THE TRANSFORMATION OF GUANGDONG PROVINCE - J MILSTEIN

90
The Transformation of Guangdong Province China’s Approach to Capitalism Joseph M. Milstein New York University April 1, 1998

Transcript of THE TRANSFORMATION OF GUANGDONG PROVINCE - J MILSTEIN

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The Transformation of Guangdong Province China’s Approach to Capitalism

Joseph M. Milstein

New York University April 1, 1998

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The Transformation of Guangdong Province China’s Approach to Capitalism

Joseph M. Milstein

Thesis Submitted in Fulfillment of the Requirements

for the Master of International Business and International Relations

New York University April 1, 1998

Advisor: Elisabeth J. Wood

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Table of Contents

Chapter Page

I. Introduction....................................................................................................................1

II. The Mao Years...............................................................................................................6

III. Economic Reform and the Special Economic Zones...................................................11

IV. The Transformation of Guangdong .............................................................................16

Foreign Direct Investment, Hong Kong and Shenzhen ...............................................16 Migration in Guangdong..............................................................................................38 Guangdong’s Economy................................................................................................43

V. Is Growth Sustainable? ................................................................................................49

Questions of Sustainability ..........................................................................................49 Arguments for Sustainability .......................................................................................57

VI. Conclusion ...................................................................................................................71

Data Appendix ...................................................................................................................73

References..........................................................................................................................84

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List of Charts

Chart Page

1. US Trade Balances with China and Japan .....................................................................2

2. Foreign Direct Investment in China.............................................................................17

3. Foreign Investment in China by Location ...................................................................19

4. Sources of Foreign Direct Investment in China...........................................................21

5. Growth Rates in China and Guangdong ......................................................................23

6. Average Growth Rates in China and Guangdong Vs. The Asian Tigers ....................24

7. Economic Development of China................................................................................28

8. Total FDI from Hong Kong in China and Guangdong ................................................30

9. Hong Kong’s Share in Total Intake of FDI by China and Guangdong .......................31

10. Hong Kong’s Total Exports .........................................................................................32

11. Hong Kong’s Total Imports .........................................................................................33

12. Reasons for Migration in Guangdong..........................................................................39

13. Annual Income Per Head of Selected Chinese Cities..................................................40

14. Real Income Growth by Province................................................................................44

15. Per Capital GNP by Province ......................................................................................45

16. Distribution of Economic Structures, 1980 .................................................................47

17. Distribution of Economic Structures, 1993 .................................................................47

18. Composition of Industrial Production in China and Guangdong ................................62

19. Extrapolating US and Chinese Growth Paths ..............................................................67

20. US’ Imports from Asia.................................................................................................68

21. Top Commodities Imported to the US from China .....................................................69

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List of Maps

Map Page

Special Economic Zones....................................................................................................13

Guangdong Province..........................................................................................................20

Shenzhen ............................................................................................................................26

China ..................................................................................................................................55

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"Let China sleep, for when she wakes the world will tremble." --

Napoleon Bonaparte

I. Introduction

It is clear that China (PRC) is one of the fastest growing economies in the world.

It has also become a focal point of international relations, global economics and world

trade. Though still in the developing stages and principally an agricultural nation, within

the last two decades, China has been propelled into the international market faster than

most analysts would have thought possible. With growth rates increasing about 10

percent per year, China is the fastest growing large country in the world, competing with

Japan (perhaps surpassing it) and the United States. In fact, China will likely soon pass

Japan to become the largest source of the US trade deficit (Chart 1). This is a startling

statistic considering that contemporary neoliberal economic culture is predominantly

capitalist, and the fastest growing nation is communist.

The reasons, however, behind this phenomenon are a bit ambiguous. Most

international attention is on China’s capital, Beijing, for domestic and foreign policy, and

Shanghai, because of its rich history and commerce. However, in the shadows of these

two key cities, lies Guangdong Province in South China. Guangdong is the largest

province in southern China with a population of about 67 million people, covering

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Chart 1 Source: Data Appendix Table 1

US Trade Balances with China and Japan

-70

-60

-50

-40

-30

-20

-10

0

10

1980 1982 1984 1986 1988 1990 1992 1994 1996

Year

$Bill

ions China

Japan

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178,000 square kilometers. There is no doubt that Guangdong Province has played a

major role in linking China to international markets. “Looking at exports by province

across China, for example, Guangdong stands out as the premier exporter, contributing

[about 50] percent of China’s total exports.” (Prime 1994, p. 1) Since Guangdong lies

on the South China Sea, directly across the Pearl River Delta from a very developed

Hong Kong, it was targeted by the government as a conduit to the world outside.

Until the late 1970’s, throughout the Mao Zedong era, Guangdong was basically a

rural province with a closed economy, not dissimilar from other neighboring provinces

throughout China. However, in 1980, Deng Xiaoping appointed 4 Special Economic

Zones in southern China, 3 of which are in Guangdong. Their purpose was to promote

foreign trade, economic growth and introduce an open door policy in the PRC. It is

because of these Special Economic Zones (SEZs) and their geographical significance that

makes Guangdong arguably the most important province in China. Guangdong’s

transformation and development over the last 20 years is irreversible. And during this

period China has experienced spectacular growth.

China has grown faster economically than any other large economy in history -

fully matching the smaller “Asian Tigers1” stride for stride. At the heart of China’s

growth is Guangdong Province, an area with the population of France squeezed onto

about half of France’s territory. (Overholt 1993, p. 183, Cowley 1991, p. 11) It is the

goal of this project, first, to present and examine the development of Guangdong and

1 Hong Kong, South Korea, Taiwan, Singapore; also referred to as the 4 Dragons.

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illustrate how instrumental and vital Guangdong, and its SEZs, was, and is, to continued

development in China. Guangdong alone has experienced growth rates fifty percent

greater than China as a whole and has evolved into a region with it own sophisticated,

modern economy. This thesis will pay special attention to Guangdong’s Shenzhen

Special Economic Zone, as it is the largest and most significant of the 4 SEZs.

More importantly, however, the central argument of this thesis is that Guangdong

and China’s growth is sustainable, despite claims that the future is questionable. These

claims maintain that because of the lack of privatization, possible regional splits by the

more developed coastal regions like Guangdong Province, and allegations of severe

corruption and pollution, Guangdong and China’s growth and development will cease.

The objective of this study is to provide evidence supporting the view that Guangdong

and China, by-and-large, will continue to grow barring a major world crisis such as the

Great Depression and hence, China will become more economically and politically

powerful.

The argument of this thesis relies on statistical data summarized in the Data

Appendix, and illustrated in a series of charts inserted throughout the body of text. The

data will hopefully demonstrate to readers how and why Guangdong’s economy is

growing more rapidly than the rest of the mainland and that it transforming into a

sophisticated economic region.

This thesis also draws on my own observations in Guangdong, China and Hong

Kong on many business trips I have made to the region since 1991.

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II. The Mao Years

Throughout the Mao years2, Guangdong was one of China’s poorer provinces.

The province was primarily a collection of backward villages and rice paddies.

“[Guangdong] was starved of infrastructure investment by a Beijing leadership whose

allegiances were firmly to the interior.” (Vogel 1989, p. 36) Moreover, the infrastructure

Guangdong once had earlier was repositioned to interior points of China. This was done

by Beijing because the government claimed that the nation’s security needed its

important assets inland, far from coastal Guangdong, to avoid the “imperialists.” (Vogel

1989, p. 36) Hence, Guangdong’s main asset was a network of Chinese businessmen

who relocated to other parts of the world, but still had roots and ties to their homeland.

(Overholt 1993, p. 185)

Because Guangdong’s primary industry was farming and agriculture, reliable

statistics about the province’s economy through the 1970s are not readily available or are

gravely flawed. Growth was flat at best and entrepreneurship was practically non-

existent. Until the 1970s, even the most model factories shown to visitors had old

machinery that was not always working. Factory grounds were poorly maintained, with

little regard for safety and work was often stopped because of shortages of equipment,

supplies, and energy (much like the rest of China). (Vogel 1989, pp. 1-3) In

Guangdong’s factories and offices, most managers possessed little specialized training,

2 Mao Zedong came into power in 1949 and died in 1976.

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and employees lacked any energy or motivation in their work. (Vogel 1989, p. 1) And

since there was a national self-sufficiency policy, where the manager of every business

controlled the allocation of output, this often resulted in despairing economic conditions.

(Wall 1992, p. 198) “In Guangzhou, the province’s capital and largest city, also known

to foreigners as Canton, goods were transported mostly by smoky diesel tractors or in

carts pulled by bicycles. Large, locally made trucks also hauled goods and people and

there were few buses and almost no cars. Many stores were not operating, and the few

items available for sale were simple and of poor quality.” (Vogel 1989, p. 1) Also,

universities had not been operating regularly since 1967. (Vogel 1989, p. 1)

Guangdong had virtually no signs of construction. “In the industrial sector there

was widespread duplication of production facilities, with each province trying to be self-

sufficient in heavy and light industry.” (Wall 1992, p. 198) For example, in a commune

called Pingzhou, most of the work was done by hand. It had a few small factories, like an

agricultural machinery repair shop, but were not significant to Pingzhou’s industrial

output. Similarly, in the countryside of Guangdong, primitive means of transportation

were ubiquitous. Most goods were delivered by diesel tractor, water buffalo, or the

stereotypical carrying pole, and the roads were generally not smooth enough even for

bicycles. (Vogel 1989, p. 1) The people in the province had little contact with foreigners

and were frightened to be seen with them or talk to them. (Vogel 1989, p. 1)

Guangdong, like the rest of mainland China, employed an import substitution

industrialization trade policy (ISI). This inwardly-oriented strategy sought to spur

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industrialization through policies that replaced imports with domestically produced

manufactures. “The Chinese government had high levels of protection for domestic

manufacturing, and direct controls on imports and investments...” (Lardy 1996 1, p. 5)

“The premises of the import substitution strategy dictated the character of government

interaction in foreign trade.” (Lardy 1996 1, p. 5)

Under Mao Zedong trade was limited to ‘gap filling.’ “Imports were restricted to

essential foodstuffs, raw material and intermediate goods. Exports were limited to what

was necessary to pay for them.” (Wall 1992, p. 198) The door was ‘kept closed’ by the

small number of central government agencies which controlled all international

transactions. Under Chairman Mao, “the policy of extreme self-reliance was encouraged

at the provincial and municipal levels as well as on the national scale.” (Wall 1992, p.

198)

By 1980, there was still little noticeable change in Guangdong. The average

income and standard of living remained relatively unchanged from the preceding decade.

“In 1978 the average annual per capita rural income was only 193 yuan, scarcely more

that $100, and for urban residents it was only 402 yuan. In 1980, almost 80 percent of

the province’s population was still rural.” (Vogel 1989, p.1) These statistics are not

much different than Guangdong in the 1970s. Relative to China’s other provinces,

Guangdong was amongst the poorest and offered few advantages. All of this was a result

of the turbulent era that began in 1966. “By the time the Cultural Revolution3 was over,

3 The Cultural Revolution was from 1965-1969.

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it had derailed the modest reforms of the early 1960s4, mobilized thousands of youth,

created mass warfare, terrorized the vulnerable, disrupted the economy, and

fundamentally altered the course of Chinese development.” (Vogel 1989, p. 15) During

this time period, Guangdong’s border with Hong Kong was carefully guarded against the

province’s hungry peasantry. (Overholt 1993, p. 191)

In Ezra Vogel’s sociological study of Guangdong, he describes life before

economic reform:

The policy...by the early 1970s was cautious: to grow enough rice to avoid starvation...Pork, chicken, fish and sugar rations allowed each person only a few ounces a month...The attention to rice ensued that there was basically no starvation...When the amount of consumer goods began to increase after the Cultural Revolution, the quality of even the simplest products was still marginal. Light bulbs flickered, clothes had tears, plates had chips, and hot water bottles leaked. (Vogel 1989, pp. 29-30)

Simply put, until 1980, Guangdong, similar to the rest of its hinterland, was still severely

underdeveloped.

Regarding the governance of Guangdong during the pre-reform years, specific

information is not readily available. However, it can be surmised that the province was

poorly managed and ill-equipped. The communist leaders were inexperienced in

complex administrative, educational, and productive tasks. The leaders had grown up in

a disordered society as part of a generation imbued with a raucous nationalism. (Vogel

1969, p 4) The leaders were from the more privileged layers of society and their

4 External trade with China, which had begun to revive following the Second World War, collapsed. Increasing interference through a centralized bureaucracy and a vertical administrative socialist system of economic control stifled local and provincial initiatives. (Hook 1996, p. 35)

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commitment was not to politics as a vocation but to Communism and to China as a cause.

(Vogel 1969, pp. 4-6)

In addition, the ideological center during pre-reform China was definitely not in

Guangdong, but in inner China. As China closed its doors to the capitalist world, and

turned inward, there was no role for a go-between with the outside world. The

Communist leaders brought to Guangdong the same political structure, the same policies,

the same campaigns they brought to the rest of the nation. (Vogel 1989, pp. 4-5) Not

only was the economic investment in the 1960s and 1970s directed toward inner China,

like Beijing, but politically as well China became more introspective and nativistic.

People who were too Westernized or too capitalistic, were suspect and on the defensive.

(Vogel 1989, pp. 4-5) No province was better suited as a target for criticism than

Guangdong, and “[n]o province was more completely wrenched by China’s closing to the

outside world.” (Vogel 1989, p. 5)

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III. Economic Reform and The Special Economic Zones

After presenting such a bleak, grim description of China, Guangdong in

particular, it seemed hopeless to expect any major changes or developments especially

under a communist regime. Traditionally, the economic values of socialist, or communist

nations, like North Korea and the Soviet Union, were insular and supported protectionist

ideals. In traditional communist countries, trade decisions were heavily regulated by

their governments and were rigidly centralized and monitored, thus limiting its potential.

Deng Xiaoping realized that in order for China to be economically and politically

sound and to compete on any global level, an open-door trade policy was essential for

survival. The Deng era marked a significant change in China’s attitude toward the

outside world, and this had been especially important economically. Deng wanted China

to be an active player in the world economy. No doubt, the successes of Taiwan and

South Korea, for example, influenced Deng’s decision to revise China’s inward looking

polices. “Foreign trade was no longer seen as a means of balancing shortages and

surpluses.” (Mackerras, et al. 1994, p. 91) Abandoning Mao Zedong’s views on self-

reliance and economic self-sufficiency, Deng and China embarked on a new experiment:

an open-door policy.

Among the policies for export promotion in post 1978 China, “the most radical

was the establishment of four special economic zones (SEZs) in the southern provinces of

China.” (Wang 1993, p. 99) The key part of China’s new open-door policy was the

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establishment of these SEZs in 1980, three of which (Shenzhen, Zhuhai and Shantou) are

in Guangdong Province and the fourth (Xiamen) is in Fujian (See Map of Special

Economic Zones).5 This effort sought to invigorate the economy by stimulating trade

with western countries.

““To get rich is glorious,” proclaimed Deng Xiaoping, and no area of China has

taken the leader’s exhortation more to heart than the Pearl River Delta [the 4 SEZs], the

most recent of Asia’s industrial revolution.” (Edwards 1997, p. 12)

Deng Xiaoping described SEZs as “windows for technology, management,

knowledge and foreign policy to better serve China’s moderni[z]ation program[].”

(Mackerras, et al. 1994, p. 92) The SEZs, which were granted special tax concessions

and cheap land leases, were expected to help improve the quality and quantity of

manufacturing and service industries, acting as a channel for the transfer of accumulated

knowledge and experience to the inland industries. “The SEZs marked the boldness of

China’s break with the inward-looking strategy of the Maoist period and its eagerness to

be involved in the world economy.” (Segal 1990, p. 100) Thus, SEZs were intended to

serve as 1) sources of foreign exchange earnings, 2) devices for technology transfer, 3)

devices for managerial skills transfer, 4) a means of allaying the fears of the people of

Hong Kong, and 5) laboratories for economic reform. (Mackerras et al. 1994, p. 92,

5 In April 1988, all of Hainan Island was declared a Special Economic Zone, thus becoming the fifth and largest zone. However, by that time there had been many developments in the opening up policy.

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Oborne 1986, p. 69, World Bank 1994, p. 223, Hook 1996, pp. 39-40)

Perhaps the most important departure from China’s isolationist past is that

investment and technology were expected to play key roles in SEZ development and

operation. “SEZs were conceived as segregated enclaves designed to attract foreign

investment and technology in order to boost China’s foreign exchange earnings through

exports.” (Mackerras et al. 1994, p. 92) Moreover, the SEZs were to be a “special case of

foreign investment where foreigners could reside and enjoy many of the advantages of

the world beyond the Chinese borders. The Chinese themselves were determined to

make the four zones models of development practice.” (Oborne 1986, p. 69)

The SEZs are also equipped with a unique political system. Regarding the

political structures of the Shenzhen Special Economic Zone:

There have been attempts to design an administrative system that meets the requirements of Shenzhen, more suited to the changing circumstances. The executive is elected by the local people’s congress and confirmed by the centre. The SEZ itself is under the formal authority of the State Council, and not the Guangdong provincial government. It should not be assumed, however, that the local Shenzhen officials are without a degree of power and influence. They have lobbied regularly to allow greater autonomy for the SEZ and have met with considerable success. This applies not only in the strict economic sphere where power of decision-making has rapidly devolved, but also to other areas of administration. The process culminated, after intense lobbying in Beijing..., in the granting of legislative powers to the Municipal People’s Congress, a privilege hitherto reserved to provincial governments. Examples of where Shenzhen is pressing for a different set of legislative procedures, include: stock market rulings more attuned to the West [and] the further easing of border controls with Hong Kong...Much of the pressure for change has come from the business and finance communities in Shenzhen who have transmitted their demands to the local authorities and through then to Beijing. (Hook 1996, p. 41)

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Therefore, the Special Economic Zones have a political system distinctly different from

other regions of the country.

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IV. The Transformation of Guangdong

Foreign Direct Investment, Hong Kong and Shenzhen

Since their inceptions, Fujian and Guangdong, and all four of the SEZs, have

contributed to the phenomenal growth of China. “The Chinese side of the delta [SEZs]

has exploded into China’s biggest export producer, turning out goods worth 36 billion

dollars a year...and has mushroomed into a world export center.” (Edwards 1997, p. 9)

China as a whole has experienced a tremendous surge of foreign direct investment

(FDI) in the last decade or so (Chart 2). “FDI into China has escalated to a level of

nearly $40 billion a year [1995], making China a leading target of FDI, second only to

the United States.” (Mastel 1997, p. 15) “In 1995, China received six times as much

investment as second-place developing country recipient of FDI, Malaysia.” (Mastel

1997, pp. 16-17) Moreover, just comparing 1990 to 1995 (Chart 2) inward FDI into

China was less than $4 billion in 1990 and grew to $38 billion by 1995. (Mastel 1997, pp.

16-17) This nine-fold increase is perhaps the most dramatic facet of the Chinese miracle

of growth and development. The causes of this dramatic increase of FDI into China are

varied, but “[t]he most compelling feature of China as an investment site is the rapid

growth of the Chinese economy and the enormous market that it promises to become in

the future.” (Mastel 1997, pp. 15-16) For many firms, China, with its low-cost, high-

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Chart 2 Source: Data Appendix Table 2

Foreign Direct Investment in China

0

5

10

15

20

25

30

35

40

79-'82 83 84 85 86 87 88 89 90 91 92 93 94 95

Year

$Bill

ions

0

20

40

60

80

100

120

140

160

$Bill

ions Actual FDI

Cumulative FDI

Actual Cumulative

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skill work force, has also developed into an attractive site for assembly manufacturing.

(Mastel 1997, p. 15-19, Ming, et al., 1994, pp. 42-44)

China as a whole has certainly encountered impressive growth within the last two

decades. However, it is in Guangdong Province where the growth and development has

been most significant. More specifically, it is the Shenzhen Special Economic Zone, the

largest of the province’s SEZs, where the growth and economic success is most

prevalent.6 Looking at total FDI across China (Chart 3), one can see that the province

that was the largest recipient of FDI was Guangdong. (Mondejar 1994, pp. 30-31) This is

due, in large part, to Shenzhen’s proximity to Hong Kong (See Map of Guangdong).

Most industrialized countries have taken part in the investment surge into China,

but clearly no country can compare to Hong Kong (Chart 4). Referring to the standard

characterization of the Hong-Kong-Guangdong relationship, senior government officials

of Guangdong have said, “Hong Kong is the shop window. We are the factory floor.”

(Overholt 1993, p. 183) Similarly, as an old saying goes, “Hong Kong and Guangdong

are as close as lips are to teeth.” (Edwards 1997, p.13, Economist 1991 1, p. 22)

Foreign investment from neighboring Hong Kong has driven the explosive

growth in the region (which will be explained in detail later). Taking advantage of cheap

labor in China, Hong Kong has moved most of its manufacturing capacity into

Guangdong and

6 Although specific investment statistics for each of the SEZs probably exist, they were not attainable for this project.

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Chart 3

Source: Data Appendix Table 3

Foreign Investment In China by Location, 1979-1991

$-

$5.00

$10.00

$15.00

$20.00

$25.00

Guangdong Fujian Hebei (Beijing) Shanghai Liaoning Jiangsu Hainan

Top Recipients of Investment

$US

Bill

ions

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Chart 4 Source: Data Appendix Table 4

Sources of Foreign Direct Investment in PRC, 1995Taiwan

9%

Japan9%

Other11%

Hong Kong56%

USA8%

UK2%

Singapore5%

Total Investment, 1995: $US 37.52 Billion

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mostly into Shenzhen.7 “Today [1997] more than 80,000 Hong Kong related enterprises8

operate in Guangdong Province.” (Edwards 1997, p. 13) Since China’s economic

reforms and implementations of the SEZs, Guangdong, largely because of Shenzhen,

with Hong Kong management, finance, technology and marketing, has achieved an

average annual real growth rate of over 13 percent (Chart 5) which is more that 4 percent

greater than the national average. This growth also betters the rate of Singapore, South

Korea, Taiwan and Hong Kong during the same time period (Chart 6), and even during

their hey day a decade earlier (roughly 10 percent) plus the rate of a reasonably good year

for the US economy. (Overholt 1993, pp. 183-189, Vogel 1989, pp. 129-131, Hook 1996,

pp. 152-156)

The Shenzhen SEZ towers so far above China’s other three economic zones that

“for some Chinese as well as for foreigners it alone became virtually synonymous with

SEZs.” (Vogel, p. 129) As a ‘reform laboratory’, Shenzhen was to provide the economic

planners of China with new ideas on economic management. The idea was that the

insulation of Shenzhen would create an economic sub-system, where many economic,

and perhaps political, ideas still regarded by many within China as ‘revisionist’ could be

tried for future application more generally. “The institutional characteristic of central

7 This is widely documented. For example, see Hook 1996, Overholt 1993, Ming 1994, Mondejar 1994 8 Hong Kong related enterprises denotes businesses and companies that are either jointly owned with the Chinese government, primarily or heavily funded by Hong Kong or, wholly owned by Hong Kong.

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Chart 5 Source: Data Appendix Table 5

Growth Rates (GDP) in China and Guangdong

0

5

10

15

20

25

79-'85 1985 1986 1987 1988 1989 1990 1991 1992

Year

Perc

ent G

row

th

ChinaGuangdongChina Mean (8.97%)Guangdong Mean (13.28%)

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Chart 6 Source: Data Appendix Table 6

13.28

8.97

7.06

7.887.29

7.60

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Ave

rage

Per

cent

Gro

wth

Guangdong China Hong Kong S. Korea Singapore Taiwan

Average Growth Rates in China and Guangdong Vs. The Asian Tigers, 1979-1992

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planning were to be dismantled in the Shenzhen SEZ, and replaced by institutional

arrangements necessary for a market economy.” (Mackerras, et al. 1994, p. 98-99)

When the zones were first established, the two other SEZs in Guangdong, Zhuhai

and Shantou, covered only 6.8 and 1.6 square kilometers respectively, compared to

Shenzhen’s 327.5. (Vogel 1989, p. 129, Oborne 1993, p. 119) The Shenzhen SEZ is the

most developed of the four SEZs. Its location, adjacent to the New Territories of Hong

Kong, makes it an ideal location for Hong Kong investment (See Map of Shenzhen).

“The Shenzhen zone was the first to have actual foreign investment...It was, in some

ways, the pilot of the SEZs.” (Oborne 1986, p. 118) Three times larger than Hong Kong,

and with a mandate to liberalize far faster than the rest of Guangdong, Shenzhen was to

be converted into an industrial power center. (Overholt 1993, p. 189)

As a result of economic reforms, it is in Shenzhen, more than in any other SEZ, where Chinese leadership is juggling how to make the official communist system work with capitalist-like elements, and yet limit the possibility of losing face. Shenzhen is the only open zone that has practically been taken over by Hong Kong, with quasi-official blessing of the Chinese authorities, a phenomenon not possible to duplicate due to geopolitical reasons in any of the other zones. (Mondejar 1994, p. 58)

In 1986 alone, Shenzhen’s total industrial output was slightly more than the three other

SEZs combined.9

9 3.5 billion yuan in Shenzhen, compared to Xiamen’s 2.6 billion, Zhuhai’s 0.7 billion, and Shantou’s 0.2 billion. (Vogel 1989, pp. 128-129) More recent exact data was unavailable, but the ratio between

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Because it bordered on Hong Kong to its south, Shenzhen had an immediate

‘political’ significance and a nearby economic stimulus far beyond that of Zhuhai, which

bordered Macau, or of Shantou and Xiamen, which bordered only on the Pacific Ocean

further up the coast. Shenzhen became the main site visited by Beijing leaders evaluating

zone policy, by foreign capitalists considering investing and by leaders from other

socialist countries contemplating reforms in their own systems. (World Bank 1994, pp.

221-222, Vogel 1989, p. 129)

An additional idiosyncrasy of the Shenzhen SEZ was its multipurpose goals.

Unlike other export processing zones, (in Taiwan or S. Korea, for example) with largely

industrial operations, or even the other SEZs in China which advertised industrial and

service sector goals, Shenzhen set out to be a zone of fully integrated, market-type

sectors. “This multisectoral goal is in fact largely possible through the planned

complementarity with the Hong Kong economy.” (Oborne 1986, p. 119) Thus,

“Guangdong was to be an airlock through which China dealt with the outside world,

Shenzhen would be Guangdong’s airlock to Hong Kong, and Hong Kong the direct

window to the outside world.” (See Chart 7) (Overholt 1993, p. 189)

By the early 1990s, the economic integration of socialist Guangdong and

capitalist Hong Kong was largely complete. During the last two years (1996-1997),

Hong Kong represents roughly 80 percent of the overall foreign investment into

Guangdong, almost 72 percent in Shenzhen. (Lindsey 1997, p. 3, Hook 1996, pp. 178-

6.5-7.5 to 1.

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182) Stated simply, looking at Chart 8, the role of Hong Kong as a source of capital

reveals that Guangdong absorbed 42 percent of all foreign direct investment flowing

from Hong Kong into China during 1985 to 1992. (Hook 1996, pp. 178-184, Thoburn

1992, p. 220) Viewed differently, Chart 9 illustrates that Hong Kong was the immediate

origin of 84 percent of Guangdong’s total FDI intake during the same time period. (Hook

1996, pp. 178-184) Hong Kong similarly has a large role in the foreign trade of both

Guangdong and China as a whole since 1985. There is an increasing trend in the

provincial share of national exports to the Territory, reaching 41 percent in 1992. (Hook

1996, p. 179) Likewise, In the same year, 84 percent of Guangdong’s exports were

shipped to Hong Kong. (Hook 1996, p. 179)

Of equal importance is Hong Kong’s dependence on Guangdong and China for its

own thriving economy. Chart 10 distinctly illustrates that China is the largest recipient of

Hong Kong’s exports, with 34 percent of the total. (Hong Kong Trade Development

Council 1998) Similarly, looking at imports into Hong Kong (Chart 11), China is the

origin with the largest hare, 38 percent. (Hong Kong Trade Development Council 1998)

Guangdong’s dependence on its colonial neighbor and Hong Kong’s dependence

on its Chinese provincial partner emerges clearly from these statistics.10

10 The reference of Hong Kong as a ‘colonial neighbor’ denotes pre-June 1997; the return of Hong Kong to PRC. Although Hong Kong is now officially part of China, economic structures remain basically intact and the relationships between Hong Kong and Guangdong have seen little to no change.

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Chart 8 Source: Data Appendix Table 8

Total FDI from Hong Kong in Guangdong and China

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1985 1986 1987 1988 1989 1990 1991 1992

US$

Mill

ions

Total China Guangdong

Guangdong Receives an Average of 42% of all HKG FDI in PRC

Page 35: THE TRANSFORMATION OF GUANGDONG PROVINCE - J MILSTEIN

Chart 9 Source: Data Appendix Table 9

Hong Kong's Share in Total Intake of FDI by China and Guangdong

49%

59%

68%65%

62%

56% 57%

70%

64%

87%

93%

84%

91%

82%

70%

79%

89%

84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1986 1987 1988 1989 1990 1991 1992 Mean

Year

Perc

ent

Total ChinaGuangdong

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Chart 10 Source: Data Appendix Table 10

Hong Kong's Total Exports, 1997

China34%

United States22%

European Union15%

Japan6%

Singapore3%

Taiwan3%

S. Korea1%

Others16%

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Chart 11 Source: Data Appendix Table 11

Hong Kong's Total Imports, 1997

China38%

Japan14%

United States8%

Taiwan8%

S. Korea5%

Singapore5%

European Union4%

Others18%

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Primarily because of Hong Kong’s foreign investment in Guangdong, specifically

Shenzhen, Guangdong has evolved into a thriving metropolis. The ‘experiment’ of the

SEZs worked! Progress has exceeded even the most enthusiastic expectations of the

policy’s creators. Shenzhen has become a mini-Hong Kong. It has tall buildings,

factories that saturate US markets with clothes and shoes and toys, streets full of Audis

and Mercedes Benzes, people wearing clothing with designer labels, and a surplus of

London and New York investment bankers. (Overholt 1993, p. 189, Economist 1991 2, p.

19) A rather amusing new maxim in China is that “[t]here is nothing a Pekingese

(Beijing) won’t say, nothing a Shanghainese won’t wear, nothing a Cantonese won’t eat,

and nothing a Shenzhenese won’t earn.” (Hook 1996, p. 40) Through March 1997,

Shenzhen alone had approved fourteen thousand ventures from 60 countries and regions

to open businesses there, actually utilizing US$12 billion. (AsiaInfo Services 1997, p. 1)

At present, over 150 world famous enterprises have entered Shenzhen including Pepsi

Cola, IBM, Dupont, Compaq, Hewlett Packard, Whirlpool and Exxon. (AsiaInfo Services

1997, p. 1)

Approximately half of Guangdong’s industrial workforce is employed by Hong

Kong companies. Seventy-five percent of Hong Kong companies have operations in the

region, comprising some 23,000 joint ventures. And, as mentioned earlier, if one

includes wholly-Chinese owned companies that live primarily off contracts from Hong

Kong firms, there are 80,000 Hong Kong related firms located in Guangdong. Moreover,

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five out of six employees (over 3 million people) of Hong Kong companies were in

China, most of which in Guangdong. (Overholt 1993, p. 191, Thoburn 1992, p. 219)

Even more remarkable is the fact that money flows the other way too. “Some

1,800 mainland Chinese companies have set up shop across the border into Hong Kong.

Thus, giving China, still ruled by the Communist Party, major stakes in the construction,

shipping, and trade industries of capitalist Hong Kong.” (Edwards 1997, p. 13) Today,

The Bank of China and Shanghai Bank are all over Hong Kong. Likewise, two of

world’s the largest shipping companies, COSCO (China Ocean Shipping Company) and

OOCL (Orient Overseas Container Lines) have great stakes and influence in the port of

Hong Kong. Both Chinese shipping companies have established large satellite offices in

Hong Kong and have a significant presence in the territory.11 Remember, just a

generation earlier the two societies had lived in tense, armed isolation from one another.

Pragmatism and profits overcome ideology in this powerful economic alliance.

If one visits Shenzhen today, it is truly hard to believe that the city has gone from

a farm town to a bustling 24-hour city of three million people.12 The army of newcomers

to Shenzhen includes large numbers of workers from the interior. “The rural folk make

city driving a hair-raising trial with their panicked attempts to cross the high-speed

roads.” (Edwards 1997, p. 11) For the peasantry of Guangdong, this growth brought an

instant leap into modern consumerism. “An underemployed population with little

mobility suddenly [finds] itself with plenty of jobs [mostly working for Hong Kong

11 Information readily available from the Journal of Commerce.

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companies], and with essentially unlimited opportunities for the energetic.” (Overholt

1993, p. 191) “[A]s China’s leader, Deng Xiaoping, sought to stimulate the economy, he

sanctioned a development strategy called “socialism with Chinese characteristics.””

(Edwards 1997, p. 9) Would-be entrepreneurs soon divined what that meant:

capitalism...and capitalism spread fast.

“In half a generation good food, decent housing, nearly universal television,

motorcycles, and cosmetics replaced hunger, exposure, dreary blue suits and the trudge to

work.13” (Overholt 1993, p. 191) In fact, it is inevitable that media moguls, like Rupert

Murdoch, will have access to China’s 300 million homes with television sets, the world’s

largest potential market.14 (Faison 1998, p. 13) Though Guangdong is not yet Hong

Kong’s double in terms of quality of food, construction and architecture, it is surely

catching up. Regarding Shenzhen, not only is the city of three million people15 brimming

with factories, but, copying Hong Kong, it also “sends up office and apartment buildings

in bold configurations: sloped, stair-stepped, beveled, barreled, double-barreled...One

tower sours to 68 floors.” (Edwards 1997, p. 14) Shenzhen has certainly had a ‘face-lift.’

A billboard in the city declares, “Love Shenzhen as your home,” an acknowledgment that

almost all residents came from somewhere else. (Edwards 1997, p. 14) In Shenzhen you

12 I have visited Shenzhen several times over the last 6 years for business purposes. 13 Throughout Guangdong Province, but most noticeably and dramatically in the urban areas. 14 The project is still on hiatus but Mr. Murdoch has put well over $1 billion into a satellite television network, Star TV, which broadcasts in several Asian countries and is intended to be the News Corporation’s route to China. 15 Figures estimate that the floating population in a given work day could be close to double.

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never see an older person sweeping the sidewalk, a common sight in traditional China.

Shenzhen is a place for the young - the average age is probably 25-27.16

It is apparent, based on the illustration presented in this section, that Guangdong

has had explosive growth and its economy is growing more rapidly than the rest of

China. The assertion also being made here is that this growth is instrumental to sustain

China’s future development.

16 Own observation and general estimates from various sources. For example, see Edwards 1997, Lindsey 1997.

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Migration in Guangdong

An analysis of Guangdong can not be complete without addressing the impact of

migration on the province. The boring routine of state factories outside Guangdong has

driven many ambitious workers to Shenzhen. However, it is the opportunity for money

that is the main attraction (See Chart 12). Workers earn as much as 1,500 yuan a month,

which is about $200. This may not be much by American standards but considering that

20 years ago they would need two years to make that amount, it is quite incredible. Also,

it is more money than a professor at Beijing University currently gets paid and about five

times more that the income of the nation’s average urban worker.

“A middle-level manager’s pay [in Shenzhen] might be $400 a month, plus a

comfortable apartment for only a token rent.” (Edwards 1997, p. 15) Guangdong has

attracted many professionals; about 1.3 million of them have permanently moved to

Guangdong between 1985 to 1992. (Ming, et al. 1994, p. 45) Turning to Chart 13, one

can distinctly see that the cities of Shenzhen and Guangzhou, Guangdong’s capital, have

the highest level of annual income per head throughout China.

Guangdong has experienced labor migration on a mass scale since 1978

especially since 1990. In 1990, migrants in Guangdong amounted to 4.17 million and it

was estimated that the migrant population clustered in the Pearl River Delta alone

reached 4 million in 1990 and 5 million in 1991. (Hook 1996, pp. 123-124) By 1993

there were about 10 million migrants working in the region. (Ming, et al. 1994, p. 45)

“Occupational

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Chart 12

Source: Data Appendix Table 12

Reasons for Migration In Guangdong

Business Reasons60%

Job Change/Job Allocation11%

Job Training5%

Join Families8%

Miscellaneous16%

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Chart 13 Source: Data Appendix Table 13

4,205

2,906

2,737

2,334

2,295

2,040

710

- 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500

Chinese Yuan (RMB)

Shenzhen

Guangzhou

Xiamen

Shanghai

Haikou

Beijing

Rural China Average

Annual Income Per Head of Selected Chinese Cities, 1991

Page 45: THE TRANSFORMATION OF GUANGDONG PROVINCE - J MILSTEIN

mobility implies the possibility of geographical mobility.” (Hook 1996, p. 123) This is

due partly to the liberalization of the labor market, and partly to reforms in the rural areas

which allow surplus peasant labor to take up other occupations or move to other

localities. (Hook 1996, p. 123)

“About 80 percent of the migrant workers in Guangdong came from within the

province while the rest were of other provincial origin and by the early 1990s there were

about 2 million migrant workers from other provinces...” (Hook 1996, p. 123) In

Shenzhen, the most distinctive ’migrant city’, the migrants make up for over two-thirds

of the population.17 Shenzhen has a migrant population of about 1.7 million and an

internal population of about a million. (Hook 1996, p. 123-124) This ratio is especially

interesting considering that in pre-reform Shenzhen, the total population was less than

500 thousand and almost none were migrants.18 (Vogel 1989, p. 166)

The ratios in other urban cities in Guangdong are even higher.19 (Hook 1996, p.

124) According to a labor bureau in Guangdong, the ratio of outside workers to local

workers was about 58 percent and can reach up to 82 percent in certain urban sites in

Guangdong.20 As the migrants are mostly temporary residents who cannot bring along

their families, the labor participation rate of the migrant population is consequently much

higher than that of the local Guangdong residents. Chart 12 shows that among the

17 As mentioned earlier, Hong Kong also accounts for over three million people residing in Guangdong. 18 Exact figures are unavailable. 19 In the urban cities of Foshan and Dongguan the ratios are higher than 50 percent. 20 This information taken from the Labor Bureau of Dongguan. A city which had its own ratio of 82 percent.

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migrants, most migrated for business reasons, but still many migrated for job change or

to join families that had already migrated earlier.

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Guangdong’s Economy

Given the above illustration of Shenzhen, and Guangdong as a whole, it is hard to

argue that the province’s growth is anything short of sensational. And although there are

skeptics to the viability and sustainability of this growth, which will be addressed in the

next chapter, Guangdong appears to be on a continuous growth trend that may be

irreversible. Because of the aforementioned variables, Guangdong has had GDP growths

averaging 13 percent per annum with some years souring over 20 percent (Chart 5).

(Hook 1996, pp. 153-154, Engardio 1992, p. 42, Cowley 1991, p. 11) Shenzhen has

experienced growth rates of 45 percent (1994), a dizzying rate of growth possibly

unmatched anywhere else in the world. Moreover, in just a six year period (1985-1991)

Guangdong’s real income growth was 108 percent (Chart 14); not bad considering

Shanghai experienced a mere 3 percent real income growth for the same time period,

Hubei (Beijing’s Province) just 30 percent, and China as a whole showing 62 percent

growth. (Overholt 1993, pp. 107, 185) As Chart 15 demonstrates, Guangdong also is the

province with highest per capita GNP.21 And, as noted earlier, total foreign investment in

Guangdong is roughly five times that of Shanghai or Beijing (Chart 3). (Segal 1990, p.

148, Mondejar 1994, pp. 30-31)

The province has also enjoyed rapid progress in industrialization. The claim being

made here is that Guangdong is the first region of China that has transformed itself away

21 By 1994 the per capita GDP in and around Shenzhen reached 14,239 yuan (roughly US$1700) - the highest by far in the country. (Sinonews, 1997)

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Chart 14 Source: Data Appendix Table 14

Real Income Growth by Province, 1985-1991

14

15

62

19

27

30

38

39

44

48

49

50

50

52

55

55

57

58

59

66

66

67

68

77

82

107

108

112

115

0 20 40 60 80 100 120 140

USA (GNP)

UK (GDP)

China

Anhui

Shanxi

Hubei

Liaoning

Tibet

Jilin

Qinghai

Jiangsu

Sichuan

Hunan

Helongjiang

Guizhou

Gansu

Henan

Inner Mongolia

Jiangxi

Ningxia

Hebei

Zhejiang

Shaanxi

Shandong

Guangxi

Yunnan

Guangdong

Fujian

Xinjiang

Percentage

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Chart 15 Source: Data Appendix Table 15

Per Capita GNP by Province, 1991

164

196

197

210

213

215

221

224

238

241

254

264

275

276

290

293

300

301

317

340

344

377

385

399

440

505

519

0 100 200 300 400 500 600

Guizhou

Anhui

Guangxi

Gansu

Henan

Yunnan

Sichuan

Jiangxi

Hunan

Shaanxi

Tibet

Ningxia

Shanxi

Inner Mongolia

Hebei

Hubei

Qinghai

Hainan

Jilin

Fujian

Shandong

Xinjiang

Helongjiang

Jiangsu

Zhejiang

Liaoning

Guangdong

US Dollars

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from an agrarian economy. The ratio of the three industries (agriculture, manufacturing,

and services) has changed considerably. Chart 16 and Chart 17 depict the evolution of

economic structures of the province where the portion of agriculture is dramatically

falling and service rising.22

Both the national and provincial estimates show that under the impact of new economic priorities..., the contribution of agriculture to GDP increased between 1978 and 1982. Thereafter, this trend was reversed-but much more sharply in Guangdong than in the rest of the country. The contraction in the agricultural share reflected a major expansion in those of both Guangdong and China, although much more pronounced in the former. The rapid expansion of the service sector is another striking feature of structural change in Guangdong throughout the post-1978 reform period. (Hook 1996, pp. 159, 162)

The agricultural industry, though diminishing, has gradually improved in terms of

quality, output and revenue generation. (Ming, et al. 1994, pp. 42-44) Along with the

ongoing development of toys, textiles and instrument industries, electronics and home

appliances have evolved into two of the region’s principal industries, in response to high

demand. (Ming, et al 1994. p. 43, JOC, 1998)

With figures like these I find it convincingly plausible that China, with

Guangdong’s continued growth, will be the world’s largest economy by the start of the

21st century, surpassing the United States. According to recent economic figures, by the

year 2012 China’s economy will grow to about $US 8,600 billion compared to the United

22 Mostly due to Shenzhen and the Pearl River Delta (SEZs). Guangdong as a whole still has a substantial agricultural industry, though shrinking.

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Distribution of Economic Structures In Guangdong

1980

A g r ic u ltu re2 6 %

S e rv ic e s2 9 %

M a n u fa c tu r in g4 5 %

Source: Data Appendix Table 16

Chart 16

---------------------------------------------------------------------------------------------------------------------------------------------

1993

A g r ic u l tu re9 %

S e rv ic e s4 0 %

M a n u fa c tu r in g5 1 %

Source: Data Appendix Table 17

Chart 17

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States’ economy which will be about $US 8,500 billion.23 Furthermore, by the year

2015, China’s economy should grow to about $US 11,900 billion while the US’ will be

around $US 9,000 billion.

23 The Economist estimate of China’s 1991 GDP was adjusted by applying the IMF’s real GDP growth rates for 1992-1994. For 1995-2015, a growth rate of 2.5% was assumed for the US economy, and 9% growth rate was assumed for China. This follows the Economist estimate, which assumed China’s growth rate would annually be 6.5% higher that the US growth rate. (Mastel 1997, p. 14)

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V. Is Growth Sustainable?

The Future: Questions of Sustainability

As the evidence discussed in the previous sections suggests, China’s growth and

China’s future development appears to be secure. Yet, despite all of these figures and

supporting evidence, there is still some serious concern and doubt as to the validity of the

information, the likelihood of Guangdong’s (hence China’s) future growth and

uncertainty towards the overall state of China’s economy. Some analysts believe that,

although the immensely increased presence of foreign capital and foreign trade in China

has certainly put it prominently on the world business map, there are serious

shortcomings to China’s future. Most notably, Nicholas Lardy and Gerald Segal, are two

of the foremost and well known critics of China’s economic development. 24

With regards to the state of Guangdong Province, many studies present an

impression that something is amiss in Guangdong. Nineteen ninety-six was the first year

in many that the province’s GDP growths fell short of the national rate. Also, the growth

rates for exports, fixed asset investment and foreign investment in 1996 were a little

lower than in the nation as a whole. (EIU, Business China 1997, p. 8) By contrast, in

1995, Guangdong’s GDP growth of 15 percent exceeded the national rate by five points

24 Nicholas Lardy is a Senior Fellow at the Brookings Institute Foreign Policy Studies program. Gerald Segal is a Senior Fellow at the International Institute for Strategic Studies and Editor of the Pacific Review.

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and in earlier years, at the height of ‘China-fever’, when China’s economy peaked

(1993), Guangdong’s GDP growth rate was nine points higher than the country’s.

Other issues contributing to a possible slip in Guangdong’s leadership position in

China are: gradually rising labor and property costs, some loss of legal and policy

advantages, and an under-educated labor force compared to Shanghai and Beijing. (EIU,

Business China 1997, p. 8) More precisely, “higher costs in some parts of Guangdong,

notably the Shenzhen SEZ, mean that the province is losing some if its comparative

advantage in light exporting processing industries, the engine of growth for the past 15

years.” (EIU, Business China 1997, p. 8) Also, the legal and policy advantages

Guangdong enjoyed in regard to attracting foreign investment and pursuing economic

reform have spread to other regions of the country. (EIU, Business China 1997, p. 8)

Moreover, Guangdong lags behind other areas, like Shanghai and Beijing, in workers

with university or graduate degrees. This might impede efforts to attract technologically

more advanced industries. (EIU, Business China 1997, p. 8) In addition, there is the

allegation that the province is experiencing inefficient investment. “During the

investment boom of the 1990s, Guangdong poured vast sums into overbuilding urban real

estate and ill-considered infrastructure projects. Funds locked into these money-losing

projects are unavailable for productive investment elsewhere.” (EIU, Business China

1997, p. 8)

There is also the belief that China’s growth is limited and that the nation’s “time

is running out.” (Lee 1996, p. 19) According to this view, “China’s recent success will

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be short lived and that in the long run, China’s many woes will destroy its facade of

capitalism.” (Lee 1996, p. 19) This theory proposes that “for all the brave talk about

bullish long-term prospects for direct investment in China [i.e.: Guangdong] the plain

truth is that China is a very good bet only for the next five years or so. After the year

2000, its long-term problems arising from corruption, lawlessness, deadly pollution and a

push for a democracy could bring pause to the tremendous growth.” (Lee 1996, p 20)

Corruption at high, as well as low, levels seems to be growing especially in developed

areas like Guangdong. For example, regarding government procurement:

[I]t is not terribly surprising that bribery and corruption seem to play a role in government procurement decisions. Reportedly, the princelings are frequently involved in government procurement decisions. Privately, some Chinese officials also complain about the regulation of government procurements. They explain that it is more a problem of corruption than an effort at protectionism. Companies with friends on the “inside” win procurement contracts while other Chinese companies, Chinese government, and ultimately Chinese citizens pay a heavy price. (Mastel 1997, p. 111)

And although the current government made examples of top officials accused of

wrongdoing [1995-1997], “this was done more of a political settling of accounts than an

all-out purge of corruption figures.” (Lee 1996, p. 20)

The trend is bad according to this point of view. “The ethos have changed from a

slogan of ‘Save the People” to “Get it while you can” ... or maybe to: Breathe the air and

drink the water while you can.” (Lee 1996, p. 20) This may be a legitimate concern.

Due to its growth, industrializing areas of China have ignored environmental concerns in

the name of development. Air and water pollution levels have reached alarming levels

and may intensify with new industries being projected. Likewise, “agriculture is already

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threatened by acid rain from industrial cities like Shenzhen, and arable land is being

developed for real-estate projects at a quick pace. If not dealt with, environmental

degradation will threaten foreign investors’ ability to carry out their plans.” (Lee, p. 20)

Regarding population, China is growing by roughly 14 million per year despite its

reports of forced abortions. This startling fact combined with economic growth, and land

misuse could lead to a food crisis and some speculators estimate that in 30 years, the

world might not be able to supply enough grain to feed China. Thus, based on this

argument, for a few more years there will still be a great deal of money made. However,

shortly after the year 2000, serious problems could arise from pressures for continued

reform, resulting in the halt of China’s growth.

Referring to China’s privatization rate, a chief concern is that China has not

privatized enough of its state-owned firms, especially in the banking sector. “The

economic dynamism generated by foreign capital and trade has largely bypassed China’s

state-owned industries, which remain inefficient and overprotected.” (Lardy 1996 2, p.

10) The banking system continues to be dominated by state-owned banks. This is true

throughout China, including Guangdong. These state-owned firms vastly understate

losses or overstate profits. They do this because they do not have to report the interest

they have to pay on bank loans, therefore, debt ratios are huge. “These state-owned firms

are highly leveraged.” (Lardy 1996 1, p.13) Chinese banks are forced to extend loans to

keep state-owned firms operating efficiently. It is estimated that over one-third of these

loans are non-performing. These are loans that private banks would not offer and now

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these state-owned banks are now at risk of insolvency. Chinese banks must be

recapitalized by a massive infusion of government funds and then reformed to operate on

a sound financial basis. (Lardy 1996 1, p.13) Ultimately, according to this hypothesis,

the recapitalization and restructuring process will lead to a much lower growth rate for

China. China, to date, has not made much progress in creating systems to allocate capital

more efficiently. (Lardy 1996 1, pp. 13-20, Lardy 1996 2, p. 10) Allegedly, this will

make it extremely difficult to sustain rapid growth in the years ahead. Unless reform

begins soon to extend to industrial restructuring, the phenomenal growth of trade and

investment is likely to slow, leaving China to lag behind the high-performing economies

of East Asia. (Lardy 1996 1, pp. 13-20, Lardy 1996 2, p. 10) And this would be most

prevalent in more advanced urban areas such as Guangdong.

Another major, if not paramount issue is the question of domestic discord

between the provinces of China. An interesting point is that because of the spectacular

growth in Guangdong and other more advanced areas, there is strong potential for a

regional split from the rest of mainland China. “As coastal China, such as Guangdong,

grows so much faster than the interior, a form of east-west split is evident...Regionalism

poses major challenges for [China] especially as interprovincial tensions...rise.” (Segal

1994, pp. 44-46) Historically, friction between the coast and the interior has sometimes

been serious. “For a while after post-1979 reform it appeared that tension between the

coast and the interior would once again become explosive.” (Overholt, p. 102) Coastal

Guangdong reveled in its prosperity, but on the Hunan/Guangdong border (See Map of

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China) there were frequent demonstrations by Hunanese trying to stop the ‘export’ of

Hunan’s raw materials to fuel the growth of Guangdong, which reaped all the foreign

exchange benefits. (Goldstein 1992, p. 77) For a long period, Hunan people demanded

that Guangdong’s special privileges be taken away. Chart 15, displaying per capita GNP

for different provinces, shows that there are surely differences between the incomes of

different provinces, and that the interior provinces are indeed generally poorer than the

coastal ones. (Overholt 1993, p. 104-105)

Skeptics thus argue, that the economic boom in Guangdong is a mixed blessing.

In addition to the fact that the “[p]oorer provinces have increasingly felt that

Guangdong...is sucking in resources at their expense...at the same time, the gross value of

industrial output (GVIO) has shown increasing disparity between the regions.” (Hook

1996, p. 60) If China is divided into three broad regions, namely the coastal region,

central region, and western region, the share of GVIO is 61 percent, 26.55 percent, and

12.55 percent, respectively. (Hook 1996, p. 66) Hence, there is also the

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chance that the national economy will be endangered by provincial defiance of Beijing’s

macro-economic policies. If this ‘split’ escalates, Beijing could lose power in the

booming southern provinces (Guangdong) and even lead to a civil war, which is a

genuine concern of Chinese officials. If this occurs, it could greatly alter the growth and

future of China.

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Arguments for Sustainability

The several arguments summarized above, challenging the sustainability of

Guangdong and Chinas’ growth, make some interesting and legitimate points. However,

many of these issues can be attributed to one general statement which, I believe, may

dispel much of the skepticism. “Guangdong and the rest of its hinterland are still going

through some ‘growing pains’ that will be overcome.” These growing pains are short-

term dilemmas or issues that need not impede future growth. They are merely segments

of the developmental process. Remember, economic reform in China is still less than 20

years old. It is impossible to have growth without some repercussions.

Addressing the argument of Guangdong specifically, “Guangdong is still in a

structural adjustment period, in which the main tasks are to upgrade to more capital-

intensive industries, rationalize investment - especially in infrastructure - and improve

the quality of the labor force through increased spending on education.” (EIU, Business

China 1997, pp. 6-10) The goal of structural adjustment has two components. One is

macroeconomic reform, or ‘stabilization’ policy changes to achieve internal and external

balances in the short term to medium term. The other is ‘adjustment’ proper, or reforms

to free up market forces to promote long term growth. (Lall 1995, pp. 2019-2031)

Structural adjustment can take on many forms but share a common set of premises:

“unleashing markets so that competition can help improve the allocation or resources,

getting price signals right and creating a climate that allows businesses to respond to

these signals in ways that increase the returns to investment.” (Lall 1995, pp. 2019-2020)

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Based on this definition, Guangdong, no doubt, has been successful in employing an

effective structural adjustment program. Recent signals also suggests that the new

Guangdong government with newly appointed governor, Lu Ruihua, is committed to

structural adjustment as well as the continued growth of Guangdong. For example, in

1996 Guangdong resisted Beijing’s efforts to strip away its economic privileges and tax

revenue. (EIU, Business China 1997, p. 8-9)

Barring a deep crisis in the world economy that dramatically affects US demands

for imports, Guangdong very likely will sustain its growth based on its transformed

industrial structure. Analysts have probably exaggerated the negative impact of higher

costs, especially labor. This is because Guangdong has become very efficient at tapping

the vast pool of unskilled labor from the interior provinces. “Labor-flow agreements

with several neighboring provinces enable it to import millions of workers on contracts.”

(EIU, Business China 1997, p. 9) With all the gloomy talk, it is necessary to recall that

Guangdong remains far and away China’s richest province with an average urban per-

capita spending power well above the others which is a figure that includes the provinces

poor areas that understates the wealth in the Pearl River Delta region. A survey done

recently showed that both Shenzhen and Guangzhou ranked well ahead of Shanghai and

Beijing in terms of monthly household income (Chart 13). (EIU, Business China 1997,

p. 9, Mondejar 1994, p. 59) There is no evidence that the flow of migration into the

region is slowing down; it continues to accelerate at alarming rates.

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Clearly, for foreign companies looking at China, Guangdong will remain one of

the first ‘ports of call.’ Its economy may be undergoing various readjustments but gains

realized over the last decade have enabled it to become one of the country’s few regions

that looks like it possesses a viable economy in its own right with all of the resources

necessary to continue to advance.

Corruption, lawlessness, pollution and population control are all real issues facing

Guangdong and Chinas’ future growth. But how many nations, developed, developing or

undeveloped, did or do not face one or all of these problems, and then some, including

the US. Should South Korea, Taiwan and Japan not have tried to develop in previous

years in order to avoid or curtail these problems? I think not. And all of these ‘now-

developed’ nations have generally been successful in sustaining their growth, at least

until recently. The benefits of development outweigh the dilemmas, exponentially.

Though genuine problems, these are all part of the growing process which even

developed nations are now faced with.

China is actually fortunate to have witnessed the already successful growth of its

neighboring Asian nations and therefore, can learn how to address these issues.

Regarding corruption, South Korea and Taiwan have gone through this messy transition.

Both were “once known for the outstretched hands of their officials.” (Overholt 1993, p.

80) “China is better off than Indonesia in this respect, and definitely better off than the

Philippines.” (Overholt 1993, p. 80)

The lesson of other Asian countries is that, if the government can maintain control and press through to a largely market economy, [which I assert

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China and Guangdong are doing], then the disciplines of competition take over and businesses that are too corrupt cannot survive. Government officials come to make better salaries and can eventually prosper without corrupt income. Business necessity and popular demand force the development of a relatively modern legal system. (Overholt 1993, pp. 80-81)

Therefore, these issues are unlikely to hinder China’s growth.

Moreover, at least China is trying some form of population control, as unpopular

as it may be, by implementing a ‘one child’ policy. India and Brazil, for example, have

similar population concerns and have really no population-control policies in effect,

whatsoever.

Addressing the recurring issue of pollution in Guangdong:

The expansion of transport and construction has led to high levels of noise pollution in Guangdong’s cities. Efforts to control noise pollution with fines on a provincial-wide scale began in 1991...Compared with other provinces, management of the environment appears to have been relatively good in Guangdong’s urban areas. Guangzhou, which established its environmental protection organization, is proud that it has been able to maintain more or less steady levels of pollution as it experienced considerable economic growth during the 1980s. As elsewhere in China, Guangdong has tried to initiate an environmental responsibility system in recent years: government officials must meet certain environmental targets or risk losing their jobs. Attempts to fine polluters have been stepped up. (Hook 1996, p. 95)

And recently China has imposed new laws to begin fueling automobiles with unleaded

gas versus leaded and diesel fuel in an attempt to further address air pollution concerns.25

These issues are unlikely to alter China’s growth. China is in no worse shape than

other developed/developing nations, and is even in a better position to enjoy continued

and effective growth.

25 Reported by the Bank of China.

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Regarding the crucial issue of China’s privatization rate, it is a fact that China has

been slow to privatize its state-owned firms. However, it is just as much a fact that

China, again, is still in early stages of development. Much of China is not yet practicing

and enjoying free-market oriented policies and even many of the urban areas, like

Guangdong, have remnants of ISI policies which overprotect some industries and banks.

However, this is only a short-term issue which should not impede China’s grow. As

China continues to move rapidly towards free trade policies, China will be forced to end

state-sponsored industries. As Chart 18 exhibits, Guangdong already features a major

shift in industrial production moving from state-owned enterprises to private and joint

forms.26 While state enterprises accounted for almost two-thirds of the total industrial

value in Guangdong in 1980, their share was reduced to just over one-third by 1989, a

sign that state-owned businesses are becoming less significant and less omnipotent. As a

result, new dynamic free-market enterprises will be created throughout China, and even

26 Joint enterprises include joint ventures of state-owned and collective enterprises, or collective and private enterprise. 1989 is the latest comparative data I was able to attain regarding privatization.

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Chart 18 Source: Data Appendix Table 18

63%

27%

9%

2%

53%

31%

12%

5%

41%

31%

16%

12%

38%

29%

16%18%

56%

36%

5%4%

0%

10%

20%

30%

40%

50%

60%

70%

Guangdong '80 Guangdong '85 Guangdong '88 Guangdong '89 China '89

Composition of Industrial Production by Type of Ownership in Guangdong and China

State-ownedCollectivePrivateJoint

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more so in the more developed areas like Guangdong. This will balance and eventually

offset the drag of state-run industries, hence, making non-performing loans and the

recapitalization of banks only a short-term dilemma, and ultimately China will continue

its pattern of growth. According to the New York Times:

Zhu Rongji, the new Prime Minister of China, laid down ambitious benchmarks today for sweeping social change, pledging to make ailing state-owned industries solvent, overhaul the country’s banking system and redesign the Government...all within three years...Through mergers, staff cuts, bankruptcies and improved management, certain major state companies are to be reshaped as modern, globally competitive conglomerates. More companies are to sell public shares...In the banking plan, Mr. Zhu intends for the central bank to assert stronger control over the provincial banks, creating on a regional basis a system modeled on the American federal reserve system. Commercial banks are to begin operating independently of the political controls that have forced them to make bad loans to state companies. This will largely be achieved by the end of 1998, Mr. Zhu said. (Eckholm 3/20/98, p. A1, A8)

Addressing the key concern of a ‘split’ between the urban developed areas, such

as Guangdong, and the rest of China, though definitely detrimental to China’s future if it

occurs, is highly unlikely and not too plausible. Guangdong, as well as the other

developed areas of China, and its interior brethren rely too heavily on each other for

survival that a split would be disastrous to both. The interior points, including Beijing,

depend too much on Guangdong’s economy and industry for their own modernization

and progress. It would be suicide not to continue to accommodate and assist Guangdong

in its development. It is true that many interior provinces are growing more slowly than

dynamic Guangdong, and from a much lower base, “but they are growing faster than any

Western country ever managed to grow.” (Overholt 1993, p. 104) As Chart 15 points

out (Per Capita GNP), the differences between the provinces are important but not

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overwhelming. People in the interior are still very poor, “but the issue is no longer

whether there is food and clothing but rather the search for more fashionable food and

clothing.” (Overholt 1993, p. 104) “Travelers in the interior...report that the women

working in the rice fields frequently have permanent hair-dos - a small thing but an

unimaginable luxury a decade earlier.” (Overholt 1993, p. 104) Today, even in the

poorest areas, people seem well fed and have decent housing. Televisions are ubiquitous

and clothing in the many cities are colorful and fashionable.27

In fact, the interior provinces are making a good deal more than minimal progress.

Chart 14, which displays total real GNP growth over a six year period, shows that the

image of a rapidly growing Guangdong alongside a severely stagnating interior is not

entirely true. For example, Xinjiang province, an Uygur minority, an area as far from

Guangdong as a province can be, is the fastest-growing. Another interior minority area,

Yunnan, north of Myanmar (Burma), is third.28 And although the coastal provinces of

Guangdong and Fujian are second and forth, respectively, four of the next six are interior

provinces. The disparities have also led the poorer regions to seek greater investment in

their infrastructures by the central government. “They have asked to set up Special

Economic Zones of their own and have attempted to bargain with the richer provinces for

higher prices and greater investment.” (Hook 1996, p. 60) “This has had a major impact

upon the unfolding relationships between central government and Guangdong province.”

(Hook 1996, p. 60) Also, Guangdong relies so heavily on cheaper labor of the interior

27 Own observations

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provinces that it too must accommodate some of the interior demands. The Guangdong

government, for example, has already supported a tax reform (1993) that imposed a

unified nationwide system and removed the preferential status Guangdong had previously

enjoyed. (EIU, Business China, p. 8) Furthermore, both the developed areas and the

interior have much to gain by cooperating so as to enhance intra-China or inter-provincial

trade within the nation. Guangdong needs political support from Beijing and the interior

to sustain ‘its’ own growth. Mutual interest has led to a major surge in cooperation,

although within a competitive framework, between Guangdong, Beijing and the poorer

provinces.

Even though Guangdong possesses a powerful regional identity, what is certain is

that Guangdong is not looking towards the break up of the sovereign state as some have

suggested. Evidence for such a preference simply does not exist. “There is a large

difference between a powerful regional identity, opposed to undue interference from the

center, and a full-blown attempt to break away from Beijing.” (Hook 1996, p. 63) It only

makes sense for all parties and provinces concerned to collaborate toward greater

achievements, which, I think, seems certain. Therefore, not only will there not be a

‘split’ by Guangdong which allegedly could choke the economy, but the province has

stimulated trade and growth with inland provinces which enhances China’s probability of

sustained future development.

28 One may argue, however, that Yunnan should be set aside because much of its growth comes from Burmese drug trade.

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Collectively, China seems geared to maintain steady growth rates. If China’s

economy merely continues at a rate of 8 percent and other economies grow at their

present rate, China will become the world’s largest economy by the beginning of the next

century (Chart 19).29

Finally, I am confident of Guangdong and China’s future growth simply because

of its recent trading relationship with the United States. This is a point that none of the

‘doubters’ address. A mutual dependency has arisen between China and the US within

the last decade or so. As Chart 20 illustrates, China represents 19 percent of all imports

into the United States from Asia (Guangdong is 50 percent of China’s total) (1997).

(Journal of Commerce, 1998) And if one includes Hong Kong into this figure, the ‘new’

China depicts a staggering 44% of total imports from Asia into the US (1997).30 This is a

figure that can hardly be overlooked. Furthermore, looking at commodity inflow to the

United States from China (Chart 21), it is clear that many of Americans’ everyday

products were manufactured in China, and much of that in Guangdong. This fact not

only indicates that China’s future is promising but that China, especially Guangdong

29 The Economist estimate of China’s 1991 GDP was adjusted by applying the IMF’s real GDP growth rates for 1992-1994. For 1995-2015, a growth rate of 2.5% was assumed for the US economy, and 9% growth rate was assumed for China. This follows the Economist estimate, which assumed China’s growth rate would annually be 6.5% higher that the US growth rate. (Mastel 1997, p. 14) 30 China represents about 5.5% of total global imports in the US. It is the 4th largest supplier of US imports (1991-1997 collectively) behind Canada 14%, Japan 10%, Mexico 5.6%. (Office of Trade & Economic Analysis 1998)

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Chart 19 Source: Data Appendix Table 19

Exptrapolating US and Chinese Growth Paths

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Bill

ions

of 1

990

$US

United StatesChina's Adjusted GDP

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Chart 20 Source: Data Appendix Table 20

Origins of United States' Imports from Asia, 1997

Hong Kong25%

China19%

Japan15%

Taiwan12%

S. Korea6%

Thailand5%

Indonesia4%

Malaysia3%

India3%

Philippines2%

Singapore2%

Other4%

Guangdong represents one-half of China's exports to the USChina represents about 5.5% of the US' total global imports

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Chart 21 Source: Data Appendix Table 21

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Perc

ent o

f Tot

al C

hina

's E

xpor

ts to

the

US

Toys Footwear E-Goods Apparel Xmas Decs. Plastic Goods Furniture Lighting Dept. StoreMerch.

Computers

Commodity

Top Commodites Imported to the US from China, 1997

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Province, can no longer be perceived as simply an agrarian economy. With influence and

dependence on the United States, despite trade imbalances, China’s growth seems

secure.31

31 This, of course, assumes that US and Chinese markets remain in tact. If any market crashes, then the need for imports and/or exports could be altered significantly.

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VI. Conclusion

I predict that this new flourishing ‘open-economy’ will have a dramatic effect on

China’s political system, as do many other analysts. China’s growing free-market

economy has introduced a new lifestyle to its people; the seeds of entrepreneurialism

have been planted. This entrepreneurial spirit and traditional communist economic

values are diametrically opposed.32 Hence, there is little doubt that Communism in China

will, at the very least continue to greatly change, or cease to exist. The outlook for a

prosperous China and a growing Guangdong, as the evidence here illustrates, seems

almost certain. As argued in this thesis, the Special Economic Zones proved successful.

And as China’s economy grows, so too will the presence of new economic zones

throughout the nation.

Complementing the existing SEZs in Guangdong, like Shenzhen, China has quite

recently established economic zones of various types in its coastal areas. For example,

Pudong district, which is just opposite the Huangpu River from Shanghai, and the ports

of Tianjin, Qingdao, and Dalian are already enjoying privileges similar to the SEZs.

These economic zones have fostered a sense of economic vitality that has helped energize

the country as a whole and will surely remain in the forefront of Chinese economic

development and will be central to sustaining China’s growth.

32 This point is based on my general basic knowledge of Chinese Communist economic values. This includes protectionism and extensive government interaction and intervention in the economy. For more

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In Mandarin, the word ‘China,’ pronounced ‘Zhong Guo’ means ‘middle

country,’ alluding to the Chinese’ self-centered belief that China is the center of the earth.

Though purely a philosophical and provocative concept, no one studying modern China

can deny the fact that China currently draws more than notable attention in world affairs,

both economically and politically. As the world continues to converge into a global

village and an international market, China will increasingly play a pivotal role on the

world’s stage with Guangdong Province as a main actor.

specific literature, refer to Ezra Vogel, One Step Ahead in China, 1989 and Ezra Vogel, Canton Under Communism, 1969.

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Data Appendix

The preceding sections contain statistics and figures that support evidence

illustrating China and Guangdong’s growth and development and transformation over the

last two decades. Although much of the information needed was ultimately attainable,

there were limitations and obstacles in acquiring the data. Nearly all the analyses of

growth in Guangdong and China are based on the statistics published in the Guangdong

Provincial Statistical Yearbook (Guangdong Tongji Nianjian) and the Chinese Statistical

Yearbook (Zhonggou Tongji Nianjian). Both of these journals are difficult to obtain

outside China and Hong Kong and are only published in Chinese.1 Therefore, these

publications were not reviewed in their entirety for this thesis. However, key series from

each are available in several English sources. As a result, this thesis is based on data

gathered from English references, and contacts in Hong Kong, England and China.

Specifically, Professor David Faure of St. Anthony’s College at the University of

Oxford, Professor Reuben Mondejar of the City University of Hong Kong, Professor

Brian Hook of Leeds University, and Mr. Victor Lindsey, editor of The Shenzhen

Newsletter, were all helpful in trying to furnish data I needed or, at least, in directing me

where to search. Finally, Ph.D. student Zeng Kaisheng from Zhongshan University in

Guangdong and Ms. Tao Jin of Price Waterhouse’s China Business Development

department, assisted in guiding me to many relevant leads and sources of information.

1 The written language is the same for Cantonese and Mandarin (Chinese). The spoken language is quite different.

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The statistics presented here are the most recent obtainable. I had hoped to

support my thesis with data as recent as 1996-1997 (which I often did when addressing

China alone). Macroeconomic data pertaining to China as a whole is available from the

Journal of Commerce, the IMF, and other trade agencies. However, up-to-date

Guangdong data is much more difficult to find. One result of this constraint is that much

of the data from consulted sources did not go beyond 1989-1992, depending on the

subject. Therefore, my supporting evidence is subject to availability. I am confident that

even with more recent specific provincial data, my arguments would not change unless it

showed a dramatic shift. However, there is little indication that the new data is

significantly different.2 Similarly, since China only opened its markets with the last 20

years, figures prior to 1979 are unavailable or seriously flawed. Moreover, there is a

manuscript entitled Guangdong: Survey of a Province Undergoing Rapid Change, by

Y.M. Cheung and David K.Y. Chu, both of the City University of Hong Kong, that has

yet to be published by The Chinese University Press. I have contacted both editors, and

they advised that the book will not be ready until the year end 1998 and were unwilling

to divulge any of the Survey’s contents before publication.

I was successful in obtaining enough data to support my thesis. However, there is

still some literature that, if available, would have enhanced this study. For example, if

specific pre-reform statistics regarding China and Guangdong’s economy were available,

2 According to Professor R. Mondejar and Zeng Kaisheng growth remains fairly consistent in Guangdong and China. In 1996, the first and only year that Guangdong’s growth rate was lower than the national rate, the province’s GDP growth was still a respectable 8% while China’s growth was 9.7%; above its 15 year average.

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it would have strengthened the thesis by illustrating a stronger contrast between the two

time periods. Also, specific annual data on the breakdown of FDI by market sector in

each of the SEZs could not be attained. If I could have illustrated the change in FDI by

industry more specifically, shifting from light manufacturing to high-tech production

over the past two decades, it would have also helped support the thesis.

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Following are the relevant data underlying the graphs and charts in the thesis.

Table 1 US Trade Balances with China and Japan

In $US Billions

China Japan 1980 3 -10 1982 0 -18 1984 0 -30 1986 -2 -55 1988 -4 -50 1990 -9 -42 1992 -18 -48 1994 -30 -62 1996 -38 -40

Source: Department of Commerce and ESI estimates

as summarized in Mastel 1997, p. 32

Table 2 Foreign Direct Investment in China

In $US Billions

Actual FDI Cumulative FDI1979-'82 1.77 1.77

1983 0.92 2.691984 1.42 4.111985 1.96 6.071986 1.88 7.951987 2.65 10.61988 3.19 13.791989 3.77 17.561990 3.49 21.051991 4.37 25.421992 11.01 36.431993 27.52 63.951994 33.77 97.721995 37.52 135.24

Source: Ministry of Foreign Trade and Economic Cooperation

as summarized in Mastel 1997, p. 16

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Table 3 Foreign Investment in China by Location, 1979-1991

In $US Billions

Guangdong 22.71Fujian 4.83Hebei (Beijing) 4.22Shanghai 3.46Liaoning 1.98Jiangsu 1.77Hainan 1.06

Sources: Mondejar 1994, p. 30

South China Morning Post, Sept. 27, 1992

Table 4 Sources of Foreign Direct Investment in China, 1995

Taiwan 8%Hong Kong 55%USA 8%Singapore 5%UK 2%Japan 8%Other 10%

Source: Ministry of Foreign Trade and Economic Cooperation

as summarized in Mastel 1997, p. 17

Table 5 Growth Rates in China and Guangdong

In Percent

China Guangdong1979-'85 9.39 12.07

1985 12.9 20.081986 8.5 11.321987 11.1 17.711988 11.3 15.571989 4.3 6.981990 3.9 11.331991 8 17.31992 13.2 22Mean 8.97 13.28

Source: ZGTJNJ (Chinese Statistical Yearbook), 1993

as summarized in Hook 1996, p. 154

Table 6

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Growth Rates in China and Guangdong Vs. The Asian Tigers, 1979-1992 In Percent

Guangdong China Hong Kong S. Korea Singapore Taiwan

1979-85 12.07 9.39 7.15 6.6 7.12 71986 11.32 8.5 11.1 12.4 1.84 11.61987 17.71 11.1 14.5 12.04 9.45 12.31988 15.57 11.3 8.3 11.48 11.15 7.31989 6.98 4.3 2.8 6.15 9.24 7.61990 11.33 3.9 3.2 9.15 8.34 4.91991 17.3 8 4.1 8.46 6.72 7.21992 22 13.2 5.3 4.79 5.8 6.6

Average 13.28 8.97 7.06 7.88 7.29 7.6

Source: ZGTJNJ (Chinese Statistical Yearbook), 1993 as summarized in Hook 1996, p. 154

Table 8 Total FDI from Hong Kong in Guangdong and China

In $US Millions

Total China Guangdong Guangdong Share1985 955 450 47%1986 1328 603 45%1987 1809 502 28%1988 2428 836 34%1989 2341 952 41%1990 2118 1018 48%1991 2661 1448 54%1992 7908 3162 40%

Source: ZGTJNJ (Chinese Statistical Yearbook), 1993,

GDTJNJ (Guangdong Statisitcal Yearbook), 1993 as summarized in Hook 1996, p. 180

Table 9 Hong Kong’s Share in Total Intake of FDI by China and Guangdong

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Total China Guangdong

1985 49% 87%1986 59% 93%1987 68% 84%1988 65% 91%1989 62% 82%1990 56% 70%1991 57% 79%1992 70% 89%

Mean 64% 84%

Source: ZGTJNJ (Chinese Statistical Yearbook), 1993 as summarized in Hook 1996, p. 180

Table 10 Hong Kong’s Total Exports, 1997

China 34%United States 22%European Union 15%Japan 6%Singapore 3%Taiwan 3%S. Korea 1%Others 16%

Source: Hong Kong Trade Development Council, 1998

http://www.tdc.org.hk/ Hong Kong’s External Trade Performance

Table 11 Hong Kong’s Total Imports, 1997

China 38%Japan 14%United States 8%Taiwan 8%S. Korea 5%Singapore 5%European Union 4%Others 18%

Source: Hong Kong Trade Development Council, 1998

http://www.tdc.org.hk/ Hong Kong’s External Trade Performance

Table 12 Reasons for Migration in Guangdong

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Business Reasons 60%Job Change/Job Allocation 11%Job Training 5%Join Families 8%Miscellaneous 16%

Source: Hook 1996, pp. 123-124

Table 13 Annual Income Per Head of Selected Chinese Cities, 1991

In Chinese Yuan (RMB)

Shenzhen 4,205 Guangzhou 2,906 Xiamen 2,737 Shanghai 2,334 Haikou 2,295 Beijing 2,040 Rural China Average 710

Source: ZGTJNJ (Chinese Statistical Yearbook), 1991

as summarized in Mondejar 1994, p. 59

Table 14

Real Income Growth by Province, 1985-1991 In Percent

Xinjiang 115 Guizhou 55 USA (GNP) 14Fujian 112 Gansu 55 UK (GDP) 15

Guangdong 108 Helongjiang 52 China 62Yunnan 107 Sichuan 50Guangxi 82 Hunan 50

Shandong 77 Jiangsu 49Shaanxi 68 Qinghai 48Zhejiang 67 Jilin 44Ningxia 66 Tibet 39Hebei 66 Liaoning 38

Jiangxi 59 Hubei 30Inner Mongolia 58 Shanxi 27

Henan 57 Anhui 19

Sources: ZGTJNJ (Chinese Statistical Yearbook), 1992 IMF, 1993

as summarized in Overholt 1993, p.105

Table 15 Per Capita GNP by Province, 1991

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In $US

Guizhou 164 Inner Mongolia 276Anhui 196 Hebei 290

Guangxi 197 Hubei 293Gansu 210 Qinghai 300Henan 213 Hainan 301

Yunnan 215 Jilin 317Sichuan 221 Fujian 340Jiangxi 224 Shandong 344Hunan 238 Xinjiang 377

Shaanxi 241 Helongjiang 385Tibet 254 Jiangsu 399

Ningxia 264 Zhejiang 440Shanxi 275 Liaoning 505

Guangdong 519

Sources: GDTJNJ (Guangdong Statisitcal Yearbook), 1992 as summarized in Overholt 1993, p. 103

Tables 16 and 17 Distribution of Economic Structures, 1980 & 1993

In Guangdong

1980 1993Manufacturing 45% Manufacturing 51%

Agriculture 26% Agriculture 9%Services 29% Services 40%

Source: Ming and Xiujuan 1993, p. 45

Table 18 Composition of Industrial Production by Type of Ownership in Guangdong and China

Guangdong '80 Guangdong '85 Guangdong '88 Guangdong '89 China '89

State-owned 63% 53% 41% 38% 56%Collective 27% 31% 31% 29% 36%Private 9% 12% 16% 16% 5%Joint 2% 5% 12% 18% 4%

Source: Hook 1996, p. 120

Table 19

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Extrapolating US and Chinese Growth Paths In 1990 US$ Billions

United States China

1994 6,000 2,000 1996 6,200 2,300 1998 6,600 2,800 2000 7,000 3,100 2002 7,200 3,900 2004 7,600 4,200 2006 7,900 5,100 2008 8,100 5,800 2010 8,400 7,100 2012 8,500 8,600 2014 8,800 10,000 2016 9,000 11,900

Source: IMF, 1992, The Economist, 1992

as summarized in Mastel 1997, p. 14

Table 20 US Imports from Asia, 1997

Hong Kong 26%China 19%Japan 15%Taiwan 12%S. Korea 6%Thailand 5%Indonesia 4%Malaysia 3%India 3%Philippines 2%Singapore 2%Other 4%

Source: Journal of Commerce, March 1998

Table 21 Top 10 Commodities Imported to the US from China, 1997

In Percentage of Total Imports from China

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Toys 17%Footwear 9%E-Goods 6%Apparel 5%Xmas Decs. 5%Plastic Goods 4%Furniture 4%Lighting 4%Dept. Store Merch. 4%Computers 4%

Source: Journal of Commerce, March 1998

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