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China's Dueling High-Tech Deltas

By Bruce Einhorn Ever since Hong Kong's return to Chinese rule five and a half years ago, the former British colony has been warily eyeing other regional cities vying to take its place as the premier business hub for Asia. Singapore was the main competitor back in 1993, but the Asian financial crisis staggered much of Southeast Asia, and the impact still lingers. Today, with China a member of the World Trade Organization, Hong Kong's big rivalry is with the onetime Paris of the East, Shanghai.

The sprawling Chinese metropolis to the north of Hong Kong seems to have a lot of advantages, especially when it comes to its IT industry. Shanghai has attracted top multinationals like Intel (INTC) and IBM (IBM). The city has quickly become the semiconductor hub for all of China, with foreign companies such as NEC (NIPNY) helping to operate chipmaking joint ventures. Taiwanese executives have also been guiding the growth of semiconductor foundries such as Semiconductor Manufacturing International Co.

Hong Kong, on the other hand, seems to have little to brag about. The government of Chief Executive Tung Chee-hwa has been pouring millions of dollars into grand infrastructure projects designed to foster the growth of an info-tech industry. But so far, they've made little impact -- except to increase the government's budget deficit, which has become so large that the financial secretary last week unveiled a series of tax increases and spending cuts designed to mop up some of the red ink.

WHO'S ON TOP? The real action for Hong Kong, however, lies in nearby Guangdong province, where many PC, semiconductor, telecom, and software companies have sprung up with Hong Kong connections. The same thing has happened in Shanghai, in urban centers just a few hours drive from the city limits. There, Taiwanese computer makers have set up factories throughout the region to produce notebook PCs and many other types of hardware.

So which one of the dueling deltas has the advantage -- Hong Kong's Pearl River Delta or Shanghai's Yangtze River Delta? It's undeniable that the Yangtze River Delta seems to have the upper hand. It has a much bigger population and is more centrally located to the rest of China.

Still, I think Greater Hong Kong's companies have a big plus. The Pearl River Delta hosts some of the most entrepreneurial outfits in China, no doubt thanks to the influence of Hong Kong and Taiwanese businessmen.

BELL RINGERS. Many of the top brand names in the Chinese electronics industry come from Guangdong. Here's a short list:

TCL primarily makes TVs, but in just a few years, it has also become one of the top producers of cellular phones in China. TCL is based in the Pearl River Delta city of Huizhou, with a listed subsidiary having its offices in Hong Kong.

Skyworth is another maker of TVs and DVD players. From their Hong Kong offices, Skyworth executives are planning to expand overseas this year by starting to export to the U.S. and Indonesia.

Kejian is a producer of cell-phones and a joint-venture partner with Samsung. Kejian last year made waves by becoming the official sponsor of the Everton football (or soccer, for Americans) club in Britain's Premier League.

BYD is China's leading manufacturer of rechargeable batteries for cell phones. This Shenzhen-based private-sector company is listed in Hong Kong and is pushing ahead with a risky plan to diversify into building electric cars.

Guangdong has plenty more, but the key point is that many of the most aggressive electronics companies in China are based here. And many of them have executives who either live and work in Hong Kong or come from the former British colony, and have taken the city's business culture with them.

BORDER CROSSING. This isn't to say companies to the north aren't pushing ahead. Greater Shanghai also has its share of entrepreneurial local players. Ningbo Bird, for example, is a Yangtze River Delta manufacturer that's a leader in the local cell-phone industry (see BW Online, 1/21/03, "How Ningbo Bird Became a High-Flier"). But I think it's fair to say that Shanghai's business model more closely resembles Singapore's -- a mix of government-backed companies and multinationals -- while the Pearl River Delta's model is more influenced by the private sector.

The Shanghai hub has one key advantage going for it over the Hong Kong-Guangdong connection. While boosters here like to compare Greater Hong Kong with Greater New York, somebody traveling from Manhattan to Jersey City doesn't need to go through immigration on the way. People going from Kowloon in the territories to Shenzhen do.

Still, Hong Kong has a competitive advantage in that it remains a relatively free and quasi-democratic city in a tightly controlled communist country. As the success of companies in the Pearl River Delta shows, Greater Hong Kong still has a good chance in its rivalry with the much-hyped region to the north. Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

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