CENTRAL POLICY UNIT HONG KONG SPECIAL ADMINISTRATIVE REGION CONSULTANCY STUDY ON SOCIAL, ECONOMIC AND POLITICAL DEVELOPMENTS IN THE PAN-PEARL RIVER DELTA (PRD) REGION NINTH MONTHLY REPORT COVERING GUANGXI, YUNNAN, GUIZHOU AND SICHUAN February 2007 Table of Contents Pages EXECUTIVE SUMMARY .............................................................................................. 1 1 FOREIGN TRADE PERFORMANCE REVIEW OF THE FOUR SOUTHWESTERN PROVINCES/REGION IN 2006 ......................................... 6 1.1 IMPORT-EXPORT TRADE IN THE FOUR SOUTHWESTERN PROVINCES/REGION .... 8 1.1.1 Export Conditions in the Four Southwestern Provinces/Region .... 8 1.1.2 Import Conditions in the Four Southwestern Provinces/Region .. 11 1.1.3 Foreign Trade Development Between the Four Southwestern Provinces/Region and ASEAN ..................................................... 12 1.1.4 Import-Export Arrangements in the Four Southwestern Provinces/Region .......................................................................... 15 1.2 IMPORT-EXPORT CONDITIONS IN SICHUAN ...................................................... 16 1.4 IMPORT-EXPORT CONDITIONS IN YUNNAN ...................................................... 20 1.5 IMPORT-EXPORT CONDITIONS IN GUIZHOU ..................................................... 21 1.6 OVERALL IMPORT-EXPORT CONDITIONS IN CHINA .......................................... 23 1.7 IMPORT-EXPORT DEVELOPMENT IN THE SOUTHWESTERN PROVINCES/REGION AND CHINA, AND THE IMPLICATIONS AND POLICY RECOMMENDATIONS FOR HONG KONG .................................................................................................... 27 2 TRENDS AND UPDATES ON THE FOUR SOUTHWESTERN PROVINCES/ REGION........................................................................................ 30 2.1 ECONOMIC PERFORMANCE OF THE FOUR SOUTHWESTERN PROVINCES/REGION ......................................................................................................................... 30 2.2 TRENDS AND UPDATES ON SICHUAN ................................................................ 32 2.2.1 Economic Performance of Sichuan............................................... 32 2.2.2 Updates on Sichuan – Chengdu Strives to become China’s Capital for Ladies Shoes............................................................................ 34 2.3 TRENDS AND UPDATES ON GUANGXI ZHUANG AUTONOMOUS REGION ........... 42 2.3.1 Economic Performance of Guangxi.............................................. 42 2.3.2 Updates on Guangxi Zhuang Autonomous Region — New Industrial Developments in Guangxi’s Port Cities ....................... 43 2.4 TRENDS AND UPDATES ON YUNNAN ................................................................ 56 2.4.1 Economic Performance of Yunnan............................................... 56 2.4.2 Updates on Yunnan – Commercial Opportunities in the Cut Flowers Industry ........................................................................... 57 2.5 TRENDS AND UPDATES ON GUIZHOU ............................................................... 67 2.5.1 Economic Performance of Guizhou.............................................. 67 2.5.2 Updates on Guizhou – The 11th Five-Year Plan for the Development of Science and Technology and Hi-tech Industries in Guizhou Province.......................................................................... 68 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 3 PERSONNEL CHANGES IN THE FOUR PROVINCES/REGION ............... 76 3.1 SENIOR APPOINTMENTS IN SICHUAN ................................................................ 76 3.2 SENIOR APPOINTMENTS IN GUANGXI ............................................................... 77 3.3 SENIOR APPOINTMENTS IN YUNNAN ................................................................ 77 3.4 SENIOR APPOINTMENTS IN GUIZHOU ............................................................... 78 APPENDIX：.................................................................................................................. 80 APPENDIX I：STATISTICAL DATA FOR THE PAN-PRD PROVINCES/ REGION............ 80 APPENDIX II：ENGLISH-CHINESE GLOSSARY ......................................................... 82 4 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Executive Summary 1 Foreign Trade Performance Review of the Four Southwestern Provinces/Region in 2006 1.1 In 2006, as a result of more intense regional economic cooperation between China and ASEAN, as well as westward industrial transference, foreign trade volumes in the four southwestern provinces/region continued to surge ahead, and growth rates in Sichuan, Guangxi and Yunnan were even higher than the national average. Foreign trade in the four provinces/region largely consisted of ordinary trade, although some processing trade was conducted. Border trade accounted for a higher share of foreign trade in Guangxi and Yunnan due to their proximity to ASEAN countries. Exports from foreign investment enterprises were insignificant in the four southwestern provinces/region. 1.2 In Sichuan, civilian-run enterprises were the largest exporters compared with all the other types of enterprises. Exports of mechanical and electrical products as well as hi-tech products saw spectacular growth. 1.3 Private enterprises became the biggest driving force behind trade in Guangxi, and ASEAN continued to be Guangxi’s largest trading partner. Many Chinese regions conducted foreign trade with the ASEAN market through Guangxi’s customs, further strengthening Guangxi’s role as the southwestern sea route. 1.4 State-owned enterprises contributed the most to trade in Yunnan. Due to China’s restrictions on resource-oriented exports, Yunnan’s export structure underwent noticeable changes. Southeast Asia remained a key trading market for Yunnan. 1.5 State-owned enterprises were also the biggest driving force behind trade in Guizhou. Guizhou’s processing trade export volumes dwindled significantly as a result of revisions to the export tax rebate policy in China. 1 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 1.6 Since 2005, China’s trade growth has been predominantly driven by integrated competence and competitiveness. China introduced a strategy of “adjusting investment, encouraging consumption and reducing surpluses” in order to deal with various problems caused by its growing trade surplus. This was proposed during the Central Economic Work Conference convened at the end of 2006, which was held to redress the balance of international payments. 1.7 The development trend for imports and exports in the four provinces/region is based on ordinary trade and domestic resources, which differs greatly from the processing trade of Hong Kong enterprises, and this poses challenges for their transformation. Pressure from the Mainland to reduce surpluses may affect Hong Kong’s entrepot trade in Chinese exports, and this would seriously threaten Hong Kong’s status as a major shipping centre. 2 Trends and Updates on the Four Provinces/Region 2.1 Sichuan Province—Chengdu Strives to Become “China’s Capital for Ladies Shoes” 2.1.1 With its abundant supply of cheap labour and proximity to leather production facilities, Chengdu is taking advantage of the westward transference of footwear manufacturing and is attempting to establish itself as “China’s Capital for Ladies Shoes”. Thus far, Chengdu has become part of the so-called “Three Zhous, One Du” area (referring to Guangzhou, Quanzhou, Wenzhou and Chengdu), which forms the core of the Mainland shoe manufacturing industry. Chengdu has also formed a distinctive shoe manufacturing cluster, attracting investment from renowned European and Japanese firms and further optimising its industrial layout. 2.1.2 Shoe-making firms owned by Hong Kong entrepreneurs and located in the Pearl River Delta region could be moved to Sichuan. At the same time, they should change their previous trade patterns and OEM (Original Equipment Manufacturing) production modes to concentrate on brand management, business consulting, and ODM (Original Design Manufacturing). Hong Kong entrepreneurs could play a role in the 2 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) integration of the industrial chain to create synergy effects among industry players, and they could also cooperate with enterprises from the Mainland so as to increase their access to the Mainland market. 2.2 Guangxi Zhuang Autonomous Region—New Industrial Developments in Guangxi’s Port Cities 2.2.1 Industrial development in Guangxi’s three major port cities, Beihai, Qinzhou and Fangchenggang, has long lagged behind. However, driven by the Pan-Beibu Gulf Rim economic cooperation and the “M Strategy”, these three cities have now witnessed significant progress in industrial development. 2.2.2 Hong Kong has had few opportunities to participate in the current planning work of the three Guangxi port cities as their development focuses on moving to heavy industries, ferrous products, and port construction. However, Hong Kong could help with training management personnel and officials, and lay down the foundation for future cooperation. 2.3 Yunnan Province—Extensive Business Opportunities in the Cut Flowers Industry 2.3.1 Yunnan’s flower industry has seen some significant achievements in its outward development. Together with continuous improvements in quality and technology, the cut flowers industry has recorded increases in both the total amount of foreign exchange earned and export profit margins. 2.3.2 The Mainland’s cut flower market was originally dominated by Guangzhou, but since 2002 Yunnan has taken over the market due to the high quality and low cost of its cut flowers. 2.3.3 The flower industry is one of the most dynamic industries in the world. Developing countries could rely on their favourable climatic conditions and low production costs to expand flower growing, in order to meet 3 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) demand from local and foreign markets. The Swire Group has invested in Yunnan’s flower industry, which is the largest sole investment project in flowers in the province. 2.3.4 Hong Kong could leverage the airfreight infrastructure constructed by the Swire Group through Cathay Pacific, to strengthen cooperation between the airports of Hong Kong and Zhuhai and the Kunming airport, and facilitate the export of Kunming and Guangzhou’s cut flowers. It could establish Market Facilitation Centres in Tokyo and Amsterdam so as to centralise and coordinate the export of cut flowers to Japan and Western Europe. At the same time, it should also help Yunnan address the problem of eco-labels, and overcome the non-tariff barriers set by the overseas markets. 2.4 Guizhou Province—The 11th Five-Year Plan for the Development of Science and Technology and Hi-tech Industries 2.4.1 At the end of October 2006, the Guizhou Provincial Government issued The 11th Five-Year Plan for the Development of Science and Technology and Hi-tech Industries, in which the overall objective of Guizhou’s science and technological development during the 11th Five-Year period was outlined. The Plan signified that Guizhou’s policies on science and technology have entered the implementation stage. The Plan did not list the service industry as one of its key priorities, reflecting the less than rash nature of the Guizhou Provincial Government, and it was formulated according to the traditional industrialisation model. The Plan demonstrates Guizhou’s attempts to catch up with the more advanced provinces, but even if Guizhou’s hi-tech industries are able to achieve the goals set for 2010 they will still fall behind the national average. 2.4.2 Guizhou is expected to conduct more work on science and technology in the coming years, and cooperation between Hong Kong and Guizhou may increase due to rising demand for environmental protection. Hong Kong should focus its efforts on developing specific technologies in order to differentiate itself. 2.4.3 Guizhou’s service industry will remain in its infant stage in the near future, which Hong Kong could use to its advantage. 4 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 3 Personnel Changes in the Four Provinces/Region New governors were elected for Guizhou, Sichuan and Yunnan during their respective Provincial People’s Congress, with all the acting governors formally inaugurated. Both the Secretaries of the CPC Committee for Guangxi and Sichuan serve as the Directors of the Standing Committee of the Provincial People’s Congress at the same time. 5 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 1 Foreign Trade Performance Review of the Four Southwestern Provinces/Region in 2006 In 2006, China’s foreign trade surplus hit another record high, reaching USD 177.46 billion, an increase of 74% over the previous year’s figure of USD 102 billion. China’s foreign trade surplus began to soar in 2005; it broke through the surplus figures of USD 20-30 billion between 2000 and 2004, and exceeded USD 100 billion. During the following two years, the trade surplus continued to expand. By 2006 China had been a member of the WTO for five years. Compared to the worrisome and pessimistic feeling of the Mainland Government and enterprises in 2001, trade development during the last five years has been unexpectedly good. Total imports and exports have more than doubled and annual growth rates for imports and exports stand at 26.6% and 29.5% respectively. Outstanding trade performance pushed forward economic development throughout all parts of China, and GDP and trade performance in all provinces and municipalities showed remarkable progress. Although the southwestern provinces are not in the core area of industrial development, their foreign trade still accelerated. In 2006, the southwestern provinces benefited from China-ASEAN regional economic cooperation and the westward transference of industries. Sichuan, Guangxi and Yunnan witnessed growth in foreign trade faster than the national figure. Sichuan performed the best of the four provinces/region, and growth in exports and imports reached 37-41% (see Table 1-1). Guizhou was the slowest of the four provinces/region, but the export growth rate still reached 20.9%. The difference between the two provinces reflects their economic competitiveness and scale of production. Overall, foreign trade in the four provinces/region amounted to merely 1.5% of the national total, and was obviously very small compared with the giant province in foreign trade, Guangdong, whose trade volume was nearly 30% of the national total. 6 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-1：Total Value of Imports and Exports of the Four Southwestern Provinces/Region and Guangdong in 2006 (By Location of China’s Foreign Trade Managing Units) Region Nationwide Sichuan Guangxi Yunnan Guizhou Guangdong Total Value of Imports and Exports 17,606.9 110.2 66.7 62.3 16.2 5,272.2 (USD 100 million) Exports 9,690.7 66.2 35.9 33.9 10.4 3,019.5 Imports 7,916.1 44.0 30.7 28.4 5.8 2,252.6 Balance of Trade 1,774.6 22.3 5.2 5.5 4.6 766.9 Increase Imports and 23.8% 39.5% 28.7% 31.4% 15.2% 23.2% over Exports previous Exports 27.2% 40.9% 24.9% 28.4% 20.9% 26.8% year (%) Imports 20.0% 37.4% 33.3% 35.1% 6.2% 18.7% Share of Total Value of 100% 0.63% 0.38% 0.35% 0.09% 29.94% Imports and Exports Share of Total Value of 100% 0.68% 0.37% 0.35% 0.11% 31.16% Exports Share of Total Value of 100% 0.56% 0.39% 0.36% 0.07% 28.46% Imports Share of Total Balance of 100% 1.26% 0.29% 0.31% 0.26% 43.22% Trade Source: Raw data is taken from the Ministry of Commerce Website, China. Percentages have been calculated. The export-import structures of the four southwestern provinces/region are very different from that of Guangdong. The economies of the four provinces/region feature inward economic models and relatively low levels of industrialisation; whilst natural resources and agriculture dominate their economies. The following paragraphs will analyse the export-import structure of the four provinces/region, and will attempt to investigate trade development with the neighbouring ASEAN region, appropriate trading products for both regions, and a possible path for foreign trade cooperation. Lastly, this report will look at China’s trade in the context of macro development trends, and present the future trade cooperation opportunities and challenges of Hong Kong in relation to the four southwestern provinces/region, and to the whole Mainland. 7 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 1.1 Import-Export Trade in the Four Southwestern Provinces/Region Foreign trade in the four provinces is not only lower than that of Guangdong; it is below the national average. In the period 2000-2005, the foreign trade dependency ratio of the nation rose from 39.57% to 63.89%, and Guangdong was in the range of 135-175%. Up to 2005, the figure for the four provinces/region was only 5.5-11.5% (see Diagram 1-1), featuring small scale and low echelon products. Diagram 1-1：Foreign Trade Dependency Ratio, 2000-2005 180% 170% Foreign Trade Dependency Ratio (Trade / GDP) 160% 150% 2000 2001 2002 140% 2003 2004 2005 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% China Guangdong Guangxi Guizhou Sichun Yunnan Source: Raw data taken from the website of the National Bureau of Statistics of China, 2000- 2005, the National and Provincial Statistical Report, and the China Statistical Abstract 2006. Ratios are calculated for the purpose of this report. 1.1.1 Export Conditions in the Four Southwestern Provinces/Region Overall, foreign trade in the four provinces/region is conducted on a very small scale, and is quite insignificant to the local economy. Foreign trade statistics are definitely not comparable to Guangdong (see Table 1-2) 8 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-2: Composition of Exports in the Four Provinces/Region and Guangdong in 2006 (USD 100 million) State- Foreign- General Processing Other Other Total owned funded Trade Trade Trade Enterprises Enterprises Enterprises Nationwide 9,690.7 4,163.2 5,103.7 423.8 1,913.4 5,638.3 2,139.0 Guangdong 3,019.5 800.0 2,083.9 135.7 485.3 1,939.2 595.0 Sichuan 66.2 52.4 11.8 2.1 26.1 11.7 28.4 Guangxi 35.9 26.7 5.2 4.0 11.1 8.1 16.7 Yunnan 33.9 22.3 6.5 5.0 18.2 3.0 12.7 Guizhou 10.4 8.4 2.0 0.0 7.4 1.2 1.7 Source: Ministry of Commerce Website, China The export structure reflects the comparative advantages of a region to some extent, and its role in international trade cooperation. Export figures from the four southwestern provinces/region obviously show a very different structure compared with Guangdong (see Table 1-3). Exports from the four provinces/region were concentrated in a general trade pattern, with ratios as high as 66-81% and with a relatively small amount of processing trade, quite the contrary of Guangdong. The reason for this is that the four provinces/region mainly export natural resource products such as agricultural goods, while Guangdong has more foreign enterprises engaging in processing industries and exports more manufactured goods such as light industry products. It is noticeable that in Guangxi and Yunnan the amount of other types of trade is very high. This is because border inhabitants in Guangxi and Yunnan tend to trade on a much smaller scale with their ASEAN neighbours whilst tariffs have been reduced by 50% to encourage this special export pattern. Besides, the four provinces/region were engaged in export trade mainly through the state-owned enterprises and other local enterprises, whilst foreign enterprises were few. Even though foreign enterprises can enter the four provinces/region, they were mainly engaged in the inland market catering to the needs of local people due to the relatively backward transport facilities. In Sichuan and Guangxi, a substantial amount of agricultural and elementary manufactured products processing was carried out. Private enterprises (i.e. the “other enterprises” shown in the table) can participate in the production and export of these processing industries. In Guizhou and Yunnan, however, their main exports were minerals and natural resource products which are mostly state-owned or monopolised. Foreign enterprises cannot enter these industries. Local private enterprises are small in scale and have limited technological capability. So, state- owned enterprises have naturally become the main exporters. 9 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-3：Composition of Exports in the Four Provinces/Region and Guangdong in 2006 (%) State- Foreign- General Processing Other Other Total owned funded Trade Trade Trade Enterprises Enterprises Enterprises Nationwide 100% 43% 53% 4% 20% 58% 22% Guangdong 100% 26% 69% 4% 16% 64% 20% Sichuan 100% 79% 18% 3% 39% 18% 43% Guangxi 100% 74% 15% 11% 31% 23% 46% Yunnan 100% 66% 19% 15% 54% 9% 38% Guizhou 100% 81% 19% 0% 72% 12% 16% Source: Figures were calculated from the previous table. In terms of average annual growth, the traditional “both ends abroad” processing trade was formed between 2001 and 2006. The national figure was as high as 28% for processing trade, but it was still lower than general trade (30%) of products from local production. In the past, Hong Kong enterprises have seen good growth in the processing trade, but this fell behind general trade. This means that Guangdong has succeeded in transforming its industrial structure to local industries with fewer processing industries. The increase in other enterprises (mainly civilian-run enterprises) provided the evidence (see Table 1-4). In the four southwestern provinces/region, Sichuan and Guizhou experienced a relatively faster pace of growth in the processing trade, which was probably due to a lot of foreign enterprises investing in the electronic data processing industry in Sichuan. In Guizhou, export growth was negative, and thus made growth in the processing trade seem relatively outstanding, even though the growth rate was only 7%. Since 2001, in all the areas shown in the table, “other enterprises” (mainly civilian-run enterprises) experienced remarkable success in exports, with annual growth rates as high as 61%, much higher than that of foreign enterprises. In recent years, because investors from Hong Kong and Taiwan, as well as most foreign investors transferred their enterprises to locations with more favourable cost environments, foreign enterprises experienced slower growth. The local industrialists of the Mainland, however, grew rapidly and civilian-run enterprises boosted the development of each other in a complementary way. A relatively comprehensive local industrial system was formed, and this propelled further development in general trade. It is predicted that the further development of general trade will provide private enterprises with the impetus to catch up and ultimately surpass the processing trade and foreign enterprises in the future. 10 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-4: Annual Average Growth of Exports in the Four Provinces/Region and Guangdong, 2001-2006 (%) State- Foreign- General Processing Other Other Total owned funded Trade Trade Trade Enterprises Enterprises Enterprises Nationwide 29% 30% 28% 44% 11% 33% 61% Guangdong 26% 37% 22% 41% 6% 29% 65% Sichuan 40% 40% 44% 30% 25% 37% 86% Guangxi 18% 16% 14% 115% -1% 28% 61% Yunnan 52% 46% 49% 414% 38% 47% 164% Guizhou -4% -1% 7% -68% -5% 3% -2% Source: Raw data taken from the Ministry of Commerce Website, China. Percentages have been calculated. 1.1.2 Import Conditions in the Four Southwestern Provinces/Region Imports basically correspond with export conditions. The processing trade, and the amount of foreign enterprises basically determine the growth rate of imports (see Table 1-5). Guangxi’s imports were quite remarkable, and border trade imports topped the four provinces/region and were higher than the national level. This was due to economic development in Vietnam and a subsequent increase in imports of Vietnamese products. In 2006, Guangxi’s border imports totalled USD 663 million, which represented 21.2% of total imports; while border imports from Vietnam reached USD 575 million, or 18.7% of total imports, and they were mainly handled by private enterprises or individuals1. Table 1-5: Import Structures of the Four Provinces/Region and Guangdong (USD 100 million) State- Foreign- General Processing Other Other Total owned funded Trade Trade Trade Enterprises Enterprises Enterprises Nationwide 7,916.1 3,331.8 3,215.0 1,369.4 2,252.4 4,726.2 937.6 Guangdong 2,252.6 563.1 1,377.3 312.3 425.0 1,513.2 314.4 Sichuan 44.0 28.4 10.8 4.8 21.6 17.3 5.0 Guangxi 30.7 19.9 3.2 7.6 6.6 13.9 10.2 Yunnan 28.4 20.3 4.8 3.3 21.2 1.8 5.4 Guizhou 5.8 4.7 1.1 0.0 4.7 0.7 0.4 Source: Data taken from China’s Ministry of Commerce Website, China. 1 Guangxi Commerce Statistics from the Department of Commerce Website, China. 11 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) In terms of import structure, processing trade and foreign-funded enterprise figures for the four provinces/region were lower than those of the national total and Guangdong. Table 1-6：Composition of Imports of the Four Provinces/Region and Guangdong, 2006 (%) State- Foreign- General Processing Other Other Total owned funded Trade Trade Trade Enterprises Enterprises Enterprises Nationwide 100% 42% 41% 17% 28% 60% 12% Guangdong 100% 25% 61% 14% 19% 67% 14% Sichuan 100% 64% 25% 11% 49% 39% 11% Guangxi 100% 65% 10% 25% 22% 45% 33% Yunnan 100% 71% 17% 12% 74% 6% 19% Guizhou 100% 81% 19% 1% 82% 12% 6% Source: Figures were calculated according to the data in the previous table. 1.1.3 Foreign Trade Development Between the Four Southwestern Provinces/Region and ASEAN Geographically speaking, the four southwestern provinces/region are adjacent to ASEAN, and economic and trading activities between them are frequently carried out. The volume of imports and the neighbouring distance with ASEAN is directly proportionate. For example, Yunnan and Guangxi both share borders with ASEAN, and naturally had the greatest volume and fastest growing trade with ASEAN (see Table 1-7). 12 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-7: Import-Export Trade Between the Four Provinces/Region and ASEAN in 2006 Guangxi Sichuan Guizhou Yunnan Of which: ASEAN Vietnam Value (USD 6.24 2.36 16.30 9.85 7.50 100 million) Share of Exports 9% 23% 48% 27% 21% Provincial Total Increase Over -6% 26% 50% 19% 16% Previous Year Value (USD 2.02 0.90 5.40 8.42 7.17 100 million) Share of Imports 5% 16% 19% 27% 23% Provincial Total Increase Over 78% 33% 16% 111% 108% Previous Year Source: Data taken from the Ministry of Commerce Website, China. “Yunnan and ASEAN trade increases - private enterprises accounted for 50% of trade and were the main force behind the rise.” China Industry and Commerce Times, 19 January 2007. Trade between Guangxi and ASEAN According to statistics from Nanning Customs Service in Guangxi, the bilateral trade volume between Guangxi and ASEAN reached USD 1,827 million in 2006, which represented an increase of 49.1% over the previous year. ASEAN was Guangxi’s top trading partner for the 8th consecutive year 2 , and the centralising effect of Guangxi as the trading link with ASEAN was increasingly obvious. A sea route network has been formed with Guangxi’s ports leading the way, The Nanning-Kunming railway provides the backbone, and links the highways, waterways, airways and other transportation infrastructural facilities. In 2006, trade from across China engaged in the import-export business with ASEAN via Guangxi’s ports totalled USD 2.73 billion, an increase of 54.6%, and was one third the total import-export volume to pass through Guangxi’s ports. A total of 1,444 foreign enterprises from 29 provinces and municipalities in China chose to settle their ASEAN businesses at Guangxi’s ports. Import-export volumes passing through Chongqing, Sichuan, Guizhou and Yunnan via Guangxi’s ports totalled USD 2.58 billion, an increase of 56.4%, which was 65.6% of the total import- 2 “ASEAN became Guangxi’s No.1 trading partner for the 8th consecutive year”( “東盟已連續八年成為廣 西第一大貿易伙伴”), China Industries Daily, 22 January 2007. 13 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) export trade conducted by outside enterprises at Guangxi’s ports. Guangxi is undoubtedly an increasingly important sea outlet for the southwestern region3. Trading activities between Guangxi and Vietnam were particularly active. As a consequence of the special beneficial tariff arrangement between China and ASEAN, Nanning ports imported USD 77.42 million worth of products from Vietnam, an increase of 63.7% over the previous year, importing mainly tropical fruits like water melons and longyan, while fruits from northern China4, such as apples and pears, were exported via Guangxi to Vietnam and other Indochina markets5. Trading Activities Between Yunnan and ASEAN According to Kunming Customs Service statistics, trade volumes between Yunnan and ASEAN in 2006 reached USD 2.17 billion, an increase of 40.6%, which represented 34.8% of the total foreign trade volume for Yunnan in 2006. Myanmar topped the trading volume with Yunnan, accounting for USD 690 million worth of trade, which was about one third of the total volume of Yunnan- ASEAN trade, and an increase of 9.5% over previous year. Trade with Vietnam came second, with the total volume reached USD 510 million, an increase of 57.6% over the previous year. Meanwhile, trade with Singapore reached a record high of USD 480 million, an increase of 250% over the previous year. It was mostly consisted of processing trade. Traditional commodities such as metals were still the main export product from Yunnan to ASEAN, with export volumes reaching USD 330 million, an increase of 130% over the previous year. Electrical machinery, agriculture products, chemical fertilisers and textile products increased by 18%, 14%, 22.8%, and 26.7% respectively. Textile product exports surpassed USD 100 million. Civilian-run enterprises were the main driving force behind the Yunnan-ASEAN 3 “Import-export trade via Guangxi ports increased from USD 5.5 billion to USD 7.96 billion in 2006”( “2006 年廣西口岸進出口貿易從上年的 55 億美元猛增至 79.6 億美元”), Nanguo Morning Post, 21 January 2007. 4 “Growth of China-ASEAN Free Trade Zone greatly benefits the nine Pan-Pearl River Delta provinces/region”( “中國－東盟自貿區持續推進“泛珠＂九省區受惠巨大”), Yeongcheng Evening Post, 15 January 2007. 5 Based on study tour findings from Guangxi and northern Vietnam in January 2007. 14 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) trade figures, and their trading volumes reached USD 1.1 billion, an increase of 35.8% over the previous year6. 1.1.4 Import-Export Arrangements in the Four Southwestern Provinces/Region A comparison of the different sets of import-export statisitics for the four provinces compiled by different methods, import figures based on product destinations are higher than those based on the location of the trading enterprises. This implies that imports have been handled by provinces. Guizhou’s problem was the most acute; around 33% of its imports had to go through other provinces, while that of the other three provinces were in the range of 12-18%. Sichuan and Yunnan handled some of the export business of other provinces, which amounted to 14.3% and 9.7% respectively of their total exports. Sichuan enjoys the advantage of having access to the Yangtze River and serves neighbouring provinces via water transport. Yunnan exploits its proximity to ASEAN and transports goods from other provinces to ASEAN over land. Guangxi in the future could use its ports, highways and railways to handle ASEAN trade, especially Vietnamese imports, when the construction of Guangxi’s transport network is completed. 6 “Yunnan and ASEAN trade boosted - private enterprise accounts for 50% of trade and was the main force behind the increase”( “雲南與東盟貿易節節攀升，民企佔一半居絕對主力”), China Industry and Commerce Times, 19 January 2007. 15 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 1-8：Imports and Exports of the Four Southwestern Provinces/Region in 2006, By Way of Statistics (USD 100 million) Value Increase Over (USD 100 million) Previous Year (%) Source of Province/Region Exports Imports Exports Imports Statistics Location of China’s Foreign Trade Managing Sichuan Units 66.24 43.97 40.9 37.4 Places of Destination/Origin 56.76 49.96 38.7 39.5 Location of China’s Foreign Trade Managing Guangxi Units 35.93 30.74 24.9 33.3 Place of Destination/Origin 38.31 37.80 33.4 30.8 Location of China’s Foreign Trade Managing Yunnan Units 33.91 28.40 28.4 35.1 Place of Destination/Origin 30.61 32.24 28.3 27.4 Location of China’s Foreign Trade Managing Guizhou Units 10.38 5.78 20.9 6.2 Place of Destination/Origin 13.51 8.61 19.0 -4.8 Note: ‘Enterprise location’ refers to the import-export trading volume handled by import-export enterprises registered with the local Customs Service. Product destination refers to import-export trading volumes according to the local consumption and needs of production units and their exports. Source: China’s Customs Statistics (Monthly Exports & Imports) 1.2 Import-Export Conditions in Sichuan In 2006, the import-export trade of Sichuan had the following characteristics: 16 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Civilian-run enterprises had become the number one export enterprises in Sichuan, with exports of USD 2.68 billion, an increase of 72.1% over the previous year. This represented 34.9% of total exports from Sichuan and an increase of 42.2% from the previous year7. The structure of exports improved. Electrical machinery and high-tech products grew rapidly, and witnessed export growth higher than the province’s export growth by 14.2 and 20.6 percentage points respectively (see Table 1-9). Among traditional products, textile and garment exports increased by 96.9% and shoes by 66.7%. The “Two high, one resource”8 type of export products which the Central Government has intended to minimise, e.g. aluminium electrolyte and iron alloy exports, were reduced by 45% and their share fell from 22% in the previous year to 6%9. Table 1-9：Major Import and Export Commodities of Sichuan Value Share of Provincial 2005-2006 Item (USD 100 million) Total Annual 2005 2006 2005 2006 Growth Total Exports (By Commodity) 47.02 66.24 100.0% 100.0% 40.9% Machinery and Electronic Products 15.75 24.52 33.5% 37.0% 55.7% Hi-tech Products 5.90 9.68 12.6% 14.6% 64.0% Agricultural Products 4.43 4.83 9.4% 7.3% 9.0% Total Imports (By Commodity) 32.00 43.97 100.0% 100.0% 37.4% Machinery and Electronic Products 19.87 31.62 62.1% 71.9% 59.2% Hi-tech Products 9.78 17.08 30.6% 38.9% 74.6% Agricultural Products 0.99 1.01 3.1% 2.3% 2.7% Note: Some of the electrical machinery and high-tech products overlapped. Therefore the total amount is more than the total import figure for Sichuan. Source: Commerce statistics for Sichuan are taken from the Department of Commerce Website, China. 7 “Sichuan foreign trade is developing”( “四川外貿在發展”), Sichuan Commerce Bureau Website, 15 January 2007. 8 “Two high, one resource” refers to products which are “highly polluting, highly energy consuming, and resource based” products. 9 “Sichuan’s processing import-export trade figures reached a record high in 2006”( “四川省 2006 年加工 貿易進出口創歷史新高”), Sichuan Commerce Bureau Website, 29 January 2007. 17 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Export markets were enlarged and export destinations included nearly 200 countries and regions. Dependence on Asian markets dropped remarkably, and decreased by 6.3 percentage points over the previous year. Meanwhile export markets in Europe, North America, Africa, and Latin America increased by 1.4, 3.4, 1.3 and 0.9 percentage points respectively. (Statistics for the top ten trading partners are shown in Table 1-10). Table 1-10：Major Trading Partners of Sichuan in 2006 Exports Imports Increase Increase Value Value Over Over Rank Country/Region (USD 100 Country/Region (USD 100 Previous Previous million) million) Year Year Total Exports 66.24 41% Total Imports 43.97 37% 1 USA 10.98 83% USA 9.84 121% 2 Hong Kong 8.62 50% Japan 9.27 48% 3 India 4.90 112% Germany 5.56 33% 4 Japan 3.17 -9% S. Korea 3.46 85% 5 S. Korea 2.96 4% Taiwan 2.16 34% 6 Romania 2.84 1235% Australia 1.44 29% 7 Taiwan 1.68 17% France 1.31 -44% 8 Germany 1.62 36% India 1.11 -13% 9 Holland 1.58 -1% Italy 1.06 -22% 10 Pakistan 1.37 52% Malaysia 0.80 65% Source: Commerce statistics for Sichuan are taken from the Department of Commerce Website, China. Various cities and autonomous states in Sichuan developed export trade. In 2000, of the 21 cities and states in Sichuan only 9 had exports exceeding USD 10 million. In 2006, 16 cities and states had exports exceeding USD 10 million, of these one exceeded USD 1 billion, seven fell within the range of USD 100- 1000 million, and five had USD 50-100 million. 1.3 Import-Export Conditions in Guangxi In 2006, import-export trade in Guangxi had the following characteristics: 18 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) In 2006, Guangxi’s import-export trade amounted to USD 6.674 billion. Among the 12 western provinces/municipalities, the scale of export ranked fourth after Xinjiang, Sichuan and Shaanxi10. In 2006, Guangxi’s import-export border trade was worth USD 1.05 billion, an increase of 49.5% over the previous year. Dong Xing became Guangxi’s number one border port and, in 2006, import- export border trade with Vietnam via Dong Xing amounted to USD 390 million, an increase of 130%11. Private enterprises became the number one trading entity for foreign trade in Guangxi, with import-export trading volumes reaching USD 2,473 million, an increase of 56.8% which surpassed the trade volume of foreign capital enterprises. Guangxi’s foreign trade structure obviously improved. In 2006, Guangxi’s electrical machinery import-export trading volume was USD 1,395 million, a rise of 20.2% over the previous year, and its share in the total foreign trade stood at 20.9%. Exports amounted to USD 809 million, an increase of 24.3%, which comprised mainly electrical cables, container machinery and lorries etc. 12 Exports of automobile products stood at a remarkable figure of USD 67.61 million, which represented an increase of 570% compared with 2002, and the exports were destined for 51 international markets. The main market was Southeast Asia, and exports to ASEAN amounted to USD 57.65 million, an increase of 460%. Vietnam was the major ASEAN market and exports amounted to USD 56.54 million, or 83.6% of the exports to ASEAN13. Exports of high-tech products reached USD 106 million, an increase of 59.2%, whilst exports of 10 “Guangxi achieves foreign trade growth again in 2006”( “2006 年廣西外貿再創佳績”), Guangxi Daily, 14 January 2007. 11 “Guangxi’s border trade exceeded USD 1 billion”( “廣西邊境小額貿易首次突破 10 億美元”), Guangxi Daily, 21 January 2007. 12 “Guangxi’s electrical machinery import-export trade reached almost USD 1.4 billion in 2006”( “2006 年 廣西機電產品進出口近 14 億美元”), China Economy Net, 26 January 2007. 13 “Guangxi’s automobile product export trade encounters industrial structure problems”( “廣西汽車産品 出口增長 面臨産業結構不合理的挑戰”), Nanguo Morning Post internet edition, 25 January 2007. 19 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) agricultural products reached USD 357 million, a rise of 13.4%. All surpassed the original targets14. ASEAN was still the number one trading partner. In 2006, Guangxi-ASEAN bilateral trade amounted to USD 1,827 million, an increase of 49.1%. 1.4 Import-Export Conditions in Yunnan In 2006, import-export conditions in Yunnan had the following characteristics15: Trade patterns were transformed from an over reliance on general trade to a more balanced structure consisting of general trade, processing trade and border trade. State-owned enterprises contributed 63.2% of the total import-export volumes. Large industrial groups were the major force in pushing export growth. The export product structure in 2006 apparently changed. The Central Government restricted exports of natural resources, and metal refinery was listed as a prohibited processing industry. The previously dominant export products, especially metallic products, were greatly affected. The export product structure was hence changed to comprise five major categories, namely, metallic products, high-tech products, electrical machinery, agriculture products and phosphorous chemical products. 14 “In 2006, Guangxi’s trade and economy experienced triumphs. Foreign import-export volumes reached unprecedented highs”( “2006 年我區商務經濟亮點紛呈全區外貿進出口總額創歷史新高”), Guangxi Daily, 26 January 2007. 15 “Last year Yunnan’s foreign import-export figures once again broke previous records”( “去年雲南外貿 進出口再創歷史新高”), Yunnan Daily, 30 January 2007. 20 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) The traditional major agricultural products kept growing steadily, especially tobacco, vegetables, coffee, nuts, tea and cut flowers. Exports of several species increased in price and volume. Total exports of agricultural products reached 476,000 tons, worth USD 550 million, with export markets in 85 countries and regions16. Southeast Asia was still the major trading market although Australia and the USA saw increases in import-export of 137% and 41.4% respectively. Australia was Yunnan’s second most important trading partner, Singapore the fourth and the USA the sixth. The structure of trading markets apparently improved. 1.5 Import-Export Conditions in Guizhou In 2006, import-export conditions in Guizhou had the following characteristics17: General trade increased rapidly whilst processing trade decreased. Enterprises tried to evade the decrease in export tax rebate on steel products, declared by the Central Government on 15 December 2006, and the newly issued 10% tariff tax. This resulted in a rush to export affected products before 15 December. The processing trade dropped by 31.6%, mainly due to a reduction in exports from Guizhou Wengfu Chemi-Phos and Kyocera Zhenhua, the Japanese mobile phone company. These two enterprises reduced their exports by USD 95.79 million compared with 2005, and this directly affected Guizhou’s processing trade export figure by 32.6 percentage points. The import-export trade generated by state-owned enterprises increased rapidly, and maintained a leading position. They 16 “Yunnan’s agricultural product exports increased in both quantity and price”( “我省農産品出口量增價 揚”), Yunnan Daily Net, 1 February 2007. 17 “Guizhou import-export conditions in 2006”( “2006 年貴州全年進出口情況簡報”), Guizhou Commerce Bureau Website, 1 February 2007. 21 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) contributed 75% of the province’s total import-export volume, an increase of 9 percentage points over the previous year. Exports of electrical machinery and mineral products both decreased while those of chemical products and general metallic products increased. (Major export products are shown in Diagram 1-2) Diagram 1-2: Guizhou’s Export Product Structure Categories, 2006 40.0% 37.4% 34.9% 35.0% 30.0% 25.0% 22.7% 19.0% 2005 20.0% 16.5% 14.3% 12.6% 2006 15.0% 11.0% 10.0% 8.2% 8.3% 8.3% 6.5% 5.0% 0.0% Chemical Mechanical Common Mineral Ruuber Other Prodcuts and Metals and Products Products Products Electronic Their Products Products Source: Commerce statistics for Guizhou are taken from the Department of Commerce Website, China. Foreign trade development across different geographical areas remained uneven. Guiyang, Liupansui, Qinnan, Anshun and Junyi already contributed 98.9% of total exports from Guizhou. Guizhou’s biggest trading partner was Asia. Exports to Asia were worth USD 685 million, an increase of 23.31%, accounting for 66% of the province’s total export volume. Exports to Europe and North America increased by 19.47% 22 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) and 37.08% respectively, and accounted for 13% and 14.35% of the total export volume. (The top ten import-export countries are listed in Table 1-11). Table 1-11: Major Trading Partners of Guizhou, 2006 Exports Imports Increase Value Increase Rank Value Share of Share of Over (USD Over Country/Region (USD 100 Provincial Country/Region Provincial Previous 100 Previous million) Total Total Year million) Year 1 USA 1.37 13.2% 38% India 1.15 19.9% 0% 2 Vietnam 0.91 8.7% 27% Australia 0.75 12.9% 55% 3 Hong Kong 0.84 8.1% 61% Canada 0.63 10.8% -13% 4 Japan 0.83 8.0% -35% Thailand 0.56 9.6% 94% 5 Taiwan, China 0.81 7.7% 144% Brazil 0.36 6.3% 11,616% 6 S. Korea 0.77 7.4% 2% Germany 0.31 5.4% 15% 7 Indonesia 0.45 4.3% 45% USA 0.26 4.6% -29% 8 Thailand 0.37 3.6% 49% Korea 0.23 4.0% 9% 9 Philippines 0.35 3.4% -5% Malaysia 0.19 3.3% 52% 10 India 0.29 2.8% 28% Japan 0.17 2.9% -66% Source: Commerce statistics for Guizhou are taken from the Department of Commerce Website, China. 1.6 Overall Import-Export Conditions in China The magnificent growth in foreign trade in the four southwestern provinces/region is not an isolated event, but is in fact closely related to China’s overall development in foreign trade and national competitiveness. Since China introduced an open-door policy and other reforms in the 1980s, foreign trade and direct investment from foreign enterprises has grown in the same direction. Trade surpluses have in fact been lower than the amount of investment by foreign enterprises. Therefore, many scholars were of the view that China’s trade surplus was driven by investment of foreign enterprises, thus trade surplus was the outcome of intensive investment behaviour (see Diagram 1-3). 23 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Diagram 1-3: China’s Trade Surplus and Foreign Investment, 1983-2006 1,800 1,600 Trade Surplus 1,400 FDI 1,200 US$, 100 million 1,000 800 600 400 200 - 83 84 85 86 87 88 91 89 90 93 95 96 92 94 97 98 99 00 01 02 03 04 05 06 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 (200) Source: China Statistical Yearbooks (various years), Department of Commerce Website, China From 2005 onwards, China’s trade surplus exceeded the actual investment of foreign enterprises, and doubled by 2006. This reflected some meaningful trends. Firstly, China’s growth in trade no longer depended on investment by foreign enterprises, and was entering a new stage of growth driven by China’s own comprehensive capabilities and competitiveness. Secondly, China’s trade growth no longer relied on the ability of foreign enterprises, and domestic civilian-run enterprises gradually became the major economic entities propelling trade development. Furthermore, the Chinese economy has built up a solid manufacturing base. The competitiveness of Chinese industries has not only increased markedly, but developed quickly as a result of investment by foreign enterprises, technology transfer and export structure transformation. Therefore, from 2005 onwards, China’s export competitiveness began to emerge and the trend has carried on. The revaluation of the RMB did not form a hindrance to exports. Table 1-12 shows that the Chinese trade surplus consists of manufactured products, of which the biggest categories were machinery and transport equipment. The trade surplus recorded for these products reached USD 99.3 billion, and accounted for 55.9% of the total trade surplus. However this figure was still below the record of USD 126 billion reached by textile and garment products (which contributed 71.9% of the total trade surplus). China’s 24 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) textile industry still faces quota restrictions set by the USA and Europe, but these restrictions are due to be repealed in 2007 and 2008, and the export power of China’s textile and garment industry will become invincible. It is estimated that these exports will jump from the present 25% of world market share to more than 50%. Even though Europe and America will very probably introduce anti- dumping and anti-surge mechanisms, they are unlikely to restrict the expansion of China’s products on the international market. Table 1-12：Composition Analysis of Trading Commodities in China, 2006 Value (USD 100 Million) Share (%) Increase (%) Categories Exports Imports Balance Exports Imports Balance Exports Imports 1. By SITC Classification Primary Products 529 1,871 -1,342 5.5% 23.6% -75.6% 7.9% 26.7% Food 279 229 49 2.9% 2.9% 2.8% 13.1% 6.4% Crude Materials 47 287 -241 0.5% 3.6% -13.6% 14.8% 21.5% Mineral Products 204 1,355 -1,151 2.1% 17.1% -64.9% 0.3% 32.2% Metalliferous 26 465 -439 0.3% 5.9% -24.7% -3.6% 20.5% Ores and Metal Scrap Mineral Fuels 178 890 -712 1.8% 11.2% -40.1% 0.9% 39.2% Manufactured 9,162 6,045 3,117 94.5% 76.4% 175.6% 28.5% 18.0% Products Non-ferrous Metal 182 228 -46 1.9% 2.9% -2.6% 66.6% 33.4% Iron and Steel 325 216 109 3.4% 2.7% 6.1% 68.8% -17.9% Chemical and 445 871 -426 4.6% 11.0% -24.0% 24.5% 12.0% Related Products Other Semi- 754 262 492 7.8% 3.3% 27.7% 30.3% 17.8% finished Products Machinery and 4,564 3,571 993 47.1% 45.1% 55.9% 29.6% 22.9% Transport Equipment Textile Products 487 164 323 5.0% 2.1% 18.2% 18.6% 5.5% Clothes 954 17 937 9.8% 0.2% 52.8% 28.6% 5.8% Other Products 1,450 716 734 15.0% 9.0% 41.4% 19.2% 16.9% 2. By BEC Classification Capital Goods 2,601 1,517 1,084 26.8% 19.2% 61.1% 29.2% 18.3% Intermediate 3,980 5,893 -1,913 41.1% 74.4% -107.8% 30.8% 19.5% Goods Consumption 3,110 507 2,604 32.1% 6.4% 146.7% 21.2% 20.1% Goods 25 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Value (USD 100 Million) Share (%) Increase (%) Categories Exports Imports Balance Exports Imports Balance Exports Imports 3. Other Classification Agricultural Products 220 278 -58 2.3% 3.5% -3.3% 12.2% 12.9% (By WTO) Machinery and 5,494 4,277 1,217 56.7% 54.0% 68.6% 28.8% 22.1% Electric Products Hi-tech Products 2,815 2,473 342 29.0% 31.2% 19.3% 29.0% 25.1% Total： 9,691 7,916 1,775 Note: SITC stands for Standard International Trade Classification. BEC stands for Broad Economic Categories Source: Department of Commerce Website, China. On the other hand, China’s export products are low in technical calibre and the ‘Made in China’ label has a poor market image which is associated with low value-added and assembly processing. According to Table 1-12, hi-tech products account for 31.2% of total exports, although a considerable portion of these are still at the relatively low end of the value-added production chain in the information technology industry. Overall, China’s manufacturing plants are now closely tied to the global manufacturing system and this in turn guarantees the steady and rapid growth of China’s exports. The expert group writing this report estimates that at the present rate of foreign trade development, China’s trade surplus is likely to reach USD 250 billion in 200718. The enormous and rapid increase in the trade surplus, and in the actual investment by foreign enterprises in China, have created a foreign exchange reserve exceeding USD 1,000 billion which is the world’s biggest foreign exchange reserve. This brings about a number of unfavourable consequences such as an obvious surplus in currency liquidity, affecting the central bank’s independent monetary policy and making it more difficult to adjust China’s 18 The former chief of the National Statistics Bureau, Mr Li De-shui (李德水), cited the Standard Chartered Bank of Britain’s study report which claimed that foreign trade surplus figures contained many inaccuracies. This had come about because Mainland factories wanted to get export tax redemptions. Foreign enterprises wanted to exchange more RMB and enter the Mainland’s capital market for an anticipated appreciation of the RMB, so they exaggerated export values as to counter the Mainland’s restriction on capital account. Some Mainland economists have also admitted the existence of this phenomenon. However the process of foreign exchange hedging is a costly and complicated procedure in China, and the exaggeration of the trade surplus was estimated to be only a small fraction in reality. In recent years, as export tax redemption procedures and monitoring mechanisms have improved, there has been a reduction in false export claims. Therefore, trade surplus figures are now more accurate. 26 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) macroeconomic performance. Trade conflicts with trading partners are becoming frequent, increasing economic risks and subjecting the RMB to revaluation pressures. In view of the problems caused by the huge trade surplus, the Central Government called a Central Economic Work Conference at the end of 2006 and determined the principles and major economic tasks for the year 2007. These include maintaining a reasonable growth in exports and the utilisation of foreign capital, and actively increasing imports. The strategy of “adjusting investment, encouraging consumption, and reducing surpluses” was put forward, to the effect that the international payments will ultimately be balanced and this has to be achieved before 2010. The Minister of Commerce, Mr. Bo Xi-lai, made it clear at the National Commerce Working Conference held on 15 January 2007 that the reduction of the trade surplus would be the most important job for foreign trade development this year. 1.7 Import-Export Development in the Southwestern Provinces/Region and China, and the Implications and Policy Recommendations for Hong Kong The direction of import-export development in the four southwestern provinces/region basically goes for general trade. In other words, they will utilise their local resources and build up a comprehensive industrial chain and production system, instead of going for Hong Kong’s mode of conducting processing trade. As a result of their deficiency in customs and transportation facilities, they still have to rely on other regions to handle their material imports. Building a logistics network takes time and foreign processing trade enterprises may not be interested in transferring their production lines from the coastal regions to the inland provinces. Therefore the model of ‘both ends abroad’ featuring a large volume of imports and exports is not appropriate for the four southwestern provinces. From the long-term point of view, the transfer of international production chains to China is near completion. The southwestern province/region mainly deal with the ASEAN market and not the European/American markets, whilst Guangdong’s OEM (Original Equipment Manufacture) production model is not suitable for the four provinces/region. The Beibu Gulf region of Guangxi and Yunnan share borders with ASEAN countries. Even if some local enterprises want to develop a processing- 27 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) trade model for their industries, it should be in the electronic information industry, or to cooperate with ASEAN countries to develop the automobile industry in which the interflow of parts and components would be handled by Guangxi and Yunnan or through Shenzhen and Guangzhou. If the four provinces/region want to develop their own textile and garment industries on a large scale, related raw materials could be supplied at low cost from the Mainland. The Hong Kong SAR Government should of course encourage our logistics industry to invest and develop in Guangxi and Yunnan. However, because ASEAN goods do not have to be transported via Hong Kong, the logistics enterprises of Hong Kong are unlikely to reap any benefits from industrial development in the four southwestern provinces/region. Little can be done to boost the local logistics industry in Hong Kong. Furthermore, an analysis of trade development trends in the four provinces/region reveals that their industries are not the same labour-intensive industries that Hong Kong specialises in. It is questionable whether their business environment can satisfy the needs of Hong Kong enterprises who wish to transfer their industries to the four provinces/region. The “buyer-driven” type of production value-chain that Hong Kong enterprises are used to will face heavy pressures due to the following factors: the rapid expansion of China’s trade surplus, world supply greater than demand, European and American anti-dumping and anti-surge policies, the revaluation of the RMB, and a decrease in export tax rebate. The challenge for Hong Kong enterprises is not only to upgrade their investment, but also to transform their industries. Under the new economic strategy of “adjusting investment, encouraging consumption, and reducing surpluses” put forth by the Central Government, Hong Kong should not emphasise its role as the gateway for Chinese products to the international market in order to be a part of the Chinese economy. In fact, as China is under pressure to reduce its trade surplus, the volume of Chinese products exported via Hong Kong destined for international markets will probably fall rather than increase. Besides, port facilities in Guangxi and the Pearl River Delta are developing. The container port business in Hong Kong will encounter greater challenges, and the status of Hong Kong as a shipping centre will be put in jeopardy. As a result of a change in the national economic strategy, it is unlikely that the Hong Kong SAR Government could leverage support for the shipping business from the Central Government. Therefore, Hong Kong should act from the perspective of “adjusting investment and encouraging consumption”. 28 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Firstly, it could help Chinese enterprises invest abroad. This does not mean making arrangements for financial capital, instead Chinese enterprises should actually invest abroad. At present, the Central Government is studying the strategy of “going global”. If Hong Kong can initiate a strategic study on “related services for going global” and in collaboration with the Central Government, Hong Kong could seize this opportunity and transform its economy. Take for example, China plans to establishment investment development zones in other countries. Hong Kong enterprises could build service centres in these development zones to provide related services, to help Chinese enterprises handle their daily operational matters, transfer and protect intellectual property rights, and recruit international talent. Secondly, “encouraging consumption” has two aspects. One is the expansion of the Mainland consumption market. This implies that Hong Kong enterprises should make their objectives the development of the Mainland market, but a more important aspect is “the encouragement of imports to China”. Chinese manufacturers are providing cheap quality products to satisfy market demands in China. Hong Kong could exploit the “high echelon, fast changing” fashion market segment. Considering the sensitivity of Hong Kong enterprises to the international market and its fast and efficient logistics system, Hong Kong enterprises should be in a good position to grasp a fraction of the Chinese market. However, the most crucial point is that Hong Kong enterprises should change the traditional business model of “mass production and win orders by cheap prices”. 29 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2 Trends and Updates on the Four Southwestern Provinces/ Region 2.1 Economic Performance of the Four Southwestern Provinces/Region Overall the economy of the four provinces/region kept growing rapidly and steadily throughout 2006. Except for Guizhou, the growth rates of the other three provinces’ GDP were higher in the last quarter than in the previous three quarters. The GDP growth rates in Sichuan, Guangxi, Yunnan and Guizhou in 2006 stood at 13.3%, 13.5%, 11.9% and 11.5% respectively, all higher than the national average of 10.7%. Table 2-1: Economic Performance of the Four Southwestern Provinces/Region in 2006 Value-Added of Total Investment in Fixed GDP Industrial Enterprises Urban Assets Above a Designated Size disposable Province/ Increase Increase Increase income per Region Jan-Dec Jan-Dec Jan-Dec Over Over Over capita in May (RMB 100 (RMB 100 (RMB 100 Previous Previous Previous (RMB) million) million) million) Year Year Year Nationwide 209,407 10.7% - 16.6% 109,870 24.0% - Guangdong 25,969 14.1% 10,719 18.3% 8,117 16.7% - Sichuan 8,638 13.3% 2,597 24.0% 4,525 30.1% 816 Guangxi 4,802 13.5% 1,091 23.8% 2,246 27.0% 798 Yunnan 4,002 11.9% 1,240 17.8% 2,220 26.5% 875 Guizhou 2,260 11.5% - - 1,193 17.2% 776 Note: Some figures are preliminary estimates subject to later adjustments, and may be different from later figures in the National Statistics Bureau reports. Sources: 1. National Statistics Bureau Net, http://www.stats.gov.cn 2. Sichuan Statistics Net, http://www.sc.stats.gov.cn 3. Guangxi Statistics Net, http://www.gxtj.gov.cn 4. Yunnan Statistics Net, http://www.stats.yn.gov.cn 5. Guangdong Statistics Net, http://www.gdstats.gov.cn 6. Guizhou Commerce Window Net, http://guizhou.mofcom.gov.cn In terms of industrial production, the growth rates of Sichuan, Guangxi and Yunnan were all higher than the national average. Sichuan saw value-added of industrial enterprises above a designated size gain the most, with growth rates also top of the four provinces/region. Yunnan came second in terms of total production, 30 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) but fell behind Guangxi, which increased its efforts to develop the port economy, by 6 percentage points. Only Guizhou’s growth rate fell short of the national average with respect to total investment in fixed assets. It is worth noting that Sichuan’s investment not only grew rapidly, higher than 30%, but the total amount exceeded half of Guangdong’s. As the effects of investment display themselves in the coming years, Sichuan may well see further development, and this will widen the gap with the other western provinces and regions. With regards to foreign trade, the four provinces/region have all witnessed historically high imports and exports. Except for Guizhou, the other three provinces/region saw trade surpluses further expand. Sichuan was the most notable, with the growth rate of its foreign trade surplus never falling below 40% throughout 2006. Sichuan was also the only southwestern province with a double- digit growth rate for its foreign trade surplus. Generally speaking, foreign trade in the four provinces/region saw healthy and steady development in 2006 and the details have already been presented in previous reports. 31 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2.2 Trends and Updates on Sichuan 2.2.1 Economic Performance of Sichuan In 2006, Sichuan’s economy developed rapidly, and it performed remarkably well in agricultural and industrial production, investment, consumption and foreign trade, and other economic indicators. Table 2-2: Major Economic Indicators in Sichuan in 2006 Increase Over Economic Indicators 2006 (RMB 100 Million) Previous Year GDP 8,638 13.3% Of which：Primary Industry 1,604 3.0% Secondary Industry 3,775 20.0% Tertiary Industry 3,259 11.6% Total Retail Sales of Consumer Goods 3,422 14.8% Total Value of Exports and Imports 110 39.5% （USD 100 million） Per Capita Net Income of Rural Households (RMB) 3,013 7.5% Fiscal Revenue 607 26.6% Note: Regional figures are preliminary figures and subject to later adjustments, and may be different from future reports published by the National Statistics Bureau. Source: Sichuan Statistics Net, http://www.sc.stats.gov.cn/ Although it experienced a severe drought this summer, Sichuan saw primary industry maintain its steady growth with the exception of grain production, animal husbandry, aquatic production and forestry which grew rapidly19. Since the establishment of a strong industrial strategy for the province, Sichuan has reaped rich rewards. Value-added of industrial enterprises above a designated size increased by 24%, the third highest in ten years20, contributing to 60% of Sichuan’s economic growth, which became the main driving force behind 19 “The Economic Performance of Sichuan in 2006 and a Forecast Analysis on its 2007 performance, Part 1”( “2006 年四川經濟形勢及 2007 年走勢分析(一)”), Sichuan Statistics and Information Net, 25 January 2007, http://www.sc.stats.gov.cn/stats_sc/zxtjxx/200701260039.htm. 20 Ibid. 32 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) local economic growth21. The industrial structure was consistently optimised, and the value-added of the four major superior industries (hi-tech, superior resources, equipment manufacturing and agricultural processing) accounted for 73.3% of the value-added of industrial enterprises above a designated size22. Total investment increased steadily. Private investment also saw vigorous development, growing by 36.7%, and its proportion of total investment increased to 49.3% from 46.9% in 2005. The sectoral investment structure experienced continuous optimisation with investment in superior industries increasing more rapidly. Electronic information and technology saw the most spectacular development, growing by 69.9%, while investment in some other industries heavily regulated by the state, such as iron and steel, and coking, saw negative growth23. The consumer market kept booming, and the accommodation and catering industry expanded rapidly, with total retail sales increasing by 17.8%, which was higher than that of the retail industry by 3.5 percentage points. One of the highlights was vehicle sales, which grew by 41.6%, which was the fastest growing commodity in 2006 in terms of comprehensive ranking24. Although Sichuan’s economy fared rather well in 2006, quite a few economic issues still need to be tackled. Firstly, economic growth has been driven mainly by investment, and the pace of industrial adjustment is quite slow whilst, Sichuan has made little progress with respect to energy conservation. It is expected that energy consumption per 10,000 RMB of GDP throughout 2006 will be 2% lower than the previous year, far short of the 4% target25. All of the above issues will become key issues for Sichuan to tackle this year. 21 “Sichuan’s industrial development in 2006 contributed 60% to economic growth”( “四川省 06 年工業對 經濟增長貢獻率達到 60%左右”), The All China Data Centre, 26 January 2007, http://data.acmr.com.cn/freesource/zixunshow.asp?id=7225. 22 Ibid. 23 “Sichuan’s total investment in fixed assets grew steadily in 2006”( “2006 年四川全社會投資穩定增 長”), Sichuan Statistics and Information Net, 1 February 2007, http://www.sc.stats.gov.cn/stats_sc/zxtjxx/200702020062.htm. 24 “The Economic Performance of Sichuan in 2006 and a Forecast Analysis on its 2007 Performance. Part 1”( “2006 年四川經濟形勢及 2007 年走勢分析(一)”), Sichuan Statistics and Information Net, 25 January 2007, http://www.sc.stats.gov.cn/stats_sc/zxtjxx/200701260039.htm. 25 Ibid. 33 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2.2.2 Updates on Sichuan – Chengdu Strives to become China’s Capital for Ladies Shoes Between 12 and 14 December 2006, the International Purchasing Festival for ladies shoes was held in Chengdu. Purchasers of major categories of shoes from the European Union, America, Russia and Japan came to the Wuhou District (武侯區) of Chengdu, and conducted shoe trade negotiations with 1,700 shoe manufacturing enterprises from the Wuhou District and 3,000 related accessories enterprises. At the festival, Chengdu enterprises signed purchasing contracts worth more than USD 10 million with buyers from Russia and Italy26. According to statistical data from the Commerce Office of Sichuan, shoe exports from Sichuan increased from the previous year by 50.1%, and were worth USD 162 million. Compared with the 2000 figure of USD 6.38 million, shoe exports have increased 24 folds in six years. Chengdu has become an important shoe manufacturing centre in China’s “Three Zhous, One Du” (The “Three Zhous” being Guangzhou of Guangdong, Quanzhou of Fujian, and Wenzhou of Zhejiang). At present, China is the world’s largest shoe manufacturing and exporting country. In 2005, China manufactured 9 billion pairs of shoes, which represented 53% of the world shoe manufacturing total and shoe exports totaled USD 19.05 billion, which is 60% of the total world figure27. Guangdong, Fujian and Zhejiang were the first, second and third most important manufacturing and export bases respectively. In 2006, shoe exports from Guangdong, Fujian and Zhejiang accounted for 37.2%, 18.1% and 14.7% of total shoe exports from China. Sichuan, however, contributed a mere 0.7% of the nation’s total shoe exports (see Table 2-3). Nevertheless, since 2000, Sichuan’s shoe manufacturing industry has developed rapidly, and Chengdu showed great potential for becoming an important “du” within the “Three Zhous, One Du” 26 “The International Purchasing Festival for Ladies Shoes has closed, and Chengdu shoe enterprises attracted USD 10 million”( “女鞋國際採購節閉幕，成都鞋企攬千萬美元”), China Shoe Commerce and Trade Net, http://www.vshoe.com/news/200612/abbcf60674d48894b8ea294e4f23b41e.html. 27 “The lack of brand names for China’s shoes causes problems”( “中國鞋業的品牌缺失之痛”), China Brand Net,http://www.cbrand.com.cn/news_detail.aspx?id=249. In the 2000s, China became the world’s largest shoe exporting country, but the proportion of China’s exports of the world’s total shoe exports is not as high as China estimated. According to commodity trade figures from the United Nations, shoe exports from China (including Hong Kong and Macao) in 2004 were worth USD 12.67 billion, which was 14.8% of the world total. In 2005, there was growth, but the percentage did not increase by much. http://unstats.un.org/unsd/comtrade/ 34 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-3: China’s Shoe Product Exports (Units: USD 100 million) 2003 Share 2004 Share 2005 Share 2006 Share Sichuan 0.4 0.3% 0.9 0.6% 1.1 0.6% 1.6 0.7% Guangdong 54.4 42.0% 62.6 41.2% 74.2 39.0% 81.1 37.2% Fujian 22.8 17.6% 27.6 18.2% 34.7 18.2% 39.4 18.1% Zhejiang 15.3 11.8% 20.0 13.2% 26.6 14.0% 32.1 14.7% Nationwide 129.6 100.0% 152.0 100.0% 190.5 100.0% 218.1 100.0% Source: Foreign trade statistical figures from the Department of Commerce website, China and various provinces. In the “Three Zhous, One Du” plan for China’s shoe industry, Chengdu manufactures ladies shoes, Wenzhou (溫州) manufactures various leather shoes, Quanzhou ( 泉 州 ) manufactures sports and leisure shoes, and Guangzhou (including the neighbouring Dongguan (東莞), Weidong (惠東) and the Pearl River Delta region) manufactures and exports a wide range of shoes. A considerable cluster of related enterprises has been established also. Guangzhou, Wenzhou and Quanzhou started the shoe industry in the 1980s and rapidly developed sizeable clusters of shoe manufacturing enterprises able to compete internationally, which now play an important role in the world market. In 2006, total shoe exports from Guangdong, Fujian and Zhejiang accounted for 71% of China’s total exports, and based on the fact that China’s shoe exports in 2005 accounted for 60% of world exports, Guangdong, Fujian and Zhejiang were estimated to account for 42.6% of the world’s shoe exports. However, as land supply has tightened, and rent and labour costs have risen gradually in the coastal provinces in recent years, the labour-intensive shoe industry has begun to transfer to the western provinces. Sichuan, amidst the “eastern shoes go west” movement, leverages on its labour and energy resources, large rural hinterland market and proximity to the leather manufacturing base. It carries out the processing and finishing part of the manufacturing process for shoe enterprises in the eastern provinces, such as the Aokang Group and the Kangnai Group of Wenzhou, and has concentrated on the manufacture of ladies shoes. After years of development, the Chengdu shoe industry had established the “One Du, Two Yuan” plan ---- one Du being the Wuhou District shoe enterprise cluster development area. Its functional objectives are to become the centre for R&D, trade, exhibitions, logistics, talent, and enterprise headquarters. The Two Yuan refers to the Chongzhou production base and Jintang Shoe Industrial Park. At present, the Wuhou District has pooled more than 80% of Sichuan’s shoe enterprises, including 1,700 shoe manufacturing enterprises and more than 3,000 related shoe accessory enterprises. A complete industry chain of enterprises has been formed from production to sales, and annual 35 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) production has exceeded 100 million pairs which was worth over RMB 10 billion. A total of 1,100 firms are engaged in ladies shoes manufacturing and accounted for more than 90% of the province’s total shoe production value. Ladies shoes production in Chengdu now ranks third in China, and the city has become China’s largest purchasing base for ladies shoes as a product and of OEM (Original Equipment Manufacture) production28. Chongzhou (崇州) is China’s pig rearing base, the market centre for animal leather production in western Sichuan, and one of the largest pig leather products export centres. Chongzhou started the shoe industry in the 1970s and now has more than 30 shoe manufacturing enterprises of considerable size. Annual shoe production has reached 2.5 million pairs and leather production 9.05 million sq. km which was valued at more than RMB 1 billion. Exports are destined for Russia, South Korea, North America and South Africa, plus Chengdu and 13 provinces and municipalities all over China29. The planned Chongzhou production base will have a total area of 6,000 mu (one mu is approximately equal to 667 square metres; one hectare is equal to 15 mu) and will be completed in two phases over the next eight years. Phase One involves an area of 3,600 mu and will bring in more than 200 enterprises, with the total investment worth more than RMB 2 billion. The shoe manufacturing capacity is expected to expand to 60 million pairs. Of this middle and upper echelon shoes will account for 20% or more, the annual production will be up to RMB 3 billion and the trading value is expected to exceed RMB 4 billion. A related market information service centre will be established in addition to shoe manufacturing. Phase Two covers an area of 1,400 mu, and is expected to develop the capacity to manufacture 100 million pairs by 2015, with middle and upper echelon shoes accounting for 40% or more of this. In addition, the annual production value is expected to reach RMB 6 billion and annual trade value over RMB 8 billion. Recently, YKK of Japan, CTC of France, BF Engineering, Asia Shoes, and a number of other shoe manufacturers, designers, consultants, and brand management companies have come to “China’s capital for ladies shoes” with new design concepts, management models and productivity methods. The world’s largest shoe producer, Taiwan Baocheng International Group, also came to 28 “China’s capital for ladies shoes: International Purchasing Festival opened in Chengdu, Sichuan”( “2006 ‘中國女鞋之都’ 國際採購節在四川成都開幕”), Consumption Daily, 13 December 2006. 29 “ China’s capital for ladies shoes: Shongzhou, Sichuan manufacturing base opens for investment”( “ ‘中 國女鞋之都’ 四川崇州生產基地集群招商紀實”), Chengdu Daily, 29 September 2006. 36 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Chengdu with an action plan for the city. Sichuan hoped to make further use of the opportunity presented by the “eastern shoes go west” movement and strengthen its attraction for internationally renowned companies that could bring forth impetus in design, R&D, brand management, shoe manufacture and shoe material supplies. Thus, a bigger cluster of related enterprises will be centred in Chengdu and it is hoped that in three to five years time, “China’s capital for ladies shoes” will become a world renowned regional brand name. The following facts indicate a positive outlook for Chengdu’s plans to become “China’s capital for ladies shoes”. Firstly, the world shoe manufacturing industry, which started in Italy, expanded to Taiwan, South Korea, Brazil, Spain and central European countries in the 1970s and 1980s. In the 1990s, the shoe industry moved to areas with lower production costs such as the Pearl River Delta, Wenzhou of Zhejiang, Quanzhou of Fujian, Taiwan, South Korea, Central Europe, and Brazil. Only Italy and Spain were able to maintain their competitiveness in the shoe industry (Italy in fact contracted out processing to Romania). Vietnam has now risen to become the second largest low cost shoe manufacturing base after China30. Production costs are the most influential factor in the transference of the shoe manufacturing industry, and as shoe manufacturing is highly labour intensive, labour costs are the most significant factor. At present, Wenzhou and the Pearl River Delta area have encountered considerable increases in labour costs, whilst Sichuan with its abundant supply of labour and relatively low labour costs obviously has an advantage in this area. Secondly, the western region is China’s main leather production base. Chongzhou is the most important pig leather manufacturing and export base. Sichuan is hence close to the shoe material production area. The abundant supply of genuine leather is an important factor in the production of middle and upper echelon shoes. Thirdly, China’s shoe industry is making a major contribution to the world market. The export of shoes from Wenzhou, Quanzhou and the Pearl River Delta is drawing frequent anti-dumping accusations from the European Union and America. Labour costs in the eastern provinces have risen, the power supply 30 Allen J. Scott, “The changing global geography of low-technology, labour-intensive industry: clothing, footwear and furniture”, World Development, 34:9 (2006), pp.1517-1536. The Italian shoe manufacturing base, Brenta, experienced a transformation and sent processing work to Romania. The experience is of referential value to the Pearl River Delta and Hong Kong. See Roberta Rabellotti, “How globalisation affects Italian industrial districts: the case of Brenta”, in Hubert Schmitz, ed., Local Enterprises in the Global Economy: Issue of Governance and Upgrading, Cheltenham, Edward Elgar, 2004, pp.140-173 37 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) sometimes experiences shortages, and industrial upgrading pressures have all made “eastern shoes go west” a definite trend. The fact that Chengdu enterprises have carried out OEM production for Aokang and Kangnai of Wenzhou is evidence enough. Fourthly, Sichuan has the largest number of shoemakers. According to statistics, 30% of frontline workers in the Chinese shoemaking industry are from Sichuan, and a large proportion of these are workers with years of experience in the coastal provinces, expertise, skills and marketing knowledge. At the managerial level, workers from Sichuan also make up about the same proportion31. With the appropriate government policies, the outlook for the shoe industry is promising. Initially income may be lower compared with the eastern provinces, but a great number of skilled labour and managerial staff will return to Sichuan, to start their own business, or to form a core of related enterprises. Fifthly, ladies shoes are not only daily necessities; they are also fashion and accessory items. Shoes should match with clothing and other items and therefore involve an important aspect of consumer psychology. In China, middle class consumption is growing and this consumer group is interested in purchasing upper echelon shoes while demanding greater choice. The problem of transportation may hinder Sichuan’s exports but the huge Mainland market will certainly boost the development of Chengdu and become “China’s capital for ladies shoes”. Besides, Sichuan is rich in hydroelectricity, coal and land resources. The impact on the environment by pollution from the shoemaking manufacturing process is small but will need tight control. All in all, the outlook for Sichuan’s shoe industry is good. Implications for Hong Kong At present Hong Kong enterprises still have quite a few firms engaging in shoe manufacturing in Dongguan, Guangzhou and the Pearl River Delta area. Rising land, rent and labour costs, together with the current energy shortage have created problems for them. It is imperative that they upgrade or transform their industries, or they will go out of business. Some enterprises who find it difficult to upgrade or transform may consider moving west, and Chengdu might be a good choice since it is keen to attract shoe enterprises. Hong Kong enterprises with solid 31 “Eastern shoes go west, Sichuan shoes on the road home”( “東鞋西移，川鞋踏上回家路＂), Western China Metropolitan Daily electronic edition. http://www.wccdaily.com.cn/2006/10/23/200610235050146509160.htm. 38 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) brand names, relatively good design and/or sound management, should study the experience of NIKE Shoes. They should choose a specific sector of the market in which to operate, then select the most dynamic part of the market segment, and with the right design and brand management, contract out the manufacturing processing to external enterprises. This ensures that the company can attain the most advantageous position in the value-chain. The company could then transform from simply carrying out manufacturing processing to the middle and upper part of the value-chain including R&D, design and servicing. Mainland enterprises mostly feature “large factories, minor brand names”. They do not have their own designs or brand names but carry out manufacturing processing for world renowned brands. They are at the bottom of the “smile curve”32 and earn rather small profits. Hong Kong enterprises are at the centre of the fashion and international information centre, and have relative advantages in design, brand name management and overseas market relations. It is possible that Hong Kong enterprises could provide Mainland enterprises with fashionable and functionally designs, and brand name consultancy services. They could help the Mainland counterparts to produce more creative designs and value- adding brands, and aid their transformation from the current low-price strategy to the high echelons of the international market. Hong Kong firms should abandon the existing model of fulfilling orders and their role as Original Equipment Manufacturers, and become brand name strategists, or at least become involved in original design, just as Italy and Japan did during their transformation processes. The Mainland market of 1.3 billion people represents a huge consumer market. As average income levels rise and the middle class emerges, market demand for middle and upper echelon commercial products like shoes, jewellery and accessories will certainly grow. It would undoubtedly be profitable for Hong Kong enterprises to develop specific market segments. In the past, Hong Kong enterprises have catered to the needs of the international market and engaged in low value-added processing manufacturing. The Mainland domestic market was neglected, but it is now obvious that China is one of the world’s fastest developing markets. The Chinese market presents an attractive choice when compared with 32 The “Smile Curve” is a model for profit distribution for U-Type Industries. The term was coined by the founder of the Taiwan Hongji Computer Company, Mr. Zee Chun-rong(施振榮), after years of study and experience in the personal computer industry. In the value chain of the personal computer industry, the CPU design, accessories, and manufacturing (the upper section of the value chain), brand name management and servicing (the lower section of the value chain), i.e. the two ends of the industrial value chain, are highly profitable. The middle section, the assembling of computer parts, is the least profitable, as it is at the bottom of the U-shaped profit distribution curve. Therefore, business enterprises should upgrade their production towards the two ends of the “smile curve”, that is, to develop accessory parts or brand name selling, in order to land a more profitable portion of the value chain. 39 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Europe and America with their frequent anti-dumping charges and protectionism. The lack of a sales network in China means that Hong Kong enterprises should form partnerships with Mainland enterprises. If Hong Kong enterprises can actualise their superiority in “design”, “brand management” and “sales and promotion”, and cooperate in a complementary way with the Mainland enterprises which are strong in “manufacturing” and “channel building”, they could identify areas for development. However, the present order-driven commercial model of the Hong Kong enterprises makes them too biased towards consumer demands and sales patterns developed by overseas markets. Transforming sales to the Mainland will involve many changes and the transformation of local needs in the Chinese market. Further effort and studies are needed in this area. The shoe, textile and clothing industries are closely related. Production in all parts of the industrial chain can be completed in Mainland China. Once a big cluster of related enterprises is established in one area, a combination of service providers in design, production, logistics, sales and brand management will follow. The resulting synergy effects will be strong enough to offset the rise in production costs due to wage increases. As a result of the abolishment of the quota system for textile and clothing industries, and the fact that China and India have made rapid economic progress, textile and clothing industries in China will encounter huge growth potential in domestic and overseas markets in the coming years. If China can improve design and brand management, drop the outdated OEM mode of processing for international brands, and begin to develop its own designs and brands (or regional brands resembling that of “made in Italy” or “made by Brenta”), and sell and promote to the world market, China should be able to dominate markets at all levels, from the lower to upper echelon. Hong Kong has accumulated much experience and personnel expertise in the shoe, textile and clothing industries. With some appropriate guidance and support and by timely catching the boom in these industries, Hong Kong should have a good chance of playing a dominate role in the value chain of shoes, textiles and clothing industries across the world. Hong Kong should develop into a “centre for clothing, accessories and fashion”, with these industries as the core elements. With Hong Kong’s strength in the East-Meets-West culture, the accumulated experience and knowledge of exhibitions, and the strong manufacturing capability of the Mainland factories, it is highly possible that Hong Kong could become an Asian centre for fashion and design for branded clothing and shoes, and of course for the distribution, sales, promotion and marketing of these products. In time, Hong Kong will be transferred into a high calibre distribution centre for high fashion and accessories. 40 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) It could then diversify the tertiary industry of Hong Kong and add impetus and value to the economy. The vogue industry relies on talent and is knowledge-intensive. It depends on the production and management of the global value-chain and the international market, and is a high value-added metropolitan industry. If Hong Kong could integrate the textile and garment, shoes, accessories and jewellery industries now scattered in various areas of the Mainland, and transform the manufacturing pattern from made-to-order OEM (Original Equipment Manufacture) to ODM (Original Design Manufacture), it would provide a feasible way for Hong Kong to upgrade its industries. It would go hand in hand with the development of Hong Kong into Asia’s international metropolitan city, whilst placing Hong Kong in an excellent position to exploit the rapid growth of domestic demand on the Mainland. 41 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2.3 Trends and Updates on Guangxi Zhuang Autonomous Region 2.3.1 Economic Performance of Guangxi In 2006, Guangxi saw its economy grow by more than 10% for the fifth consecutive year, reaching 13.5%, which was one of the best in recent years33. Agricultural and industrial production, investment, and foreign trade were among the highlights of Guangxi’s economy. Table 2-4: Major Economic Indicators of Guangxi in 2006 2006 (RMB 100 Increase Over Economic Indicators Million) Previous Year GDP (The First Three Quarters) 4,802 13.5% : Primary Industry 1,032 6.5% Secondary Industry 1,882 19.2% Tertiary Industry 1,888 12.1% Total Retail Sales of Consumer Goods 1,601 14.6% Foreign Trade (USD 100 million) 67 28.8% Budgetary Government Revenue 568 19.5% Consumer Price Index (%) 101.3 1.3 Note: Statistics from each province represent preliminary data, which may be subject to change, and may vary from those published by the National Bureau of Statistics later on. Source: Guangxi Statistics and Information Net: http://www. gxtj.stats.gov.cn Benefiting from the rapid development of such featured and superior industries as silkworm breeding and pine resin processing, Guangxi’s primary industry grew steadily, with value-added crossing the threshold of 100 billion RMB, reaching 103.2 billion RMB. Major agricultural products such as vegetables, fruit and sugar cane all saw increased production. Grain production increased by 230 million kilograms, reaching 15.39 billion kilograms34 , despite the negative impact of drought and flood. 33 “Guangxi’s economy has been growing at double-digit rates for five consecutive years”( “廣西經濟連續 5 年保持兩位數增長”) , Guangxi Statistics and Information Net, 23 January 2007, http://www.gxtj.gov.cn/view/news_display.asp?sendid=11736. 34 “The Ten Highlights of Guangxi’s economic and social development in 2006”( “2006 年廣西經濟社會 發展十大亮點”), The All China Data Centre, 26 January 2007, http://data.acmr.com.cn/freesource/zixunshow.asp?id=7217. 42 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) The breathtaking pace of Guangxi’s industrial development has hit new highs over the last ten years. The value-added of industrial enterprises above a designated size increased by 23.8%, breaking the threshold of 100 billion RMB. Industrial growth was mainly driven by the heavy industries, the value-added of which increased by 27.3% than in 2005, contributing as much as 74.3% to the growth in the value-added of the industrial enterprises above a designated size. With regards to investment, Guangxi’s total investment in fixed assets grew by 27%, another new high, and it took only two years for Guangxi to reach 200 billion RMB from 100 billion RMB. Spurred by featured industries, industrial investment expanded tremendously, growing by 46%35. As for consumption, with Guangxi’s rapid economic development and the rising income of rural and urban residents, the sales and marketing industry grew by a quarter. Driven by the fast-growth in tourism, retail sales for the accommodation and catering industry increased by 16.1%, the highest of all the industries36. 2.3.2 Updates on Guangxi Zhuang Autonomous Region — New Industrial Developments in Guangxi’s Port Cities The port cities of Beihai, Qinzhou and Fangchenggang form the outlet to the sea for the southwestern inland provinces. They are the important connecting point between China and the ASEAN countries, and form the main area of economic cooperation within the Pan-Beibu Gulf (including Guangxi and the coastal ASEAN countries from Vietnam to Singapore). Therefore, port and land transport construction are of great significance. 35 “Guangxi’s total investment in fixed assets grew by 27% in 2006”( “2006 年廣西全社會固定資產投資 增長 27% ”), Guangxi Statistics and Information Net, 2 February 2007, http://www.gxtj.gov.cn/report/news_display.asp?sendid=11797. 36 “Guangxi’s consumer market boomed amid steady growth in 2006”( “2006 年廣西消費品零售市場穩 中趨旺 ”), Guangxi Statistics and Information Net, 30 January 2007, http://www.gxtj.gov.cn/economy_news/news_display.asp?sendid=11777. 43 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Diagram 2-1: Map of Beibu Gulf (Guangxi) Economic Zone Source: Promotional information from the Beibu Gulf (Guangxi) Economic Zone Construction Management Committee Office. However, the three port cities of Beihai, Qinzhou and Fangchenggang have been relatively backward economically for a long period of time, compared with other coastal cities of China (see Table 2-5). One major reason for this is that industries are extremely underdeveloped, and there is a lack of hinterland support. Take the year of 2004 as an example, the share of industries in the economy of these three cities is only about half the figure of other coastal cities. The three cities witnessed unprecedented growth following Beibu Gulf economic cooperation and the “M Strategy” put forth and endorsed by the Central Government. During the last two years, industry figures have shown promising growth. 44 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-5: GDP and Industrial Value-Added for the Three Guangxi Port Cities and Some Coastal Cities of China in 2004 Industrial Value Industrial Value- GDP Added as a Per Capita GDP 2004 Added (RMB100 million) Percentage of (RMB) (RMB100 million) GDP Tianjin 2,932 1,436.8 49.0% 31,550 Qingdao 2,164 1,024.1 47.3% 29,809 Ningbo 2,158 1,086.8 50.1% 39,174 Dalian 1,962 851.3 43.4% 34,978 Yantai 1,639 839.7 51.2% 25,183 Fuzhou 1,548 668.8 43.2% 25,505 Wenzhou 1,403 721.5 51.4% 18,846 Nantong 1,226 577.6 47.1% 15,806 Weihai 1,009 568.5 56.4% 40,476 Beihai 162 44.2 27.3% 10,989 Qinzhou 175 36.4 20.9% 5,131 Fangchenggang 85 23.7 28.1% 10,662 Source: 1. Li Yu-hua: “Put industries first, boost development in Beihai – a comparison of Beihai and some open coastal cities, and related thoughts”( 李玉華：“突出工業主導地位，推 動北海跨越發展——北海市與部分沿海開放城市的比較與思考”) Economic Research Centre of the People’s Government of Beihai City, survey study report, No. 4, 2005 (Issue No.124) http://www.bheinet.gov.cn/dybg/sysdb/dyDetail.asp?id=158 2. Statistics Yearbook 2005, Guangxi Zhuang Autonomous Region. Beihai (北海) In 1984, Beihai was added to a list of 14 opened-up coastal cities. However, due to a lack of development, Beihai slipped to be the last on the list, after Linyungang of Jiangsu. In 2003, production growth of industrial enterprises above a designated size only reached 10.53% 37 , and even though this was the highest in history, it was below the average growth rate for the nation. However in 2004 and 2005, the growth rate improved and exceeded 30%. The year 2004 represented the major turning point when growth began to accelerate. In 2005, the share of industrial output in GDP of Beihai reached 33.3%, increase by 6 percentage points over the previous year. 37 According to Beihai Statistics Reports from 2000 to 2004, and the Guangxi Statistical Yearbook 2006, yearly growth rates for industrial output of industries above a specified scale for the years 2000 to 2005 were: 10.11%, 8.20%, 7.87%, 10.53%, 31.54% and 37.55% respectively. 45 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-6: Economic Performance of Beihai City, 2004-2005 Increase Output Value of Increase Industrial Increase Industrial Total Investment Compared Industrial Compared Value- Compared GDP Value-Added in Fixed Assets Beihai With Enterprises Above with Added with (RMB100 as a (RMB100 Previous a Designated Size Previous (RMB100 Previous million) Percentage of Million) Year (RMB100 million) Year million) Year GDP 2004 51.41 18.7% 74.73 31.5% 44.21 23.7% 161.89 27.3% 2005 67.24 30.8% 102.79 37.5% 60.45 36.7% 181.62 33.3% Source: 1. Guangxi Statistical Yearbook 2005 2. Guangxi Statistical Yearbook 2006 3. Beihai City Economic and Social Development Statistics Report, 2004 4. Beihai City Economic and Social Development Statistics Report, 2003 While industrial development accelerated, the industrial structure of Beihai city also improved, transforming from light industries to heavy industries and going for large production projects. In 2000, light and heavy industries were about equal in value added but by 2005, the ratio was 36:64 38 , with heavy industries in the majority. Table 2-7: Industrial Value-Added to the Four Major Industries of Beihai City, 2005 Industrial Value- Share of the City’s Total Added in 2005 Increase Over 2004 Industrial Value-Added (RMB 100 million) Electricity 6.04 10.32% 18.8 times Smelting and Pressing of Ferrous 1.48 2.53% 41.26% Metal Electronic Data 2.54 4.34% 66.94% Processing Medicine 2.83 4.84% 25.44% Source: Ning Soon-ju, Wu Jun-chi: “Strategic study on the acceleration of industrial development in Beihai City”, Economic Research Centre(寧順主、吳俊起：《關於加快推進北海市 工業化進程的對策研究》), People’s Government of Beihai City, survey study report, No. 16, 2006 (Issue No. 153) http://www.bheinet.gov.cn/dybg/sysdbDetail.asp?id=190 The industrial park economy played an important role in the industrial development of Beihai, and achieved good results in the clustering of industries. In 38 Ning Soon-ju, Wu Jun-chi: “Strategic Study on the acceleration of industrial development of Beihai City”( 寧順主、吳俊起：《關於加快推進北海市工業化進程的對策研究》), Economic Research Centre, People’s Government of Beihai City, survey study report, No.16, 2006, (Issue No.153) http://www.bheinet.gov.cn/dybg/sysdb/dyDetail.asp?id=190. 46 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2005, the Beihai Industrial Park, the Hi-Tech Industrial Park, and the Hepu Industrial Park produced industrial value-added of RMB 1.73 billion, about 30% of the city’s total industrial value-added39. However even though the four main industries have formed industrial clusters and become the new pillar industries of Beihai, their size and performance are still limited (see Table 2-8). Table 2-8: Four Industrial Clusters (New Pillar Industries) of the Beihai Industrial Park Areas Industrial Clusters Leading Enterprise Number of Enterprises Beihai Yinhe Hi-tech Electronic Information 17 Industrial Co. Ltd. Guangxi Beisheng Biological Medicine 15 Pharmaceutical Co. Ltd. Beihai Gofar Marine Marine Bio-Engineering 26 Biological Industry Co. Ltd. Panzhihua Iron and Steel New Materials 10 (Group) Corporation Source: See Table 2-7 Under the auspices of the “M Strategy”, the Pan-Beibu Gulf economic cooperation experienced unprecedented progress last year. Beihai city took the initiative and attracted a considerable amount of incoming investment (see Table 2-9). Table 2-9: Investment Items of Beihai City, 2006 Contract Item Amount Date Project Details number (RMB 100 million) Electronics, construction materials, electric automation, engine making, cosmetics, food 21 July 20 5.96 processing, marine products (Beihai Industrial Park) Early November (during 22 22.5 the “Third Meeting”) Advanced manufacturing industry, port logistic, 11 Nov 17 133.6 recyclable energy, tourism etc. Sources: 1. “20 projects started/completed in Beihai Industrial Park”( “北海園區２０個項目喜慶開 （竣）工”), Guangxi News Net, 23 July 2006, http://sub.gxnews.com.cn/staticpages/20060723/newgx44c258e0-663258.shtml. 39 Ibid. 47 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2. “20 big projects started and agreements signed in Beihai, two ‘industries accelerated”( “北 海 20 大 項目 同日 啟動 落成 和簽 約，提 速建 設‘兩 化’”), China Economics Net Guangxi Channel, 12 November 2006, http://www.gxce.cn/jjgc/ShowArticle.asp?ArticleID=18697. Qinzhou (欽州) The city of Qinzhou was established in 1994, with backward industries and a belated start in economic development. The population stood at 3 million, which was double the population of Beihai City. In 1999 and 2000, the Guangxi Autonomous Region Government named Qinzhou as its coastal industrial city and port, and this started the process of industrialisation in Qinzhou. During the 10th Five-Year Plan period, industries in Qinzhou underwent rapid upgrading, especially in the year of 2005 (see Table 2-10). Table 2-10: Comparison of Qinzhou in the 10th and the 9th Five-Year Periods 10th Five-year Period Compared to 9th Five-year Period Annual Growth in GDP 10.6% + 0.7% Annual Growth in Industrial 14.6% + 5.2% Value-Added Share of Industries in GDP 26.86% +7.9% (at End of Period) Total Investment in Fixed Assets RMB 26.1 billion +170% Annual Growth in Total 31% Investment in Fixed Assets Source: “Qinzhou city achieved great economic and social accomplishments in the 10th Five- Year Period”( “欽州市“十五”時期經濟社會取得重大成就”), Guangxi Radio Net, http://news.gxradio.com/news/2006/0301/gxxw/101234.htm. Table 2-11: Economic Performance of Qinzhou in 2004-2005 Total Increase Output Value of Increase Increase Industrial Industrial Investment in Compared Industrial Compared Compared GDP Value-Added Value-Added as Qinzhou Fixed Assets with Enterprises Above with with (RMB100 (RMB100 a Percentage of (RMB100 Previous a Designated Size Previous Previous million) million) GDP Million) Year (RMB100 million) Year Year 2004 62.41 38.66 36.43 174.65 20.86% 2005 89.85 43.97% 74.91 93.77% 55.21 51.55% 205.52 26.86% Sources: 1. Guangxi Statistical Yearbook 2005 2. Guangxi Statistical Yearbook 2006 The rapid growth of industries in Qinzhou in 2005 was due to regional economic cooperation and a plentiful supply of investment which was poured into 48 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) the city in 2003 and 2004. In 2003, the CPC and Municipal Government of Qinzhou put forward the economic development strategy of “Let the port enrich the city, and the city boost the port; let projects be pillars, and the open-door policy be the engine for building a coastal industrial city”. Their objectives were “Big Port, Big Industries”, and massive promotional works were carried out to attract incoming business and investment. Table 2-12: Incoming Business and Investment Attracted to Qinzhou Projects (number) Amount (RMB 100 million) Note 93（Above RMB Actualised amount RMB 536.5 2003 (contract)15.6 million, an increase of 335% over 500 million） previous year 2004 345 (total) (contract)138.8 Increased 21% and 672% 2006 350 (related items) (actualised)52 Actualised capital increased 43% 1. Dong Oil 1 million ton asphalt factory 2. Guangxi Cassava Comprehensive Development Exhibition Project Leading industrial projects 3. Dayang 0.8 million ton soybean processing factory that have come to Qinzhou in 4. Oriental Resource Iron Alloy Factory recent years 5. Coal thermal electricity generating plant 6. Jingui Forest-pulp-and-paper Integration Project 7. Sino Petrol 1 million ton petroleum processing project Sources: 1. “Industrial development in Qinzhou”(“欽州工業發展情況”), Xinhua Net Guangxi Channel, 14 July 2004, http://www.gx.xinhuanet.com/dtzx/2004- 07/14/content_2494101.htm. 2. ““Yien bird effect” to build Qinzhou’s coastal industrial features”( ““雁陣效應”打造欽 州臨海工業特色”), China Hightech Net, 5 August 2005. http://www.chinahightech.com/chinahightech/News/View.asp?NewsId=2323434353 3. “Guangxi: Qinzhou solicited 350 internally related projects and RMB 5.2 billion actualised capital”(“ 廣西：欽州市引進內聯項目 350 個到位資金 52 億元”), China Bidding Net, 31 December 2006, http://www.cnbidding.com/alibaba/aricledisp_aid_a459705201fd7b.html. The massive influx of projects and capital not only sped up industrial development in Qinzhou, it also transformed its industrial structure. Traditionally, the pillar industries of Qinzhou were sugar, medicine and construction materials. In 2003, the chemicals and metal melting surpassed the medical and construction material industries in industry output and became the second and fourth largest industries 40 . In the past three years, Qinzhou has increased efforts to attract incoming business and investment, and new industrial coastal projects have 40 “Industrial development in Qinzhou”( “欽州工業發展情況”), Xinhua Net Guangxi Channel, 14 July 2004, http://www.gx.xinhuanet.com/dtzx/200407/14/content_2494101.htm. 49 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) arrived. Now, there are roughly two types of industries in Qinzhou 41 : the traditional industries (sugar, medicine, construction materials, food and machinery), and the coastal industries (petro-chemicals, lumber-paper, bio-energy etc.). Despite this, the industrialisation level of Qinzhou is still lower than Beihai city but this just marks the beginning for Qinzhou. Fangchenggang (防城港) Among the three cities, Fangchenggang is the least economically developed, and GDP and per capita GDP are less than half of that of Beihai and Qinzhou (see Table 2-13). The population is only just above 800,000, with an urban population of over 300,000. Although the economy is small in scale, the level of industrialisation in Fangchenggang and the share of industry in GDP are higher than that of Beihai and Qinzhou. In 2005, the four big industries (edible plant oil processing, sugar, chemical materials and animal feeding material) contributed 85.0% of the output of the city’s industrial enterprises above a designated size42. Table 2-13: Industrial Development in Fangchenggang in recent years Fangchenggang 2003 2004 2005 2006 Total Investment in Fixed Assets 19.07 30.40 42.96 68.00 （RMB 100 million） Increase Over Previous Year 22.9% 59.4% 41.3% 58.3% Industrial Investment 5.71 9.92 17.39 （RMB 100 million） Increase Over Previous Year 167.0% 73.7% 75.3% Total Industrial Output 80.71 93.62 119.08 148.00 （RMB 100 million） Increase Over Previous Year 21.3% 16.0% 27.2% 24.3% Industrial Value-Added 19.97 23.74 30.52 38.50 （RMB 100 million） Increase Over Previous Year 21.0% 18.9% 28.6% 26.1% GDP（RMB 100 million） 75.52 84.60 94.77 113.00 Industrial Value-Added as a 26.4% 28.1% 32.2% 34.1% Percentage of GDP Share of Industrial Investment in 29.9% 32.6% 40.5% Fixed Capital Investment 41 “Qinzhou Daily: ’11th Five Year Plan Period: ‘Three big objectives’ boost Qinzhou”( “欽州日報：‘十一 五’：‘三大目標’為欽州強身壯骨”), Beibu Gulf News Net, 7 April 2006, http://www.bbwnews.com.cn/ReadNews.aspx?ID=18302. 42 “Fangchenggang national economy and social development statistics report, 2005”, http://www.gx.xinhuanet.com/dtzx/2006-06/23/content_7321249.htm. 50 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Sources: 1. Fangchenggang National Economy and Social Development Statistics Report, 2003 2. Fangchenggang National Economy and Social Development Statistics Report, 2005 3. Guangxi Statistical Yearbook, 2005. 4. Guangxi Statistical Yearbook, 2006 5. Data for 2006 are projections, cited from: a. “The 11th Five-Year Plan for Fangchenggang Represents a Good Start”( “‘十一五’防城 港市開局良好”), Guangxi Fangchenggang Commerce Window, 28 December 2006. http://fangchenggang.mofcom.gov.cn/aarticle/gzdy/200612/20061204163217.html b. “Fangchenggang industrial output expected to reach RMB 14.8 billion”( “防城港市工業 總產值預計達 148 億元”), Guangxi Fangchenggang Commerce Window, 19 December 2006, http://fangchenggang.mofcom.gov.cn/aarticle/dongtai/200612/20061204079054.html. It is difficult for Fangchenggang to attract business because the size of its economy is relatively small and so the ability of the city to attract incoming business and investment is not as good as Beihai or Qinzhou. In 2006, Fangchenggang only solicited actualised capital investment of RMB 2.36 billion, just 45% of that of Qinzhou43. At present, the industries of Fangchenggang are of little significance in the Beibu Gulf economic cooperation. However, according to the National Plan for China’s Coastal Ports issued in 2006 by the National Development and Reform Committee and the Department of Transport, Fangchenggang is one of the three major ports in the southwestern coastal area, and one of the 24 major coastal ports of China, while Beihai and Qinzhou are only listed under the top 25 regional ports. This means that as a port, the importance of Fangchenggang is much greater than Beihai and Qinzhou, and therefore, the future outlook of industries in Fangchenggang is not necessarily less promising than Beihai and Qinzhou. Port Development and Future Outlook of the Three Cities In recent years, these three cities have made considerable progress in industrial development due to the construction of port and land transport facilities. However at present the related figures are still small, especially when compared with more developed ports like Ningbo (see Table 2-14). 43 “The 11th Five Year Plan for Fangchenggang city represents a good start”( “‘十一五’防城港市開局良 好”), Guangxi Fangchanggang Commerce Window, 28 December 2006, http://fangchenggang.mofcom.gov.cn/aarticle/gzdy/200612/20061204163217.html. 51 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-14: A Comparison of Industrial Investment in the Three Ports of Guangxi and Ningpo Share of Industrial Industrial Total Investment in Fixed Assets Investment (RMB Investment in （RMB 100 million） 100 million） Fixed Capital Investment Beihai (2005) 67.2 19.8 29.5% Qinzhou (2006) 118.3 42.7 36.1% Fangchenggang(2006) 69.0 32.6 47.2% Ningbo (2006) 1,370.4 752.5 54.9% Sources: 1. Ning Soon-ju: “Strategic Study on the acceleration of industrialisation in Beihai city”( 寧順 主、吳俊起：《關於加快推進北海市工業化進程的對策研究》), Economic Research Centre, People’s Government of Beihai city, No.16, 2006, (Issue No.153), http://www.bheinet.gov.cn/dybg/sysdb/dyDetail.asp?id=190. 2. “Ratio of secondary industry surpasses primary industry for the first time”( “我市第二產業 比重首次超過一產”), Qinzhou Daily, 1 March 2007 3. “Investment contributed 70% to the economic growth rate of Qinzhou.”( “投資對去年欽州 市經濟增長貢獻率達 70%”), 7 March 2007, http://www.bbwnews.com.cn/ReadNews.aspx?ID=29011. 4. “Fixed capital investment in Fangchenggang remained in a good condition in 2006”( “防城 港市 2006 年固定資産投資繼續保持良好態勢”), Guangxi Statistics Information Net. This shows that the focus of investment in these three cities is not in the industries, but in port and infrastructure construction. Industrial development, port construction, and logistics development have not established adequate interactions. The economic foundations of these port cities are still poor, and remain in the elementary stage. The geographical location and characteristics of the three cities are quite similar. Because they are located in the same region, all lack in hinterland support and coordination for division of labour, there are problems in unfriendly competition and redundant infrastructural facilities. Last year the Guangxi Autonomous Region Government formed the Beibu Gulf (Guangxi) Economic Planning Construction Management Committee, headed by Mr. Chan Wu, Vice Chairman of the Autonomous Region. The work of the Committee is to plan and integrate port resources, and put forward major construction and industrial projects. Last December, the Committee conducted a meeting to invite opinions on the draft edition of The Plan for the Cities and Townships in the Beibu Gulf (Guangxi) Economic Region. This Plan is one of the ten major planning tasks of the Beibu Gulf (Guangxi) Economic Region for this year, under the auspices of the China City Planning Design Institute of the Department of Construction. They will be assisted by the Guangxi Construction 52 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Comprehensive Design Institute and the Guangxi Urban and Rural Planning Design Institute, with specific study items carried out by the Hong Kong University and the China Science Academy and Geography Institute. The Plan will study the division of labour and positioning of the cities, their spatial distribution, communication networks, ecological protection and infrastructural facilities construction. The planning work will be completed by July 200744. It forms the major strategy for planning the construction of the region’s economy, and will formulate a path for future development and a comprehensive plan for the three Beibu Gulf ports. However, some time earlier, the new party chief of Guangxi, Mr. Liao Chi-bao, put forth the Pan-Beibu Gulf economic planning strategy, to promote regional cooperation between China and ASEAN based on the “One Axis, Two Wings” initiative. The proposal was endorsed and supported by the Central Government. Mr. Tsang Pue-yin of the State Council even put Beibu Gulf together with Bohai Gulf, which formed part of the “Two Deltas (Yangtze River and Pearl River), two Gulfs, and two coasts (of the Strait of Taiwan)” slogan45. In 2006, the Guangxi Autonomous Region Government invested RMB 5.8 billion in infrastructural facilities construction, to improve the shipping channels, road networks, water pipes, drainage, and electricity supply to the three cities. In recent months, the Guangxi Autonomous Region Government has started a number of big projects, including the 1.2 million kilowatt Fangchenggang Thermal Electricity Plant Phase One, the Jingui forest-pulp-and-paper project which produces 1.8 million tons of pulp and 2.5 million tons of paper, the Qinzhou-based 10 million ton coal oil project, the Fangchenggang Hongshang 10 million ton steel project, the 6 million watt Fangchenggang nuclear energy project and the Stora Enso project which produces 1.2 million tons of pulp and 0.9 million tons of paper (Stora Enso is a company from Finland)46. The Central Government was highly supportive of the investment projects in Beibu Gulf and the port construction and coastal industrial areas of the three cities have undergone healthy development under the direct and indirect involvement of government. When the infrastructural facilities and heavy chemical industries projects are completed, the three cities will show colossal transformation. 44 “Experts study the ‘Beibu Gulf (Guangxi) Economic Regional Township Concept Plan”( “專家研討《北 部灣(廣西)經濟區城鎮群概念規劃》”), Pan Beibu Gulf Economic Cooperation Forum Website, 28 December 2006, http://www.fecbg.org/staticpages/20061228/newgx459317ab-917730.html. 45 Information from departmental discussions with the Guangxi Autonomous Region Government during January 2007, Guangxi Study Tour. 46 Beibu Gulf (Guangxi) Economic Regional Planning Construction Management Committee Office, “Beibu Gulf (Guangxi) Economic Regional: Open and Development Conditions”( 《北部灣(廣西)經濟區 開放開發情況介紹》), 23 January 2007. 53 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Diagram 2-2: China-ASEAN “One-Axis-Two-Wings” Regional Economic Cooperation Source: Beibu Gulf (Guangxi) Economic Planning Construction Committee Office information material. Implications for Hong Kong The port and industrial development of the three cities is in the infrastructure construction stage, and relies on the funding and support of the Central Government and the Guangxi Autonomous Region Government, including the attraction of big investment projects from abroad, such as the Finland paper project. It illustrates the fact that government is a critical factor in strengthening the economic development and competitiveness of a city or region in a short time. At this stage, there is little that Hong Kong can participate in. One reason is that Hong Kong industries lack strengths and experiences in the heavy and chemical industries, ferrous products, and port construction. In terms of port cargo transport, the three cities face competition from Zhanjiang and the risk of investment in building a network of cargo hinterland is high, therefore normal channels for commercial investment are not advised. Another reason is that Hong Kong lacks government investment institutions and public institutions specialised in 54 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) international business. It is therefore difficult to participate in the port, city and regional development of the Beibu Gulf area. However, Beibu Gulf does lack human resources. In the economic and industrial upgrading and transformation stage, the demand for human resources is great. Beihai city is planning to build a University Town, but it will take some time before the university produces graduates. Hong Kong could provide some assistance, offer training to management personnel and government officials in the three cities, and build up a cooperative relationship for the future. 55 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2.4 Trends and Updates on Yunnan 2.4.1 Economic Performance of Yunnan In 2006, Yunnan’s economy developed rapidly, and saw breakthroughs in agriculture and industry. The consumer market boomed and foreign trade kept growing. Table 2-15: Major Economic Indicators for Yunnan in 2006 2006 (RMB 100 Increase Over Economic Indicators Million) Previous Year GDP 4,002 11.9% Primary Industry 751 6.8% Secondary Industry 1,710 16.9% Tertiary Industry 1,541 9.1% Total Retail Sales of Consumer Goods 1,189 14.9% Foreign Trade (USD 100 million) 62.3 31.4% Urban disposable income per capita (Yuan) 10,070 8.7% Note: Statistics from each province represent preliminary data, which may be subject to changes, and may vary from those published by the National Bureau of Statistics later on. Source: Yunnan Statistics and Information Net: http://www.stats.yn.gov.cn. Yunnan’s GDP grew by 11.9%, the highest growth rate since 1995. Agriculture developed rapidly and value-added stood at 75.1 billion RMB, growing by 6.8%, which represented the fastest growth rate in 16 years. Yunnan’s industry was stimulated by heavy industry and became the major driving force behind the economic growth. The value-added of heavy industrial enterprises above a designated size grew by 27.1% more than in 2005, higher than the growth rate of light industry by 17.5 percentage points, and the ratio of heavy industry also exceeded that of light industry for the first time in 30 years47. The consumer market was also booming thanks to the steady increase in the income of rural and urban residents, and retail sales for urban and rural consumer markets grew by 15.3% and 14.5% respectively. The major driving 47 “A Summary of Yunnan’s National Economic Development and Social Development in 2006”( “2006 年 雲南國民經濟和社會發展概述”), Yunnan Statistics and Information Net, 30 January 2007, http://www.stats.yn.gov.cn/ynstjjwz/4685150987348869120/20070130/104346.html. 56 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) force behind the growth of the consumer market came from the wholesale and retail industry, which was 15.3% higher than the previous year, and retail sales accounted for 79.9% of total consumption48. As for investment, the three main industries all witnessed growth with industrial investment growing by 24.1%, and accounting for 38.9% of total investment. The chronic shortage and low proportion of industrial investment saw considerable improvement49, which will be beneficial for the rapid development of Yunnan’s industry in the future. 2.4.2 Updates on Yunnan – Commercial Opportunities in the Cut Flowers Industry According to statistics from the China Customs Office, between January and November 2006, the export of Yunnan’s cut flowers reached USD 10.45 million, and for the first time surpassed USD 10 million. Taking into account cut flowers exported through agents of enterprises outside Yunnan, the export earnings from Yunnan’s cut flowers should far exceed the above figure, probably to the level of USD 40-50 million. The Flower Industry Association of Yunnan estimated that in 2006, cut flowers production reached 4.1 billion pieces, with export earnings reaching USD 65 million. These are believed to be reliable figures50. Table 2-16: Cut Flower Exports Through the Kunming Custom Office, Yunnan (Unit: USD 10,000) Year Export Volume Increase Over Previous Year 2000 60 － 2001 113 88.33% 2002 191 69.03% 2003 252 31.94% 2004 472 87.30% 2005 667 41.31% 2006 (Jan-Nov) 1,045 56.67% Source: Customs Statistics Information Net 48 Ibid. 49 Ibid. 50 Chang Yu: “Yunnan becomes the major cut flower producing province”( 張銳：“雲南成為鮮切花生產 大省”) , Xinhua Net Yunnan Channel, 30 December 2006, http://big5.xinhuanet.com/gate/big5/www.yn.xinhuanet.com/newscenter/2006-12/30/content_8931211.htm. 57 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) http://www.chinacustomsstat.com/CustomsStat/OperateForm/StatNewsViewAllow.aspx?guid=22 f3256b-070d-4baf-9829-d8a24eaa30af. Accelerated Development In recent years, China’s cut flowers production and exports have increased rapidly, especially after 2001. National production increased by 30-40%, and the figure for Yunnan grew even faster. For over ten years, production in Yunnan has ranked first in China51. Before 2000, annual exports were below USD 1 million but in 2006, exports exceeded USD 10 million, with an annual rate of increase of 65.8%. Among Yunnan’s featured agricultural products, cut flowers witnessed the fastest growth rate. Good Prices Increased Earnings Between January and November 2006, cut flower exports from Yunnan totaled 4,362 tons, an increase of 8.6% over the same period in the previous year. The price of cut flowers greatly increased and export earnings rose by 85.9%. This good performance was due to an improvement in the quality of the cut flowers and farming technologies, as well as growing market demand. In addition, besides the major species of rose, carnation, lily, and gerbera, there was an increase in the export share of orchids and other new high echelon flowers that are higher value- added and require more sophisticated farming technologies. This caused export earnings to increase remarkably. Strong Market Demand Sustained Between January and November 2006, exports of cut flowers from Yunnan to the ASEAN market reached USD 3.62 million, and increased by 100% over the same period in 2005. Singapore and Thailand were the main importers. This was a preliminary effect of the China-ASEAN Bilateral Free Trade Agreement. 51 Yi Chuen: “China’s cut flower production and sales increase yearly, exports await breakthrough”( 依 群：“我國鮮切花產銷連年增長，出口有待突破”), China Flower Newspaper, 19 October 2006. 58 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Japan is still the single largest market for Yunnan’s cut flowers. Between January and November 2006, Japan imported USD 2.75 million worth of Yunnan’s cut flowers, an increase of 18% over the same period in the previous year. Hong Kong is the second largest market and the fastest growing market, and imported USD 2.71 million, an increase of 350% over the same period in the previous year. The Singapore and Thailand markets exceeded USD 1 million, and imported USD 1.67 million and USD 1.21 million respectively, representing increases of 98.8% and 120%. Russia and Korea were also major markets. Foreign and Civilian-run Enterprises Performed Well In recent years, many foreign enterprises have entered the Yunnan cut flowers industry and their capital and technical inputs have helped to boost the industry significantly. At the same time, their competitive strengths have also helped motivate existing enterprises to upgrade their competitive abilities. Table 2-17: Volumes of Cut Flower Exports Through Kunming Customs, Yunnan (Jan-Nov 2006) Export Volume (USD 10,000) Increase Over Previous Year Foreign Enterprises 574 +2.9 times Civilian-run Enterprises 267 +66.9% State-owned Enterprises 204 -20.3% Internal Sales Market The demand for cut flowers is closely related to the income level of consumers. As the Chinese economy develops rapidly and urbanisation increases, the population of the middle and upper income level urban habitants and their purchasing power have also increased rapidly. While exports rise, domestic sales have also increased. Domestic sales are in fact greater than export sales. In 2004, for example, cut flowers consumption across the whole of China reached 8.1 billion pieces, worth RMB 4.3 billion, whilst export earnings in 2004 were USD 51 million, equivalent to RMB 0.4 billion. Around 62% of the total flower production is carried out in Yunnan, Liaoning and Guangdong, and there is some division of labour among them. Yunnan supplies spring, summer and autumn flowers, with limited winter production. Liaoning has the advantages of winter 59 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) greenhouse production whilst Guangdong with its warmer winters has a cost advantage during these months52. In the past, the domestic market was dominated by Guangzhou, including the Hong Kong and Macau markets. However, since Guangzhou started cut flower production more than decade ago, due to inadequate subsequent investment, over-emphasis on the Hong Kong and Macau markets, relatively high costs and prices, there has been little improvement in its flower quality and diversity. In 2000, Guangzhou served the South China market and was the main supplier to Southeast Asia. Starting from 2002, roses from Yunnan entered, and soon dominated the Hong Kong and Macau markets. With their good quality, the Yunnan roses even seized the conventional markets of Guangzhou cut flowers in Shenzhen and Zhuhai. As a result, Guangzhou cut flowers retreated to the local Guangzhou market and smaller cities in Hunan, Hubei, Fujian and Jiangxi. It is because these markets are less accessible for Yunnan flowers by air transport53. In 2003, the Dounan Flowers Market of Chinggong County (呈貢縣斗 南花卉市場) of Kunming enjoyed sales exceeding RMB 1.2 billion and sold 1.6 billion pieces of flowers, about 80% of the total for Yunnan and 57% of those in China. The flower turnover of Dounan Flower Market exceeded 3.5-5 million pieces per day in 2003, in 2005 it had increased to 5-6 million pieces, and in 2006 it reached 5.5-7 million pieces, of which about 800,000 pieces were sold to the domestic market of over 70 cities in China. In autumn and winter, major markets like Shanghai and Beijing consume 80-90% of Yunnan flowers54. Yunnan cut flowers production mainly takes place in Kunming city. In 2006, cut flowers production reached RMB 1.23 billion, an increase of 15.8% over the same period in the previous year and produced 3.16 billion pieces of flowers, an increase of 3.5%. Sales to places outside Yunnan totalled 2.83 billion pieces of flowers, about 89.6% of total production, with exports amounting to 0.28 billion 52 Ibid: Yi Chun 53 Kwok Jin-fang, Huang Chang-Bing: “Winter production facilities improved regional advantages. Guangzhou cut flowers strive for market success”( 郭金鳯，黃正秉：“冬季生產設施改造區域佔優，廣 州鮮切花揚長避短搶市場”), China Flower Newspaper, 15 January 2007. 54 Fan Xin: “Dounan Flower Market transactions account for around 60% of China’s volume”( 范欣：“斗 南花市交易量佔全國近六成”), China Flower Newspaper, 13 May 2004; Lu Ji-leung: “2006 Yunnan cut flowers have good prospects”, “China Flower Newspaper”, 9 January 2007. 60 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) pieces, about 8.9% of total production, or 9.9% of the sales to places outside Yunnan, and export earnings reached USD 41.22 million55. Trends in World Flower Production and Trade The flower industry is one of the most dynamic industries in the world. There are no quota restrictions, but there are tariffs. In recent years, trade agreements have lowered import tariffs. Air shipment and improved cost structures have helped the formation of four major traditional flower wholesale markets. These are Amsterdam in Holland, Miami in the USA, Bogota in Columbia and Tel Aviv in Israel. However, flower consumption in the developed countries has reached a stable level. Globalisation means that the centre of flower production is moving from developed countries to developing countries. In areas with the right climate, where land and labour costs are low, and government policies support the industry, such as Columbia, Ecuador, Kenya, China and India, flower production has increased. This has resulted in a global surplus and prices have fallen. In developed countries, the cost of production is so high that they cannot offer a competitive price56. The global cut flower markets are in Western Europe, America and Japan, and account for 42%, 20% and 18% of the global import market respectively. Germany is the single largest importer 57 . The international cut flowers market is characterised by the high concentration of species and supply countries, and roses are the main trading species. In the three main markets, supplying countries concentrate on a few countries in the region. The American market is mainly supplied by Columbia (about 65%), Ecuador and Costa Rica58. The Western Europe market is mainly supplied through the Amsterdam wholesale 55 This export earning figure should include figures outside of the Customs statistics for Yunnan. Figures from Yunnan Customs, other Chinese Customs authorities and figures from the industry showed disparities, and reflect the lack of export facilities in Yunnan. Lo Kun-ya: “Last year Kunming cut flowers external sales reached 2.83 billion flowers, about 90% of total production”( 羅昆婭：“去年昆明鮮切花外銷 28.3 億枝，接近生產總量的九成”), Yunnan Agriculture Information Net, 22 January 2007. 56 “Flower production and trade inside and outside China”( “國內外花卉生産及貿易概况”), Nantianzhu Flowers and Gifts Net, http://www.nantianzhu.com/News/Show.aspx?ID=450. 57 Ulrike Grote, “Sustainable development in the eco-label flower sector?” Presentation at Deutscher Tropeutag 1999, Berlin. 58 “New movement in the American cut flowers market”( “美國鮮花市場新動向”), China Agriculture Net, 29 May 2003,http://www.zgny.com.cn/ifm/consultation/2003-5-29/563.shtml. 61 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) market. Holland is the chief producer, but its market share has been eroded slowly by Kenya and Israel. Kenya in fact is now the largest supplier to Western Europe, and has about 25% share in the market of EU59. The Japanese market in the 1990s was mainly supplied by Holland, Thailand, New Zealand and Taiwan60 . India, with its roses, has surpassed Holland as the second largest supplier to Japan61. Yunnan’s cut flowers still have a negligible share in the three world markets. This reflects a difference in competitiveness but could also mean that the room for development is great. Kenya is taking over the Western European market and India has made inroads into the Japanese market in just a matter of a few years. As a result of the competitive nature of cut flowers, new suppliers with lower production costs can easily topple the market situation. The downward pressure of production costs is now a global trend. Developing countries can develop and increase cut flower production by making use of their advantages in climate and low production costs. Therefore some developed countries are seeking cooperative businesses with countries with low production costs. At present, Holland, the USA and Japan have set up large flower production bases in Columbia, Malaysia and China, to lower their costs and increase their market sales. Holland and Israel have set up show farms and training centres in China, and enterprises from many countries have set up offices in China. Their move into China has greatly helped develop the domestic flower industry. Yunnan’s Natural Advantages According to statistics from the China Flower Association, since the dawn of the industry in the 1980s, the production area has expanded to reach 86,000 hectares, the largest in the world, and six times the area of production in 1984. Annual production has reached RMB 9.6 billion, and is 16 times the figure in 1984. These growth rates are also the highest in the world. The development of the flower industry has changed from an increase in quantity, to better quality and efficiency. The flower industry has formed a combination of state-owned, private- owned, individual, China-foreign joint investment, and solely-owned foreign capital enterprises. Flower exporting areas include Guangdong, Shanghai, Yunnan, Fujian, Zhejiang, of which Guangdong ranks first and Yunnan the second. In terms of cut flowers, Yunnan accounts for 28.7% of national production, ranking 59 Angela Hale and Maggie Opondo, “Humanising the cut flowers chain: confronting the realities of flower production for workers in Kenya”, Antipole 2005, pp. 301-323. 60 “Cut flowers”, JETRO Japanese Market Report, No. 58, March 2001. 61 Alka Kshiragar, “Japan turns to fragrance for cut flower exports. India replaces Holland as 2nd largest supplier”, http://www.theindianbusinessline.com/2007/01/23/stories/2007012301200.htm. 62 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) first, and Guangdong ranks second with its share of production standing at 22.8%. Yunnan and Guangdong together account for half the total output of China. At present, Chinese flowers are still way behind the international market level in terms of quality and quantity, and export quantities are small. The Yunnan Provincial Government planned in 2005 to make Yunnan the largest flower production and trading centre in Asia 62 but export figures have yet to reflect Yunnan’s natural advantages. Japan is the Main Export Market At present, the plantation area and flower output in the China flower industry ranks the first in the world, and the flower plantation area in fact is about a third of the world total. However, Chinese flower exports account for a mere 2% of the world figure, and export earnings are relatively low. In 2005, flower exports were only worth USD 150 million. There is a gross imbalance between production quantity and export earnings. China’s flowers are exported mainly to Japan, Europe, America and Russia, of which Japan is the main market. Japan is the world’s major flower consumption country, with an annual consumption figure of USD 4.5 billion, and annual flower imports of USD 3.6 billion. One reason is that due to the climate, many species of flowers cannot be grown in Japan63, and hence there is a serious seasonal shortage. Besides, the flower industry is a labour intensive industry with large energy inputs. This has led the Japanese to upgrade their industries and decrease activities in flower production. The serious shortage of flowers therefore equates to a big demand for imports. Flowers naturally incur higher logistics costs compared with other manufactured products because they are fresh agricultural products. The cost of transporting flowers between China and Japan is relatively low due to the proximity of the two countries. Air shipment or sea shipment are the usual means of transport. Like Japan, Russia is another relatively close neighbour of China which cannot produce enough flowers to meet consumer demands due to its climate. In contrast, Europe and America are higher echelon flower markets with strict requirements and a large demand for high quality flowers and novel species, especially flowers from the subtropical region. Yunnan and Guangdong cannot 62 “Yunnan cut flowers rank the first in China year after year”( “雲南鮮切花產量連續幾年全國稱雄”), Nanfang Daily Net, 19 March 2005, http://www.nanfangdaily.com.cn/southnews/tszk/nfncb/hh/200503210306.asp. 63 Western Europe and America import mostly sub-tropical flowers while Japan imports tropical flowers (mainly orchids). J. Tsai, “The comparative advantage of Taiwan’s major cut flowers”, Agricultural Economics, no. 47, 2001 (6), pp.265-270. 63 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) meet their demand. Cut flowers from Kunming of Yunnan and the Pearl River Delta are more competitive than other suppliers such as India or Thailand in shipping by air to Japan, Korea or Russia. The cost of production is lower than in Taiwan. Therefore in years to come, China’s cut flower export markets will mainly be in the Northeast Asian region64. Investment by the Swire Group The Swire Group, the renowned listed company from Hong Kong, has formally invested in the flower industry in Yunnan. After studying for more than six months, the Swire Group selected the Flower Show Park Area of Xiao Jie Town (小街鎮) of Song Ming County (嵩明縣) and set up there a 1,083 mu flower production base. Swire will invest USD 25 million (RMB 200 million) and set up a sole capital production and sales company. It is at present the largest sole capital investment project in the Yunnan flower industry. The Swire Group will make good use of the favourable climate, geography, transport and water features, and the group’s advanced cultivation techniques and management experience, to cultivate and produce high quality high output flowers. The Swire Group is a diversified multinational enterprise, engaging in real estate, air transport, drinks, agriculture, marine services and trade. At present their agriculture interests includes tea, rubber, timber and flowers. Its subsidiary, the Finlay Flowers Company, owns 90 hectares of flower greenhouses in Kenya, and exports 100 million pieces of roses and carnations from there annually. The Swire Group wishes to expand from the flower production base in Yunnan into other types of agricultural production65. Mr Christopher Dale Pratt, Chairman of the Hong Kong Swire Holding Company, disclosed that the flowers would all be for export, mainly to Japan and the Middle East markets 66 . The Middle East market in fact is very attractive. According to the German Flower Import and Wholesale Company, the Gulf Cooperation Committee countries have a flower market worth USD 240 million, 64 “The international market demand for Chinese flowers”( “國際市場對中國花卉的需求重點”), Jiangsu Forestry Net, 3 November 2006, http://www.jsforestry.gov.cn/show_news.asp?id=2196. 65 “Swire Group of Britain invests RMB 200 million in Kuming’s flower industry”( “英國太古集團在滇投 2 億元發展花卉業”), Soongjie Agriculture Net, 24 January 2007, http://www.99sj.com/news/105120.htm. 66 “Swire Group of Britain invests USD 25 million in Kuming’s flower industry” (“英國太古集團 2,500 萬 美元投資雲南花卉產業”), Xinhua Net Yunnan Channel, 17 January 2007, http://big5.xinhuanet.com/gate/big5/www.yn.xinhuanet.com/newscenter/2007-01/17/content_9066211.htm. 64 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) and this is expected to increase to USD 2,380 million over the next few years. (The global flower trade is currently worth only USD 4,700 million.) Take the example of the Arab Emirates which imports around 15,000 tons of plants and cut flowers annually, about 50% of the total for the Gulf nations. Statistics from the International Trade Centre showed that in 2003, the Arab Emirates was one of the 30 largest flower importing countries. Dubai also invested USD 70 million to build a Dubai Flower Centre in the Dubai International Airport, and intents to make Dubai the plant and cut flowers trading centre for the Gulf area67. Opportunities for Hong Kong As described above, Hong Kong has become the fastest growing importer of Yunnan’s cut flowers. In the first eleven months of 2006, import figures rose to USD 2.71million, an increase of around 350% over the same period last year. It is possible that with such trends, Hong Kong may surpass Japan and become the largest importer of Yunnan’s cut flowers. The Swire Group’s investment in Yunnan illustrates the fact that there are plenty of opportunities for cooperation with Yunnan. The Swire Group’s Cathay Pacific Airway could develop an export business for flowers shipped to Japan and the Middle East, with Hong Kong as an airway hub. There are quite a number of factors encouraging cooperation between Hong Kong and Yunnan. One is that the Kunming Customs cut flowers export figure represents only a small portion of the output of the whole province. This shows the lack of air shipment capability and the insufficient airport services at Kunming. If the Hong Kong International Airport and the Kunming Airport could cooperate and form a joint shipment route from Kunming, via Hong Kong, to other parts of the world, more cut flowers could be shipped to Northeast Asia, the Middle East and even further to America and Western Europe. The second point is that Yunnan’s cut flower exports have experienced the largest increase in Hong Kong. This shows that the reliance of Yunnan on Hong Kong air shipment has increased. Hong Kong should start from the air freight services provided by Cathay Pacific Airway of Swire Group, and develop other supportive services, including participation in the cut flower export business with Yunnan export enterprises, foreign capital and Hong Kong enterprises. In the vicinity of the Zhuhai Airport or 67 “The Gulf flower market will increase to USD 2.38 billion”( “海灣鮮花市場將增至 23.8 億美元”), Sina Enterprise Service Net, 5 April 2006, http://chanye.finance.sina.com.cn/nl/2006-04-05/283703.shtml. 65 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) the Hong Kong International Airport, a cut flower mid-way service station should be established. The Zhuhai Airport could be used to assist the Hong Kong International Airport in handling the increasing Kunming air services to export Kunming’s flowers through the Hong Kong International Airport. The Guangzhou cut flowers production base could also be helped to export through this way. Also, Hong Kong could imitate India in setting up Market Facilitation Centres in Tokyo and Amsterdam to handle and coordinate exports of flowers to Japan and Western Europe. Furthermore, Hong Kong could also help Yunnan solve the eco-labels problem and overcome non-tariff barriers set by overseas markets. 66 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 2.5 Trends and Updates on Guizhou 2.5.1 Economic Performance of Guizhou In 2006, Guizhou’s economy developed steadily. Consumption, industrial production and investment all maintained a balanced growth. Table 2-18: Major Economic Indicators of Guizhou in 2006 2006 (RMB 100 Increase Over Economic Indicators Million) Previous Year GDP 2,260 11.5% Total Retail Sales of Consumer Goods 690 13.7% Foreign Trade (USD 100 million) 16 15.2% Amount of FDI Actually Used (USD 100 million) 2 19.4% Budgetary Government Revenue 449 22.5% Urban disposable income per capita (Yuan) 9,117 10.1% Note: Statistics from each province are preliminary data, which may be subject to changes, and may vary from those published by the National Bureau of Statistics later on. Sources: 1. Guizhou Business Window: http://guizhou.mofcom.gov.cn/ 2. The All China Data Centre: http://data.acmr.com.cn/freesource/zixunshow.asp?id=7260. The development of the tertiary industry was promising, with value- added increasing by 11.5%. It accounted for 40% of GDP and also contributed 40% to economic growth. Driven by the fast-growing tourist industry, the consumer market boomed. The growth rate in retail sales for accommodation and the catering industry was higher than that of the wholesale and retail industry by 4.5 percentage points, standing at 17.6%. Total retail sales of consumer goods also increased by 17.6% over 2005, the highest in six years68. Industrial enterprises above a designated size of the province grew rapidly, and the five major sectors including the power industry, beverage industry and chemical industry saw their value-added reach more than RMB 1 billion, which contributed to an increase of 73.1% in industrial growth with the power 68 “Guizhou’s GDP saw growth last year, and the average income of urban residents rose to over RMB 9,000”( “去年 GDP 增長，城鎮居民人均收入 9 千多元”), Guizhou Business Window, 29 January 2007, http://guizhou.mofcom.gov.cn/aarticle/sjshangwudt/200702/20070204342178.html. 67 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) industry performing the best. Its value-added accounted for 31.2% of that of the other industrial enterprises above a designated size and contributed 30.5% to industrial growth69. The information industry also grew steadily, with value-added increasing by RMB 1.45 billion, 10.7% higher than the same period last year70. Total investment in fixed assets grew by 17.2%. Energy construction attracted the most investments, accounting for 27.4% of the total amount of urban investment, with investment in coal mining growing by 35.8%, whilst the power generation and supply industry grew by 4.9% 71 , enabling Guizhou to take advantage of its rich resources. 2.5.2 Updates on Guizhou – The 11th Five-Year Plan for the Development of Science and Technology and Hi-tech Industries in Guizhou Province In late October 2006, Guizhou Provincial Government worked on the basis of the objectives and intentions laid down in the Planning Outline for Guizhou Province’s National Economic and Social Development and the Plannning Outline for Guizhou Province’s Medium and Long-Term Scientific and Technological Development, 2006-2020 72 (hereafter refer to as the “Planning Outline”). In addition, it also produced and issued The 11th Five-Year Plan for Development of Science and Technology and Hi-Tech Industries in Guizhou Province (hereafter refer to as the “Plan”). The “Plan” summarised the development results of Guizhou’s science and hi-tech industries during the 10th Five-Year Plan period, pointed out major problems in the development process, and laid down an approach and planning work for development in the 11th Five- Year Plan. 69 Ibid. 70 “Guizhou’s information industry grew steadily in 2006”( “2006 年貴州資訊產業穩步增長”), Guizhou Business Window, 1 February 2007, http://guizhou.mofcom.gov.cn/aarticle/sjshangwudt/200702/20070204342178.html. 71 “Guizhou’s GDP saw growth last year, and the average income of urban residents reached more than RMB 9,000”( “去年 GDP 增長，城鎮居民人均收入 9 千多元”), Guizhou Business Window, 29 January 2007, http://guizhou.mofcom.gov.cn/aarticle/sjshangwudt/200702/20070204342178.html. 72 This research paper did a thorough analysis of “Planning Outline of Guizhou Province’s Medium and Long-term Science and Technology development, 2006-2020” in October, 2006. Please refer to the October issue for details. 68 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Main Details of the “Plan”73 The “Plan” covers the time period between the first phase (2006-2010) of the “Planning Outline”. The major objective is to strengthen Guizhou’s ability to self-innovate, promote new industrialisation, transform and upgrade traditional industries, improve industrial structures, and change the mode of economic growth. To achieve this, the “Plan” laid down clear working objectives. During the 11th Five-Year Plan period, scientific and technological innovation should be developed so that it is compatible with the socio-economic development of the province, with the preliminary formation of an industry-education-research institutional mechanism. This includes speeding up the transformation of military- civilian dual technologies to the civilian domains. Hi-tech industries are to see value-added growth increase by 20% annually, and by 2010 this should account for about 12% of the total value-added to industry (see Table 2-19). Table 2-19: Overall Objectives of the Hi-tech Industries Hi-tech Industrial Output Hi-tech Industrial Value-Added About RMB About RMB 2010 output 2010 value-added 50 billion 19 billion Output average annual Value-added average About 25% About 20% growth annual growth Share in Guizhou’s Share in Guizhou’s About 6% total industrial value- About 12% GDP added Source: The 11th Five-Year Plan for the Development of Science and Technology and Hi-Tech Industries in Guizhou Province Several major objectives of the “Plan” and the “Planning Outline” are the same, but the targets for application and granting of patents are greatly reduced (see Table 2-20). This change reflects the conservative and careful attitude of the Guizhou Provincial Government in assessing the province’s scientific technological capability and potential for development. It also reveals that the Guizhou Provincial Government also emphasises the importance of other means such as alignment and fusion of technologies to realize the objectives of improving the value-added of industries and upgrading the traditional industries. The number of patents is a good indicator for assessing scientific technological development, but patents reflect the results of scientific research, not the commercial 73 The 11th Five Year Plan for the Development of Science and Technology and Hi-Tech Industries in Guizhou Province ( 《貴州省“十一五”科學技術和高新技術產業發展專項規劃》), Guizhou scientific technology net, 7 November 2006, http://kjt.gzst.gov.cn/content.jsp?id=877&type=1. 69 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) applications of scientific research. Guizhou is an underdeveloped province. Guizhou’s R&D funds as a percentage of GDP is far below the average national figure. Therefore, it is realistic to lower the targets in regional patents. Table 2-20: Comparison of Some Major Objectives in Phase 1 of the “Plan” and the “Planning Outline” “Planning Indicators “Plan” Outline” Applied technology R&D funding in fiscal expenses 2% R&D resources Total R&D funds in Guizhou’s GDP 1.2% National focus laboratory or province-department joint 3-5 focus laboratory Basic facilities National engineering technology research centres 1-2 National enterprises technology centres 7-8 Scientific technological Percentage of contribution by scientific advancements 40% efficiency Number of new hi-tech enterprises 400 Industry development Number of new hi-tech enterprises of which output 20 exceeding RMB 500 million Annual average growth in number of patent 10% 15% applications R&D Number of patent applications granted 1,000 2,100 development Annual average growth in number of patent 5% 15% applications granted Ratio of inventive patents to total patents granted 30% Note: Categorisation and grouping of major objectives have been rearranged. Sources: 1. The 11th Five-Year Plan for the Development of Science and Technology and Hi-Tech Industries in Guizhou Province 2. Planning Outline for Guizhou Province’s Medium and Long-Term Scientific and Technological Development, 2006-2020 The “Plan” focuses on Guizhou’s developmental advantages and needs and proposes agriculture, energy, environment and health as priorities for development. Economic, social and health issues are covered (see Tables 2-21 and 2-22) and details of R&D technologies and products are listed. Besides, although Guizhou does not have much advantages in developing the information industry and equipment manufacturing, the “Plan” expects such industries to be developed into important growth points through R&D in new hi-tech development areas and military industrial bases. Furthermore it is hoped that through the technologies will be dispersed to the other sectors, so that the other manufacturing industries can be developed and upgraded. A point to note is that the “Plan” differs from the “Planning Outline”, and does not list modern service industries as being important. In the short term, Guizhou’s scientific technological development 70 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) is likely to be biased towards production and environmental conservation industries, while efforts to upgrade the informatisation of financial, logistics, tourism and other services are not taken into consideration. This reflects the pragmatic attitude of Guizhou Provincial Government. However, modern services like producer services can improve the efficiency of the traditional manufacturing industries and agriculture. The lack of input for improvements in these services, and planning according to the traditional way of industrialisation, is a bit too conservative and backward. This reflects the fact that the Provincial Government does not understand how the combination of scientific technological progress and producer services like logistics services could significantly upgrade the value- added of production. Table 2-21: The “Plan” and Scientific Technological Developments in Major Areas and Major Projects Key Development Domains Key Special Projects 11. The reproduction and breeding 1. Information industry 1. Energy exploitation and conservation techniques of new breeds of animals and poultry 12. The production of featured 2. Manufacture of equipment 2. New electronic components agricultural products and food safety 3. Material industry 3. Information storage products 13. New medicine and ethnic medicine 4. Modernisation of Chinese 14. Prevention of endemic fluorine and 4. Key parts and complete equipment medicine arsenic poisoning 5. Non-ferrous metallic, alloy materials and 15. Famous brands of cigarettes and 5. Agriculture products wine 6. Featured food products and 16. Research infrastructure for science 6. New composite materials and products other advantageous industries and technology 7. Electronic functional materials and products 7. Energy and resources in fine phosphorus chemical industry 8. Comprehensive techniques to combat Karst 8. Environment desertification 9. Transportation, construction 9. Resource exploitation and comprehensive and urbanisation utilisation of waste 10. The cultivation of new seedlings and 10. Health and public security related planting techniques Source: The 11th Five-Year Plan for the Development of Science and Technology and Hi-Tech Industries in Guizhou Province. 71 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-22: The “Plan” for Hi-tech Industrial Development in Major Areas and Major Projects Key Development Domains Key Special Projects (1) R&D and industrialisation of storage technologies (2) R&D and industrialisation of new electronic components and 1. Electronic information domain visual products (3) Development of software and featured information products (1) Intensive processing and comprehensive utilisation of aluminium, magnesium, titanium and manganese 2. New materials domain (2) R&D and industrialisation of denatured polymer materials (3) R&D and industrialisation of new energy materials, other structural and functional materials (1) Industrialisation of fundamental components for aviation and space travel 3. Advanced manufacturing domain (2) R&D and industrialisation of modern mechanical complete equipment for general purposes (1) Development and the application of agriculture and food 4. Advantageous manufacture domain biological technologies (2) Biosocial and medicine industry (1) Development and industrialisation of coal and coal-chemical 5. Development and industrialisation of products coal and coal-chemical products (2) Development and industrialisation of phosphorus and phosphorus-chemical products 6. Resources conservation technologies (1) Exploitation and comprehensive utilisation of coal-bed gas and new energy domain Source: The 11th Five-Year Plan for the Development of Science and Technology and Hi-Tech Industries in Guizhou Province. The “Plan” decided to speed up the process of attracting, promoting, assimilating and innovating advanced technology. It plans to construct a regional scientific technological innovation system based on enterprises, and a combination of industry-education-research institutions. It will strengthen private sci-tech enterprises, and support the innovative activities of medium and small-size enterprises, to the effect that they will become a major force in the new high technology industries development. Strategic Implications of the “Plan” The publication of the “Plan” marked the implementation stage of scientific and technological development in Guizhou. First, the “Plan” revealed that Guizhou would no longer follow the long and slow path of urbanisation by extensive industries. Secondly, in the field of scientific and technological innovation, Guizhou need not start from the rudimentary level. Innovation costs can be reduced and time for innovation can be shortened by technology transfer 72 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) and assimilation. After that, the new system could carry out its own innovation activities. This strategy will help Guizhou narrow its differences with other areas inside and outside China in economic, scientific, technological and industrial competitiveness, within a relatively short period of time. Besides, the “Plan” is favourable to the development of Guizhou and the neighbouring region. In the past, Guizhou has crudely developed energy and metallic products and heavy industries, which caused great damage to the environment and tourism resources; however Guizhou cannot afford to abandon such superior industries. Highly efficient use of resources, recycling of used material, and development of technology to eliminate pollutants will help Guizhou develop a more sustainable economy. Conservation of resources and environmental improvements will be favourable to the development of new industries and the sustained development of traditional superior industries. More importantly, they will help reduce the pollution of water resources and ecological damage to the Yangtze River and the middle and lower streams of the Pearl River, and is in line with the direction and focus of development in the national 11th Five- Year Plan. However, Guizhou still has to face a number of problems before it can become a true base for science and technology. First, funding of science and technology in Guizhou has been too low. In 2005, the R&D fund was only RMB 1.1 billion74, a mere 0.56% of the province’s GDP75, which was below the level of the southwestern provinces and the national level (see Table 2-23). Besides, the hi- tech industries are too small. In 2005, their value-added amounted only to RMB 5.35 billion, less than 1% of the nation’s total, and less than 10% of the total value-added of the province’s industrial enterprises above a designated size76 (see Table 2-24). There is hence still a big difference. Even though Guizhou might be able to reach the 2010 targets, the development of its hi-tech industries will still fall behind the national level (see Table 2-25). Therefore, the “Plan” only revealed Guizhou’s intention to catch up with the average national level. 74 “China science and technology statistics, 2006”, China Science and Technology Statistics Net, http://www.sts.org.cn/sjkl/kjtjdt/data2006/2006-1.htm 75 China Science and Technology Databank, China Science and Technology Statistics Net, http://www.sts.org.cn/kjnew/maintitle/MainTitle.htm 76 Ibid. 73 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2-23: Comparison of Science and Technology Funding in the Southwestern Provinces, 2005 Total R&D Fund (RMB 100 million) As a percentage of GDP of the region Nationwide 2450 1.34% Sichuan 96.6 3.22% Yunnan 21.3 1.28% Guangxi 14.6 1.27% Guizhou 11.0 0.56% Sources: 1. China Science and Technology Databank, China Science and Technology Statistics Net, http://www.sts.org.cn/kjnew/maintitle/MainTitle.htm. 2. “China Science and Technology Statistics Data, 2006”( 《中國科技統計數據 (2006)》), China Science and Technology Statistics Net, http://www.sts.org.cn/sjkl/kjtjdt/data2006/2006-1.htm. Table 2-24: Comparison of Value-Added of Hi-Tech Industries, 2005 As a percentage of the Value-added of New and Hi- As a percentage of the Nation’s Region’s Value-Added tech Industries Value Added of New and Hi- of Industrial Enterprises (RMB 100 million) tech Industries Above a Designated Size Sichuan 203.6 9.42% 2.50% Guizhou 53.5 9.13% 0.66% Guangxi 42.6 5.36% 0.52% Yunnan 24.5 2.46% 0.30% Sources: China Science and Technology Databank, China Science and Technology Statistics Net, http://www.sts.org.cn/kjnew/maintitle/MainTitle.htm. Table 2-25: Comparison of Guizhou and the Nation’s R&D Funding and Hi- tech Industries in 2010 Total R&D Funding as a Value-added Share of New and Hi-tech Industries percentage of GDP Nationwide 2.0% 18% * Guizhou 1.2% 12%** Note: * Share in the value-added of manufacturing industries ** Share in the value-added of industrial enterprises above a designated size. Sources: 1. China’s 11th Five-Year Plan for Science and Technological Development 2. The 11th Five-Year Plan for the Development of Science and Technology and Hi-tech Industries of Guizhou Province 74 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) The Impact of Guizhou’s Science and Technology Policies on Hong Kong Various recent policies and works of the Guizhou province, in addition to the “Plan”, all basically reveal that the Guizhou Provincial Government was in the process of transforming Guizhou into a province major in energy, minerals, tobacco, alcohol, agriculture, materials and new and high technologies industries. Environmental preservation, energy conservation, and the development and use of new sources of energy will set the trends for science and technological development in Guizhou. In Hong Kong, the focus of development is on the service industries, which is basically different from that of Guizhou. There should be little competition, but plenty of room for cooperation. What should be of concern is that the major areas of focus for science and technological development include car accessories, electronic functional materials, information technology and Chinese medicine. These are quite similar to the areas of research of the Chinese Medicine Research Institute and some newly formed R&D centres in Hong Kong. At present, the overall technological level of Guizhou is generally below the developed regions of the Mainland, but not necessarily below Hong Kong. The duplication of R&D in the same areas between Hong Kong and Guizhou, or other Mainland provinces, may not be good. In such areas, Hong Kong should try to develop and compete by differentiation, concentrating at specific topics. From the perspective of value-chain, Guizhou is striving to transform from an economy based on unilateral manufacturing processing, to one based on research and design, which are of higher value-added, at the upper stream of the value-chain. However, linkage and supporting production sectors, and producer services under the category of modern services, are not included in the major areas of development. Logistics, advertising, market research, information consultation, and exhibitions are the major components of producer services, and are indispensable in the modern industrial production process. Guizhou at present is still weak in these areas and this is where Hong Kong could get involved. 75 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 3 Personnel Changes in the Four Provinces/Region 3.1 Senior Appointments in Sichuan 77 Du Qing-lin (杜青林 ) was elected the Director of the Standing Committee of the Sichuan Provincial People’s Congress On 31 January 2007, Du Qing-lin was elected the Director of the Standing Committee of the Sichuan Provincial People’s Congress during the Fifth Session of the 10th Sichuan Provincial People’s Congress. Jiang Ju-feng ( 蔣 巨 峰 ) elected the Governor of the Sichuan Provincial People’s Government On 31 January 2007, Jiang Ju-feng was elected as the Governor of the Sichuan Provincial People’s Government during the Fifth Session of the 10th Sichuan Provincial People’s Congress. Born in 1948, Jiang Ju-feng served as the member of the Standing Committee of the CPC Committee of Zhejiang Province, the Secretary of the CPC Committee of Wenzhou City (溫州市) in 2000, the Deputy Secretary of the CPC Committee of Sichuan Province and the Executive Deputy Governor since 2002. He has been the Governor of Sichuan Province since January 2007. 77 Xinhua Net Sichuan Channel, http://www.sc.xinhuanet.com/. 76 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 3.2 Senior Appointments in Guangxi 78 On 31 January 2007, Liu Qi-bao was elected the Director of the Standing Committee of the Guangxi Provincial People’s Congress during the Third Plenary Session of the Fifth Session of the 10th Guangxi Provincial People’s Congress. 3.3 Senior Appointments in Yunnan 79 Qin Guang-rong (秦光榮) elected Governor of Yunnan Province On 31 January 2007, Qin Guang-rong was elected as the Governor of the Yunnan Provincial People’s Government during the Third Plenary Session of the Fifth Session of the 10th Sichuan Provincial People’s Congress. Wang Xue-ren ( 王 學 仁 ) elected the Director of the People’s Political Consultative Conference of Yunnan Province On 29 January 2007, Wang Xue-ren was elected as the Director of the People’s Political Consultative Conference of Yunnan Province during the Fifth Session of the 9th People’s Political Consultative Conference of Yunnan Province. Wang Xue-ren formerly served as the Director of the Rural Policy Research Office of the Yunnan Provincial CPC Committee, the member of the Standing Committee of the CPC Committee of Yunnan Province, the Deputy Secretary of the CPC Committee of Yunnan Province and the Secretary-General of the CPC Committee of Yunnan Province. 78 Xinhua Net Guangxi Channel, http://www.gx.xinhuanet.com/. 79 Xinhua Net Yunnan Channel, http://www.yn.xinhuanet.com/. 77 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) 3.4 Senior Appointments in Guizhou Lin Shu-sen (林樹森) elected as Governor of Guizhou Provincial People’s Government On 27 January 2007, Guizhou province’s 10th People’s Congress fifth conference elected Lin Shu-sen as Governor of the Guizhou province People’s Government. Huang Yao (黃瑤) elected as chairman of the 9th Guizhou province committee of the Guizhou Province Political Consultative Committee On 26 January 2007, the Guizhou Province 9th PCC fifth conference elected Huang Yao as chairman of the province’s Political Consultative Committee. Huang Yao, was head of the Propaganda Department of Guizhou province, and secretary of the CCP of Qin Sinan Prefecture (黔西南州). In August 1998, he was elected as the standing committee member of the 8th Guizhou Province CCP, and later as deputy secretary of the Guizhou CCP. In January 2007, he was elected chairman of the Guizhou Province PCC. Huang was reserve member of the 14th, 15th and 16th Central CCP. 78 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 3-1: The Latest Personnel Arrangements at Provincial Level in the Four Southwestern Provinces/Region Province/ Names Current Posts Original Posts Predecessors Region Director of the Du Standing Committee Secretary of the Provincial Zhang Xue- Sichuan Qing-lin of the Provincial CPC Committee zhong People’s Congress Deputy Secretary of the Jiang Provincial CPC Zhang Sichuan Governor Ju-feng Committee, Acting Zhong-wei Governor Secretary of the Liu Deputy Secretary of the Guangxi Provincial CPC Cao Bo-chun Qi-bao Provincial CPC Committee Committee Deputy Secretary of the Qin Provincial CPC Yunnan Guang- Governor Xu Rong-kai Committee, Acting rong Governor Lin Vice Governor, Acting Guizhou Governor Shi Xiu-shi Shu-sen Governor 79 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Appendix： Appendix I：Statistical Data for the Pan-PRD Provinces/ Region Major Economic Indicators of Guangdong and the Four Southwestern Provinces/ Region Table 1：Social and Personal Consumption in the Four Southwestern Provinces/Region, November 2006 Per Capita Per Capita Disposable Income of Consumption Expenditure of Total Retail Sales of Consumer Urban Residents Province Urban Residents Consumer Price Index Goods in November / Region Growth Rate Over the Growth Rate Over the Jan-Nov Cumulative (RMB 100 Million) Jan - Nov Jan - Nov Same Period in the Same Period in the (RMB) (RMB) Preceding Year Preceding Year Sichuan 3,065.1 8,535.3 11.3% 6,793.3 11.1% 102.2% Guangxi 1,450.7 9,100.9 10.8% 6,220.7 5.4% 101.2% Yunnan 1,047.9 9,195.2 8.5% 6,699.9 4.5% 101.8% Guizhou 626.0 8,340.7 11.6% 6,307.9 11.6% 101.6% Source: National Statistics Bureau Website, 10 major economic indicators from the Western Region, (November 2006) http://www.stats.gov.cn/tjsj/qtsj/xbdqsjbj/t20070109_402379588.htm 80 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Table 2: Total Value of External Trade for the Four Southwestern Provinces/Region, January to November 2006 Total Value of External Trade Total Value of External Trade by Foreign-Invested Enterprises Provinces/ Growth Rate Over the Trade Balance Region Jan - Nov Proportion to Jan - Nov Proportion to Same Period in the (USD 100 (USD 100 Million) National Total (USD 100 Million) National Total Preceding Year Million) Sichuan 89.1 42.9% 0.6% 18.8 25.7 28.8% Guangxi 52.7 26.3% 0.4% 4.2 19.4 36.8% Yunnan 50.7 30.9% 0.4% 3.9 4.4 8.7% Guizhou 13.1 19.9% 0.1% 4.1 1.8 13.8% Source: 1. China Customs Statistics (Monthly Exports and Imports), Issue No. 207, November 2006, Pages 17 and 23. 2. National Statistics Bureau Website, 10 major economic indicators of the Western Region (November 2006), http://www.stats.gov.cn/tjsj/qtsj/xbdqsjbj/t20070109_402379588.htm Note: 1. The figures are taken as and where the import-export product trading enterprises are located. 2. Trade differences in negative figures indicate import surpluses. Table 3：Fiscal Indicators of the Four Southwestern Provinces/Region, January to November 2006 Government Revenue (Funds Excluded) Government Expenditure (Funds Excluded) Provinces/ Region Jan - Nov Growth Rate Over the Same Jan - Nov Growth Rate Over the Same (RMB 100 Million) Period in the Preceding Year (RMB 100 Million) Period in the Preceding Year Sichuan 531.4 27.3% 915.1 19.6% Guangxi 300.9 20.1% 552.1 13.7% Yunnan 338.8 23.7% 645.3 11.9% Guizhou 206.0 25.2% 429.8 14.0% Source: National Statistics Bureau Website, 10 major economic indicators of the Western Region, (2006.11) http://www.stats.gov.cn/tjsj/qtsj/xbdqsjbj/t20070109_402379588.htm 81 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Appendix II：English-Chinese Glossary Amsterdam 亞姆斯特丹 “Adjusting Investment, Encouraging Consumption, and Reducing “調投資、促消費、減順差” Surpluses” Border Trade 邊境貿易 Buyer-driven 採購者驅動 Central Economic Work Conference 中央經濟工作會議 Civilian-run Enterprises 民營企業 Cut Flowers 鮮切花 Director of the Standing Committee 省人大常委主任 of the Provincial People’s Congress Eco-label 環保標籤 Export Tax Rebate 出口退稅 Fashion Design Industry Cluster 服飾設計產業群 Functional Specialisation and 分工與整合 Integration 82 Social, Economic and Political Developments in the Pan-PRD Region Guangxi, Yunnan, Guizhou, Sichuan (9th Report / February) Strategy of “Going Global” “走出去”戰略 High-End Fashion Hub 高端和時尚服飾集散中心 Manufacture of Footwear 製鞋業 Market Facilitation Centre 市場便利中心 Mechanical and Electrical Products 機電產品 “M Strategy” “M 型戰略” Ordinary Trade 一般貿易 Private Enterprises 私營企業 Processing Trade 加工貿易 Secretary of the CPC Committee 黨委書記 The Plan for the Cities and Townships in the Beibu Gulf Rim 《北部灣（廣西）經濟區城鎮群規劃》 (Guangxi) Economic Region The 11th Five-Year Plan for the Development of Science and 《貴州省“十一五＂科學技術和高新技術 Technology and Hi-tech Industries 產業發展專項規劃》 in Guizhou Province 83
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