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Assessment of Overall Business Environment and Policy in Guangdong

In: Business and Management

Submitted By guillaumeh
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Legacy
Guangdong province is located in central zone of south east of china, in the center of the Asian Economic circle. It has a total area of 179,757 square kilometers and is surrounded by Guangxi on the west, Fujian on the east,
Jiangxi and Hunan on the north, Hainan off the southwest.
Guangdong is divided into 21 prefectures, 121 counties and 1642 townships.
Its humid climate is affected from the subtropical zone resulting to the one of the richest light, heat and water resources of china. The annual temperature lies around 22,
3° with an average rainfall of 1, 3002, 500mm per year. ).
Winters in Guangdong are short, mild, and relatively dry,
Source: http://www.china-map-guide.com/province/guangdong/

while summers are long, hot, and very wet. Average daily temperature in January come at 14° while in
July around 29° (Humidity makes it feel much hotter).

Since
January
2015
Guangdong became and remains the most populous province in China (preceded by Henan and Sichuan province) registering a total of 106,440,000 registered inhabitants without considering the floating population. Due to the region fast-growing economy and high labor
Source: http://www.travelchinaguide.com/climate/guangzhou.htm

demands, mainly within the manufacturing, there is an average influx of circa 30,000,000 additional migrants. In terms of ethnic representation all 56 ethnic groups of china can be found in Guangdong. The
Han ethnic composition counts for more than 105,000,000 people, making up 99% of Guangdong’s population (91% in whole china), followed by the Zhuang (0,7%) and Yao (0,2%) minority. The largest

subgroup of Han Chinese in Guangdong are the Cantonese people. Guangzhou has an even higher unbalanced gender ratio (130 boys for 100 girls) than the rest of the country (112-120 boys per 100 girls).
Guangdong got a long history of religion hosting the world's top five religions, Catholicism, Christianity,
Islamism, Buddhism and Taoism. Only around 7% of the population of Guangdong belongs to organized religions. The largest groups being Buddhists with 6.2% (first religion in Guangdong), followed by
Protestants with 0.82% and Catholics with 0.2%.
In linguistic aspects Guangdong is populated predominantly by Cantonese speakers. There are many other dialects and considering the influx of millions of Mandarin-speaking immigrants in the last three decades Cantonese linguistic dominance has decreased. In a result of the migration Mandarin is the first language in education and government and in areas with large migrant population.

Regional position and interaction (geography)
The province of Guangdong faces the South China Sea to its south with the longest coastline of any province (4,300 km). It is surrounded by Guangxi, Fujian, Jiangxi, Hunan, Hainan (offshore) and strategically borders with the two special administrative regions of Hong Kong (former British colony until 1997) and Macau (former Portuguese colony until 1999). There are a few inactive volcanoes in the southwestern end of the province. The river delta, also known as the Golden Delta of Guangdong, is the convergent point of three upstream rivers: the East River, North River, and West River. The term Pearl
River Delta also refers to the dense network of cities, covering 9 prefectures of the province of
Guangdong, Guangzhou, Shenzhen, Zhuhai, Dongguan, Zhongshan, Foshan, Huizhou, Jiangmen and
Zhaoqing, and the SARs of Hong Kong and Macau. Since 1979 when the Chinese government liberalized its economy the delta became the leading economic regions and a major manufacturing center of China and the world. The proximity of
Shenzhen, highly influenced by the capitalistic and financial services of Hong Kong, was able to create an economic gateway for foreign capital. From geographic positioning Guangdong province benefits to privileged access to international markets. Thanks to its efficient port system along the
Pearl River Delta it has also easy access to the Chinese market.
Besides of its advanced water networks it also benefits of a
Source: http://supplychains.com/shenzhen-overtakes-hong-kong-as-third-busiest-container-port/

highly developed road and air transportation network. Guangdong benefits from of the most complete infrastructure and the most convenient transportation in China. The speed train intercity railway systems easily connect all mayor cities around the Pearl River Delta. It is also the most dense distributed airport area of the country.

Policy choices, both macro and micro

For long time the Chinese economy has been closed to foreign activities and private business were forbidden. It only dates back to 1979 that the central government decided to progressively open and liberalize its economy to allow the private sector to flourish and foreign investment to enter mainland china. In a result of such open door policies almost all the clusters were formed. Guangdong province has enjoyed special treatment due to its geographical location with the support of some particular
Source: Specialized town in Guangdong Prefectures, 2008

localities acting like a sort of laboratory for the central government to gradually test new sorts of initiatives limited in other regions. Implemented by Deng Xiaping in 1980, the central government established 4 special economic zones (Xiamen, Zhuhai, Shenzhen and Shantou) while the rest of mainland china maintained its central planning. These coastal zones were localized in proximity of strategic sources of foreign capital. Shenzhen is only 35 kilometers away from Hong Kong, Zuhai next to the former Portuguese colony Macau and Shantou facing right next to Taiwan. It is with the support of the local authorities that these zones received special policies and an institutional environment conductive to free markets in support of cluster initiatives and entrepreneur’s awareness of potential benefits of this form of cooperation. Considering the collectivist aspects of Chinese culture such form of cooperation is inherent to the Chinese people. The special economic zones were set to attract foreign investments with foreign technology meanwhile promoting its exports in new market oriented reforms.

In order to facilitate such aims these zones have been turned in small specialized and autonomous societies grouping diverse activities ranging from industrial production to the promotion of research and development, education and social wellbeing. In 1999 the central government implemented an innovation promotion policy on science and technology institutions to encourage technological progress.
Looking for ways to enter in high tech sectors and produce added value, the most important part was the setup of innovation centers.
These innovation centers coordinated business linkages with the foreign world and organized various activities to attract foreign customers. In
2000 Guangdong authorities from the Department of
Science
and
Technology
promoted specific policy measures with the program of slogan “one city one product”.

Source: http://www.lifeofguangzhou.com/node_10/node_35/node_155/node_5 25/node_528/2009/04/03/123874022356753.shtml

These such called specialized towns supported by their growth and development program have been the main driver of success during the coming years. These spatial agglomerations of enterprises, officially recognized by government authorities, focus on the manufacturing of single specific items or close products. Consequently the promotion of various clusters in Guangdong province became an industrial policy model encouraging the development and growth of the manufacturing sector of its economy. The official recognition is based on specific criteria and linked to specific firms and town level with financial policies granted in return expected to guarantee competitiveness, innovation and market visibility rewards. To be considered specialized town the town has to be a township from administrative view with at least 30% of its industrial employment concentrated in one industry. Second term of condition states that its value of industrial output had to exceed 2 billion yuan. By the end of 2011 the officially recognized specialized towns were 326. The funding by provisions to each innovation center of the specialized towns from the Department of Science and Technology helps firm to develop new technologies and initiates cooperation among business units. In a result of such support the number of high-tech firms has dramatically increased.

General Diamond (business environment)















First mover of open door policy
Involvment of local governements
Fierce competition
Well connected province
Closeness to FDI sources
Effectiveness of antitrust policy
IP protection

Availability of raw materials
Collectivist aspect of culture
Support institutions
Technology transfer
Infrastructure quality
High bureaucracy







Context for firm strategy and rivality Demand
Conditions

Factor
Conditions

Market pull condition
Innovation promotion policy
Promotion of specialized towns
Sector-specific trade fairs
Inequality of consumer spending power

Related and
Supporting
Industries
• Pilot Free Trade Zone
• Supplier quantity
• Quality of suppliers

Context for Firm Strategy and Rivalry:
The open door policy from 1979 has provided a macro-environment stimulating all private sectors to enter which was previously banned. First introduced in Guangdong, the province had the first mover advantage. Following the open door policy the local governments were stimulated to act in strong connection with local firms in order to push the development of the local economic system. By the end of 2011 the officially recognized specialized towns were 326 with a multitude of private, national and multinational firms. Geography is in favor of national and export oriented companies in coastal areas and close to main roads, railways, airports and ports. Closeness to Hong Kong, Macau and Taiwan allows foreign direct investments by overseas Chinese and foreign companies.

Demand Conditions:
At the time the current economic situation was in a dramatic state with shortage in almost all areas.
Theses urgent needs caused a market pull condition providing a powerful reason for the existence of clusters. The innovation promotion policy from 1999 by the central government encouraged technological progress though the setup of innovation centers. The promotion of specialized towns in the year of 2000 concentrating the manufacturing process of single or close related products became an

industrial policy model set by the Guangdong authorities from the Department of Science and
Technology. Increase in international visibility of the towns with sector-specific trade fairs on national and international level to attract investors. Promotion of R&D and innovation centers according to defined national and provincial guidelines for industrial technology upgrading.

Factor Conditions:
The natural environment is in favor for natural based clusters. The collectivist aspects from Chinese history and culture has played an important role in cluster formation. Long tradition is highly valued and knowledge and skills in production passed down from generation to generation through family and relationships. The creation of institutions offering support services to all firms of each specialized town.
Sector specific professional training programs to improve skills of the workforce and consequently to enhance competitiveness. Transfer of technology and academic knowledge by supporting relations between firms and universities.

Related and Supporting Industries:
Since beginning of 2015 state council of Guangdong approved the establishment a pilot free trade zone covering 3 areas (Nansha Area of Guangzhou, Qianhai-Shekou area of Shenzhen, Hengqin area of Zuhai).
The development goals compromise the implementation of pilot reforms over 3 to 5 years in order to improve regulation of international market orientation and business environment.

REFERENCES












SME Fair. 2009. Bureau of China International SME Fair. [ONLINE] Available at: http://www.smefair.org.cn/en/html/ABOUTGUANGDONG/BusinessEnvironment/index.html. [Accessed 13
October 15].
Di Tommaso, M R. , 2012. The Cantonese model: Clusters of firms and local industrial development policy in
Southern China. Bachelor. Italy: University of Ferrara & University of Udine.
Arvanitis & Jastrabsky, Rigas & Eglantine , 2009. A Regional Innovation System in Gestation: Guangdong. China
Perspectives, [Online]. 63, 17. Available at: http://chinaperspectives.revues.org/573 [Accessed 13 October 2015].
BELLANDI, M, 2005. The case of specialized towns in Guangdong, China. EUROPEAN PLANNING STUDIES, [Online].
Vol. 13, No. 5, 25. Available at: http://www.researchgate.net/publication/228630923_The_case_of_specialized_towns_in_Guangdong_China [Accessed 24 October 2015].
HUANG, M, 2008. Government Policy and Firm Strategy in Southern China Specialized Towns: “Western
Categories” and “Oriental Practices” . Bachelor. Italy & China: University of Ferrara & South China University of
Technology . cidgroup. 2009. China’s Geographic Migration Trends & Industry Clusters. [ONLINE] Available at: http://www.cidgroup.com/EN/files/CRI/downloads/ChinasIndustryClusters&VCInvestments_20090918.pdf. [Accessed 03 November 15]. cmab.gov.hk. 2006. Report on Guangdong’s Industrial Restructuring – Opportunities and Challenges for Hong
Kong. [ONLINE] Available at:






http://www.cmab.gov.hk/doc/study_report_on_guangdong_industrial_restructuring_eng.pdf. [Accessed 04
November 15]. revel.unice.fr/. 2013. Industrial clusters in China: Policy tools for further and more balanced development.
[ONLINE] Available at: http://revel.unice.fr/eriep/?id=3476. [Accessed 04 November 15]. globalcompetitionreview.com/. 2015. China: Antitrust Litigation. [ONLINE] Available at: http://globalcompetitionreview.com/reviews/69/sections/235/chapters/2740/china-antitrust-litigation/. [Accessed 04 November 15]. china-briefing.com. 2015. China: Antitrust Litigation. [ONLINE] Available at: http://www.chinabriefing.com/news/2015/09/04/a-closer-look-at-chinas-free-trade-zones-part-i.html. [Accessed 04 November 15].

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