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2015
“South China Economic Overview” courtesy of Dezan Shira & Associates Ltd.
“”
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201523
The American Chamber of Commerce in South China Suite 1801, Guangzhou International Sourcing Center
8 East Pazhou Avenue, Haizhu District
Guangzhou, Guangdong, PRC
[email protected]
www.amcham-southchina.org
The American Chamber of Commerce in South China
2015 Special RepoRt on the State of BuSineSS in South china

2015
Contributors
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Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due dili- gence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with op- erational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
Dezan Shira & Associates’ experienced business professionals are committed to improving the understanding and transparency of investing in emerging Asia.
Dezan Shira & Associates also publishes significant and well received business intelligence about each of the markets and disci- plines in which it operates through its publishing subsidiary Asia Briefing Ltd. Established in 1999, Asia Briefing Ltd. is dedicated to providing individuals and enterprises with the latest business and regulatory news as well as expert commentary relating to conducting business in emerging Asia.

1992
Study Results
2. Revenue and profitability 18 19
3. South China 22 23
4. Investment Trends 24 25
5. The Business Environment in South China 32 33
Economic Overview
2. Guangdong Province 46 47
3. Fujian Province 54 55
4. Guangxi Zhuang Autonomous Region 58 59
5. Hainan Province 62 63
6. Hong Kong Special Administrative Region 66 67
7. Macau Special Administrative Region 72 73
6
2015 Special Report on the State of Business in South China
treated equally from a regulatory standpoint, and if they felt they had better insight into the government’s decision-making process, I am fully confident that we would see investments grow rapidly across China. Moreover, I would argue that these improvements would essentially be favorable side- effects of broader economic reform that would propel China’s economy into a position of primacy world-wide.
Regardless of uncertainty about local regulatory issues, we find strong reinvestment numbers across the board. Most participants reported investing more than they had originally budgeted for over the course of 2014, and although total investment amounts have seen nearly a 10% decline from historic highs last year, we estimate that AmCham South China member companies stand to reinvest profits amounting to more than $12 billion in 2015 and more than $13.8 billion between 2015 and 2017.
As has been the case in the past several years, we expect one key area of investment to be human resources: this year fully 83.5 percent of study participants reported having hired new employees to take advantage of the labor market. We estimate that this has led to the creation of 534,000 new jobs in China.
In light of these figures, I believe it is impossible to argue against the fact that business continues to boom in what is on- track to continue to be the world’s fastest growing economy.
With best regards,
Harley Seyedin President The American Chamber of Commerce in South China Vice Chairman, China Affairs The Asia Pacific Council of American Chambers of Commerce
President’s Report
THIS yEAR, 275 companies participated in our Special Report on the State of Business in South China. The
study, which began in 2006, offers us unique insight into the growth and transformation of the Chinese economy. In 2015 the cross-section of participants has continued to broaden. American-invested Joint Ventures and Wholly- Foreign Owned Enterprises are joined by their counterparts from other nations and by a growing contingent of Mainland Chinese enterprises. We see companies of all sizes, from those with fewer than 50 employees and less than $1 million in revenue all the way up to companies exceeding $500 million in revenue and with thousands of employees worldwide. Every sector of the economy is represented, from energy generation and agriculture all the way to cutting edge software and high- precision machinery.
This year we find that exactly half of our study participants are involved in manufacturing or trading goods and half involved in providing services to the market. One thing that unites those two groups, however, is the fact that 79.3 percent of all participants report providing goods or services to the Chinese market as their primary business focus instead of creating goods or services for export.
Similarly, 85.3 percent of participants responded that they considered the overall business environment in South China to be “Good,” “Very Good” or “Outstanding,” an increase over last year’s result. 42.3 percent of participants, meanwhile, reported that in their opinion the business environment had improved somewhat or greatly in the past 12 months and a further 38.9 percent reported that it had remained about the same.
In terms of planning and risk management, the biggest perceived challenge to the operations of study participants over the coming year is once again “Regulatory issues (Chinese government).” Trailing behind in second, third, fourth and fifth places are “Local competition,” “Rising labor costs,”<?> “Foreign competition” and “Lack of qualifiable managerial or specialist talent.” Results for the 3-year period are quite similar, with only the last two concerns trading places. Elsewhere, participants identified “Increasing inflation” as one of their top policy-oriented concerns.
On the topic of regulatory issues, I firmly believe that this is the largest impediment to massive investment across China. From the perspective of foreign investors, the lack of transparency—or even simply the perception of such a lack— will continue to limit the number and scale of investments. If foreign companies felt more confident that they would be
7

42.3%
”
”“”

““

!
8
STUDY RESULTS

10
1. Demographics Over the past four years we have observed a gradual de-
cline in the proportion of companies based in Guangzhou, from 59.6 percent in 2011 down to 52.4 percent this year. Nevertheless, the Guangzhou constituency remains the largest among all study participants. The proportion of study participants based in Shenzhen, meanwhile, rose slightly from last year’s historical low to 19.9 percent, still down from a high of 32.1 percent in 2008. The difference has been made up by a noticeable rise in Foshan-based companies, which this year accounted for 9 percent of study participants, up from 3.3 percent in 2013.
Q: Where is your company’s headquarters or main office located in South China?
Q: Where is your parent or holding company located?
Up from 37 percent in 2013 but down from 42.4 percent last year, the share of U.S.-headquartered participants was 39.5 percent this year. The proportion of Chinese Mainland- based companies similarly decreased this year, down to 26.7 percent from its historical high of 28.4 percent. Canada and Hong Kong were this year slightly better represented than in years past.
Guangzhou (56%)
Shenzhen (19% )
Zhuhai (2%)
Xiamen (2%)
Foshan (5%)
Canada (1%)
Canada (2%)
Canada (1%) South Korea (1%) Taiwan (1%)
11
1.

2011

19.9%
200832.1%

12
Wholly-Owned Foreign Enterprise (50%)
Less than 2 years
20142015 2013
Q: What is the form of your company’s legal entity?
This year the proportion of Wholly-owned Foreign En- terprises shrank slightly, while that of Mainland China-based companies grew by a similar amount. This year also saw the proportion of participants operating Representation Offices
nearly double to reach 8.6 percent, up from 4.5 percent last year.
Q: Does your company or group have offices in other parts of China? If so, where?
Over the history of this study, the proportion of participating companies with offices in other parts of China has consistently been around 70 percent; this year’s results are no different. Also similar to prior years, most participants with other offices in China reported a presence in the yangtze River Delta with successively smaller population reporting offices in Northern China and Western China. Interestingly, while the ranking of the three regions has remained consistent, the
proportion of participants with offices in the yangtze River Delta once again declined by roughly four percentage points, as did the proportion of participants with offices in the northern part of China.
Q: How long has your company been engaged in business in China?
Continuing a long-standing trend, older companies are more represented in this study than in any previous iteration. This year just under 84 percent of participants have been in China for 6 or more years; moreover, an historical high of 34 percent of participants report having engaged in business in China for 20 or more years. Meanwhile, the percentage of participants reporting having been doing business in China for two or fewer years has grown slightly, reaching 5.8 percent—down from last year’s historical low of 3.6 percent.
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(50%)
14
0%
5%
10%
15%
20%
25%
79.3% Providing goods or services to the Chinese market
Q: Which category best describes the primary focus of your business activities in China?
Last year’s responses to this question interrupted a trend that dated back to 2009, in which each year a progressively larger proportion of participating companies reported that their primary business focus was providing goods or services to the Chinese market. This year’s results see a return to that upward climb, with 79.3 percent of study participants reporting a primary focus on the Chinese market, up from 72.9 percent last year.
Furthermore, this year’s results find the proportion of participants involved in the trade of goods at parity with those involved in service industries. Early iterations of this study had found a small majority of companies doing manufacturing or
trading, whereas in recent years that majority had belonged to the group of companies offering services to the market.
Participants involved in the manufacture or trade of goods were this year most likely to be in the “Other,” “Electron- ic equipment, household appliances and components” or “Chemicals” categories.
Participants in service industries, meanwhile, were most likely to be in the “Professional services,” “Other” or “Busi- ness services” categories.
Q: How many people does your company currently employ in China?
This year’s results saw a decline in participants employing between 50 and 250 or more than 5,000 employees being offset by growth in the number of participants employing between 250 and 500 or between 1,000 and 5,000 individuals.
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0%
5%
10%
15%
20%
25%

16
0%
10%
20%
30%
40%
50%
Less than 50
2015 2014 2013
Q: Out of your total number of employees, how many are expatriates and/or foreign passport holders?
As in prior years, approximately half of participants report employing fewer than 5 foreign passport holders and around an- other 30 percent reporting either 5 to 10 or more than 50 expatriates. Slightly fewer reported employing between 11 and 20 expatriates, while nearly twice the number of participants this year reported employing between 21 and 50 expatriates than had last year.
Q: Has your company taken advantage of the current labor market by hiring new employees?
Continuing a gradual rise from a historic low of 69.5 percent in 2012, the number of participants who reported having “taken advantage of the current labor market by hiring new employees” grew once more this year to reach 83.5 percent.
Out of companies which reported hiring new employees <?>over the course of 2014, we find a somewhat similar distribution to prior years’ in terms of the number of new hires, with the exception of a notable decrease in the proportion of participants reporting hiring more than 5,000 new employees. This tracks with the decline in the number of companies reporting that many employees overall, suggesting that this year’s participants are less focused on labor-intensive (and likely low-margin) activities in favor of more highly-skilled work and workers.
Based on this year’s distribution of numbers hired and the chamber’s current size of 2,300 members, we can estimate that over the course of 2014 AmCham South China companies hired 534,000 new employees in China.
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0%
10%
20%
30%
40%
50%
201453.4
18
0%
5%
10%
15%
20%
Less than $1 million
Between $101 million and $500 million
2015 2014 2013
2. Revenue and Profitability Q: What is your company/group’s approximate annual worldwide revenue?
As in prior years, participants tended to have large worldwide annual revenues. We see approximately one third of participants having more than $500 million in revenue, a fea-
Q: What is your company/group’s approximate annual China revenue?
This year’s participants were comparatively more likely to see revenue in China of between $11 and $50 million over smaller or larger amounts than in any prior year of the study except for 2006. This year also saw growth in the proportion
of study participants reporting zero revenue as a result of legal status (i.e. representation offices), with that figure rising to 9 percent from 5.5 percent last year.
ture which tracks with common sense as larger companies are more likely to expand beyond their home market.
Also similar to previous years, around two-thirds of participants report worldwide revenues of greater than $11 million—this year 68 percent of the total.
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0%
5%
10%
15%
20%
“0”
20
0%
20%
40%
60%
80%
Within 2 years
2015, 2014, 2013
Already protable
2015 2014 2013
Profitable but not meeting
(40%)
Q: When does your company expect to be profitable in China?
Q: If your company is already profitable, to what extent?
This year fully 94.4 percent of participating companies reported that they were already profitable or would be within the next two years. This is among the strongest majorities in the study’s history.
Continuing a trend observed since 2012, however, we find that fewer and fewer companies are profitable and meeting or exceeding budget expectations. Since the historic high for this measure in 2012, each year we have seen the proportion of participants in this category fall to a historic low of 53.1 percent this year.
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0%
20%
40%
60%
80%
”
53.1%
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1. Produce goods or services in South China for the China
market
2. Produce goods or services in South China for markets
other than the U.S. and China
3. Produce goods or services in South China for the U.S.
market
5. Export from China to countries other than the U.S
1. Opportunities in South China’s domestic market
2. Proximity to Hong Kong
3. Better infrastructure than other places in South China
4. Greater openness than other places in China
5. Availability of highly qualified managers and specialists
1. Services provided in China
2. Overall China business activities
3. Competition from P.R.C. firms
4. Overall China business activities
5. Profits
3. South China Q: What are your company’s goals in South China?
Continuing the long-established trend, “Produce goods or services in South China for the China market” remains participants’ top goal in the region; the two other production- oriented results—“Produce goods or services in South China for markets other than the U.S. and China” and “Produce goods or services in South China for the U.S. market”—also remain in the top five priorities for participating companies. This year’s results, in fact, are identical to those recorded last year. In 2013 “Benefit from lower labor costs in China” was displaced in the top five ranking by “Export from China to the U.S.”
Q: What are the major reasons for your company to set up operations in South China instead of other China locations?
“Opportunities in South China’s domestic market” remains a top consideration for companies setting up operations in South China, as do “Proximity to Hong Kong” and “Better infrastructure than other places in China.” This year more companies prioritized “Greater openness than other places in China” over “Availability of highly qualified managers and specialists.”
Q: How do you expect your company’s operations to change in the following areas over the coming 3 years?
Responses to this question are similar to those recorded last year, although “Overall China business activities” replaced “Competition from PRC firms” in the ranking, suggesting that businesses are anticipating stronger growth and less fierce competition.
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3.

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”

”“
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0%
5%
10%
15%
20%
25%
30%
2015 2014 2013
4. Investment Trends Q: For 2014, what was your company’s realized investment volume in China?
Results this year showed smaller overall investments, but also fewer participants making no investments at all. Whereas in 2014, 12 percent of participants reported having invested greater than $250 million, only 6.4 percent of this year’s study participants report the same; similarly, 9.7 percent of last year’s participants reported having made no investments
whatsoever, this year that figure has declined to 5.9 percent. Picking up the slack is notable growth in the “Less than $1 million,” “Between $10 million and $50 million” and “Between $50 million and $250 million” categories.
Q: For 2015, what is your company’s budgeted investment in China?
We see the same across-the-board shift in projected 2015 investment budgets that we saw in actual 2014 results—fewer
companies planning large investments and fewer companies planning no investments at all.
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0%
5%
10%
15%
20%
25%
30%
”5.9%“100
”

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5%
10%
15%
20%
25%
30%
35%
N/A
illi on
illi on
illi on
illi on
Less th
2014 Budgeted vs. Actualized Reinvestment
Comparing reinvestment budgets for 2014 reported last year against realized reinvestment volumes for the same period reported this year, we can make several interesting observations. First, only one-third as many companies did not make investments than had originally planned, suggesting (relatively) spontaneous investments made to capture opportunities rather than as part of organized expansion plans. Second, more companies invested at every level than had originally budgeted to do so except for in the “Greater than $250 million” category, which saw a net decline from 8.4 percent having budgeted to do so against only 5.9 percent actually securing investments with that value.
Normalized reinvestment figures
Projected 2015: $3,030,100,000 (-9.3%) Projected 2014: $3,343,500,000 (+30.10%) Projected 2013: $2,569,950,000 (+1.90%) Projected 2012: $2,521,958,000 (+16.20%) Projected 2011: $2,170,370,000
Projected 2015-17: $2,988,100,000 (-16.9%) Projected 2014-16: $3,599,200,000 (+1.30%) Projected 2013-15: $3,552,850,000 (+40.88%) Projected 2012-14: $2,943,304,000 (+21.40%) Projected 2011-13: $2,424,338,000
Estimated reinvestment volumes
Estimated 2015-17: $13,844,682,000-16.9% Estimated 2014-16: $16,676,076,000+1.30% Estimated 2013-15: $16,461,324,000+40.88% Estimated 2012-14: $11,684,920,000+21.40% Estimated 2011-13: $ 9,624,660,000
To accommodate fluctuating sample sizes, for the past five years we have reported investment figures normalized to 100 companies as a primary year-on-year comparison. This figure is calculated as the product of the mean of each category range and the percentage of total participants indicating that category, except in the case of the largest ($250 million or more) category, for which the minimum value is used.
Whereas in 2013 we saw a large increase in 3-year investment budgets and a tiny one in 1-year budgets and an oppo- site result in 2014, this year we see a modest decline in 1-year investment budgets and a more substantive one in 3-year budgets, suggesting increased uncertainty in the medium term.
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2015 $3,030,100,000 (-9.3%)
2014 $3,343,500,000 (+30.10%)
2013 $2,569,950,000 (+1.90%)
2012 $2,521,958,000 (+16.20%)
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0%
5%
10%
15%
20%
25%
2015 2014 2013
Q: For the coming 3 years, what is your company’s expected investment volume in China?
This year, we find that the distribution of 3-year investment budgets has skewed toward smaller amounts compared to 2014’s results, but in such a way as to align them more closely with results we have seen in earlier years.
As in the past more than 20 percent of participants reported that 3-year investment budget amounts were “Not applicable” and a peak in the “Between $1 million and $10 million” category. Participants this year were modestly less
Q: For future investments, in which areas of China will you likely expand in the next three years?
likely to have planned investments of “Between $10 million and $50 million,” “Between $50 million and $250 million” and “Greater than $250 million,” while being somewhat more likely to be planning investments of “Less than $1 million” over the 3-year time frame.
This year’s results show small increases in the proportion of companies planning investments in the yangtze River Delta, the northern part of China, the western part of China outside
of Sichuan and South China outside of Guangdong, and a decline in the proportion of companies planning investments elsewhere.
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0%
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10%
15%
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25%
”“2.5”

30
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
Decrease < No change > Increase
Q: Did your company’s 1-year budgeted investment volume change over the course of the year?
Continuing a downward trend in the proportion of companies increasing their 1-year investment budgets over the course of the year, only 51.2 percent of this year’s participants reported doing so, down from 60 percent in 2012. This year also saw the proportion of study participants who decreased their 1-year investment budgets shrink, albeit by a smaller amount.
Of those companies who increased their budgets, comparatively fewer increased them by “Less than $1 million,” “Between $1 million and $10 million” or “Greater than $250
million.” Instead, we observe notable growth in the proportion of participants having increased 1-year investment budgets by either “Between $10 million and $50 million” or “Be- tween $50 million and $250 million.”
Finally, of those companies whose 1-year investment budgets decreased over the course of 2014, 80 percent saw decreases of $10 million or less, while 6.7 percent decreased their budgets by “Between $50 million and $250 million.”
Q: Did your company’s 3-year budgeted investment volume change over the course of the year?
The percentage of participants whose companies adjusted their 3-year investment budgets roughly tracks the 1-year budget changes, albeit with a slightly smaller proportion reporting no changes for the 3-year term and a slightly greater percentage reporting having decreased their 3-year budget. Of the 51 percent who reported increases to their budgets, 81
percent indicated increases of “Less than $1 million” or “Be- tween $1 million and $10 million.”
Of those participants who reported decreases in 3-year investment budgets, 88.3 percent reported changes of less than $10 million and 11.8 percent reported decreases of “Between $50 million and $250 million.”
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0%
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25%
30%
35%
40%
0%
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10%
15%
20%
25%
30%
35%
40%

2.5
< () >
< () >

“5000——2.5”
”“100——1000”
——2.5 ”
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0%
10%
20%
30%
40%
5. The Business Environment in South China
Q: How would you rate the overall business environment in South China?
This year, as in years past, most participants rated the overall business environment as “Good/acceptable”, “Very good” or “Outstanding”. This year that grouping accounts for 85.3 percent of participants while 14.7 percent—slightly less than 2014’s historic high of 15.8 percent—report feeling that the overall business environment either “Needs improvement” or that it was simply “Poor.”
Q: Compared to 12 months ago, in your opinion the overall business
environment in South China has…
In terms of progress, responses to the question “Compared to 12 months ago, in your opinion the overall business environment in South China has…” show that most participants feel that the business environment either remained about the same or improved only somewhat. Only 4.4 percent felt that the business environment had improved greatly, whereas 18.7 percent felt that it had declined either somewhat or greatly.
Q: How much interest would your company have in opening a new
office or facility within a Free Trade Zone located in South China?
Responses to a question measuring interest in a hypothetical Free Trade Zone in South China show 44.4 percent of participants interested in expanding into such a zone, with 23.7 reporting not much or no interest whatsoever and 31.8 percent either ambivalent or uncertain.
0%
5%
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15%
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25%
0%
10%
20%
30%
40%
85.314.72014
“12
……?”
“”18.7%
“”“”

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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Somewhat positive eect
Remain about the same
Somewhat negative eect
Uncertain
es
Q: A more freely-convertible RMB would affect your company’s China operations...
Q: A more freely-convertible RMB would affect your company’s global operations...
This year we also asked two questions about the convertibility of the yuan. Interestingly, 66 percent of participants indicated that a more freely-convertible yuan would have a positive effect on their China operations, up from 54.2 percent last year. The proportion of companies reporting that a more freely-convertible yuan would have a positive effect on their global operations also grew this year, albeit to arrive at a slightly lower total of 63.1 percent. In both the China and global contexts, the proportion of companies reporting that a more freely-convertible yuan would have a negative effect on their operations shrank to near-negli- gible levels, with only 4.1 percent expecting negative effects in China and only 1.5 percent expecting negative effects globally.
Q: How do you expect the following developments to affect your business in South China in 2015?
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60%
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90%

36
“Increasing inflation,” as in past years, was identified as the largest projected negative influence on future operations, followed by “Increasing minimum wage standards” and “Tight monetary policies.” Although no category achieved a positive rating by a majority of participants, 30.5 percent of
participants indicated that “RMB appreciation” would have a “Somewhat positive effect” or “Significant positive effect” on their business—a similar, but less pronounced, result to last year’s.
Q: In your opinion, what are the top 5 challenges that hinder or limit your company’s opportunities for growth in South China?
Asked to identify their top business challenges from a list of 14 common issues, participants once again listed “Regula- tory issues (Chinese government, for example: tax, customs, or regulations of industries)” as their primary concern in both the 1- and 3-year timeframes.
This has been the case since 2006, suggesting that businesses are not much more confident in China’s overall regulatory transparency today than they were nearly a decade ago.
The second and third most common concerns—“Local competition” and “Rising labor costs”—are also placed identi- cally for the 1- and 3-year timelines, making the replacement of “Foreign competition” over the coming year with “Lack of qualifiable personnel (general)” for the 3-year time frame the only change in rankings between the two intervals.
These rankings are identical to last year’s.
1. Regulatory issues (Chinese government)
2. Local competition
5. Foreign competition
2. Local competition
5. Lack of qualifiable general personnel
Q: Has your company made specific preparations for emergency situations, such as a potential outbreak of Avian Influenza (“Bird flu”) or an earthquake or other natural disaster?
Yes (59%)
No (41%)
Yes (57%)
No (43%)
The proportion of participants reporting some sort of pro- grammatic emergency response preparation has grown for the fourth consecutive year—albeit slightly—to reach 61.8 percent, up from 48 percent in 2012 and 35 percent in 2011.
Similarly to last year, descriptions of response schemes provided by study participants included alternate supply chains and even backup product lines and insurance policies, in addition to preventative measures such as hygiene training and remote work procedures.
Q: In your opinion, what will be the top 5 challenges over the coming 3 years that will hinder or limit your company’s opportunities for growth in South China?
37
1. :
“”
“”
“”
”——

(59%)
(41%)
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0%
10%
20%
30%
40%
More social activities
2015 2014 2013
Q: How would you rate AmCham South China’s 2014 performance on delivering programs and activities that match your expectations and needs?
As in years past greater than 90 percent of participants—95.4, to be exact—rated Am- Cham South China’s performance as “Good/ acceptable”, “Very good” or “Outstanding” and a strong majority of 65.9 percent chose the lat- ter two categories.
Q: In what areas would you recommend future improvements in AmCham’s programs and services?
This year the most common areas for improvement selected by participants were, in de- scending order, “More presentations on relevant topics,” “More social activities” and “More round-table discussions.”
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0%
10%
20%
30%
40%
65.9%
“”“”
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1. Introduction to South China
The city raised its minimum monthly wage by RMB 208 in February 2014, to RMB 1808, making it the second highest nationwide (after Shanghai). Many other PRD cities raised their minimum wages in 2014 as well.
Increasing labor costs stand in contrast to the region’s sub- stantial but nevertheless decreasing productivity growth. This has been a major driver behind the flight of labor-intensive industries from China in recent years to lower-cost alterna- tives such as Vietnam. Other factors pulling investment away from the region include China’s increasing emphasis on the service sector over manufacturing, as well as decreasing industrial land availability in the PRD.
Despite this, and spurred by on-going processes of in- dustrialization, urbanization and marketization, the PRD remains home to a vibrant economy, which the government (at all levels) is doing its best to reshape. To accomplish this, some local governments are implementing stricter industry approval measures, ranging from increased minimum registered capital thresholds (some raised as much as tenfold) to more stringent criteria for total investment or output value per square meter invested. As well, local governments in more heavily-invested areas are increasingly refusing to approve investment from enterprises in non-capital-intensive, low value- added or environmentally harmful industries, forcing such enterprises to locate elsewhere in the PRD or further inland. Lastly, research and development, with government support, is also increasing in the region. Taken together, these trends can be seen as indicative of a maturing economy.
Future Outlook
“The Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020),” put forward by the
The term “South China” immediately brings to mind the Pearl River Delta (PRD) - China’s manufacturing center and beating “economic heart.” Broadly defined as including nine cities in southeast Guangdong province (Guangzhou, Shenzhen, Dongguan, Foshan, Huizhou, Jiangmen, Zhaoqing, Zhongshan and Zhuhai), the PRD’s true centers are to be found in Guangzhou (the provincial capital) and Shenzhen (China’s first and most successful special economic zone).
To think of the PRD only in terms of these cities, however, would be to ignore the instrumental role in economic development played by the special administrative regions (SARs) of Hong Kong and (to a lesser extent) Macau, with which the cities of Guangdong have long leveraged their proximity. The Closer Economic Partnership Arrangements (CEPA) concluded in 2003 between Mainland China and Hong Kong and Macau, respectively, have phased out tariffs and trade barriers, liberalized trade in services and boosted trade and investment in Guangdong. As such, the term “Greater PRD” was coined to refer to the PRD, Hong Kong and Macau as a group.
The more remote, less developed (and often more moun- tainous) towns of Guangdong province and neighboring provinces of Fujian, Hainan and the Guangxi Zhuang Auton- omous Region are the final pieces of the South China puzzle. A series of economic and infrastructure-focused government policies have been designed to better connect the Greater PRD and to improve its links to these adjoining regions.
The PRD Today
The PRD has long been considered the heart of high-tech China, with Shenzhen, Guangzhou and Dongguan (as well as Zhuhai and Huizhou) considered as centers for the manufacture of consumer electronics and other high-tech products. The PRD hosts direct and indirect production arrangements for a wide variety of goods sold worldwide, offering both original equipment manufacturing (OEM) and branded goods. The Shenzhen Stock Exchange is the national leader for high-tech enterprises; China’s leading technology enterprises, including Huawei, Tencent and ZTE, were all founded in Shenzhen.
yet the PRD is a region in transition. In recent years, low labor costs (once the major attraction of the region) have been increasing rapidly. Minimum labor costs are one measure of this, with Shenzhen as a particularly illuminating example.
Region 2014 Minimum 2014 Minimum
Monthly Wage Hourly Wage
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1,808 16.5 1,550 15 * 1,380 13.2 1,310 13.2 1,310 13.2 1,310 12.5 1,130 11.1 1,130 11.1 1,130 11.1 *
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National Development and Reform Commission (NDRC), describes the PRD region as an experimental area for scientific development and calls for the creation of three super-metropolitan areas, respectively, Guangzhou and Foshan, Hong Kong and Shenzhen, and Macao and Zhuhai. Provided with greater autonomy, the PRD is expected to be at the forefront of new economic patterns and achieve balanced economic development between its urban and rural areas.
The Plan also includes the following key goals:
• Establish financial centers in Guangzhou and Shen- zhen, as shown by projects such as the second board at the Shenzhen Securities Exchange and construction of the Guangdong Financial and High-tech Ser- vices Zone.
• Improve infrastructure, and promote Guangdong as a world-class logistics center through the construction of several hub-type modern logistics parks, including those at Baiyun Airport, Bao’an Airport, Guangzhou Port and Shenzhen Port.
• Implement an “outward” strategy, by establishing 10 native multinational corporations with annual sales revenue of over US$ 20 billion by 2020.
• Develop a series of specialized conventions and exhibitions, including the Guangzhou Export Com- modities Fair, Shenzhen High-tech Fair, Zhuhai International Aviation and Aerospace Exhibition, Guangzhou Small and Medium-Sized Enterprise Fair and Shenzhen International Cultural Industries Fair.
• Foster creative industry business clusters, including the construction of a national base for the software and cartoon industries.
• Increase the innovative capacity of the region to real- ize the transformation from “Made in Guangdong” to “Created by Guangdong” by 2020.
• Establish internationally influential brands in Foshan for home appliances and building materials, in Dong- guan for garments, in Zhongshan for lighting and in Jiangmen for papermaking.
To reach these goals in the increasingly overcrowded PRD region, the Guangdong provincial government recently ear- marked more than 672 billion yuan (US$109.75 billion) to develop rural areas in the province over the next five years. The funds are to specifically focus on infrastructure projects, including a number of new links planned to better connect
the greater PRD and integrate it with the pan-PRD area. Major ongoing infrastructure developments include:
• Zhongshan-Shenzhen passage across the Pearl River estuary
• Hong Kong-Zhuhai-Macao Bridge (scheduled for completion by 2016)
• Eastern passage between Shenzhen and Hong Kong • Express railway from Guangzhou via Shenzhen to
Hong Kong • Guizhou-Guangzhou coastal railway and Nanning-
Guangzhou railway • Urban rail transit systems in Guangzhou, Shenzhen,
Foshan and Dongguan • Improvement to the modern functions of ports in
Guangzhou, Shenzhen and Zhuhai • Expansion of Baiyun Airport in Guangzhou
Joined by Hong Kong and Macau, the PRD aims to become a globally competitive area for the advanced manufacturing and modern service industries by 2020, and the most vigorous economic zone in the entire Asia-Pacific region. In the following, we break the region down by provinces/cities.
Economic Development Goals for the PRD (2009, 2012, 2020)
2009 2012 2020 GDP per capita RMB60,000 RMB80,000 RMB135,000 GDP from service sector 50% 53% 60% Urbanization 76% 80% 85%
Source: Outline of NDRC Development Plan for the PRD (2008)
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2. Guangdong Province Heart of the PRD
Guangdong has the largest regional GDP of China’s provinces and is the country’s biggest exporter, accounting for more than one-third of China’s total foreign trade. The provincial capital, Guangzhou, is the heart of Cantonese culture. Guangdong is also home to three out of four of China’s original special economic zones - Shenzhen, Zhuhai and Shantou.
In terms of commerce, the cities of Guangdong lead not only the PRD but in many cases the country as a whole, with Guangzhou ranking number one in Forbes China’s “Best Cities for Business 2013”. The city is actively supporting the development of micro, small and medium-sized enterprises, such as via tax incentives introduced in a November 2012 circular.
Economy
Guangdong’s economy is estimated to have grown by 8.5 percent in 2013 and reached a GDP output of more than US$1 trillion last year according to Xinhua News Agency. If Guangdong were a separate country, it would rank as the world’s sixteenth largest economy, behind Mexico and South Korea, and ahead of Indonesia and Turkey. Guangdong is also taking action to shift its focus onto services rather than manufacturing. With average wages among the highest in the country there is a growing potential to reorient the provincial economy toward domestic consumption rather than exports and cheap labor.
The Pearl River Delta contributed 85 percent of Guang- dong’s economic growth in 2013 through the following leading industrial outputs:
1. Communications equipment, computers and other electronic equipment
2. Electrical machinery & equipment 3. Smelting and processing of metals 4. Raw chemical materials and chemical products 5. Automobiles 6. Plastics 7. Petroleum refining and nuclear fuel processing 8. Garments and footwear 9. General purpose machinery 10. Textiles
Furthermore, the provincial government is also taking steps to advance the financial industry, setting a goal for this to be among the province’s “key industries” by 2015. In 2012, the province’s Financial Department released its “Overall Plan of Guangdong Province in Establishing an Integrated Experi- mental Area for Financial Reform and Innovation.” The Plan suggests that added value in the financial industry will account for more than 8 percent of provincial GDP by 2015, and this is further estimated to reach more than 10 percent by 2020.
Spotlight on Guangzhou’s Changing Identity Traditionally considered only a manufacturing base,
Guangzhou is increasingly being recognized for its growing amount of domestic consumption. From 2012, total retail sales in the city increased by 15.2 percent and reached RMB 688.285 billion. This enabled Guangzhou to take the top spot on Forbes China’s “Best Cities for Business” in 2013. Growth in retail sales is largely being fueled by Guangzhou’s large population and high wages, as well as its efficient infrastructure.
• Guangzhou is a city of 14 million people and the nation’s third-largest metropolitan economy.
• In 2013, regional GDP totaled RMB1.542 trillion, ranking third in the country, trailing Shanghai and Beijing.
• Among the highest in the country, average monthly wages in Guangzhou grew to RMB 6647 in 2013. Guangzhou’s monthly minimum wage rose by 19.2 percent from RMB 1,300 to RMB 1,550 in 2014 – the second highest in the province behind Shen- zhen. Meanwhile, the city’s minimum hourly wage increased from RMB10.5 to RMB15.
Guangdong’s strength in foreign trade is evident in the following figures (from Guangdong Statistical yearbook 2013):
• Total exports and imports rose to US$636.4 billion and US$455.2 billion, respectively, by 10.9 and 11 percent year-over-year
• Although exports had to face a 0.8% decrease in the first ten months of 2014, Guangdong – China’s biggest export region – realized an export value of US& 515.7 billion.From Januar to October 2014, imports decreased 7.6% year on year to US% 349.2 billion.
• Nevertheless, Guangdong province was still ranked tops for both export and import values nation wide.
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In particular, trade between Guangdong and newly emerging markets including Latin America, the Middle East and Africa has increased greatly in recent years.
The Outline of Guangdong’s 12th Five year Plan, current 2011-2015, includes the following goals:
• Optimize the industry structure of the province such that the service industry occupies 48 percent of all industries by 2015. In addition, the Plan aims to increase the ratio of the value added by modern service industries to 60 percent of value added for the entire service industry. The key modern service industries to be promoted are finance and insurance, modern logistics, information service, science and technology service, business exhibition and headquarters economy, among others. In addition, newly emerging service industries such as creative industries, service outsourcing, human resources services and high technology services will be actively promoted.
• Significantly improve innovative capacity, and become an important innovation center in the Asia- Pacific region by 2015. In this regard, the Plan aims to introduce a great number of high-level technological innovative talents from abroad.
• Transform the PRD into a domestic as well as international consumer service center with a great number of trend-setting products and with strengthened supervision of both quality and prices of the products in order to better protect consumers’ interests.
• Promote integration of PRD’s economy and improve its competitiveness. This includes integrating the transportation systems, infrastructures, urban and rural planning, industry layout, environmental protection and public services of the region.
• Strengthen environmental protection by strengthening water pollution control, improving air quality and improving the standard of safe disposal and treatment of solid wastes.
• Promote low-carbon development in the province and improve the system and mechanism for con- trolling emission of greenhouse gases.
• Optimize high-efficiency information network system. The Plan aims to achieve the standards of a mid-level developed country in terms of the information levels of the entire province by 2015. This includes reaching an internet penetration rate of 70 percent by 2015.
• Adjust income inequality by expanding the ratio of people with mid-level incomes and raising the minimum wages in the various cities in the PRD
to above 40 percent of the local average salaries by 2015.
• Improve the social insurance system and medical service standards in the province.
• Improve internationalization of education by introducing several internationally well-known schools to Guangzhou, Shenzhen, Zhuhai, Dong- guan, Foshan and other cities to jointly establish higher education institutions.
• Deepen cooperation with Hong Kong and Macau under the CEPA. In finance, efforts involve building a financial cooperation hub with Hong Kong in the lead and PRD cities providing support with their own financial resources and services. To further enhance services industry cooperation and growth between Hong Kong and Mainland China, the Chi- nese central government and the Hong Kong Special Administrative Region government signed the Tenth Supplement to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) on Au- gust 29 and will take effect in January 2014.
• Internationalize the province’s economy and optimize the structure of FDI utilization. Foreign investment is encouraged in high-end manufacturing industries, high- and new-technology industries, modern service industries, new energy and energy- saving and environmental protection industries. The key focus will be on attracting investment from Glob- al Fortune 500 companies and leading enterprises in various industries, and strengthening cooperation with developed countries such as the U.S., Japan and European countries in the areas of economy, trading, technology and culture. Foreign investors are also encouraged to establish venture capital enterprises, private equity investment funds and invest in enterprises within the province.
• Establish proper commercial dispute resolution mechanisms and improve legal systems to create a fair and orderly market competition environment conducive to the internationalization of the economy.
Spotlight on Shenzhen Government Innovation Shenzhen’s government has taken the lead on a number of
new initiatives to become the national leader in innovation and private enterprise growth. The city has experienced rapid private economic growth, spawning about 450,000 private companies, including international behemoths such as Huawei Technologies Co Ltd, Tencent Holdings Ltd, China Vanke Co Ltd and ByD. Available incentives include a recent VAT and business tax exemption policy for small and
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micro-sized enterprises. The government has also adopted specific measures in terms of equity investment incentives, e-commerce promotion and the introduction of electric vehicles. Lastly, as part of a pilot program to curb emissions of key pollutants and clean up the environment, foreign investors are now permitted to trade carbon permits in Shenzhen.
Equity Investment Incentives Private equity (PE) investment has emerged as one of the
most important capital-raising avenues for small and medium-sized enterprises. Recognizing this, the Shenzhen government has become one of several coastal city administrations to offer further incentives to equity investment enterprises. The city has established a PE Development Fund (PEDF) and clarified operation procedures for PE funds that intend to apply for financial support from the PEDF. Incentives offered to PE funds include: rewards for local financial contributions, office purchase and rental subsidies, one-time settlement rewards, and one-time rewards for investment withdrawal.
E-Commerce Promotion In September 2009, Shenzhen was approved by China’s
NDRC and Ministry of Commerce (MOFCOM) to become China’s first “e-commerce model city”. In addition to stream- lining registration processes for e-commerce companies, the city has made other efforts to promote the development of e-commerce. One example is the building of dedicated industrial parks, such as Futian International E-commerce Indus- trial Park, which opened in 2009 and houses more than 150 internet and e-commerce companies.
One state-level project being developed in Shenzhen is the Qianhai Shenzhen-Hong Kong Modern Services Coopera- tion Zone, approved by the State Council in June 2012. By the end of April 2014, a total of 6,470 companies with a combined registered capital of RMB 450 billion had already registered in the zone. A joint venture between Hong Kong and Mainland China, and supported by the State Council, the Qianhai Zone is designed as an experimental business zone for better interaction between the two jurisdictions’ financial, logistics, and IT services sectors. It covers slightly less than 20 square kilometers on the western side of Shenzhen, and is expected to achieve a GDP of RMB150 billion by 2020.
Among its many goals, the Qianhai Zone will serve as a pilot area for the liberalization of China’s financial sector as a whole, including preferential policies such as:
• Allowing the Qianhai area to explore the expansion of offshore RMB fund flow-back channels, and establish an innovative experimental zone for cross-border RMB business;
• Supporting the granting of RMB loans for offshore
projects by banking institutions established in Qianhai; • Under the CEPA framework, conducting studies on the
granting of RMB loans by Hong Kong-based banking institutions for enterprises and projects established in Qianhai;
• Supporting qualified enterprises and financial institutions registered in Qianhai to issue RMB bonds in Hong Kong within the quotas approved by the State Council to support the development of Qianhai;
• Supporting the innovative development of foreign-invested equity investment funds, and actively exploring new modes of foreign exchange settlement of capital funds, investment and fund management; and
• Supporting the establishment of international or national management headquarters or business operation headquarters by Hong Kong and other onshore and offshore financial institutions.
Qualifying enterprises will be entitled to a reduced corporate income tax rate of 15 percent and, to increase investor confidence in the area, the government has stated plans to explore the establishment of branches of Hong Kong arbitration institutions in Qianhai. To attract foreign talent, especially financial sector employees from Hong Kong, the zone offers a special 15 percent salary tax rate for foreign nationals living or working in Qianhai. In April 2013 the municipal government announced four industries–finance, modern logistics, information services, and related industries operating within the zone–that are eligible for special funds.
Identified as “an area for spearheading industrial restruc- turing in the Pearl River Delta region,” the Qianhai Zone provides incentives that are likely to be extended to the other areas in Guangdong Province in the near future. This is designed to extract the ‘next wave’ of FDI in areas such as Hengqing Island near Zhuhai and Nansha Port near Guangzhou, and if successful may eventually be instituted nationwide.
Spotlight on Value-added Tax Reform Guangdong Province launched its value-added tax reform
pilot program in November 2012, following the pilot program launch in Shanghai and Beijing. Here, two lower rates of 11 percent and 6 percent were added on to the standard rates of 17 percent and 13 percent under the previous value-added tax regime. The tax rate of 17 percent applies to the leasing of tangible movable property while that of 11 percent applies to the transportation industry.
Industries included in the pilot include:
• Land transportation service • Water transportation service • Air transportation service
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• Pipeline transportation service • R&D and technology service • Information technology service • Cultural and creative service • Logistics auxiliary service • Authentication and consulting service
The tax rate of 6 percent shall apply to other modern service industries and that of 3 percent shall apply to small-scale taxpayers providing taxable services. Taxable services subject- ed to a zero percent tax rate shall be carried out as prescribed by the Ministry of Finance and the State Administration of Taxation.
Pilot taxpayers engaged in specified taxable services shall, as required by the relevant state tax authorities, undergo the formalities for tax registration, tax type identification, invoice type verification, general taxpayer recognition, tax-control system application, invoice purchasing and collection, tax preference application, and tax-exemption registration for export refund before October 31, 2012.
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3. Fujian Province Cross-Strait Trade Hub
Directly facing Taiwan, Fujian’s coastline provides it easy access to cross-strait trade and business. The province used to be the sole hub for all air and sea transportation to Taiwan, but several years ago the government began permitting direct links with other parts of the country, following which Guang- dong and Jiangsu surpassed Fujian in terms of attracting investment from Taiwan. Nonetheless, Fujian stands to gain the most from the continuing improvement of cross-strait relations, both economically and in terms of its importance to the state government. The main economic engines in Fujian are Xiamen, Fuzhou, Quanzhou, Zhangzhou and Putian. There are also a number of less well-known economic gems hidden throughout the province.
Economy
The economies of Fujian and Taiwan are closely related and complementary – with the pillar industries of both regions consisting of electronics, petrochemicals and machinery. If this favorable economic factor can be properly utilized, gains from the increased trade between the two regions could benefit both sides amid the ongoing global economic down- turn. In May 2013, the capital city of the province – Fuzhou – set up an administration office to handle the certification of origin for goods made in Taiwan.
In June 2012, China’s State Administration of Industry and Commerce issued 16 new policies to promote the development of the region and strengthen its bond with Taiwan. The new policies empowered local offices to directly handle registration applications and other business-related licenses for enterprises funded with overseas capital, rather than going through the Beijing office, and thereby making it more convenient for Taiwanese enterprises to gain market access. Additionally, the new policies newly allowed Taiwan-funded enterprises to use traditional Chinese characters on outdoor advertisements and register company names with Taiwanese idioms. All these measures were aimed to reduce the commercial costs to Taiwan-funded enterprises and help to attract more large-scale companies and projects to Pingtan.
Historically, Fujian’s key industries have been agriculture, footwear and clothing, but in recent years the area has increasingly focused on high-tech and electronic goods. Fujian’s industrial clusters have become stronger in electronic information, equipment manufacturing and petrochemicals, with
these industries accounting for more than 60 percent of total industrial output value.
A prime example of an equipment manufacturer headquartered in Fujian is Lonking Holdings, one of the largest construction machinery manufacturers in China (making and distributing loaders, road rollers, excavators and forklifts). In late 2011, the company invested RMB3.5 billion in an exca- vator manufacturing line in the Longyan Economic Devel- opment Zone. The project is estimated to produce 15,000 excavators annually.
To fuel such industry, Fujian province has taken measures to promote energy production. For example, a household waste-fuelled power plant in Fuqing city was completed and entered operation in 2011.
The provincial government focuses on attracting foreign investment in 13 industries, namely electronics and information technology, machinery, petrochemicals, steel and nonferrous metals, shipbuilding, new energy, bio-pharmaceuticals (traditional Chinese medicine), logistics, new materials, construction materials and textiles. Other key industries in the province include aquaculture and fisheries.
Spotlight on Xiamen While Fuzhou is the capital of Fujian province, the more
southern Xiamen is one of China’s four original special economic zones (along with Guangzhou province’s Shenzhen, Zhuhai and Shantou) and a key trade hub – its port and airport are both the third busiest in the region, behind Guangzhou and Shenzhen.
The import and export volume connected to trade con- ducted by foreign-invested enterprises takes up more than half of the total volume in Xiamen, which in turn occupies more than half of the total import and export volume of the entire province. These provide opportunities for service outsourcing
Fujian’s Major Industrial Products National Rank (total 30 provinces/municipalities)
Product National Rank
Chemical Fiber 3
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enterprises in Xiamen to open up their overseas markets. Xiamen’s more prominent service outsourcing businesses in-
clude information technology service outsourcing targeted towards the Japanese market, logistics and supply chain outsourcing, as well as integrated circuit design, animated games and call center service outsourcing businesses targeted towards Taiwan.
The Fujian provincial government has a standing policy to promote the development of emerging industries, including next-generation information technology, biotechnology and new medicine, new materials, new energy, energy-saving technology, high-end equipment manufacturing, and the marine high-tech industry. By 2015, the provincial government aims to increase the value of emerging industries to RMB300 billion, accounting for 12 percent of Fujian’s GDP.
The province is now vigorously promoting the marine economy as its new growth engine. Fujian initiated related pilot projects in 2013, targeting a total output value of the industry of RMB730 billion by 2015. If achieved, this would contribute more than 28 percent of total regional product and turn the province into a marine economic powerhouse by 2020. The province is also set to improve the organization of its ports and optimize resource allocation. The province’s coastal resources for building deep water berths of 10,000 tons to 30,000 tons rank first in the country; this is planned as the basis for an ambitious move to turn Fujian an internationally competitive shipping center. To this end, the provincial government has plans to establish a special fund of RMB1 billion for the development of marine economy.
Fujian’s 12th Five-year Plan encourages foreign investment in newly emerging strategic industries, modern services, energy conservation and environmental protection, and other key industries. The Plan also aims to:
• Increase cooperation with large international corporations through technological cooperation and asset M&As;
• Optimize the structure of exported products by en- couraging the export of high-tech, electrical and mechanical products with independent IPR, as well as high added-value labor-intensive products;
• Promote the accelerated transformation and upgrad- ing of the processing trade, and encourage domestic and foreign enterprises to cooperate in the expansion from simple assembly and processing to the inclusion of R&D, design, core component manufacturing, and logistics;
• Restrict the export of high-energy consumption, high-pollution and resource-intensive products;
• Encourage the import of advanced equipment and technologies, important resources, key component parts and goods for daily consumption that are necessary for economic development so as to optimize the
province’s import structure; • Strengthen the certification of enterprises and prod-
ucts entering the global market; and • Expand cooperation with Hong Kong and encourage
Hong Kong financial institutions to set up branches in Fujian.
Much of the Plan’s focus is placed on cooperation with Taiwan, for example in modern services such as the legal, intermediary, medical and health, cultural, service outsourcing, commercial exhibition, shipping and logistics and R&D industries. The Plan encourages the introduction of Taiwanese hospitals, rehabilitation centers and retirement homes to Fuji- an, and Taiwanese residents are encouraged to start businesses and participate in politics in Fujian.
Fujian’s import/export value grew by 8.6 percent to US$169.35 billion in 2013. Exports exceeded US$100 billion for the first time, while imports reached US$62.85 billion (an increase of 8.2 percent). For 2014, trade volume is expected to grow by 7 percent, and foreign investment by 5 percent.
Spotlight on Development Zones Fujian’s development zones received great attention under
China’s 11th Five year Plan, in which the State Council approved free trade port zones both in Xiamen and Fuzhou and upgraded three provincial development zones - China Merchants Zhangzhou Development Zone, Quanzhou Economic and Technological Development Zone, Quanzhou High-tech Industrial Development Zone - to state level status.
Fujian’s development zones are also representative of the province’s economy as a whole. For example, the province’s development zones include three state-level investment zones specifically aimed at Taiwanese businesses, located in Fuzhou, Quanzhou and Zhangzhou. Auto-parts are a major product in Fujian province and this is no more clearly seen than in Hua’an Economic Development Zone, which is home to the “aluminum wheel production project.” According to Fujian government plans, this zone will develop an auto spare parts industrial cluster that produces car wheels, car bearings, tires as well as auto glass products, among others. In addition, several new-energy vehicles and fork-lift trucks manufacturers will also be housed in the area.
The West Coast Economic Zone (also known as the Western Taiwan Straits Economic Zone) covers the entirety of Fujian province, as well as several cities in the Zhejiang, Guangdong, and Jiangxi provinces. The Zone, described in China’s 12th Five year Plan, was proposed by the Fujian government and Chinese central government with the purpose of facilitating political and economic relationships across the Taiwan Straits and accelerating economic development along the coastal cities in Fujian province.
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4. Guangxi Zhuang Autonomous Region Link to South Asia
As the only province of China with both land and water connections to Southeast Asia, Guangxi’s position was significantly enhanced by the inauguration of the China-ASEAN Free Trade Area in early 2010. The province borders Vietnam to the west and is connected to Hong Kong and Macau by the Xi River. Cross-border, small-value trade with Vietnam accounted for around 40 percent of Guangxi’s total exports in 2013.
The provincial capital of Nanning in particular plays a key role in China-ASEAN relations. The city is the permanent home of the annual China-ASEAN Expo and the China- ASEAN Economic Park, a provincial-level park based in the Nanning Overseas Chinese Investment Zone, which aims to enhance cooperation between the region and the ASEAN countries.
Economy
Guangxi is home to many ethnic minority groups and its economy is based on agriculture and tourism (especially the city of Guilin, known for its proximity to the Lijiang River and Karst Peaks). Key agricultural products include sugar- cane, of which Guangxi is the leading producer in China, and silk-worm products. Major grain crops include rice, maize, wheat and sweet potatoes. Leading commercial crops include peanuts, sesame, ramie, tobacco, tea, cotton, and indigo. Guangxi is also a major producer of fruit: most notably pom- elos, tangerines, mandarin oranges, lemons, lychee, pears, papayas, bananas and pineapples. The region’s timber (san- dalwood and cork) and fishing industries are both important contributors to the local economy.
The province is also known for its wide variety of minerals and metals, and its aluminum processing industry. In 2011, Guangxi launched a new materials research and development center, investing RMB30 million in R&D for new metallic materials, the comprehensive utilization of low-quality iron resources, and laterite-nickel ore.
Food processing, auto manufacturing, petrochemicals, power generation, nonferrous metals, metallurgy and machinery are the seven key industries of Guangxi. In addition, building materials, pharmaceutics, textiles and garments, shipbuilding, as well as the marine equipment manufacturing industries have grown rapidly in recent years. Pine resin is notable as an export-oriented commodity produced in the city of Wuzhou. The province’s heavy industries include iron,
cement- and steelworks in Liuzhou, as well as machinery production in Nanning and Wuzhou. Pinyang produces ce- ramics, fans, felt caps, copperware, combs, brushes and straw bonnets.
In January 2012, Sinopec opened a renovated refinery in the coastal city of Beihai. The new facility can refine 100,000 barrels per day, and is integrated with a 200,000 ton-per-year polypropylene unit for producing plastics.
Spotlight on Development Zones Guangxi is also home to new high-tech development zones
aimed at attracting investors in the logistics, bio-engineering, IT, electronic components and shipping industries. The Nanning-Guizhou-Kunming Economic Belt and the Beibu Gulf Economic Zone are being constructed and efforts are being taken to enhance the cooperation with Taiwan and other areas in and outside of Guangxi. At present, over 3,000 companies have settled into Guangxi’s 37 industrial parks, including China Petroleum, SDIC Power Holdings, Sinar Mas Group of Indonesia, Noble Group of Singapore, China National Cereals, Oils and Foodstuffs Corporation (COFCO) and Coca Cola.
The High-Tech Industrial Development Zones of Nan- ning, Liuzhou, Qinzhou, Guilin, and yuchai all created an industrial output value over RMB10 billion in 2011. In addition to industrial output value, the development zones are a key source of jobs in the province. The province’s industrial zones have been developing their industrial cluster according to the area characteristics. For example, the coastal areas of Qinzhou, Beihai and Fangcheng are now focused on petrochemicals, power plants, manganese steel, sugar, and high- tech products.
Efforts have been made by the local government to increase both foreign- and domestic investment in the region. Global companies like Toyota, General Motors, NEC and IBM have all made investments in Guangxi. Many large enterprises have established regional headquarters in the city since July 2010 (when incentives were introduced to encourage doing so), including the brewer, Tsingtao, and household appliance maker, Haier.
As part of the China-ASEAN framework, the Pan-Beibu Gulf Economic Cooperation Zone comprises the Guangxi Zhuang autonomous region, Guangdong and Hainan provinces, Vietnam, Malaysia, Singapore, Indonesia, the Philip- pines and Brunei.
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Infrastructure
Air Guangxi’s airports include Nanning Wuwei, Guilin
Lianghe, Beihai Fucheng, Liuzhou Baihe, and the much smaller Baise Tianyang and Quzhou Cheung Chau Island.
Rail Guangxi’s railway network, which has long lagged behind
that of neighboring provinces, is currently undergoing development and expansion. The province plans to spend RMB300 billion on railway construction between 2011 and 2015.
This project is integrally connected to Guangxi’s development of trade with ASEAN. The province plans to accelerate the construction of a high-speed railway from Nanning to Singapore via Vietnam as the groundwork for the Nanning- Singapore Economic Corridor.
The first step of this is a railway segment between Nanning and Pingxiang, a city near China’s border with Vietnam. The larger Corridor is planned to encompass Hanoi in Vietnam, Vientiane in Laos, Phnom Penh in Cambodia, Bangkok in Thailand, Kuala Lumpur in Malaysia, and Singapore.
Ports and Waterways Guangxi’s main port is at Beibuwan (Gulf of Tonkin),
which lies just off the coast of northeastern Vietnam and has an annual goods throughput approximately equal to that of Guangdong’s Zhanjiang and Fujian’s Xiamen combined (119 million tons). The province plans to raise the capacity of the port to over 330 million tons by the end of 2015, according to Guangxi’s “Development Plan” and Xinhua News Agency. In 2011, it invested heavily in terminal and navigation channel projects with the goal of turning the port into a hub for ASEAN trade.
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5. Hainan Province An Island of Tourism and Agriculture
Hainan province includes over two hundred islands off of China’s southern coast in the South China Sea, with Hainan Island (30 miles off the coast of Guangdong) accounting for 97 percent of the province’s land area. China’s smallest province and largest special economic zone, Hainan is at the same latitude as Hawaii, Bali and Phuket and has developed into one of China’s prime resort areas, the “oriental Hawaii.”
Economy
While many of the tourists who travel to Hainan are Chi- nese, the government is attempting to change this; the State Council has announced a strategic plan to make Hainan a world-class international tourist destination by 2020. The central government has approved a further 15 resorts and 63 five-star hotels as part of the island’s existing Five-year Plan. Tourists may visit the island without a visa as long as they are part of a tour group organized by a state-approved international travel agency.
The most valuable government policies issued in connec- tion with promoting Hainan as an international tourist destination are the island’s duty-free policies, post-departure tax refunds, and visa exemptions for tourists from 26 countries and regions.
Since April 2011, tourists have been able to purchase duty-free commodities at duty-free stores in the province and leave the island by air, greatly increasing tourism and high- end consumption. Having recognized the tremendous ben- efits brought to the local economy by the policy, the Chi- nese central government loosened previous restrictions in October 2012. The minimum age for purchasing duty-free commodities was lowered to 16, while the upper value limit for duty-free commodities was increased from RMB5,000 to RMB8,000. Moreover, three additional categories of commodities have been added to the duty-free list, namely, beauty and health care products, tableware and kitchen appliances, and toys - expanding the scope of duty-free commodities to 21 categories.
In an effort to bring the huge potential of the duty-free policy into full play, construction of the world’s largest duty- free shopping center has begun in the resort city of Sanya. With an investment of RMB3.45 billion, the Haitang Bay International Shopping Center has attracted a vast number of top-end and flagship stores to its 125,000 square meter complex after opening in September 2014.
The accumulative value of the duty-free goods purchased per one-time visitor departing from Hainan Island is limited to RMB8,000 and the allowable quantity of each individual type of good is as shown in the Annex below. As long as the import duty of the goods has been paid, each visitor may also purchase one product priced over RMB8,000.
Hainan Island occupies 42.5 percent of the nation’s total tropical landmass used for agriculture, forestry, animal husbandry and fishery. Major agricultural industries include natural rubber, coffee, tobacco, tropical flowers and tropical fruits such as coconuts, watermelons and bananas. Hainan is also developing aromatic vegetables into a major industry.
The province is home to 70 percent of China’s titanium reserves and is a major salt production center. Main exports include aquatic products, furniture and wood, electrical and electronic products, and iron and steel. Hainan’s main import and export trading partners are the E.U., ASEAN, the U.S. and Japan. Hainan’s territory covers an enormous amount of seabed - a radius of about 200 miles around the island area - and the local government is keen to exploit this in terms of aquaculture and offshore oil and gas production in the South China Sea. Since 1996, Hainan has been supplying Hong Kong with natural gas through a 770-kilometer pipeline. Large oil and gas reserves have been discovered in the South China Sea, a major source of conflict between China and its neighboring countries in recent times.
The 12th Five-year Plan of Hainan aims to promote the modern service industries, including tourism, commercial exhibitions, modern logistics, and sports and leisure. It also aims to greatly increase investment into the new energy, new materials and biomedical industries, such that they become the province’s main pillars of economic growth. The Plan hopes to form five industry groups in the automobile, food & beverage and agricultural product processing, photovoltaic, medical and pharmaceutical, cultural and creativity, and leisure and entertainment industries, with output of over RMB10 billion
Hainan’s Major Industrial Products National Rank (total 30 provinces/municipalities)
Product National Rank
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by 2015. It also plans to accelerate the development of the golf and yacht industries by introducing a series of internationally influential golf tournaments, developing golf training and associated industries, and establishing yacht trading venues and yacht clubs. The Plan also encourages the creation of a base for manufacturing travel equipment including for yachts, residential vehicles, outdoor sports, scuba diving, and golf. In addition, the Plan aims to cultivate three to five medical, health and convalescence institutions meeting international advanced standards and providing services such as Chinese medicine, hot springs and dietary therapy.
In terms of raising innovative capability, the Plan encourages enterprises with the necessary conditions to establish state, provincial and municipal-level key laboratories and state and provincial-level key engineering technology R&D centers, and aims to cultivate a group of high- and new- tech- nology enterprises, innovative enterprises, and state and provincial-level IPR pilot enterprises.
Well-known domestic and foreign schools are encouraged to establish branch schools in the province and large enterprises to establish training bases in Haikou, the provincial capital. Local schools are encouraged to establish mutual recognition of courses and accreditation with foreign schools. In addition, the development of accounting, legal, economic appraisal and consulting services are encouraged, with the Plan aiming to cultivate a group of internationally renown intermediary service enterprises.
In terms of the environment, the Plan hopes to achieve a 100 percent urban waste treatment and disposal rate and a 90 percent urban waste water treatment rate, and prohib- its the development of high energy consumption, high water consumption, high emission and overcapacity industries. The Plan also aims to achieve a 95 percent utilization rate of clean energy by 2015, and for all key projects and large-scale public facilities to comprehensively implement contract energy management.
The Plan aims to actively promote Haikou’s economic exchange and cooperation with the pan-PRD region and with international sister cities, as well as expand economic cooperation and trading with the 10+1 ASEAN nations. In addition, it hopes to adjust and optimize the province’s export goods structure and encourages and supports expanding the export of pho- tovoltaics, marine products, food and beverages, and electrical and mechanical products. In addition, it hopes to adjust and optimize the structure of FDI utilization by increasing efforts to attract investment in the high- and new-technology industries, modern service industries, and public infrastructure.
Infrastructure
Air Hainan’s airports include Sanya Fenghuang and Haikou
Meilan, which handle the major inflow of visitors to the province.
Rail Hainan’s east ring intercity rail connects its major cities
of Haikou and Sanya. An additional high-speed railway is planned for the west coast of Hainan, and a ferry link connects Hainan’s railroad to the mainland.
Ports and Waterways Hainan’s largest harbors are located at Haikou, Sanya,
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6. Hong Kong Special Administrative Region East Asia’s Logistics and Financial Hub
Situated at the southeastern tip of China, Hong Kong is at the center of East Asia. Since its return to the Chinese Mainland in 1997, the special administrative region has been a model for the success of the “One Country, Two Sys- tems” policy. Hong Kong is the world’s 10th largest trading economy, 6th biggest foreign exchange market and, with its service sector accounting for more than 90 percent of GDP, the world’s most service-oriented economy, according to the Hong Kong Development and Trade Council.
Hong Kong encompasses Hong Kong Island, the Kow- loon Peninsula and the New Territories. Parts of the region consist of the most densely populated places in the world, while others are quite rural. Approximately 88 percent of the population speaks Cantonese as their first language, rather than the mainland’s official language of Mandarin Chinese.
Economy
Major economic sectors of Hong Kong include: trade and logistics, tourism, financial services, professional services and other producer services. Mainland China is Hong Kong’s largest trading partner and the largest source of external direct investment into Hong Kong. Its relationship covers a wide range of activities ranging from traditional areas such as imports/exports, wholesale and retail, banking and transport and warehousing, to newer areas such as real estate, hotels, financial services, manufacturing and infrastructure development.
Spotlight on CEPA’s Tenth Supplement In December 2001, after China’s accession to the WTO,
Hong Kong proposed an arrangement with mainland China similar to a free trade agreement. By 2002, the official term, Closer Economic Partnership Arrangement (CEPA), was confirmed. CEPA promotes closer integration and development of the PRD through trade in goods and services, investment facilitation and tourism.
The basic objectives of CEPA are to phase out tariffs and non-tariff barriers on trade in commodities, liberalize trade in services and reduce and eliminate all discriminatory measures to boost trade and investment in the Greater PRD.For manufacturing industries, CEPA allows the vast majority of manufactured goods that meet Hong Kongrule of origin and CEPA specifications into the Chinese mainland duty-free. In the service sector, CEPA gives Hong Kong companies in
specified sectors preferential access to markets. To enhance cooperation between Hong Kong and Main-
land China in the services sector, the Chinese central government and the government of the Hong Kong Special Administrative Region signed the “Tenth Supplement to the Mainland and Hong Kong Closer Economic Partnership Ar- rangement” (CEPA) on August 29, 2013, which is scheduled to take effect on January 1, 2014.
The Tenth Supplement further relaxes the market access conditions in 28 existing sectors, namely:
Legal Construction Computer and related services Real esta