Page 7 - THE SOUTH CHINA BUSINESS JOURNAL
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Business ecosystem: Industrial production in class or poor until the late 20th century when
China does not take place in isolation and has internal migration turned the country’s rural-urban
the support of networks of suppliers, component distribution upside-down.
manufacturers, distributors, government agencies,
and customers who are all involved in the process Challenges that dampen
of production through competition and cooperation, Guangdong’s growth outlook
and which has evolved greatly in the past 40 years.
This has been the picture for the past decades, but
• Easier compliance: Even though China has strong now slowly, as China’s wealth and its citizen’s wealth
laws concerning labor, labor contracts, and social grow, this status of low costs, and low wages are no
security, historically many companies did not follow longer applicable, with salaries and costs, in general,
these rules and the authorities turned a blind eye appreciating considerably.
and many foreign companies got advantage of this
and benefitted from factories where there are long Moreover, increasing legislative and regulatory
shift hours, no social insurance is provided and many production makes the China of today a more
other customs that are now falling out of fashion Compliance intensive place with considerable
Some factories even have/had policies where the procedures to navigate, despite the government’s
workers are paid once a year, a strategy to keep them attempts to make it easier to do business.
from quitting before the year is out.
Finally, there is also competition from other Asian
• Taxes and incentives-The export tax rebate policy economies, particularly Thailand, Vietnam, and
was initiated in 1985 by China as a way to boost the the Philippines, to where Chinese and foreign
competitiveness of its exports by abolishing double companies have been relocating, due to lower costs,
taxation on exported goods. Exported goods were wages, and bureaucracy.
subject to no value-added tax (VAT), which means
that they enjoyed a VAT exemption or rebate policy. Now, fully aware of the past, and coming back to the
China also used to provide multiple incentives to words of the Party Chief, he says, for the reasons
businesses based on their size, type, industry, etc. explained above that the region of Guangdong
These tax reduction measures helped to keep the can no longer compete on land, labor, and price,
cost of production low, enabling the country to considering that other economies in the region can
attract foreign investors and companies looking to offer more attractive conditions.
produce goods at low costs.
However, this lack of competitiveness appeal
• Currency: For years, the Chinese yuan has been does not necessarily mean that Guangdong will
valued quote low, as a way to provide an edge for its lose favor with local and foreign investors and
exports against similar goods produced by U.S. and the downfall of the region is not inevitable. To
European competitors. China keeps a check on the avoid this, Guangdong must harness “high-quality
appreciation of the yuan by buying dollars and selling development” if it is to overcome risks and its limits
yuan. And finally… on growth, according to its Communist Party chief.
“The risks to Guangdong’s economy stem from
• Lower wages: China used to be the most populous a lack of high-quality development, and the
country in the world. Given that the supply of opportunity could only be tightly grasped by high-
workers was historically greater than the demand for quality development.”
low-wage workers, wages have stayed low. Moreover,
the majority of Chinese were rural and lower-middle- “Guangdong has a large population, limited
resources, and a heavy burden to balance and
coordinate development,” he stated, mirroring
comments also made by previous Chinese Premier
Li Keqiang on a previous occasion. He also added,
as mentioned earlier about the impossibility of
competing on land, price, and labor and stressed
that the whole Guangdong region needs to
acknowledge this issue.
Huang also stated that following a philosophy of “lying
flat” – a reference to a recent social movement of
giving up and accepting a dark fate – was not an option
and the only way to respond to external competition
and uncertainties was to modernize and aim for
quality, rather than low-cost goods, something that
the government has been focused on, ever since the
Greater Bay Area was created.
Guangdong is China’s largest regional economy and
it grew at 1.9 percent to a record 12.91 trillion yuan
SOUTH CHINA BUSINESS JOURNAL 4
China does not take place in isolation and has internal migration turned the country’s rural-urban
the support of networks of suppliers, component distribution upside-down.
manufacturers, distributors, government agencies,
and customers who are all involved in the process Challenges that dampen
of production through competition and cooperation, Guangdong’s growth outlook
and which has evolved greatly in the past 40 years.
This has been the picture for the past decades, but
• Easier compliance: Even though China has strong now slowly, as China’s wealth and its citizen’s wealth
laws concerning labor, labor contracts, and social grow, this status of low costs, and low wages are no
security, historically many companies did not follow longer applicable, with salaries and costs, in general,
these rules and the authorities turned a blind eye appreciating considerably.
and many foreign companies got advantage of this
and benefitted from factories where there are long Moreover, increasing legislative and regulatory
shift hours, no social insurance is provided and many production makes the China of today a more
other customs that are now falling out of fashion Compliance intensive place with considerable
Some factories even have/had policies where the procedures to navigate, despite the government’s
workers are paid once a year, a strategy to keep them attempts to make it easier to do business.
from quitting before the year is out.
Finally, there is also competition from other Asian
• Taxes and incentives-The export tax rebate policy economies, particularly Thailand, Vietnam, and
was initiated in 1985 by China as a way to boost the the Philippines, to where Chinese and foreign
competitiveness of its exports by abolishing double companies have been relocating, due to lower costs,
taxation on exported goods. Exported goods were wages, and bureaucracy.
subject to no value-added tax (VAT), which means
that they enjoyed a VAT exemption or rebate policy. Now, fully aware of the past, and coming back to the
China also used to provide multiple incentives to words of the Party Chief, he says, for the reasons
businesses based on their size, type, industry, etc. explained above that the region of Guangdong
These tax reduction measures helped to keep the can no longer compete on land, labor, and price,
cost of production low, enabling the country to considering that other economies in the region can
attract foreign investors and companies looking to offer more attractive conditions.
produce goods at low costs.
However, this lack of competitiveness appeal
• Currency: For years, the Chinese yuan has been does not necessarily mean that Guangdong will
valued quote low, as a way to provide an edge for its lose favor with local and foreign investors and
exports against similar goods produced by U.S. and the downfall of the region is not inevitable. To
European competitors. China keeps a check on the avoid this, Guangdong must harness “high-quality
appreciation of the yuan by buying dollars and selling development” if it is to overcome risks and its limits
yuan. And finally… on growth, according to its Communist Party chief.
“The risks to Guangdong’s economy stem from
• Lower wages: China used to be the most populous a lack of high-quality development, and the
country in the world. Given that the supply of opportunity could only be tightly grasped by high-
workers was historically greater than the demand for quality development.”
low-wage workers, wages have stayed low. Moreover,
the majority of Chinese were rural and lower-middle- “Guangdong has a large population, limited
resources, and a heavy burden to balance and
coordinate development,” he stated, mirroring
comments also made by previous Chinese Premier
Li Keqiang on a previous occasion. He also added,
as mentioned earlier about the impossibility of
competing on land, price, and labor and stressed
that the whole Guangdong region needs to
acknowledge this issue.
Huang also stated that following a philosophy of “lying
flat” – a reference to a recent social movement of
giving up and accepting a dark fate – was not an option
and the only way to respond to external competition
and uncertainties was to modernize and aim for
quality, rather than low-cost goods, something that
the government has been focused on, ever since the
Greater Bay Area was created.
Guangdong is China’s largest regional economy and
it grew at 1.9 percent to a record 12.91 trillion yuan
SOUTH CHINA BUSINESS JOURNAL 4
