“Based on the experiences of the PRD, other areas in China can avoid mistakes we made and see the benefits of our development,” says Xiao Zhenyu, director general of Guangzhou’s Bureau of Foreign Trade and Economic Co-operation. “It’s just like Newton said: you can see the world from the shoulders of a giant.”

This view is best seen from Guangzhou. If the Pearl River Delta is the historical lifeblood of China’s economic and industrial ascendancy – and there is much to suggest that it is – then surely the city of Guangzhou, the capital of Guangdong province, is the heart.

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Looking at Guangzhou today – a heaving metropolis of 10 million people – it is nearly unfathomable that only 20 years ago it was a sleepy backwater populated primarily by farmers. Its development has been astounding, even by Chinese standards.

At least in terms of aesthetics and liveability, development came perhaps a bit too quickly. The fast and furious growth left little time for careful, considered city planning; the result is a concrete jungle covered by a permanent cloud of smog. “Development happened faster than we expected,” acknowledges Mr Xiao. There are problems with over-utilisation of land, he says, as well as shortages of electricity and coal, among other growing pains.

Economic progress

But such is the price of progress. If the city is not the most scenic in the world, its economic picture is certainly pretty. Guangdong, China’s richest province, has pushed up its GDP by an average of two percentage points a year from 1979 to 2003. After a 13.6% rise from 2002 to 2003 – the highest increase in the growth rate since 1995 – Guangdong’s GDP exceeded $160bn.

Guangzhou itself ranks third among Chinese cities on the economic strength index and has posted GDP growth rates of more than 13% throughout the past two decades.

In 2004, Guangzhou’s GDP totalled $411.581bn, an increase of 15% over the previous year, and the GDP per capita was about $6800. The city’s total import and export value reached $44.8bn and actual foreign investment $2.4bn, a growth rate of more than 64%.

Foreign presence

In the city, there are more than 10,000 foreign enterprises and 2000 representative offices of foreign companies from more than 70 countries and regions. Guangzhou’s FDI profile is evolving as its economy grows and develops.

Still a key manufacturing base for China, Guangzhou has developed 34 of the 40 sectors listed in the national industrial category index and its tertiary industries are booming.

The city plays host to more than 400 specialised wholesale markets and more than 15,000 institutions and 33,000 branches engaged in wholesales and trading. At the last count, there were 2595 establishments associated with financial institutions operating in Guangzhou and 142 business branches of various insurance institutions. Foreign financial institutions have set up 30 branches and offices.

Business shift

The focus is shifting from shoes and garments to value-added and IT industries, and more importance is being placed on service sectors such as banking, finance, logistics and tourism. “It is important to develop our manufacturing industry; meanwhile, efforts will be made to create a modernised service industry,” Mr Xiao says. The government is keen to attract investment from Fortune 500 companies in particular and to set up Sino-foreign joint ventures.

Hong Kong is the biggest investor in Guangzhou, contributing 60% of FDI inflows. Its importance to Guangzhou’s economy cannot be overstated.

“Hong Kong’s experienced and talented people are useful for us and great potential exists for attracting investment from its finance, services and transport industries,” Mr Xiao says. “We must expend more effort towards promoting investment from Hong Kong and strengthening the relationship between Hong Kong investors and our local entrepreneurs.” He also wants to lure Hong Kong entrepreneurs to Guangzhou and make it easier for them to set up businesses in the city.

He believes that the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the mainland will help to bolster these efforts. The agreement “presents a win-win for Guangzhou and Hong Kong”, he says. “It’s a big gift from the central government.”

Now that CEPA 2 has come into force, co-operation has become even more expansive and more people are seeing the benefits of it. Special areas such as a so-called ‘CEPA district’ and ‘Hong Kong city’ have been reserved for Hong Kong investors.

Not that Guangzhou can depend on Hong Kong capital alone, or at least not anymore. “It might seem that investment from Hong Kong has covered lots of the sectors in Guangzhou and there is no need to do more promotional work, but it is not the case,” Mr Xiao says.

Branching out

However, being known as a hub for Hong Kong investment can make branching out difficult. “When we go to Singapore and Malaysia to do investment promotion, they think Guangdong is just a land for Hong Kong investment,” he says.

If it is any consolation, nearby Shenzhen has a somewhat higher profile for investment from Hong Kong. Mr Xiao does not consider Guangzhou necessarily to be in competition with its provincial sister. “Frankly speaking, in our work to attract foreign investment, the relationship with Shenzhen is one of strategic co-operation more than strategic competition,” he says. “Where the industrial structure of two cities is similar, the relationship will be one of competition. Where the industrial structure is different the relationship will be co-operative.”

He argues the latter is the case with Guangzhou and Shenzhen. While both cities lie in Guangdong province, have well developed market economies and are strong in IT, they “hold different positions in the market economy”, Mr Xioa says. In Guangzhou, for example, secondary industries account for 44% of its economy and tertiary industries account for 53%. In Shenzhen, secondary industries are a larger slice of the pie and tertiary industries smaller. Guangzhou has particular strengths in petrochemicals and automotives that are not shared by Shenzhen.

No comparison

Mr Xiao is equally sanguine about the much-discussed rivalry between the PRD and the Yangzi region around Shanghai. Making comparisons between the Pearl River and the Yangzi regions is not comparing like with like, he argues: “The Yangzi has three coastal provinces and a coastal city. The PRD only has one coastal province so it is not an accurate comparison. The position of the Yangzi cannot be replaced by the PRD and, equally, the position of the PRD cannot be replaced by the Yangzi.”

And in any case, he adds, the real competition exists not among locations but among markets and enterprises and even within enterprises themselves: “An enterprise has to make the right decision. It must consider the market and whether it can make profits.”

As in Shenzhen, Shanghai and countless other cities in China, foreign investors by the hundreds are betting that they can make profits in Guangzhou.