Chapter II. Findings: China
II.2. Overview of the Political Economies of Fujian and Guangdong
Fujian and Guangdong have enjoyed significant benefits over other provinces in both industrial development, investment, and standards of living. For over thirty years they have been the testing grounds of China’s economic experiments with trade liberalization and market reforms. Their locations near two of Asia’s first industrialized economies, Taiwan and Hong Kong, have given them an additional edge over their competition with the ease in which they can attract investment and trade. Their history has allowed them to prosper. We can find in Fujian and Guangdong higher standards of living, greater economic diversity, modern infrastructure, advanced logistics, and evermore sophisticated industrial sectors. These provinces are among the richest in China with a sizeable middle class, consumer-oriented economies, and highly educated and technologically literate populations. In general, Fujian and Guangdong have very similar commerce infrastructures. They have well developed, high capacity ports and airports with extensive trade networks, excellent transportation and supply networks including rail and
52 Fujian Provincial Department of Foreign Trade and Economic Cooperation, p. 7.
53 Huang, 2010, p. 76.
54 Chih-Chung Wu, “The Geopolitical Implications of ECFA,” 2010, p. 61.
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highways linking cities together. This section will give an overview of the political economies of these provinces and will identify the uniqueness of their trade infrastructure, industrial sectors, policies, and role in cross-strait integration.
Fujian and Guangdong share equally sophisticated domestic industry sectors that have been moving away from labor-intensive manufacturing to high-tech manufacturing and service industry. This convergence of industry sectors prevents inter-provincial trade from occurring at high rates, but has allowed both provinces to attract international investments. Guangdong had always been advantaged due to its connection with Hong Kong. Even during the pre-reform period the barrier between Guangdong and Hong Kong had never been completely closed.
Higher standards of living existed due to family members in Hong Kong and Macau sending remittances to nearby villages. After the 1970s the link only intensified.55
Fujian follows the economic models set out in Shenzhen, Shanghai, and Tianjin in its pursuit as the “core hub” of the Haixi region. Targets for Fujian during the 12th Five Year Plan intended to double the province’s GDP, and it aims to achieve the same GDP as Switzerland by 2020. One of Fujian’s most ambitious recent investment projects has been in establishing its transportation networks. Fujian earmarked nearly $40 billion “of public funds for infrastructure development in Pingtan County,” the location of one of its pilot FTZ projects.56
Two of the wealthiest provinces
Fujian and Guangdong are two of China’s wealthiest provinces. Data from the PRC National Bureau of Statistics highlights the vast wealth of the coastal provinces. With the exception of Hebei, all coastal provinces enjoy a GDP of over 60,000 RMB. Inner Mongolia is the only inland province to enjoy such benefits.57 Guangdong and its position near Hong Kong and role as the controller of the Pearl River Delta has by far been the major winner in the rush to gain wealth.
Fujian has had more modest success, but owes much of it to its early and sustained role in the China’s opening and reform.
Fujian
Fujian ranks third highest in all of China in terms of education and technical proficiency.
The province has 83 institutes of higher education including some of the best technical
55 You-tien Hsing, Making Capitalism in China: The Taiwan Connection, 1998, pp. 27-28.
56 Fujian Provincial Department of Foreign Trade and Economic Cooperation, p. 7.
57 Hudson Lockett, “Regional Disparities in China: Time for a Lift Up,” 16 September 2015.
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universities in China, and additional industrial vocational training networks are found throughout the province. Fujian welcomes an average of 1.4 million foreign visitors per year, and boasts Western-standards of living and infrastructure including “top quality international hospitals, airports, and schools” in addition to having “high-end shopping” in all of its major cities. Fujian in 2011 had a population of 37.2 million people with a workforce of 22 million, and a nominal GDP of 1.817 trillion RMB (US$276.3 billion), roughly equivalent to Singapore.58 GDP figures had grown to 2.59 trillion RMB by December 2015.59 In 2012 Fujian ranked as the fifth most open of China’s 31 local-level economies. Investment promotion literature states that “after 30 years of robust growth, Fujian remains one of coastal China’s most rapidly expanding economies. The province ranks highly against other provinces in per capita GDP, household consumption, and market privatization.” Indicators include a $276 billion economic output figure for 2011, ranking 12th among the economies, and 5% above the cross-country provincial average, an annual per capita GDP of over $7456 by 2011, 14% above national average, and “retail sales of consumer goods reached $97.9 billion in 2011.” Compared to other coastal provinces, Fujian has a much higher rate of market privatization. 57% of its workers are employed in the private sector and foreign-owned businesses.60
Guangdong
By comparison, Guangdong’s economy far outshines that of Fujian. With a 2015 GDP of 7.281 trillion RMB (US$1.105 trillion), the southern coastal province is an economic giant and a success story for China’s market reforms.61 Guangdong has long drawn Hong Kong investments, and unlike Fujian it has had a longer history of connection with its nearest capitalist neighbor.
Guangdong was one of the main benefactors of Taiwanese offshore investments in the 1980s.
Figures from 2005 indicate that Guangdong’s population stood at 91.94 million people, 37.92 million of which were classified as peasants.62 By the end of 2012 the population had grown to 105.94 million.63 Its geological location along tectonic boundaries supplies the province with a wealth of mineral resources64 and its primary industry sector has more than doubled since 2005,
58 Fujian Provincial Department of Foreign Trade and Economic Cooperation, pp. 5, 7, 9, 22.
59 See People’s Republic of China, National Bureau of Statistics.
60 Fujian Provincial Department of Foreign Trade and Economic Cooperation, pp. 6, 15, 18.
61 People’s Republic of China, National Bureau of Statistics.
62 See Peoples’ Republic of China, Ministry of Commerce, Doing Business in Guangdong Province of China, available at http://english.mofcom.gov.cn/aroundchina/Guangdong.shtml.
63 Expo China.
64 Peoples’ Republic of China, Ministry of Commerce.
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from a GDP of 142.827 billion RMB to 334.482 billion RMB reported in December 2015.
Overall GDP figures have grown significantly. GDP was reported at 2.25 trillion RMB in 2005, 4.6 trillion RMB in 2010, and December 2015 reports indicate it stood at 7.28 trillion RMB by year’s end. Tertiary industry GDP composed 3.69 trillion RMB.65 Guangdong has also hosted the semi-annual China Export Commodities Fair (also called the Canton Fair), a “comprehensive international fair.” Registered trade from its spring and autumn 2005 events surpassed US$58 billion.66
Infrastructure (Ports, Transportation Networks, Supply Networks, Industrial Sectors)
In terms of natural trade facilitating factors, Fujian has a higher number of deep water ports compared to Guangdong allowing for a higher volume of cargo pass-through. Guangdong, however, has a significant amount of navigable river ways that can transport cargo deeper into the province.
Fujian’s trade networks include interprovincial railway connections, an extensive highway network connecting nearly all of Fujian’s cities and many of its “sub-municipal districts.” With 2 international airports and three domestic airports, the province is connected to more than 200 cities. Its core strength lies in its harbors, with a high cargo capacity and highly connected shipping network. Fujian’s major ports are Xiamen, Fuzhou, and Meizhou Bay. Each has the capacity of 100 million tons of cargo throughput. Fujian’s ports connect it to the world through 235 international shipping lanes. Fujian’s port and harbor system can be further broken down: As of 2011 Fujian had 7 major ports, 125 harbors, and 27 port zones. Fujian features 10 industrial clusters with an average output of over $15.9 billion in sectors ranging from textiles to electronics. Fujian boasts internet penetration throughout 65% of the province. All major cities offer Wi-Fi services.67
Owing to its position on the Pearl River Delta, Guangdong has a sophisticated and advanced transportation system. Shipping, air, and land networks connect Guangdong with over one thousand ports and 130 “countries and regions” worldwide. The Ministry of Commerce reports that Guangdong boasts China’s most complete transportation and infrastructure systems in the entirety of China. In recent years it has become the “transportation hub of South China,”
65 People’s Republic of China, National Bureau of Statistics.
66 Peoples’ Republic of China, Ministry of Commerce.
67 Fujian Provincial Department of Foreign Trade and Economic Cooperation, pp. 9, 20, 22.
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connecting itself with surrounding provinces. Guangdong’s major port hubs are located in Shenzhen, Guangzhou, Zhuhai, Shantou, and Zhanjiang, with additional “lateral or replenishing ports” scattered around the province. Guangdong’s level of internet penetration is significantly high, with access available to 37.5 million residents as of 2005, more than 40 per cent of Guangdong’s population. When taken into consideration, this was nearly 70 per cent of Guangdong’s non-peasant population.
State Intervention, Protectionist Policies, SOE penetration
Due to their relatively high rate of market liberalization Fujian and Guangdong experience a relatively low level of intervention from provincial authorities and provincial incentives to attract market-oriented foreign business lead to a higher degree of administrative
“hands off” policies. Though some elements of subsidized industry still exist, Fujian and Guangdong by far have the fewest numbers of SOEs present in their economies, and the numbers of State Owned Enterprise in Fujian and Guangdong have shrunk over time. There is less of a need for rent-seeking arrangements as the provinces have become leaders in China’s experiments at liberalization, market mechanisms, and internationalization of economies.
Figure 1. Percentage of SOE contributions to Provincial level GDP Output, 2011
Beijing 50% Anhui 55% Sichuan 37%
Tianjin 74% Fujian 18% Guizhou 52%
Hebei 44% Jiangxi 35% Yunnan 50%
Shanxi 73% Shandong 43% Tibet 8%
Inner Mongolia 43% Henan 38% Shaanxi 70%
Liaoning 56% Hubei 54% Gansu 98%
Jilin 66% Hunan 34% Qinghai 66%
Heilongjiang 52% Guangdong 26% Ningxia 61%
Shanghai 64% Guangxi 38% Xinjiang 75%
Jiangsu 24% Hainan 13%
Zhejiang 25% Chongqing 39%
Source: People’s Republic of China, National Bureau of Statistics
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As Figure 1 shows, Guangdong and Fujian levels of SOE output contributing to overall GDP output are comparatively among the lowest of the mainland’s 31 economies in 2011.
SOE penetration
Trade barriers exist for both provinces. The barriers are a combination of natural border effects and policy orientation. As previous studies have identified, Fujian and Guangdong do not have high rates of trade with each other largely due to the domestic and outward orientation of their growth models. Despite having similar market structures, they have little need for interprovincial trade.
Policy barriers also come from the protectionist policies of the competing SOE- and rent-oriented inland provinces. SOE reform is underway in China’s market liberalizing economies, and Fujian and Guangdong are no exceptions. The major question is how to reform SOEs. One argument states that reducing the number of SOEs is key, another suggests reducing the percentage of shares a government can control. A seemingly counter-productive argument suggests to allow the top producing SOEs to continue to get bigger.68
Guangdong has been especially proactive towards reducing SOE penetration in the economy. In 2014 the province controlled over 130 SOEs, 34 of which were directly under the Guangzhou State-owned Assets Supervision and Administrative Commission,69 and has targeted that 70 per cent of its SOEs should have mixed ownership by 2017.70 The province also seeks to establish at least 30 companies that are co-owned by both the provincial government and private investors that will create profits exceeding 100 billion RMB per year.71 The Guangzhou State-owned Assets Supervision and Administrative Commission has been tasked with consolidating the more than 130 SOEs both under its control and under other administrative control down to roughly thirty.72 It is evident that Guangdong seeks to create a much more liberalized market, but still cannot part completely with the incredibly lucrative revenue-generating SOE model.
68 Qiren Zhou, “The Future of SOE Reform May Lie in the Past,” 4 August 2015.
69 See CCTV News, “Guangdong reforms state-owned enterprises,” 17 September 2015.
70 Wenfang Li, “70% mixed ownership target for Guangdong SOEs,” 19 August 2014.
71 See South China Morning Post, “Guangdong eyes SOE reform,” 29 September 2014.
72 CCTV News, “Guangdong reforms state-owned enterprises.”
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Figure 2. State Owned Enterprise contributions to GDP in Fujian and Guangdong 2000, 2005, and 2010 Unit: Millions of RMB
Gross SOE Industry Output Revenue derived from SOE activity
Year Fujian Guangdong Fujian Guangdong
2000 85,495 312,612 463.72 764.85
2005 153,288 637,544 777.51 3,107.27
2010 298,330 1,316,637 2,195.30 9,000.29
Gross SOE Output as % of Gross GDP Gov’t Revenue from SOE as % of output
Year Fujian Guangdong Fujian Guangdong
2000 22.70% 29.10% 0.50% 0.20%
2005 23.39% 28.26% 0.50% 0.49%
2010 20.24% 28.60% 0.70% 0.68%
Source: People’s Republic of China, National Bureau of Statistics
As can be seen in Figure 2, SOE activity still contributes a significant amount toward total percentages of GDP for both Fujian and Guangdong. By looking at the figures supplied from the mainland’s National Bureau of Statistics and the Ministry of Finance we can derive several assumptions. First, Fujian’s SOE sector produces far less than that of Guangdong and as a result Fujian’s SOE sector contributes less gross revenue than Guangdong’s. Second, that Fujian has a lesser rate of SOE penetration within its economy than Guangdong does. We can see that Fujian’s SOE sector contributes to roughly twenty per cent of overall GDP while the SOE sector in Guangdong contributes to thirty per cent of the province’s GDP. Finally, though statistically insignificant, a growing amount of SOE output contributes to provincial revenue in both cases.
Development Incentives
Fujian and Guangdong have continued to grow and attract Taiwanese FDI through incentive policies at both the local and central government levels. Central policy seeks to harness the full potential of the geographic and internationalized factors of Fujian and Guangdong. Local policy seeks to outcompete rival provinces for a greater portion of the international market.
Fujian. Fujian’s development incentives are aimed at attracting investment which include
“two year corporate tax exemptions; three year corporate tax discounts of 50%; and a preferential corporate tax rate of 15% for qualifying companies.” Fujian wants FDI, so it has streamlined the steps to keep barriers and costs low. It has initiated an online approval system, and was one of
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the first provinces to establish “one stop shops” for FDI investment services. It has shortened the time to approve FDI and made the system more efficient, and has established multi-city trade fairs.73
Policies and incentives depend upon the industries that are investing, meaning that although all foreign entrepreneurship and investment is welcome, specific investments which help the province move up the value chain will receive greater preference. Specific targeted areas will also feature special incentives. For example, Fujian’s Pingtan Comprehensive Pilot Zone provides two different establishment funds, the Eaglet and the Eagle Fund, for enterprises seeking financial aid to establish themselves on the developing offshore port hub island.74
Fujian’s government has developed programs to target specific industries for growth.
Major industrial parks have been established for this project. For its own part during the 12th Five-Year Plan the government aimed to have its strategic industries reach twelve per cent of its GDP by 2015. Fujian seeks greater investments in biotech, IT, petrochemicals, electronics, and service sectors to move the province up the value chain. As of 2012 Fujian boasted twenty-five nationally endorsed business parks with more than ninety additional provincially-endorsed business parks to promote investment. To draw potential investors the province has equipped the parks with utilities such as electricity, water supply, and treatment plants.75 Fujian currently has six international-level investment zones for Taiwanese businesses, six national level gardens for Taiwanese farming investments, and hosts the largest cross-strait agricultural zone. Fujian’s Pingtan Comprehensive Pilot Zone established the Taiwan Pioneer Park, an industrial park, in June 2015. Before opening it had already drawn in over 120 firms from both the mainland and Taiwan.76
Guangdong. Aside from trade fairs and expos used to attract investment, Guangdong, under the authority of the PRC Ministry of Commerce (MOFCOM), also offers subsidies to multinational companies that establish their headquarters and R&D operations there. Firms that seek to establish “cultural facilities” in Guangdong are also highly subsidized and given assistance with funds, construction costs, and utilities among other perks. Tax breaks are given to foreign enterprises that engage in provincially-targeted industry areas such as establishing operations in designated special economic zones (SEZs), high-tech operations, port construction,
73 Fujian Provincial Department of Foreign Trade and Economic Cooperation, pp. 54-55.
74 Ding.
75 Fujian Provincial Department of Foreign Trade and Economic Cooperation, pp. 9, 41.
76 Ding.
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and export and transportation industry operations that exceed US$30 million.77 Guangdong also seeks to capitalize on its position as a link between regional economies and the rest of China. For example, on June 30, 2015 a joint announcement between the Guangdong Department of Commerce, Invest Hong Kong, and the Macau Trade and Investment Promotion Institute indicated the three economies were joining forces to attract Singapore investments in the Greater Pearl River Delta region to highlight their role as a super corridor between China’s markets and other regional markets.78
77 See Understand China, “Guangdong Foreign Investment Incentives,” available at http://understand-china.com/manufacturing/guangdong-investment-incentives.
78 See Invest Hong Kong, “Invest Hong Kong joins forces with Guangdong and Macao governments to attract Singaporean companies,” 20 June 2015.