been used in the analysis of the expansion of construction land. From the photo of TM in the 1980s, it was shown that there were only three units with construction land of more than 240 square kilometres, namely, the urban areas of Shanghai, Nanjing and Hangzhou, five regions with 150–240 square kilometres, namely, the urban areas of

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Figure 8.4 Expansion of Construction Land in the Yangtze River Delta Region

1990

1995

2000

2005

Source: Authors derived from the TM images of Yangtze River Delta (various years).

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Suzhou, Wuxi, Changzhou and Jiaxing. During 1990, the construction land of urban Suzhou and Wuxi also exceeded 250 square kilometres. At the peak, construction land extended from the three regions — Shanghai, Nanjing and Hangzhou to four regions — Shanghai, Nanjing, Hangzhou, Suzhou-Wuxi-Changzhou. Since 2000, construction land has increased rapidly. Besides the four regions mentioned above, the construction land of Ninbo urban area has been also about 500 square kilometres. Thus, the distribution of construction land in the Yangtze River Delta region has five core spots: Shanghai, Nanjing, Hangzhou, Suzhou-Wuxi-Changzhou, and Ningbo. Figure 8.5 Construction Density of the Yangtze River Delta Region, 2005

Source: Authors derived from the TM image of Yangtze River Delta in 2005.

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The percentage of construction land in the Yangtze River Delta region is as high as 17.39 per cent of the total land area. The peak (30 per cent) appears in the area from Shanghai to Nanjing and around Hangzhou. Construction land in Shanghai’s urban area has extended to the neighbouring counties and the whole urban area has been fully covered. Overall, changes in the growth of the population, economy or the distribution of construction land prove that the pattern of the metropolitan region is shaped by the central cities of this region. However, the city-town hierarchy system is becoming flat. The original metropolitan pattern of Shanghai (primary core city) — Nanjing and Hangzhou (provincial capitals) — Suzhou, Wuxi, Changzhou, Ningbo (local big cities) is becoming the current pattern of Shanghai (primary core city) — Nanjing, Hangzhou, Suzhou, Wuxi, Ningbo (provincial capitals and developed cities) (Figure 8.6). The general rapid economic development in the Yangtze River Delta region has pushed the whole region towards industrialization and urbanization. Especially between the corridor along Shanghai and Suzhou-Wuxi, as well as between Shanghai and Hangzhou, Figure 8.6 Nature Ecological Restrains and Economic Development Demand

Source: Drawn by Shen Chunying based on the authors’ calculation.

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with the growth of population and construction of development zone, these areas have shown a gradual trend of urban expansion from a “point” to “an entire area” of urbanization, demonstrating a continuous form of population and economic agglomeration. SINGAPORE’S INVESTMENT AND SUZHOU’S DEVELOPMENT Jiangsu Province has a close relationship with Singapore, which is its ninth largest trading partner. Bilateral trade reached as high as US$8.25 billion. Jiangsu Province is China’s province which received largest investment from Singapore. By the end of 2006, Singapore had invested in 2,751 projects in Jiangsu, about 3.49% of the total foreign investment projects in the province. Singapore’s contracted foreign capital was US$12.087 billion, about 6.1% of the province’s total contracted foreign capital. The foreign capital actually used was US$1.753 billion, about 8.97% of the province’s total amount. From 2000 to 2006, Singapore-invested projects and capital in Jiangsu rose steadily. In 2006, Singapore-invested projects were amounted to 260, about 3.71% of the province’s foreign investment projects. Contracted foreign capital was US$1.753 billion, about 3.77% of the province’s total amount. The actual investment was US$820 million, about 4.70% of the province’s actual foreign direct investment. Compared with 2000, Singapore’s investment projects, contracted investment, and actual amount of investment in 2006 have risen by 3.17 times, 4.58 times, and 1.08 times, respectively. Singapore’s largest investment in Jiangsu with significant impact is the China-Singapore Suzhou Industrial Park (CSSIP). The park is Jiangsu’s most effective measure of the opening-up of its economic development and plays an important catalytic role in the social, economic and spatial development of Suzhou. Situation of Suzhou and Set-up of CSSIP Suzhou, with plain and water overlapping, is located in humid subtropics, to the south of Yangtze River and east of Taihu Lake (Figure 8.1). It covers an area of 8,677 square kilometres with plains accounting for 60 per cent and water surfaces 38 per cent. It is described as a land flowing with milk and honey because of its fertile soil, ample water resources, long-term development of agriculture and water conservancy, good cultivation condition for paddy, and abundant fishery resource. Suzhou, as a charming ancient

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city with a more than 2,500-year-old history of Wu culture, was also an ancient capital of China and a historical centre of the Yangtze Delta. It is well-known for its delicate gardens, well-kept natural rivers and lakes in South China in the Ming and Qing dynasties, which offers a delight to travellers, and share the name of “China’s Venus” or “paradise on earth” together with Hangzhou. Suzhou is also a city with the most economic potential, thanks to its closeness to Shanghai, China’s leading economic centre. Ancient Suzhou City was situated alongside the Beijing-Hangzhou Grand Canal linking the Taihu drainage area and North China’s water transport, which enable early modern Suzhou to develop into the biggest city in southeast China. However, with the railway development, declining water transportation and Shanghai’s growth, the economic centre of southeast China has moved to Shanghai, which, however, is now giving great impetus to Suzhou’s economic development nowadays. In the 1980s, township and village enterprises (TVEs), as a semi-state, yet market-oriented form of ownership, captured the opportunities provided by economic reforms and gradually became the dominant sector in rural economies and blossomed in Sunan (south of Jiangsu Province), creating a successful path of development known as the Sunan Model (Veeck and Pannell 1989; Wei 2002). By 1985, TVEs had produced 48.8% of industrial output in Suzhou municipality (Chen et al. 2001). However, with radical reforms in the early 1990s to marketize and globalize the economy, the TVEs’ problems of property rights, income distribution, and party-enterprise relationships resulted in corruption, mismanagement, the loss of collective assets (asset stripping), loss-making, and even bankruptcy (Ho et al., 2003). Local governments were forced to radically reform TVEs. By the late 1990s, most TVEs had been shut down or transformed into private or joint ownership forms (Wei 2002). Meanwhile, Suzhou City was struggling with state-owned enterprises (SOEs) and rigid socialist systems, where SOEs produced 66.9 per cent to 50.4 per cent of total industrial output from 1980 to 1985 onwards. There was a shift to an emphasis on urban reforms in 1984/1985, including decentralizing SOEs to local management and introducing market mechanisms. Faced with the township enterprises and state-owned enterprises’ development difficulties, the Yangtze River Delta region had to find ways out of the difficulties. Since 1990, with the development and opening up of Pudong, the Yangtze River Delta region has been strongly motivated to embrace economic globalization and establish a special economic zone. Suzhou is no exception. In 1994, Singapore planned and invested US$20 billion to initiate the eight square-kilometres CSSIP industrial zone. The

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CSSIP located in the east of Suzhou, was a completely rural area in the early 1990s. However, the location being close to Shanghai, the existing industrial base, and eager local states made Suzhou an ideal place for a Singaporean industrial park in China. Development of CSSIP A unique characteristic of the CSSIP project is that it has strong support from top leaders in both China and Singapore, with both a top-down and bottom-up process. In his southern tour in 1992, China’s late paramount leader Deng Xiaoping encouraged learning from Singapore’s experience, shortly after the normalization of diplomatic relations in 1990. On 1 October 1992, Singapore Senior Minister Lee Kuan Yew, accompanied by Chen Huanyou, the governor of Jiangsu Province, visited Suzhou. On 19 April 1993, Premier Li Peng expressed support for the establishment of an industrial park in Suzhou. The State Council approved the establishment of the CSSIP on 11 February 1994, and on 26 February 1994, Vice Premier Li Lanqing and Lee Kuan Yew signed the Agreement on the Joint Development of Suzhou Industrial Park in Beijing, marking the birth of the CSSIP. The China-Singapore SIP Development Corporation (CSSD) was established, with majority controlled by Singapore (65 per cent to China’s 35 per cent). The restructuring of the governance structure (65 per cent to Singapore’s 35 per cent). happened in 2001 and the Chinese consortium, mainly state-controlled companies headquartered in Beijing, took over the majority control. The CSSIP administration highlights its high level of administrative authority in approving all independent foreign-invested projects and overseas official trip applications, issuing of official duty passports and application for visas from foreign embassies in China. Besides “twoyear exemption and three-year half reduction” tax holidays, the SIP provides competitive preferential policies of special tax treatment in certain sectors, as well as refunds of the corporate income tax. Also, it has an independent customs and bonded logistics centre, and CSSIP is a pioneer in using the EDI system for customs clearance in China and owns the export processing zones (EPZs) approved by the State Council. In addition, with the virtual airport mode, the customs clearance and freight transportation time from port-to-door can be further shortened to five hours. CSSIP is the largest development zone in Suzhou City hosting FDI, jointly run by Chinese and Singaporean consortiums. The

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SIP absorbed US$410 million FDI in 1996 and US$1.58 billion in 2005. The development of the CSSIP is a product of the interplay of multi-scalar states, including the Singaporean government, central government of China and local governments of Jiangsu. It capitalizes on the search of global capital for new spaces in developing countries to restructure their own economies and penetrate new markets. The CSSIP represents the efforts of Singapore to globalize its production through its global reach strategies and regional industrialization programme in the early 1990s, in order to cope with rising production costs at home (Wong and Goldblum 2000). The Yangtze Delta became the focus of China’s opening-up policy in the early 1990s. As to Beijing, Singapore represents a successful model of development led by an authoritative state, “a capitalist version of the communist dream”, which could serve as a suitable model for China (Cartier 1995). “Learning from Singapore’s experience” is the most important aspect of the CSSIP project: the “software transfer” programme (Pereira 2003). Foreign investment successfully promoted structural transition of Suzhou’s economic development and the smooth restructuring of township enterprises and state-owned enterprises. For Suzhou, CSSIP is a way to mobilize resources to develop local economies and to remake the Sunan Model centred on TVEs. The city has moved away from the orthodox model of development centred on TVEs in the countryside and SOEs in the cities towards globalization, or globalizing regional development. China also hopes to globalize its economy and attract foreign investment through joint efforts with Singapore. Moreover, Jiangsu Province has been very active in attracting foreign investment, and often represents local governments to lobby and negotiate with the central government for preferential policies. In the mid- and late 1990s, Jiangsu established eleven national-level and sixty-three provincial-level development zones, which enjoy preferential policies and provide well-developed infrastructure for foreign investment. Most of the largest development zones are located in Suzhou, including the CSSIP, Suzhou New District (SND), Kunshan Economic Technological Development Zone (ETDZ), and Zhangjiagang Tariff-Free District. Five national-level development zones in Suzhou are hardly seen in a prefectural-level city. All development zones were provided standard tax policies for two years for free tax and three years of 50% tax reduction. In 1995, 72.1 per cent of FDI in Jiangsu was concentrated in Sunan; Suzhou municipality alone attracted 48.7 per cent of the FDI. Therefore, the CSSIP is not an accidental success, but conditioned on

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the host governments’ tradition of local state corporatism and eagerness to attract foreign investment. They are closer to Shanghai than any other municipalities in Jiangsu, enjoy more preferential policies, and are supported by local developmental governments that are highly professional and well prepared to serve foreign investors. Of course, these economic zones have also brought the competition to attract more foreign investment. Objectively, it is this competition that promotes the gathering of foreign investment and rapid development of this region and pushes Suzhou’s opening-up economy in the forefront of the country. From 2000 to 2005, new actually utilized foreign capital exceeded US$25 billion. In 2005, 101 of the world’s top 500 enterprises invested in Suzhou. Suzhou has thus entered the ranks of rapid growth economies. From 2000 to 2005, the city’s average annual GDP growth was above 15%. In 2005, the GDP was more than RMB400 billion. According to the registered population and current exchange rate, the per capita GDP amounted to US$8,000. Local financial revenue was over RMB30 billion more than the budget, an average annual increase of 30%. Major economic indicators ranked it the top of the country’s large and medium-size cities. Five county-level cities are all in the top hundred “strongest” counties in China. Experiences from CSSIP Besides the benefit of globalization and accelerated regional development from the CSSIP, the best learning experience from Singapore is in openness to new ideas and smart management. 1. “Considerate pro-business services”: Its management style is promoted as “small government, large society”, with a “highly efficient, transparent, fair and standard” service-oriented government and provision of comprehensive full-day and all-round quality services. The Suzhou government called it “the zone experience” and a model for the reform of the municipality government system. 2. Effective planning and management system: from the overall master plan to detailed planning, urban design, implementation, and amendment. The “high standard master planning” made by Singaporean government agencies included the following zones: central business district, IT park, export processing zone (Districts A/B), international science park (national-level software park), Dushu Lake higher education district, and modern logistics park (Type B Bonded Logistics Centre). The market value of land was considered in the land use zoning, especially in the choice locations. A neighbourhood service

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centre was first designed in the detailed planning, and legal issues were formally addressed. 3. “Human-oriented philosophy” to achieve economic development and technological progress with the harmonious integration of human beings and nature. From the “conservation of nature” to “scenic view’s”, the CSSIP boasts social amenities which include residences, commerce, food and beverage establishments, businesses (such as the International Expo Centre, Science, Culture & Arts Centre, and Golf & Leisure Centre), healthcare (such as the foreign-invested Kowloon Hospital, Disease Control & Prevention Centre, Neighbourhood Centre Clinic, Xinghai Clinic, Singapore Healthcare Clinic and the SIP First-Aid Centre), as well as educational facilities, (such as the Suzhou Singapore International School). Above all are the “great prospects” for the CSSIP. Costing RMB1.89 billion in investment, the Suzhou Science, Technology, Culture and Art Centre, the eye-catching crescent-shaped “bird’s nest” off the shores of Jinji Lake, opened to the public in October 2007. The whole complex occupies an area of 138,000 square metres with a total floor area of 150,000 square metres, functionally divided into sections of performing arts, food and beverages, science exhibition, film city, and business centre. New Task of CSSIP and Suzhou City However, the rapid growth of the economy also brings about structural contradiction. The contradiction is that the growth depends mainly on investment, which is about 50 per cent of the region’s GDP. Consumption’s contribution to the growth is relatively low. The main investment body is foreign capital. Actual utilized foreign capital accounts for about 40 per cent of the total social fixed assets investment. The proportion of the manufacturing sector is high. Added-value of the service industry is just 32 per cent. Manufacturing enterprises are mainly OEMs. Only a small portion has exported brand-name with independent intellectual property rights. There are no core technologies. Furthermore, the load on resources and the environment is increasing. According to the annotations of the remote sensing photographs of SPOT4 and TM, the built-up area including the core-city and towns increased by 800 square kilometres from 1984 to 2003. The proportion of construction land to the whole land area is over 30 per cent. Land supply is in serious shortage. Since 2001, the industrial wastewater has been increasing. In 2003, the discharge of industrial wastewater was 600 million tonnes. From 1990 to

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2005, an increase of RMB0.1 billion GDP meant an increase of 100 acres of construction land. A RMB0.1 billion increase of industrial production meant an increase of 0.1 million tonne wastewater discharge. Thus in a short time, Suzhou’s usable land will run out and the environment will be overloaded. These problems are the common problems that the Yangtze River Delta region is facing. Now Suzhou is facing a new social and economic task: to build a global innovation city. Business Week (2001) even profiled Suzhou as one of the top ten technology cities which have built their new economies with hard work and innovation. The CSSIP claims to be “one of the fastest growing and most competitive industrial development zones in the world, . The CSSIP’s vision for development is “to develop [CS]SIP into an internationally competitive high-tech industrial park and a modern, garden-like township”, with great prospects; as a “high-tech industrial park of international competitiveness, a garden-like, ecological, international and digital new town is taking shape beside the beautiful Jinji Lake”. Thus, the CSSIP has promulgated a series of preferential policies as incentives for the high-tech industry: to promote R&D and attract talents, including technology development funds, venture capital, entrepreneurial funds, and funds for overseas students, as well as services such as financing, management consultancy, HR and information services. An “education and innovation system”, has been provided to include “creative platforms” such as the International Science Park, national-level software park, intellectual property protection centre, IC design centre, provincial-level soft testing centre, postgraduate education, etc., as well as infrastructure for graduate education. The first phase of 2.8 square kilometres for the Dushu Lake Higher Education District has been completed and the district hosts the local branches of the following universities: Beijing University, Fudan University, Renmin University of China, China Science and Technology University, Xi’an Jiaotong University, Nanjing University, Suzhou University, the University of Liverpool (U.K.), Warwick University (U.K.), National University of Singapore, Hong Kong Science and Technology University, Dayton University (the U.S.), Limerick University (Ireland) . Suzhou City Government had proposed in 2003 to develop it into a global emerging science and technology city. Thus resource-saving and environmentally friendly industries, independent innovation and intelligent city planning have received special attention from governments and the public, and should be the core of future economic growth and transition.

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FUTURE SPATIAL PATTERN OF YANGTZE DELTA REGION Due to the location advantage and growth potential in its economic development, the Yangtze Delta region is and will be the most developed area as well as a foreign capital hosting area in China. Since Shanghai and other mega-cities are facing a shortage of land and environmental capacity, where will the new industrial investment go in the region? Appropriate zoning is useful to guide and regulate the distribution order of the social economic activities within the low-cost (the constraints of resource supply and ecological environment are relatively small), highdemand area. The territorial advantage can be the regional competitiveness. At the same time, cities should restrict and control those social economic activities which cause high ecological cost and lots of development difficulties, while promoting the harmonious development between regions and keep the balance of society, economy, resources and environment. Therefore, it is necessary to follow the rules of regional spatial succession, analyse the region’s natural ecological constraints and social economic potentials, evaluate each unit’s ecological and economic importance index, and then classify the regions (Chen 2007). The ecological elements are mainly for assessing significantly ecological values, which represent the need to protect ecological systems and preserve the original natural environment, including climate modulation, water regulation, soil erosion prevention, material recycling, decontamination, biological diversity, and recognising their recreational value, etc. They are basically composed of the indices in terms of ecosystem functions and ecological vulnerability (Chen 2006). From the aspect of ecosystem functions, the region can be divided into different functional areas, such as water resources area, wetlands, hills and mountains, important rivers and lakes, nature reserve zone, forests, scenic spots and historical cultural cities. Ecologically vulnerable districts should be determined according to frequeney of geological and other natural disasters, and the density of water. The GIS spatial analysis methods are then applied to analyse the results of the ecosystem services and ecological vulnerability, and thereafter determine and divide the natural ecological restraints into four levels. The high-level natural ecologically restricted areas would include nature reserves, national forest parks, important water source areas and water conservation areas, diverting water source protection zones, elevated areas above 200 metres, wetlands, and beaches not appropriate for reclamation, which demand the highest ecological protection, and all human activities which are not suitable for these areas should be forbidden in these parts.

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Chen Wen and Sun Wei Figure 8.7 Division of Spatial Development Function

Source: Drawn by Shen Chunying based on the authors’ calculation.

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When determining the suitability of development potential, we can comprehensively evaluate per capita GDP, labour productivity, productive return rate of investment, convenience of transportation, and education level, and then divide the cities and towns in the Yangtze River Delta region into four levels of economic development demand zones, namely, high, relatively high, medium and low-level. Generally speaking, the urban areas of Shanghai, Nanjing, Hangzhou, Ningbo, suburban counties near Shanghai and most counties in Wuxi and Suzhou have the highest level of demand. Other counties of Shanghai and most counties along the Yangtze River in Jiangsu have relatively high demand of development. Chongming District in the north of Shanghai, most counties of Nantong, around Hangzhou Bay region and some counties in Hangzhou have medium demand. The north, west and southeast fringes of the Yangtze River Delta area have relatively weak economic foundation. Production output efficiency is not high; regional and educational advantages have not been evidenced; thus economic development demand is relatively low. On the basis of natural ecological constraints and suitability of development, we propose the governance requirements of each region’s spatial development after considering each region’s current development intensity. For cities with a high demand of economic development but with high existing development intensity, or which are historical and cultural cities with certain ecological constraints, like the core region of the city groups of Shanghai, Nanjing, Suzhou-Wuxi-Changzhou, Hangzhou and Ningbo, we suggest that these cities in the future development optimize themselves and improve the quality of their spatial content. Cities with relatively high economic demand, relatively few natural ecological constraints and relatively low existing development, such as most areas along the seashore, the Yangtze River and around Hangzhou Bay industrial belts, Huzhou and Taizhou, should implement large-scale industrial development, or urban construction suitable for modern service industries and residence. Based on the suitability of economic development, taking into account the capacity of the environment and resources and the functional division of urban and industry, we propose the following restructuring and arrangement for industrial space: 1. Develop Areas of Basic Industries along the Yangtze River and the Coast These areas include most regions along Yangtze River and around Hangzhou Bay, as well as parts of the coastal areas. These areas have good natural

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resources and development potential and can be the country’s major industrial bases if ports along the river and the coast are developed as key areas, and large-scale port construction and basic industry development should take priority. 2. Urban Functional Optimization Areas of Shanghai, Nanjing and Hangzhou These areas include the core regions of the city groups of Shanghai, Nanjing, Suzhou-Wuxi-Changzhou, Hangzhou and Ningbo. In these areas, the intensity of industry and cities is high, and the resource and environment bottleneck is great. These areas should focus on optimizing the cities’ service function, develop modern service industry and high-tech industries, and become the country’s major modern service centre as well as innovation and R&D base. 3. Western Industrial and Urban Incubation Areas These areas include cities from Nanjing to Huzhou and the western band of Taihu Lake. These areas should rely on transportation advantages, fully consider the ecological constraints and environmental development, and focus on incubating industries and concentrated city areas, in order to become the green industry concentration centre and the tourism and vacation base in Yangtze River Delta region. 4. Northern Moderate Resource Processing Industrial Areas These areas include the cities and counties on the northern shore of the Yangtze River but not along the river. These areas are the wetlands of the Lixiahe area and important agricultural areas. These areas should protect the Lixiahe area’s water bodies, wetlands and the ecological environment, moderately control the industrialization, actively develop the resource processing industry, and build an important base of commercial agriculture as well as the production and processing of agricultural products in the Yangtze River Delta region. 5. Southern Ecological Industry Areas These areas include the hills and mountains in the southwestern region and are an important ecological barrier in the Yangtze River Delta region.

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These areas should strengthen the protection of mountain resources and nature reserves, encourage the development of eco-friendly industries and promote the harmony between ecological protection, resource exploitation and economic development. In the rapid industrialization and urbanization process, the Yangtze River Delta area is undergoing rapid spatial succession. Population, economy and construction land are all in rapid expansion. This region consists of fivepolars of economic growth; Shanghai, Nanjing, Hangzhou, Suzhou-Wuxi, and Ningbo. The introduction of foreign investment since the 1990s has promoted the economic globalization of this region. Singapore’s investment has had a huge impact on Jiangsu, especially the establishment of ChinaSingapore Suzhou Industrial Park. It promoted Jiangsu’s economic transition and economic globalization. However, resources and environment have come increasingly under pressure. Therefore, it is necessary to guide the region’s division of industrial space according to the development suitability of different areas, cultivating in particular, the innovation and service functions of this region. Such measures are inevitable in order to enhance the competitiveness of the Yangtze River Delta region. REFERENCES Cartier, C. “Singaporean investment in China: Installing the Singapore model in Suzhou”. Chinese Environment and Development, no. 6 (1995). Chen, W., et al. “Regionalization of Potential Land Use in Jiangsu Province under Ecoeconomic Approach”. Scientia Geographica Sinica 27, no. 3 (2007): 312–17. ———. “Regionalization of Regional Potential Development in Suzhou City”. Acta Geographica Sinica 61, no. 8 (2006): 839–46. Chen, W., X.J. Duan et al. “The Development Model and Path of Industrial Belt along Yangtze River in Jiangsu”. Apeal Research and Development 24, no. 4 (2005): 17–20. Chen, W., W. Sun et al. “Growth of new economic sectors in second-tier extended cities in the Changjiang River Delta-Case of Suzhou, Wuxi, Changzhou”. Chinese Geographical Science 14, no. 4 (2004). Chen, W., C.J. Zhou et al. “The Industrial Choice and Spacial Organization in Suzhou,Wuxi and Changzhou”. Economic Geography 21, no. 6 (2001): 679–83. Coe, N.M., et al. “Globalizing Regional Development”. Transactions of the Institute of British Geographers 29, no. 4 (2004): 868–84. Ho, S.P.S., P. Bowles, and X.Y. Dong. “Letting Go of the Small: An Analysis of the Privatisation of Rural Enterprises in Jiangsu and Shandong”. Journal of Development Studies 39, no. 4 (2003): 1–26.

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Pereira, A.A. State Collaboration and Development Strategies in China. London: Routledge, 2003. Veeck, G., and C.W. Pannell. “Rural Economic Restructuring and Farm Household Income in Jiangsu, People’s Republic of China”. Annals of the Association of American Geographers 79, no. 2 (1989): 275–92. Wei, Y.H.D. “Beyond the Sunan Model: Trajectories and Underlying Factors of Development in Kunshan, China”. Environment and Planning A 34, no. 10 (2002): 1725–47. Wong, T.C. and C. Goldblum. “The China-Singapore Suzhou Industrial Park”. Geographical Review 90, no. 1 (2000): 112–22. Yeung, H.W. “Rethinking Relational Economic Geography”. Transactions of the Institute of British Geographers 30, no. 1 (2005): 37–51. Zhang, Jingxiang. Space Structure of Group Cities. Nanjing: Southeast University Press, 2000.

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9

Bohai Rim’s Regional Development: Problems and Policy Options Zhou Liqun and Shu Ping

INTRODUCTION Located at the heart of Northeast Asia and along the coast of the West Pacific, the Bohai Rim comprises two municipalities and three provinces (Beijing, Tianjin, Hebei, Liaoning and Shandong).1 It covers 5.43 per cent of China’s total area, and houses a population of 231.34 million, which accounts for 17.60 per cent of China’s total population.2 In 2006, the Bohai Rim contributed 26.19 per cent of China’s gross domestic product (GDP), 26.62 per cent of China’s total profit and 21.85 per cent of China’s total imports and exports.3 The Bohai Rim, together with Pearl River Delta (PRD) and Yangtze River Delta (YRD), forms China’s three biggest industrial belts.4 Benefiting from the ‘eastward moving’ trend of investments in the world and the ‘northward moving’ trend of development in China, the Bohai Rim has drawn the attention of the world in recent years. After the Binhai New Area of Tianjin was officially designated the experimental

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zone for comprehensive reform,5 Tianjin was defined by the State Council as the economic centre of North China and Beijing was delineated as “China’s capital, metropolis, culturally well-known city and suitable city for residence”.6 These have brought new opportunities for economic cooperation in the area. The Bohai Rim is expected to become the third economic growth engine for China. The Bohai Rim’s regional economic development has great potential. But regional economic cooperation in the area is more like a “proposal”, far behind the regional economic integration process in the YRD and the PRD, although the concept of the ‘Bohai Rim Economic Circle’ was first suggested in the mid 1980s.7 The lack of cooperation increased the development cost of the region and the traditional economic growth pattern has brought environmental crisis which is increasing severe restrictions on the economic development of the region. THE OVERVIEW OF THE BOHAI RIM’S ECONOMIC DEVELOPMENT The Bohai Rim is an important base for both basic and high-tech industries in China. Its share of China’s GDP has remained above 20 per cent since the 1950s (see Figure 9.1). During the past three decades China has experienced extraordinary economic growth, but the growth was uneven at the regional levels. The establishment of Shenzhen Special Economic Zone in 1980 drove the rise of the PRD and led it to be an important manufacturing powerhouse and the most economically dynamic region of China. Its average Gross Regional Product (GRP) growth rate from 1980 to 1991 was 12.55 per cent, much higher than the country’s GDP growth level (8.5 per cent during the period). But, the rates for the YRD and the Bohai Rim were only 9.39 per cent and 8.25 per cent, respectively. For Tianjin and Liaoning in particular, for most of the years during this period, their growth rates were lower than the country’s average. The YRD got its chance in the 1990s. After the establishment of the Shanghai Pudong New Area in 1992, the local governments in the YRD began to implement far-reaching reforms and the result has been economic growth rates higher than other parts of China. Statistics show that the average annual GDP growth rate was 9.96 per cent for China from 1992 to 2005, but the average rate for the YRD was 13.56 per cent. The PRD’s average rate remained at the high level of 13.97 per cent during the period. The rate for the Bohai

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Figure 9.1 Bohai Rim’s Share of China’s GDP in Different Years

30 25 20 % 15 10 5 0

1952

1978

1990

2000

2007

Source: Comprehensive Statistical Data and Material on 50 Years of New China (Being: China Statistics Press, 1999), pp. 3–114; China Statistical Yearbook 2001–2007, China Statistics Press, Beijing; “Zhong guo jingji: Cheng jiu zhi da han jian, wu jia ya li chen zhong [Chinese economy: Extraordinary achievement and intensive inflation press]” .

Rim increased to 12.09 per cent, lower than that of the PRD and the YRD but higher than the country’s average. The GRP growth rates for the five provinces in the Bohai Rim were all higher than the country’s average since 1997. The development of the Binhai New Area of Tianjin is widely expected to do for the Bohai Rim what Shenzhen’s reforms did for the PRD in the 1980s and the Pudong New Area of Shanghai for the YRD in the 1990s. After the Binhai New Area of Tianjin was authorized by the central government as another experimental development zone and as the “new engine of growth” for North China, a series of experimental approaches follow suit, including financial initiatives, bonded areas and preferential tax policies. A new regional economic development pattern is emerging in the area. In 2006, China’s GDP growth rate was 11.1 per cent. The Bohai Rim’s GRP growth rate was 13.86 per cent, better than the level of the YRD which was 13.6 per cent, but still lower than PRD’s 14.6 per cent performance.8

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Figure 9.2 Regional GDP Growth Rate Comparison

Growth Rate %

20 15 10 5 0 1980-1991

China

PRD

2006

1992-2005 Period YRD

Bohai Rim

Source: Comprehensive Statistical Data and Materials on 50 Years of New China (Beijing: China Statistics Press, 1999) China Statistical Yearbook 2000–2007 (Beijing: China Statistics Press).

Table 9.1 Comparison of the Composition of GDP Year

Industry

China

Beijing

Tianjin

Hebei

Liaoning Shandong

2002

Primary Industry % Secondary Industry % Tertiary Industry %

15.4 51.1 33.5

3.0 34.8 62.2

4.1 48.8 47.1

15.6 49.8 34.6

10.8 47.8 41.4

13.2 50.3 36.5

2003

Primary Industry % Secondary Industry % Tertiary Industry %

14.6 52.2 33.2

2.6 35.8 61.6

3.6 50.9 45.5

15.0 51.5 33.5

10.3 48.3 41.4

11.9 53.5 34.6

2004

Primary Industry % Secondary Industry % Tertiary Industry %

15.2 52.9 31.9

2.4 37.6 60.0

3.5 53.2 43.3

15.6 52.9 31.5

11.2 47.7 41.1

11.5 56.3 32.2

2005

Primary Industry % Secondary Industry % Tertiary Industry %

12.6 47.5 39.9

1.4 29.5 69.1

3.0 55.5 41.5

14.9 51.8 33.3

11.0 49.4 39.6

10.6 57.4 32.0

2006

Primary Industry % Secondary Industry % Tertiary Industry % Per Capita GDP (Yuan)

11.7 48.9 39.4 16,084

1.3 27.8 70.9 50,467

2.7 57.1 40.2 41,163

13.8 52.4 33.8 16,962

10.6 51.1 38.3 21,788

9.7 57.7 32.6 23,794

Source: China Statistical Yearbook 2003–2007, China Statistics Press, Beijing.

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In 2007, the Bohai Rim’s GRP increased to RMB6,478.8 billion, accounting for 26.27 per cent of China’s total GDP (see Figure 9.2).9 The composition of GDP shows that the economic growth has been largely driven by the second sector (industrial sector) in the four provinces of the Bohai Rim, with the exception of Beijing. After 2003, the second sector (industrial sector) share of the GDP in Tianjin, Hebei, Liaoning and Shandong continued to increase and the share of tertiary sector started to decrease. In fact, the shares of tertiary industry in Hebei, Liaoning and Shandong have been lower even than the country’s average level since 2005 (see Table 9.1). The Bohai Rim’s share of China’s total investment in fixed assets has remained above 20 per cent since 1980, higher than those for the YRD and much higher than the PRD (see Figure 9.3). With respect to the foreign investment in the area, by the end of 2006 the number of registered foreign-funded enterprises in China was 274,848 and the total investment was US$1,707 billion. The figures for the Bohai Rim were 63,950 and US$34.6 billion, and accounted for 23.27 per cent and 20.26 per cent of the country’s total, respectively (see Figures 9.4 and 9.5).10 Figure 9.3 Regional Shares of Total Investment in Fixed Assets, 1980–2006 30 25 20 %

15 10 5 0 1980

1984

1988

Bohai Rim's share

1992

1996 YRD's share

2000

2004 PRD's share

Source: Comprehensive Statistical Data and Materials on 50 Years of New China (Beijing: China Statistics Press 1999) China Statistical Yearbook 2000–2007, China Statistics Press, Beijing.

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Figure 9.4 Regional Distribution of FDI in China (Number of Enterprises)

Others, 21.79%

Pearl River Delta, 22.56%

Bohai Rim, 23.27%

Yangtze River Delta, 32.38%

Source: China Statistical Yearbook 2007 (Beijing: China Statistics Press 2007) p. 748.

Figure 9.5 Regional Distribution of FDI in China (Total Investment)

Others, 21.77%

Pearl River Delta, 18.41%

Bohai Rim, 20.26%

Yangtze River Delta, 39.56%

Source: China Statistical Yearbook 2007 (Beijing: China Statistics Press 2007) p. 748.

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BOHAI RIM’S POTENTIAL Although the Bohai Rim’s economic performance was not as good as the PRD and YRD in the last three decades, the region is still expected to become the new growth engine for China in the twenty-first century because it is an area with great potential. 1. Unique Geographic Position The Bohai Rim is China’s political, technological, educational and cultural centre. As the gateway to northern and central China, the centre of the Northeast Asia Economic Zone and the eastern starting point of the Eurasian Continental Bridge, the Bohai Rim plays a key role in improving the country’s uneven development as well as its regional cooperation in Northeast Asia. For China, building a harmonious socialist society has been set as the most important strategic task of the Chinese government, and gradually reversing the widening gap between urban and rural development and development between different regions is the key to the coordinated development, social equity and justice.11 Internationally, regional economic cooperation has become an inevitable trend. With the development of the western coastal areas of Japan and South Korea, these two countries will certainly strengthen their economic ties and trade relations with the Bohai Rim of China. 2. Abundant Natural Resources The Bohai Rim is rich in natural resources such as oil and gas, coal and minerals. It is the largest coal production area in China and has the largest coal reserves. The Bohai Bay may have reserves of 20 billion tonnes of oil, with half of them still undiscovered. The newly found Jidong Nanpu oilfield has a reserve of 1.02 billion tonnes of oil and is expected to be China’s third largest field.12 The Shengli Oilfield in Shandong is the second largest petroleum production base in China. Liaoning, Hebei and Shandong are rich in coal and minerals. Liaoning’s reserves of magnesite, jade, boron and diamonds also rank at the top in China.13 Shandong has discovered 150 kinds of mineral resources, 58 of which have reserves ranking in the top 10 of the country.14 Hebei is also among the major provinces with rich mineral resources in China. At present, 151 types of minerals have been discovered, 120 types of mineral reserves have been ascertained, and 51 minerals reserves are taking the top ten places in China.15

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The Bohai Rim also has rich marine resources. The area of fishing grounds of the continental shelf of the Bohai Sea is 7.7 million hectares.16 As the largest inner sea of China, it has more than 100 types of fish. It is also rich in energy sources including tidal power and wave energy. 3. Well-developed Sea-Land-Air Transportation Networks A comprehensive network with convenient sea-land-air transportation has been set up and is still improving. It has made the Bohai Rim the region with the most intensive transportation networks in China. There are more than sixty ports in the area and the volume of freight handled in the seven major coastal ports in the area was 11.53 billion tonnes in 2006, accounting for 33.69 per cent of China’s total.17 The new added volume of freight is expected to be 740 million tonnes by 2010.18 A one-hour high-speed railway network around Beijing and Tianjin has been formed in Hebei. The Shanhaiguan-Yantai Railway is under construction and will become a new North-South economic artery in the region. The railway ferry from Yantai to Dalian has been finished. The 120 kilometre-long high-speed railway from Tianjin to Beijing will shorten travel between the two cities to thirty minutes, with a minimum interval between trains of three minutes. More than ten major airports and nearly 200 flight lines have formed a convenient air transportation system in the area. As the centre of the system, the recently opened third terminal at Beijing Capital International Airport will be able to handle 76 million passengers a year.19 4. A Solid Industrial Base The Bohai Rim has traditional advantages in resource-based industries, including steel, crude oil and raw salt as well as fast growing high-tech industries such as telecommunications, biopharmacy and machinery. The Zhong Guan Cun in Beijing is the largest telecommunication research and trade and production base in China and has attracted many outstanding people in software development and information technology fields. Most foreign companies, particularly multinationals like Motorola, Panasonic, Microsoft and Fujitsu, have their headquarters, R&D centres and production bases in Beijing. Since 1997 China’s Ministry of Commerce began to carry out a comprehensive assessment among all the state-level development zones, the Tianjin Economic-Technological Development Area (TEDA) has topped the

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list for ten successive years. By the end of 2007, TEDA had approved a total of 4,485 foreign-funded enterprises with contracted foreign investment of US$30.04 billion. Of the global Fortune 500 enterprises, sixty-two multinationals from ten countries and regions have set up 137 enterprises here, with the most coming from Japan.20 Dalian is also a leading FDI receiver in China. By the end of 2007 there were 12,661 foreign funded enterprises located there and the real foreign investment was US$25.41 billion.21 5. Favourable Investment Environment and Polices The Bohai Rim has good scientific and technological resources. Beijing and Tianjin have the strongest capabilities in scientific research in China. About a quarter of the key national universities directly under the Ministry of Education of China are located in Beijing and there are about 20 universities, and more than 40 scientific research institutes and 50 R&D centres in Tianjin. The abundant educational resources have brought the advantage of a high quality labour force in this area. Nearly all of the graduates stay to work in the region after their graduation, so the quality of workforce is high, far above the national average. The biggest opportunity for the Bohai Rim is the opening and development of the Tianjin Binhai New Area. On 6 June 2006, the State Council issued the “Opinion on Several Questions Related to the Opening and Development of the Binhai New Area (BNA)”, setting forth a series of supportive policies applicable to the fields of finance, taxation, land use, and logistics. The realization of a state-level strategy, high-level planners expect the BNA to serve as the third major regional step on the path to sustainable development for the entire nation. The development of the Binhai New Area aims to fulfil four regional goals: develop a modernized base for manufacturing and R&D; establish the largest international port in North China, install an international logistics centre; and create a very livable and eco-friendly seaside eco-city.22

The development of BNA is of strategic importance to China’s economic and social development. As Chinese Prime Minister Wen Jiabao said during his visit to Tianjin in 2005, “To expedite Binhai New Area development and opening is an important move to make in the overall development plan for the areas encircling Bohai Sea and the whole country. Making this move successful will be of strategic importance not only to achieving Tianjin’s

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long-term development, but also for promoting the regional economy, implementing the national overall development strategy and realizing the goal of a well-to-do society on a comprehensive basis.”23 DEVELOPMENTAL PROBLEMS IN THE BOHAI RIM The Bohai Rim has a good foundation for regionally coordinated development and its comprehensive advantages are far beyond those of the PRD and the YRD. But until now, the Bohai Rim has not become an integrated economic region and the extent of its inner economic coordination and cooperations are obviously lower than those of the PRD and the YRD. In the future, two key points will determine whether the Bohai Rim can become the new engine driving economic growth in North China. The first is the improvement in regional cooperation and the second is the transformation of the region’s development mode. OBSTACLES FOR REGIONAL ECONOMIC COOPERATION IN THE BOHAI RIM The major difference between the Bohai Rim and the two deltas, the PRD and the YRD, is the lack of economic cooperation in this region and this has led to widespread criticism.24 Here is some evidence of the weaknesses. 1. The Long-term Competition between Beijing and Tianjin for the “Economic Centre of North China” Tianjin was the economic centre of North China and Beijing was a typical consumption city before 1949 when the People’s Republic of China (PRC) was formally established. Even in 1952, both Tianjin’s GRP and its value-added in industry were still 1.62 and 2.28 times of those of Beijing respectively. Tianjin’s per capita GRP was RMB299 in 1952, which was much higher than the country’s average (RMB119) and that of Beijing in that year (see Table 9.2). After 1949, as the political and cultural centre of China, Beijing used its unique advantage in administrative resources to expand its economic functions. Tianjin was pushed into the shadows and gradually lost its functional position as the economic centre of North China. Table 13.2 shows that in 1954, Beijing’s GRP, both the total volume and the per capita volume, surpassed those of Tianjin. In 1960, Beijing’s value-added in industry also surpassed that of Tianjin. Until 1978, both the total value

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Table 9.2 Economic Indices Comparison between Beijing and Tianjin Year

Economic Indices Volume (100 million yuan)

1952

Share of China’s total (%)

1978

Share of China’s total (%)

7.88

12.80

value-added in industry

2.69

6.12

GRP

1.16

1.89

value-added in industry

2.25

5.11

170

299

108.84

82.65

GRP value-added in industry

70.22

4.37

GRP

3.00

2.28

value-added in industry

4.37

3.38

1,290

1,160

GRP

7,870.28

4,359.15

value-added in industry

Per capita GRP (yuan) Volume (100 million yuan) 2006

Share of China’s total (%) Per capita GRP (yuan)

Tianjin

GRP

Per capita GRP (yuan) Volume (100 million yuan)

Beijing

1,821.86

2,292.73

GRP

3.73

2.07

value-added in industry

2.00

2.51

50,467

41,163

Sources: Comprehensive Statistical Data and Materials on 50 Years of New China (Beijing: China Statistics Press, 1999); China Statistical Yearbook 2007, China Statistics Press, Beijing.

of Tianjin’s GRP and its value-added in industry were less than 80 per cent of those of Beijing. Beijing’s value-added in industry’s share of its GRP started to decrease after 1978, in which the share reached its highest level at 64.52 per cent. But, from 1979 to 1992, the gap of the value-added in industry between Tianjin and Beijing remained at a relatively high level (Tianjin’s volume was less than 80 per cent of that of Beijing). Beijing started to focus on developing its tertiary industry in recent years. This offered more space for the re-emergence of Tianjin’s industry, especially Tianjin’s manufacturing, to some extent. However, Beijing held onto its multi-centre functional position, as the national political, economic, educational and cultural centre. In 2006 however Beijing finally relinquished its position as the economic centre of North China in its Eleventh Five-Year Plan and ended its decades-long competition with Tianjin for this position (see Figure 9.6).

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The different economic growth rates have led to the divergent growth rates in local people’s incomes, reflected in per capita disposable income of urban households in the two cities. In 1978, the figure was RMB388.32 for Tianjin, higher than Beijing’s figure of RMB365.4. Beijing surpassed Tianjin in 1985 and the gap increased steadily.25 Tianjin’s per capita disposable income of urban households was only 71.5 per cent of that of Beijing in 2006.26 Figure 9.7 highlights this trend. Figure 9.6 Comparison of Value-Added in Industry between Beijing and Tianjin, 1952–78 80 70 100 million yuan

60 50

Beijing Tianjin

40 30 20 10

19 76

73 19

70 19

67 19

64 19

61 19

58 19

55 19

19

52

0

Source: Comprehensive Statistical Data and Materials on 50 Years of New China (Beijing: China Statistics Press, 1999), pp.142 and 167.

Figure 9.7 The Comparison of Per Capita Disposable Income of Urban Households between Tianjin and Beijing

RMB yuan

25000 20000 15000

Tianjin

10000

Beijing

5000

19 78 19 82 19 86 19 90 19 94 19 98 20 02 20 06

0

Source: Comprehensive Statistical Data and Materials on 50 Years of New China (Beijing: China Statistics Press, 1999), pp. 164–88; China Statistical Yearbook 2003, China Statistics Press, Beijing, p. 355; China Statistical Yearbook 2007, China Statistics Press, Beijing, p. 355.

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2. Industrial Similarity in the Bohai Rim The similarity coefficient can be used to measure the extent of the industrial duplication in a region. Zhou and Luo (2006) argue that the similarity coefficients for the manufacturing industries of the provinces and municipalities in the Bohai Rim were generally at high levels and showed a “V” shape change from 1990 to 2003 (see Table 9.3 and Figure 9.8). Those provinces and municipalities previously competed in traditional industries including steel, chemicals, automobiles and metal processings and are now competing in high-tech industries like telecommunications, information technology, biopharmacy and new materials. 3. Overlap of Construction and Malignant Competition Another good example to show the lack of cooperation in the Bohai Rim is the intensive competition for production resources, especially capital, among the different administrative authorities in the region. This kind of competition became even more rigorous after 1978 because the focus of the whole country was moved into economic development and local governments received more incentives to boost their local economies. Table 9.3 Similarity Coefficients of the Manufacturing Industries of the Provinces and Municipalities in the Bohai Rim City Beijing/Tianjin Beijing/Hebei Beijing/Liaoning Beijing/Shandong Tianjin/Hebei Tianjin/Liaoning Tianjin/Shandong Hebei/Liaoning Hebei/Shandong Liaoning/Shandong B.T.H/Liaoning B.T.H/Shangdong Average

1990

1998

2000

2001

2002

2003

0.95 0.86 0.87 0.78 0.93 0.91 0.87 0.88 0.93 0.75 0.92 0.89 0.88

0.93 0.55 0.68 0.57 0.67 0.75 0.66 0.84 0.77 0.71 0.68 0.57 0.70

0.92 0.44 0.63 0.49 0.57 0.69 0.57 0.80 0.74 0.71 0.66 0.71 0.66

0.91 0.45 0.62 0.46 0.58 0.64 0.61 0.78 0.71 0.67 0.72 0.66 0.61

0.93 0.49 0.69 0.53 0.53 0.67 0.59 0.78 0.69 0.67 0.81 0.69 0.66

0.96 0.51 0.70 0.60 0.57 0.72 0.63 0.78 0.63 0.69 0.84 0.71 0.695

Source: Zhou, Liqun and Luo, Ruoyu, “Huan bo hai di qu chan ye jie gou qu tong tan xi ji zheng ce xuan ze” [Industrial Structure Duplication in Peripheral Zone of Bohai Sea and Policy Options], Reform, no. 3 (2006): 56.

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Figure 9.8 Curve of the Averages of Similarity Coefficients

1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1990

1998

2000

2001

2002

2003

Source: Zhou, Liqun and Luo, Ruoyu, “Huan bo hai di qu chan ye jie gou qu tong tan xi ji zheng ce xuan ze” [Industrial Structure Duplication in Peripheral Zone of Bohai Sea and Policy Options], Reform, no. 3 (2006): pp. 56.

The State Planning Committee (SPC), which was the predecessor of the National Development and Reform Commission (NDPC), was planning to invest in a 0.3 million tonnes per annum ethylene production base in Tianjin or Beijing in the 1990s. According to the international experience at that time, only if the capacity was more than 0.6 million tonnes per annum, an ethylene production project could be profitable. But because of the serious competition between Tianjin and Beijing for the project, finally two 0.15 million tonnes per annum ethylene production bases were built up in the two cities separately and neither of them was profitable.27 An even more typical example is the duplications of the ports around the Bohai Bay. Because of the lack of the general planning and the weak macro-control, the low-level duplications of ports in the region was very wasteful. Many newly-built small ports could not get enough business to earn a profit, but the special and large docks at the major ports in the region were all overloaded. In 1989, Beijing started building Jingtang Port in the south of Tangshan while Tianjin Port did not have enough freight orders. And the Jingtang Port is only approximately 100 kilometres away from Tianjin Port and

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the designed functions of the port were similar to those of Tianjin Port. Moreover, Suizhong Port in Liaoning Province is only 20 kilometres away from Qinhuangdao Port in Hebei Province. And, there were about thirty coastal cities (or counties) in Shandong Province and twenty-six ports were built up; almost every city and county had its own port. The result of this duplicated construction and the competition for resources is that there was more competition than cooperation in the region. The malignant competition increased everyone’s costs and reduced the comprehensive competitiveness of the whole region. 4. Unaligned Development Plans Fan, Jie (2003) summarizes three key preconditions for successful regional economic cooperation and one of them is that the different parts in the region can work around one or a few integrated development plans instead of focusing on their own self-centred targets.28 There are two municipalities and three provinces in the Bohai Rim and everyone has the authority to set up its independent development plan. Differences, and even conflicts, in the governments’ plans were the obstacles for regional cooperation before, but still can be seen among the latest plans although current regional economic cooperation is at relatively high levels. The differences in the cooperation orientations in the Eleventh Five-Year Plan and the Government Work Report (2007) of the five partners show the potential risks for economic cooperation in the Bohai Rim. For Beijing, it has been focusing on the 2008 Olympics and this offers the best chance for regional cooperation. Beijing understood the need for cooperation with its two neighbours, Tianjin and Hebei, especially in relation to the transportation network construction and in pollution controls because this cooperation could bring Beijing immediate support for its Olympics. In its new functional position design, Beijing accepts Tianjin as the economic centre of North China and focuses on the development of its high-tech, and modern service industries. For Tianjin, the opening and development of its BNA is the best option for holding onto its position as the economic centre of North China. The future of the BNA and Tianjin highly relies on its performance as the leading player in the region. Whether Tianjin can successfully attract Beijing and the other three provinces into the development of the BNA and whether the BNA’s service function and radiating effect could cover the whole region, is unknown. These factors have become the key focus for Tianjin’s planners. Therefore, Tianjin is more active than Beijing in

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pushing for the comprehensive economic cooperation in the region and has proposed broader cooperation fields. Compared with Shandong and Liaoning, Hebei has the strongest incentive to cooperate with Beijing and Tianjin. But Hebei’s economic development in the recent years also shows that it has been increasingly focused on forming its own independent development pattern, which can be described as the “ports plus hinterlands” model, and relying on its own advantages in resources and location. Its “number one” project, the Caofeidian Port and Circulating Economy Zone, is similar to the Binhai New Area of Tianjin, not only in the content, but also in the development vision. Hebei plans to make Caofeidian, together with the Binhai New Area of Tianjin, to be a new growth pole of the Bohai Rim. Hebei’s actions show that it is no longer satisfied with its secondary position after Beijing and Tianjin, seeking its own original growth engine. The development of three areas have been the focus of Shandong’s plan, but among them, the Peninsular Metropolis Group (PMG) with Qingdao as its centre, is the one with the greatest potential and has been the leading force of the entire province’s development. The PMG was designed to be the most important international metropolis group in the Huanghai Rim and the modern manufacturing production base connected with Japan and South Korea. Shandong’s plans for the Huanghe (Yellow River) Delta and Laizhou Bay economic zones did show its desire to establish closer economic links with the Bohai Rim. But since PMG’s is the most powerful driving force to the growth of Shandong and PMG’s economic relationship with the others in the Bohai Rim is still not so close, it is possible to see more economic cooperation between Shandong and others in the Huanghai Rim, and closer economic relationships between Shandong and Japan and South Korea than cooperation in the Bohai Rim. As the only coastal province in northeast China, Liaoning stresses its coastal economy strategy and has linked its future to the reemergence of northeast China’s industrial base. As for regional cooperation, Liaoning appreciates its unique advantage as having the major seaports of the northeast industrial base and put its cooperation with Jilin and Heilongjiang in higher priority than with others in the Bohai Rim. After all, Beijing and Tianjin have different proposals for the cooperation in the Bohai Rim. Hebei has shown its interest to be an “independent economy”. The “anti-Bohai Rim” orientations of Shandong and Liaoning have also directed those two provinces’ economic development away from the Bohai Rim. Those potential risks fill the Bohai Rim’s future cooperation with uncertainty.

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5. Polarization and Uneven Development in the Bohai Rim According to theory within development economics, in cases where the geographical direction of the spatial flow of resources is centripetal (from the less developed “periphery” to the developed “core”), they cause an increase of inequality and polarization in the spatial distribution of resources and economic development. The spatial result was called “backwash effect” by G. Myrdal29 and “polarization” by A.O. Hirschman.30 When the geographical direction of the spatial flow of resources is centrifugal (from the developed “core” to the less developed “periphery”), the flows tend to moderate the inequality and polarization of the spatial distribution of resources and economic development. The spatial result was defined by G. Myrdal as “spread effect” and by A.O. Hirschman as “trickling down”. Both of them pointed out that at the earlier stages of regional economic development, the backwash effect or polarization would be stronger than the spread effect or trickling down.31 The backwash effect or polarization was formulated under the conditions of a market economy. In the case of China, which is still in the transformation from a centrally planned to a market economy, because administrative authorities have significant influence on the allocation of resources, the backwash effect or polarization is even stronger than what it is in a market economy. Regional development in the Bohai Rim shows that the backwash effect has been obviously stronger than the trickling effect until now. The poverty belt around Beijing and Tianjin in Hebei Province is a good example of the serious polarization problem in the Bohai Rim. It demonstrates that these places on the belt are more of a loser than a winner in the Bohai Rim’s regional economic development. The Asia Development Bank (ADB) revealed in its research report in 2005 for the first time that there is a large poverty belt around Beijing and Tianjin in Hebei Province. The poverty belt comprises 3,798 impoverished villages in thirty-two impoverished counties which house 2.7 million inhabitants who are the poorest people of China.32 The research shows that in the early 1980s, these counties were basically at the same development level as the outskirts (the counties which are relatively far away from urban areas but still a part of the city) of Beijing and Tianjin. But there has been a dramatic economic gap between them after twenty years of development. In 2001, the per capita net income of the farmers, per capita GRP and the average of county government revenue of the twenty-four “poverty” counties on the belt were only one-third,

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Figure 9.9 Gini Coefficients for Beijing, Tianjin and the Eight Cities of Hebei Province, 1984–2005 (GRP) 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 1984 1987 1989 1991 1993

1995 1997 1999 2001 2003 2005

Source: Zhou, Liqun and Zou, Weixing, “Jing jin ji di qu cha ju, yin guo lei ji yu jing ji zeng zhang, [Regional Disparity, Cumulative Causation and Economic Growth in Jing-Jin-Ji], Tianjin Social Sciences, no. 6 (2006): 20.

Figure 9.10 Gini Coefficients for Beijing, Tianjin and the Eight Cities of Hebei Province, 1989–2004 (Per Capita Income) 0.070 0.060 0.050 0.040 0.030 0.020 0.010 0.000 1989

1991

1993

1995

1997

1999

2001

2003

Source: Zhou, Liqun and Zou, Weixing, “Jing jin ji di qu cha ju, yin guo lei ji yu jing ji zeng zhang, [Regional Disparity, Cumulative Causation and Economic Growth in Jing-Jin-Ji], Tianjin Social Sciences, no. 6 (2006): 20.

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one-quarter and one-tenth, respectively, of those of the average of the outskirts of Beijing and Tianjin. The counties and villages around Beijing and Tianjin in Hebei Province are not the only losers. Zhou and Zou (2006) did a comparison of the GRP and per capita income among Beijing, Tianjin and eight cities in Hebei Province and argued that the development gap among those ten cities is growing because the geographical direction of the spatial flow of resources is from the cities in Hebei to Beijing, which is the most developed core in the region, and to Tianjin, which is the second most developed core.33 THE ECOSYSTEM CRISIS IN THE BOHAI RIM Another key problem in the Bohai Rim’s regional development is the depletion of resources and environmental degradation caused by the fast economic growth in the region. Yu and Mao’s (2002) research supported the statement that the Bohai Rim’s carrying capacity has been overloaded and will continue to be so in the foreseeable future.34 Among all restriction factors, a high consumption growth pattern, water shortages and environment pollution stand out as the three primary obstacles for the Bohai Rim’s sustainable development. 1. Traditional Growth Pattern The traditional growth pattern is characterized by “high consumption, high pollution and high risk”. The manufacturing sector, especially energy-wasting manufacturing industries, is the major contributor to the Bohai Rim’s GRP. This industrial structure has determined that the rapid economic growth in the region is at the cost of high energy consumption. Although the region had a good performance in reducing per unit of GRP’s energy consumption in 2006 compared with other regions in China, its average index was 1.346 tonnes of SCE35 per RMB10,000, which is lower than the country’s average (1.555) but much higher than the average index of YRD and the index of PRD which were 0.876 and 0.771, respectively (see Table 9.4). A high level of pollution is also a big problem resulting from fast development under the traditional pattern. Statistics of the ambient air quality in major cites show that Beijing was the second last on the list for 2006.36 According to China’s National Ambient Air Quality Standard (NAAQS), good air quality means no detrimental health effects are expected and moderate air quality means that unusually sensitive people should consider limiting prolonged outdoor exertion. Beijing’s days of good and

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Table 9.4 Regional Comparison of Energy Consumption per unit of GRP, 2006 (equivalent value) Region

Index (ton of SCE/10,000 yuan)

Change (±%)

0.760 1.069 1.895 1.775 1.231 1.346 0.873 0.891 0.864 0.876 0.771 1.555

–5.25 –3.98 –3.09 –3.20 –3.46

Beijing Tianjin Hebei Liaoning Shandong Bohai Rim’s average Shanghai Jiangsu Zhejiang YRD’s average Guangdong (PRD) China’s average

–3.71 –3.50 –3.52 –2.93

Source: China Statistical Yearbook 2007, (Beijing: China Statistics Press, 2007), p. 271.

moderate air quality numbered only 100 in 1998 and increased to 246 in 2007.37 Serious air pollution in Beijing was a real worry for the planners of the 2008 Olympics.38 2. Water Shortages and Pollution Statistics show that, in 2006, the total amount of water resources in the Bohai Rim accounted for only 2.37 per cent of China’s total and its per capita water resource was only 12.66 per cent of China’s average. The situation in Beijing, Tianjin and Hebei were even worse because their per capita water resources were only 5 to 8 per cent of China’s average.39 The conflict between limited water resources and the increasing water demand from production and living consumption has become an increasingly serious problem in the Bohai Rim. The industrial structure is an important reason for the increasing water demand in the region. Shandong and Hebei are China’s second and third largest wheat farming areas and produce about 30 per cent of China’s wheat. This contributes greatly to the country’s grain self-sufficiency strategy but at the cost of huge consumption of the finite water resources in the region. Basic materials industries, such as steel and petrochemicals,

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are the dominant industries in the Bohai Rim and they all rely on huge amounts of water. The rapid urbanization process also contributes to the fast growing water demand in the region. There were 14.19 million nonagricultural people in the Bohai Rim in 1952, which accounted for 2.88 per cent of China’s total.40 After fifty-four years, the urban population in the region increased to 116.09 million which accounted for 20.12 per cent of China’s total in 2006.41 Heavily pumping of groundwater has been primarily used to deal with water shortages in the region and this has caused the water table to decline significantly. Some city wells must descend more than 600 feet (about 182 metres) to reach clean water today. In some of the deepest wells, steep downward funnels have formed in the water table, which are known as “cones of depression”. Water pollution is also serious in the region. Wastewater, which is frequently untreated, is now often dumped into rivers. Roughly three-quarters of the region’s entire aquifer system is now contaminated to some degree.42 3. Land-based Pollution in the Bohai Sea According to the Bulletin of Marine Environment Quality of China (2007), Bohai Sea’s pollution problem has worsened since 2006. About 31 per cent (24,000 square kilometres) of its total water area is polluted, which is an increase of 4,000 square kilometres over 2006 levels. Table 9.5 shows that, a comparison of the inspection results from 2003 reveals that the share of the polluted area in the Bohai Sea has always been in the top among China’s four seas (Bohai Sea, Yellow Sea, The East China Sea and South China Sea) and it is still expanding. This is especially the case in terms of moderate and heavily polluted areas (307 per cent and 221 per cent, respectively); both of them expanded significantly in between 2006 and 2007. Land-based sources are the main causes of the Bohai Sea’s pollution. There were 100 wastewater outlets around Bohai Bay in 2007 and monitoring shows that 91 per cent (which was the highest in China’s four major seas) of wastewater discharged into the Bohai Sea did not reach national or local standards with regard to all pollutants. The total volume of main solid waste discharged into the Bohai Sea was about 1.77 million tonnes and the total volume of wastewater was about 2.98 billion tonnes.43 As China’s inner sea, the Bohai Sea has a narrow outlet and a broad area inside the bay. It needs about fifteen years for water renewal because of the slow water circulation. There were experts’ warnings in 2004 that the pollution in the Bohai Sea had reached a critical point it would become a “dead sea” in ten years if

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Table 9.5 Ambient Sea Water Quality of Bohai Sea, 2003–07 (sq. km) Year

Relative Clean Area

Lightly Polluted Area

Moderately Polluted Area

Heavily Polluted Area

Total Polluted Area

2003 2004 2005 2006 2007

15,250 15,900 8,990 8,190 7,260

3,770 5,410 6,240 7,370 5,540

850 3,030 2,910 1,750 5,380

1,470 2,310 1,750 2,770 6,120

21,340 26,650 19,890 20,080 24,300

Source: State Ocean Administration PRC, Bulletin of Marine Environment Quality of China 2007, published in January 2008. .

the pollution could not be cut down with effective countermeasures. And, by then, even if there was no more waste water discharged into the sea, it will need at least 200 years for Bohai Sea to become clean only relying on its natural water circulation.44 POLICY OPTIONS There are many reasons for the lack of cooperation and the ecosystem crisis in the Bohai Rim and the conflict between partial interests (the administrative regions’ interests) and the entire interest (the whole Bohai Rim economic region’s interest), and the priority of the administrative authorities over market power in resources allocation are the two major factors. The long-term competition for the economic centre of North China between Beijing and Tianjin, as well as the overlapping construction and malignant competition for investment among the partners in the region, is a typical example of the conflict between partial and entire interests. The result of the conflict is generally a zero-sum game and the exacerbation of resource allocation deficiency. The V-shaped change of the coefficients of industrial similarity also shows the contest between administrative authority and market forces in the Bohai Rim. Local governments have the authority to set up local development plans and allocate and control the necessary resources for the implementation of their plans. But the established industries cannot escape from market competition forever and market forces in resource allocation will finally push resources into the most efficient places and promote local specialization as well as manufacturing conglomeration. The superior will win and the inferior lose because of the influences of the

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market competition mechanism, and this selection will reduce the extent of industrial similarity in the region. But in the face of new development challenges, the priority of the administrative power and local governments’ self-centred development plans lead to industrial similarity and malignant competition in new fields. The obvious backwash effect or polarization in the Bohai Rim’s regional development can explain, to some extent, the unaligned development plans in the region. It is an important reason for the different regional cooperation orientations, especially the “anti-Bohai Rim” orientation of Liaoning and Shandong, among the provincial Eleventh Five-Year Plan(s) which were published after China’s central government’s decision to use BNA of Tianjin as the leading area of the economic development for the Bohai Rim, and indeed the whole of North China. In terms of the factors causing the formation of the poverty belt around Beijing and Tianjin, some policies were direct contributors. In the last two decades, in order to protect Beijing’s water sources and reduce the sandstorms, both the central and local governments had issued many policies. The large scale “closing mountains to nurture the forest” (feng shan yu lin) dramatically reduced local farm income from stockbreeding. The reduction of water supplies to the agricultural and industrial production in the areas and the closing of the factories, which were profitable but with high water consumption or high pollution, also reduced the income of the local government and local farms. The sacrifice made by these area’s brought benefits to Beijing or even to the entire region. But the loser received no compensation for its sacrifice. And this treatment encouraged everyone to struggle for their own interests, even by illegal means, and intensified the conflict between the local and regional interests. The ecosystem crisis in the Bohai Rim also comes largely from the conflict between local and regional interests. Many countermeasures have been used to control the increasingly serious pollution in the Bohai Sea by the national and provincial governments, but the Bohai Sea was still caught in the dilemma where new investment led to an increase in pollution. To control pollution requires a lot of money and the elimination of polluting industries. However, this would result in at least short-term local decline, and a decrease of GRP. So to control pollution, the upriver provinces are generally not as interested as the downriver ones who are the direct victims of the pollution. Local protectionism is a common attitude towards controlling pollution. Above all, for a better understanding of the reason behind regional development problems in the Bohai Rim, its is necessary to clarify the

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obvious conflict between the interests of the part and the whole and administrative authorities behaviour to overrule market forces in the allocation of resources. Part of the answer can be found in the reform history of China’s administrative system. Administrative System Causes Problems in the Bohai Rim First, the contradiction between the administrative division management system and the objective demands of the regional economy’s development is the main reason for the conflict between regional and national interests. The boundary between the natural regional economic development areas is may be different from the administrative territory border. Until now, all economic development plans in China have been based on administrative divisions. Every level in the administrative system, including province, county (or city) and town (or village) has its own plan for its administrative territory and the plan is oriented to maximizing its partial interests (and in many cases, maximizing short-term visible interests). This kind of planning tends to cause conflict among the different partial interests and between the partial and entire interests. Second, the change of the government focus from political to economic issues after China’s reform offers excuses for local governments to use their administrative authority to intervene in economic activities. Although this change was accompanied with China’s transforming from a centrally planed economy to a market economy, there is no doubt that the government performance assessment system with the GRP growth rate and number of foreign investment as main indicators, will push local governments to struggle for investment, especially projects with high profit and quick returns. But issues like pollution control and the entire benefit loss from overlapping construction has no weight in the performance evaluation system at all. Third, the fiscal system reform strengthens local governments’ incentives to use their authorities to intervene in economic activities. From “unified revenue collection and unified spending” [tong shou tong zhi] to “eating from separate kitchens” [fen zao chi fan] to “separating tax systems” [fen shui zhi], fiscal reform means that local governments can have an increasing share of the local economic development harvest. Direct contact between local benefits and local economic development performance inspires local governments to use their power to get more resources for local economic development, even with measures which are harmful to other areas or to whole region.

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Fourth, decentralization after China’s reform supports local governments claim for their partial interests. An important agenda in China’s administrative management reform after 1978 is the adjustment of the relationship between central and local governments and the key point is the division of authority. Decentralization has been the main idea, especially the dispersing of decisionmaking related closely to local economic development. Authority for local tax collection, local infrastructure construction, approval of local business and regional economic cooperation are in the hands of local governments and the central government cannot intervene at will.45 This division of authority promotes local governments’ partial-benefit maximum-oriented plans and increases the possibility of conflict between partial and entire interests. In its efforts to become one of the most dynamic economic growth centres in driving North China’s future development, the Bohai Rim has to change its traditional economic growth pattern in order to promote coordinated development and build a resource-conserving and environmentally friendly region. This is important not only for improving the Bohai Rim’s comprehensive competitiveness, but also for continuing China’s economic growth in the twenty-first century. The change in growth pattern will increase everyones long-term benefits in the region, as well as the entire country. So, it is important to eliminate obstacles to regional cooperation, re-design resource allocation with new thoughts of regional economic integration, sustainable development, and restrict unreasonable intervention in economic activities from administrative authorities. This is the way to reduce economic growth costs and lead to the equity of benefit distribution and the balance between human beings and the ecosystem. Improving Regional Cooperation in the Bohai Rim “Cooperation, win-win approach and re-rising” were key words for regional cooperation at the twelfth session of the Bohai Rim’s mayors’ meeting in April 2006. This implies that improving regional cooperation, strengthening regional consciousness, promoting regional market integration and optimizing resource allocation in a broader geographic area have become the main themes in the region’s development. But, there is still a long way to go from theory to practice. The following policy options need to be considered in order to improve regional cooperation. First, it is necessary to strengthen the macro-control of local development plans and set up an overall plan for the Bohai Rim.

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The conflicts among different partial interests and between partial and entire benefits are inevitable if every part only has a self-centred development plan. Powerful macro-control is important in harmonizing partial interests. It is urgent to set up an overall development plan for the whole Bohai Rim region. The overall plan should be oriented to maximize net benefits, while paying attention to partial interests to make sure there is a balance between one’s short-term loss and long-term benefit. The provincial-level development plans should be aligned with the regional overall plan and give direction to county-level plans. The provincial-level plans are more influential now in the region and there have been a clear picture about the growth poles and hinterlands in every province or municipality. So those poles’ functional positions in the region should be clearly defined in the overall plan, in order to avoid overlapping investment and malignant competition, and align individual economic development plans to form a stronger driving force. Second, a multi-level cooperation system, which is the key to successful regional cooperation, should be established in order to formulate an institutional arrangement in the region. The Bohai Rim’s mayors’ annual meeting has built up a basic framework for regional cooperation but it cannot be isolated at the top level. Different levels’ administrative authorities and functional departments should be included step by step, and non-governmental communication among social communities, academic institutions, industrial associations and citizens should be encouraged. A project management working group which comprises relevant authorities and multidisciplinary experts can be organized for a specific cooperation topic in order to garner political support and technical advice, and groups from civil society should be engaged as participants and stakeholders for a better understanding of partial interests and reducing potential conflicts. Cross-sector reviews of relevant regional policies should be undertaken and policy guidelines established. Third, the function of the market mechanism should be respected and administrative intervention should be limited to correct for the distortions created by market failure and to improve the efficiency in the way markets operate. It is necessary to improve the systems as well as the laws and regulations in order to protect the normal operation of the market mechanism. A uniformed market is the precondition for regional resource integration. Administrative barriers and other market obstacles should be eliminated in order to cultivate a uniform, open, and orderly market system that

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will promote efficient flow of resources. To resolve the problem of serious industrial duplication in the Bohai Rim, fair competition and differentiation strategy, focused on the different segments in an industry, should be promoted. Exploring New Economic Growth Patterns There has been an intense contradiction between high speed economic development and protecting the ecosystem in China in recent years. In order to reduce the conflict and creating harmonious relations between human beings and nature, economic society and the ecosystem, the traditional growth mode has to be adjusted gradually to follow a sustainable production and consumption pattern. First, it is urgent to implement the environment priority strategy. It is very important to launch systemic research and comprehensive assessment of the environmental carrying capacity of the Bohai Rim and the result should be used as important reference for overall development plan of the region. Environmentally friendly industries should be given priority in development and strict macro-control should be implemented to limit the approval of new industrial projects which are high GRP or revenue contributors but have potential environmental risk, in order to get a balance between short-term and long-term benefits. Scientific and technical advantages in the region should be integrated to offer research support for industry upgrades and substitution in the region. Environmental investment opportunities should be identified and public/private partnership projects of environment protection should be developed and promoted. Civil consciousness of environmental protection should be aroused and strengthened. More information about environmental degradation should be published and more training sessions should be conducted in order to create a critical mass of scientific and technical personnel with skills and practical experience in environment protection programmes. Second, local government performance assessment systems need to be adjusted in order to provide political motivations for the growth pattern to change. The GDP-growth-rate oriented government performance assessment system has to be changed. Indicators related to environment protection, like the index of energy conservation and emission reduction, should have more weight in the local government performance assessment system. More detailed statistics of environment protection should be published periodically

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in order to highlight different local authorities’ performance in specific fields and more research should be conducted on the environmental costs of regional economic growth. This will provide political motivations for the transformation of the economic growth model and strengthening local officials’ consciousness of environment protection. Third, a reasonable ecosystem compensation system should be established. Based on the principle of sharing costs and benefits, there should be clearly defined obligations of every local authority on pollution treatment and ecosystem repair in specific periods. And the standards of compensation for the costs of pollution treatment and repairing the ecosystem should also be clearly defined. For people, especially poor people, whose short-term benefits will be negatively influenced by environmental protection countermeasures, there should be relevant policies for ensuring that their sacrifices are compensated. CONCLUSION The Bohai Rim has become the most attractive area in China’s regional economic development in the twenty-first century. Numerous advantages and great potential have brought expectations of a bright future to the region, but the lack of regional cooperation and the serious ecosystem crisis in the region have also led to worries about sustainable development. The Bohai Rim’s regional development is at a crossroad now. Selfcentred development plans of every administrative authority have led to overlapping construction, unhealthy competition and uneven development, and these have caused a substantial loss of benefits to the entire region. Meanwhile, the fast growing economy has caused damage to the ecosystem. The Bohai Sea’s environmental quality is rapidly deteriorating and becoming a bottleneck in the region’s sustainable development. Improving regional coordination and cooperation, working together to change its traditional development model to one of sustainable development has become the necessary choice of the region. The Chinese government has given prominence to “building a resource-conserving and environmentally-friendly society” in the strategy for industrialization and modernization.46 The coming 2008 Olympic Games in Beijing have pushed forward the pollution treatment in the region. Many local government officials and state-owned enterprises leaders have signed pledges to fulfil their promise on energy conservation and emission reduction.

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Failure or success in achieving environmental targets will have impact on their political future. Recycling has become a hot keyword in government plans and media reports. A few national-level recycling demonstration zones have been approved in the Bohai Rim. And the Sino-Singapore Tianjin Eco-city, is to be established in the Binhai New Area. The new venture is expected to become a model of sustainable development for other cities in China. All of these developments have shown that the Bohai Rim is preparing for a rebirth with a new development pattern. It is reasonable to believe that the harmonious growth mode and close cooperation relations will bring the Bohai Rim a bright future. NOTES 1. 2. 3. 4.

5.

The broad sense of the Bohai Rim also includes Shangxi Province and part of Inner Mongolia. But in the usual understanding, the Bohai Rim only covers five provinces or municipalities. China Statistical Yearbook 2007, Table 4–3 (Beijing: China Statistics Press, 2007). China Statistical Yearbook 2007, Table 3–13, 4–3, 14–4 and 18–11 (Beijing: China Statistics Press, 2007). There are broader or narrower senses of both the Pearl River Delta and Yangtze River Delta in China. For the convenience of the regional comparison and the access to the related data, in this paper, the Pearl River Delta means the area of Guangdong province and the Yangze River Delta covers three provinces or municipalities which are Shanghai, Jiangsu and Zhejiang. Liu, Jie, “Tianjin Gets the Nod for New-area Plan”, China Daily, . “Tianjin Defined as Economic Centre of North China”, People’s Daily Online . 7. Pang, Ruifeng, “Huan bo hai jing ji quan qian shi jin sheng”, [The history of Bohai Rim Economic Circle], Southern Weekly, 14 December 2003, . 8. China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007). 9. The data about Beijing, Liaoning, Hebei and Shandong from “GRP 2007”, ; the data on Tianjin from : “2207nian Tianjin de GDP da dao 5018.28 yi yuan, zeng su wei 15.1 per cent” [Tianjin’s GDP was RMB501.828 billion and the Growth Rate was 15.1 per cent], ; the data on China from, : “Zhong guo jingji: Cheng jiu zhi da han jian, wu jia ya li chen zhong” 6.

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10. 11. 12. 13. 14. 15. 16. 17. 18.

19. 20. 21. 22. 23. 24.

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[Chinese Economy: Extraordinary Achievement and Intensive Inflation Press], . China Statistical Yearbook 2007, Table 18–19 (Beijing: China Statistics Press, 2007). “China Publishes Its Resolution on Building a Harmonious Society”, 5 November 2006 . Chinese Government’s Official Web Portal “China’s Bohai Bay may have 20 bln Tons of Oil Reserves” (accessed 22 March 2008). “Liaoning Province” (accessed 26 March 2008). “Doing Business in Shandong” (accessed 26 March 2008). “Hebei Economy” . China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007), p. 9. China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007), pp. 646. The State Development and Planning Commission of China, “Chang jiang san jiao zhou, zhu jiang san jiao zhou, bo hai wan can yu yan hai gang kou jian she gui hua (2004–2010), nei rong jian jie” [Brief Introduction of the Coastal Ports Construction Plan for Yangtze River Delta, Pearl River Delta and Bohai Bay (2004–2010)], . “Beijing Open World’s Largest Airport Terminal for Olympics”, , . “Cai fu 500 qiang”, [Fortune 500] . “Tong ji shu ju [Statistical data]” from the website of Dalian Foreign Trade and Economic Cooperation Bureau, , (accessed 28 March 2008). Wang, Yongqiang and Cong, Qing, “The Next Phase — BNA Moves to Fiscal Fore”, , (accessed 27 March 2008). “Prime Minister Wen Highlights Tianjin Future in His Visit to the City”, , 13 July 2005 . Zhao, Jie,“Huan bo hai cheng shi jing zheng duo yu he zuo bu li yu xie shou fa zhan” [Competition overweight cooperation is not good for the development of the cities around Bohai Bay], First Financial Dail, 12 April 2006. Sun, Qunli, “Cu jin huan bo hai jing ji quan kuai su xie tiao fa zhan de dui ce” [Suggestions for Improving Bohai Rim’s Coordinated Development], Macroecomomics, no. 2 (2006): 38–59.

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25. Comprehensive Statistical Data and Materials on 50 Years of New China, (Beijing: China Statistics Press, 1999), pp. 164–88. 26. China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007), p. 355. 27. Wang, Qi, “Huan Bo hai jing ji quan bei ji hou wang, Dai Xianglong li cu jing jin rong he” [Highly expectation on Bohai Rim’s Economic Circle, Dai Xianglong promotes the cooperation between Beijing and Tianjin], 2003. . 28. Pang, Ruifeng, “Huan bo hai jing ji quan qian shi jin sheng” [The history of Bohai Rim Economic Circle], Southern Weekly, 14 December 2003 . 29. Myrdal, G., Economic Theory and Under-developed Regions (London: Gerald Duckworth, 1957). 30. Hirschman, A.O., The Strategy of Economic Development (New Haven, Conn: Yale University Press, 1958). 31. While these theories date from half a century ago, their ground-breaking relevance has meant that they are still being quoted in the literature. 32. “272 wan pin kun ren kou huan rao jing jin, ya hang guan yuan wei zhi zhen jing” [2.72 million People below the Poverty Line, ADB Officials were Shocked] Xin Jing Daily, 18 August 2005, . 33. Zhou, Liqun and Zou, Weixing, “Jing jin ji di qu cha ju, yin guo lei ji yu jing ji zeng zhang” [Regional Disparity, Cumulative Causation and Economic Growth in Jing-Jin-Ji], Tianjin Social Sciences, no. 6 (2006): 18–25. 34. Yu, Danlin and Mao Hanying,“Regional Carrying Capacity: Case Studies of Bohai Rim Area”, Journal of Geographical Sciences 12, no. 2 (April 2002): 177–85. 35. SCE is short for standard coal equivalent. 36. China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007), pp. 418. 37. “Officials Give Updates on the Air Quality, Transport and Cultural Heritage”, . 38. Yardley, Jim, “Beijing’s Olympic Quest: Turn Smoggy Sky Blue”, The New York Times, 29 December 2007 . 39. China Statistical Yearbook 2007 (Beijing: China Statistics Press, 2007), pp. 412. 40. Comprehensive Statistical Data and Materials on 50 Years of New China, (Beijing: China Statistics Press, 1999), pp. 1–490. 41. China Statistical Yearbook 2000–2007 (Beijing: China Statistics Press, 2007). 42. Yardley Jim, “Beneath Booming Cities, China’s Future is Drying Up”, The New York Times, 9 September 2007, . 43. State Ocean Administration People’s Republic of China, Bulletin of Marine Environment Quality of China 2007, published in January 2008.

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1 for the regions with (net) outward migration and |q| < 1 for the regions with (net) inward migrating. Thus (7) becomes yˆ = a + b kˆ + t ê – q h + e

(7a)

The GLS regression model is applied to estimate (7a) using the panel data of the thirty-one provincial economies for 1995–2006.10 Since population and labour statistics are year-end figures and new capital increased in the year of investment may not immediately be put in full use, a one-year lag is taken for all independent variables. To control for variations in labour force quality, the employment data is weighted by the quality of local human capital (with proxy of percentage of population with secondary education or higher). As a robust test, the model is regressed with a dummy variable Dt = 1 for the period 2001–06, assuming that impact of dependency ratio on per capita income may have changed during the period. To test the hypothesis about the value of q, the model is also regressed with a dummy variable De = 1 for provincial economies in the coastal region, which includes Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, and Guangdong. The results are displayed in Table 14.1. All the non-dummy coefficients appear significant with the expected signs and stable values in all regressions. The significant positive coefficient for Dt indicates that overall productivity has been higher since the turn of the century. Meanwhile, the product of Dt and h has a significant coefficient around –0.26 to –0.29, which indicates that, compared to years before 2001, the value of |q|, the coefficient of h, has risen roughly by 30 per cent in 2001–06. In other words, the role of dependency ratio as a binding constraint on per capita income has become significantly stronger for most provincial economies. On the other hand, the positive coefficient for De is only marginally significant, suggesting weak productivity advantages of the coastal economies over the other regions. More interestingly, the product of De and h has a positive and significant coefficient around 0.4 to 0.5. In the specifications of the model in the last column, this means that, for the non-coastal regions, the average value of q is –0.99, while for the coastal regions, it is –0.46. In other words, the dependency ratio’s constraining effect on per capita income is almost halved for the coastal regions. Note that the levels of dependency

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Table 14.3 Impact on Per Capita Income ( yˆ ) Basic Model (random effect)

Model with Time Dummy (random effect)

Model with EastRegion Dummy (random effect)

Model with Time and East-Region Dummies (random effect)

Constant

1.7600**** (10.59)

1.7097**** (10.22)

1.7144**** (10.42)

1.6692**** (10.1)



0.7680**** (54.31)

0.7634**** (53.48)

0.7672**** (53.32)

0.76184**** (52.62)

ê

0.8255**** (30.70)

0.8394**** (28.83)

0.8116**** (29.66)

0.8216**** 27.89

h

–1.0959**** (–9.58)

–0.8160**** (–5.19)

–1.2577**** (–8.73)

–0.9873**** (–5.66)

Coefficient of

Dt

0.11171*** (2.29)

0.12699**** (2.56)

Dt · h

–0.2591*** (–1.99)

–0.2900*** (–2.19)

De

0.1684* (1.59)

0.1276# (1.23)

De · h

0.4039** (1.83)

0.5326*** (2.40)

Observations

341

341

341

341

4,051.07

4,440.43

4198

4630.03

Prob > chi2

0

0

0

0

R-square –within –between –overall

0.9637 0.7557 0.8070

0.9657 0.7561 0.8078

0.9651 0.8444 0.8697

0.9677 0.8462 0.8726

ρ

0.8288

0.7953

0.8161

0.7814

σu

0.2464

0.2432

0.1905

0.1861

σe

0.0366

0.0376

0.0380

0.0391

Wald chi2

Notes: — Significance-levels of estimates are indicated by **** (99%); *** (95%); ** (90%), * (85%), *# (80%) and # (75%). — Numbers in brackets are z-statistics. Source: Author’s calculation.

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317

ratios already reflect the consequences of inter-regional labour migration. Yet significant difference in impact of dependency ratios on per capita income is still observed between the coastal regions and other regions. This empirical evidence can be interpreted as the biased benefits brought in by increased inter-regional labour mobility in favour of the coastal economies in the context of China’s institutional settings. NOTES 1.

The natural growth rate of population is the difference between crude birth rate and death rate. 2. This is because marginal productivity of labour is ∂Y/∂E = l AE l–1K b = lY/E = w, where w is wage rate. So l = wE/Y is the share of employment income in total income. With constant-return-to-scale, b = 1– l, marginal productivity of capital can be imputed in a similar manner. 3. China revised its GDP figures based on a nationwide economic census in 2004. The indices of gross regional product data back to 2001 published in NBSC (2006, 2007) have been used to account for the adjusted GDP statistics. 4. Since data of “compensation of employees” were published for years 1994 and 1997–2006, for years 1995–96, the value is estimated by the weighted average of 1994 and 1997. 5. As in Zhang and Zhang (2003), we estimated the capital stocks as Kt= (It – dt)/Pt +Kt–1,where Kt is capital stock in year t, It is fixed capital formation in year t, Pt is an accumulative price index with year 1995 as 1, derived from the annual price indices for fixed assets, and dt is capital depreciation. The initial values for the capital stock is K0 = I0 /(g + d), where d is assumed to be 5 per cent and g is the growth rate of real investment. 6. The system, established in the late 1950s, confined people, especially those in the rural areas, to the place of their birth. For a more detailed discussion on the Hukou system, see Chan and Zhang (1999). 7. “Hukou System Relaxation”, Straits Times (Singapore), 10 October 2001; “Household Registration Reform in 20,000 Cities and Towns”, Beijing Qingnianbao [Beijing Youth News], 28 August 2001. 8. A search on on 30 April 2008 for “农民工子女教育” generated 785,000 results. 9. “Sanding Committee of National People’s Congress Concerns over the Education Problems Faced by Children of Rural Migrant Workers”, Xinhua News Agency, 28 June 2007 . 10. The GLS estimator is for cross-sectional time-series regression models when the disturbance term is first-order auto-regressive: yit = a + xit * B + ui + eit, where eit = r ei,t-1 + zit and where | r | < 1 and zit is independent and identically distributed (iid) with zero mean and variance s 2 (zit).

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REFERENCES Eberstadt, Nicholas. “Growing Old the Hard Way: China, Russia, India”. Policy Review, no. 136 (April & May 2006). Lee, Ronald and Andrew Mason. “What is the Demographic Dividend?” Financial & Development 43, no. 3 (2006). Lu, Ding. “China’s Regional Income Disparity: An Alterative Way to Think of the Sources and Causes”. Economics of Transition 16, no. 1 (2008): 31–85. Mason, Andrew and Wang Feng. “Demographic Dividends and China’s Post Reform Economy”. Paper presented to the International Union for the Scientific Study of Population, XXV International Population Conference, Tours, France, 18–23 July 2005. National Bureau of Statistics of China (NBSC). China Statistical Yearbook. Beijing: China Statistics Press, 1996–2007. ———. Comprehensive Statistical Data and Materials on 50 Years of New China. Beijing: China Statistics Press, 1999. ———. China Compendium of Statistics: 1949–2004. Beijing: China Statistics Press, 2005. ———. “Communique on Main Statistics from the 1% Population Survey of 2005”. 2006 . National Population and Family Planning Commission. “China’s Population”, 20 September 2005 . Population Census Office. Tabulation on the 1990 Population Census of the People’s Republic of China. Beijing: China Statistics Press, 1993. ———. Tabulation on the 2000 Population Census of the People’s Republic of China. Beijing: China Statistics Press, 2002. Razin, Assaf and Chi-Wa Yuen. “Factor Mobility and Income Growth: Two Convergence Hypotheses. Review of Development Economics 1, no. 2 (1997): 171–90. Solow, R. “A Contribution to the Theory of Economic Growth”. Quarterly Journal of Economics, no. 70 (1956): 65–94. ———. “Technical Change and Aggregate Production Function”. Review of Economics and Statistics, no. 39 (1957): 312–20. United Nations Secretariat. “World Population Prospects: The 2006 Revision” and “World Urbanization Prospects: The 2005 Revision”, 2006. . Yao, Zhongzhi. “Labour Move and Regional Disparity” (in Chinese). 世界经济[The World Economy, China], no. 4 (2003): 35–44. Zhang, Xiaobo and Kevin H. Zhang. “How Does Globalisation Affect Regional Inequality within a Developing Country? Evidence from China”. The Journal of Development Studies 39, no. 4 (2003): 47–67.

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Index A Abdication Rescript, 127 Abu Dhabi, 235, 237 Abu Dhabi Future Energy Company (ADFEC), 238 administrative barriers, 204 administrative system, reform history, 202 Agreement on the Joint Development of Suzhou Industrial Park, 168 Agreement o Cooperation and Development of the Service Industry, 151 Along-Yangtze River development strategy, 162 Anhui, 41 anti-Bohai Rim orientations, 194 Anti-Japanese War, 127 ASEAN Free Trade Area (AFTA), 105 Asia Development Bank (ADB), 195 Asia-Pacific Economic Cooperation (APEC), 105 Asian Shoe Industry Association, 74 Aucma, 214 Award for Entrepreneur’s Satisfaction, 214 B backwash effect, 97 bank loans economic growth, 262 impact on GDP, 7

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Bank of China, 151 Baotou City, 244 Basic Public Services, equalization, 11 Batam dependency on foreign investment, 114 Batam, Bintan, Karimun Economic Region, 97 business prospects, 111–13 economic performance, 106–108 historical background, 104–106 overview, 104–13 Bauhaus, 91 Beijing 188, 200 disposable income, 190 Gini coefficients, 196 industry share of GRP, 189 population, 41 value-added in industry, 190 Beijing Capital International Airport, 186 Beijing University, 172 Beijing-Tianjin-Hebei area, 51 Beijing-Tianjin-Hebei Metropolitan Ring, 52 Beijing-Tianjin-Hebei region, 31, 217 Benxi City, 242 Bi Luo Chun strategy, 145 Binhai, 24 Binhai New Area of Tianjin, 179, 181 Binhai New District, 244

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320

biomass gasification factory, 241 Blair, Tony, 243 Blue-cover Book programme, 85 Boao Forum of Asia, 27 Bobek-Christaller-Barton approaches, 80 Bogor Declaration, 105 Bohai Bay, 192 Bohai Rim, 3, 6, 16, 188, 191 administrative system, 202–203 economic development, 180–85 ecosystem crisis, 197–200 geographical position, 185 growth pattern, 197, 198 improving regional cooperation, 203–204 industrial base, 186–87 mayor’s annual meeting, 204 natural resources, 185–86 polarization, 195–97 policy option, 200–206 pollution, 198–99 potential, 185–88 regional development, 179–210 regional economic cooperation, 188–97 Sea-Land-Air Transportation Networks, 186 uneven development, 195 water shortages, 198–99 Bohai Rim Economic Circle, 180 Bohai Rim, 188, 191 Bohai Sea Rim, 44, 47–48 land-based pollution, 199–200 Bohai Sea Rim Economic Zone, 51 British Virgin Islands (BVI), 114 Broader PRD region, 104 Brundtland Report (1987), 236–37 Bulletin of Marine Environment Quality of China, 199 Business Activities & Opportunities, IMS-GT, 110 Business Week, 172

15 RegEDCindex.indd 320

Index

C Cantonese culture, 94 Caofeidian Port, 194 capital formation, 262 Western China, 264–71 capital flows, 310 capital stock, 299 Carbon Management Unit, 238 Castells, Manuel, 82 Central People’s Government, 103 Changsha, 25–26 chemical industry, 19–20 Chen Liangyu, 243 Chengdu, 24 Chengdu-Chongqing reform-trail district, 25 Chengdu-Chongqing Urban Belt, 286 China 11th Five-Year Plan, 2 GDP (2007), 1 growth rates, 33 regional economic development, 33 new trends, 9–27 overview, 1–8 China Academy of Social Sciences, 84 China Science and Technology University, 172 China-ASEAN Free Trade Agreement, 104 China-ASEAN Free Trade Area, 26, 216–17, 222 China-Singapore SIP Development Corporation (CSSD), 168 China-Singapore Suzhou Industrial park (CSSIP), 166 development of, 168–70 experiences from, 170–71 human-oriented philosophy, 171 China-U.S. Centre for Sustainable Development, 241–42 Chinese medicine, production, 92 Chinese People’s Liberation Army, 212 Chongming Island, 129

7/29/09 9:55:59 AM

Index

Chongqing, 7, 41 cooperation with Singapore, 8, 291 development scheme, 290 development strategy, 277–94 economic development, 282 general situation, 278–81 history, 280 industrial structure, 289 major achievements, 281–85 map, 278 mega metropolis, 283–84 natural environment, 279–80 role in future, 285–86 six major functions, 290 strategic decisions, 286–95 Three-Gorges Reservoir, 281 Chongqing Great Bridge, 123 Chongqing region, 24 Chongqing Real Estate Group, 284 Chu Prefecture, 280 Circum-Bohai-Sea region, 22 Circulating Economy Zone, 194 Closer Economic Partnership Arrangement (CEPA), 87, 103, 216 Club of Rome, 236 co-integration test, 272 Cobb-Douglas aggregate production function, 299, 314 collectively-owned enterprises, 132 coastal economic zones, cooperation between, 23 coastal enterprises, 51 coastal eastern region, 42 coastal provinces, 1–2 Cobb-Douglas production function, 7 commodity trade, dependence, 23 Common Effective Preferential Tariff (CEPT) agreement, 105 commune team enterprises, 131 Communist Party of China, 212 Concentration of Specialized Industries in Particular Localities, 98

15 RegEDCindex.indd 321

321

cones of depression, 199 construction land, expansion of, 162, 163 construction machinery, 25 cooperation mechanism, 14 coordination mechanisms, 13–14 core-periphery model, 100 Core-Periphery Theory, 98, 104 cost impact, 56 low-cost industries, 54 cost-oriented upgrading, 56 cost-push industrial transition, 55 coastal-interior divide, 2 creative industries, Pear River Delta, 90–92 cultural evolution, 53 Cultural Revolution, 303 Cuntan International Containers Port, 285 D Dai Xiaolong, 242 decentralization move, 3 local governments’ claim for interests, 203 demographic constraints, 314 demographics, changes, 307 Deng Nan (Madam), 242 Deng Xiaoping, 50, 85, 168 economic reform, 2, 99 strategic plan, 138 visit to Shanghai, 124 dependency ratio, 304, 311 design and service industries, 91 Developed Municipal Economic Circle, 288 development, sustainability, 175 Development and Reform Commission of Jiangsu, 151 Development Bank of Singapore, 227 development plans, unaligned, 193,–94 disposable income, urban households, 190

7/29/09 9:56:00 AM

322

domestic investment, nongovernmental, 49 Dongguan, 57 analysis of cost impact, 71–74 average monthly wages, 72 bankruptcies, 77 case study, 4 cost impact on industrial transition, 74 dependence on foreign trade, 70 economic profile, 70–71 integration of, 152 manufacturing industry, overall cost rise, 73 policies, 75–77 study on cost impact and industrial transition, 70–77 urbanization, 71 Dongguan Taiwan Investors Association, 74 Dongguang, 54 Dongtan Eco-city, 243–44, 254 Dongtan project, 235 Dorling, Danny, 81 Double Star, 214 Douglas production function, 263 dual rural-urban structure, 93 dual-oriented society, 24 Dushu Lake Higher Education District, 172 E East Asian Tigers, miracle growth, 96 East China Military and Political Committee, 129 eastern coastal region, manufacturing industry, 22 eastern region, Ninth Five-Year Plan, 29 Eastern Zhou Dynasty, 211 eco projects, 239–40 eco-city concept, 236–37 eco-tourism, 243–44

15 RegEDCindex.indd 322

Index

ecological environment protection, 218 ecological space, dwindling of, 156 economic activity concentration, 42–46 distribution, 32 Economic Development Board, 109 Singapore, 117 Economic Development Plan for Guangxi Tonkin Gulf Economic Zone, 26 economic disparity, 31 economic growth, 160–62 changes, 160–62 regional gross domestic product, 160 uneven, 8 economic growth patterns, exploration of, 205–206 economic regions, division of, 29 economic performance, Pearl River Delta, 100–102 economic transition, Yangtze River Delta, 134 economic zones, cooperation with, 119 ecosystem compensation system, 206 ecosystem crisis, Bohai Rim, 197–201 EDI system for customs clearance, 168 education and innovation system, 172 educational resources, 187 Eighth Five-Year Plan, 28–29 Eleventh Five-Year Plan, 12, 30–31, 150, 152, 189, 193, 218 energy industry, 19–20 Engle-Granger’s two-step approach, 273 Enshi Tujia, 30 environmental considerations, 7 environmental protection, 57, 205 environmentally friendly industries, 172, 205 equity financing, 269 Erdos, 37 ethylene production project, 192

7/29/09 9:56:00 AM

Index

export tax rebates, 57 export processing zones, 96, 168 export-oriented strategy, 223 F factor price equalization, 308–309 family planning programmes, 303 family-based individual private economy, 131 family-run firms, 132 farmers-turned workers, 45 favourable industrial policy, Shenzhen, 67 Feng Shunqiao, 146 financial institutions, balances of loans, 267 fiscal capital formation, 275 fiscal expenditure, 264 fiscal system reform, 202 Five Residential Groups, 219 Five Rising Industries, 218 Five Systems, 219 fixed assets investments, 46–47 fixed assets investment, 264–66 floating population, 45, 158, 160, 296 foreign direct investment, 47, 269–71 regional distribution, 184, 270 relationship with economic growth, 261 foreign investment, 183 attraction of, 169 export-oriented, 100 foreign investors, preferential treatment, 87 foreign trade, Shenzhen, 58 foreign-funded enterprise, 183 Fortune 500 Enterprise, 187 Foster, Norman, 241 Four Plates, 16–18 Four Plates region, 4 Four Platforms, regional development policy supported by, 11–12

15 RegEDCindex.indd 323

323

Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun, 105 free trade agreement, WTO rules, 87 Friedmann, J., 83 Fudan University, 172 Fujian, 36, 40 Fujitsu, 186 Function-oriented Zones, differential management policy, 12 G Gansu, 36 global exchanges, 94 GLS regression model, 315 Goh Chok Tong, 235, 244 Government Work Report (2007), 193 Grand Delta, 89 Grand Strategy for China’s Western Development initiative, 275, 266 Greater Mekong Sub-region, 26, 106 Gross Domestic Product (GDP) comparison, 17 comparison of growth rate, 182 regional, 160 Growth Pole Theory, 97–98 growth poles, role of, 117–18 growth rates, 1980–2006, 34 changing GRP, 35 GRP per capita, 38 changes, 39 disparities among provinces, 40 Greater Mekong Sub-region, 106 gross domestic production, regional, 160 Gu Xiulian, 137 Guangdong, 2, 20, 36, 40 population, 41 Guangdong Province, 54 Tenth Five-year Plan, 103 Guangxi, 20, 30, 41 Guangzhou trade fair, 91

7/29/09 9:56:00 AM

324

Guangzhou-Foshan, 89 Guizhou, 36, 41 H Haier Group, 214, 224 Hainan, tourism development, 26 Hainan province international tourism, 26 international financial services, 27 Haitang Bay, 27 Han Zheng, 151 Hang Jia Hu, 128 Hangjiahu Plain region, 156 Hangzhou, urban functional optimization, 176 Hangzhou Bay, basic industries, 175–76 Hangzhou Bay Bridge, 147 Harrod-Douma model, 263 heavy chemical industry, 223 Hebei, 20, 22 economic development, 193 Heckscher, Eli, 55 Heilongjiang, 36 Henan, 20, 22, 41 Hicks, John 261 high industrial agglomeration, 20 high-end service industry, 67 Hirschman, A.O., 195 Hisense, 214 Hisense Group, 224 Hoffman’s theorem, 223 Hong Kong, 2, 5, 57, 100, 117, 119 Chinese legal system, reversion back to, 116 focus on services industry, 115 growth pole for Pearl River Delta, 102 handover from Britain, 88 role of government, 118 Hong Kong Science and Technology University, 172 Hongdao, 219 Hu Jintao, 140, 243

15 RegEDCindex.indd 324

Index

Huang Ju, 139 Huangbaiyu Eco-village, 241–43, 255 Huangbaiyu Village Committee, 242 Huanghe (Yellow River) Delta, 194 Hubei, 41 hukou system, 160, 300 Hunan, 22, 41 Huzhou, 146 I IMS Growth Triangle, 97 income disposable, see disposable income growth rates, 190 income-development disparity, 295 Indonesia Coordinating Minister for Economic Affairs, 111 lessons from PRD region, 117 oil and gas reserves, 118 special economic zones, 120 Indonesia-Malaysia-Singapore growth triangle, 5, 96–122, 105, 109 triangle of complementarily, 111 industrial clusters, 55 industrial parks, construction, 227–28 industrial relocation, new trend, 46–50 industrial transition, 67–70 cost factors, 56 cost impact, study on Shenzhen, 58–70 policy suggestions, 77 Shenzhen, cost impact, 64–67 study on Dongguan, 70–77 types, 54–58 industrial stagnation, cause of, 57 industrial upgrading, 53 facilitation of, 5 industries, fast growth, 19–20 inland region, 29 Inner Mongolia, 20, 30, 36, 198 institutional evolution, 53

7/29/09 9:56:00 AM

Index

Integrated Outsourcing Initiative (ISI) clause, 109 intellectual property rights, 59 inter-regional comparison, 113–20 inter-regional labour migration, 317 inter-regional labour mobility, 313 international financial centre, Singapore, 229 international purchasing centre, 103 investment high growth, 50 regional distribution, 46 investment in fixed assets, regional shares, 183 investments as driver of development, 18–19 fixed assets, 46 inward migration, 306 Ipsen, Detlev, 82 Iskandar Development Region (IDR), 120 Iskandar Economic Zone, 112 Ismeth Abdullah, 107 J Japan, 187 Jiang Zemin, 140 Jiangsu, 5, 20 coal mine, 129 Jiangsu Province, 166 Governor, 137 Jiangxi, 20 Jiaonan, 219 Jiaxing-Shanghai Expressway, 145 Jidong Nanpu oilfield, 185 Jimo, 211 Jingjinji, metropolitan areas, 24 Jingtang Port, 192 Joint Council for Bilateral Cooperation, 249 Joint Council of Bilateral Cooperation, 255 Joint Working Committee (JWC), 250

15 RegEDCindex.indd 325

325

juvenile dependency ratios, 303, 308 K Ke Qingshi, 129 key performance indicators (KPIs), 245 KingDeer, 37 Krugman, Paul, 56 Kunshan Economic Technological Development Zone (ETDZ), 169 Kuomintang, 212 L Labour Contract Law, 53, 56 labour-intensive industry, major part of Qingdao‘s economy, 226 labour migration, 296 labour mobility, 296 labour unions, 113 Laizhou Bay economic zones, 194 Lan Lijun, 112 land cost, Shenzhen, 60–61 land price Dongguan, 72 Shenzhen, 61 land supply, shortage, 171 landscape of globalization, 81 landscapes methodology, 82 Lang, Jared, 81 Langya, 219 Langya Bay, 215 Laoshan Mineral Water, 221 Lee Hsien Loong, 109, 118 Lee Kuan Yew, 168 Lewis, Arthur, 55 Li Lanqing, 168 Li Peng, 139 Liaoning, 20, 22, 36, 51 anti-Bohai Rim orientation, 201 Liberty Mutual Insurance, 284 Liu Feng, 4 Limerick University, 172 Lingshan Shipyard, 224

7/29/09 9:56:00 AM

326

low-cost industries, 54 loans, 266–69 Lu Yongxiang, 311 M Macau, 2, 5 major economic indicators, 32 manufacturing industry changes, 21 evolution, 115–16 spatial changes, 43 Mao Zedong, 51 coming into power, 1 market force, 131 market mechanism, 13 market system, introduction of, 2 market-oriented reform, 43, 50 market-oriented regional economic growth model, 132 Marshall, Alfred, 98 Masdar Initiative, 255 Mah Bow Tan, 250 manufacturing industries, Bohai Rim, 191 market economy, centrally planned, 202 market mechanism, function of, 204 Masdar Eco-city, 235, 237–41 Masdar Initiative, 238, 254 McDonough, William, 241–42 Medicare insurance, 284 mega-city region, 79 competitiveness, 84 mega-city regional development, 81–83, 93 Mega-urban Pearl River Delta, 90 Meishan, iron ore mines, 129 Mengmilk, 37 metallurgy, 289 metropolitan areas, emergence, 24 Miao Autonomous prefecture of Hunan Province, 30 Microsoft, 186

15 RegEDCindex.indd 326

Index

middle regions, rise of, 25 migrant workers, remittances, 311 migration, demographics, 301 migration patterns, 296 Ministry of Commerce, 186 Ministry of Education, 187 Ministry of National Development, 250 models of development, 80 Monetary Authority of Singapore (MAS), 230 monetary policy, 56 Motorola, 186 Mubadala Development Company, 238, 241 multi-level cooperation system, 204 multinationals, 96 mutual aid mechanism, 14 Myrdal, G., 195 N Nanjing, urban functional optimization, 176 Nanjing Treaty, 127 Nanjing University, 172 Nanjing-Shanghai Expressway, 144 Nanjing-Shanghai Intercity Express Railway, 124 National Ambient Air Quality Standard (NAAQS), 197 National Bureau of Statistics of China, 33, 233 National Development and Reform Commission, 49, 150, 152, 192 National People’s Congress, Standing Committee, 311 national output tax, 22 National People’s Congress, 245 National Planning Committee, 138 Nationwide General Environmental Regulations, implementation, 11 Nationwide Unified Market, 11 nature, harmony with, 10

7/29/09 9:56:01 AM

Index

natural water circulation, 200 net inward migration, 297 net migration volume, 297 net outward migration, challenges, 308–12 New Economic Geography (NEG) model, 98 Ni Pengfei, 85 Ningbo, 214 Ningxia, 36 Ninth Five-Year Plan, 29 NOL Group, 227 non-governmental domestic investment, 49 non state-owned enterprises, development in Yangtze River Delta, 135 non-agricultural population, 158 distribution in Yangtze River Delta region, 159 non-state owned commercial enterprises, 131 North China, economic centre of, 200 Northeast China, 9 Northern Expedition War, 127 Northern Warlord Government, 212 Notice on Outline of the Report of Shanghai’s Economic Development Strategy, 138 Nurkse, Ragnar, 263 O Office of the Leading Group for Western Region Development, 49 Ohlin, Bertil, 55 oil and gas reserves, Indonesia, 118 Olympic Sailing Competition(2008), 217 One Planet Living Programme, 241 open door policy, 1–2 open economy policy, 86

15 RegEDCindex.indd 327

327

Opium War, 126 outward migration, 294–318, 306, 309, 312 P Pacific War, 127 package-cost, change or rise, 57 Paleolithic Age, 280 Pan-Beibu Bay Area Economic Cooperation Region, 26 Pan-Pearl River Delta, 23, 83 cooperation with Singapore, 92–95 creative industries, 90–92 difference from BBK region, 119 mega-city, 85–90 process of transition, 134 Pan-Pearl River Delta economic area, 26 Panasonic, 186 Pearl River Delta Economic Region business prospects, 102–104 economic performance, 100–102 historical background, 99–100 overview, 99–104 Pan Pearl River Economic Zone, 97 major economic indicators, 101 pan-regional cooperation, Hinterland Competition, 23–24 Pear River Delta, 3 development path, 5 Pearl River Delta, 22, 31, 44, 46–48, 53 development, 79–95 Pearl River Delta Open Economic Region, 86–88 Peninsular Metropolis Group (PMG), 194 Perroux, François, 97 performance assessment systems, 205 petrochemical industry, 224 Philips, 111 pillar industries, 25–26 Political Bureau Committee, 54

7/29/09 9:56:01 AM

328

pollution Bohai Rim, 198–99 Bohai Sea, 199–200 POLYNET project, 79–95 Population Census, 296–97 population growth, urban, 158–60 port logistics, Singapore, 229 poverty belt, 195 around Beijing and Tianjin, 201 Principle of Cumulative Causation, 97 private investment, 271 problem regions, governing and supporting, 13 Product Cycle Hypothesis, 55 Programme on Rejuvenation of the Northeast Region, 51 Project for Enterprises Going West, 49 project management working group, 204 protectionism Bohai Rim, 201 regional, 21 PT Citra Tubindo, 112 Pudong, 24 development of, 6, 138 development and opening up of, 144, 167 Pudong Development District, 138 Pudong Economic Zone, 117 Pudong New Area of Shanghai, 181 Pudong New District, 162 Q Qatar Investment Authority, 251 Qin Dynasty, 280 Qing Dynasty, 127, 212 Qingdao, 6, 194 comparative advantages, 218 cultural city advancement, 218 development strategy, 216–21, 217–21 differences with Singapore, 225–30

15 RegEDCindex.indd 328

Index

economic similarities with Singapore, 223–25 economy, 213–15 “Five Strategies”, 217 foreign capital, 215 foreign economy, 215–16 history, 211–16 industrial structure, 224 new development strategies, 211–33 new opportunities, 216–17 port communication and cooperation, 231 social development of, 220 trade, 215–16 trade cooperation, 230–33 trade cooperation with Singapore, 221 urbanization, 218 Qingdao Beihai Shipbuilding Heavy Industry Co Ltd, 224 Qingdao City, 212 Qinghai, 36 R raw materials, rise in price, 61–64 recycling, 207 reform-testing districts, 24 regional cooperation Bohai Rim, 203 rise of, 22–24 regional development balanced, 10 globalizing of, 156 overall strategy, 10 social impact, 119–200 regional disparity, mitigation, 41 regional economy disparity, 37–42 trends, 14–22 regional economic cooperation, 217 regional economic development theories, 97–98 regional growth, movement northwards, 14–15

7/29/09 9:56:01 AM

Index

regional imbalance, problem, 9 regional industrial differentiation, 20–22 regional policies, 11–13 regional resource integration, 204 regional self-reliance, 2 renmimbi, appreciation, 61–64 Renmin University of China, 172 rents, Shenzhen, 62 resource allocation, optimization, 232 resource integration, 94 Resource Processing Industrial Areas, 176 Riau Islands, 105 Governor of, 107 Riau Islands Province, 108 foreign and domestic companies, 108 rural migrants, barriers, 312 rural-to-urban migration, 313 S Saey, Piet, 80 salary of workers, Shenzhen, 61 San Francisco Bay, 125 Scientific Development Values, 151 Seagate, 111 Seventh Five-Year Plan, 29, 30 Shaanxi, 36 Shandong, 2, 20, 36, 194 Shandong Peninsula, 31 Shandong Peninsula City Cluster, 52 Shandong Peninsula city group, 221 Shanghai, 5, 24, 41, 51 conservatism, 133 foreign investment, 142 influence of, 145 integration with Yangtze River Delta, 143–49 national industrial centre, 130 non state-owned enterprises, 134 reform and opening-up policy, 140 relations with Yangtze River Delta, 124–54

15 RegEDCindex.indd 329

329

historical development, 128–31 rise of, 128 trading centre of Yangtze River Delta, 149 urban functional organization, 176 Shanghai Economic Zone, 137–38, 143 Shanghai Expo, 243 Shanghai Industrial Investment Corporation (SIIC), 243 Shanghai Pudong New Area, 180 Shanghai Pudong New District, 146 Shanghai Stock Exchange, 141 Shanghai-Hangzhou Expressway, 144 Shanhaiguan-Yantai Railway, 186 Shanxi, 20 Shengli Oilfield, 185 Shenzhen, 54, 57 case study, 4 cost impact, 59–64 dependence on foreign trade, 58 economic profile, 58–59 enterprises, 65–66 favourable industrial policy, 67 land cost, 60–61 manufacturing industry, overall cost rise, 63 policies to support industrial upgrading, 68–69 related policies, 67 rental costs, 62 salary of workers, 61 study on, 57–70 technology-intensive industries, 67 wage cost, 59–60 Shaoxing, 133 integration of, 152 Shengzhen, integration of, 152 Shenzhen Special Economic Zone, 180 Shenzhen-Huizhou, 89 shipbuilding industry, 224 Sichuan, 22, 41

7/29/09 9:56:01 AM

330

Sichuan province, foreign direct investment, 270 Siemens, 111 SIJORI Growth Triangle, 121 Silicon Valley, 125 Singapore, 57 areas of cooperation with Indonesia, 118 cooperation in service industry, 231–32 cooperation with, 92–95 cooperation with Chongqing, 8 development of port, 229 economic and trade cooperation, 7 Economic Development Board, 117 economic policy, 116 education and training programmes, 94 Government Investment Cooperation (GIC), 227 growth pole for BBK, 108 international fund centre, 228 international sporting events, 112 investment in Suzhou, 166–73 key pillars of economy, 115 manufacturing and service industries, 291 opportunities for, 24 role of government, 118 trade cooperation with Qingdao, 221 Singapore, Indonesia, Johor (SIJORI), 97 Singapore Airlines, 227 Singapore Great Eastern life Insurance, 284 Singapore Shandong Economic and Trade Council, 222 Singapore Statistics Bureau, 226 Singapore Tianjin Eco-city Investment holdings (STEC), 251 Singapore-owned enterprises, 223 Singapore-Shandong Economic and Trade Council, 221

15 RegEDCindex.indd 330

Index

Sino-Singapore Tianjin Eco-city, 7, 207, 235–59, 244–47, 248–54 Sino-Singapore Tianjin Eco-city Investment and Development Company, 251 six-pillar industrial structure, 213 Sixth Five-Year Plan, 29 small and medium-sized enterprises, support for, 227 software transfer programme, 169 sole-investment enterprises, 86 Songjiang Prefecture, 126 Songjiang Special Administrative Area, 129 Songshanhu Development Zone, 74 South Jiangsu Model, 132, 138, 141 South Korea, 57 Southern Ecological Industry Areas, 176 spatial development, sustainability of, 157 spatial development function, 174 spatial expansion, Pearl River Delta, 87 Special Administrative Regions (SARs), 89, 100 Special Economic Zones, 2, 85 1980s, 3 State of Ba, 280 State Planning Committee (SPC), 192 State-owned Assets Management, 226–27 state-owned enterprises (SOEs), 167 restructuring, 216 State-owned Enterprises Reform, 226 Statistical Yearbook of Singapore, 291 Sunan Model, 167, 169 support mechanism, 14 Sutong Yangtze River Highway Bridge, 123 Suzhou, 149, 166 global innovation city, 172 Singapore’s investment, 166–73

7/29/09 9:56:01 AM

Index

Suzhou City, 167 Suzhou New District, 169 system-oriented industrial upgrading, 55 T Tai Ping Tian Guo, 127 Taihu Lake, 150 Taiwan, 58 talent exchange, 232–33 Taylor, Peter, 81 Tangshan City, 244 tax incentives, British Virgin Islands, 114 Taoism, birthplace of, 211 Technological Dongguan Project, 75 technological innovation, 53 technological innovation strategy, 223 technology division-type industrial transition, 55 technology-oriented industrial upgrading, 55 Temasek Holdings, 293 tertiary industry, 183 theory of national revenue determination, 272–79 Thomson, 111 Three-Gorges Ecological Economic Zone, 287 three-year famine, 302 Tianheng, 219 Tianjin, 20, 24, 41, 188, 200 disposable income, 190 Gini coefficients, 196 value-added in industry, 190 Tianjin Binhai New Area (TBNA), 25, 187 Tianjin Economic-Technological Development Area (TEDA), 186, 251 Tianjin Port, 192 tourism diplomacy, 224 tourism industry, 118

15 RegEDCindex.indd 331

331

tourism products, 27 township enterprises, 132 township and village enterprise, 167 traded, intra-provincial, 22 trickle-down effect, 98 Tsingtao Beer, 221 Tumen Delta Triangle, 106 Twelfth Five-Year Plan, 218 U UN Clean Development Mechanism, 238 unemployment insurance, 284 Unified Tax System, 53, 56 unit-root test, 272 United Nations Conference on the Human Environment, 236 United Nations Environmental Programme, 236 United Nations Secretariat, 303 urban agglomerations, 84 Urban and Rural Planning of Chongqing, 288 urban functional optimization, 176 urbanization, 86, 218 urbanization, Dongguan, 71 U.S.-Singapore FTA, 109 V value-add tax (VAT), 22 Vernon, R., 55 Vogel, Ezra, 80 W wage cost, Shenzhen, 59–60 Wang Daohan, 137 Wall Street Journal, 54 Wang Lin, 137 Wang Yang, 54 Wang Yeqiang, 43 Wang Qishan, 249 Wanshang Xijin Project, 49 Wanzhou Airport, 285

7/29/09 9:56:01 AM

332

water shortages, Bohai Rim, 198–99 watershed period, 50 Wei Houkai, 4, 43, 52 Wen Jiabao, 150, 235, 250 Wenzhou Model, 132, 138, 141 West China Development Programme, 300 Western China, capital formation, 264–71 Western Chongqing Economic Corridor, 288 Western Industrial and Urban Incubation Areas, 176 Wong Kan Seng, 249 World Wildlife Fund, 241 Wu Bangguo, 139 Wuhan, megalopolis circle, 25 Wuling Mountain, 280 Wuxi, integration of, 152 X Xinhai Revolution, 127 Xiangtan, 26 megalopolis circle, 25 Y Yanbian Korean Autonomous Prefecture of Jilin Province, 30 Yangtze Delta, regional economic cooperation, 217 Yangtze River Delta, 3, 5, 6, 15, 22, 31, 44, 46–48 1980s, 131–38

15 RegEDCindex.indd 332

Index

comparative growth rates, 136 composition of GDP, 148 construction density, 164 financial development of, 151 industrial structures, 147 integration, 137 marketization, 133 non-agricultural population, 159 regional GDP and per capital GDP, 161 relations with Shanghai, 124–54 Singapore’s investment, 156–78 spatial pattern, 173 spatial succession, 157–66 transportation blueprint, 124 Yangtze River basic industries, 175–76 drainage area, 142 Yangtze River Delta integration, 126 Yellow Sea Economic Zone, 106 Yili, 37 Yiwu, 133 Yunnan, 22, 36 Z Zeng Shisheng, 222 Zhangjiagang Tariff-Free District, 169 Zhejiang, 5, 20, 36, 40–41 Zhengshan, 219 Zhong Guan Cun, 186 Zhongzhi Pharmacy Group, 92 Zhu Rongji, 2 Zhuzhou, 26

7/29/09 9:56:02 AM