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Trouble in the World’s Factory

(ATF) The primacy of China’s Guangdong province – once the manufacturing engine that powered China’s economic explosion – is slipping, accelerated by the coronavirus outbreak.

The region that borders Hong Kong and is home to Shenzhen and Guangzhou, saw its economy shrink in the first half, one of a dozen or so provinces not to have bounced back from the epidemic. 

Quickly catching up with the southern region is Jiangsu, a province that borders Shanghai, the nation’s economically most powerful city.

While Guangdong’s GDP is still the largest of any province, it shrank 2.5% year-on-year in the first half, according to recently released National Bureau of Statistics (NBS) figures. Second-ranked Jiangsu, however, rose 0.9%, and Shandong, which is the third largest province by GDP, had no growth. 

READ MORE: Guangdong’s export star fades further

The data show that the gap between the top two provinces’ GDP narrowed to 251.1billion yuan from 373.7bn yuan in the period last year.

Due to its proximity to the capital markets of Hong Kong, where overseas investors can access the Chinese market, Guangdong quickly rose to become China’s industrial heartland when the country began opening up in the late 1970s. 

But a restructuring of the national economy towards services and high-value manufacturing has seen the region’s potency wain. While Shenzhen remains home to many of the nation’s technology firms, including Huawei, the digital economy that has helped propel Chinese business during the pandemic is located further north in Zhejiang, where e-commerce giant Alibaba is based.   

While the cities of southern China have been bound together in the Greater Bay Area project, which anticipates greater connectivity and integration of Guangdong with Hong Kong and Macau, its future looks cloudy. The passage of a controversial security law in the former British colony prompted US to remove special trading status from the city and there are reports that many overseas banks are planning to leave. Also, billions of yuan are being spent to build nearby Hainan province into a free-trade, tourism and technology hub to rival its easterly neighbour.

READ MORE: Sino-US tensions create anxiety for Hong Kong: HKEX chief executive

The latest data shows that of the 25 provinces, autonomous regions and municipalities across the country that have released mid-year economic data, 14 converted first-quarter contractions into second-quarter growth. 

Guangdong’s GDP still ranks first in the country, but the gap with Jiangsu, which ranks second, has narrowed substantially.

According to the NBS data, preliminary calculations showed that first-half GDP across the reporting provinces fell 1.6% at comparable prices. 

While the first quarter saw a 6.8% year-on-year contraction, the second quarter posted 3.2% expansion. 

Chris Gill

With over 30 years reporting on China, Gill offers a daily digest of what is happening in the PRC.


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