Xubei Luo, The World Bank and Nong Zhu, INRS-UCS, University of Quebec*
Sintesi
Il pattern di sviluppo cosiddetto “hub-periphery” dell’economia del Guangdong rappresenta una sorta di miniatura dell’economia cinese nel suo complesso. Il Pearl River Delta si è trasformato in un centro economico a livello regionale. Suggeriamo un approccio basato su quattro pilastri per supportare una crescita inclusiva dell’economia del Guangdong in un ottica di sostenibilità: (1) migliorare l’ambiente per il business, (2) sostenere la realizzazione dei vantaggi comparati latent, (3) aumentare i livelli di competenze della forza lavoro per favorire un upgrade della struttura di produzione, (4) proteggere i segmenti più vulnerabili della società.
Hub-periphery development
Since the late 1970s, institutional and economic reforms have played a crucial role in the unprecedented development of the Chinese economy. The reforms have provided the basis for the transition to market economy and facilitated the integration of the domestic market with the international market. Thanks to the advantageous factor endowment and favorable policy inclination, the coastal region soon took off. Export-oriented and globalized industries are largely concentrated in the coastal region and low tech and resource based industries are mainly located in the inland region. The dynamics of the coastal provinces and the relative stagnation of the inland provinces configure a center-periphery regional growth structure (Lu, 2008; Naughton, 1999; Chen and Fleisher, 1996).
Guangdong province, once an economic backwater, is a pioneer in the process of reforms and opening-up. The development pattern of Guangdong, to a certain extent, is a miniature of that of China. The average growth rate of Guangdong has been higher than the “four Asian dragons” during the periods when they took off. The economy is highly concentrated: the Pearl River Delta produces 80 % of the regional GDP and over 95 % of the exports and imports, attracts over 90 % of the foreign direct investment, and hosts 90 % of the migrant population.
The Pearl River Delta (PRD), drawing from its first-nature comparative advantages in factor endowments and proximity to Hong Kong SAR, China and Macau SAR, China, and the second-nature advantages as first-movers in the reforms in attracting and retaining domestic and foreign resources, has developed into a regional economic center and well-known world factory, with many highly specialized towns and cities (Tuan and Ng, 2004). The long-term development of the economy of Guangdong is conditioned by the sustainable upgrade of the industrial structure and that of job creation to attract and retain the needed skills as well as provide workers (including migrant workers) adequate access to social services of good quality.
Labor migration and production structure
Worldwide, labor migration is a powerful tool to reduce distance to economic opportunity. In China, the gradual reform of the Household Registration System (Hukou) reduced the constraint on domestic labor mobility. The significant inflow of capital and the development of an export-oriented economy in the coastal provinces created strong demand for labor. The large-scale migration from rural areas and inland regions to urban areas and coastal regions provided coastal and urban areas with a flexible labor supply at reasonable costs and contributed to the rapid development of their labor-intensive industries. This in turn accelerated the formation and expansion of the small and medium size cities in the coastal provinces and increased the potential for the exploitation of economies of scale.
A similar story applies for Guangdong, with PRD (especially Guangzhou, Shenzhen, and Zhuhai) as the hubs. The inflow of migrant workers largely contributed to the rapid development of Guangdong. The average gross inflow of migrants amounted to some 1.06 million per year. With an average outflow of migrants of some 0.84 million, this results in a net inflow of migrants of 0.22 million. The net immigration rate gradually increased since 1978 - Guangdong officially became the most populous province in 2005 - it peaked around 2006, and fluctuated downward in the recent years. This “demographic dividend” has played a significant role in contributing to the economic development in Guangdong.
As the economy has developed, the production structure in Guangdong has gradually changed. The ratio of the primary, secondary and tertiary industries changed from 29.8 %, 46.6 %, 23.6 % in 1978, to 5.5 %, 51.6 %, 42.9 % in 2008, and to 4.9 %, 47.3 %, 47.8 % in 2013. The capital-intensive industries are slightly more concentrated spatially (mainly in PRD) than the labor-intensive industries. The concentration of resource intensive industries – while still high - is declining, with the emerging structural diversification in the West Wing and Mountain Area.
The Pearl River Delta has become one of the world's major manufacturing bases (for example, electronic information industry), attracting investments from many multinational corporations and international consortia. The rest of the province, hosted a significantly higher share of the primary sector and lower levels of urbanization and export-orientation.
Double transfer and policy suggestions
Since the mid-2000s, to facilitate the upgrade of the production structure and support the sustainable long-term development, the government of Guangdong and the State Council have implemented several reform and development plans, particularly, the “Double transfer” - transfer industries from the Pearl River Delta to the rest of the provinces; and transfer labor in the lagging regions from the primary sector to the secondary and tertiary sectors, including transfer of high-skilled labor to the Pearl River Delta.
More specifically, “double transfer” means, first, strengthening the technological and innovation capacity of the PRD and phasing in the upgrading of its production structure with a focus on the advanced manufacturing sector and modern service sector. Second, reducing the economic development gap between the PRD and the rest of the province and speeding up the intra-provincial relocation of industries to support the catching up of the lagging Northern mountainous areas, and the east and west wings.
There are signs that “double transfer” policies might have started bearing fruits. Many industrial transfer parks have been created in Guangdong and some labor-intensive industries in the PRD have been transferred to the rest of the province. There also have been cases of industrial transfer from Guangdong to Jiangxi, Hunan, and Sichuan.
Policy suggestions
Global experience and the economic geography literature suggest that the most effective policies for promoting long-term growth are those that facilitate geographic concentration and economic integration, both within and across regions and countries. The path of development counts. To support the development of the economy with the existing economic center and lagging areas, government initiatives should not focus on “reducing the gaps of the productive capacity” across cities, but “moderate differences in economic welfare” between them.
A successful transfer of industries is not about spreading the economic activities equally across geographic areas, but about facilitating the allocation and reallocation of capital and labor to the areas where they best suit the comparative advantages. To achieve a geographically more balanced development pattern efficiently and effectively, the implementation of the double transfer strategy needs to draw on the respective comparative advantages of the Pearl River Delta and the lagging periphery with a focus on the upgrading of the production structure and labor structure in both areas in an inclusive and sustainable manner.
For development to be sustainable and inclusive in Guangdong, we suggest a four-prong approach to improve the business environment, support the realization of latent comparative advantages, upgrade the skill level of labor force to support the upgrade of production structure, and protect the vulnerable. Developing own-source revenues at the local level (including both own-source taxes and equalization transfers) and ensuring sustainable access to credit are key elements to support the emergence of the new hubs and their sustainability.
The business environment in Guangdong, in particular the major cities in the Pearl River Delta, is among the best in China. Further improvement can strengthen its attractiveness to investment and spur innovation and fair competition. An enabling business environment can provide a level playing ground for all regions, hub or periphery, the needed institutions and regulations to attract and retain private investment. The sustainable development of the economy in Guangdong depends on how it can deal with the three “Ds”: realizing the benefits of agglomeration economies through a higher density of economic activities in its major urban centers (particularly developing the PRD as global economic centers), overcoming the distance factor by making a concerted effort to improve regional transportation and communications infrastructure (linking the lagging Northern mountainous areas and the East and West Wings with the PRD), and eliminating internal and external divisions to promote intra- and inter-provincial market integration and strengthen Guangdong’s participation in the global economy moving up the value chain (Huang and Luo, 2009).
Special regional policy can be used in an appropriate manner to support the regions to move towards their latent comparative advantages. Improving market institutions can create and protect effective competition in the market. Measures can include addressing externality and coordination issues – such as provision of infrastructure, logistics, finance, skilled labor. The experiences of the East Asian newly industrialized economies in using the off-the shelf technologies to build on the advantage of backwardness and upgrade their industrial structure in the past decades are successful examples (Lin, 2012). In line with the support to the establishment of Industrial Transfer Parks, facilitating the private sector actors to choose the right locations for investment with the right level of technology and capital/labor intensity can help. Local governments can closely follow the comparative advantages of factor endowment of the economy to accelerate the proper upgrading of the production structures of the Pearl River Delta and the lagging regions and better match the demand and supply of labor while supporting the creation of more and better jobs in the secondary and tertiary industries. Facilitating the relocation of industries from PRD to the less developed regions in an appropriate manner can help accelerate the process and result in mutual benefits.
Building the skill level of the labor force, including the local labor force and the migrant labor force, can play an increasingly crucial role in the sustainability and inclusiveness of development. As the economy of Guangdong, particularly the PRD, is undergoing the upgrading of structure from labor-intensive to capital-intensive or technology-intensive industries to maintain competitiveness in the global market, the demand for skilled workers increases. Provision of on-the-job training and vocational skill training can play an important role in attracting labor and enhancing their quality, which is not only important for the sustainable economic development of the province but also the inclusiveness and harmoniousness of the society. To support development in a sustainable manner, the government needs to improve the skill level of the labor force to support the sustainable upgrade of production structure.
Measures to strengthen an inclusive social protection system require improving the equal access to social services such as health care and education (and the quality of such services) and providing targeted support to the vulnerable, including migrant workers and their families. Appropriate design and implementation of the local policies, for example, provision of water and sanitation as well as health care clinics, in addition to the national policies are crucial. In an economy where the informal sector is non-negligible (the share of migrant workers who work in the informal sector is even larger), it can be a question for policy debate whether and how to use general revenue and user fees to fund such services. The potential sources of financing can include income taxes, property taxes, and value-added taxes.
References
Chen J., Fleisher B.M., 1996. Regional income inequality and economic growth in China. Journal of Comparative Economics, 22(2), 141-164.
Huang, Y. and X. Luo, 2009. Reshaping Economic Geography in China. Reshaping Economic Geography, Edited by Yukon Huang and Alessandro Magnoli, The World Bank 2009.
Lin, J. Y., 2012. New Structural Economics: A Framework for Rethinking Development and Policy. World Bank, Washington DC.
Lu, Z., S. Song, 2006. Rural-urban migration and wage determination: The case of Tianjin, China. China Economy Review, 17(3), 337-345.
Naughton, B., 1999. Causes et conséquences des disparités dans la croissance économique des provinces chinoises. Revue d'Economie du Développement, 7(1-2), 33-70.
Tuan, C., L. Ng, 2004. FDI and industrial restructuring in post-WRO greater PRD: Implications on regional growth in China. The World Economy, 27(10), 1609-1630.
World Bank, 2008. World Development Report 2009: Reshaping Economic Geography, The World Bank, Washington DC.
*The authors would like to thank Ehtisham Ahmad, Ahmad Ahsan, Shahrokh Fardoust, Chorching Goh, Sanjeev Gupta, Khalid Ikram, John Litwack, Teresa Ter-Minassian, Meili Niu, Kezhou Xiao, Chunlin Zhang, and participants at the conference of Financing Local Investments within a Sustainable Development Strategy for P.R. China (organized by Asia Research Center, London School of Economics & Sun Yat-Sen University, January, 2015) for valuable comments.
