From isolated outpost to cradle of capitalism
September 20, 2004
McDonald’s confronts a Qing Dynasty-era eatery, Tao Tao Ju restaurant, in Guangzhou. Photo by Simon Song
When Deng Xiaoping launched China’s economic reform in late 1978, Guangdong might have seemed an unlikely launchpad for a revolution. Poor, largely agricultural and with little industrial base to build on, the province was decidedly on the country’s periphery.
Yet that very isolation from the central planners in Beijing and its people’s long history of contact with the outside world and entrepreneurial bent were the very assets Deng sought to tap. To break with three decades of a socialist command-control economy, he needed to find a spot where that culture had yet to take firm root.
It was, in retrospect, a brilliant choice, for in 26 years the province became the envy - and the role model - for the rest of China.
The transformation was almost beyond the imagination of anyone who had come out of the tumultuous Cultural Revolution that ended just two years before.
Between 1978 and 2003, Guangdong’s gross domestic product grew by an average of 13.4 per cent annually. By 1988 it had replaced Shanghai as the richest place in China. Over 25 years Guangdong’s GDP grew from less than 60 billion yuan (HK$56.56 billion), or about 700 yuan per capita in 1978 to last year’s 1.345 trillion yuan. That is equivalent to 15,640 yuan per capita on the basis of its permanent population or 86 million in 2003, or 13,316 yuan per capita if you include the estimated 15 million migrant workers who are not legally considered residents by the government. Although it is just one of 31 provinces, Guangdong’s GDP last year accounted for one-ninth of the country’s total.
By the end of 2003, foreign direct investment in Guangdong exceeded US$170 billion (HK$1.32 trillion), or a quarter of China’s total. That year, the province accounted for 35 per cent of China’s exports of goods and services, worth US$152.94 billion.
The tale of Guangdong’s spectacular success cannot be separated from that of its free-market neighbour, Hong Kong.
In the beginning, when most foreign investors had grave doubts about Beijing’s sincerity in promoting economic reform, it was Hong Kong capitalists who took the plunge. Not from altruism, of course, nor any residual loyalty to the region from which many of their ancestors hailed. Rather, Hong Kong’s land and labour costs had already become so high that its manufacturers were rapidly becoming uncompetitive.
For them, the Pearl River Delta was a godsend. Not only was labour abundant and cheap, but it was nearby and the people spoke the same Chinese dialect.
Moreover, Guangdong people were, for reasons of history and culture, amenable to a free-market economy. Many had relatives in Hong Kong and throughout much of Southeast Asia, where the overseas Chinese generally dominate the economy even though they remain an ethnic minority.
They knew from their overseas cousins of the economic benefits to be gained from reform. For a host of reasons, the people of Guangdong (and the rest of China) had had little opportunity to try their hand at market economics.
The collapse of the reactionary Qing Dynasty in the 1911 Revolution led by Sun Yat-sen might have cleared the way for economic change had not China slid into decades of war. Only in the colonial-dominated ``treaty ports’’ - most famously Shanghai - had capitalist seeds begun to flourish.
The reign of the Communist Party after 1949 brought Stalinist socialism and snuffed out any hint of market economics.
Yet socialist ideals never truly caught on in Guangdong. In Mao’s time, the province was seen as a frontier region due to its closeness to Taiwan and Hong Kong, and the central government steered investment inland. That meant the giant loss-making state-owned enterprises that dominated more northerly cities were scarce on the ground in Guangdong.
Many of today’s big businesses in Guangdong started life as village workshops : Galanz, the world’s biggest microwave oven maker, started out as a small-time producer of feather dusters. As happened again and again, it was capital and technology arranged by Hong Kong investors that paved the way to its current prominence.
Deng, too, consciously relied on Hong Kong to jump-start his reform programme. When he set up four special economic zones in 1979, three of them - Shenzhen, Zhuhai and Shantou - were located in Guangdong. But it was Shenzhen, hard on Hong Kong’s border with the mainland, that proved the key and became by far the most successful of these limited free-market experiments. And the zone still bears signs of its origins : Even today, many of Shenzhen’s key industries - textiles, clocks and watches, jewellery, among them - were Hong Kong transplants.
Shenzhen’s economic performance has mirrored that of the province as a whole, and today it shares Guangdong’s greatest challenge - maintaining its lead as the cradle of Chinese capitalism.