2015
“South China Economic Overview” courtesy of Dezan Shira &
Associates Ltd.
“”
Reproduction for commercial use is strictly prohibited. This
document is available free
of charge in electronic form at:
http://www.amcham-southchina.org
http://www.flickr.com/photos/alicehccn
201523
The American Chamber of Commerce in South China Suite 1801,
Guangzhou International Sourcing Center
8 East Pazhou Avenue, Haizhu District
Guangzhou, Guangdong, PRC
[email protected]
www.amcham-southchina.org
The American Chamber of Commerce in South China
2015 Special RepoRt on the State of BuSineSS in South china
2015
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Dezan Shira & Associates is a specialist foreign direct invest-
ment practice, providing corporate establishment, business advi-
sory, tax advisory and compliance, accounting, payroll, due dili-
gence and financial review services to multinationals investing in
emerging Asia. Since its establishment in 1992, the firm has grown
into one of Asia’s most versatile full-service consultancies with
op- erational offices across China, Hong Kong, India, Singapore and
Vietnam as well as liaison offices in Italy and the United
States.
Dezan Shira & Associates’ experienced business professionals
are committed to improving the understanding and transparency of
investing in emerging Asia.
Dezan Shira & Associates also publishes significant and well
received business intelligence about each of the markets and disci-
plines in which it operates through its publishing subsidiary Asia
Briefing Ltd. Established in 1999, Asia Briefing Ltd. is dedicated
to providing individuals and enterprises with the latest business
and regulatory news as well as expert commentary relating to
conduct- ing business in emerging Asia.
1992
Study Results
2. Revenue and profitability 18 19
3. South China 22 23
4. Investment Trends 24 25
5. The Business Environment in South China 32 33
Economic Overview
2. Guangdong Province 46 47
3. Fujian Province 54 55
4. Guangxi Zhuang Autonomous Region 58 59
5. Hainan Province 62 63
6. Hong Kong Special Administrative Region 66 67
7. Macau Special Administrative Region 72 73
6
2015 Special Report on the State of Business in South China
treated equally from a regulatory standpoint, and if they felt they
had better insight into the government’s decision-mak- ing process,
I am fully confident that we would see invest- ments grow rapidly
across China. Moreover, I would argue that these improvements would
essentially be favorable side- effects of broader economic reform
that would propel China’s economy into a position of primacy
world-wide.
Regardless of uncertainty about local regulatory issues, we find
strong reinvestment numbers across the board. Most participants
reported investing more than they had originally budgeted for over
the course of 2014, and although total investment amounts have seen
nearly a 10% decline from historic highs last year, we estimate
that AmCham South China member companies stand to reinvest profits
amounting to more than $12 billion in 2015 and more than $13.8
billion between 2015 and 2017.
As has been the case in the past several years, we expect one key
area of investment to be human resources: this year fully 83.5
percent of study participants reported having hired new employees
to take advantage of the labor market. We estimate that this has
led to the creation of 534,000 new jobs in China.
In light of these figures, I believe it is impossible to argue
against the fact that business continues to boom in what is on-
track to continue to be the world’s fastest growing economy.
With best regards,
Harley Seyedin President The American Chamber of Commerce in South
China Vice Chairman, China Affairs The Asia Pacific Council of
American Chambers of Commerce
President’s Report
THIS yEAR, 275 companies participated in our Special Report on the
State of Business in South China. The
study, which began in 2006, offers us unique insight into the
growth and transformation of the Chinese economy. In 2015 the
cross-section of participants has continued to broaden.
American-invested Joint Ventures and Wholly- Foreign Owned
Enterprises are joined by their counterparts from other nations and
by a growing contingent of Mainland Chinese enterprises. We see
companies of all sizes, from those with fewer than 50 employees and
less than $1 million in revenue all the way up to companies
exceeding $500 million in revenue and with thousands of employees
worldwide. Every sector of the economy is represented, from energy
generation and agriculture all the way to cutting edge software and
high- precision machinery.
This year we find that exactly half of our study participants are
involved in manufacturing or trading goods and half involved in
providing services to the market. One thing that unites those two
groups, however, is the fact that 79.3 percent of all participants
report providing goods or services to the Chinese market as their
primary business focus instead of creating goods or services for
export.
Similarly, 85.3 percent of participants responded that they
considered the overall business environment in South China to be
“Good,” “Very Good” or “Outstanding,” an increase over last year’s
result. 42.3 percent of participants, meanwhile, re- ported that in
their opinion the business environment had im- proved somewhat or
greatly in the past 12 months and a further 38.9 percent reported
that it had remained about the same.
In terms of planning and risk management, the biggest perceived
challenge to the operations of study participants over the coming
year is once again “Regulatory issues (Chinese government).”
Trailing behind in second, third, fourth and fifth places are
“Local competition,” “Rising labor costs,”<?> “Foreign
competition” and “Lack of qualifiable managerial or specialist
talent.” Results for the 3-year period are quite simi- lar, with
only the last two concerns trading places. Elsewhere, participants
identified “Increasing inflation” as one of their top
policy-oriented concerns.
On the topic of regulatory issues, I firmly believe that this is
the largest impediment to massive investment across China. From the
perspective of foreign investors, the lack of transparency—or even
simply the perception of such a lack— will continue to limit the
number and scale of investments. If foreign companies felt more
confident that they would be
7
42.3%
”
”“”
““
!
8
2015 Special Report on the State of Business in South China
STUDY RESULTS
10
2015 Special Report on the State of Business in South China
1. Demographics Over the past four years we have observed a gradual
de-
cline in the proportion of companies based in Guangzhou, from 59.6
percent in 2011 down to 52.4 percent this year. Nevertheless, the
Guangzhou constituency remains the largest among all study
participants. The proportion of study partici- pants based in
Shenzhen, meanwhile, rose slightly from last year’s historical low
to 19.9 percent, still down from a high of 32.1 percent in 2008.
The difference has been made up by a noticeable rise in
Foshan-based companies, which this year accounted for 9 percent of
study participants, up from 3.3 percent in 2013.
Q: Where is your company’s headquarters or main office located in
South China?
Q: Where is your parent or holding company located?
Up from 37 percent in 2013 but down from 42.4 percent last year,
the share of U.S.-headquartered participants was 39.5 percent this
year. The proportion of Chinese Mainland- based companies similarly
decreased this year, down to 26.7 percent from its historical high
of 28.4 percent. Canada and Hong Kong were this year slightly
better represented than in years past.
Guangzhou (56%)
Shenzhen (19% )
Zhuhai (2%)
Xiamen (2%)
Foshan (5%)
Canada (1%)
Canada (2%)
Canada (1%) South Korea (1%) Taiwan (1%)
11
1.
2011
19.9%
200832.1%
12
2015 Special Report on the State of Business in South China
Wholly-Owned Foreign Enterprise (50%)
Less than 2 years
20142015 2013
Q: What is the form of your company’s legal entity?
This year the proportion of Wholly-owned Foreign En- terprises
shrank slightly, while that of Mainland China-based companies grew
by a similar amount. This year also saw the proportion of
participants operating Representation Offices
nearly double to reach 8.6 percent, up from 4.5 percent last
year.
Q: Does your company or group have offices in other parts of China?
If so, where?
Over the history of this study, the proportion of partic- ipating
companies with offices in other parts of China has consistently
been around 70 percent; this year’s results are no different. Also
similar to prior years, most participants with other offices in
China reported a presence in the yangtze River Delta with
successively smaller population reporting offices in Northern China
and Western China. Interestingly, while the ranking of the three
regions has remained consistent, the
proportion of participants with offices in the yangtze River Delta
once again declined by roughly four percentage points, as did the
proportion of participants with offices in the north- ern part of
China.
Q: How long has your company been engaged in business in
China?
Continuing a long-standing trend, older companies are more
represented in this study than in any previous iteration. This year
just under 84 percent of participants have been in China for 6 or
more years; moreover, an historical high of 34 percent of
participants report having engaged in business in China for 20 or
more years. Meanwhile, the percentage of participants reporting
having been doing business in China for two or fewer years has
grown slightly, reaching 5.8 per- cent—down from last year’s
historical low of 3.6 percent.
13
(50%)
14
2015 Special Report on the State of Business in South China
0%
5%
10%
15%
20%
25%
79.3% Providing goods or services to the Chinese market
Q: Which category best describes the primary focus of your business
activities in China?
Last year’s responses to this question interrupted a trend that
dated back to 2009, in which each year a progressively larger
proportion of participating companies reported that their primary
business focus was providing goods or services to the Chinese
market. This year’s results see a return to that upward climb, with
79.3 percent of study participants report- ing a primary focus on
the Chinese market, up from 72.9 percent last year.
Furthermore, this year’s results find the proportion of par-
ticipants involved in the trade of goods at parity with those in-
volved in service industries. Early iterations of this study had
found a small majority of companies doing manufacturing or
trading, whereas in recent years that majority had belonged to the
group of companies offering services to the market.
Participants involved in the manufacture or trade of goods were
this year most likely to be in the “Other,” “Electron- ic
equipment, household appliances and components” or “Chemicals”
categories.
Participants in service industries, meanwhile, were most likely to
be in the “Professional services,” “Other” or “Busi- ness services”
categories.
Q: How many people does your company currently employ in
China?
This year’s results saw a decline in par- ticipants employing
between 50 and 250 or more than 5,000 employees being offset by
growth in the number of participants employing between 250 and 500
or be- tween 1,000 and 5,000 individuals.
15
0%
5%
10%
15%
20%
25%
16
2015 Special Report on the State of Business in South China
0%
10%
20%
30%
40%
50%
Less than 50
2015 2014 2013
Q: Out of your total number of employees, how many are expatriates
and/or foreign passport holders?
As in prior years, approximately half of participants report
employing fewer than 5 foreign passport holders and around an-
other 30 percent reporting either 5 to 10 or more than 50
expatriates. Slightly fewer reported employing between 11 and 20
expatriates, while nearly twice the number of participants this
year reported employ- ing between 21 and 50 expatriates than had
last year.
Q: Has your company taken advantage of the current labor market by
hiring new employees?
Continuing a gradual rise from a his- toric low of 69.5 percent in
2012, the number of participants who reported hav- ing “taken
advantage of the current labor market by hiring new employees” grew
once more this year to reach 83.5 percent.
Out of companies which reported hiring new employees <?>over
the course of 2014, we find a somewhat similar dis- tribution to
prior years’ in terms of the number of new hires, with the
exception of a notable decrease in the proportion of participants
reporting hiring more than 5,000 new employees. This tracks with
the decline in the number of companies reporting that many
employees overall, suggesting that this year’s participants are
less focused on labor-intensive (and likely low-margin) activi-
ties in favor of more highly-skilled work and workers.
Based on this year’s distribution of numbers hired and the
chamber’s current size of 2,300 members, we can estimate that over
the course of 2014 AmCham South China compa- nies hired 534,000 new
employees in China.
17
0%
10%
20%
30%
40%
50%
201453.4
18
2015 Special Report on the State of Business in South China
0%
5%
10%
15%
20%
Less than $1 million
Between $101 million and $500 million
Between $11 million and $100 million
Between $1 million and $10 million
Less than $1 million
2015 2014 2013
2. Revenue and Profitability Q: What is your company/group’s
approximate annual worldwide revenue?
As in prior years, participants tended to have large world- wide
annual revenues. We see approximately one third of participants
having more than $500 million in revenue, a fea-
Q: What is your company/group’s approximate annual China
revenue?
This year’s participants were comparatively more likely to see
revenue in China of between $11 and $50 million over smaller or
larger amounts than in any prior year of the study except for 2006.
This year also saw growth in the proportion
of study participants reporting zero revenue as a result of legal
status (i.e. representation offices), with that figure rising to 9
percent from 5.5 percent last year.
ture which tracks with common sense as larger companies are more
likely to expand beyond their home market.
Also similar to previous years, around two-thirds of par- ticipants
report worldwide revenues of greater than $11 mil- lion—this year
68 percent of the total.
19
0%
5%
10%
15%
20%
“0”
20
2015 Special Report on the State of Business in South China
0%
20%
40%
60%
80%
Within 2 years
2015, 2014, 2013
Already protable
2015 2014 2013
Profitable but not meeting
Profitable but not meeting
Profitable but not meeting
(40%)
Q: When does your company expect to be profitable in China?
Q: If your company is already profit- able, to what extent?
This year fully 94.4 percent of participating companies re- ported
that they were already profitable or would be within the next two
years. This is among the strongest majorities in the study’s
history.
Continuing a trend observed since 2012, however, we find that fewer
and fewer companies are profitable and meeting or exceeding budget
expectations. Since the historic high for this measure in 2012,
each year we have seen the proportion of participants in this
category fall to a historic low of 53.1 percent this year.
21
0%
20%
40%
60%
80%
”
53.1%
22
2015 Special Report on the State of Business in South China
1. Produce goods or services in South China for the China
market
2. Produce goods or services in South China for markets
other than the U.S. and China
3. Produce goods or services in South China for the U.S.
market
5. Export from China to countries other than the U.S
1. Opportunities in South China’s domestic market
2. Proximity to Hong Kong
3. Better infrastructure than other places in South China
4. Greater openness than other places in China
5. Availability of highly qualified managers and specialists
1. Services provided in China
2. Overall China business activities
3. Competition from P.R.C. firms
4. Overall China business activities
5. Profits
3. South China Q: What are your company’s goals in South
China?
Continuing the long-established trend, “Produce goods or services
in South China for the China market” remains participants’ top goal
in the region; the two other production- oriented results—“Produce
goods or services in South China for markets other than the U.S.
and China” and “Produce goods or services in South China for the
U.S. market”—also remain in the top five priorities for
participating companies. This year’s results, in fact, are
identical to those recorded last year. In 2013 “Benefit from lower
labor costs in China” was displaced in the top five ranking by
“Export from China to the U.S.”
Q: What are the major reasons for your company to set up operations
in South China instead of other China locations?
“Opportunities in South China’s domestic market” re- mains a top
consideration for companies setting up opera- tions in South China,
as do “Proximity to Hong Kong” and “Better infrastructure than
other places in China.” This year more companies prioritized
“Greater openness than other places in China” over “Availability of
highly qualified manag- ers and specialists.”
Q: How do you expect your company’s operations to change in the
following areas over the coming 3 years?
Responses to this question are similar to those recorded last year,
although “Overall China business activities” replaced “Competition
from PRC firms” in the ranking, suggesting that businesses are
anticipating stronger growth and less fierce competition.
23
3.
“
”
”“
24
2015 Special Report on the State of Business in South China
0%
5%
10%
15%
20%
25%
30%
Between $50 million and $250 million
Between $10 million and $50 million
Between $1 million and $10 million
Less than $1 million
Less than $1 million
2015 2014 2013
4. Investment Trends Q: For 2014, what was your company’s realized
investment volume in China?
Results this year showed smaller overall investments, but also
fewer participants making no investments at all. Whereas in 2014,
12 percent of participants reported having invested greater than
$250 million, only 6.4 percent of this year’s study participants
report the same; similarly, 9.7 percent of last year’s participants
reported having made no investments
whatsoever, this year that figure has declined to 5.9 percent.
Picking up the slack is notable growth in the “Less than $1
million,” “Between $10 million and $50 million” and “Between $50
million and $250 million” categories.
Q: For 2015, what is your company’s budgeted investment in
China?
We see the same across-the-board shift in projected 2015 investment
budgets that we saw in actual 2014 results—fewer
companies planning large investments and fewer companies planning
no investments at all.
25
0%
5%
10%
15%
20%
25%
30%
”5.9%“100
”
26
2015 Special Report on the State of Business in South China
5%
10%
15%
20%
25%
30%
35%
N/A
illi on
illi on
illi on
illi on
Less th
2014 Budgeted vs. Actualized Reinvestment
Comparing reinvestment budgets for 2014 reported last year against
realized reinvestment volumes for the same period reported this
year, we can make several interesting observations. First, only
one-third as many companies did not make investments than had
originally planned, suggesting (relatively) spontaneous investments
made to capture opportunities rather than as part of organized
expansion plans. Second, more companies invested at every level
than had originally budgeted to do so except for in the “Greater
than $250 million” category, which saw a net decline from 8.4
percent having budgeted to do so against only 5.9 percent actually
securing investments with that value.
Normalized reinvestment figures
Projected 2015: $3,030,100,000 (-9.3%) Projected 2014:
$3,343,500,000 (+30.10%) Projected 2013: $2,569,950,000 (+1.90%)
Projected 2012: $2,521,958,000 (+16.20%) Projected 2011:
$2,170,370,000
Projected 2015-17: $2,988,100,000 (-16.9%) Projected 2014-16:
$3,599,200,000 (+1.30%) Projected 2013-15: $3,552,850,000 (+40.88%)
Projected 2012-14: $2,943,304,000 (+21.40%) Projected 2011-13:
$2,424,338,000
Estimated reinvestment volumes
Estimated 2015-17: $13,844,682,000-16.9% Estimated 2014-16:
$16,676,076,000+1.30% Estimated 2013-15: $16,461,324,000+40.88%
Estimated 2012-14: $11,684,920,000+21.40% Estimated 2011-13: $
9,624,660,000
To accommodate fluctuating sample sizes, for the past five years we
have reported investment figures normalized to 100 companies as a
primary year-on-year comparison. This figure is calculated as the
product of the mean of each category range and the percentage of
total participants indicating that cat- egory, except in the case
of the largest ($250 million or more) category, for which the
minimum value is used.
Whereas in 2013 we saw a large increase in 3-year invest- ment
budgets and a tiny one in 1-year budgets and an oppo- site result
in 2014, this year we see a modest decline in 1-year investment
budgets and a more substantive one in 3-year bud- gets, suggesting
increased uncertainty in the medium term.
27
2015 $3,030,100,000 (-9.3%)
2014 $3,343,500,000 (+30.10%)
2013 $2,569,950,000 (+1.90%)
2012 $2,521,958,000 (+16.20%)
28
2015 Special Report on the State of Business in South China
0%
5%
10%
15%
20%
25%
Less than $1 million
2015 2014 2013
Q: For the coming 3 years, what is your company’s expected
investment volume in China?
This year, we find that the distribution of 3-year invest- ment
budgets has skewed toward smaller amounts compared to 2014’s
results, but in such a way as to align them more closely with
results we have seen in earlier years.
As in the past more than 20 percent of participants re- ported that
3-year investment budget amounts were “Not applicable” and a peak
in the “Between $1 million and $10 million” category. Participants
this year were modestly less
Q: For future investments, in which areas of China will you likely
expand in the next three years?
likely to have planned investments of “Between $10 million and $50
million,” “Between $50 million and $250 million” and “Greater than
$250 million,” while being somewhat more likely to be planning
investments of “Less than $1 million” over the 3-year time
frame.
This year’s results show small increases in the proportion of
companies planning investments in the yangtze River Delta, the
northern part of China, the western part of China outside
of Sichuan and South China outside of Guangdong, and a decline in
the proportion of companies planning investments elsewhere.
29
0%
5%
10%
15%
20%
25%
”“2.5”
30
2015 Special Report on the State of Business in South China
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
Less than $1 million
Decrease < No change > Increase
Less than $1 million
Decrease < No change > Increase
Decrease < No change > Increase
Q: Did your company’s 1-year budgeted investment volume change over
the course of the year?
Continuing a downward trend in the proportion of com- panies
increasing their 1-year investment budgets over the course of the
year, only 51.2 percent of this year’s participants reported doing
so, down from 60 percent in 2012. This year also saw the proportion
of study participants who decreased their 1-year investment budgets
shrink, albeit by a smaller amount.
Of those companies who increased their budgets, com- paratively
fewer increased them by “Less than $1 million,” “Between $1 million
and $10 million” or “Greater than $250
million.” Instead, we observe notable growth in the propor- tion of
participants having increased 1-year investment bud- gets by either
“Between $10 million and $50 million” or “Be- tween $50 million and
$250 million.”
Finally, of those companies whose 1-year investment budgets
decreased over the course of 2014, 80 percent saw decreases of $10
million or less, while 6.7 percent decreased their budgets by
“Between $50 million and $250 million.”
Q: Did your company’s 3-year budgeted investment volume change over
the course of the year?
The percentage of participants whose companies adjusted their
3-year investment budgets roughly tracks the 1-year budget changes,
albeit with a slightly smaller proportion re- porting no changes
for the 3-year term and a slightly greater percentage reporting
having decreased their 3-year budget. Of the 51 percent who
reported increases to their budgets, 81
percent indicated increases of “Less than $1 million” or “Be- tween
$1 million and $10 million.”
Of those participants who reported decreases in 3-year in- vestment
budgets, 88.3 percent reported changes of less than $10 million and
11.8 percent reported decreases of “Between $50 million and $250
million.”
31
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2.5
< () >
< () >
“5000——2.5”
”“100——1000”
——2.5 ”
32
2015 Special Report on the State of Business in South China
0%
10%
20%
30%
40%
5. The Business Environment in South China
Q: How would you rate the overall business environment in South
China?
This year, as in years past, most participants rated the over- all
business environment as “Good/acceptable”, “Very good” or
“Outstanding”. This year that grouping accounts for 85.3 percent of
participants while 14.7 percent—slightly less than 2014’s historic
high of 15.8 percent—report feeling that the overall business
environment either “Needs improvement” or that it was simply
“Poor.”
Q: Compared to 12 months ago, in your opinion the overall
business
environment in South China has…
In terms of progress, responses to the question “Compared to 12
months ago, in your opinion the overall business environment in
South China has…” show that most participants feel that the
business environment either remained about the same or improved
only somewhat. Only 4.4 percent felt that the business environment
had improved greatly, whereas 18.7 percent felt that it had
declined either somewhat or greatly.
Q: How much interest would your company have in opening a new
office or facility within a Free Trade Zone located in South
China?
Responses to a question measuring interest in a hypothetical Free
Trade Zone in South China show 44.4 percent of participants
interested in expanding into such a zone, with 23.7 reporting not
much or no interest whatsoever and 31.8 percent either ambivalent
or uncertain.
0%
5%
10%
15%
20%
25%
0%
10%
20%
30%
40%
85.314.72014
“12
……?”
“”18.7%
“”“”
34
2015 Special Report on the State of Business in South China
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Somewhat positive eect
Remain about the same
Somewhat negative eect
Uncertain
es
Q: A more freely-convertible RMB would affect your company’s China
operations...
Q: A more freely-convertible RMB would affect your company’s global
operations...
This year we also asked two questions about the convertibility of
the yuan. Interestingly, 66 percent of participants indicated that
a more freely-convertible yuan would have a positive effect on
their China operations, up from 54.2 percent last year. The
proportion of companies reporting that a more freely-convertible
yuan would have a positive effect on their global operations also
grew this year, albeit to arrive at a slightly lower total of 63.1
per- cent. In both the China and global contexts, the proportion of
companies reporting that a more freely-convertible yuan would have
a negative effect on their operations shrank to near-negli- gible
levels, with only 4.1 percent expecting negative effects in China
and only 1.5 percent expecting negative effects globally.
Q: How do you expect the following developments to affect your
business in South China in 2015?
0%
10%
20%
30%
40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
36
2015 Special Report on the State of Business in South China
“Increasing inflation,” as in past years, was identified as the
largest projected negative influence on future opera- tions,
followed by “Increasing minimum wage standards” and “Tight monetary
policies.” Although no category achieved a positive rating by a
majority of participants, 30.5 percent of
participants indicated that “RMB appreciation” would have a
“Somewhat positive effect” or “Significant positive effect” on
their business—a similar, but less pronounced, result to last
year’s.
Q: In your opinion, what are the top 5 challenges that hinder or
limit your company’s opportunities for growth in South China?
Asked to identify their top business challenges from a list of 14
common issues, participants once again listed “Regula- tory issues
(Chinese government, for example: tax, customs, or regulations of
industries)” as their primary concern in both the 1- and 3-year
timeframes.
This has been the case since 2006, suggesting that busi- nesses are
not much more confident in China’s overall regula- tory
transparency today than they were nearly a decade ago.
The second and third most common concerns—“Local competition” and
“Rising labor costs”—are also placed identi- cally for the 1- and
3-year timelines, making the replacement of “Foreign competition”
over the coming year with “Lack of qualifiable personnel (general)”
for the 3-year time frame the only change in rankings between the
two intervals.
These rankings are identical to last year’s.
1. Regulatory issues (Chinese government)
2. Local competition
5. Foreign competition
2. Local competition
5. Lack of qualifiable general personnel
Q: Has your company made specific preparations for emergency
situations, such as a potential outbreak of Avian Influenza (“Bird
flu”) or an earthquake or other natural disaster?
Yes (59%)
No (41%)
Yes (57%)
No (43%)
The proportion of participants reporting some sort of pro-
grammatic emergency response preparation has grown for the fourth
consecutive year—albeit slightly—to reach 61.8 per- cent, up from
48 percent in 2012 and 35 percent in 2011.
Similarly to last year, descriptions of response schemes provided
by study participants included alternate supply chains and even
backup product lines and insurance policies, in addition to
preventative measures such as hygiene training and remote work
procedures.
Q: In your opinion, what will be the top 5 challenges over the
coming 3 years that will hinder or limit your company’s
opportunities for growth in South China?
37
1. :
“”
“”
“”
”——
(59%)
(41%)
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2015 Special Report on the State of Business in South China
0%
10%
20%
30%
40%
More social activities
2015 2014 2013
Q: How would you rate AmCham South China’s 2014 performance on
delivering programs and activities that match your expectations and
needs?
As in years past greater than 90 percent of participants—95.4, to
be exact—rated Am- Cham South China’s performance as “Good/
acceptable”, “Very good” or “Outstanding” and a strong majority of
65.9 percent chose the lat- ter two categories.
Q: In what areas would you recommend future improvements in
AmCham’s programs and services?
This year the most common areas for im- provement selected by
participants were, in de- scending order, “More presentations on
relevant topics,” “More social activities” and “More round-table
discussions.”
39
0%
10%
20%
30%
40%
65.9%
“”“”
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2015 Special Report on the State of Business in South China
1. Introduction to South China
The city raised its minimum monthly wage by RMB 208 in February
2014, to RMB 1808, making it the second highest nationwide (after
Shanghai). Many other PRD cities raised their minimum wages in 2014
as well.
Increasing labor costs stand in contrast to the region’s sub-
stantial but nevertheless decreasing productivity growth. This has
been a major driver behind the flight of labor-intensive industries
from China in recent years to lower-cost alterna- tives such as
Vietnam. Other factors pulling investment away from the region
include China’s increasing emphasis on the service sector over
manufacturing, as well as decreasing indus- trial land availability
in the PRD.
Despite this, and spurred by on-going processes of in-
dustrialization, urbanization and marketization, the PRD remains
home to a vibrant economy, which the government (at all levels) is
doing its best to reshape. To accomplish this, some local
governments are implementing stricter industry approval measures,
ranging from increased minimum regis- tered capital thresholds
(some raised as much as tenfold) to more stringent criteria for
total investment or output value per square meter invested. As
well, local governments in more heavily-invested areas are
increasingly refusing to approve in- vestment from enterprises in
non-capital-intensive, low value- added or environmentally harmful
industries, forcing such enterprises to locate elsewhere in the PRD
or further inland. Lastly, research and development, with
government support, is also increasing in the region. Taken
together, these trends can be seen as indicative of a maturing
economy.
Future Outlook
“The Outline of the Plan for the Reform and Development of the
Pearl River Delta (2008-2020),” put forward by the
The term “South China” immediately brings to mind the Pearl River
Delta (PRD) - China’s manufacturing center and beating “economic
heart.” Broadly defined as including nine cities in southeast
Guangdong province (Guangzhou, Shenzhen, Dongguan, Foshan, Huizhou,
Jiangmen, Zhaoqing, Zhongshan and Zhuhai), the PRD’s true centers
are to be found in Guangzhou (the provincial capital) and Shenzhen
(China’s first and most successful special economic zone).
To think of the PRD only in terms of these cities, however, would
be to ignore the instrumental role in economic devel- opment played
by the special administrative regions (SARs) of Hong Kong and (to a
lesser extent) Macau, with which the cities of Guangdong have long
leveraged their proxim- ity. The Closer Economic Partnership
Arrangements (CEPA) concluded in 2003 between Mainland China and
Hong Kong and Macau, respectively, have phased out tariffs and
trade bar- riers, liberalized trade in services and boosted trade
and in- vestment in Guangdong. As such, the term “Greater PRD” was
coined to refer to the PRD, Hong Kong and Macau as a group.
The more remote, less developed (and often more moun- tainous)
towns of Guangdong province and neighboring provinces of Fujian,
Hainan and the Guangxi Zhuang Auton- omous Region are the final
pieces of the South China puzzle. A series of economic and
infrastructure-focused government policies have been designed to
better connect the Greater PRD and to improve its links to these
adjoining regions.
The PRD Today
The PRD has long been considered the heart of high-tech China, with
Shenzhen, Guangzhou and Dongguan (as well as Zhuhai and Huizhou)
considered as centers for the manu- facture of consumer electronics
and other high-tech prod- ucts. The PRD hosts direct and indirect
production arrange- ments for a wide variety of goods sold
worldwide, offering both original equipment manufacturing (OEM) and
branded goods. The Shenzhen Stock Exchange is the national leader
for high-tech enterprises; China’s leading technology enter-
prises, including Huawei, Tencent and ZTE, were all founded in
Shenzhen.
yet the PRD is a region in transition. In recent years, low labor
costs (once the major attraction of the region) have been
increasing rapidly. Minimum labor costs are one measure of this,
with Shenzhen as a particularly illuminating example.
Region 2014 Minimum 2014 Minimum
Monthly Wage Hourly Wage
43
1.
2014 2014
1,808 16.5 1,550 15 * 1,380 13.2 1,310 13.2 1,310 13.2 1,310 12.5
1,130 11.1 1,130 11.1 1,130 11.1 *
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2015 Special Report on the State of Business in South China
National Development and Reform Commission (NDRC), describes the
PRD region as an experimental area for scientific development and
calls for the creation of three super-met- ropolitan areas,
respectively, Guangzhou and Foshan, Hong Kong and Shenzhen, and
Macao and Zhuhai. Provided with greater autonomy, the PRD is
expected to be at the forefront of new economic patterns and
achieve balanced economic de- velopment between its urban and rural
areas.
The Plan also includes the following key goals:
• Establish financial centers in Guangzhou and Shen- zhen, as shown
by projects such as the second board at the Shenzhen Securities
Exchange and construc- tion of the Guangdong Financial and
High-tech Ser- vices Zone.
• Improve infrastructure, and promote Guangdong as a world-class
logistics center through the construction of several hub-type
modern logistics parks, including those at Baiyun Airport, Bao’an
Airport, Guangzhou Port and Shenzhen Port.
• Implement an “outward” strategy, by establishing 10 native
multinational corporations with annual sales revenue of over US$ 20
billion by 2020.
• Develop a series of specialized conventions and ex- hibitions,
including the Guangzhou Export Com- modities Fair, Shenzhen
High-tech Fair, Zhuhai International Aviation and Aerospace
Exhibition, Guangzhou Small and Medium-Sized Enterprise Fair and
Shenzhen International Cultural Industries Fair.
• Foster creative industry business clusters, including the
construction of a national base for the software and cartoon
industries.
• Increase the innovative capacity of the region to real- ize the
transformation from “Made in Guangdong” to “Created by Guangdong”
by 2020.
• Establish internationally influential brands in Foshan for home
appliances and building materials, in Dong- guan for garments, in
Zhongshan for lighting and in Jiangmen for papermaking.
To reach these goals in the increasingly overcrowded PRD region,
the Guangdong provincial government recently ear- marked more than
672 billion yuan (US$109.75 billion) to develop rural areas in the
province over the next five years. The funds are to specifically
focus on infrastructure projects, including a number of new links
planned to better connect
the greater PRD and integrate it with the pan-PRD area. Major
ongoing infrastructure developments include:
• Zhongshan-Shenzhen passage across the Pearl River estuary
• Hong Kong-Zhuhai-Macao Bridge (scheduled for completion by
2016)
• Eastern passage between Shenzhen and Hong Kong • Express railway
from Guangzhou via Shenzhen to
Hong Kong • Guizhou-Guangzhou coastal railway and Nanning-
Guangzhou railway • Urban rail transit systems in Guangzhou,
Shenzhen,
Foshan and Dongguan • Improvement to the modern functions of ports
in
Guangzhou, Shenzhen and Zhuhai • Expansion of Baiyun Airport in
Guangzhou
Joined by Hong Kong and Macau, the PRD aims to be- come a globally
competitive area for the advanced manufac- turing and modern
service industries by 2020, and the most vigorous economic zone in
the entire Asia-Pacific region. In the following, we break the
region down by provinces/cities.
Economic Development Goals for the PRD (2009, 2012, 2020)
2009 2012 2020 GDP per capita RMB60,000 RMB80,000 RMB135,000 GDP
from service sector 50% 53% 60% Urbanization 76% 80% 85%
Source: Outline of NDRC Development Plan for the PRD (2008)
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2015 Special Report on the State of Business in South China
2. Guangdong Province Heart of the PRD
Guangdong has the largest regional GDP of China’s prov- inces and
is the country’s biggest exporter, accounting for more than
one-third of China’s total foreign trade. The pro- vincial capital,
Guangzhou, is the heart of Cantonese culture. Guangdong is also
home to three out of four of China’s origi- nal special economic
zones - Shenzhen, Zhuhai and Shantou.
In terms of commerce, the cities of Guangdong lead not only the PRD
but in many cases the country as a whole, with Guangzhou ranking
number one in Forbes China’s “Best Cities for Business 2013”. The
city is actively supporting the development of micro, small and
medium-sized enterprises, such as via tax incentives introduced in
a November 2012 circular.
Economy
Guangdong’s economy is estimated to have grown by 8.5 percent in
2013 and reached a GDP output of more than US$1 trillion last year
according to Xinhua News Agency. If Guangdong were a separate
country, it would rank as the world’s sixteenth largest economy,
behind Mexico and South Korea, and ahead of Indonesia and Turkey.
Guangdong is also taking action to shift its focus onto services
rather than manufacturing. With average wages among the highest in
the country there is a growing potential to reorient the provincial
economy toward domestic consumption rather than exports and cheap
labor.
The Pearl River Delta contributed 85 percent of Guang- dong’s
economic growth in 2013 through the following lead- ing industrial
outputs:
1. Communications equipment, computers and other electronic
equipment
2. Electrical machinery & equipment 3. Smelting and processing
of metals 4. Raw chemical materials and chemical products 5.
Automobiles 6. Plastics 7. Petroleum refining and nuclear fuel
processing 8. Garments and footwear 9. General purpose machinery
10. Textiles
Furthermore, the provincial government is also taking steps to
advance the financial industry, setting a goal for this to be among
the province’s “key industries” by 2015. In 2012, the province’s
Financial Department released its “Overall Plan of Guangdong
Province in Establishing an Integrated Experi- mental Area for
Financial Reform and Innovation.” The Plan suggests that added
value in the financial industry will account for more than 8
percent of provincial GDP by 2015, and this is further estimated to
reach more than 10 percent by 2020.
Spotlight on Guangzhou’s Changing Identity Traditionally considered
only a manufacturing base,
Guangzhou is increasingly being recognized for its growing amount
of domestic consumption. From 2012, total retail sales in the city
increased by 15.2 percent and reached RMB 688.285 billion. This
enabled Guangzhou to take the top spot on Forbes China’s “Best
Cities for Business” in 2013. Growth in retail sales is largely
being fueled by Guangzhou’s large population and high wages, as
well as its efficient infrastructure.
• Guangzhou is a city of 14 million people and the na- tion’s
third-largest metropolitan economy.
• In 2013, regional GDP totaled RMB1.542 trillion, ranking third in
the country, trailing Shanghai and Beijing.
• Among the highest in the country, average monthly wages in
Guangzhou grew to RMB 6647 in 2013. Guangzhou’s monthly minimum
wage rose by 19.2 percent from RMB 1,300 to RMB 1,550 in 2014 – the
second highest in the province behind Shen- zhen. Meanwhile, the
city’s minimum hourly wage increased from RMB10.5 to RMB15.
Guangdong’s strength in foreign trade is evident in the fol- lowing
figures (from Guangdong Statistical yearbook 2013):
• Total exports and imports rose to US$636.4 billion and US$455.2
billion, respectively, by 10.9 and 11 percent year-over-year
• Although exports had to face a 0.8% decrease in the first ten
months of 2014, Guangdong – China’s big- gest export region –
realized an export value of US& 515.7 billion.From Januar to
October 2014, imports decreased 7.6% year on year to US% 349.2
billion.
• Nevertheless, Guangdong province was still ranked tops for both
export and import values nation wide.
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2015 Special Report on the State of Business in South China
In particular, trade between Guangdong and newly emerging markets
including Latin America, the Middle East and Africa has increased
greatly in recent years.
The Outline of Guangdong’s 12th Five year Plan, current 2011-2015,
includes the following goals:
• Optimize the industry structure of the province such that the
service industry occupies 48 percent of all industries by 2015. In
addition, the Plan aims to increase the ratio of the value added by
modern service industries to 60 percent of value added for the
entire service industry. The key modern service indus- tries to be
promoted are finance and insurance, mod- ern logistics, information
service, science and tech- nology service, business exhibition and
headquarters economy, among others. In addition, newly emerg- ing
service industries such as creative industries, ser- vice
outsourcing, human resources services and high technology services
will be actively promoted.
• Significantly improve innovative capacity, and be- come an
important innovation center in the Asia- Pacific region by 2015. In
this regard, the Plan aims to introduce a great number of
high-level technologi- cal innovative talents from abroad.
• Transform the PRD into a domestic as well as international
consumer service center with a great number of trend-setting
products and with strengthened supervision of both quality and
prices of the products in order to better protect consumers’
interests.
• Promote integration of PRD’s economy and im- prove its
competitiveness. This includes integrating the transportation
systems, infrastructures, urban and rural planning, industry
layout, environmental protection and public services of the
region.
• Strengthen environmental protection by strength- ening water
pollution control, improving air qual- ity and improving the
standard of safe disposal and treatment of solid wastes.
• Promote low-carbon development in the province and improve the
system and mechanism for con- trolling emission of greenhouse
gases.
• Optimize high-efficiency information network system. The Plan
aims to achieve the standards of a mid-level developed country in
terms of the infor- mation levels of the entire province by 2015.
This includes reaching an internet penetration rate of 70 percent
by 2015.
• Adjust income inequality by expanding the ratio of people with
mid-level incomes and raising the minimum wages in the various
cities in the PRD
to above 40 percent of the local average salaries by 2015.
• Improve the social insurance system and medical service standards
in the province.
• Improve internationalization of education by introducing several
internationally well-known schools to Guangzhou, Shenzhen, Zhuhai,
Dong- guan, Foshan and other cities to jointly establish higher
education institutions.
• Deepen cooperation with Hong Kong and Macau under the CEPA. In
finance, efforts involve build- ing a financial cooperation hub
with Hong Kong in the lead and PRD cities providing support with
their own financial resources and services. To further enhance
services industry cooperation and growth between Hong Kong and
Mainland China, the Chi- nese central government and the Hong Kong
Special Administrative Region government signed the Tenth
Supplement to the Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA) on Au- gust 29 and will take effect
in January 2014.
• Internationalize the province’s economy and op- timize the
structure of FDI utilization. Foreign investment is encouraged in
high-end manufactur- ing industries, high- and new-technology
industries, modern service industries, new energy and energy-
saving and environmental protection industries. The key focus will
be on attracting investment from Glob- al Fortune 500 companies and
leading enterprises in various industries, and strengthening
cooperation with developed countries such as the U.S., Japan and
European countries in the areas of economy, trading, technology and
culture. Foreign investors are also en- couraged to establish
venture capital enterprises, pri- vate equity investment funds and
invest in enterprises within the province.
• Establish proper commercial dispute resolution mechanisms and
improve legal systems to create a fair and orderly market
competition environ- ment conducive to the internationalization of
the economy.
Spotlight on Shenzhen Government Innovation Shenzhen’s government
has taken the lead on a number of
new initiatives to become the national leader in innovation and
private enterprise growth. The city has experienced rapid private
economic growth, spawning about 450,000 private companies,
including international behemoths such as Huawei Technologies Co
Ltd, Tencent Holdings Ltd, China Vanke Co Ltd and ByD. Available
incentives include a recent VAT and business tax exemption policy
for small and
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60%
•
•
50
2015 Special Report on the State of Business in South China
micro-sized enterprises. The government has also adopted specific
measures in terms of equity investment incentives, e-commerce
promotion and the introduction of electric vehicles. Lastly, as
part of a pilot program to curb emissions of key pollutants and
clean up the environment, foreign investors are now permitted to
trade carbon permits in Shenzhen.
Equity Investment Incentives Private equity (PE) investment has
emerged as one of the
most important capital-raising avenues for small and medi- um-sized
enterprises. Recognizing this, the Shenzhen govern- ment has become
one of several coastal city administrations to offer further
incentives to equity investment enterprises. The city has
established a PE Development Fund (PEDF) and clarified operation
procedures for PE funds that intend to ap- ply for financial
support from the PEDF. Incentives offered to PE funds include:
rewards for local financial contributions, office purchase and
rental subsidies, one-time settlement re- wards, and one-time
rewards for investment withdrawal.
E-Commerce Promotion In September 2009, Shenzhen was approved by
China’s
NDRC and Ministry of Commerce (MOFCOM) to become China’s first
“e-commerce model city”. In addition to stream- lining registration
processes for e-commerce companies, the city has made other efforts
to promote the development of e-commerce. One example is the
building of dedicated indus- trial parks, such as Futian
International E-commerce Indus- trial Park, which opened in 2009
and houses more than 150 internet and e-commerce companies.
One state-level project being developed in Shenzhen is the Qianhai
Shenzhen-Hong Kong Modern Services Coopera- tion Zone, approved by
the State Council in June 2012. By the end of April 2014, a total
of 6,470 companies with a com- bined registered capital of RMB 450
billion had already reg- istered in the zone. A joint venture
between Hong Kong and Mainland China, and supported by the State
Council, the Qianhai Zone is designed as an experimental business
zone for better interaction between the two jurisdictions’
financial, logistics, and IT services sectors. It covers slightly
less than 20 square kilometers on the western side of Shenzhen, and
is expected to achieve a GDP of RMB150 billion by 2020.
Among its many goals, the Qianhai Zone will serve as a pilot area
for the liberalization of China’s financial sector as a whole,
including preferential policies such as:
• Allowing the Qianhai area to explore the expansion of offshore
RMB fund flow-back channels, and establish an innovative
experimental zone for cross-border RMB business;
• Supporting the granting of RMB loans for offshore
projects by banking institutions established in Qianhai; • Under
the CEPA framework, conducting studies on the
granting of RMB loans by Hong Kong-based banking institutions for
enterprises and projects established in Qianhai;
• Supporting qualified enterprises and financial institu- tions
registered in Qianhai to issue RMB bonds in Hong Kong within the
quotas approved by the State Council to support the development of
Qianhai;
• Supporting the innovative development of foreign-in- vested
equity investment funds, and actively exploring new modes of
foreign exchange settlement of capital funds, investment and fund
management; and
• Supporting the establishment of international or na- tional
management headquarters or business operation headquarters by Hong
Kong and other onshore and off- shore financial institutions.
Qualifying enterprises will be entitled to a reduced cor- porate
income tax rate of 15 percent and, to increase investor confidence
in the area, the government has stated plans to ex- plore the
establishment of branches of Hong Kong arbitration institutions in
Qianhai. To attract foreign talent, especially fi- nancial sector
employees from Hong Kong, the zone offers a special 15 percent
salary tax rate for foreign nationals living or working in Qianhai.
In April 2013 the municipal government announced four
industries–finance, modern logistics, infor- mation services, and
related industries operating within the zone–that are eligible for
special funds.
Identified as “an area for spearheading industrial restruc- turing
in the Pearl River Delta region,” the Qianhai Zone pro- vides
incentives that are likely to be extended to the other areas in
Guangdong Province in the near future. This is designed to extract
the ‘next wave’ of FDI in areas such as Hengqing Island near Zhuhai
and Nansha Port near Guangzhou, and if successful may eventually be
instituted nationwide.
Spotlight on Value-added Tax Reform Guangdong Province launched its
value-added tax reform
pilot program in November 2012, following the pilot program launch
in Shanghai and Beijing. Here, two lower rates of 11
percent and 6 percent were added on to the standard rates
of 17 percent and 13 percent under the previous value-added
tax regime. The tax rate of 17 percent applies to the leasing
of tangible movable property while that of 11 percent applies
to the transportation industry.
Industries included in the pilot include:
• Land transportation service • Water transportation service • Air
transportation service
51
•
17%
52
2015 Special Report on the State of Business in South China
• Pipeline transportation service • R&D and technology service
• Information technology service • Cultural and creative service •
Logistics auxiliary service • Authentication and consulting
service
The tax rate of 6 percent shall apply to other modern ser-
vice industries and that of 3 percent shall apply to small-scale
taxpayers providing taxable services. Taxable services subject- ed
to a zero percent tax rate shall be carried out as prescribed by
the Ministry of Finance and the State Administration of
Taxation.
Pilot taxpayers engaged in specified taxable services shall, as
required by the relevant state tax authorities, undergo the
formalities for tax registration, tax type identification, invoice
type verification, general taxpayer recognition, tax-control system
application, invoice purchasing and collection, tax preference
application, and tax-exemption registration for ex- port refund
before October 31, 2012.
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2015 Special Report on the State of Business in South China
3. Fujian Province Cross-Strait Trade Hub
Directly facing Taiwan, Fujian’s coastline provides it easy access
to cross-strait trade and business. The province used to be the
sole hub for all air and sea transportation to Taiwan, but several
years ago the government began permitting direct links with other
parts of the country, following which Guang- dong and Jiangsu
surpassed Fujian in terms of attracting in- vestment from Taiwan.
Nonetheless, Fujian stands to gain the most from the continuing
improvement of cross-strait rela- tions, both economically and in
terms of its importance to the state government. The main economic
engines in Fujian are Xiamen, Fuzhou, Quanzhou, Zhangzhou and
Putian. There are also a number of less well-known economic gems
hidden throughout the province.
Economy
The economies of Fujian and Taiwan are closely related and
complementary – with the pillar industries of both re- gions
consisting of electronics, petrochemicals and machin- ery. If this
favorable economic factor can be properly utilized, gains from
the increased trade between the two regions could benefit both
sides amid the ongoing global economic down- turn. In May 2013, the
capital city of the province – Fuzhou – set up an administration
office to handle the certification of origin for goods made in
Taiwan.
In June 2012, China’s State Administration of Industry and
Commerce issued 16 new policies to promote the devel- opment of the
region and strengthen its bond with Taiwan. The new policies
empowered local offices to directly handle registration
applications and other business-related licenses for enterprises
funded with overseas capital, rather than go- ing through the
Beijing office, and thereby making it more convenient for Taiwanese
enterprises to gain market access. Additionally, the new policies
newly allowed Taiwan-funded enterprises to use traditional Chinese
characters on outdoor advertisements and register company
names with Taiwanese idioms. All these measures were aimed to
reduce the com- mercial costs to Taiwan-funded enterprises and help
to attract more large-scale companies and projects to
Pingtan.
Historically, Fujian’s key industries have been agriculture,
footwear and clothing, but in recent years the area has in-
creasingly focused on high-tech and electronic goods. Fujian’s
industrial clusters have become stronger in electronic infor-
mation, equipment manufacturing and petrochemicals, with
these industries accounting for more than 60 percent of total
industrial output value.
A prime example of an equipment manufacturer head- quartered in
Fujian is Lonking Holdings, one of the largest construction
machinery manufacturers in China (making and distributing loaders,
road rollers, excavators and forklifts). In late 2011, the company
invested RMB3.5 billion in an exca- vator manufacturing line in the
Longyan Economic Devel- opment Zone. The project is estimated to
produce 15,000 excavators annually.
To fuel such industry, Fujian province has taken measures to
promote energy production. For example, a household waste-fuelled
power plant in Fuqing city was completed and entered operation in
2011.
The provincial government focuses on attracting foreign investment
in 13 industries, namely electronics and informa- tion technology,
machinery, petrochemicals, steel and non- ferrous metals,
shipbuilding, new energy, bio-pharmaceuticals (traditional Chinese
medicine), logistics, new materials, con- struction materials and
textiles. Other key industries in the province include aquaculture
and fisheries.
Spotlight on Xiamen While Fuzhou is the capital of Fujian province,
the more
southern Xiamen is one of China’s four original special economic
zones (along with Guangzhou province’s Shenzhen, Zhuhai and
Shantou) and a key trade hub – its port and airport are both the
third busiest in the region, behind Guangzhou and Shenzhen.
The import and export volume connected to trade con- ducted by
foreign-invested enterprises takes up more than half of the total
volume in Xiamen, which in turn occupies more than half of the
total import and export volume of the entire province. These
provide opportunities for service outsourcing
Fujian’s Major Industrial Products National Rank (total 30
provinces/municipalities)
Product National Rank
Chemical Fiber 3
8 9
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.
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2015 Special Report on the State of Business in South China
enterprises in Xiamen to open up their overseas markets. Xiamen’s
more prominent service outsourcing businesses in-
clude information technology service outsourcing targeted to- wards
the Japanese market, logistics and supply chain outsourc- ing, as
well as integrated circuit design, animated games and call center
service outsourcing businesses targeted towards Taiwan.
The Fujian provincial government has a standing policy to promote
the development of emerging industries, including next-generation
information technology, biotechnology and new medicine, new
materials, new energy, energy-saving tech- nology, high-end
equipment manufacturing, and the marine high-tech industry. By
2015, the provincial government aims to increase the value of
emerging industries to RMB300 bil- lion, accounting for 12 percent
of Fujian’s GDP.
The province is now vigorously promoting the marine economy as its
new growth engine. Fujian initiated related pilot projects in 2013,
targeting a total output value of the industry of RMB730 billion by
2015. If achieved, this would contribute more than 28 percent of
total regional product and turn the province into a marine economic
powerhouse by 2020. The province is also set to improve the
organization of its ports and optimize resource allocation. The
province’s coastal resources for building deep water berths of
10,000 tons to 30,000 tons rank first in the country; this is
planned as the basis for an ambitious move to turn Fujian an
internation- ally competitive shipping center. To this end, the
provincial government has plans to establish a special fund of RMB1
billion for the development of marine economy.
Fujian’s 12th Five-year Plan encourages foreign invest- ment in
newly emerging strategic industries, modern services, energy
conservation and environmental protection, and other key
industries. The Plan also aims to:
• Increase cooperation with large international corporations
through technological cooperation and asset M&As;
• Optimize the structure of exported products by en- couraging the
export of high-tech, electrical and me- chanical products with
independent IPR, as well as high added-value labor-intensive
products;
• Promote the accelerated transformation and upgrad- ing of the
processing trade, and encourage domestic and foreign enterprises to
cooperate in the expansion from simple assembly and processing to
the inclusion of R&D, design, core component manufacturing, and
logistics;
• Restrict the export of high-energy consumption, high-pollution
and resource-intensive products;
• Encourage the import of advanced equipment and technologies,
important resources, key component parts and goods for daily
consumption that are neces- sary for economic development so as to
optimize the
province’s import structure; • Strengthen the certification of
enterprises and prod-
ucts entering the global market; and • Expand cooperation with Hong
Kong and encourage
Hong Kong financial institutions to set up branches in
Fujian.
Much of the Plan’s focus is placed on cooperation with Taiwan, for
example in modern services such as the legal, in- termediary,
medical and health, cultural, service outsourcing, commercial
exhibition, shipping and logistics and R&D in- dustries. The
Plan encourages the introduction of Taiwanese hospitals,
rehabilitation centers and retirement homes to Fuji- an, and
Taiwanese residents are encouraged to start businesses and
participate in politics in Fujian.
Fujian’s import/export value grew by 8.6 percent to US$169.35
billion in 2013. Exports exceeded US$100 billion for the first
time, while imports reached US$62.85 billion (an increase of 8.2
percent). For 2014, trade volume is expected to grow by 7 percent,
and foreign investment by 5 percent.
Spotlight on Development Zones Fujian’s development zones received
great attention under
China’s 11th Five year Plan, in which the State Council approved
free trade port zones both in Xiamen and Fuzhou and upgraded three
provincial development zones - China Merchants Zhangzhou
Development Zone, Quanzhou Economic and Technological Development
Zone, Quanzhou High-tech Industrial Development Zone - to state
level status.
Fujian’s development zones are also representative of the
province’s economy as a whole. For example, the province’s
development zones include three state-level investment zones
specifically aimed at Taiwanese businesses, located in Fuzhou,
Quanzhou and Zhangzhou. Auto-parts are a major product in Fujian
province and this is no more clearly seen than in Hua’an Economic
Development Zone, which is home to the “aluminum wheel production
project.” According to Fujian government plans, this zone will
develop an auto spare parts industrial cluster that produces car
wheels, car bearings, tires as well as auto glass products, among
others. In addition, sev- eral new-energy vehicles and fork-lift
trucks manufacturers will also be housed in the area.
The West Coast Economic Zone (also known as the Western Taiwan
Straits Economic Zone) covers the entirety of Fujian province, as
well as several cities in the Zhejiang, Guangdong, and Jiangxi
provinces. The Zone, described in China’s 12th Five year Plan, was
proposed by the Fujian gov- ernment and Chinese central government
with the purpose of facilitating political and economic
relationships across the Taiwan Straits and accelerating economic
development along the coastal cities in Fujian province.
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4. Guangxi Zhuang Autonomous Region Link to South Asia
As the only province of China with both land and water connections
to Southeast Asia, Guangxi’s position was signifi- cantly enhanced
by the inauguration of the China-ASEAN Free Trade Area in early
2010. The province borders Vietnam to the west and is connected to
Hong Kong and Macau by the Xi River. Cross-border, small-value
trade with Vietnam accounted for around 40 percent of Guangxi’s
total exports in 2013.
The provincial capital of Nanning in particular plays a key role in
China-ASEAN relations. The city is the permanent home of the annual
China-ASEAN Expo and the China- ASEAN Economic Park, a
provincial-level park based in the Nanning Overseas Chinese
Investment Zone, which aims to enhance cooperation between the
region and the ASEAN countries.
Economy
Guangxi is home to many ethnic minority groups and its economy is
based on agriculture and tourism (especially the city of Guilin,
known for its proximity to the Lijiang River and Karst Peaks). Key
agricultural products include sugar- cane, of which Guangxi is the
leading producer in China, and silk-worm products. Major grain
crops include rice, maize, wheat and sweet potatoes. Leading
commercial crops include peanuts, sesame, ramie, tobacco, tea,
cotton, and indigo. Guangxi is also a major producer of fruit: most
notably pom- elos, tangerines, mandarin oranges, lemons, lychee,
pears, papayas, bananas and pineapples. The region’s timber (san-
dalwood and cork) and fishing industries are both important
contributors to the local economy.
The province is also known for its wide variety of minerals and
metals, and its aluminum processing industry. In 2011, Guangxi
launched a new materials research and development center, investing
RMB30 million in R&D for new metallic materials, the
comprehensive utilization of low-quality iron resources, and
laterite-nickel ore.
Food processing, auto manufacturing, petrochemicals, power
generation, nonferrous metals, metallurgy and ma- chinery are the
seven key industries of Guangxi. In addition, building materials,
pharmaceutics, textiles and garments, shipbuilding, as well as the
marine equipment manufactur- ing industries have grown rapidly in
recent years. Pine resin is notable as an export-oriented commodity
produced in the city of Wuzhou. The province’s heavy industries
include iron,
cement- and steelworks in Liuzhou, as well as machinery production
in Nanning and Wuzhou. Pinyang produces ce- ramics, fans, felt
caps, copperware, combs, brushes and straw bonnets.
In January 2012, Sinopec opened a renovated refinery in the coastal
city of Beihai. The new facility can refine 100,000 barrels per
day, and is integrated with a 200,000 ton-per-year polypropylene
unit for producing plastics.
Spotlight on Development Zones Guangxi is also home to new
high-tech development zones
aimed at attracting investors in the logistics, bio-engineering,
IT, electronic components and shipping industries. The
Nanning-Guizhou-Kunming Economic Belt and the Beibu Gulf Economic
Zone are being constructed and efforts are being taken to enhance
the cooperation with Taiwan and other areas in and outside of
Guangxi. At present, over 3,000 companies have settled into
Guangxi’s 37 industrial parks, including China Petroleum, SDIC
Power Holdings, Sinar Mas Group of Indonesia, Noble Group of
Singapore, China National Cereals, Oils and Foodstuffs Corporation
(COFCO) and Coca Cola.
The High-Tech Industrial Development Zones of Nan- ning, Liuzhou,
Qinzhou, Guilin, and yuchai all created an industrial output value
over RMB10 billion in 2011. In ad- dition to industrial output
value, the development zones are a key source of jobs in the
province. The province’s industrial zones have been developing
their industrial cluster according to the area characteristics. For
example, the coastal areas of Qinzhou, Beihai and Fangcheng are now
focused on petro- chemicals, power plants, manganese steel, sugar,
and high- tech products.
Efforts have been made by the local government to increase both
foreign- and domestic investment in the region. Global companies
like Toyota, General Motors, NEC and IBM have all made investments
in Guangxi. Many large enterprises have established regional
headquarters in the city since July 2010 (when incentives were
introduced to encourage doing so), in- cluding the brewer,
Tsingtao, and household appliance maker, Haier.
As part of the China-ASEAN framework, the Pan-Beibu Gulf Economic
Cooperation Zone comprises the Guangxi Zhuang autonomous region,
Guangdong and Hainan prov- inces, Vietnam, Malaysia, Singapore,
Indonesia, the Philip- pines and Brunei.
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Infrastructure
Air Guangxi’s airports include Nanning Wuwei, Guilin
Lianghe, Beihai Fucheng, Liuzhou Baihe, and the much smaller Baise
Tianyang and Quzhou Cheung Chau Island.
Rail Guangxi’s railway network, which has long lagged behind
that of neighboring provinces, is currently undergoing development
and expansion. The province plans to spend RMB300 billion on
railway construction between 2011 and 2015.
This project is integrally connected to Guangxi’s develop- ment of
trade with ASEAN. The province plans to acceler- ate the
construction of a high-speed railway from Nanning to Singapore via
Vietnam as the groundwork for the Nanning- Singapore Economic
Corridor.
The first step of this is a railway segment between Nanning and
Pingxiang, a city near China’s border with Vietnam. The larger
Corridor is planned to encompass Hanoi in Vietnam, Vientiane in
Laos, Phnom Penh in Cambodia, Bangkok in Thailand, Kuala Lumpur in
Malaysia, and Singapore.
Ports and Waterways Guangxi’s main port is at Beibuwan (Gulf of
Tonkin),
which lies just off the coast of northeastern Vietnam and has an
annual goods throughput approximately equal to that of Guangdong’s
Zhanjiang and Fujian’s Xiamen combined (119 million tons). The
province plans to raise the capacity of the port to over 330
million tons by the end of 2015, according to Guangxi’s
“Development Plan” and Xinhua News Agency. In 2011, it invested
heavily in terminal and navigation channel projects with the goal
of turning the port into a hub for ASEAN trade.
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5. Hainan Province An Island of Tourism and Agriculture
Hainan province includes over two hundred islands off of China’s
southern coast in the South China Sea, with Hainan Island (30 miles
off the coast of Guangdong) accounting for 97 percent of the
province’s land area. China’s smallest province and largest special
economic zone, Hainan is at the same latitude as Hawaii, Bali and
Phuket and has developed into one of China’s prime resort areas,
the “oriental Hawaii.”
Economy
While many of the tourists who travel to Hainan are Chi- nese, the
government is attempting to change this; the State Council has
announced a strategic plan to make Hainan a world-class
international tourist destination by 2020. The central government
has approved a further 15 resorts and 63 five-star hotels as part
of the island’s existing Five-year Plan. Tourists may visit the
island without a visa as long as they are part of a tour group
organized by a state-approved interna- tional travel agency.
The most valuable government policies issued in connec- tion with
promoting Hainan as an international tourist des- tination are the
island’s duty-free policies, post-departure tax refunds, and visa
exemptions for tourists from 26 countries and regions.
Since April 2011, tourists have been able to purchase du- ty-free
commodities at duty-free stores in the province and leave the
island by air, greatly increasing tourism and high- end
consumption. Having recognized the tremendous ben- efits brought to
the local economy by the policy, the Chi- nese central government
loosened previous restrictions in October 2012. The minimum age for
purchasing duty-free commodities was lowered to 16, while the upper
value limit for duty-free commodities was increased from RMB5,000
to RMB8,000. Moreover, three additional categories of com- modities
have been added to the duty-free list, namely, beauty and health
care products, tableware and kitchen appliances, and toys -
expanding the scope of duty-free commodities to 21
categories.
In an effort to bring the huge potential of the duty-free
policy into full play, construction of the world’s largest duty-
free shopping center has begun in the resort city of Sanya. With an
investment of RMB3.45 billion, the Haitang Bay International
Shopping Center has attracted a vast number of top-end and flagship
stores to its 125,000 square meter complex after opening in
September 2014.
The accumulative value of the duty-free goods purchased per
one-time visitor departing from Hainan Island is limited to
RMB8,000 and the allowable quantity of each individual type of good
is as shown in the Annex below. As long as the import duty of the
goods has been paid, each visitor may also purchase one product
priced over RMB8,000.
Hainan Island occupies 42.5 percent of the nation’s to- tal
tropical landmass used for agriculture, forestry, animal husbandry
and fishery. Major agricultural industries include natural rubber,
coffee, tobacco, tropical flowers and tropical fruits such as
coconuts, watermelons and bananas. Hainan is also developing
aromatic vegetables into a major industry.
The province is home to 70 percent of China’s titanium reserves and
is a major salt production center. Main exports include aquatic
products, furniture and wood, electrical and electronic products,
and iron and steel. Hainan’s main import and export trading
partners are the E.U., ASEAN, the U.S. and Japan. Hainan’s
territory covers an enormous amount of seabed - a radius of about
200 miles around the island area - and the local government is keen
to exploit this in terms of aquaculture and offshore oil and gas
production in the South China Sea. Since 1996, Hainan has been
supplying Hong Kong with natural gas through a 770-kilometer
pipeline. Large oil and gas reserves have been discovered in the
South China Sea, a major source of conflict between China and its
neighboring countries in recent times.
The 12th Five-year Plan of Hainan aims to promote the modern
service industries, including tourism, commercial exhibitions,
modern logistics, and sports and leisure. It also aims to greatly
increase investment into the new energy, new materials and
biomedical industries, such that they become the province’s main
pillars of economic growth. The Plan hopes to form five industry
groups in the automobile, food & beverage and agricultural
product processing, photovoltaic, medical and pharmaceutical,
cultural and creativity, and leisure and entertainment industries,
with output of over RMB10 billion
Hainan’s Major Industrial Products National Rank (total 30
provinces/municipalities)
Product National Rank
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by 2015. It also plans to accelerate the development of the golf
and yacht industries by introducing a series of internationally
influential golf tournaments, developing golf training and
associated industries, and establishing yacht trading venues and
yacht clubs. The Plan also encourages the creation of a base for
manufacturing travel equipment including for yachts, residential
vehicles, outdoor sports, scuba diving, and golf. In addition, the
Plan aims to cultivate three to five medical, health and
convalescence institutions meeting international advanced standards
and providing services such as Chinese medicine, hot springs and
dietary therapy.
In terms of raising innovative capability, the Plan encour- ages
enterprises with the necessary conditions to establish state,
provincial and municipal-level key laboratories and state and
provincial-level key engineering technology R&D centers, and
aims to cultivate a group of high- and new- tech- nology
enterprises, innovative enterprises, and state and pro-
vincial-level IPR pilot enterprises.
Well-known domestic and foreign schools are encouraged to establish
branch schools in the province and large enter- prises to establish
training bases in Haikou, the provincial capital. Local schools are
encouraged to establish mutual rec- ognition of courses and
accreditation with foreign schools. In addition, the development of
accounting, legal, economic appraisal and consulting services are
encouraged, with the Plan aiming to cultivate a group of
internationally renown intermediary service enterprises.
In terms of the environment, the Plan hopes to achieve a 100
percent urban waste treatment and disposal rate and a 90 percent
urban waste water treatment rate, and prohib- its the development
of high energy consumption, high water consumption, high emission
and overcapacity industries. The Plan also aims to achieve a 95
percent utilization rate of clean energy by 2015, and for all key
projects and large-scale pub- lic facilities to comprehensively
implement contract energy management.
The Plan aims to actively promote Haikou’s economic ex- change and
cooperation with the pan-PRD region and with international sister
cities, as well as expand economic coopera- tion and trading with
the 10+1 ASEAN nations. In addition, it hopes to adjust and
optimize the province’s export goods struc- ture and encourages and
supports expanding the export of pho- tovoltaics, marine products,
food and beverages, and electrical and mechanical products. In
addition, it hopes to adjust and optimize the structure of FDI
utilization by increasing efforts to attract investment in the
high- and new-technology indus- tries, modern service industries,
and public infrastructure.
Infrastructure
Air Hainan’s airports include Sanya Fenghuang and Haikou
Meilan, which handle the major inflow of visitors to the
province.
Rail Hainan’s east ring intercity rail connects its major
cities
of Haikou and Sanya. An additional high-speed railway is planned
for the west coast of Hainan, and a ferry link connects Hainan’s
railroad to the mainland.
Ports and Waterways Hainan’s largest harbors are located at Haikou,
Sanya,
Basuo and yangpu.
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6. Hong Kong Special Administrative Region East Asia’s Logistics
and Financial Hub
Situated at the southeastern tip of China, Hong Kong is at the
center of East Asia. Since its return to the Chinese Mainland in
1997, the special administrative region has been a model for the
success of the “One Country, Two Sys- tems” policy. Hong Kong is
the world’s 10th largest trading economy, 6th biggest foreign
exchange market and, with its service sector accounting for more
than 90 percent of GDP, the world’s most service-oriented economy,
according to the Hong Kong Development and Trade Council.
Hong Kong encompasses Hong Kong Island, the Kow- loon Peninsula and
the New Territories. Parts of the region consist of the most
densely populated places in the world, while others are quite
rural. Approximately 88 percent of the population speaks Cantonese
as their first language, rather than the mainland’s official
language of Mandarin Chinese.
Economy
Major economic sectors of Hong Kong include: trade and logistics,
tourism, financial services, professional services and other
producer services. Mainland China is Hong Kong’s larg- est trading
partner and the largest source of external direct investment into
Hong Kong. Its relationship covers a wide range of activities
ranging from traditional areas such as im- ports/exports, wholesale
and retail, banking and transport and warehousing, to newer areas
such as real estate, hotels, finan- cial services, manufacturing
and infrastructure development.
Spotlight on CEPA’s Tenth Supplement In December 2001, after
China’s accession to the WTO,
Hong Kong proposed an arrangement with mainland China similar to a
free trade agreement. By 2002, the official term, Closer Economic
Partnership Arrangement (CEPA), was confirmed. CEPA promotes closer
integration and development of the PRD through trade in goods and
services, investment facilitation and tourism.
The basic objectives of CEPA are to phase out tariffs and
non-tariff barriers on trade in commodities, liberalize trade in
services and reduce and eliminate all discriminatory mea- sures to
boost trade and investment in the Greater PRD.For manufacturing
industries, CEPA allows the vast majority of manufactured goods
that meet Hong Kongrule of origin and CEPA specifications into the
Chinese mainland duty-free. In the service sector, CEPA gives Hong
Kong companies in
specified sectors preferential access to markets. To enhance
cooperation between Hong Kong and Main-
land China in the services sector, the Chinese central gov- ernment
and the government of the Hong Kong Special Administrative Region
signed the “Tenth Supplement to the Mainland and Hong Kong Closer
Economic Partnership Ar- rangement” (CEPA) on August 29, 2013,
which is scheduled to take effect on January 1, 2014.
The Tenth Supplement further relaxes the market access conditions
in 28 existing sectors, namely:
Legal Construction Computer and related services Real esta