Guangdong Visions: Responding to the Crisis

In Part I of this report on what's now happening in Guangdong province, the center of China's low-cost manufacturing power, I presented the vision of Communist Party Secretary Wang Yang, Guangdong's top leader and a rising star in Chinese politics. In the second part, I look at how Wang and Premier Wen Jiabao stressed different aspects of how the Chinese government should respond to the economic crisis in Guangdong—and the consensus that has now emerged among leaders about the way forward for the province.

Wang Yang was appointed Guangdong's party secretary in December 2007, two months after being elevated to the 25-member Politburo (as its second-youngest member). With a mandate to take Guangdong's leadership of reform and opening-up to new levels, he began calling for "emancipation of the mind," a phrase used by Deng Xiaoping in the late 1970s to initiate reform of the Chinese economy. Wang was determined to change the fact that Guangdong, the leader in economic reform, was a laggard in social, environmental, and political reform. He stressed such reforms could be a "bloody road," pointedly using Deng's famously colorful language about the challenges and obstacles to reform.

He also criticized Guangdong officials for their narrow focus on economic matters without seeing the broader vision of social, political, cultural, and environmental needs. Wang set provincial targets to cut energy consumption and pollutants while targeting a (pre-financial crisis) gross domestic product increase of only 9%, the lowest in years. Energy conservation and environment protection were increasingly essential given Guangdong's expansion into energy-hungry heavy industry.

Restructuring After the Downturn

Going further, Wang proposed that Guangdong should not only plan to outstrip South Korea, Taiwan, Singapore, and Hong Kong in economic output, but also match them in quality of governance. (This commitment is being put to the test now that he is dealing with a raft of corruption cases allegedly involving senior Guangdong officials, including Chen Shaoji, ex-deputy party secretary in Guangdong, and Xu Zongheng, mayor of Shenzhen, the cradle of reform. On June 11, the Xinhua News Agency reported Xu had been fired. Wang reportedly has played an important role in the investigations—which may also have the added benefit of removing officials wedded to the status quo.)

When the financial crisis hit, Guangdong was devastated. Thousands of companies producing goods for export shut their doors, millions lost jobs, and unemployment rose dramatically. Concerned about stability, the watchword of China's leaders for two generations, Premier Wen Jiabao sought to ease hardships by supporting or subsidizing at-risk companies. But Wang had a different view, arguing that to assist "backward enterprises" was to entrench Guangdong's old way of cheap manufacturing through low wages, low margins, and high pollution. Better, he said, to restructure Guangdong's economy and move into more knowledge-based, high-tech, low-polluting businesses—and send the low-cost manufacturing to China's inland provinces. He used the colorful analogy of "emptying the cage, removing the birds" so that "new birds can come in and settle down."

Wen responded by dispatching an inspection team to enforce his directives to shore up troubled firms. Yet Wang maintained his call to upgrade the quality of technology and labor and his conviction that the financial crisis could facilitate this necessary transformation.

Stability vs. Innovation

It was a dispute that Guangdong's media downplayed but did report. Such very public disagreement—some called it a clash of wills—was highly unusual in China, and many saw it as a healthy development. It evidences a China of increasing maturity and self-confidence where the public can participate in policy deliberations. Wang seemed to be in the minority (at least publicly), as stability continued to be leadership's highest priority. However, several months later, Wen made a high-profile visit to Guangdong and, signaling the emergence of consensus among the leadership, underscored the importance of promoting innovation. "China should play a leading role in innovation worldwide," Wen said.

In my private conversations with local leaders in Guangdong, government and business, there was near unanimous support for Wang's vision of how to transform Guangdong. All realized the difficulties and short-term pain, and perhaps some instability, but nonetheless they felt that hard decisions made now would yield a much stronger Guangdong in the future. "The market is always better than the government in teaching commercial players," Wang mused. Nevertheless, "the government should follow the trends, conform to the market, and help enterprises innovate," he said, adding, "Guangdong attracts independent innovators because it is market-driven; technologies can be commercialized quickly." Wang listed some practical steps Guangdong is taking:

Protecting intellectual-property rights by squeezing out piracy; preventing those who steal technology from enjoying its benefits.

Instituting pretax deductions of up to 150% for investments in independent innovation (R&D).

Supporting small and midsize firms by providing industry-focused public information. For example, in Zhongshan, a place known for lock manufacturing, a public technology workshop has been set up for developing and testing new locks, which everyone can access.

Attracting innovative talent from around China and abroad to start businesses in Guangdong: In 2008, Guangdong began offering grants of RMB 1 million to RMB 100 million ($146,000 to $14.6 million).

Establishing a new base of the Chinese Academy of Sciences (CAS) in Guangdong, the third after Beijing and Shanghai.

An "alliance for innovation" program at more than 100 universities across the country to fund projects that could benefit Guangdong.

There is no doubting the importance Guangdong's leaders attach to these strategies. "No matter how tough the task, we are determined to develop Guangdong's capability for independent innovation," said Wang. "Otherwise, in the world's industrial division of labor, we may remain manual laborers forever."

I asked him to predict Guangdong's situation in 10 or 20 years' time. "The world changes rapidly," he said after a moment. "But here's what I see: Guangdong's industrial structure will be fundamentally different. The service sector will be the mainstay of the provincial economy, and the manufacturing sector will be close to or equal to the world's most advanced." And he added: "People will lead a more relaxed life. If you come to Guangdong in 10 years, I will buy you a cup of coffee by the Pearl River, and I can guarantee there will be no more dusty air or smelly water." In short, he concluded, "after 10 years, Guangdong will be well along the road of scientific development."

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE