The Chinese government is reshaping the so-called pan-Pearl River Delta (PRD) into a vast integrated market, with a declaration on regional economic cooperation and co-development, signed by nine mainland provinces, Hong Kong and Macau. The nine provinces are Guangdong, Guangxi, Fujian, Jiangxi, Hunan, Guizhou, Yunnan, Hainan and Sichuan. Hailed as the next most dynamic high-growth economic bloc in the world, consisting of one third of the population of China and one third of the nation’s GDP, the grand project is promising in theory, but has yet to be put into practice. Macau Business caught up with Michael Enright, Sun Hung Kai Professor of Business Administration at the University of Hong Kong. He believes that entrepreneurs in the region have begun adopting the mindset that will see through the development of a much larger and integrated market.

The agreement of the pan-Pearl River Delta initiative addresses the cooperation between 9 provinces and two special administrative regions. Number one, to reduce barriers to trade and investment. Historically, there had been barriers between the provinces – unofficial, though they do exist. The question is to accelerate the development of infrastructure that will connect the region together that will make it much easier for goods and people to go back and forth. The practicality is that the infrastructure will improve. At the same time, the pan-PRD meeting like the one held in June can help people create business connections, help them get together and help people identify who their partners are and who they can do business with.

This brings us to the second point. What an initiative like the pan-Pearl River Delta does is to start changing people’s mindset. It starts getting them to think much more about their opportunities in the rest of the region, what supply arrangement and what buying arrangement they might adjust. Because the whole thing is being promoted by the Guangdong government, Macau government and Hong Kong government, and the governments of other provinces, that sends a very strong signal to business that what we are going to see is the emergence of a much larger and much more integrated market than we have seen before. That expands companies’ ability to address profit and expands companies’ ability to source in that region.

If you think about it, what is in this proposal? That is one way to frame this question. If you think about it, Guangdong has been very successful by being outward-oriented, developing outward market, receiving foreign investment. So, one of the things for other provinces is that by improving the infrastructure and business connection, it will become much easier for them to sell to the affluent markets along the coast, to sell to Macau, Hong Kong and Guangdong province. At the same time, if the infrastructure improves and the business connections are improved, then those provinces will become much more attractive as investment locations. If the infrastructure improves, it is possible to import capital goods. You don’t have to just produce for the Pearl River Delta if the infrastructure and business connection improve. In part, it is the ability to serve the costal market and it is also the ability to get investment from Guangdong, from Hong Kong, and Macau and from the international community through Hong Kong and Macau, the ability to then join the world economy the way that Guangdong has joined the world economy. If you look at the other provinces in the ‘9+2’ arrangement, Guangdong and Fujian have very strong export economies but none of the other provinces really have significant exports. What that means is that one of the benefits of the ‘9+2’ for them is to link them much more closely to the global market to improve their exports.

There are issues of sustainability involved because if the manufacturer’s base is spread over a large area, it tends much less to use up the local resource and drain the local environment. And as China is promoting development, the question is if that development is limited to just three small areas the way it is now, it is far more worse from a sustainable development standpoint than spreading over the larger area.

The backdrop is that, particularly [among the central government] in Beijing, there is a very strong concern that they aren’t able to balance Chinese development, which is concentrated in the costal provinces. This speaks very much to the national imperative of extending development further into the interior parts of China. That is very much the backdrop. The initial development has been unbalanced. There are certain advantages to that, but now after 25 years of unbalanced development, the Chinese government wants to have a more balanced development.

by José Ho