China Overview

China Economy at Regional Level

Economy at Regional Level

Four Region in China

Marjor Economic Circles

Four Region in China

Although China is emerging as a strong economy, disparity among the regions’ development has widened in the past 30 years since it opened its door in 1978. A better understanding of regional economies is a necessity for foreign investors.

Following their geographic locations, the 31 provincial-level administration regions in mainland China can be divided into four - namely, the Eastern, Northeastern, Central and Western regions.

The Eastern Region is comprised of ten administrative areas including 3 of the 4 municipalities in China - Beijing , Shanghai and Tianjin . The other 7 administrative areas are made up of the Fujian , Guangdong , Hainan , Hebei , Jiangsu , Shandong , and Zhejiang provinces.

The Northeastern Region includes Heilongjiang , Jilin and Liaoning (3 provinces), while the Central Region includes Anhui , Henan , Hubei , Hunan , Jiangxi and Shanxi (6 provinces).

The Western Region includes 5 autonomous regions and 7 provinces. The autonomous regions are Guangxi, Inner Mongolia , Ningxia , Tibet and Xinjiang. The provinces are Chongqing , Gansu , Guizhou , Qinghai , Shaanxi , Sichuan and Yunnan .

“Inflation” of Local Stats.

In China , some indicators sucMh as the GDP, FDI and the sum of each individual province’s figures do not tally with the national total provided by the National Statistics Bureau. Besides technical problems, it is, to a great extent, due to the fact that the local governments try to “cook” figures to make them look better. Therefore, when calculating the share of each individual province or region, the sum of individual provinces rather than the national total is used as the denominator. In recent years, China has stepped up efforts to rectify this problem.

Although only occupying 9.5% of land, the 10 provinces in the East have been the key driving force behind China ’s economic development. In 2006, the Eastern Region accounted for 55.7% of China ’s total GDP. Indeed, they had a much bigger share of foreign trade and foreign direct investment (FDI). In 2006, the Eastern Region accounted for about 90% of China ’s foreign trade and nearly 3/4 of the total utilized FDI.

In 2006, the Eastern Region accounted for about 90% of China’s foreign trade and nearly 3/4 of the total utilized FDI.

At a provincial level, Guangdong, the first province to open its doors to the world, is the largest economy in China. In 2006, its GDP reached RMB 2620.4 billion, or US$333.8 billion. It is roughly equivalent to the economic size of Poland, the biggest economy in emerging Eastern Europe.

At a provincial level, Guangdong is the biggest economy, with a GDP roughly the size of Poland’s economy.

Since 2005, Shandong has succeeded Jiangsu in becoming the second largest economy in China. In 2006, Shandong’s GDP reached RMB 2207.7 billion, or US$281.2 billion. Not surprisingly, the majority of provinces on the top 10 list are from the Eastern Region. In 2006, there were only three provinces from inland China on the top 10 list, with one from the Central Region (Henan), one from the Northeastern Region (Liaoning) and one from the Western Region (Sichuan).

While GDP is an important indicator of an economy’s size, GDP per capita also reflects the level of development and the wealth of various regions. In 2006, China’s GDP per capita reached US$2049. However, there are still vast differences between the various provinces. In 2006, Shanghai ranked first with a GDP per capita of US$7276. It was about 10 times that of Guizhou, which ranked at the bottom.

In 2006, Shanghai ranked first with a GDP per capita of US$7,276. It was about 10 times that of Guizhou, which ranked at the bottom.

The Eastern Region also demonstrated its relative economic strength. In 2006, 9 out of the 10 provinces with an above-national-average GDP per capita were from the Eastern Region. (Among the 10 provinces in the Eastern Region, only Hainan fell short of the national average.) Also, there were three provinces with a GDP per capita above US$5000 and four with a GDP per capita above US$3000 but lower than US$5000. All of them are located in the Eastern Region.

The three inland provinces with above-national-average GDP per capita were Liaoning (Northeastern Region), Inner Mongolia (Western Region) and Heilongjiang (Northeastern Region).

In 2006, there were three provinces with a GDP per capita above US$ 5000 and four with a GDP per capita above US$ 3000 but lower than US$5000. All of them are located in the Eastern Region.

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Marjor Economic Circles

Tapping on geographic proximity and cultural similarity, some neighboring provinces and cities have begun to create synergies by forming cross-border economic circles. Understanding the strengths and weaknesses of various economic circles will be crucial to foreign investors in choosing a location for a suitable production base. To date, four economic circles have taken shape in China . They are the Pearl River Delta, Yangtze River Delta, Jing-Jin-Ji and the Northeastern Region.

In 2006, while accounting for 4.1% of China’s land, the twin Deltas accounted for about 1/3 of China’s GDP, nearly half of utilized FDI and 70% of foreign trade.

The Pearl River Delta originally referred to the nine cities in the Guangdong province. However, at the moment, it is often used to refer to the whole of Guangdong and sometimes, this even includes Hong Kong and Macau . In this book, Pearl River Delta refers to the whole Guangdong province.

The Yangtze River Delta was originally formed by Shanghai and 15 other cities from Zhejiang and Jiangsu . But in this book, a broader definition will be used to include three whole provinces. Jing-Jin-Ji Area includes Beijing , Tianjin and Hebei while the Northeast Region, as described in a previous section, is comprised of Liaoning , Jilin and Heilongjiang .

In 2006, while they accounted for 14.6% of China’s land, the four economic circles accounted for more than half of China’s GDP and retail markets. They also accounted for 84.5% of foreign trade and 67.9% of utilized FDI.

Among the four economic circles, the twin Deltas, namely Yangtze River Delta and Pearl River Delta are the most advanced. In 2006, while accounting for 4.1% of China’s land, they accounted for about 1/3 of China’s GDP, nearly half of the utilized FDI and 70% of foreign trade. While both are China’s important growth engines, they have undergone different paths of growth. Also, as competition for investment and talents heats up, they have gone “across the border” to compete in some of the same industries.

In 2006, TV and air-conditioners produced in the Pearl River Delta accounted for about half of the total products made in China.

The Pearl River Delta was the first place to embrace China’s open-door policy which started about 30 years ago. In early 1980s, China set up 4 SEZs (Special Economic Zones), of which three were from Guangdong. To some extent, the SEZs, or Guangdong itself was a pilot project for the whole country. It had all the necessary merits to be a successful pioneer of China’s open door policy: its proximity to Hong Kong, Macau and Taiwan made it an ideal place to capitalize on the spillover effects of their vibrant business environments to develop its own economy; and its relative remoteness to China’s vast hinterland made it an ideal place for damage control. China’s open door policy has paid off. Pearl River Delta has become the most vibrant province in the Chinese economy.

Pearl River Delta has also witnessed the first phase of production transfer from the world. Its low land and labor cost attracted many foreign investors to move labor intensive manufacturing plants to Guangdong. In the first ten years of reform, China was only viewed as a manufacturing base to many foreign investors. The domestic market was still small. As a result, production in the Pearl River Delta was mainly export-oriented. Light industry, such as construction materials, garments and home appliances, is a strength of the Pearl River Delta. In 2006, TV and air-conditioners produced in the area accounted for about half of the total products made in China.

Recently, due to rising costs, many of Pearl River Delta’s traditional industries have faced great challenges. Numerous garment producers have been forced to shut down or move to other parts of China. To overcome those challenges, the Pearl River Delta has turned to strengthening its heavy industry sector. This can be observed from the rapid growth of the automobile and petrochemical industries. Pearl River Delta’s economy has also been further strengthened by the free trade agreement between mainland China, Hong Kong and Macau under the auspices of the Closer Economic Partnership Arrangement (CEPA).

While the Pearl River Delta will remain one of China’s powerhouses, the Yangtze River Delta has stolen the limelight, becoming China’s most important economic circle. The revival of the Yangtze River Delta came 10 years later. Pudong’s development in the early 1990s symbolized a new phase of expansion. Unlike the Pearl River Delta, the Yangtze River Delta had long been China’s most important manufacturing base. Heavy industries like steel, equipment and petrochemicals have been its traditional industries. The number of universities and research institutes in the Yangtze River Delta also outnumbered that of the Pearl River Delta. The experience accumulated throughout the 10 years of development in Guangdong eased the learning curve for the development of the Yangtze River Delta Area. Based on its traditional advantages, the Yangtze River Delta positioned itself as a technology-intensive and heavy industry manufacturing base.

In 2006, Yangtze River Delta ranked first among the four economic circles by the production of ethylene, personal computers (PC) and integrated circuits (ICs). It is also an important production base for steel, automobiles and mobile phones.

Compared to Pearl River Delta, Yangtze River Delta encompasses more hinterland. This is indicative of a greater potential market. With increased purchasing power, China’s domestic market has become an increasingly important factor for foreign investors. In 2003, Jiangsu province surpassed Guangdong to become the recipient of the largest FDI inflow for the first time. In 2006, Yangtze River Delta attracted 33.8% of China’s FDI inflow altogether. It was about 2.3 times that of the Pearl River Delta.

In 2006, Jing-Jin-Ji produced more than half the total number of mobile phones produced in China. It is also the biggest producer of steel and automobiles.

Though lagging behind in the past, Jing-Jin-Ji has been emerging as another stronghold for manufacturing in China. In 2006, Jing-Jin-Ji produced more than half the total number of mobile phones produced in China. It is also the biggest producer of steel and automobiles.

Beijing, renowned for having the best talent pool in China, failed to perform as a dragonhead like Shanghai in its respective region due to weak industry foundation. In the past, instead of promoting regional cooperation, Beijing often tried to take advantage of Tianjin and Hebei.

However, the situation has been reversed. While economic development remains important, it is not the city’s top priority. According to new master plans, being an economic center is no longer a key target. Instead, Beijing has created a new environment for regional cooperation.

With Tianjin Economical-Technological Development Area (TEDA) as its backbone, Binhai New Area in Tianjin is expected to be the main manufacturing base in Jing-Jin-Ji. Beijing, on the other hand, will focus more on its service sector but maintain its edge in automobile and electronics (such as mobile phones) manufacturing. These two industries overlap with Tianjin’s major strength. Hebei, China’s biggest steel producer, will try to find its niche in order to complement its two stronger neighbors.

In 2006, Northeast produced more than 1/3 of China’s crude oil.

The Northeast was the first region to embrace the Soviet-type planned economy and the last to break away from it. A Northeast Rejuvenation campaign started in 2003 has made this rusty belt bounce back sharply. While facing a resource depletion problem, Northeast remains China’s biggest producer of some of the most important natural resources, such as crude oil and timber. In 2006, the Northeast produced more than 1/3 of China’s crude oil. Also, due to geographic proximity, it will be the main spot for importing energy from Russia. Its petrochemical industry is expected to grow rapidly in the future. The Northeast is also an important producer of machine tools, ships, steel and automobiles. However, its electronics industry is very weak. For all its virtues and failings, the Northeast presents an utterly different landscape from the other three economic circles. Though bureaucracy remains a problem, the Northeast’s comeback has reached a point whereby indifference is no longer an option to investors.

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