Guiquan, in which they delved deep into China's economic layout following the 16th

National Congress of the Communist Party of China (CPC). Ultimately, Wang concluded

that "China has two legs: the Pearl River Delta (PRD) and the Yangtze River Delta (YRD)", while Liang put forward the concept of the "Greater Pearl River Delta". Both famous viewpoints drew wide media attention. The PRD of 2005 is quite different from what it was a couple of years ago, as Shandong Province and the YRD have witnessed

dramatic development since then and some of their economic indices may very possibly

exceed the PRD's this year.

   Faced with such  pressures and challenges, what can the PRD do?

   At the invitation of the Nanfang Daily,Wang and Liang met in Guangzhou to discuss the situation again, referring to their research and findings over the years.

1.     Unsuccessful economic transition

   Wang: General speaking, the PRD has delivered a very eye-catching performance

in 2005 and its achievements are remarkable.In my view, however, it's more important and valuable to face and analyze the challenges and problems that the PRD has encountered amid  economic  development  than  to summarize its achievements.

   Liang: I totally agree. It's time for us to seriously study and analyze the key problems that the PRD has encountered. The economic figures of the past few years show that the PRD's growth rate did not slow down but stood at 10 per cent at least. However, when comparing these figures with those of other Chinese areas, we find the trend has changed. Take Jiangsu Province for instance; it fulfilled its economic transition at a much earlier stage. In the late 1990s, two changes occurred in Jiangsu's economic mode, which was mainly led by township enterprises. First, the so-called restructuring of the collective ownership enterprises accelerated the development of the private economy. Second, it made up the loss in the development of its export-oriented economy to allow two types of economic strength, namely  export-oriented  economy  and domestically-driven economy, to develop together. As the 21st century arrived, the province made the economic transition smoothly. Comparatively, the mainly export-oriented PRD was in great need of some interior strength, which should be dependent upon the private economy. Unfortunately, it

failed to make up its weakness in the private economy. Therefore, it is weaker than the YRD in terms of capability for economic growth. Jiangsu easily realized its economic transition, but the PRD was obviously not so successful.

2.     Processing industry at the low-end of the "smiling curve"

Wang: Currently, many experts both within  and outside of China are studying the "11th  Five-year Plan". I think we should pay more  attention to some key phrases.

    The first is "China has gradually moved  from an administrative economy towards a  regional economy" -- it's a very important  concept. The first half of the phrase means  to allocate resources, restrict and manage the  economy by means of administration, while  the latter half allows for regional economic  integration and market-orientedness to decide  the economic relationship amid globalization.

    The second is "future competition will be between regions, and competition between  regions will first be reflected by competition  between urban areas and urban groups". Under the circumstances, the region that has the more advanced, complex industrial clusters, industrial centres and industrial wheels with clear labour divisions will have the upper hand in future competition.

    The third involves "China's economic blocks". I would divide China into "four

regions, seven blocks". The four regions are the "coastal", "western", "central" and "northeastern" regions. Three of the seven blocks are situated along the sea: the PRD block, the YRD block led by Shanghai, and the Bohai Rim block. That is the overall situation of China's economy. Currently, however, some remarkable changes have occurred. We can see that the Central Government has the determination to develop the economy of the Bohai Rim block very well.

   In  the  current  circumstances,  some unfavourable  elements  are  arising  for Guangdong Province, or we could say they have let down the province

   The first disappointment is that the Central Government did not make much mention of Guangdong in the "11th Five-year Plan",though the authorities have given different explanations for this. Why, after acting as a forerunner and a commander for years, has Guangdong suddenly been downgraded? It's an evocative question.

   The  second  disappointment  is  that Guangdong's leading position cannot be

guaranteed now. It is very likely that Shandong will surpass Guangdong in GDP for 2005.Although some doubt the accuracy of the figures provided by Shandong, we have to face the fact that the price hikes in energy and raw materials are very unfavourable to  Guangdong.  Guangdong's  industries, especially the processing and manufacturing industries, are now at the low-end of the "smiling curve", meaning the part with the smallest return. In Shandong, heavy industry plays a leading role. At a time when energy is in short supply, it is definitely possible for the province to make a breakthrough in its GDP.This puts great pressure on Guangdong. In another example, Shunde, one of the "four little tigers of Guangdong", lost its position as the leader of China's top 100 counties that it held for many years. Many similar occurrences feed the same worry: is the PRD slowing down?

3.     Private economy, source of interior strength

    Liang:  Guangdong's  rapid  economic  development came courtesy of the heavy

and  chemical  industries.  But  now the question is: How far can Guangdong go by

supporting its economic expansion with the heavy and chemical industries and with the government? In the long term, it needs to solve the fundamental problem of economic interior strength. I believe it exists in the private economy. Without a fast-growing private economy, along with strong growth and rapid expansion, Guangdong's development can scarcely realize a stable rise. By comparing the economies of Guangdong and Zhejiang, we can conclude that Zhejiang's economy, in the long run, has a more solid foundation than Guangdong's. The former also enjoys a stronger ability to maintain consistent development. Zhejiang certainly has its

problems, but at least it has been on the road to success with self-development as the principal part of its economy, as defined by the market economy. Guangdong has not done so yet and the series of available macro-policies failed to support such a development trend. In 2003, the major leaders of the Guangdong Provincial Party Committee put forward the idea of developing a domestically driven economy in a timely fashion. However, the way the system was arranged and the design of the policy

failed to support the idea.

4. Lack of national and global vision

   Liang: The PRD has another very serious problem:the absence of a global strategic framework and national vision. It focuses more on the rice in its own bowl and ponders how to make it two bowls and, later, three bowls. It doesn't have time to think about

the relationship between the rice it takes in every day and the outside restaurants and the surrounding food markets. The PRD lacks a global view and I see no improvement at present.

5.The embarrassment of being takenadvantage of   

Wang: I used to describe Guangdong 15 years ago in this way: The Cantonese are swift in doing but clumsy in thinking. The Cantoneses are doers and very down to earth. They care, and only care, about what they will earn from their "doings" and adopt every means to realize that. What's more, the good teacher of Hong Kong is nearby and they can follow its example. In the course of reform and opening up, the Cantoneses way of doing things swiftly has been fully exerted. I went to Shandong in the 1990s and, after I studied its mode, I remarked that Guangdong is like a Japanese sedan while Shandong is like a heavy lorry -- the Japanese sedan rushes ahead once it is started, but it is more difficult for a heavy lorry to do so. However, once the lorry is moving, it becomes unstoppable. The Cantonese flaw of short-

sightedness then emerged and was amplified.

   Although China's reform and opening up have been implemented for more than two decades, the economies of Guangdong still show obvious signs of local separation -- every city works for its own. Some of the leaders in Guangdong do not have national

vision, let alone a global framework. Everybody should know about differentiated competition and differentiated operation in the midst of globalization. If the PRD continues to adopt the mode of "small and complete" or "big and complete", self-improvement and self-cycling, it could even fall behind the western region, not to mention the YRD.

   Another problem is that Guangdong has benefited too much from the mode it invented and has become more and more dependent on it. Here is a typical story. I have a client from Wenzhou in Zhejiang Province. He worked for the Cantonese 15 years ago but now he gets Guangdong to "give birth" for him. Previously, when we talked about "lending a womb to others to grow babies", we meant foreign firms that threw the low end of the "smiling  curve" to Guangdong. While Guangdong  people indulged in the nickname "the world's  factory", 95 per cent of the profits were taken elsewhere. Eventually, in order to get the  inappreciable 5 per cent, we had to sacrifice  the environment and the labourers, who  did not see a pay raise for 20 years. Then  we realized that things could not get any  worse. Few manufacturers in Guangdong  have upgraded themselves or conducted  any innovations over the past 20 years. We  lent our wombs to foreign firms over the past  20 years and now we are lending them to  Zhejiang as well. Some Zhejiang-branded  garments and fur products are made in  Guangdong. Guangdong possesses the best manufacturing skills in China, in all of Asia even, because it works for the world's top 500 companies. However, it is a pity that Guangdong is still bearing babies for others.

   Old Wu Jinglian (a famous economist)advocated that China should walk out of

the lowest part of the "smiling curve" and climb up. It was not Zhejiang nor Shanghai

but Guangdong that was best situated to do so. Well, what a pity, Guangdong did

not conduct any valuable research in this area. The blame for Guangdong lies first with Guangzhou. Guangzhou should be a city of design, a city of fashion, a city of vogue, a city of commerce and culture, and a city of exhibitions and logistics. Finally, it will become a city of finance. Guangzhou used to have the advantage and promising sigs have emerged. But unfortunately, the process   maybe interrupted for certain reasons. At least, it did not get enough attention.

     In the early stage of China's reform  and opening up, the whore of Guangdong

 contributed a useful experience to the country  by "paving a new way fearlessly and walking  across the river by touching the stones in the  riverbed". At that time, the Cantoneses fully  exerted their advantages. Shunde, Nanhai  and Zhongshan actually paved a new way. At a time when demand exceeded supply,  they made the most of the Cantonese ability  to do things swiftly and made good use of  the distribution platform of Hong Kong. They  assembled imported parts in Guangdong  and sold them in the northern markets. That was Guangdo~gls golden time and it did not end until 1995.

    Shortly after Deng Xiaoping's tour of Guangdong in 1992, China's economy was

quickly ushered into one of "supply exceeding demand" from the previous state of "demand exceeding supply". The Cantonese did not realize the opportunities created by the market reshuffling and left them to Zhejiang's businessmen. How did the clique of Zhejiang businessmen take shape in such a small area with such a great population? Some three to four million Zhejiang businessmen had scattered throughout China by then. Often, the women  repaired heels and  cleaned shoes and men worked as carpenters or were engaged in o!he[ handcraft industries.They realized an accumulation of aboriginal ealth and earned a ~eat deal about the

 market in the meantime.

    So two different types of businessmen  emerged. The Cantonese became "sitting

 businessmen" while the Zhejiang were  "walking   businessmen".   The   "sitting

businessmen" were used to waiting for business to find them at home rather than

exploring  the  market  positively.  When oversupply gradually took the place of the "supply shortage", Zhejiang businessmen had the advantage because marketing was

suddenly more vital than manufacturing. First, they had a market network, second,

they had marketing sense, and third, they had personnel resources. How did Zhejiang

grow so quickly over the past 10 years? Because the world changed. It is no longer

production-oriented but market-oriented.

 6. Plan for Guangzhou for 20-50 years

   Lang: Some of the problems we have I mentioned can be attributed to the fact that Guangdong did not have dear positioning. The first  is the  relationship  between  Guangdong and Hong Kong. It is critical that

 Guangdong interacts with Hong Kong for its own sake. Hong Kong's development slows down, Hong Kong encounters a development bottleneck,  which  will  definitely  affect Guangdong. Correspondingly, signs that the PRD's is slowing down also has something, to do with Hong Kong. However, neither has found an ideal interactive system or interactive mode yet. If Guangdong plans to become independent from Hong Kong to do its own business, it would be making a very big strategic mistake.               

   The second is Guangzhou. In fact, no other place in China has a better ,geographic  location than  Guangdong. Hong Kong is connected to the global market and Guangzhou is a South China. metropolis.  Both  are  very  important. However, Guangzhou did not fully realize its advantages; even the provincial government did not give Guangzhou a clear positioning or requirement. In the late 1980s, I remember the Chinese academic community and the  governments  discussing  whether Guangzhou should develop a secondary industry or tertiary industry. When the PRD started its industrialization in the 80s, led by the township enterprises, it was going to necessarily generate great demand for a service industry. Had it taken advantage of this, Guangzhou could easily have become the service centre for the PRD's tertiary industry. But, regrettably, Guangzhou missed the opportunity. Affected by the successful industrialization of the PRD, it was inclined to develop the secondary industry. Finally, it wavered between the secondary and tertiary industries.

  I think Guangzhou needs a long-term plan of 20 years, or even 50 years, to give

it the impetus to develop quickly. If such a plan just covers the next five or 10 years, it will barely drive the mammoth city forward. If Guangzhou's GDP is mainly supported by grand industry, the heavy and chemical industries,then  the  urban  functions, especially the modern service function, will not work well. As a result, the development of the entire PRD will inevitably be restrained.The locomotive of economic development is not the manufacturing industry but the service industry. Without business orders and a global commercial network, how can the economy grow quickly? It's a pity that Guangzhou does not play such an important role. The fact that we did not highlight Guangzhou's function in the development of the province is one of the very serious strategic mistakes we have made over the past 20 years. Thus, in my view, the crisis that any region is going to face is the crisis of its

core city.

7.Reshape regional integration, highlight differentiated competition

  Wang: Mr Liang makes a good point,One of the most important trends brought

on by globalization is regional integration.On a globalized platform, any regional city should sacrifice itself first for the good Of the overall situation. In other words, we should first attract global attention and then pull together to win the prize, the cake. After we take the cake, we can then consider how to allocate it internally. That is the end result of globalization. Why has the integration othe

YRD been so successful? Because it follows the above-mentioned principle. Originally, three provincial capital cities in the YRD, each embracing their own advantages,

competed against east other. However, they gave up that and united around Shanghai

for the common interest: The association started by the mayors of these YRD cities

has Successfully attracted more members Previously, the YRD covered just southern

Jiangsu and Hangzhou, Jiaxin and Huzhou of Zhejiang Currently, Tazhoul Wenzhou                                                          

of Zhejiang and Huangshan of Anhui have  also actively joined the association, as they  are aware of the advantages of being with the bigger group. Such  aggregate strength cannot be measured

   After identiying your position in the big group in terms of globalization, differentiated competition and differentiated  operation should  be  highlighted  next.  Economic theory has a simple rule, that of division and co-operation. The precondition of division and co-operation is a sort of differentiated competition and differentiated operation. Homogeneous competition would lead to nothing.

   I believe the PRD's main advantage is still light industry, who can say light industry doesnot have a bright future? It has been developed in Italy and France over two or three hundred years. The key is the position you hold in the "smiling curve"; how can you keep upgrading your products and stop growing babies for others? Under globalization, like it or not, it is necessary to plan the layout of the urban

clusters. Guangzhou should be in command in the PRD, serving as a belt radiating out to the other communities as well as a service centre. As tong as it functions well the PRD its roots deeper and thrive like a tree. But it's a pity that Guangzhou has not made any breakthrough in this respect. Eentially the best way forward is to integrate  Guangdong and Hong Kong. As in a game of volleyball,Guangdong served the ball of China to HongKong and let Hong Kong send the ball to the rest of the world. It's a pity that integration has not yet been fulfilled. The fact is, you are developing ports, but I am developing ports  also. I always follow you no matter what you are doing. Eventually, any growth is offset by  homogeneous competition.

      Some rules show that it's a crisis that  leads to the booming of a place. "If he leads  a good life, he won't worry about the future",but nobody will worry about the future  for him either. Things change when crisis comes. People begin to think.That's why  Ghina carried out the reform and opening up Today,our meeting and discussion will be most meaningful if it reminds people to face a crisis directly. Without crisis,there would be no changes. While faced with a crisis, we should change our way of thinking. The 21st century is absolutely different  from the 20th  in the 1980s, people tried to achieve success through reform Now that  China has brought forward the concept of  a harmonious society, some outdated ideas  such as giving priority to the growth rate and  paying more attention to the GDP should be    adjusted. Now we are required to update  our mindset. How to update, and what to

   update? First, in the midst of globalization  and regional integration, we should figure out the answers to these questions: Who am I?   Where am I from? Where am I going? After we have the answers, we should promote  internal integration by giving up the small  inequalities  and  seeking  the  common interest. Second, we should ask ourselves: how can I co-operate with Hong Kong? What is the relationship between me and the YRD? How can I co-operate with ASEAN and the world? Today's Guangdong may need a new round of deeper, idealistic, liberating campaigns to rebuild its cultural gene. Based on this precondition, the PRD might truly realize industrial restructuring, reshape the city, rebuild the region and regain its once glorious position.