Page 7 - THE SOUTH CHINA BUSINESS JOURNAL
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net for foreign investment. The YRD revolves around Pearl River Delta region and the Yangtze River Delta
Shanghai, China’s financial capital; other key cities region have similar economic models,” Lu said. “Export-
include Suzhou, Wuxi, and Nanjing in Jiangsu province, oriented manufacturing, which is an important pillar of
and Hangzhou and Ningbo in Zhejiang province. these economies, was under pressure in 2018. Because
of the tariff dispute with the US, export-driven business
Of the cities listed above, all four in Guangdong missed had to be shifted to the domestic market.”
their 2018 GDP growth targets, as did the two in Zhejiang.
Shanghai and the three cities in Jiangsu met their goals, Lower growth, though, is not only explained by trade
but Wuxi was the only one to do so with ease. tensions, according to Lu. “Manufacturing businesses
rely heavily on financial funding and cash flow. However,
At the provincial level, Guangdong grew by 6.8 percent, in 2018, all banks tightened their lending in response to
narrowly missing its target (depending on how one the central government’s financial de-risking campaign.”
defines “around seven percent”), while Jiangsu registered
6.7 percent growth, missing its target of “greater than Lu continued: “The squeeze on bank lending directly
seven percent”. Zhejiang, however, managed to hit its led to the breakdown of cashflow, and as a result many
goal of “around seven percent”, growing by 7.1 percent. manufacturers were forced to suspend production last spring.”
Although many of these cities failed to reach their At the same time manufacturers dealt with higher
targets, in several cases their growth still exceeded costs and tighter lending, they also faced increasing
provincial and national averages. For example, competition from emerging investment hotspots
Shenzhen’s 7.5 percent growth missed its target by elsewhere in Asia. Daisy Zang, Manager of Asian
0.5 percentage points, but still exceeded Guangdong’s Outbound Investment at Dezan Shira & Associates,
provincial target of “around seven percent” and the observed, “Southeast Asian countries pose serious
national target of “around 6.5 percent”. Shenzhen is also competition in terms of manufacturing capacity. And
growing from a particularly large base, as it is one of this was already increasingly the case before China was
China’s wealthiest cities and, according to its mayor, now confronted with new macro-economic risks in 2018.”
among Asia’s five largest city economies.
Zang listed countries like Vietnam, Cambodia, the
Nevertheless, it is notable that so many regions missed Philippines, and India as popular alternatives for
their targets, as it clearly suggests that China’s economy investment. “A lot of investment in these countries is
is underperforming relative to expectations. And this is coming from China itself,” Zang said. “China has become
without considering the accuracy of the official statistics the third largest foreign investor in Vietnam, attracted
– something many observers are skeptical of. by lower land and labor costs and being sheltered from
the trade war.”
Many economists argue that China’s actual GDP growth
is significantly lower than what is reported – perhaps While the economies of the PRD and YRD have many
even less than half the official numbers. This issue may similarities, they also have important differences – some
have been borne out in the port city of Tianjin, which of which may explain why the YRD was more successful
grew by just 3.6 percent 2018 after municipal officials in reaching its growth targets. Alberto Vettoretti,
admitted that 2016 growth figures had been exaggerated. Managing Partner of Dezan Shira & Associates, said,
“Due to the fact that Guangdong still boasts so many
After reporting 2018 statistics, most regions lowered manufacturers and exporters, external shocks are felt
their targets for the coming year. Guangdong’s target there more than in other locations.”
is down from “around seven percent” to 6-6.5 percent;
Jiangsu’s from “greater than seven percent” to “greater Vettoretti elaborated: “The province is at a crossroads,
than 6.5 percent”; and Zhejiang’s from “around seven as Guangdong does not attract the tech and service
percent” to “around 6.5 percent”. companies it wishes to have, given the abundance of
alternatives in Asia and the fact that many would rather
Why did the PRD and YRD struggle to hit locate in Jiangsu and Zhejiang, and still has a lot of ‘old’
their growth targets? businesses that are struggling to make ends meet.”
Several factors converged to make the PRD and YRD What does lower growth mean for
struggle to hit their targets. the businesses?
Lucy Lu, Assistant Manager of Business Intelligence GDP growth can paint a broad picture of the health of
at Dezan Shira & Associates, said that the nature of the an economy, but Lu and Vettoretti both emphasized that
PRD and YRD’s economies made them more vulnerable it is far from the most important indicator for businesses
to the economic risks that arose in 2018. “Both the on the ground. “It is now a general trend of economic
South China Business Journal 4
Shanghai, China’s financial capital; other key cities region have similar economic models,” Lu said. “Export-
include Suzhou, Wuxi, and Nanjing in Jiangsu province, oriented manufacturing, which is an important pillar of
and Hangzhou and Ningbo in Zhejiang province. these economies, was under pressure in 2018. Because
of the tariff dispute with the US, export-driven business
Of the cities listed above, all four in Guangdong missed had to be shifted to the domestic market.”
their 2018 GDP growth targets, as did the two in Zhejiang.
Shanghai and the three cities in Jiangsu met their goals, Lower growth, though, is not only explained by trade
but Wuxi was the only one to do so with ease. tensions, according to Lu. “Manufacturing businesses
rely heavily on financial funding and cash flow. However,
At the provincial level, Guangdong grew by 6.8 percent, in 2018, all banks tightened their lending in response to
narrowly missing its target (depending on how one the central government’s financial de-risking campaign.”
defines “around seven percent”), while Jiangsu registered
6.7 percent growth, missing its target of “greater than Lu continued: “The squeeze on bank lending directly
seven percent”. Zhejiang, however, managed to hit its led to the breakdown of cashflow, and as a result many
goal of “around seven percent”, growing by 7.1 percent. manufacturers were forced to suspend production last spring.”
Although many of these cities failed to reach their At the same time manufacturers dealt with higher
targets, in several cases their growth still exceeded costs and tighter lending, they also faced increasing
provincial and national averages. For example, competition from emerging investment hotspots
Shenzhen’s 7.5 percent growth missed its target by elsewhere in Asia. Daisy Zang, Manager of Asian
0.5 percentage points, but still exceeded Guangdong’s Outbound Investment at Dezan Shira & Associates,
provincial target of “around seven percent” and the observed, “Southeast Asian countries pose serious
national target of “around 6.5 percent”. Shenzhen is also competition in terms of manufacturing capacity. And
growing from a particularly large base, as it is one of this was already increasingly the case before China was
China’s wealthiest cities and, according to its mayor, now confronted with new macro-economic risks in 2018.”
among Asia’s five largest city economies.
Zang listed countries like Vietnam, Cambodia, the
Nevertheless, it is notable that so many regions missed Philippines, and India as popular alternatives for
their targets, as it clearly suggests that China’s economy investment. “A lot of investment in these countries is
is underperforming relative to expectations. And this is coming from China itself,” Zang said. “China has become
without considering the accuracy of the official statistics the third largest foreign investor in Vietnam, attracted
– something many observers are skeptical of. by lower land and labor costs and being sheltered from
the trade war.”
Many economists argue that China’s actual GDP growth
is significantly lower than what is reported – perhaps While the economies of the PRD and YRD have many
even less than half the official numbers. This issue may similarities, they also have important differences – some
have been borne out in the port city of Tianjin, which of which may explain why the YRD was more successful
grew by just 3.6 percent 2018 after municipal officials in reaching its growth targets. Alberto Vettoretti,
admitted that 2016 growth figures had been exaggerated. Managing Partner of Dezan Shira & Associates, said,
“Due to the fact that Guangdong still boasts so many
After reporting 2018 statistics, most regions lowered manufacturers and exporters, external shocks are felt
their targets for the coming year. Guangdong’s target there more than in other locations.”
is down from “around seven percent” to 6-6.5 percent;
Jiangsu’s from “greater than seven percent” to “greater Vettoretti elaborated: “The province is at a crossroads,
than 6.5 percent”; and Zhejiang’s from “around seven as Guangdong does not attract the tech and service
percent” to “around 6.5 percent”. companies it wishes to have, given the abundance of
alternatives in Asia and the fact that many would rather
Why did the PRD and YRD struggle to hit locate in Jiangsu and Zhejiang, and still has a lot of ‘old’
their growth targets? businesses that are struggling to make ends meet.”
Several factors converged to make the PRD and YRD What does lower growth mean for
struggle to hit their targets. the businesses?
Lucy Lu, Assistant Manager of Business Intelligence GDP growth can paint a broad picture of the health of
at Dezan Shira & Associates, said that the nature of the an economy, but Lu and Vettoretti both emphasized that
PRD and YRD’s economies made them more vulnerable it is far from the most important indicator for businesses
to the economic risks that arose in 2018. “Both the on the ground. “It is now a general trend of economic
South China Business Journal 4
