Guangdong?s GDP in the first 9 months of the year 2005 expanded by 12.3% (the national GDP growth rate in the same period was 9.4%) still ranking first amongst China?s provinces for the past 16 years. The recent Guangdong government?s prevision for the 11th five year plan also showed a robust 10% growth plan to be expected in the years ahead. By looking at GDP per person we can also appreciate the fact that local citizens have the highest spending power potential in the Mainland (Shenzhen 9,000 U$D, Guangzhou 6,000 U$D against a national average of 1,200 U$D). Export as a percentage of GDP is amongst the highest in the country (71%, compared to Shanghai?s 40% and China?s national average 23%) and clearly indicates the nature of the business environment in this 80 million people powerhouse: trading, export processing, light assembly and manufacturing. Guangdong province is home to one of the world’s biggest manufacturing hubs and clusters of different industries from electronics to textiles, from automotive to furniture. In Shenzhen, for example, are manufactured 90% of the computer keyboards, 90% of the computer mouse and 70% of the computer screens sold world wide every year. Guangdong has also developed into a world renowned purchasing centre and export processing platform where multinational corporations such as Wal-Mart and Carrefour have based their procurements centers.

Besides statistics which may not really tell us the real story, hard facts do clearly spell out the economic strength of the area :

• 600 buses are leaving for the Pearl River Delta every single day from Hong Kong;
• The concentration of airports in the PRD (Hong Kong, Macau, Zhuhai, Guangzhou and Shenzhen are international airports 2 hours away from each other) is as high as in the US or Europe;
• Shenzhen has now become the fourth largest containers port in the world;
• Unfortunately, the energy black-outs during the summer months due to massive energy consumption are also getting more frequent!

From macro economic point of view Guangdong?s economic performance this year was not affected by a slower general investment in fixed assets following the recent central decision to cool off some speculative sectors like property and constructions. Guangdong?s economy is far more vulnerable to trade frictions with the US and EU blocks due to its heavy involvement in general trade and processing.

As far as future FDIs in the province are concerned, we think that Guangdong is steaming ahead with investments in some selected heavy with investments in some selected heavy industries like chemical and petrochemical processing, steelmaking, car manufacturing (Guangzhou is to become one of the top 3 centre for car manufacturing and a chief transportation hub in China) and related logistic infrastructures as well as pushing labor- intensive factories to other areas beyond its main cities as labor shortages have forced pay increases (Guangdong reliance on migrant labor is the highest in the mainland and its attractiveness to blue collars workers has been declining) supported by the local government increase of minimal wages.

By doing so, local authorities are trying to move up the value-added production ladder to complement the local industrial base with more innovative and high-tech clusters. The need to move up the value chain is at the top of the political agenda for the years ahead and some local players (ZTE, Huawei, TCL, Legend, etc.) are already paving the way.

Some particular locations within the province are already becoming known for having taken bold decisions in order to shape up their local industrial base. Dongguan, for example, has recently taken some steps to upgrade its current investment environment pushing up the minimal registered capital required to set up factories to 1,000,000 U$D basically turning down lowend, highly polluting and under-capitalized investors.

Shenzhen and neighboring areas will play an important role for those FIEs involved in logistics, services and high value/high tech assembly and manufacturing for which availability of qualified personnel would be more important than cheaper labor and low rental factories.

Other areas like Zhongshan, Foshan and Zhuhai do represent for foreign investors a good compromise between cheap general set up costs, good infrastructural base and availability of local subcontractors and personnel. The whole PRD western corridor will receive a major boost when the completion of the Hong Kong ? Macau ? Zhuhai bridge will be completed in a few years time shortening commuting time for people and flow of goods between these cities.

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