week 5 economic dimension

7/25/2019 Week 5 Economic Dimension

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Economic Dimension

What is Economics Economics is the study of the pro

distribution of goods and service

study of human efforts to satisf

wants with limited resources

amongst alternatives to meet unlim

The Hong Kong Polytechnic UniversityThe Hong Kong Polytechnic University


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Consumers

Firms

Government

Market System

Allocation decisions impact natural environm

true value to society

Unfortunately decision makers do not con

n c o ces Need for policy intervention to overcome

failure



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Resources are the basic cate ories of in uts or anis(a special type of labour) to produce goods and servicresources into the three categories of land, labour an

LabourLand

organises resources

and services

The Hong Kong Polytechnic University

Reference: A. Layton, R. Robinson and I.B. Tucker, Economics for tod


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Macroeconomics Aggregated analysis

John Maynard Keynes in 1936 and 1940

Choices of government

Monetary Policy - Federal Reserve

Fiscal Policy Taxes and Spending

Macroeconomic targets

Income Levels

Inflation

Employment



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croeconom cs saggrega e ana ys s

Adam Smiths Wealth of Nations in 1776

Two types of Markets

Factor Markets Consumers sell inpupro uct on to rms

Product Markets Firms sell final out

Partial Equilibrium Focus on single

Multi-Market Interrelationships amo

fundamental markets General Equilibrium Economy as a w



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-

Examining individual trees ratherthan the wood

Studies decision makin b sin le

Surveys the Studies deci

econom asindividual, household, firm orindustry

Focus on behaviour of small

Examines ecvariables, e.unemployme

E.g. egg industry, will suppliersdecide to supply more less or thesame amount of eggs to the

international Macroecono

considers bmarket in response to pricechanges? Will individualconsumers decide to buy more,less or the same amount of eggs

the effect of budget on ueffect of chasupply on pr

at new price? strong econovalue of the



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a ue s re ec e n pr ces e erm ne rousupply and demand

Supply (demand) reflects trade-offs firms (cowhen producing (buying) goods and services

Scarcity implies higher prices

there are reasons why markets may fail Externalities

Public Goods Property Rights



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An economic theory stating

overnment intervention in the

and monetary policy is the be


John Maynard Keynes (1883 1946


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Su l and DemA competitive market is a market in which t

of the same good or service.

The supply and demand model is a model ocompetitive market works.

Five key elements in this model:The demand curveThe supply curve

The set of factors that cause the demand

e se o ac ors a cause e supp y curThe equilibrium price

demand curves shift


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Demand Schedul

A demand schedule shows how

good or service consumers will wat different prices.

Price Quantity

(tickets)

350 5,000

300 6,000

250 8,000

200 11,000

150 15,000

100 20,000


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A demand curveis the graphical re

or service consumers want to buy at


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The quantity demanded is the a

If the scalpers areIf the scalpers arecharging $250 per ticket,charging $250 per ticket,

,,purchased.purchased.

8,000

That is, 8,000 is theThat is, 8,000 is the quantity demandedquantity demandedaa


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The law of demand says that a high, ,

smaller quantity of the good.

If the price drops to $100,

,tickets.

are demanded.

points to the inverserelationshipbetween pricecurve slopesdownward.

proposition that a higherproposition that a higherprice reduces the numberprice reduces the number

and the quantitydemanded.of people willing to buy aof people willing to buy agood.good.


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Shifts of the Demand Cur

represented by the replacement of the or

curve with a new demand curve.

MichaelMichael

JordanJordan isisretiring!!!retiring!!!

Announcement of Gretzkys retirement generAnnouncement of Gretzkys retirement generThe increase in demand shifts the demand cu This event is represented by the two demanddemand, an increase in the quantity demandeddemand, an increase in the quantity demandedprice.price.

Demand before the announcement Demand after the announcement


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Movement Along vs. Shift of the

quantity demanded of a good that is the result

goods price.

from point A topoint B: increase in it is the result of afall in the price offrom point A topoint C: increase in It is the result ofan increase in the

reflects amovement along

.reflects a shift ofthe demanddemanded at anygiven price.

curve


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Shifts of the Demand Curve (

an increase indemand, means aAA decrease indecrease indemanddemand means ameans ar g twar s t othe demand curve:e tware twar s t o t es t o t edemand curve.demand curve.

at any given price,consumers demandAt any given price,At any given price,consumers demandconsumers demand

than before. (D1D2)

than before.than before.((DDDD))


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What causes a demand curve

Changes in the Prices of Related Goods

one of the goods makes consumers less willgood. Ex.: muffins and donuts.

price of one good makes people more willinggood. Ex: squash balls and squash racquets

anges n ncome Normal Goods: When a rise in income incr

for a goodthe normal casewe say that thgood.

Inferior Goods: When a rise in income decfor a ood it is an inferior ood. Ex: insta

Changes in Tastes

Changes in Expectations


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Supply Schedule

A supply schedule shows how muc

or service would be supplied at diffeSupply Schedule for Tick

Price($ per ticket)

Quantitysupplied

tickets350 8,800

,

250 8,000

,

150 5,000

100 2,000


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A supply curve shows graphically howor service eo le are willin to sell at an

Just as demandThe hi her the or for thatcurves normallyslopeprice beingoffered, the morematter, the moreof any good theydownwards,supply curvespeople will bewilling to partwill be willing tosell.

upwards:

tickets,


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Shifts of the Supply Curv

s o e supp y curve s a c ange

supplied of a good at any given price.

MichaelMichael

JordanJordan isisretiring!!!retiring!!!

Announcement of Gretzkys retirement generates a decdecrease in the quantity supplied at any given price.The decrease in supply shifts the supply


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Movement Along vs. Shift of the A movement along the supply curve is a cquantity supplied of a good that is the result ooods rice.

from point A to pointB: the decrease in

it is the result of a

from point A to pointC: the decrease in

It is the result of areflects a movementalong the supply

fall in the price of thegood.

reflects a shift of thesupply curve

decrease in thequantity supplied atan iven rice.


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Shifts of the Supply Curve (con

Any increase insupplymeans aAny decrease insupplymeans a The principalfactors that shift ther g twar s t othe supply curve:e twar s t o t esupply curve:supp y curve:

changes in the

at any given price,there is an increase at any given price,there is a decreasechanges in

supplied. (S1 S2)

supplied. (S1 S3)changes inex ectations.


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What causes a supply curve

Changes in Input PricesAn inputis a good that is used

another good.

anges n ncome

Changes in Expectations


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, ,

quantity demanded of a good equals thesu lied of that ood.

price (a.k.a market-clearing price):

Ever bu er finds a seller and vice ver

The quantity of the good bought and

is the equilibrium quantity.


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Finding the Equilibrium Price a

Lets put thesupply curveand ar eequilibrium occurs n equ r umthe quantity n s mar e eequilibrium priceis

the demand curvefor that market on

,the supply curveto the quantityAnd the

the same diagram.curve intersect.

.quantityis 8,000tickets.


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Why do all sales and purchasesa e p ace a e same pr ce

Su ose that a seller offered a otentialnoticeably above what she knew other pe

The buyer would clearly be better off waparticular seller and trying someone elsewas prepared to offer a better deal.

Conversely, a seller would not be willing significantly less than the amount he kne

reasonable customer.

- , receive and all buyers pay approximately


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Why does the market price falle equ r um pr ce

Let s say t e mar etprice of $350 is abovethe e uilibrium rice of$250

This creates a surplus

This surplus will pushthe price down until itr u r uprice of $250.

the quantity demanded. Surpluses occur whenits equilibrium level.


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Why does the market price risee ow e equ r um pr ce

e s say e mar eprice of $150 is belowthe equilibrium price of

5 .

This creates a

.

This shortage will push

reaches the equilibriumprice of $250.

exceeds the quantity supplied. Shortages occubelow its equilibrium level.


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Opportunities in ChinHong Kong

Discuss economic opportunities

, . .

WTO

PPRD development

FDI

[Please refer to notes given].



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e or ra e rgan za on is the only global international organization d

rules of trade between nations. At its heart aragreements, negotiated and signed by the butrading nations and ratified in their parliamenthelp producers of goods and services, exportconduct their business. - WTO

Hon Kon oined WTO on 1 Jan 1995 http://www.wto.org/english/thewto_e/countries_e/hong_k

http://www.wto.org/english/thewto_e/countries_e/c



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oca on: eneva, w zer an

Established: 1 January 1995

Created by: Uruguay Round negotiations (198694)

Membership: 150 countries (since 11 January 2007)

Budget: 175 million Swiss francs for 2006

Secretariat staff: 635

Head: Pascal Lamy (director-general)

Functions:

Administering WTO trade agreements

Forum for trade negotiations

Handling trade disputes

Monitoring national trade policies

Technical assistance and training for developing countries Cooperation with other international organizations



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WTO a enges or ong ong

Despite all the opportunities, a more ope

Hong Kong businesses need to overcomchallenges that lie ahead.

For example, foreign banks must currently fulfill requirement of US$20 billion and various otherequirements for setting up a branch in China

foreign enterprises need to have an annual tuthan US$2 billion and assets of no less than U

e asse requ remen or o n ven ure w o esahigh as US$300 million.



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WTOncrease ompe on

Market liberalization will bring in more outs

,also from the Mainland's own developing inbusiness sector.

Diminishing Gateway Function

With a more transparent trade regime in the M

ong s ga eway unc on w m n s gra uforeign companies may try to go to mainlan

as mainland itself catches u throu h amon advancement in telecommunications and intechnology.

ong ong ra ng rms a ma c se ers anadding any significant value to the process a trend toward more direct dealing between


manufacturers in the future.The Hong Kong Polytechnic University


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WTO

Hong Kong's CompetitivenessBesides external factors, Hong Kong busfacing internal challenges and weakness

A major factor that can erode Hong Kongcompetitiveness is our high operating co

for many Hong Kong businesses -- the textileobvious example.

Costs for professional services are also high.

In addition, there are concerns over the i

wea ness o ong ong s e uca on sys



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WTOWhat Hong Kong Businesses Can Do

Whether Hong Kong can remain compadvantage of the liberalization in the M

depend on how Hong Kong positions it

Hong Kong businesses should rethink this will call for restructuring, diversifica

upgrading.

oug ong ong s now par o extremely important for the business co

.

We must play up our role as the "Value"




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PPRDHK can bridge PPRD, Asean

unparalleled strengths and unique featuresPan-Pearl River Delta and the AssociationAsian Nations.

Speaking with Asean business officials in Hunan on June10, 2007, Mr Tsang said Hextensive trade connections with the Main

trade between the two regions.

As an international financial centre, Hon

Asean and PPRD enterprises with a diveffective market for raising funds, he ad



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PPRD

and can facilitate trade between As

,enterprises can effectively network

Hong Kong.



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of CEPAof CEPA

at are t e opportun



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63,000 Ho

firms activ

y

11 million

The Hong Kong Polytechnic UniversityDepartment of Industrial and Systems Engineering



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The Hong Kong Special AdminRe ion Government and the CPeople's Government on May

and trade co-operation under t

Partnership Arrangement (CEP



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The Mainland and Hong Kong Closer EcPartnership Arrangement (CEPA) is the

Hong Kong. The main text of CEPA was

June 2003. CEPA opens up huge markets for Hong

services, greatly enhancing the already ccooperation and integration between theHong Kong.



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For Hong Kong, CEPA provides a windofor Hong Kong businesses to gain greate

.Hong Kong serves as a perfect "springbo

Mainland enter rises to reach out to the and accelerating the Mainland's full integworld economy. Foreign investors are alesta s us nesses n ong ong to eCEPA benefits and join hands in tapping

.



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CEPA covers 3 broad areas: Trade in goods - All goods of Hong Kong ori

the Mainland enjoy tariff free treatment, upo

(ROOs) being agreed and met.

Trade in services - Hong Kong service supppreferential treatment in entering into the Mavarious service areas. Professional bodies o

number of agreements or arrangements onof professional qualification.

Trade and investment facilitation - Both sideenhance co-operation in various trade and in




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Under Supplement VI to the CEPA, the M

introduce 29 liberalisation measures cservice sectors, including two new se

and development, and rail transport). Tnumber of service sectors covered by CEexpanded from 40 to 42. Among them, th

On tourism, Mainland travel agents auth

Mainland residents, who hold a valid exittravelling to and from Taiwan and travel

enter and remain in Hong Kong in transitaims to facilitate the travel trade in the M


ong ong o eve op mu - es na on The Hong Kong Polytechnic University


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On telecommunications services, HK Se

HKSS can distribute in Guan don Profixed/mobile telephone service cards whused in Hong Kong.

On audio-visual services, Hong Kong se(HKSS) can provide videos and sound re

nc u ng mo on p c ure pro uc s s ron the Mainland in the form of wholly-ow

also a newly added sector, HKSS can sowned enter rises on the Mainland to

research and experimental developme

the natural sciences and engineering.



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Mutual recognition of professional quali

measures to encourage mutual recognitiprofessional qualifications as well as tecwork among professionals from the accoconstruction, real estate and printing sec

On medical and dental services, Hong Kcan sit for examination and register on th

ese measures w prov e grea er usopportunities for the trade and facilitate t



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n e w o e, e new measures can eHKSS' competitiveness in the Mainland.

current financial crisis,

but will also promote the long-term economicboth sides.

Details on CEPA including the newly agr-

uploaded to the Trade and Industry Depa



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Pearl River Delta, 2010-


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nine major cities in Guangdong, name

Foshan, Zhao in , Shenzhen, Don

Zhuhai, Zhongshan and Jiangmen,

special administrative regions, name

and Macao.

The re ion a manufacturin hu

importance, contributed 79% to

Guangdong in year 2010. Meanwhile,

accounted for a 72.4% share of totaconsumer goods of Guangdong in 20


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As the blueprint of the deGuangdong in the next five years, the

Plan (2011-2015) of Guangdong sets o

development goals. By 2015, GDP

will increase from RMB 4.5 trillion in

. r on, grow ng a an annua ra e o

Per capita GDP will increase from

RMB 66,000 with an annual growt

Besides, Guangdongs total retail sale

goods will reach RMB 3.5 trillion andand exports will exceed USD 1 tril lion


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In 2010, Guangdong registered a GDP of RMyear-on-year growt o . . t s orecaste t a

reach RMB 6.7 tril lion by 2015, with an annual gro


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The GDP per capita of Guangdong has increan to , n , represent ng an

14.2%. It is expected that the GDP per capita w

66,000 by 2015, with an annual growth rate of 7%.


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Total imports and exports of Guangdong wern . e mports were . on an

USD 453.2 bill ion (a total trade surplus of USD 12

Guangdong accounted for 26.3% of the total na

29.6% of the total national exports. By 2015, th

exports will exceed USD 1 tril lion.


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Guangdong has been serving as a t

development of China and also as

showcasin the benefits of the o eninThe Qianhai area in Shenzhen a

cooperation zones between Guangd

Kon for seekin breakthrou hs

domains.


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The Outl ine of the 12th Five-National Economic and Social Deve

Peoples Republic of China (the

Plan) was officially promulgated on 1

For the first time, an individual ch

a n a n ng e ong- erm rosper of Hong Kong and Macao was dedi

.

The dedicated chapter clearly set o

u or es suppor or ong oneconomic cooperation with the

.


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positioning of Hong Kongs coo

Hong Kong/Guangdong Cooperation

establishment of a financial coo eratworld class metropolitan cluster with

financial system taking the lead, and

Guangdong to open up its service

Hong Kong on a pilot basis and exte

sc eme o o er reg ons gra ua y.


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Hong Kongs role in Pan Pearl River Delta

Development

1. Pan-Pearl River regional co-ordination in blueprint

In the vast areas south of the Yangtze River, local economies should be consolidated to

form a better co-ordinated economic area called the "Pan-Pearl River Delta Region",

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which actually covers eight provinces, one autonomous region and two special

administrative regions plus one municipality directly under the central government.

That is the vision conceived by Guangdong Governor Zhang Dejiang and will be

explored in detail at a forum scheduled to be held early next month.

Liang Guiquan, president of the Guangdong Academy of Social Sciences, the organizerof the forum as well as the consultant on the notion, talked to China Daily to elaborate on

his win-win theory for economic co-operation on such a vast scale.

Liang explained that every economy has its own unique pace. When a market is fullydeveloped, one naturally looks outward for further growth. It usually starts with

merchandise, and then graduates to capital.

"Made-in-Guangdong" products have always been popular in neighbouring provinces,

and "in my opinion, we have reached the stage when we will export capital to these

places", said Liang.

Industrial expansion means there will be need for more space. Wherever a market

emerges, manufacturing will follow to better serve this market. Guangdong is actively

developing its service industries now, but eventually that will mature, too. So, in the next20 years, Guangdong's economic clout will "spill over" to its neighbours and stimulate

the growth in those places.

Liang said that two years ago there was a palpable sense of rivalry of "I grow and you

remain stagnant and that will make me look good". For example, Guangxi was quite wary

of its eastern neighbour and pushed for its own port in the south.

"If you compare the traffic on the two highways, you'll instantly know that economic

growth defies administrative meddling. It has its own logic. The highway from Guangxi

to Guangdong is much busier than the north-south artery inside Guangxi. An economic

bright spot naturally attracts those around it," asserted Liang.

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He further maintained that the less-developed areas have to be "pulled along" in growth,otherwise you won't have a new market or new resources because consumers in those

places would not be able to afford your products and services.

"I used to suggest to provincial-level leaders that when we plan for Guangdong's future,

we will have to keep in mind the surrounding provinces. It's for the benefit of sustainable

growth. Americans don't seem to realize that as they always find trouble with China's

growth," he said, referring to the wave of protectionism and China-bashing in the US.

"This is a situation of interdependence," Liang clarified. "Since Guangdong took offeconomically ahead of others, we have the responsibility to bring others along with us.

This does not mean we will dominate them or we'll call the shots. It only means that we'll

take the initiative to serve them in a more co-ordinated manner."

Some of these "neighbours" are members of the "Pan-Pearl River Delta Economic

Region", which, still on the drawing board, comprises Guangdong, Guangxi, Fujian,

Hunan, Hainan, Jiangxi, Yunnan, Guizhou, Sichuan, Chongqing, Hong Kong and Macao.

According to Li Chunhua, who is co-ordinating the meeting, provinces as far away as

Gansu want to come to the forum and discuss the possibility of being included in the

"master plan". "But it would be too far-fetched to call Gansu part of Pearl River Deltaanything," Li said.

Liang cited the example of Hunan Province, where power costs much less than Guang-

dong.

"If we have this system of co-operation, we can move some of our power-consumingplants there to take advantage of the cost benefit. Another example is Guizhou, rich in

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water and coal. It can export power to Guangdong. Yet Guangdong may fear that it has

no control over utility sources. That's why we will need a mechanism to smooth out

wrinkles and guarantee it will benefit everyone."

Liang Guiquan applied the same reasoning to Hong Kong's relations with the rest of

China. "Hong Kong is far ahead of Guangdong. It has already found itself in the dilemmaof economic restructuring, something that Guangdong will encounter down the road."

Liang feels that Hong Kong people, in general, have not adjusted very well.

"They tend to whine a lot as if they were spoilt children. Maybe they have lived the good

life for too long. Everyone knows Hong Kong's strength lies in its service sector. So some

people are saying Guangdong should not develop its service industry, such as ports, so

that there will be no direct competition. They even propose to lure back some of the

manufacturers back to Hong Kong. Nothing could be more foolish than that."

Liang suggested that Hong Kong first broaden its service area to include southern China.

"Just imagine that all the provinces south of the Yangtze River reach the economic levelof Guangdong in the mid-1990s. What a mammoth market that will be for Hong Kong's

service providers."

Liang also said Hong Kong should "upgrade" its service to meet the demands of an ever-

increasing manufacturing sector on the mainland.

"Better be Jack of all trades than a one-trick pony that can offer only so much," he said.

Hong Kong's strategy should not be to compete with Guangdong, but to join hands withits northern neighbour in a concerted effort to hasten the development of the vast

surrounding region.

"That will be beneficial to Hong Kong, to Guangdong, and to the whole nation," Liang

expounded.

"Of course, Hong Kong does not need to limit its sights to only one market. It should

look to serving the entire country and playing a major role in its growth," Liang said.

"Hong Kong really needs to be forward-looking. As long as fast growth in South China is

guaranteed for the next 20 years, the positions of Hong Kong and Guangdong will berock solid because products will flow through the ports here to the world market. Hong

Kong is irreplaceable. Neither Guangdong nor Shanghai can take its place."

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2. HK to Play More Important Role in Pan-Pearl River Delta Cooperation

Hong Kong will play a more important role in the cooperation among the Pan-Pearl RiverDelta, and in the building of an all-around well-off society undertaken by the Chinese

mainland, said Zhang Dejiang, member of the Political Bureau of the Communist Party

of China (CPC) Central Committee in Hong Kong Monday.

Zhang, also secretary of the Guangdong provincial committee of the CPC, who came to

Hong Kong Monday, will attend Tuesday's opening ceremony of the Pan-Pearl River

Delta Regional Co-operation and Development Forum, at the invitation of ChiefExecutive of the Hong Kong Special Administrative Region (HKSAR) Tung Chee Hwa.

Zhang said he has great confidence in Hong Kong's future and Hong Kong's role as aregional financial, shipping and information center is irreplaceable.

During the day, Zhang visited the Hong Kong Exchanges and Clearing Limited (HKEx),

Tsing Ma Bridge, the University of Hong Kong, and the world's largest container port inKwai Chung.

At the HKEx, Zhang listened to the briefing by the Financial Secretary of the HKSARgovernment Henry Tang. Zhang said that Hong Kong will continue to play its role as a

regional financial center, as the HKEx strictly observes relevant trading rules, enjoys

large quantity of exchange volume and has a bright future.

During his visit to the container port, Zhang pointed out that the development of Hong

Kong's shipping industry serves as an impetus to the economic growth of the Chinesemainland.

Addressing a forum attended by representatives from Hong Kong industry and

commercial community, Zhang said the central government firmly supports the proposalon forming the pan-Pearl River Delta Region. With the rapid economic development of

the Chinese mainland, Hong Kong's role will be more and more important.

Zhang hoped that Hong Kong will seek the opportunity brought about by the pan-Pearl

River Delta cooperation to enhance its economy and improve the livelihood of Hong

Kong people.

Pan-Pearl River Delta Region includes provinces of Guangdong, Hainan, Guizhou,Jiangxi, Yunnan, Sichuan, Hunan and Fujian and Guangxi Zhuang Autonomous region,

as well as Hong Kong and Macao.

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3. HK Could Lead Delta Region

Hong Kong, as an international trade and finance center with a well-developed service

industry, could lead the pan-Pearl River Delta region in its drive to embrace the world

market. Guangdong Governor Huang Huahua said this on the sidelines of the second

meeting of the Pan-Pearl River Regional Co-operation and Development Forum heldWednesday. "Hong Kong excels as a service provider and has long been a world center

for finance, trade, shipping and information. This is the city's greatest advantage," Huang

said. He said Hong Kong could be a "dragon head" in leading the pan-delta regiontowards international co-operation in economic, science and technology sectors. Chief

Executive of Macao Edmund Ho Hau-wah stressed that co-operation in the pan-delta

region will help promote economic integration. "Economic co-operation in the regionconforms with emerging trends and will push forward complementary economic

development," Ho told the forum. He said Macao's government will actively participate

in co-operative efforts under the pan-delta framework. Chief executives of Hong Kong

and Macao, along with the governors of the nine areas in the region, were joined by

speakers from Macao's academic and business sectors. The guest speakers identified newopportunities for Macao and its role in the economic integration of the pan-delta region.

With the implementation of the Closer Economic Partnership Arrangement and theChina-ASEAN free trade zone, Macao is poised to play an important role in regional co-

operation, said Hoi Sai-lun, President of the Macao General Association of Trade. "Pan-

delta economic co-operation will give added impetus to the city's gaming and tourismindustries, while encouraging political stability and consolidating the territory as a

premier entertainment capital in the region," Chairman of the Macao Association of the

Catering Industry Chan Chak-mo said. Meanwhile, academics gave recommendations forthe implementation of the Pan-Pearl River Delta concept. "The 11 areas in the Pan-delta

group must establish a co-ordinating mechanism to foster economic partnership," saidProfessor Leong Tou-hong from the Macao Polytechnic Institute. A common platform in

the region for forging closer ties and eliminating territorial barriers will benefit regional

integration, he added. The pan-delta region should also enhance collaborative efforts in

science, education and cultural development, said Liu Renhuai, president of theGuangzhou Jinan University. The first Pan-Pearl River Delta forum will close in

Guangzhou today. Provincial leaders will sign a joint-agreement covering infrastructure,

agriculture, investment, technology and tourism. The forum advocates the concept offorming a common economic market spanning 11 areas in the region, also known as "9--

2". It encompasses the provinces of Fujian, Jiangxi, Hunan, Sichuan, Guizhou, Yunnan

and the special administrative regions of Hong Kong and Macao.(ChinaDaily)(06/03/2004)

4. HK urged to assume leading role in 'pan-delta'

Hong Kong and Guangdong Province should join hands to take on a leading role in the

creation of a new regional economic bloc.

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Frederick Lam, executive director of the Trade Development Council, said this yesterday

at a government discussion forum on regional economic co-operation.

'Hong Kong has many distinct advantages, but it must join forces with neighbouring

Guangdong Province to lead the economic development of the Pan-Pearl River Deltaregion,' Lam said.

The SAR or the Guangdong Province alone cannot be the 'dragon heads' of the region,

they must combine their strengths, he stressed.

Lam added that the territory's integration with the pan-delta region is in accordance with

world economic trends.

'With a population of 450 million, the region is comparable to the European Union and

NAFTA, and the pan-delta concept can also be compared to these economic entities,' he

added.

The Pan-Pearl River Delta concept, proposed last year by Guangdong provincial Party

secretary Zhang Dejiang, aims to further economic integration in the region.

The concept involves nine provinces and two special administrative regions, namely

Guangdong, Jiangxi, Fujian, Guizhou, Guangxi, Sichuan, Yunnan, Hunan, Hainan, Hong

Kong and Macao.

Chairman of Hopewell Holdings Gordon Wu said Hong Kong must seize the opportunity

to further integrate with the pan-delta group, which is a burgeoning economic force.

'I believe co-operation with the region is essential for the territory's long-term economic

prosperity. With this new arrangement, we can maximize our advantage as the pan-delta's

window to the world,' Wu said.

Chairman of the Federation of Hong Kong Industries Andrew Leung said Hong Kong

must transcend the concept of being a single city. 'We must eliminate local protectionism,

which is a hindrance to economic integration. When transport and economic barriers are

removed, Hong Kong's businesses will have better access to the region's raw materials,

facilities and talents, furthering collaboration efforts,' Leung said.

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To push forward the proposal, the first meeting of the Pan-Pearl River Delta Regional

Co-operation Forum will be held in the territory on June 1. The chief executives of HongKong and Macao and leaders of the nine provinces are expected to attend.

5. A Brief Review

It has ben 23 years since Guangdong designated the 14 cities and counties that make up

the Pearl River Delta as a single geographic entity, which is the subject of the FourthAnnual Pearl River Delta Conference, "Growth and its Consequences", to be held today

and tomorrow at the Garden Hotel in Guangzhou.

It was in 1992 that party boss Lin Ruo, realising the entire province could not beurbanised simultaneously, asked that major cities be identified to spearhead the

urbanisation drive so that they could provide the impetus for growth in east and west

Guangdong.

The resulting area covering 41,500 sqkm with a population of 35million people haswitnessed meteoric but patchy growth, with the Four Tigers - Zhongshan, Dongguan,

Nanhai and Shunde - sprinting ahead while backwaters Huizhou, Jiangmen and Zhaoqing

loll in sub-tropical languor.

A decade following its creation, Governor Huang Huahua called for the creation of a

Greater Pearl River Delta in April 2003 as the Yangtze River Delta - which has fewer co-ordination problems as it is comprised of fewer cities and has a more transparent

investment environment - emerges as a potent threat to the Pearl River Delta's economic

powerhouse position.

Bringing in Hong Kong and Macau was aimed at giving the southern delta an

international edge that could not be matched by the Yangtze River Delta.

Before that there had been calls to attract more Fortune 500 companies, of which 300have come to Guangdong compared with 400 in Shanghai, although these calls were

viewed negatively by Hong Kong and Macau.

Zhou Yunyuan, a scholar at Sun Yat-sen University's Centre for Hong Kong, Macau and

Pearl River Delta Studies, said: "They felt that Guangdong no longer cared aboutinvestment from Hong Kong and Macau and only wanted to draw the top 500 companies.

They felt used and then discarded."

A few months later in July, Party Secretary Zhang Dejiang asked experts to think about

extending the Pearl River Delta to cover neighbouring provinces.

Despite grand designs, Pearl River Delta experts said the delta was still hamstrung by alack of co-ordination that resulted in wasteful duplication, while suggestions to make the

area more dynamic had fallen on deaf ears.

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Zhuhai's white elephant airport is a classic case of poor co-ordination and rivalry among

delta cities - but there are more recent examples of their inability to work together.

The construction of a wastewater treatment plant to serve residents in border areas of

Foshan and Guangzhou has been held back because both cities want to build their own

plant even though it does not make economic sense.

Even the integration with Hong Kong has run into a snag recently from Guangdong's

point of view because the city is seen as being high-handed in making unilateral decisions

on the Hong Kong-Macau and Zhuhai bridge.

Zheng Tianxiang, a former director of the research centre, said: "The bridge has alienated

Guangdong's middle- and high-ranking officials because they feel that Hong Kong made

all decisions unilaterally, including choosing landing points."

Escalating cost estimates and a feeling that Hong Kong and Macau were imposing their

wishes on Guangdong were threatening to keep the long-awaited bridge sitting on thedrawing boards, he said.

"They do not understand why [Hong Kong] did not take cost into consideration and now

it is costing 60 billion yuan. It was supposed to be a Build Operate and Transfer project.

Now they want the central government to foot 30 per cent of the cost," he said.

As early as 1995, Professor Zheng advocated the creation of a commission for regional

management but the idea was shot down by the nine mayors who did not want to

relinquish their power.

Guangdong's administrative structure, as in other parts of the mainland, is such that thevice-governors have responsibilities for different sectors of the economy. There is no onevice-governor in charge of regional matters, which means regional issues have to be

handled by the governor.

From time to time, the governor may designate a vice-governor to hold a regional

meeting to address a problem but the vice-governor often does not study the problem

leaving his responsibilities poorly discharged.

An informal mayors' forum was created but they met irregularly and have no voting or

veto rights, giving rise to a situation where there are more disputes than solutions.

Professor Zheng suggested setting up a common fund for environmental conservation,

agriculture and basic infrastructure projects but no one was concerned about taking a

regional approach to these projects.

"Each mayor is concerned only with his own city. They are very provincial and do not

understand what it means to be in a win-win situation," he said.

9


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10

With Hong Kong's and Macau's participation, however, matters improved because when

proposals from Hong Kong and Macau leaders were made to the State Council, it was

relayed to local governments and they accepted such suggestions, Professor Zheng said.

"I feel that there should be more proposals from National People's Congress delegates

from Hong Kong and Macau [because their voices carry weight].

Professor Zheng called for the creation of a commission for exchange of information

among experts from the three areas so that experts' views had a better chance of being

heard by policymakers.

An advisory commission of 118 experts set up recently by the Guangdong government

could be expanded to include Hong Kong and Macau experts, he said.

The Pearl River Delta may have reached a stage where it has to pay serious heed to thevoices of experts because boom cities such as Shenzhen and Dongguan have run out of

land and ideas to sustain their prosperity.

Meanwhile, labour costs have risen but discussions on merging Shenzhen with Dongguan

and Huizhou to strengthen their competitive edge have fallen flat.

Merger experience elsewhere has not given them cause to embrace the idea with

enthusiasm.

Leaders of Nanhai and Shunde still rue the day their cities were forced to merge with

Foshan and claim that their economic growth shrank as a result of the merger.

Despite the poor co-ordination record, Professor Zheng believed that delta officials werenow more mature and more inclined to take a regional view on things.

Professor Zhou remained optimistic about the Pearl River Delta.

He said its track record kept foreign investors interested while more information about

the delta was filtering out.

"I predict that the Pearl River Delta can still sustain a growth rate of 10 to 12 per cent,"

he said.


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CEPA - EASIER ACCESS TO CHINA THROUGH HONG KONG

Cepa' is China's free trade agreement with Hong Kong. It grants easier access to Chinamarketsfor Hong Kong-made products, and Hong Kong-based service companies.

1. Duty-free export to China for Hong Kong-made products

1087 categories of 'Made in Hong Kong' products will be exempt from tariffs whenexported to the Chinese mainland. More information.

2. Easier market entry for Hong Kong-based service providers

Cepa covers 26 service sectors and reduces, or removes geographical, financial andownership restraints.Any nationalitycompany can apply if it:

Is incorporated in Hong Kong

Has operated for 3 to 5 years (depending on the sector) Is liable to pay Hong Kong profits tax Employs 50% of its staff locally More information.

Cepa Update Summaryby Susan Lavender, Associate, Dibb Lupton

Alsop(European-based law firm in Hong Kong)

BENEFITS FOR NON-HONG KONG COMPANIES

Overseas companies, not based in Hong Kong, can take advantage of Cepa by

outsourcing to, or partnering witha Cepa-qualified manufacturer or service provider inHong Kong.

Overseas manufacturers, you do not need an office in Hong Kong to benefit from Cepa.For your goods to qualify as 'Made in Hong Kong', you need only satisfy simple Rules ofOrigin. In essence, your products must be "substantially transformed" in HongKong. More information.

If you are a service-provider, you can partner with, or invest in, a Cepa-qualifiedcompany to benefit from easier access to the Chinese mainland. More information.

SECTOR-SPECIFIC REPORTS

ManufacturingServices

CEPA FEATURES

- Italian firm qualifies as Hong Kong service supplier- More business opportunities for overseas firms under Cepa II

1
http://www.tid.gov.hk/english/cepa/trade_goods.htmlhttp://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.hktrader.net/common/CEPAIISummary.pdfhttp://www.dla.com/http://www.dla.com/http://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.tdctrade.com/main/industries/industry.htmhttp://www.tdctrade.com/main/si/servicei.htmhttp://www.hktrader.net/200412/lead/lead-caben200412.htmhttp://www.hktrader.net/200409/lead/lead-cepaII200409.htmhttp://www.hktrader.net/200409/lead/lead-cepaII200409.htmhttp://www.hktrader.net/200412/lead/lead-caben200412.htmhttp://www.tdctrade.com/main/si/servicei.htmhttp://www.tdctrade.com/main/industries/industry.htmhttp://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.dla.com/http://www.dla.com/http://www.hktrader.net/common/CEPAIISummary.pdfhttp://www.tid.gov.hk/english/cepa/trade_services.htmlhttp://www.tid.gov.hk/english/cepa/trade_goods.html


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- Global logistics provider taps Cepa opportunities- 'Big four' gear up for post-Cepa rush- World banks localise for first-mover advantage in China- HK & EU business leaders hail Cepa opportunities- Luxury goods group sees Cepa as business generator

CEPA and Opportunities for Hong Kong

Introduction

Following the signing of the main parts of the Closer Economic Partnership

Arrangement (CEPA) on 29th June 2003, Hong Kong and the Mainland signed the six

Annexes to the main text of the Arrangement on 29th September 2003, setting out the

implementation details. To be implemented from 1st January 2004, the Arrangement is to

ensure Hong Kong will be "economically interlocked" with the Mainland and that

smaller Hong Kong companies will benefit from the opening-up and liberalisation on the

Mainland beyond China's commitments in its WTO accession. With CEPA, 90% of HongKong domestic exports to the Mainland can enjoy zero tariffs. Also, CEPA opens up 18

service industries to Hong Kong companies. More important, CEPA provides long-term

opportunities for Hong Kong people to establish business or work on the Mainland.

CEPA - A Special Arrangement Abiding by International Practices

CEPA is the first bilateral Free Trade Agreement (FTA) for both the Chinese Mainlandand Hong Kong. It abides fully by the WTO's requirements on FTAs. While theAgreement eliminates substantial trade and investment barriers between Hong Kong and

the Chinese Mainland, it does not raise any obstacles for other economies' access to thetwo markets. Consistent with the provision of the General Agreement of Trade inServices (GATS), companies in Hong Kong with substantive activity are qualified asHong Kong companies for the entitlement of the benefits under CEPA.

Opportunities in Trade in Goods

Starting from 1st January 2004, 273 types of products made in Hong Kong can beexported to the Mainland free of tariff. This, together with China's commitments uponaccession to the WTO, will allow about 90% of Hong Kong domestic exports to theMainland to enjoy zero tariffs. The annual savings in tariffs are estimated to be HK$750million. Moreover, zero tariffs will also be applied latest by January 2006 uponapplications by manufacturers in Hong Kong to other products made in Hong Kong foraccessing the Mainland market.

A product is qualified as "made in Hong Kong" if it fulfills the rules of origin underCEPA. For 70% of the 273 types of products covered in the initial phase for tariff-freeimportation, Hong Kong's existing origin rules using the "specific manufacturing

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process" criterion will be adopted as the CEPA origin rules. For the rest, either the"change in tariff heading" approach or the "30% value-added" requirement will be used.The 30% value-added rule compares favourably with other free trade areas' thresholds,which range from 40% to 60%.

Apart from zero tariffs enjoyed by products made in Hong Kong, products made by HongKong and/or traded by Hong Kong will also benefit from CEPA in other ways. UponChina's WTO accession, many Hong Kong manufacturers with production on theMainland would like to develop China as their domestic market. However, their marketpenetration efforts have been somewhat hindered by the underdeveloped distributionsystem on the Mainland. Many hazards in developing the China market such as paymentproblems and intellectual property rights protection now facing Hong Kongmanufacturers can hopefully be alleviated as more Hong Kong players will be allowed toengage in distribution business on the Mainland under CEPA.

The immediate benefit of the trade in goods is the saving in tariffs, thus increasing the

price competitiveness of Hong Kong's domestic exports of consumer products into theMainland. Industries that are more likely to be benefited include fashion, jewellery andhigh-end watches.

A longer-term effect of the zero-tariff agreement is the potential for attracting more highvalue-added manufacturing activities to be located in Hong Kong, and promotingdevelopment of brand products made in Hong Kong to emerging middle-class consumerson the Mainland.

Capitalising on the advantage of Hong Kong in intellectual property rights protection,free trade and investment environment, and reputation in cosmopolitan design, Hong

Kong is in a good position to develop high intellectual property (IP) value industries thattarget the Mainland market.

For high-end products such as designers' clothing and fashion accessories, and industriesthat involve proprietary technology (since the IP input accounts for a much larger sharethan labour and other inputs in the total cost structure), production in Hong Kong maystill be justifiable. However, since the high IP value industries are knowledge-based andwould not be massive in scale, the effect of job creation in Hong Kong, especially forunskilled workers, would only be moderate.

Opportunities in Trade in Services

CEPA provisions on market access cover a total of 18 service industries. These include:management consulting, convention and exhibition, advertising, accounting, constructionand real estate, medical and dental, distribution, logistics, freight forwarding, storage andwarehousing, transport, tourism, audio-visual, legal, banking, securities, insurance, andvalue-added telecommunications services.

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To be entitled to the benefits of CEPA, a service company, regardless of the nationalityof its investors or shareholders, must have substantive business activity in Hong Kong byfulfilling the following criteria:

(1) the company must be incorporated under the laws of Hong Kong;

(2) the company must be liable to pay profits tax in Hong Kong;(3) the company must employ in Hong Kong 50% or more of its total staff.

In addition, companies in different service industries have to meet different extra criteriato ensure that they have been engaging in substantive business operations in such anindustry for a minimum period (usually three to five years) in Hong Kong. Although theexact requirements for a company to be qualified vary by industries, the assessment willbe on a non-discriminatory and objective basis. Foreign companies can be regarded as a"Hong Kong company" one year after acquiring majority shares in a Hong Kongcompany through merger or acquisition.

Although the liberalisation measures vary from industry to industry, China has taken intoaccount the special niche of Hong Kong as CEPA commitments go beyond the country'sWTO accession protocol, for example, the opening-up of exhibition business to HongKong companies.

Besides the exhibition industry, Hong Kong's niche in the audio-visual industry is wellrecognised. With the quota free access to the Mainland of Chinese language filmsproduced in Hong Kong and the relaxation on the co-production requirements, CEPApaves the way for the recovery of Hong Kong's film industry by creating great potentialin the Mainland market. More important, it provides a very good avenue for Hong Kongto post itself as a modern and dynamic metropolis before Mainland's consumers.

The framework of CEPA is intentionally designed to help smaller companies, whetherthey be indigenous or foreign-owned, in Hong Kong. Under China's WTO protocol, thethresholds of entry to the Mainland's service sector are too high for Hong Kongcompanies in most service industries. CEPA lowers the thresholds for Hong Kongcompanies, allowing them an "effective" market access to the Mainland's service sector.Lowering the thresholds for Hong Kong banks to expand on the Mainland and allowingHong Kong law firms to share offices with their Mainland counterparts are significantmeasures to increase the feasibility of Hong Kong service providers to do business on theMainland.

Not only Hong Kong products or Hong Kong companies but also Hong Kongprofessionals and residents will benefit from CEPA. Hong Kong professionals in thesecurities and insurance industries can apply to practise on the Mainland and Hong Kongpermanent residents with Chinese citizenship are permitted to sit the legal qualifyingexamination on the Mainland. Moreover, Hong Kong permanent residents with Chinesecitizenship are formally permitted to engage in retail activity in Guangdong. All thissuggests that in future more Hong Kong people are likely to seek employment andbusiness opportunities on the Mainland.

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Hong Kong as a Financial Centre and Its Special Relations with the Pearl River

Delta

CEPA will strengthen Hong Kong's role as an international financial centre for China and

the region. Under CEPA, the Mainland supports Chinese banks in re-locating theirinternational treasury and foreign exchange trading centres to Hong Kong. They are alsoencouraged to expand their banking business in Hong Kong through acquisition. In theprocess of financial reform on the Mainland, the financial intermediaries in Hong Kongwill be fully utilised.

Given the proximity of Hong Kong to the Pearl River Delta (PRD), CEPA has a specialmeaning to the closer co-operation of the two places. With CEPA, the PRD will continueto grow from strength to strength as the world's manufacturing centre, fully supported bythe business services provided by Hong Kong companies. Waiving Hong Kong lawyers'residency requirements for operating in the PRD is just an example of the special

convenience provided by CEPA to enhance the partnership of the Greater PRD.

Overall Impact on Hong Kong

CEPA will leverage on the institutional strengths of Hong Kong and the huge marketpotential on the Mainland under the "one country, two systems" principle for revitalisingthe Hong Kong economy and modernisation of the Chinese Mainland. Given the easedmarket access to the Mainland and the stringent protection of intellectual property rightsin Hong Kong, the city will be the first choice to supply products and services with "highcontent of intellectual property" for the Mainland market. Creativity will be the key

determinant for Hong Kong people and companies to succeed on the Mainland whiledeveloping into a "knowledge-intensive" service hub is the future of this territory.

CEPA indeed creates the "environment" for Hong Kong products, Hong Kong companies(particularly medium-sized companies), Hong Kong professionals and residents to havean "effective" access to the Mainland. It does not provide them with "privileges" to enjoyexclusive rights in the Mainland market. They have to face intensifying competition inthis large market from both local suppliers as well as multinational players. As China willcontinue to open up on schedule in accordance with its WTO commitments, the windowof first mover advantage for Hong Kong players is brief.

The impact of CEPA on the service sector is likely to be greater than that on themanufacturing sector. This is particularly true when services, accounting for only 34% ofChina's GDP, have become a constraint on the country's economic development.Contributing 87% to the domestic economy, services are well developed in Hong Kongand will be able to contribute more to the modernisation of the Mainland under CEPA.Although the immediate benefit of CEPA for industrial employment in Hong Kong mayonly be moderate, much more future employment opportunities in the service sector will

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6

be created across the boundary. The overall effect on total employment could besignificant.

Immediate trade and employment creation is, of course, important to Hong Kong, but thelong term effect of CEPA is much more substantial. Indeed, the pace of Hong Kong's

economic restructuring will accelerate under CEPA. While the impact will evolve overtime, it is likely to be reflected more in Hong Kong's GNP than in its GDP. Theopportunities arising from CEPA are not limited to activities within the HKSAR but gomuch farther into the Mainland


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Latest Developments of the Greater Pearl River Delta


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This chapter is divided into 6 parts. Part I, II and III will give the

general economic overview of Guangdong as well as the GreaterPearl River Delta region. Key development goals for Guangdong

and latest updates of the cooperation zones between Hong

Kong and Guangdong will be covered in Part IV and Part V. Part

VI will introduce the major government initiatives and recent

infrastructure projects in the Greater Pearl River Delta region.

I.

20111.044

179 812.7

21

2010

79%

72.4%

I. Economic Overview of Guangdong

Guangdong is the most populous prov ince in China.Encompassing a total land area of 179 812.7 sq. km, the province

had a 104.4 million permanent population by the end of 2010,

according to the Guangdong Statistical Yearbook 2011.

Located on the southern coast of China, Guangdong is composed

of 21 cities at prefecture level. Of which, Guangzhou, Foshan,

Zhaoqing, Shenzhen, Dongguan, Huizhou, Zhuhai, Zhongshan

and Jiangmen are the 9 major cities forming a region commonly

known as the Pearl River Delta. The Pearl River Delta region, a

manufacturing hub of national importance, contributed 79% to

total GDP of Guangdong in year 2010. Meanwhile, the region alsoaccounted for a 72.4% share of total retail sales of consumer

goods of Guangdong in 2010.


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GDP per capita of Guangdong (1978-2015*)

2.

1978370

201047,000

14.2%201566,000

7%

2. GDP Per Capita

Since China adopted the economic reform and opening-up policy,

the GDP per capita of Guangdong has increased from RMB 370

in 1978 to RMB 47,000 in 2010, representing an annual growth

of 14.2%. It is expected that the GDP per capita will increase to

RMB 66,000 by 2015, with an annual growth rate of 7%.

1.

201045,472.8

15.2%2015

66,800

8%

1. GDP of Guangdong

In 2010, Guangdong registered a GDP of RMB 4.5 trillion with a

year-on-year growth of 15.2%. It is forecasted that the total GDP

will reach RMB 6.7 trillion by 2015, with an annual growth rate of

8%.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

RMB

GDP per capita ofGuangdong

370.02,484.0

8,129.012,736.0

24,438.0

33,151.0

37,589.041,166.0

47,000.0

66,000.0

GDP of Guangdong (1978-2015*)

10,000

01978 1990 1995 2000 2005 2007 2008 2009 2010 2015*

20,000

30,000

40,000

50,000

60,000

70,000

80,000

RMB100m

Year

GDP

Source: Guangdong Statistical Yearbook 2011

* The figure of 2015 is projection

2011

* 2015

185.9 1,559.05,933.1

10,741.3

22,366.5

31,084.4

35,696.5

39,482.6

45,472.8

66,800.0


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International trade (1990-2010)

3.

197879.9 2010

17 ,414 .7

16.9%201535,000

4.

20107,849.0

3,317.1

4,531.91,214.8

2010

26.3%29.6%2015

1

3. Retail Sales of Consumer Goods

In line with the income growth, the amount of retail sales of

consumer goods has increased from RMB 8.0 billion in 1978

to RMB 1.7 trillion in 2010 with an annual growth of 16.9%. By

estimation, the figure will reach RMB 3.5 trillion by 2015.

4. Total Exports and Imports

Total imports and exports of Guangdong were USD 784.9 billion

in 2010. Of which, total imports were USD 331.7 billion and total

exports were USD 453.2 billion, representing a total trade surplus

of USD 121.5 billion. In 2010, Guangdong accounted for 26.3% of

the total national imports and 29.6% of the total national exports.

By 2015, the total imports and exports will exceed USD 1 trillion.

1,000

2,000

3,000

4,000

5,000

6,000

7,000

9,000

8,000

USD100m

Total exports andimports

Retail sales of consumer goods (1978-2015*)

5,000

01978 1990 1995 2000 2005 2007 2008 2009 2010 2015*

10,000

15,000

20,000

25,000

30,000

35,000

40,000

RMB100m

Year

Total retail sales ofconsumer goods

Source: Guangdong Statistical Yearbook 2011

* The figure of 2015 is projection

2011

* 2015

79.9 667.42,478.4

4,379.8

7,882.6

10,598.1

12,772.2

14,891.8

17,414.7

35,000.0

Exports

Imports

419.0

1,039.7

1,701.1

4,280.0

6,340.46,834.9

6,111.2

7,849.0


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II. *

(2009-2010)

II. Major Economic Indicators of the Pearl

River Delta*(2009-2010)

2009 2010Nine cities in PRD

Basic information

Production data

External Economy

Domestic Economy

Percentage to the

Guangdong province (%)

Year-on-year growth

rate (%)

Percentage to the

Guangdong province (%)

Land Area (sq.km)54 733.0 30.4 54 733.0 / 30.4

Regional GDP (RMB 100 million) 32,147.0 79.4 37,673.3 17.2 79.0

Total Exports (USD 100 million) 3,417.8 95.2 4,318.0 26.3 95.3

Total Imports (USD 100 million) 2,430.5 96.4 3,195.0 31.5 96.3

Total Investment in Fixed Assets

(RMB 100 million)

9,603.6 71.9 11,355.8 18.2 70.5

Total Amount of Retail Sales of Consumer

Goods (RMB 100 million)

10,834.7 72.8 12,613.2 16.4 72.4

Primary Industry 723.6 35.7 809.8 11.9 35.1

Primary Industry 2.3 / 2.1 -0.2 /

Secondary Industry 15,427.5 80.0 18,313.5 18.7 79.3

Secondary Industry 48.0 / 48.6 0.6 /

Tertiary Industry

15,995.9 83.4 18,550.0 16.0 83.2

Tertiary Industry 49.8 / 49.2 -0.6 /

GDP per capita (RMB)

61,231.0 / 68,633.3 12.1 /

Urban Population (10 000 persons) 4 336.6 67.5 4 646.0 7.1 67.2

5 361.7 52.9 5 616.4 4.8 53.8

Permanent Population at the Year-end

(10 000 persons)

3 261.0 57.7 3 377.4 3.6 58.7

Employed Persons at the Year-end

(10 000 persons)

Ratio of Industries to the Gross Domestic

Product (%)


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III.

(2010)

III. Basic Facts and Figures of the Greater

Pearl River Delta, 2010

The Greater Pearl River Delta comprises nine major cities in

Guangdong, namely Guangzhou, Foshan, Zhaoqing, Shenzhen,

Dongguan, Huizhou, Zhuhai, Zhongshan and Jiangmen, as well

as two special administrative regions, namely, Hong Kong and

Macao. The exhibit below shows the basic facts and figures of the

respective cities.

Guangzhou

Huizhou

Hong Kong

Zhaoqing

Dongguan

Foshan

Zhongshan

Jiangmen

Zhuhai

Macao

Shenzhen

city1) 1) Population with residence registration

2) 2) GDP

3) 3) Retail sales of consumer goods

4) 4) Per capita disposable income

5) 5) Per capita consumption expenditure

6) 6) GDP at current price

()

7) 7) GDP per capita

8) 8) Retail sales

1) 710 ( 10 000 persons)

6) 17,438.6 ( HKD 100 million)

7) 246,733.0 (HKD)

8) 3,249.7 (HKD 100 million)

1) 55.2 ( 10 000 persons)2) 2,173.2 ( MOP 100 million)

7) 398,071.0 (MOP)

8) 298.5 ( MOP 100 million)

1) 149.2 ( 10 000 persons)

2) 1,850.6 ( RMB 100 million)

3) 648.1 ( RMB 100 million)

4) 25,357.0 ( RMB)

5) 18,833.0 ( RMB)

1) 138.2 ( 10 000 persons)

2) 883.8 ( RMB 100 million)

3) 282.6 ( RMB 100 million)

4) 21,153.0 ( RMB)

5) 15,561.0 ( RMB)

1) 104.7 ( 10 000 persons)

2) 1,208.6 ( RMB 100 million)

3) 486.0 ( RMB 100 million)

4) 25,382.0 ( RMB)

5) 20,370.0 ( RMB)

1) 370.9 ( 10 000 persons)

2) 5,651.5 ( RMB 100 million)

3) 1,687.1 ( RMB 100 million)

4) 27,245.0 ( RMB)

5) 21,995.0 ( RMB)

1) 53.7 ( 10 000 persons)

2) 384.5 ( RMB 100 million)

3) 26.0 ( RMB 100 million)

4) 16,832.0 ( RMB)

5) 12,164.0 ( RMB)

1) 664.3 ( 10 000 persons)

2) 9,879.4 ( RMB 100 million)

3) 4,242.6 ( RMB 100 million)

4) 30,658.0 ( RMB)

5) 25,012.0 ( RMB)

1) 181.8 ( 10 000 persons)

2) 4,246.5 ( RMB 100 million)

3) 1,108.1 ( RMB 100 million)

4) 35,690.0 ( RMB)

5) 25,733.0 ( RMB)

1) 133.9 ( 10 000 persons)

2) 1,130.5 ( RMB 100 million)

3) 355.8 ( RMB 100 million)

4) 23,565.0 ( RMB)

5) 19,741.0 ( RMB)

1) 259.9 ( 10 000 persons)

2) 9,581.5 ( RMB 100 million)

3) 3,000.8 ( RMB 100 million)

4) 32,381.0 ( RMB)

5) 22,807.0 ( RMB)


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IV.

2009

20082020

2009

()

()(

)

IV. Key Development Goals of the Three

Economic Circles in Guangdong

In response to the Outline of the Plan for the Reform and

Development of the Pearl River Delta (2008 to 2020) released

by the National Development and Reform Commission in early

2009 and the Guiding Opinions on Expediting the Economic

Integration in the Pearl River Delta Region promulgated by

the Government of Guangdong province in mid 2009, the nine

cities of Pearl River Delta had one after another entered into a

cooperation framework agreement on regional integration. The

aim was to integrate resources and strengthen collaboration with aview to further urban integration, a process which has given rise to

the formation of three economic circles, namely the Guangzhou-

Foshan-Zhaoqing Economic Circle with Guangzhou as its core

city; the Shenzhen-Dongguan-Huizhou Economic Circle, which

encompasses the eastern Pearl River Delta region with Shenzhen

as its core city; and the Zhuhai-Zhongshan-Jiangmen Economic

Circle comprising the western Pearl River Delta region with Zhuhai

as its core city.

Key development goals of the three economic circles set out by

the Guangdong Government are listed in the exhibit below.

(20112012)Key Development Goals of the Pearl River Delta Region in 2011 and 2012

Shenzhen-

Dongguan-Huizhou Economic

Circle

Guangzhou-

Foshan-

Zhaoqing Economic

Circle

Zhuhai-Zhongshan-

Jiangmen Economic

City

Year

()GDP per

capita (RMB)

Serviceindustry as

a share of GDP (%)

Urbanisation

rate (%)

()

Urban householddisposable incomeper capita (RMB)

()

Rural net income percapita (RMB)

Shenzhen

Huizhou

Dongguan

Guangzhou

Zhaoqing

Foshan

Zhuhai

Zhongshan

2011 113,129 56 100.0 34,100 -

2012 121,048 58 100.0 36,800 -

2011 72,000 47 87.2 37,476 15,2382012 80,000 48 87.5 39,537 16,457

2011 44,182 37 62.2 25,200 8,682

2012 50,000 38 62.5 27,500 9,200

2011 97,900 63 83.0 32,800 13,148

2012 103,700 65 83.2 35,800 14,332

2011 92,000 38 93.5 28,900 12,480

2012 102,000 40 94.4 31,800 13,478

2011 25,500 44 48.5 17,733 7,235

2012 30,000 45 50.0 19,152 7,799

2011 81,000 48.7 85.7 26,900 9,818

2012 85,200 51 86.1 29,600 10,505

2011 74,000 41 87.5 25,810 14,034

2012 80,000 43 88.0 27,230 15,000


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V.

V. Major Cooperation Zones between Hong

Kong and Guangdong

Since the opening up of China in late 1970s, Guangdong has

been serving as a testing field for exploring a new direction for

the economic development of China and also as a role model

showcasing the benefits of the opening up policy. Three decades

on, Guangdong is once again endowed with an opportunity to

test-run the concepts of Early and Pilot Implementation. It is

noteworthy that the Qianhai area in Shenzhen and Nansha in

Guangzhou have been chosen as the major cooperation zones

between Guangdong and Hong Kong for seeking breakthroughsin innovative domains.

Qianhai,

Shenzhen

Nansha,

Guangzhou

Area

Cooperation zonesbetween Hong Kongand Guangdong

Major industries

Development goals

Major development plans

15

15 sq.km

8 0 3

570

803 sq.km

with land area

of 570 sq.km

Focusing on thedevelopment of modern

service industries such

as finance, logistics and

information technology

Promoting the development

of intellectual industries such

as the internet of things, and

exploring the developmentof a bulk commodity trading

centre and a major logistics

base in South China in the

vicinity of Nansha Bonded

Port Area

2020

To become a prominent producer

service centre in the Asia-Pacific

region and a world-class trading

service base by 2020

Four functions: a new platform

for comprehensive cooperation

between Guangdong, Hong

Kong and Macao, a new world-class logistics hub in the Pearl

River Delta region, a new engine

of scientific development in

South China, a new base for the

implementation of the national

maritime strategy

Overall Development Plan ofQianhai for the Cooperation

between Shenzhen and Hong

Kong in Modern Service

Industry

Comprehensive Proposal for

the Overall Conceptual Plan

of Nansha, Guangzhou

Source: Development Plans for Qianhai and Nansha


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VI.

1.

2011316

CEPA

VI. Major Policy Initiatives and Infrastructure

Constructions

Major Policy Initiatives

1. The 12thFive-Year Plan

The Outline of the 12thFive-Year Plan for National Economic

and Social Development of the Peoples Republic of China (the

12thFive-Year Plan) was officially promulgated on 16 March 2011.

For the first time, an individual chapter entitled Maintaining the

Long-term Prosperity and Stability of Hong Kong and Macaowas dedicated to Hong Kong and Macao. The significant

functions and positioning of the Hong Kong Special Administrative

Region in the national development strategy were elaborated.

The dedicated chapter clearly set out the Central Authorities

support for Hong Kong to deepen economic cooperation with the

Mainland and continue to implement CEPA. It also confirmed the

significant functions and positioning of Hong Kongs cooperation

with Guangdong under the Framework Agreement on Hong

Kong/Guangdong Cooperation, including the establishment

of a financial cooperation zone and a world-class metropolitan

cluster with Hong Kongs financial system taking the lead, and the

support for Guangdong to open up its service industries for Hong

Kong on a pilot basis and extending the pilot scheme to other

regions gradually.


84/104

2.

20112015

8%7%

2. 12thFive-Year Plan of Guangdong

As the blueprint of the development of Guangdong in the next

five years, the 12thFive-Year Plan (2011-2015) of Guangdong

set out the following goals including steady and fast economic

growth, optimised and upgraded industrial structure, improvement

of innovation capability, reduction of regional development

disparity, accelerated growth of urban and rural residents

income, comprehensive development of social undertakings

and significant improvement of ecological environment. After

three decades of astonishing double-digit economic growth,

Guangdong proposed to lower its targets of annual GDP growth

and per capita GDP growth to 8% and 7% during the 12thFive-Year Plan period (2011-2015); instead, the province placed

huge emphasis on the quality of growth in order to achieve real

happiness (well-being) for its people.

Key Development Goals of Guangdong by 2015

2010

2015

()

GDP

(RMB 100 million)

()

GDP per capita(RMB)

Contribution of

service industry toGDP

Urbanisation rate

()

Urban householddisposable incomeper capita (RMB)

()

Rural net incomeper capita (RMB)

Indicators

45,473

66,800

47,000

66,000

44.6%

48%

64%

68%

23,898

35,100

7,890

11,600

Source: 12thFive-Year Plan of Guangdong

Annual growth

rate (%)

8

8 or above

7

7 or above- - 8 8


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3.

(2008-2020)

2009

20082020(

)

2012

80,000

53%

2020GDP

135,000

60%

CEPA

3. The Outline of the Plan for the Reform and

Development of the Pearl River Delta (2008-2020)

In early 2009, the State Council approved after examination the

Outline of the Plan for the Reform and Development of the Pearl

River Delta (2008 to 2020) (Outline) compiled by the National

Development and Reform Commission. The Outline elevated

the Pearl River Delta development to the level of national strategy,

confirming Guangdong-Hong Kong-Macao cooperation as an

important part of the strategy for overall national development.

The Outline put forward a target for the GDP per capita of the

Pearl River Delta to reach RMB 80,000 and its services industriesto account for 53% of the regional GDP by 2012. And by 2020,

the GDP per capita of the Pearl River Delta was targeted to reach

RMB 135,000 and its services industries to account for 60% of

the regional GDP.

The Outline also mentioned the direction for the Pearl River

Delta to forge closer cooperation with Hong Kong and Macao.

Relevant measures included major infrastructure projects that

aimed to achieve connection among the rail transport and

information networks of the three places; support for Hong Kong

and Macao processing trade enterprises operating in the Pearl

River Delta to extend their industrial chain by transforming and

upgrading themselves into enterprises of modern services and

advanced manufacturing industries; support for labour-intensive

enterprises to achieve smooth transition in their restructuring

and for Hong Kong enterprises to access the Mainland domestic

market; more in-depth measures for CEPA implementation and

preparation for implementing the early and pilot implementation

arrangements for Hong Kong and Macao; and co-building a

quality living area, encouraging the Pearl River Delta, Hong Kong

and Macao to work together in the areas of education, healthcare,social security, emergency management and intellectual property

protection with a view to providing convenience to people of Hong

Kong and Macao working and living in the Mainland.


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Source: The Outline of the Plan for the Reform and Development of the Pearl River Delta

(2008-2020)

20122020

Development Goals of the Pearl River Delta Region by 2012 and 2020

Development goals

2012

By 2012

2020

By 2020

80,000

GDP per capita to reach RMB 80,000

A sound system of socialist market economy will be established

53%

Service industries to account for 53% of the GDP

The Pearl River Delta to become one of the worlds mega metropolitan regions

80%

Urbanisation level to exceed 80%

2012

The income levels for the urban and rural residents to double compared with the levels of 2012

135,000

GDP per capita to reach RMB 135,000

60%

Service industries to account for 60% of the GDP

85%Urbanisation level to exceed 85%

(2008-2020)


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4.

2010

4. Five Integration Plans

In 2010, the Guangdong Provincial Government initiated five

integration plans, namely the Integration Plan for Public Services

of the Pearl River Delta, the Integration Plan for the Industrial

Layout of the Pearl River Delta, the Planning for Urban-Rural

Integration of the Pearl River Delta, the Integration Plan for

Environmental Protection of the Pearl River Delta and the

Integration Plan for Infrastructure Construction of the Pearl

River Delta. The aim was to integrate resources, strengthen

cooperation and coordination, and enhance economic strength

with a vision to forming three economic circles, namely the

Guangzhou-Foshan-Zhaoqing Economic Circle with Guangzhouas its core city; the Shenzhen-Dongguan-Huizhou Economic

Circle, which encompasses the eastern Pearl River Delta region

with Shenzhen as its core city; and the Zhuhai-Zhongshan-

Jiangmen Economic Circle comprising the western Pearl River

Delta region with Zhuhai as its core city, and materialise a one-

hour inter-city circle by three circular and eight outbound routes

which connect all the Pearl River Delta cities above county level

via inter-city rail network.

Guangzhou-Foshan-

Zhaoqing Economic Circle

Zhuhai-Zhongshan-JiangmenEconomic

Circle

Shenzhen-Dongguan-Huizhou

Economic Circle


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6.

20126

5.

20107

201011

5. Tapping the Mainlands Domestic Market

To facilitate processing factories to explore the domestic market,

Guangdong issued a Decision Relating to Implementation

Strategies to Stimulate Domestic Consumption in July 2010

with a plan to build more than 8 sales centres to help Guangdong

factories to sell products nationwide. It was also stated in the

Opinions Relating to Expediting the Change of Economic

Development Mode of Guangdong to step up efforts on

promoting domestic sales. Measures included the promotion

of selling Guangdong products nationwide and online sales

of Guangdong products, and building sales platforms such as

Guangdong Business and Trading Centre and GuangdongMerchandise Direct Sales Centre.

Besides, the Mainland Government introduced a Notice on

Implementing Pilot Works on Upgrade and Transformation of

Processing Trade in November 2010, choosing Dongguan

and Suzhou as the pilot cities to restructure and upgrade their

industrial structure in the coming years.

6. Regional Cooperation Plan on Building a Quality

Living Area

Hong Kong, Guangdong and Macao jointly announced the

publication of the Regional Cooperation Plan on Building a

Quality Living Area in June 2012. This is the first regional planjointly compiled by Hong Kong, Guangdong and Macao. The

Plan covers long-term cooperation in five major areas, namely

environment and ecology, low-carbon development, culture

and social living, spatial planning, and green transportation

systems. The three governments will make full use of institutional

mechanisms already in place, including the Hong Kong/

Guangdong Cooperation Joint Conference and the Guangdong/

Macao Cooperation Joint Conference, to take forward the various

initiatives in the Plan. Specific cooperation proposals will also

be taken up and discussed by relevant expert groups, and there

will be coordinated implementation. Established mechanismsand procedures for programme approval and consultation will be

observed


89/104

7.

()

()(CEPA 9)2012

629CEPA 943

22

37

CEPA

1.

200910

2009

2016

7. CEPA 9

Supplement IX to the Mainland and Hong Kong Closer Economic

Partnership Arrangement (CEPA 9) was signed on 29 June 2012.

CEPA 9 provides for a total of 43 services liberalisation and trade

and investment facilitation measures, including 37 liberalisation

measures in 22 service sectors. It also strengthens cooperation in

areas of finance and trade and investment facilitation, and further

promotes the mutual recognition of professional qualifications of

the two places. Deepening implementation of CEPA will further

promote the development of service and other industries in the

two places.

Infrastructure Constructions

1. Hong Kong-Zhuhai-Macao Bridge

In October 2009, the State Council approved the feasibility study

report of the Hong Kong-Zhuhai-Macao Bridge (HZMB) Project.

The Governments of Hong Kong, Guangdong and Macao havecommenced the construction of the HZMB Main Bridge in late

2009 for completion by 2016. When completed, western Pearl

River Delta will fall within a reachable three-hour commuting


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2011

2016

2. ()

()

140

100

48()2010

2015

radius of Hong Kong, thereby enhancing the connection between

Hong Kong and western Pearl River Delta. The local works withinHong Kong waters commenced in late 2011 and will dovetail with

the works of the Main Bridge to complete in 2016.

2. The Hong Kong Section of the Guangzhou-

Shenzhen-Hong Kong Express Rail Link

The Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL)

is an express rail link connecting Hong Kong, Shenzhen and

Guangzhou. The XRL will span about 140 kilometres with the

Hong Kong terminus at West Kowloon. With the XRL, the journey

time between Hong Kong and Guangzhou will be reduced fromabout 100 minutes as at present to 48 minutes. The construction

of the Hong Kong section of the XRL was commenced in January

2010 for completion in 2015. Upon completion, XRL will provide

direct access to the Shibi terminus in Guangzhou via Futian,

Longhua and Humen, materialising a one-hour living circle

covering Hong Kong and major Pearl River Delta cities.


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3.

201212

2 298

3.8

132015

3. Beijing-Guangzhou High-Speed Line

The Beijing-Guangzhou High-Speed Line was off icially

commissioned in December 2012. It is a high-speed passenger

week 5 economic dimension

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