During his tour of manufacturing businesses in Guangdong province in November, Premier Wen Jiabao called for easier credit access and preferential tax policies for small and medium-sized enterprises (SMEs). But he also said priority should given to firms that meet industrial and environmental standards and that are actively looking to upgrade.
This is in tune with Beijing’s goal to force out small-scale, low-end export-processing manufacturers who abuse labor and the environment. Guangdong, which accounts for 40% of China’s processing exports, was always in the government’s sights.
But the global slump in export demand has taken what Beijing envisaged as a gradual process and turned it into a rout. Guangdong Governor Huang Huahua has predicted the province’s GDP will fall to 10.2% this year, well down from the post-1979 annual average of 13.8%. As factories close, unemployment and social tensions rise.
"I can’t believe that the local government will continue with its policies in the light of what is happening," said Christopher Devereux, managing director of Chinasavvy, which does sourcing in Guangdong. "They have to balance their ambitions with the economic reality."
Indepedent economist Andy Xie, meanwhile, is happy to see uncompetitive SMEs go under, but is skeptical about how quickly Guangdong can climb the value chain. "Shenzhen has technology, but Guangdong as a whole is not known for it."