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2015-07-02 | South China

Guangdong Province—the ‘world’s factory’—needs to update its economy for the 21st century, says European industry

Guangzhou, 2 July, 2015 –The South China region finds itself at a crossroads: it must either adapt to the realities of today’s globalised economy or risk falling behind its competitors. Faced with rising labour costs and intense global competition for investment, South China—and in particular Guangdong Province, widely known as the ‘world’s factory’—is currently transitioning its regional economy from one based on traditional, labour-intensive manufacturing to one based on high-tech industries. However, in order to achieve this upgrade, Guangdong and the South China region as a whole need to improve upon the ‘three flows’: the flow of people, goods and services, and information, according to the European Chamber’s first ever standalone South China Position Paper published today.

In addition to rising labour costs, South China has been hit by economic difficulties and social tensions. Although still the richest province in China, Guangdong is starting to be overshadowed by Jiangsu, which recently overtook Guangdong in terms of fixed asset investments, use of foreign funds and the number of Fortune 500 companies located there. As an investment destination, South China is also under threat from the new ‘economic tigers’ in Southeast Asia.

That the Guangdong Free Trade Zone (GFTZ) finally received approval from the central government in April, 2015—more than 20 years after the establishment of the first Special Economic Zones in Hainan, Shantou, Shenzhen and Zhuhai—was an encouraging step forward. The GFTZ will hopefully help to increase the region’s global standing and promote further integration between Guangdong, Hong Kong and Macau – but considering the realities of today’s markets, this initiative could be too little too late if the GFTZ’s potential is not carefully leveraged.

European Chamber South China Chapter Chairman Alberto Vettoretti stated, “Guangdong has been a victim of its own success and excess, having benefited from an endless influx of cheap migrant workers from all across China and an effective, albeit increasingly disrupted, supply chain within the region. However, it now needs to reinvent itself in order to face up to the many challenges of the 21st century. Being a low-cost production hub—the ‘world’s factory’ and then some—has to give way to being a future-proof economy based around smart manufacturing, harnessing the local talent of an area with a local economy larger than Indonesia’s.”

Mr Vettoretti continued, “The recently approved Guangdong Free Trade Zone will arguably have to play a part in this – providing for even greater integration of South China’s manufacturing belt with Hong Kong’s financial infrastructure and all major export markets via the world’s sea and land lanes.”

Please click here to download the paper.

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Shihui Tang

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