Special Report – Sustainable Development and Carbon Emission: Changes in Industrial Structures of the Nine GBA cities

By Shenglu Wang and Carlos Noronha 

Faculty of Business Administration, University of Macau, China

Setting the Scene

In March 2021, China announced its latest 14thFive-Year Plan which now emphasizes on “internal-cycle” and self-reliance. Compared to the previous 12thand 13thFive-Year Plans, the coverage on sustainability has been relatively reduced (8% of the total 65 chapters in the whole report) and more emphases have been placed on innovation and industrial modernization as well as economic and market reform. Furthermore, the plan has mentioned less than before about China’s pledge on cutting CO2 emissions by 2030. At the same time, China is the largest greenhouse gas emitter in the world, accounting for 27.3% of energy related CO2 emission, followed by the US and India.

Shenglu Wang
Carlos Noronha

The Greater Bay Area (GBA, including Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, Huizhou and Zhaoqing plus the two Special Administrative Regions namely, Hong Kong and Macau (9+2)) is now destined to become China’s technology and digital hub, incorporating investments in the areas of science and technological breakthrough as well as finances (such as fintech and various high-end financial market activities). Not only to echo the policy of “internal-cycle”, the GBA also serves as a window for exporting to ASEAN and emerging countries.

Despite of the GBA’s rapid and astonishing development, carbon emission problems in nearly all cities in the area are still serious. According to a research conducted by a group of researchers in China in 2018, the cities’ carbon emission had increased rapidly from 2000 to 2011 with peak emissions in 2014 and 2016. In particular, two emitters contributed to 4% of total national emission while creating 13% of the country’s GDP. Coupled with President Xi Jinping’s speech in April 2021 that China will reach its emission peak in 2030 and achieve carbon neutrality in 2060, the long-term green policy of the country is already on a pressing agenda. Though President Xi’s announcement has been described as a tectonic shift in the country’s green policy, the situation is further intensified with diplomacy pressures from 60 other countries under the Paris Agreement made in 2015 which have vowed to reach carbon neutrality by 2030 (some by 2025) as well as China’s original pledge to reduce emissions significantly in 2030. Nevertheless, President Xi’s new pledge is now seen as an ambitious fight against global warming, by using more non-fossil fuel (to approximately 25% by 2030 according to Xinhua News (2020)). Although an obvious carbon reduction effect was brought by the COVID-19 pandemic in 2020, as the nation begins to pick up again on its industrial activities, its carbon footprints will reappear almost instantaneously. Therefore, reducing carbon emissions effectively and efficiently has become urgent in the social and economic development plan of China. 

            Guangdong Province is one of the seven pilot carbon market zones in China. The official carbon ETS (Emission Trading System) had begun at the end of 2017. Potential factors influencing carbon emission rates can be estimated by a statistical model known as the Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) model. The model uses total population, urbanization level, degree of foreign trade, industrialization level, GDP per capita, foreign direct investment and energy intensity to evaluate the level of carbon emission. In particular, as Guangdong has large volumes of import and export, it is necessary to pay attention to the sustainable development of foreign trade, which reached 7.16 trillion yuan in 2018. 

The Greater Bay Area (GBA) and Guangdong Province

In Guangdong Province, the most developed cities are certainly the nine cities in the GBA. These cities are: Guangzhou, Zhuhai, Shenzhen, Zhaoqing, Dongguan, Foshan, Jiangmen, Zhongshan and Huizhou. Together they form the third largest metropolitan economic circle in mainland China.

With advanced manufacturing and modern service industry bases, the GBA has turned into one of China’s most prominent regions. Data from the National Bureau of Statistics (2019) have shown that the total GDP of the nine cities was 8.69 trillion yuan and the output proportion of the heavy industry sector increased from 12.4% in 1949 to 68.2% in 2018. 

Figures 1 and 2 show that Shenzhen, Guangzhou and Foshan in the area had a total GDP of over 1 trillion yuan in 2019. This reflects also the situation of uneven economic development in the cities as well.

Figure 1 GDP of Nine Cities in the GBA from 2010 to 2019

Source: Wind Information Financial Terminal

Figure 2 Value-Added Industrial Outputand Five-Year Compounded Growth Rate in 2018

Source: Poly Investment and Research Institution

For the purpose of carbon intensity reduction, the sustainable development of foreign trade and the effects of carbon tariffs cannot be ignored. Although the 14thFive-Year plan has destined the GBA to develop high-end service industries and thus reducing carbon emissions, Guangdong, as a province with a large volume of foreign trade, has still a long way to go. Furthermore, the emergence of carbon labels has largely made the export of related products more difficult. Carbon labels do not only play a significant part in promoting global warming controls and cutting down on carbon emissions, they may inevitably become a new type of “green trade barrier”, namely carbon tariffs.

Factors Influencing Carbon Reduction

Carbon tariff refers to the special government tax on CO2 emissions levied by sovereign countries or regions on imports of high energy-consuming commodities, such as aluminum, steel, cement and other chemical products. 

Some developed countries have adopted Green Trade Barriers (GTB) as a means of trade protection. It is estimated that at least 7 billion USD of export commodities in China have been adversely affected by “green protectionism” each year, and there is a trend of gradual expansion. As China has been taking the role of the “world factory” during the past few decades, meeting the environmental criteria set by developed countries has become quite difficult for exports from China. Meanwhile, Guangdong is currently in high-speed economic development and a large amount of funds for infra-structure construction is required. For the sake of economic benefits and to avoid costly internalization and control of green trade, some foreign investors have transferred some pollution-intensive industries to China.

Theoretically and in relation to the Paris Agreement, the higher the degree of treaty-based climate change response to international law, the less trade friction would occur. It is more complicated when it comes to the carbon market emission reduction cooperation mechanism. Whether or not carbon border adjustment measures should be implemented to enhance the effect of regional emissions reduction remains a sensitive topic.

Foreign Direct Investment(FDI)

Guangdong Province was the first to participate in the development of globalized industries. It has attracted a large amount of foreign capital by virtue of its preferential policies and abundant labor force. The actual amount of FDI was 152.2 billion yuan in 2019, an increase of 4.9% compared to the previous year.

Figure 3 ActualAmount of FDI in Guangdong Province by Industry in 2018 (million yuan) 

Source: Guangdong Statistical Yearbook (2019)

As Figure 3 shows, the manufacturing industry was the main target of FDIs. In 2018, the actual amount of FDI in the manufacturing industry reached 520.45 million yuan, which was far ahead of other areas. It reflects the strategy of developed countries in transferring manufacturing activities, a backward sunset industry which can emit a large amount of greenhouse gases, to China. 

Import and Export

The total export volume in Guangdong Province has reached 7.16 trillion yuan in 2018, accounting for 23.5% of the total domestic amount of export, and most of them are high-carbon products. As Figure 4 shows, the export amount of Electrical and Electronics have reached 15,800 billion yuan and Labor-Intensive Products have reached 8,134.6 billion yuan. According to data from the same source, the growth rate of export industrial products was 4.7%.

Figure 4 Export Categories and Amount in 2018 (billion yuan)

S

Overall Trend

Carbon emission levels of the nine cities in the GBA from 2011 to 2019 were calculated based on the STIRPAT model mentioned earlier. A total of seven independent variables, whose data were all obtained from the statistical yearbooks of the nine cities and the statistical yearbook of Guangdong Province were used in the analysis.

Table 1 shows the calculation results of carbon emissions in the nine cities from 2011-2019.

Table 1 Calculation results of carbon emissions of nine cities 2011-2020 (103t)

Table 2 Emission factors in nine cities 2011-2019

As shown in Table 2, apart from Huizhou, Foshan and Dongguan, whose data sets are complete, the other cities have missing data concerning the respective energy elements.

The cumulative calculation results of carbon emission in the nine cities are shown in Figure 5. They indicate that the general trend is upward climbing, and there was a turning point in 2016. The growth rate slowed down in 2018, and then returned to the original level in 2019. According to “China’s Low-Carbon Economic Development Report (2017)”, energy-related carbon emissions fell further in 2016 which indicate the basic characteristics of decoupling carbon emission from economic development. However, the contribution of energy intensity to emission reductions declined in 2018, which may be due to the cyclical recovery of industrial production. As a result, the decline in energy intensity and carbon intensity cannot offset the growth of population and per capita income in 2017.

Figure 5 Calculation results of total carbon emissions trend of nine cities in Guangdong province from 2011 to 2019 (106t)

            Some highlights of the overall findings are provided as follow. 

(1) The urbanization rate, the percentage of the secondary industry, and GDP per capita are the factors that have the greatest impact on carbon emission. Specifically, the emission will increase by 12.3616% for every 1% increase in the urbanization rate; for each increase in the percentage of the secondary industry by 1 %, carbon emission will increase by 5.2065%; for every 1% increase in per capita GDP, carbon emission will increase by 3.1229%.

(2) The proportion of imports and exports has a negative impact on carbon emission. That is, for every 1% increase in exports, carbon emission will reduce by 1.6031%.

(3) The interaction term between FDI and the proportion of the secondary industry shows a negative impact on carbon emission. It shows that the greater the FDI, the increase in the proportion of the secondary industry will decrease carbon emission (see individual cities’ analyses later in the article).

(4) Studies have shown that population and energy intensity also have a positive impact on carbon emissions, but this impact is relatively small. As the overall change in population and energy structure is relatively stable, it will also accelerate the increase in carbon emissions, though its impact will be small.

Figure 6 Trend of urbanization rate in nine cities

The official classification of nine cities is as follow. Tier 1 cities: Guangzhou and Shenzhen; new Tier 1 cities: Dongguan; Tier 2 cities: Foshan, Huizhou, Zhuhai, Zhongshan; Tier 3 cities: Jiangmen, Zhaoqing.

On the whole, the urbanization rate reveals a gradual upward trend (see Figure 6). This is likely to be related to the country’s poverty alleviation strategies and the focus on rural revitalization. Shenzhen and Guangzhou (first-tier cities) have a very high urbanization rate. The urbanization rate of second- and third-tier cities is relatively low but increasing rapidly, indicating that development prospects are good.

Figure 7 Comparison of GDP per capita of nine cities and Guangdong Province and China as a whole

Figure 7 shows the comparison of GDP per capita in nine cites with GDP of Guangdong Province and China as a whole. Overall, the GDP per capita shows an increasing trend. The general economic development of each city is relatively fast. This will have a strong upward driving effect in Guangzhou, Shenzhen, Zhuhai, and Foshan, and on the national economy at large. However, it should also be noted that Huizhou as a whole is similar to the national level, and the development of Zhaoqing is lagging behind the national average.

Individual Cities

The overall influencing factors and their magnitudes of carbon emissions were obtained from the STIRPAT model. Now we select key cities for further analyses.

  • Guangzhou (1stTier)

The overall trends of GDP per capita, urbanization rate, and carbon emissions are roughly the same, but the proportion of the secondary industry is contrary to the trend of changes in carbon emissions, which shows that Guangzhou now mainly depends on the development of the tertiary industry, and the scale of the secondary industry is, relatively speaking, reducing. As the city is in the stage of rapid growth (tertiary industry), its development should theoretically not greatly promote carbon emission, but instead will reduce emission to a certain extent. However, the strong upward trend of carbon emission in Figure 8 shows the opposite.

Figure 8 The relationship between carbon emissions and related influencing factors in Guangzhou

  • Shenzhen (1stTier)

Urbanization is trending downwards because it was initially 100%, with a small fluctuation in the subsequent decline. In 2019, Shenzhen’s total industrial output value (above certain designated sizes) reached 3.69 trillion yuan, and heavy industry accounted for 37.7% of GDP. On the other hand, Shenzhen has fostered the development from scattered to complete categories, from traditional industries to advanced manufacturing. According to the data from the Statistical Bureau of Shenzhen, the proportion of tertiary industry to GDP has increased from 53.8% to 61.0%, which is dominated by the service industry which consumes less natural resources and creates mostly intangible products. The industrial structure of Shenzhen has been continuously optimized and adjusted. With this trend, the development of the tertiary industry can reduce resource consumption and contribute to economic growth at a high rate. Again, a strong upward trend of carbon emission can be observed with a slight slow-down since 2018.

Figure 9 The relationship between carbon emissions and related influencing factors in Shenzhen

  • Dongguan (New 1stTier)

Figure 10 The relationship between carbon emissions and related influencing factors in Dongguan

Dongguan is a new first-tier city with rapid development occurring during 2011-2019. As a result, various indicators are showing remarkable growth trends, which actually contribute to carbon emissions in differing degrees. It must be noted here that the percentage of secondary industries to GDP has suddenly risen around 2017 and stabilized in 2018 onwards. This explains a very unique feature of the city from the others in the GBA. Dongguan has thus been taking its role as a major secondary industry city in the GBA. Nevertheless, by comparing the carbon emission trend with the growth of secondary emission in relation to GDP, Dongguan appears to be achieving good carbon emission (simply speaking, while the yellow line had a sharp rise around 2017, the black line started to level). From the perspective of actual development, more attention should be paid to sustainability, and the government should try to avoid the old path of “Pollution first, Governance after” so as to maintain the current development trend.

  • Zhuhai (2ndTier)

Figure 11 The relationship between carbon emissions and related influencing factors in Zhuhai

In 2019, the regional GDP of Zhuhai has reached 343.589 billion yuan, a year-on-year increase of 6.8%, and the growth rate was 0.7 and 0.6 percentage points higher than that of China as a whole and Guangdong province, respectively. In terms of the secondary industry, high-tech industrial enterprises are developing well. The city’s total foreign trade imports and exports fell by 10.4% year-on-year, and the decline narrowed by 3.3 percentage points compared with the previous three quarters. Again, it can be seen that the carbon emission trend has been rising while the percentage of secondary industry to GDP has been dropping, and especially significantly since 2018.

  • Foshan (2ndTier)

Foshan has been attempting to become a first-tier city in China’s manufacturing industry by developing modern and advantageous industrial clusters vigorously. The industrial system of Foshan is relatively sound, covering almost all manufacturing industries. Traditional industries such as furniture, ceramics, mechanical equipment, and metal processing are still going strong. At the same time, new industries such as optoelectronics, biopharmaceuticals, robotics, and new energy vehicles are booming amid their present development and therefore an obvious downward sloping trend of the percentage of secondary industry to GDP can be observed. However, the carbon emission trend is obviously strongly going upwards.

Figure 12 The relationship between carbon emissions and related influencing factors in Foshan

  • Jiangmen (3rdTier)

Jiangmen is a famous manufacturing city in Guangdong Province, located in the West of the Pearl River Delta, adjacent to the South China Sea, Hong Kong and Macau. Although it is regarded as a third-tier city, its industrial development in the recent years has been astonishing. It promotes the industry towards agglomeration, scale, mid-to-high end, and creates new growth in the GBA with the support of “three strategies and three drives”. In simple, the strategy adopted for Jiangmen is to concentrate on major industrial clusters such as commercial vehicles, new energy and equipment, new materials, new education equipment and general health. The industrial technological transformation investment has increased by over 63% in 2016 over 2015. Again, although the reliance on secondary industry has dropped significantly since 2018, carbon emission has still been increasing, but with a slightly stabilizing or even reducing trend since the same year.

Figure 13 The relationship between carbon emissions and related influencing factors in Jiangmen

Final Remarks

The main conclusions of the analysis are as follow.

  1. The urbanization level, the proportion of the secondary industry to GDP, and GDP per capita are the factors that have the greatest impact on carbon emissions. From a global perspective, urbanization will bring more carbon emissions due to higher carbon production by cities relative to those in rural areas. From an economic point of view, the use of urban land will tend to be more intensive and more productive with the development of urbanization. 
  2. Although we have predicted that FDI will bring high carbon industries into China, the inflow of FDI can actually alleviate, to a certain extent, the pressure of CO2 emissions in the GBA. This is due to the technological spillover effect of FDI. When FDI entered, it brought both capital and innovation of new technologies. Generally speaking, the production technology and process flow of developed countries are more advanced than those at the current domestic level, and the use of foreign technology may have improved the environmental quality. However, it should again be noted that at the same time there is also a large amount of FDI flowing into pollution-intensive industries. The government should formulate a stricter environmental access system to selectively welcome foreign capital. 
  3. Imports and exports may have different impacts on carbon emission. As the exports of most cities of the GBA are likely to be high-carbon emission products, economic means should be taken to internalize environmental costs. Carbon taxes and carbon emissions trading should be simultaneously adopted with carbon emission permission systems and other methods to regulate. Changing the mode of economic growth and promoting the upgrading of industrial structure is probably the most essential in reducing CO2 emissions.
  4. The introduction of carbon tariffs has the greatest impact on energy-intensive industries, including electricity, cement, steel, aluminum, papermaking and printing, the main emitters of CO2. Carbon tariffs have an impact on the cost of overall economic development. Therefore, it is necessary for the competent departments of export trade to increase investment in technology development continuously, to improve production techniques and energy efficiency of products, and to reduce the proportion of energy costs. Carbon trading is newly emerging in China and it has no actual concrete businesses and lacks a commercial profit model. Due to the constraints of the total amount of carbon trading relative to domestic carbon emissions, the said trading in China is mostly voluntary and as such lacks incentives to reduce emissions. Furthermore, there are not enough emission quotas for enterprises, making it impossible to issue broad emission quotas to various organizations. 
  5. The GBA must follow the development trend of global low-carbon initiatives and carbon pricing mechanisms, and build its own competitiveness by taking advantage of opportunities in the developing carbon market domestically and abroad. The global low-carbon trend will trigger changes in economic, trade, and technological competition patterns. High-carbon industries and technologies are facing financing difficulties. At the same time, the green and low-carbon orientation of the national fiscal, taxation and financial policies provides development opportunities for low-carbon transformation of enterprises. Under the impetus of the carbon market, enterprises must consciously promote transformation and upgrades. 

As can be seen from our analyses, all the observed cities have shown a downward trend in terms of secondary industry to GDP (especially with emerging Jiangmen drastically transforming its industrial structure since 2018. However, Dongguan is still taking its role as a major secondary industry city) but the trend of carbon emission is still increasing during the period under study. This reflects the country’s strategy to revamp the cities in the GBA to become the high-end secondary industry (such as high technology manufacturing, artificial intelligence, and so on) and the tertiary industry (services, finance, e-commerce, etc.) headquarters. However, the control or internalization of carbon emission through tariffs or carbon exchange markets is still under major development. Echoing what was mentioned previously, the GBA can be an exemplar in carbon emission control through going high-end and attracting selective FDI suitable for the overall strategy. It can be foreseen that this radiating effect to finally reach carbon neutralization for the country can be achieved hopefully much earlier than 2060.

The development of China’s carbon emission trading market has started relatively late compared to European countries, and China is currently facing many challenges in reducing its emission level. The pilot projects for carbon emission trading were officially launched in November 2011, and the actual statistics regarding carbon emissions at the city level in Guangdong Province were not available until 2017 Therefore, some types of fossil energy data are still missing from statistical bureaus.

Further attention should be paid to the transition from traditional energy to clean energy, which is renewable. Their common characteristics include low energy density, dispersion, intermittentness, and randomness. As a result, the development and utilization of new energy will suffer from certain restrictions and technical difficulties. However, clean energy has the distinct advantage of not polluting the environment. The production and consumption of fossil fuels is causing rapid changes in the global climate, and the resultant environmental issues will have a significant impact on the supply of energy. Finally, vigorously developing and utilizing new and renewable energy will be a positive choice for the future energy policies in the GBA.

  • References may be provided from the authors upon requests.