Contents

Introduction .................................................................................................................................................. 4

Encourage a Consumer-Driven Economy ..................................................................................................... 6

Offer Better Public Services: Housing, Medical, Education ...................................................................... 6

Address the High Cost of Housing ............................................................................................................. 6

Focus on Public Service ............................................................................................................................. 7

Promote Import Substitution .................................................................................................................... 8

Innovation and Entrepreneurialism .............................................................................................................. 9

Providing an Environment that Supports and Encourages Entrepreneurialism and Innovation.............. 9

Attract A Skilled Workforce and Investors .............................................................................................. 11

Develop A Regional Culture Of Innovation and Creativity ...................................................................... 12

Black Market Banking ............................................................................................................................. 13

Create And Enforce Stringent Intellectual Capital Protection Policies ................................................... 14

Create Progressive Business Networks Which Encourage Cooperation and Development ................... 14

Monitor the Strength of the Economy .................................................................................................... 16

Consumer Protection and Branding ............................................................................................................ 16

Intellectual property protection ............................................................................................................. 16

Enhance consumers’ confidence in Chinese domestic products ............................................................ 17

Transportation Logistics .............................................................................................................................. 18

Encourage Efficient Product Movement ................................................................................................. 18

Promote Comprehensive Implementation of Efficiency Standards ....................................................... 18

Introduce Special Licensing and Registration to Streamline National Movement ................................. 19

Locate Facilities Within a Close Proximity to Regional Railway .............................................................. 20

Air Quality ................................................................................................................................................... 20

Why the PRD Needs to Focus on Air Quality Locally .............................................................................. 20

Develop an Air Basin and Set Proper Ambient Standards within the Basin ........................................... 21

Define Your Air Basin .............................................................................................................................. 22

Develop PM 2.5 Standards ...................................................................................................................... 23

Establish Cap & Trade Policy, a Trade Market for Air Emissions ............................................................ 23

Instate and Enforce Strong Regulations on Marine Emissions ............................................................... 25

Uniform and Strict Enforcement ............................................................................................................. 26

In order for real progress to be made on air quality the Rule of Law must be enforced as it relates to

standards set. If this piece is not done, failure is inevitable. .................................................................. 27

In addition, the EPA provides “Enforcement Reports” back to 1999 which show what fines were set in

what areas to police air quality by the U.S. government. (EPA, 2011) The websites provide a level of

transparency over what the government officials are working on which helps to build that trust. ...... 27

Hold Regular Air Quality Joint Planning Sessions with Academic Experts and Decision Makers ........... 27

Improve Transparency & Trust ............................................................................................................... 28

Extend the “Car Restriction” policy after the World University Games ................................................. 29

Renewable Energy Opportunities ........................................................................................................... 30

Additional Policy Recommendations ...................................................................................................... 31

Labor Force ................................................................................................................................................. 31

Addressing the Labor Shortage in the Pearl River Delta ......................................................................... 31

Improve Quality of Life in Order to Cultivate Workforce Retention ...................................................... 32

Introduce Automated Assembly Lines to Address Future Workforce Shortages ................................... 33

The Role of Education in Economic Transformation .................................................................................. 35

Develop an Educated Workforce ............................................................................................................ 35

Invest in Teacher Training and Increase Senior High Education Access ................................................. 35

Create Quality Vocational Training Programs that Produce a Capable Workforce ................................ 36

Improve the Capacity of Undergraduate Education ............................................................................... 38

Allow Autonomy for Educational Institutions ......................................................................................... 39

New Talent .................................................................................................................................................. 40

Current Issues With Attracting and Retaining High-skilled Workforce .................................................. 40

Innovate and Improve Transportation Amenities .................................................................................. 41

Create opportunities for affordable housing .......................................................................................... 42

Increase the quality of education at all levels ........................................................................................ 42

Cooperate with Hong Kong ..................................................................................................................... 42

Fund Creativity and Protect Intellectual Property .................................................................................. 43

Regional Focus ............................................................................................................................................ 43

Regional Cooperation in Pearl River Delta- Shenzhen’s Role ................................................................. 43

Strategy Opportunities............................................................................................................................ 44

Shared Regional Interests ....................................................................................................................... 44

Establish Internal Industrial Supply/Value Chain in the PRD Region ...................................................... 45

Establish an efficient and transparent negotiating instrument/authority ............................................. 46

Regional Cooperation in Infrastructure Construction: logistics network inside the PRD ....................... 47

Further Promote Decrease Passage Time of Consumers between Hong Kong and Shenzhen .............. 48

Works Cited ................................................................................................................................................. 49

Introduction

The Region of the Pearl River Delta (PRD) is a fascinating part of the world. We have had the

pleasure of researching and exploring the intricacies of this region for the past five months and

have been awed by its rapid growth, intelligent planning, innovative environmental plans, the

immense cityscape, as well as the industriousness of the people here. The PRD has the potential of

becoming one of the largest, if not THE largest Megaregion in the world in the future. What a

tremendous opportunity!

We have had the distinct opportunity to research this area and make suggestions to our client, The

Public Administration Institute of Shenzhen. You have posed an extremely tough question to us.

How does the Pearl River Delta Increase Economic Development Sustainably for the future while

moving away from an export-driven economy toward one that is focused on selling to the domestic

market? With great care and consideration we have diligently set about answering this question.

We’ve used many different sources starting with your own regional reports like the Guangdong

Hong Kong Framework Agreement and the The Outline of the Plan for the Reform and Development

of the Pearl River Delta (2008-2020).

Los Angeles, California, and the U.S.A. face many of the same issues that the PRD faces including

struggles with air pollution, traffic, social concerns from a large immigrant population, tremendous

growth, managing distribution and ports, as well as attempting to keep the economy growing at a

positive rate. We researched the proposed solutions that the U.S. has attempted as a resource for

recommendations. We referenced many sources such as the Environmental Protection Agency and

RECLAIM, a Southern California committee focused on the marketization of air emission.

In California we have an extreme example of success in the Silicon Valley. We understood from your

inquiries and your desire to grow in the high-tech sector that you are interesting in learning from

the Silicon Valley model. Therefore we dug into what made Silicon Valley successful, dissected the

lessons that could be learned from their success and put together our ideas about how this region

could implement them.

We brought our own unique perspective to the question presented to us, and we feel it is

particularly relevant because we are the type of people you intend to recruit to Shenzhen. We are

young, educated, and many of us were born in the Chinese mainland and are about to graduate from

a Master’s program and looking for jobs in China and elsewhere in the World.

The Pearl River Delta faces many challenges and opportunities that it must tackle as a region.

Regional cooperation is not an easy task. Jurisdictions and various overlapping concerns and

directives prevent easy facilitation. In our document we have highlighted why believe Regional

Coordination is essential to your success and provided ideas on how to facilitate it.

Air Quality is one example which must be addressed by the region as a whole because what

individual cities throughout the delta do greatly impact each other as well as Hong Kong.

We also encourage you to look to your own people for your future prosperity. Chinese ideas and

businesses as well as Chinese consumers will be the ones that will drive your economic growth in

the future. Fostering a spirit of innovation and entrepreneurialism will be the only way to maintain

the unbridled you have seen in the past 30 years.

We respect the complexities of this region and the work you’ve done to grow it into what it is today.

It is with respect that we submit our recommendations on how to capitalize on all your

opportunities and to take your well-designed planning and turn it into reality. The following report

contains a plethora of ideas on how to grow your economy sustainably and to implement your

plans set forth by the NDRC in the The Outline of the Plan for the Reform and Development of the

Pearl River Delta (2008-2020).

Thank you for this opportunity and we hope you find that the ideas within help you in your growth.

We wish you great success in the future to grow economically and sustainably.

Encourage a Consumer-Driven Economy

Offer Better Public Services: Housing, Medical, Education

Shenzhen is a city of immigrants, and Shenzhen has literally been built by the millions of immigrant

workers. We encourage a shift in thinking regarding these migrant workers. We believe that the

immigrants should be treated as an opportunity within the economy and not a burden on the

government. Integrate as many immigrant workers as possible into the existing social welfare system,

provide more public housing to low-income families and enable all the people who developed this city

to enjoy the outcome of this development and Shenzhen will reach the potential to develop into the

largest market in China.

Address the High Cost of Housing

Due to limited land resources in Shenzhen, the housing prices here are incredibly high and even some of

the highest paid residents are unable to afford the purchase of a home. It will not be possible for the

citizens to consume goods if it takes approximately 3 generation’s savings to purchase an apartment.

The situation is similar to Hong Kong, however half of the population in Hong Kong live in properties

provided by the public. Furthermore it is not only for rented dwellings, the percentage of home

ownership in Hong Kong has also reached 53% (HKCSD, 2010). Shenzhen has a long way to go in this

area. Shenzhen has been enjoying “land financing” for the past 20 years and no significant amount of

that income has been dedicated to the public.

Currently Shenzhen does not have much more land to develop. It is the government’s responsibility to

finance public housing with other sources of revenue as well as alleviate the other social problems

generated by the lack of housing.

Another lesson Shenzhen should learn from Hong Kong is the concept of “Space”. (Ling, 2011) With

much less land and a much longer history of development, it is outstanding that Hong Kong has

conserved so much land for potential future development or natural reserves. Shenzhen should emulate

the patterns Hong Kong has applied to its urban growth strategies. For example, instead of expanding

the existing roads to accommodate more vehicles, Shenzhen should intentionally build narrow streets in

certain regions so it will not be practical for individuals to utilize private vehicles and public

transportation can be more easily encouraged. In this case, more land can be used to accommodate a

larger population, which is beneficial to the protection of the environment.

Focus on Public Service

The government should focus more on low income individuals through the provision of more thorough

public services. The government’s job should be to serve the public rather than compete with its

citizens. Public services as well as accessibility to what is provided should be the first priority of the

government. This goal will boost any economy that is focused on the local market economy. This issue

sounds huge, but it can really start from simple beginnings. For example, a small step in the correct

direction would bring large improvements to the social structure such as locating basic public services in

easily accessible locations.

One issue which Shenzhen needs to be aware of is, even though the population of Shenzhen is still very

young, the number of pensions and social service requirements will increase significantly in the future. If

Shenzhen and the PRD fail to deliver these services, including to the poor and less educated majority of

the population, eventually Shenzhen will incur significant costs. This problem will only get worse as the

population ages and settles down in Shenzhen. Improved social welfare systems and a larger middle-

class population that can help fund such programs through taxation is necessary to maintain a

sustainable development pattern. Issues regarding the changing demographic structure in Shenzhen and

its impact on economic sustainability will be discussed later in this work.

Shenzhen was awarded UN-HABITAT Scroll of Honor “For innovative provision of housing for low-income

families” in 1992 (IEAS, 2010). Shenzhen is the only city in Mainland China to be awarded such an honor

since 1990. We strongly hope Shenzhen can maintain this lead and implement more innovative policies.

Promote Import Substitution

Shenzhen needs to promote the building of a self-serving economy in order to reduce its dependence on

the U.S.A. and other Western countries. This concept is called “Import Replacing” (Jacobs, 1984) – which

promotes a complete supply-demand chain of most products or services. Shenzhen has been promoting

some form of import substitution since the reformation in 1979, and has been successful implementing

it. Through the development of economic industries and technological advancement, Shenzhen has

managed to diversify its industries and develop a thriving economy.

Now, Shenzhen has the opportunity to develop this pattern throughout the larger region: the further

implementation of specific areas within the greater PRD which would specialize in different industries

and focus on core competencies. A significant amount of cooperation is necessary to achieve this goal,

but the advantages are that it would develop into a perfect example of “import substitution” and enable

more wealth to be generated within the region.

The map included above (Source: Yuan, 2011) provides a outline of the spatial distribution of the

industries that exist in the PRD. They are (clockwise from top) auto manufacturing, electronic

information, petrochemicals, electronic information, equipment manufacturing, ship manufacturing,

mechanical manufacturing, metal processing, and auto accessory manufacturing. This plan will achieve

better efficiency by avoiding duplication of construction and would make the best use of the integrated

logistic network, leading to a better distribution pattern for people to consume if successfully executed.

We recommend that the endorsement of either the Guangdong Provincial Government or the Central

Government be sought, because this form of integration is unlikely to take place without strong support

from the authorities.

Encouraging private investments within Shenzhen into sectors of business and public service, which

currently lack funding, would be beneficial for the local economy and all of the residents. A potential list

of these sectors includes education, public health, entertainment and affordable housing. These

livelihood industries might be the key to improving residents’ disposable income and would significantly

reduce the government’s burden to deliver all the services.

Innovation and Entrepreneurialism

Providing an Environment that Supports and Encourages Entrepreneurialism

and Innovation

“What gives the region its competitive edge, and its source for broader regional prosperity, goes beyond

the strength of its companies and lies instead in the quality of its innovation habitat: the complex,

dynamic network of interpersonal relationships across people, firms and institutions.” (Silicon Valley

Community Foundation, 2010) No single region is a better example of this than Silicon Valley.

It seems almost every city in the world wants to be the next Silicon Valley. Silicon Valley is seen as the

worldwide example of success, prosperity, and wealth. They’ve achieved this mainly through success in

developing high technology and a nurturing venture capital community. They have shaped their region’s

ability to nurture innovation through four key methods: global connectivity, ability to attract talent,

ongoing advances in technology and innovation, and the role of state and federal government. (Silicon

Valley Community Foundation, 2010)

Innovation and Entrepreneurialism lead to a successful economy. These two components are paramount

to the type of economic reinvention that the Pearl River Delta region is seeking. “An innovative economy

is the engine that produces economic opportunity and community revenues that make possible career

mobility, investment in educational systems, development of community infrastructure and amenities,

investments in environmental preservation, and other critical assets for regional vitality and quality of

life.” (Silicon Valley Community Foundation, 2010) It is this kind of innovation that the PRD needs to

support. As the area evolves away from heavy manufacturing, a process that is already underway,

Shenzhen and its surrounding region needs to embrace a new type of industry: innovative, fast-moving,

Chinese-owned start ups that target the local consumer.

“Developing new ideas opens a new world of opportunity for making profits. In whatever industry the

new idea is used, as long as it is unique and valued, people will pay more for it.” (Collaborative

Economics, 2001) However, harnessing innovation and fostering the environment necessary for it to

grow is not as easy as it sounds. Worldwide, and even here in China, the competition to be the next

Silicon Valley is fierce. Not all can succeed. In the words of Larry Ellison, Cofounder and Chief Executive

Officer of Oracle, “When you innovate, you’ve got to be prepared for everyone telling you you’re nuts”

(Bureau of International Information Programs).

“Not every region can be world-class in biotechnology and information technology. However,

experience suggests that every region, no matter its characteristics, can plan strategically to translate its

assets into greater wealth. Evidence suggests that every industry — whether “new economy” or “old

economy” — can be improved (if not transformed) through technology, innovation and

entrepreneurship. Fundamentally, every regional economy can be reinvented.” (Collaborative

Economics, 2001) The biggest question you need to ask yourself is: does the change you want to make

match your core competencies as a region?

In The Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020), the PRD

sets lofty goals for strengthening capabilities for innovation. In order to achieve these goals, the region

must implement policy and create an environment friendly to start-up businesses. In the next few pages

of this report, we are going to suggest some ideas of how to do this, including lessons learned from

Silicon Valley’s own efforts to achieve high-tech greatness.

What strategies exist to create an atmosphere conducive to entrepreneurialism and innovation in high

tech industries? Several theories exist on this oft-researched dilemma but there are several key

components that are universal to them all. The Center for Economic Competitiveness summarizes it

nicely in its 1992 report “The critical elements of economic infrastructure are: Accessible technology,

Skilled work force, Available capital, Advanced physical infrastructure, Pro-competitive regulatory

climate, and High quality of life” (Center for Economic Competitiveness: SRI International, 1992).

Attract A Skilled Workforce and Investors

To start, we need a skilled workforce, or perhaps more specifically a “creative class.” This is an old

theory, dating back to Jane Jacobs in 1984. “Jacobs noted the ability of cities to attract creative people

and thus spur economic growth” (Florida, 2003). The attraction and retention of people with ideas

seems to be the starting point for regional transformation. For the PRD that means providing both

vocational training for the existing workforce as well as attracting fresh talent with unique perspectives

from other parts of China and the world, which we will expound upon later in this report.

According to Paul Graham, businessman and early Silicon Valley entrepreneur, you simply need the right

people and the right atmosphere. To him, the right people are “rich people and nerds.” “If you could

attract a critical mass of nerds and investors to live somewhere, you could reproduce Silicon Valley.”

(Graham, 2006)

In this equation the rich people exist in the form of venture capitalists, an industry which is more

developed in Hong Kong than here in the PRD. Through regional cooperation, this resource can easily be

tapped into. “Venture investors prefer to fund startups within an hour’s drive….They don’t want to have

to travel to attend board meetings, and in any case the odds of succeeding are higher in a startup hub.”

(Graham, 2006) Venture capitalists tend to work in the field in which they invest. Through this, they can

offer business advice and keep an eye on their investments. “Having access to venture capital is critical

for the growth of technology companies. Venture capital firms are private partnerships or closely held

corporations, funded by private and public investors who seek to finance new and rapidly growing

companies.” (Center for Economic Competitiveness: SRI International, 1992)

Develop A Regional Culture Of Innovation and Creativity

“Successful regions develop a vital cycle in which clusters and economic infrastructure are mutually

supportive. When a vital cycle works, competitive enterprises attract investment to the region and

incubate new enterprises to generate quality jobs, rising income, and growing tax revenue that support

economic foundations.” For Shenzhen in particular, streamlining movement for investors and the

location of potential entrepreneurs will be vital to re-molding the area as a start up hub. We can think

about this as the spatial relationship between investors and thinkers.

(Center for Economic Competitiveness: SRI International, 1992)

The next thing the PRD needs to focus on is creating an environment that is friendly to start ups,

including a competitive regulatory climate. This includes policy which promotes Small and Medium start

ups, that are vital to the local economy. “Small and Medium Enterprises (SMEs) drive innovation, spur

economic growth, create jobs, and facilitate the provision of goods and services.” (Barreiro, Hussels, &

Richards, 2009)

An example, in Tianjin, a company called Lotus Biological Technology Company struggled to procure

financing for business growth. “China lacks a culture of “angel investors”: affluent individuals willing to

cover start-up costs during the difficult phase of setting up an enterprise. This confines SME’s financing

options to only banks and government.” (Barreiro, Hussels, & Richards, 2009) To read this case and

more examples of the importance of financing, see the World Resources Institute Report called On The

Frontiers of Finance – Scaling up Investment in Sustainable Small and Medium Enterprises in Developing

Countries.

In addition to venture capital, ready access to credit is essential to business owners. With a default for

SMEs of less than .001%, according to the Shenyang Credit Guarantee Center, the risk to government

lending institutions is negligible. Lending policies requiring high collateral and high fixed costs are

prohibitive. These business owners are a “good” credit risk and can be trusted to pay back the loans.

This clearly benefits both the small business community as well as the economy as a whole.

Black Market Banking

Even though the black market banking in Shenzhen is less established than that of the Yangzi-River Delta

Region, a significant amount of money is involved here (Shenzhen police destroyed 13 black market

banks in April this year involving an estimation of 5 billion RMB) (Hu Mou, 2011). This market exists

because of four reasons. First, it is extremely difficult for small businesses or start-ups to get access to

financing from national banks. The need for small business financing directly explains why the market of

the Yangzi-River Delta Region is larger because they have greater numbers of small businesses.

Secondly, the different banking systems between the Mainland and Hong Kong have caused a lot of

trouble. Individuals or companies may seek black market financing to provide instant transactions across

the boundary with Hong Kong to avoid the paperwork and restrictions associated with traditional

methods. Third, there are very few investment opportunities. There is lack of confidence in the stock

market; the futures market is extremely risking; and the real estate market is strictly regulated. Lastly,

followed by the strictest regulations on property purchasing issued by the central government, a lot of

individuals who want to purchase a house are not able to get financing from formal institutions.

Recommendations to address these issues are as follows: 1) Encourage the establishment of more small

private banks. Integrate the existing black market banks into the formal system, which will also allow

the imposition of greater regulation and increase stability and security for small businesses or start-ups

seeking financing. 2) Even though it is not possible to integrate the different banking systems across the

boundary with Hong Kong in the near future, it may be feasible for Shenzhen to seek for a special

practice or agreement in the framework of regional cooperation under the auspices of the “Special

Economic Zone”. 3) Establish a higher quality and more complete financing system. Though the local

government may not have ultimate control of policies regarding banking, Shenzhen should utilize its

unique geographical advantage and seek help from Hong Kong to set up a third-party service system.

Create And Enforce Stringent Intellectual Capital Protection Policies

Another potential barrier to R&D is the lack of enforcement of intellectual capital protection policies as

well as the lack of a strong, national policy. As Shenzhen and the PRD move up the manufacturing food

chain, further away from the “shower-slipper economy” and closer toward the design and tech-driven

world of computers and service provision, product differentiation, innovation, and the ability to protect

intellectual property become even more important. “As technology allows firms to differentiate their

products, competition advantage is increasingly based on value — unique qualities of performance —

rather than cost. Today, there is far greater churning among industry competitors, as new firms enter,

others leave or die, some grow, others downsize. The economy more frequently experiences the

phenomenon the economist Joseph Schumpeter called 'creative destruction'” (Collaborative Economics,

2001).

Create Progressive Business Networks Which Encourage Cooperation and

Development

Focus of policy seems to be on protecting exporters and those foreign companies who want to operate

here in the PRD. Though some of the tax inequities seem to be normalizing, it appears to some small

business owners that policy from 10 years ago was far more innovative and business-friendly than it is

today. This climate, along with rising labor prices and high housing costs, may contribute to businesses

relocating outside the region. SMEs need protection from the government to grow and thrive. One

strategy to improving relations with SMEs would be to form a collaborative panel of local, Chinese

business-owners who provide a feedback loop back to the government on what the business community

in the region needs from them to thrive.

Setting up an Angel investment venture capital network could be accomplished in much the same way.

“Technology business incubators – Incubators nurture young firms, helping them to survive and grow

during the start-up period when they are most vulnerable. Incubators provide hands- on management

assistance, access to financing and orchestrated exposure to critical business or technical support

services.” (Collaborative Economics, 2001)

Other key strategies to further the connection between the ideas and the money include accessible

technology (university groups/science centers), information communications, infrastructure investments

in the areas of transportation and telecommunication, energy, water and sewer. Growth very much

depends on a region’s ability to move people, goods, power and ideas across the region and beyond.

(Collaborative Economics, 2001)

So, how do we attract the “rich people and nerds”? “And both groups are highly mobile. They’ll go

where life is good. So, what makes a place good to them? (Graham, 2006) And what makes them want

to stay. This gets into Quality of Life issues and is a less concrete idea containing concepts like

“charming surroundings” with “personality” and “world class universities.”

But, one concept that can’t be ignored is the ability for the Special Economic Zone of the PRD to create

an “Intellectual climate, open to new, seemingly strange ideas…A place that tolerates oddness in the

search for the new is exactly what you want in a startup hub, because economically, that is what

startups are. Without exception, the high-tech cities in the US are also the most liberal.” (Graham, 2006)

Liberal-minded cities support odd ideas, which become a breeding ground for small businesses.

Monitor the Strength of the Economy

Silicon Valley has put in place a sophisticated monitoring system which measures both the strength of

the economy as well as the strength of the community. This index identifies challenges and creates an

information base for analyzing possible problem areas. It uses indicators in order to measure how the

region is doing: “Good indicators are bellwethers that reflect fundamentals of long-term regional health;

reflect the interests and concerns of the community; are statistically measurable on a frequent basis;

measure outcomes, rather than inputs” (Silicon Valley Community Foundation, 2010). The Silicon Valley

Index looks at indicators in the areas of the economy, society, place, and governance.

In order to move forward with the PRD development plan, it would be beneficial for the region to create

a similar index using measurable components that will indicate the health of both the business and

social environment.

As you continue to foster breeding grounds for small and medium businesses, consider this. Every

business in the world wants a piece of the huge “untapped” Chinese consumer market. As the PRD

strives to shift away from its export-based economy, the glaringly obvious tactic is to promote

businesses focused on selling to the growing middle-class economy right here in the PRD.

Consumer Protection and Branding

Intellectual property protection

Without intellectual property protection, patents bought or created by one company will soon

be used and applied by other companies. Thus, there will be less incentive for a creative company to

produce original work. Without this form of protection investment in new ideas is not economically

viable.

A complete intellectual property protection system is a prerequisite for healthy growth of

innovative enterprises. It is also necessary for protection of the entire market. Currently, the issue of

intellectual property protection is handled at the national level and in various industries including

entertainment, innovative industries and others. However, Shenzhen is the leading city in both

economic and urban development in China; it should take the initiative to improve the protection of

intellectual property (Zhang, 2011).

Innovation and economic development cannot be fully effective without legal protection for

one's ideas. The United States has the highest rate of innovation in the world because it has a more

complete intellectual property protection system (Notheal, 2009). In the U.S. There exists more strict

monitoring and effective enforcement. Innovative companies receive protection for their interests by

the government which, in turn, inspires innovation and creativity. Shenzhen should apply similar

incentive policies that encourage companies in innovative industries to invest more in creating their own

unique products and innovation.

Enhance consumers’ confidence in Chinese domestic products

To enhance consumer confidence in Chinese domestic products, a unified standardized set of

criteria governing the entire production and distribution process must be adopted. For example, Japan's

method of quality control for agricultural products utilizes an integrated set of industry standards which

controls a product's overall creation from planting to selling (The Practice and Enlightenment, 2006). In

Japan all procedures are strictly controlled by corresponding national standards. Currently, all of Japan's

meat and seafood products are required to be produced in accordance with HACCP (Hazard Analysis

Critical Control Point) system, which is thought to be the most effective quality control system in the

world (The Practice and Enlightenment, 2006). Chinese domestic brands are scattered in geographical

distribution, which leads to non-unified brands throughout the country. In order to rebuild the trust

Chinese customers have in domestic goods, it is necessary for Chinese manufacturing industries to set

up a complete quality control system and ask all companies to follow the system. Additionally it is

necessary to regulate production through a monitoring system that is monitored by a third-party non-

government organization such as the National Food Quality Supervision and Inspection Center here in

China. The impartiality of this kind of organization will impart increased level of transparency and trust.

Transportation Logistics

Encourage Efficient Product Movement

Local logistics strategies regarding goods movements within the PRD need to be focused on

targeting consumer demands. Logistics and inventory management performed by a third party, privately

owned distribution company will be key to furthering the economic development of the region as well

as Shenzhen specifically. This management strategy will restrict the amount of pollution created by

goods movements through a decrease in overall traffic levels. The decrease in pollution is due to

improved route management strategies and loading that maximizes available trucking space therefore

decreasing the number of trucks needed. Beyond the transportation side of logistics development, the

Pearl River Delta needs to better understand and utilize forward thinking strategies for inventory

management systems. Specifically, hire industry consultants to give a detailed tutorial on the topic or

visit the distribution centers serving larger retailers in the United States. This will increase understanding

of how to minimize or completely eliminate warehousing as well as the costs associated with stationary

goods.

Promote Comprehensive Implementation of Efficiency Standards

Adopting a strategy within China that mimics that which is currently used to distribute Chinese made

goods to the rest of the world will harness the purchasing power of Chinese citizens. Currently, China

has been noted as being reluctant to adopt such technologies; “IBM estimates that 12 percent of local

Chinese companies electronically share demand and inventory data in real time with supply chain

partners. Investment in such software has come primarily from advanced foreign operations in China”

(Feuling, 2008). Without universal acceptance of such technology throughout China maximizing the

resources available to sell domestically in the same scale as China currently sells abroad will be

impossible. Shenzhen and the Pearl River Delta region can lead the way in adoption and implementation

of these forward thinking efficiency standards. Responsively shipping goods based on the demands of

the consumer will allow Chinese manufacturers to maximize revenues and minimize costs through

efficient manufacturing and distribution schedules. Competing globally for the Chinese market is

dependent upon appropriate control of available inventories as well as fluid movement of goods to

consumers through inventory monitoring systems and manufacturing schedules which address demand

directly.

Introduce Special Licensing and Registration to Streamline National

Movement

In order to further encourage the transportation of goods easily and efficiently throughout the region to

achieve the goal of demand directed inventory management trucking companies and logistics

management firms must afforded the ability to cross borders between provinces easily. According to

Robert MacCalla, Brian Slack and Claude Comtois, “It may take as much as two months to make a round

trip container move from Hong Kong to Chengdu in western China, a straight-line one-way distance of

1,400 km. The actual rail time is about ten days each way. The remainder of the time the container is at

rest, either being inspected, unloaded or loaded, or just at rest” (MacCalla, Slack, Comtois 2004). The

very long lead time and transportation delay of product movements throughout China is directly related

to the impenetrable nature of the current economic condition. Beyond the strategies outlined above it

would be ideal if a specific license and registration for logistics and distribution firms would be created

with two goals in mind. MacCall et al suggest that, “the greatest impediments [to coordination and

streamlining of goods movements] are the institutional constraints. Sovereign states and borders

complicate land space; the laws and regulations that these states create make it difficult for a

transportation company to operate in the same way in all jurisdictions” (MacCalla, Slack, Comtois 2004).

Firstly, this special license and registration would encourage private investment in such firms due to the

cost and time savings it would present. Secondly it will increase the patronage of such firms due to the

increased efficiency and therefore allow manufacturers and retailers to focus on their core business.

Addressing the goal of becoming a world city, Shenzhen and the PRD would be leading the way in

coordination and cooperation between sea and land based shipping in an unprecedented fashion.

Furthermore, mandates regarding the utilization of environmentally friendly transportation technologies

(cleaner burning diesel engines, alternative fuels, and aerodynamic trucks) should be issued as caveats

to the reception of special cross border licensing. These environmental protection strategies, similar to

those administered the the State of California, USA (CARB, 2010) are key to achieving the dual goals of

environmental protection as well as economic growth and prosperity within the Pearl River Delta.

Locate Facilities Within a Close Proximity to Regional Railway

In terms of relocating industrial facilities outside of the Shenzhen area, new locations must be chosen

based on close proximity to the inter-region railway network that is currently being developed. These

industries must also be forced to conform with more stringent environmental controls which require the

use of cleaner manufacturing and electricity generation processes. Without requiring a more accessible

location as well as production techniques which create less pollution it is less costly to the environment

of the PRD to leave these industrial uses in their current locations. This method will maintain the sites

which are proposed as new manufacturing centers as undeveloped land which can be utilized as a

community and environmental benefit.

Air Quality

Why the PRD Needs to Focus on Air Quality Locally

The Pearl River Delta has a unique opportunity to become a leader in the Chinese environmental

protection development. We suggest you take this opportunity to become a case study on successful

regional environmental policy in the Pearl River Delta (PRD), and this portion of the report will give some

ideas about how to get started.

This quotation best describes why air pollution is a problem from the perspective of the Southern

California commission assigned to address air pollution. “Air pollution threatens the health of everyone

who breathes in Southern California. Smog and other pollutants can cause everything from watery eyes

and fatigue to respiratory disease and cancer. Smog literally eats away paint, rubber, cement--and

human lung tissue. By meeting health standards, RECLAIM can reclaim the quality of life we all deserve.”

(Southern California Regional Clean Air Incentives Market (RECLAIM)) We care about this for our own

health and quality of life as well as that of future generations.

Develop an Air Basin and Set Proper Ambient Standards within the Basin

The United States Environmental Protection Agency (EPA) defines Ambient Standards as regulating

pollutants that are harmful to public health and the environment, such as carbon monoxide, lead,

nitrogen dioxide, particulate matter, ozone, and sulfur dioxide. (EPA, 2011) For particulate matter, the

following specific ambient air standards have been set by the EPA in the US. “In July 1997, after

evaluating hundreds of health studies and conducting an extensive peer-review process, EPA established

PM standards that specifically addressed particles smaller than 2.5 microns (PM2.5). The annual standard

was set at 15 micrograms per cubic meter (μg/m3), based on the 3-year average of annual mean

PM2.5 concentrations. The 24-hour standard was set at 65 μg/m3 based on the 3-year average of the

annual 98th percentile concentrations. The 1997 standards retained, but slightly revised, standards for

PM10, which limited PM10 concentrations to 50 μg/m3 based on an annual average, and 150 μg/m3 based

on a 24-hour average.” (Agency, What are the Air Quality Standards for PM?, 2011)

The international practice for setting goals related to air quality starts with experts determining what

levels of air quality is need to protect the health of people and property. This is determined through

international, peer-reviewed health and medical research on the affect of poor air quality on people’s

health. What are they limits beyond which health problems and severe environmental damage emerge?

In the developing world some allowances may be made with respect to the amount of pollution

necessary for purposes of growth. Ambient air standards set are strict and must be adhered to by all

parties, including all industries across the board and all government functions. The standards are

monitored, policed, and fines are placed on any office that is not in compliance with the standard.

“Regulators should strive to create confidence and trust in the market by making a full commitment to

the program and ensuring consistency in the market and their policies.” (Agency, What are the Air

Quality Standards for PM?, 2011)

Define Your Air Basin

Geography is the crux of setting air standards. The PRD must set about defining its air basin. Much of the

pollution impacting Shenzhen proper is actually produced outside the city limits. Sharing an airspace

with a surrounding area demands regional cooperation, and there is perhaps no area where this is truer

than in air quality. In the image below, for your consideration, is the breakdown of the California air

basins. (Air Regulation Board State of California)

“California is divided geographically into air basins for the purpose of managing the air resources of the

State on a regional basis. An air basin generally has similar meteorological and geographic conditions

throughout.” (Southern California Regional Clean Air Incentives Market (RECLAIM))

Develop PM 2.5 Standards

We recommend that Shenzhen establish PM2.5 standards. PM2.5 indicates the particles with

diameters less than 2.5 micron in the air. They are poisonous combustion residue mainly generated by

electrical plants, industrial production, car emissions, etc. PM2.5 is raising serious pollution issues in

China, but it is not yet included in the air quality monitoring system for most cities. This leads to a

paradox: while weather reports may show satisfying levels of air quality, the citizen are actually living in

a haze of pollution and getting asthma from breathing the air.

Establish Cap & Trade Policy, a Trade Market for Air Emissions

As a compliment to the PM2.5 emission standards policy, we recommend an emission trading system

be built in Shenzhen. Shenzhen is in the process of introducing of sewage disposal trade system, but it is

also necessary to create a market for air emissions trade as well as clean water trading. The Southern

California Regional Clean Air Incentives Market (RECLAIM) presents an excellent definition of this type of

policy as well as being a successful model to emulate. “Traditional regulations, known as command-and-

control, set specific limits on each piece of equipment and each process that contributes to air pollution.

RECLAIM is different. It sets a factory-wide pollution limit for each business, and lets businesses decide

what equipment, processes and materials they will use to meet their emission limits. Under RECLAIM,

these allowable emission limits decline a specific amount each year. Companies are free to choose the

most cost-effective, economical ways to reduce pollution.

Companies that are innovative and can reduce emissions more than required can then sell excess

emission reductions to other firms. Buyers of the emission reduction credits are companies that need

more time to clean up or find the cost of buying credits cheaper than buying and installing new

equipment.” (Southern California Regional Clean Air Incentives Market (RECLAIM))

Establishing a Cap & Trade system for air emissions has clear benefits: 1.) Allows society to achieve

environmental benefits at a lower overall cost; 2.) Organization creates credits when its emissions are

below its “requirements or obligations” (“over-invest” in technology), 3.) Allows industry to buy credits

when costs to reduce emissions at own facility are higher or capital is limited. (Agency, MacViro

Consulting, 2002) “While trading does not, in itself, reduce emissions, it increases an industry’s flexibility

to make reductions that achieve same overall societal environmental goals.” (Agency, MacViro

Consulting, 2002)

Within this system, emissions from all manufacturers are required to meet certain standard amounts.

The allowable emission amounts, measured by the government, vary with different manufacturers. If

the emission of one manufacturer exceeds the permit amount, the manufacturers will receive severe

fine. The permissions of emission can be bought and sold. In this market, factories that buy permits are

the ones without the ability to reduce emissions. If it is cheaper for a manufacturer to update to cleaner

technology than it is for them to purchase emission allowances from the cap-and-trade system, then

they will do so. If it is cheaper for them buy the certificates and continue to pollute, they will make the

business case to do that instead. In either case, it charges the companies for the pollution they are

putting in the air, which compensates for the negative externalities that their production is putting on

the community at large.

Chart source: (Agency, MacViro Consulting, 2002)

When you look at manufacturing in the PRD as a whole, some factories will choose to buy and some will

choose to clean up their practices. As a whole it appears that many will have to clean up their factories

first, before they can “sell” tradable emission allowances. It allows the market to self regulate. When the

economic equilibrium is reached, the price of a unit of amount will equal the marginal cost of

amendment of all manufactories.

Government plays an important role in this system. The government sets up the allowable amount of

emissions. Meanwhile, the government determines the scope of the market. If the Shenzhen

government can cooperate with the rest of the Pearl River Delta, there will be more sellers and buyers in

the market to make the trading work even better. But this cooperation requires negotiation between

city governments. It absolutely requires a unified standard be set for all the manufacturers in the area.

Instate and Enforce Strong Regulations on Marine Emissions

Marine emissions is one source of air pollution that, fuelled by rising traffic at the PRD’s container ports,

continues to rise. There are no effective controls on emissions from ocean-going vessels (OGVs), which

directly affect some 37 million people in the PRD’s coastal counties alone. OGVs burn marine bunker

fuel that typically has a sulfur content 10 of 3.7%. In contrast, road vehicles in Hong Kong are required to

burn Euro V fuel11 (0.001% sulfur) and Guangdong will soon set a Euro IV equivalent (0.005%)

standard12. Many of the ships calling at PRD ports are fully equipped to burn less polluting fuels, but do

not do so, because no regulation or legislation requires it. (Civic Exchange, 2010)

Availability of fuel is another key issue. At present, 0.1% fuel is not available in the PRD and must be

sourced elsewhere. This will limit the feasibility of fuel switching for ships that do not call at ports where

0.1% fuel is available. However, as emissions controls expand in scope, a greater volume of cleaner fuel

will be required, creating a new business opportunity for local refiners and suppliers. (Civic Exchange,

2010)

Based on this situation, introduction of control measures are proposed. Firstly, Shenzhen could require a

mandatory switch to fuel with 0.1% sulfur content for OGVs at berth in PRD ports. This would bring

immediate reductions in exposures and associated health risks to communities living close to the ports.

Secondly, Shenzhen could establish a pilot low emissions zone (LEZ) requiring all OGVs entering PRD

waters to switch to fuel of 1% or 0.1% sulfur content (consistent with requirements in other

jurisdictions). Thirdly, the city should encourage and assist local refiners and suppliers to be ready to

meet the newly emerging demand for cleaner fuels.

Uniform and Strict Enforcement

The key to improving air quality lies not only in writing strong policy but in the enforcement of those

policies as well as outreach aimed at helping industry to meet the goals set for them by the government.

One specific example of this Rule of Law concept pulled from the United States EPA enforcement

website focuses on enforcement of a specific policy. You need to define the rules clearly, then you need

to make sure that every business segment understands those rule, help them to achieve the standards

set, and then fine them if they don’t meet the standards. You need to police them down to the minute

detail.

One example of this is how the U.S. made sure that auto body shops were achieving the emission

reduction goals that were set for them. “Outreach to auto body shops and other sources impacted by

the CAA Paint Stripping and Misc Surface Coating Rule in order to train these facilities and encourage

them to take actions that will reduce emissions of targeted heavy metals prior to the Rule's January

2011 compliance date.” (Agency, What are the Air Quality Standards for PM?, 2011) This is the nitty

gritty level to which the enforcement arm of the Air Quality Agency must achieve in order to truly meet

set goals.

Heavy fines and strict standards must be set in order to achieve adherence to policies. In 2010 in Region

1 of the U.S., essentially the Northeastern Corridor, the following was done to hold industry compliant

to laws set:

“Civil Judicial Enforcement – In FY2010, we referred 20 enforcement cases to the U.S.

Department of Justice and had 27 judicial case conclusions.

Superfund Cleanup Enforcement - In FY2010, Region 1 received commitments from liable

parties to pay almost $36 million to clean up Superfund sites, to pay over $6.6 million for

Government oversight of Superfund cleanups and to reimburse the Government over $21

million for money it spent cleaning up Superfund sites.

Compliance Assistance Activities – The Region continues to develop compliance assistance tools

and provide expert compliance assistance to the regulated community. Over the past year, the

Region reached more than 183,000 entities through 274 facility visits, 111 assistance workshops,

dozens of presentations at meetings and events, and individualized assistance.” (Environmental

Protection Agency)

In order for real progress to be made on air quality the Rule of Law must be

enforced as it relates to standards set. If this piece is not done, failure is

inevitable.

In addition, the EPA provides “Enforcement Reports” back to 1999 which show what fines were set in

what areas to police air quality by the U.S. government. (EPA, 2011) The websites provide a level of

transparency over what the government officials are working on which helps to build that trust.

Hold Regular Air Quality Joint Planning Sessions with Academic Experts and

Decision Makers

Firstly we recommend Shenzhen to allow direct communication between experts and upper level

decision makers. It is beneficial for the city government to hear more from academic voices and less

from the politicians about how serious the pollution is, and exactly what we should do to solve it. If an

express communication channel could be built to provide a straight talk between these two groups, a

higher pollution awareness and more effective environmental protection policies can be expected.

Besides, Shenzhen should encourage more scientific research and provide funding in the air quality

protection field. To achieve this goal, the city government could also cooperate with Hong Kong, learn

from its experience and technology, and develop a general plan to join the efforts. By either importing

or educating its own experts, Shenzhen could go further and faster in environmental protection study,

and lead the whole Pearl River Delta to advance.

Improve Transparency & Trust

It is essential to improve transparency in air quality, emissions standards and real time reporting for

several reasons. First, you have the opportunity to build trust with the public by sharing your reporting.

Second, you have the chance to improve your policies and air quality. You must track emissions in order

for them to improve.

If you share the statistics with research labs, universities, and scientists with an eye to getting better,

you will achieve greater progress. If you are unwilling to share data with outside agencies, then we

suggest tracking emissions regularly and daily reporting internally so that the Shenzhen government

knows how bad the problem of air quality is. We suggest that you allow agencies to provide you with

information that links your daily air emissions with health problems.

Hong Kong University provides an excellent tool to help with this. The Hedley Index offers a method of

linking air quality with health issues. They have used health science research to tie the levels of

exposure to hospital visits and premature death. This information should be publicized, or if not

publicized then at least reviewed internally to increase the awareness of this highly important public

heath issue.

Hedleyindex.sph.hku.hk

As it relates to public trust, the following chart is a way the U.S. notifies the public about hazardous days

related to air quality. We suggest offering a system similar to this to your citizens and then tracking the

bad days to provide information to the public and make improvements.

Extend the “Car Restriction” policy after the World University Games

For the World University games a vehicle restriction policy has been put in place to reduce congestion

and pollution. Vehicles with license plates ending in even numbers can use roads only on even-

numbered dates, and those with license plate ending in odd numbers may only drive on odd-numbered

dates. The first time this policy was used on a large scale was in Beijing before the 2008 Olympic games.

Beijing successfully dealt with their massive traffic using this policy, and several cities have started to

enforce car restriction following Beijing’s example.

Shenzhen has decided to join this trend. During the World University Games, from August 4th to 24th

2011, Shenzhen will enforce car restrictions for three districts and five main roads, from 7a.m. to 8p.m

every day. We recommend city government consider extending this policy even after the World

University Games.

The transportation system in Shenzhen has not developed into a comprehensive and well-organized

system. A comprehensive and serious restriction may interfere with the convenience of the public.

Therefore, we recommend that the government first improve pubic transportation services, which will

encourage residents to use fewer private vehicles. This gives the Shenzhen government a better control

on gas emissions. After that, Shenzhen should develop a long-term strategy that implements car

restriction policy gradually and effectively.

Renewable Energy Opportunities

With the guideline issued by the city government, the planning of Shenzhen should emphasize both

development and conservation. While conservation is the priority, follow the principles of lower

consumption, reuse, and conservation into resources.

In order to measure the ratio of the conservation, a new index is introduced, which is called green GDP.

Shenzhen is no longer a city that only cares about the growth of GDP; they also want to lower the

energy consumption of each unit of GDP. See below the chart of how California’s emissions proves this

to be possible.

Now, Shenzhen is in the middle of transformation from the manufactory industry to the third industry.

Factories and corporations in the manufactory industry have to upgrade their facility and technology to

reduce the energy consumption of each unit of GDP. For those companies with a high-energy

consumption, high pollution and a low profit, will be eliminated from the market.

Additional Policy Recommendations

1. Promote wider usage of electric vehicles

Right now, there are 50 electric taxis on the street of Shenzhen. Predicted by Shenzhen government,

there will be 24,000 electric cars in Shenzhen, with an annual growth amount of 42,000, the total

number of electric vehicles will reach 150,000. Due to high production cost, the promotion of electric

vehicles is facing technological bottlenecks. In addition, the lack of charging stations becomes the

hardest task in the promotion of electric vehicles. We recommend Shenzhen government builds more

charging stations, not only to meet the needs of the current electric vehicles owners, but also

encouraging more people to choose electric vehicles. For those who use electric vehicles, it is better for

the government to provide reasonable amounts of subsidy or environment tax break.

2. Accelerating the retirement of aging diesel vehicles though a coordinated combination of incentives

(perhaps for early adoption of hybrid or fully electric buses) and disincentives according to a specified

timeframe. Shenzhen government has a well-planned official document regarding this issue. But the

implementation of this policy needs strict administration to achieve the goal of this policy.

Labor Force

Addressing the Labor Shortage in the Pearl River Delta

Labor shortage issues have been widely discussed since 2009 in response to the world financial crisis

and have affected many Chinese cities. Statistics indicate that labor shortages in Shenzhen will reach .2

million in 2011 (National Business Daily, 2011). However, Shenzhen has ignored the problem by

describing it as a seasonal and temporary issue. The possibility exists that as the city begins to develop

their six High-tech industries, their reliance on labor-intensive industry will diminish. Nevertheless,

despite industry changeover, the labor shortage problem will remain.

Longgang and Baoan districts are the only two in Shenzhen where there are more than 10,000 labor-

intensive factories and are still the lifeline of regional economy in these areas (Mold.cn, 2011). These

factories will not disappear in one day. It takes time to reinvent an industry. Ensuring a smooth transfer

is the key to sustainable economic development. In the Pearl River Delta, the most urbanized area in

China, migrant workers account for a large part of the labor force. The nomadic tendencies of this

population are the underlying cause behind the severe labor shortage problem. Labor shortage in the

PRD is estimated at 2 million for 2011. Due to the heated competition between cities in the Pearl River

Delta, it is inevitable that Shenzhen will join the fight over the labor pool sooner or later. How to

maintain the present labor force will be the first problem we need to deal with.

Improve Quality of Life in Order to Cultivate Workforce Retention

The first and the most important concern for migrant workers is salary amount. In Shenzhen, the

minimum wage of ￥1320 Yuan per month is among the highest nationwide (Luo, Q. 2011). However,

salaries are not always promptly paid and companies are in arrears with their payments to migrant

workers.

On the eve of the 2011 Summer Universiade, the Housing and Construction Bureau of Shenzhen

announced that from May 1st to September 30th companies are required to pay migrant workers on

time, and should not fall into arrears for any reason. At the same time, migrant workers are not allowed

to petition to demand that they be paid and have been threatened with criminal liability for such actions

(the Housing and Construction Bureau of Shenzhen, 2011). The result of this dictate was migrant

workers were not paid and that they had no legal channel to demand their income be distributed.

Shenzhen must improve its wage protection systems and increase the penalty for enterprises which fall

behind in payment of salaries.

Guangdong Province has established a regulatory system of letting some non-resident workers attain

residency: education level, vocational certification, years of social insurance, social service, and so on,

are counted as indicators. A score is given for each indicator, when the individual has accumulated the

required number of points, they are able to apply for “Hukou” or registered permanent residence

(Shenzhen Business News, 2011).

However, unlike Guangzhou City, which specially designed the score system for migrant farmers,

Shenzhen’s score system applies equally to all non-resident workers. In this way, unskilled laborers are

competing with a highly educated and highly skilled population to become urban household registration

holders. After implementation of the policy, 3227 people have successfully applied to become registered

permanent residents but only 14% of them are unskilled workers (Shenzhen Business News, 2011).

A score system needs to be specially designed for the unskilled workforce population in order to

improve their chances of becoming Shenzhen’s residents. This will increase access to the social service

benefits that this low-income group desperately needs, such as the ability to apply for public housing.

Furthermore, although Shenzhen has introduced “5+1” filing for children of migrant workers receiving

education in Shenzhen, most of the children from migrant families fails to meet the strict conditions

(Zhang, 2011). This regulation forces families to enroll their children in private schools most of which are

far more expensive, making them out of reach for low-income families, and of dubious quality.

Introduce Automated Assembly Lines to Address Future Workforce Shortages

China is an aging country. Due to its demographic structure, the labor force will be shrinking

dramatically in the next 3 or 4 decades.

When comparing the population pyramid for 2000 with that of 2050, it is apparent that the decrease in

the labor pool will be dramatic. According to data from the CIA, the aging population (65 and over)

accounts for 8.9% of the total Chinese population for 2011 (CIA, 2011). We need to plan in advance in

order to minimize the economic losses which will result from the upcoming changes in the demographic

structure. This will be particularly important in the Pearl River Delta region due to the high level of

industrial density.

Our recommendation is that apart from developing new industries such as IT, New Materials or cultural

innovation, new talent must be recruited to work on the research and development of the automation

of different industries immediately. To create sustainable economic development, there must be a

vision for the future. We have already seen how the aging population is significantly affecting the

Japanese economy. In order to maintain an economic edge, we need to start the industrial automation

process as soon as possible.

The Role of Education in Economic Transformation

Develop an Educated Workforce

Education is an indispensable part of facilitating economic transformation. In order for Shenzhen to

become a high-tech hub, the city has to be able to develop its own people and attract talents from all

over China and the world. Having an educated workforce is essential for Shenzhen’s anticipated industry

upgrade and technological restructuring. In addition, when talents consider where to live and work, the

quality of the education system and the population’s overall level of education will be a top criterion.

Therefore, an economic transformation of this type cannot be achieved without development of the

educational system. In order for Shenzhen to meet its economic development goals, the city should

invest more not only in higher education, but also on basic education and vocational training for the

populace.

According to the Shenzhen Municipal Education Bureau, education expenses account for 12% of total

government spending in Shenzhen (Zhang, 2011). However, the average expenditure on education as a

percentage of total government spending among Organization of Economic Cooperation and

Development (OECD) countries is 13.3%, whereas it accounts for 16.3% and 23% of total government

spending in Shanghai and Hong Kong respectively (OECD, 2011). As education spending in Shenzhen is

below OECD average, Shanghai, and Hong Kong, Shenzhen should consider expanding its own budget in

the areas of basic, higher, and vocational education.

Invest in Teacher Training and Increase Senior High Education Access

Basic education in Shenzhen suffers from shortages of both teachers and schools. Based on the

information provided by the Shenzhen Education Blue Book, Shenzhen has 524 primary schools with

566,000 students and 24,000 teachers; the teacher to student ratio is 1:23.6. In comparison, the primary

school teacher to student ratio in Hong Kong is 1:16.9. At the secondary school level, Shenzhen has 59

senior high and 262 junior high schools (Bauhinia Foundation Research Centre 2009). The shortage of

senior high schools has created an environment in which less than half of junior high school graduates

are able to continue their education. This decline in enrollment is also due to the fact that senior high

school education is not “free” as the policy of 9 years of free education does not cover the costs of

senior high school. According to the Shenzhen Municipal Education Bureau, individuals who do not

enroll in senior high school either start working or pursue vocational training (Zhang, 2011). “To

strengthen education is fundamental to a powerful country. To put priority on education and improve

the modernization level of education are of decisive significance for the achievement of the goal of

building a well-off society and building a prosperous, democratic, civilized and harmonious modern

socialist country in China” (Guangtao, 2010).

We strongly recommend that Shenzhen invest in teacher training and education programs as well as

reduce class size. In doing so, students are likely to receive a higher quality of education that will better

prepare them to fill the managerial positions currently lacking an employment pool in the Pearl River

Delta. Furthermore, in order to reduce inequities in education, it would be prudent to provide subsidies

for students who wish to continue on to senior high school but cannot afford to do so. Such changes will

set the PRD on the path to meeting its goals of aiding the personal development and guaranteeing

education (The National Department Reform Commission, 2008).

Create Quality Vocational Training Programs that Produce a Capable

Workforce

As part of the Pearl River Delta’s economic restructuring, there will be an increasing demand for skilled

workers and the region envisions itself as a South China vocational and technical training hub. To

translate this vision into reality, the following strategies are recommended.

To begin with, increased resources and greater governmental involvement in providing vocational

education is necessary. Most vocational education programs in Shenzhen are operated by private

companies, making the vocational education market extremely commercialized. The number of

unregistered vocational education institutions is so large that an estimate is not available (Bauhinia

Foundation Research Centre, 2009) and the quality of these training programs is questionable. To

address this problem, a standardized vocational training evaluation system should be introduced to. As a

secondary means of quality control, vocational education institutions should be required to register so

that the market will not become a “market of lemons”, where only low quality vocational education is

offered. In addition, the Shenzhen government can award subsidies to vocational institutions as a way to

motivate them to offer high-quality programs. With more involvement in vocational education and an

evaluation system in place, the Shenzhen government can prevent adverse selection in the market, and

realize its vision to become an important base for vocational and technical education in South China.

Furthermore, incentives to promote cooperation between schools and businesses, especially in the

secondary vocational level, should be available. School-enterprise linkage is considered essential in

cultivating more skilled workers, as many skills required in the workplace cannot be taught in a

classroom. Instead, these skills are best learned through practice in the workplace along with other

employees. Yet, many firms are reticent to support such training as the short-term benefits of

cooperating with vocational institutions are fairly small (Jin, 2008). In addition, teachers in these VTE

programs often lack real world experiences so students are not able to develop practical knowledge,

such as interviewing skills and business ethics (Consulate General of the United States, 2011).

Collaboration between firms and schools should be promoted, and business professionals should be

encouraged to participate in training in order to create a more suitable curriculum for vocational

training.

Last but not least, firms should offer more on the job training to their employees to help them adjust to

new technological and environmental changes. Facing the challenges from industry restructuring, it is in

the interest of firms to train and invest in their employees. For example, they could send their potential

managers to get training in branding and management. The city should provide tax credits or deductions

to firms that conduct on-the-job training, and encourage them to cooperate with several registered

vocational education institutions to train all levels of their workers.

As the regional economy of Pearl River Delta moves toward high value added industries, the demand for

vocational and technical education will increase. The Shenzhen government should improve vocational

training by establishing a standardized system of evaluation and providing greater resources. School-

firm linkages and on the job training should also be promoted.

Improve the Capacity of Undergraduate Education

Shenzhen’s ability to develop itself in just 30 years is truly a notable achievement. Yet, economic growth

will not be sustainable without further higher educational development. Recognizing the importance of

higher education to cultivate talents, Shenzhen is keen to “advance the development of higher

education with new ideas and mechanisms” (The National Development and Reform Commission, 2008)

and has already set out to achieve this task. Top universities in China, such as Peking University and

Tsinghua University, and prestigious universities from Hong Kong have been encouraged to set up

campuses in Shenzhen. According to the Outline of the Plan for the Reform and Development of the

Pearl River Delta, the PRD “will establish cooperative higher education institutions with 3-5 famous

foreign universities”, and the region aims to develop 1 to 2 first class universities in China by 2020 (The

National Development and Reform Commission, 2008).

To achieve this goal, more opportunities to cultivate talents and develop an educated workforce should

be provided by increasing the availability of undergraduate education. Undergraduate degrees are

offered in only 3 out of 10 institutions currently located in Shenzhen; Shenzhen University, Shenzhen

Open University, and Shenzhen Tourism College of Jinan University. The latter two universities focus on

education in Broadcast &Television, and Tourism respectively. Currently, the undergraduate programs

offered in Shenzhen are very limited in both scale and scope.

Given the demand for talents in the high-tech and innovative industries higher education institutions

must expand their undergraduate programs in order to meet workforce needs. Talent cultivation will

improve, as it is more likely for university graduates to establish their roots in Shenzhen than Masters or

PhD students. A comprehensive education trajectory will also be more attractive to prospective

students of universities in Shenzhen and the Pearl River Delta region (Bauhinia Foundation Research

Centre, 2009). It is absolutely crucial to expand undergraduate opportunities in this region.

The good news is that several projects are already underway that will expand undergraduate education

opportunities in Shenzhen, including the Chinese University of Hong Kong, Shenzhen (CUHK-SZ), and the

South University of Science and Technology of China (SUSTC) projects. A Shenzhen-based businessman

stated that the public has high expectations for SUSTC due to the schools autonomy from the

government; the university makes its own admission decisions and can recruit its faculty from all over

the world. He hoped that SUSTC would not become just another Shenzhen University, because when

Shenzhen University first started, it had the same autonomy SUSTC has. He pointed out that pressure

from the central government later impaired the ability of Shenzhen University to become a world-class

university (Dong, 2011).

Allow Autonomy for Educational Institutions

In developing these campuses, the Shenzhen government should create an environment that allows for

autonomy and flexibility not only in admissions, but also in faculty recruitment, curriculum and research.

This will encourage innovation and attract a quality faculty with real world experiences, allowing these

new institutions to become world-class universities in relatively short period of time (Graham, 2006). If a

high quality intellectual community exists, more professors will be willing to settle in the region. These

universities should develop programs such as internship and academic exchange that will provide hands

on experiences and widen international horizons for students. Simply put, the government should grant

autonomy to university administrations in Shenzhen and the Pearl River Delta to develop their national

and global reputation.

More importantly, development in higher education will not create the next Silicon Valley without

access to venture capital, namely how innovation translates into profit-making ventures. Due to

limitations from administrative jurisdiction, Shenzhen does not always have control over local issues. In

order to overcome this constraint, we recommend making the best use of Shenzhen’s geographical

advantages such as its close proximity to Hong Kong. One area of opportunity may be the planning

development of Lok Ma Chau in the buffering area between Shenzhen and Hong Kong. There are

obstacles present to developing the area, such as establishing the Southern Technology University. A

possible solution to this type of issue may be the creation of another university across the border in Lok

Ma Chau. Utilizing this unique geographical advantage will increase governmental cooperation and

promote connectivity between Shenzhen and Hong Kong.

In summary, to improve the qualities of higher education in Shenzhen and the Greater Pearl River Delta

region, undergraduate programs should be expanded and an environment that permits autonomy and

flexibility in admission decisions, faculty recruitment, research and curriculum nurtured. Above all,

facilitating mutual access between start-up companies and venture investors will be crucial to sustain

economic development, and transform the region’s investment in higher education into profitable

businesses.

New Talent

Current Issues With Attracting and Retaining High-skilled Workforce

Based on the “2010 Survey of Shenzhen talent attractiveness report” (job88.com,2010), we can see the

following figure that shows the top three reasons keeping people from wanting to live in Shenzhen. They

are unaffordable housing, poor public transportation and high stress levels (job88.com,2010). In

addition, the report of “foreigners and Shenzhen” shows that foreigners believe the most negative

aspects of Shenzhen are its transportation (44%), public services (32%), the cost of living (30%) and

housing (27%) (Icanhe.com,2010). Foxconn's representative Mr. Guo, the largest company in Shenzhen,

said “I hope the Shenzhen government can work hard in the intellectual property right, talent’s housing,

environmental management around the factory, improved infrastructure, transformation of the old city

to retain talent.” To encourage creative and innovative individuals to stay, as well as fight “brain-drain

“and import new talented professionals the following initiatives are absolutely necessary.

The figure below shows reasons that keep people from wanting to live in Shenzhen. The figure shows 9

reasons. First one is others. Second one is large differences between rich and poor. Third one is too

much emphasis on money. Fourth one is poor public transportation. Fifth one is unaffordable housing

price. Sixth one is lack of security. Seventh one is lack of human touch. Eighth one is poor treatment and

benefits. Last one is high pressure.(job88.com, 2010)

Innovate and Improve Transportation Amenities

Most people feel that the driving in Shenzhen is dangerous and inefficient (Icanhe.com,2010). While the

road network is well designed and constructed, too many people disregard driving regulations and cause

traffic jams or other hindrances (Icanhe.com,2010). This condition is particularly problematic when given

the already overwhelming density of automobiles in Shenzhen. Drivers are considered to be overly

aggressive and not careful enough of other road users in a way that affects drivers, as well as transit

riders, bicycle riders and people on foot (Icanhe.com,2010). Conditions such as cars that are parked on

the sidewalk and motorcycles and bicycles using the sidewalks for navigation make walking and utilizing

public buses unsafe and inconvenient (Icanhe.com,2010).

In order to relieve the traffic congestion and safety concerns while retaining current talent as well as

attracting new capable professionals, policies which forbid stopping in the middle of an intersection,

give clearer right of way to pedestrians and enforce traffic regulations (specifically those related to

parking and right of way). Extending the metro network throughout the Shenzhen region would lead to

a decrease in traffic congestion and allow more individuals to utilize a cleaner form of transportation

than the automobile. (Icanhe.com,2010)

Create opportunities for affordable housing

The average price of housing in Shenzhen is more than 18,000 yuan per square meter, outside the city

and more than 15000 yuan / square meter ( job88.com, 2010). White-collar workers in Shenzhen need

at least one million yuan to buy a unit house, annual salary of 100000 white-collar workers need to save

money without food or drink for 10 years, If the couple save money together, they will have to live

without eating or drinking for 5 years (job88.com, 2010). In order to support the creation of low-income

affordable housing the high cost housing projects should be taxed accordingly.

Increase the quality of education at all levels

Shenzhen can recruit individuals who would otherwise travel overseas for their education by instituting

grant programs and offering preferential policies to bring the students back to Chinese universities.

One glaring omission from the Peacock Program is that it does not provide social services to the

workforce that Shenzhen hopes to attract, nor their families. In the existing environment educational

opportunities are scarce which may discourage highly educated populations from settling in this region.

Cooperate with Hong Kong

The current relationship with Hong Kong is strong, it could be further utilizedtly to assist in the

development of Shenzhen's and the PRD's economic and social structure. The friendliness of the local

population is an extremely positive aspect of Shenzhen, one that is perhaps not yet fully understood

abroad. Shenzhen has a unique population of people from all over China, particularly young people,

many of whom have at least a basic understanding of English and knowledge of western culture due to

the proximity with Hong Kong. These traits are rare, and can be highlighted abroad to differentiate

Shenzhen from Beijing or Shanghai, which are not as young and dynamic. Shenzhen needs to cooperate

more effectively with Hong Kong, to further improve education, technology and social services.

Fund Creativity and Protect Intellectual Property

Shenzhen is a young city which can potentially provide significant levels of opportunity, however it is

also an expensive and difficult place to live. Income tax reductions should be implemented to allow

young entrepreneurs to build a basic level of support for themselves and their families.

Shenzhen is well known for the production of counterfeit products and without policies which are

implemented and enforced that restrict this type of theft, creative individuals will not feel comfortable

expressing new and innovative ideas in this region.

Regional Focus

Regional Cooperation in Pearl River Delta- Shenzhen’s Role

A major challenge slowing the development of cooperation in PRD is competition between cities. Most

cities in the PRD have comparative levels of economic development and try to reveal and preserve their

own economic strengths (Peng, 2009). Much of the investment within the PRD comes from similar

foreign companies which continually increases competition with the region. According to the present

industry distribution it is obvious that eight of the nine cities in the PRD focus on manufacturing of

electronics for the information industry (Yuan, 2011). This form of industry distribution does not

efficiently utilize the various available resources and therefore results in inefficient resource allocation.

In addition, because of the focus on exportation, many similarly labor intensive enterprises have

become concentrated in the region. The distribution and supply chains related to the export industries

are well developed while the domestic distribution and supply chains remain poorly organized and

constructed.

Currently, regional cooperation in the PRD is underdeveloped and inefficient. The core cities are

fragmented rather than connected. Moving forward, the PRD should consider options for integration of

the three small economic circles (Shenzhen-Dongguan-Huizhou, Guangzhou-Foshan-Zhaoqing and

Zhuhai-Zhongshan-Jiangmen) within the PRD. To accomplish this level of integration and cooperation,

the core cities must be the icebreakers and lead by example.

Strategy Opportunities

The core powers of the PRD region must work together to promote regional cooperation and a shared

understanding of the reality of integrated planning in the PRD. Environmental protection presents a new

opportunity for regional cooperation. To improve the air quality, Shenzhen can take the initiative to

introduce a new level of technological cooperation with Hong Kong, in order to further promote

integrated efforts in the PRD region to achieve higher air quality standards.

Shenzhen's close proximity to Hong Kong provides a geographical advantage for inter-region

cooperation as well as better access to the technological support regarding air quality issues.

Furthermore, Shenzhen can provide access for the rest of the PRD region to such technologies that allow

for environmental protection.

Shared Regional Interests

Hong Kong has developed better technology and more experience in the reduction of air pollution,

which is exactly what the cities in Guangdong province lack. Air pollution is more concerning for the

residents of Hong Kong than issues of economic development. Therefore the focus of the cooperation

between Hong Kong and the PRD should be on dealing with regional air quality issues. Initiation of

regional cooperation with Hong Kong and the greater PRD regarding air pollution mitigation will not only

create a better environment but lead to comprehensive development for the region. First, the air quality

problem cannot be solved by a single city because air is not restricted by borders. The negative

externality of pollution created by intense production activities effects the entire region therefore

integrated efforts to reduce the level of air pollution must be undertaken. Beyond technological

cooperation with Hong Kong this interaction will also bring about new opportunities to develop

emerging industries such as clean energy, bio-industry, high-tech industries as well as the promotion of

industrial technology upgrades. Third, a better living and working environment will attract a more

capable and well rounded workforce. Inter-city travel is becoming an integral part of daily life and work,

around the world, therefore prospective residents of the PRD regions will tend to evaluate the

environment of whole area. Fourth, increased commitment to environmental protection will lead to

further optimization of local industries, for example, by adopting cleaning energies, and provide local

corporations new opportunities to build their brands and images as an environmental-friendly business.

In this way, new value and a sense of social responsibility can be injected in to the original interest-

driven commercial culture in Shenzhen, helping to cultivate a better civic culture in your city and its

region. Taking the initiative to promote regional cooperation in environmental protection provides

numerous benefits which are shown in the following chart:

(Source: Li, Xue)

Establish Internal Industrial Supply/Value Chain in the PRD Region

The external radiant value chain in the PRD region is losing its competitiveness in the global economics.

The existing export-oriented economy relies on low land and labor costs as well as large overseas

demands. Nevertheless, as the region's economy has developed, labor and land cost have risen (Peng,

2009). Meanwhile, under the pressures of the financial crisis and appreciation of the RMB, the overseas

market demand is shrinking. To further develop its economy, the domestic market of the PRD has to be

established, which will encourage cooperation and rearrangement of industry distribution in the PRD.

Different parts of the region should take advantage of their specific local assets such as geography and

natural resources, to develop the most applicable industry to the area. To accomplish the redistribution

of industry, the external radiant value chain in the PRD must refocus on the domestic industrial

networks.

Establish an efficient and transparent negotiating instrument/authority

To ensure efficient and successful regional cooperation in the future, the PRD must create an efficient

and transparent coordination and negotiation mechanism as well as a regional authority to plan the

greater PRD as a whole. The establishment of this authority will be capable of encouraging

environmental cooperation, engaging representatives from local level governments, corporations, non-

profits and academic communities within Guangdong cities, Hong Kong and Macao. Development of

such authority can be progressively established in the short run, the authority can focus all efforts on

environmental protection as well as regulation of industry. In the long run, the working scope can be

expanded to optimize industrial structures, infrastructure construction, education, culture and social

welfare. The primary purpose of establishing such an instrument is to coordinate negotiations regarding

resource allocation and interest sharing as well as increased monitoring and promotion capacities for

efficient implementation of agreements to guarantee long-term sustainable development throughout

the region.

To achieve the above goals, we suggest that Shenzhen proactively seeks a cooperation agreement with

Guangzhou. Despite severe competition in the region there is still room for cooperation between

organizations. Using Guangzhou and Shenzhen for example, are facing the same problems. According to

Table 1, the industrial structure of the two cities was up to 98.1% similar by the end of 2007. (Peng,

2009) Both cities are currently facing the pressure of industrial transformation and transfer. Due to the

unhindered development of the local manufacturing industries, they both suffer environmental

problems, especially in air quality. Moreover, both cities need to deal with the overwhelming traffic

conditions and urban village developments. Secondly, the two cities have complementary advantages in

human capital and culture. Guangzhou is the cultural and educational center of the province with a long

history and many top colleges. This form of historical permanence is exactly what Shenzhen lacks. The

population of immigrants in Shenzhen is four times that of the local citizens with Hukou. The low-cost

labor force is being utilized fully. Traditionally there are economic advantages in Shenzhen, however the

recent removal of most privileges by the central government has put the region at a slight disadvantage.

The current industrial structure is also losing competitive advantage due to increased labor and land

cost. The potential exists for vast economic development through the avid entrepreneurship in the

region but the opportunity will not exist forever.

Table 1. The industrial structure similarity of cities in PRD in 2007

Shenzhe

n

Zhuha

i

Fousha

n

Huizho

u

Shanw

ei

Donggua

n

Zhongsha

n

Zhaoqin

g

Guangzho

u 0.981 0.947 0.876 0.897 0.91 0.946 0.905 0.927

Shenzhen 0.99 0.952 0.962 0.945 0.991 0.969 0.913

Zhuhai 0.985 0.99 0.965 0.999 0.994 0.906

Foushan 0.996 0.948 0.985 0.998 0.85

Huizhou 0.972 0.988 0.998 0.892

Shanwei 0.955 0.96 0.968

Dongguan

g 0.993 0.892

Zhongsha

n 0.876

Resource: Guangdong Statistic Yearbook of 2008

In order to better cooperate with the smaller surrounding cities that will possibly receive polluting

industries Shenzhen should support these cities by providing the appropriate technologies for pollution

control.

Regional Cooperation in Infrastructure Construction: logistics network inside

the PRD

The establishment of a domestic horizontal industry chain relies on the well constructed infrastructure

of the PRD. Enterprises within the PRD cannot develop without a well-developed industry chain in this

particular area. Therefore, the enterprises would be reluctant to move since the lack of industry chain.

To tackle this problem, Shenzhen and the PRD should not only create policy which encourages the

transfer of industry but also establish the infrastructure and transportation network necessary to

stimulate the transition. If the cities in the PRD can be effectively linked with the help of railways or

roads, it will decrease the transfer cost, thereby inspiring the relocation of industry.

Further Promote Decrease Passage Time of Consumers between Hong Kong

and Shenzhen

Currently, at the border between China and Hong Kong there are customs desks on each side; if people

need to travel between China and Hong Kong they must transfer through customs a total of four times.

These procedures all make the flow of labor and exceedingly inconvenient. The systems of transfer

across borders must be streamlined in the fashion of the United States borders with Canada which only

require a passport to be shown upon entry. Streamlining the border crossing between Hong Kong and

mainland China in such a way as to enable Hong Kong residents to pass more freely will encourage more

investment and cooperation between the two areas.

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