Two dynamic regional economies – the greater Pearl River Delta and the Yangtze River Delta – are both driving China's economic development, and though they do compete for foreign direct investment and in export markets and the domestic market, talk of South China-East China rivalry is exaggerated. Both regions fuel China's growth, pull the nation along, and actually are complementary and useful to each other.
With four hundred million people between the Yangtze River Delta (YRD) and the Pearl River Delta (PRD), China can accommodate them both as engines of economic development. The two look to each other for markets and even in terms of competition and improvement, if the Yangtze River Delta did not exist, the Greater PRD would virtually have to create one in order to have a spur for its own improvement.
Given China's size and potential, there is clearly room for two major economic regions, according to some experts, dismissing journalists and other analysts? speculations about which of them will have the higher GDP growth in 20-30 years and whether high-end financial services professionals and investment bankers will shift from having their after work drink in Hong Kong to Shanghai.
A growing Shanghai is in fact good news for Hong Kong, and vice versa, said Professor Michael J. Enright, co-author of Regional Powerhouse, The Greater Pearl River Delta and the Rise of China and director of the Asia-Pacific Competitiveness Program at the University of Hong Kong. The greater Pearl River Delta and the Yangtze River Delta should be viewed more in terms of comparisons than competition, Enright told CHINA ECONOMIC REVIEW.
Enright said both regions are often geographically misdefined. The Yangtze River Delta is often incorrectly defined as an overlarge entity – Shanghai plus the entire provinces of Zhejiang and Jiangsu, while the Hong Kong and Macau are inappropriately excluded when talking about the Pearl River Delta. These descriptions make for skewed comparisons of apples and oranges, he said.
According to his research, over the past 25 years the greater PRD economic zone has actually grown faster than the YRD in GDP terms. The GDP of the Greater PRD region was 22% greater than that of the Yangtze River Delta region in 2002.
"If I were a betting man, I'd bet on both," Enright said. "I think GDP growth rates are going to be quite comparable."
The population of the Pearl River Delta region has been growing faster than the YRD region, and the gap will close further once the western part of the Pearl River Delta is linked by bridge to the eastern part – Hong Kong.
Shanghai not the only game in town
Despite all the fanfare about dazzling Shanghai, a measure of caution is in order, Enright said. Both Hong Kong and Beijing outshine Shanghai when it comes to financial and banking activity. The PRD, including Hong Kong, he predicts, will continue to be the financial magnet for many years, Shanghai's prodigious performance notwithstanding.
The Pearl River Delta is a multi-polar region, including Guangzhou, Shenzhen, Zhuhai, and other vigorous cities interacting with Hong Kong and Macau, making for competition in a broad market economy, exchanges and complementary centers.
The Yangtze River Delta lacks this same energizing multi-polarity with Shanghai dominating the region and its decision-making. Shanghai, for instance, wanted the regional airport to be in Pudong, and even though that was arguably not the best location from the perspective of the regional economy, the airport went in Pudong.
It is also not clear, said Enright, that the best location for the major port in the region is Yangshan, but Shanghai wants it there, so it is being built.
"Because of its dominance, Shanghai is able to make decisions and make them stick, even though they are viewed to be in the interests of Shanghai, but not necessarily in the interests of the region," he said.
To illustrate his point, Enright said that the mainland city with the most PhDs per capita – a measure of business acumen and energy – is not Shanghai or even Beijing, but Shenzhen. The centers with the highest numbers of foreign nationalities are Beijing and Hong Kong – and the third is not Shanghai, as some may have guessed, but Shenzhen. Yet, the image and reputation of Shanghai as a business center exceeds that of Shenzhen or Guangzhou, even though both of them have higher per capita incomes than Shanghai, according to government statistics.
As for Shanghai's reputation as China's financial center, Enright had this to say: "In terms of financial services on the Mainland right now, Shanghai is not the financial capital of the Mainland by any stretch of the imagination." With bank financing playing a fundamental role in economic activity, Beijing is the financial capital of the Chinese mainland. Shanghai, by contrast, is home to the Mainland's main stock market, where business could be considerably better than it is.
Asked whether there would be a switch from Hong Kong to Shanghai for the upper-end financial services, foreign exchange dealers and investment bankers, Enright said, "I think you?ll see two centers. If China opened up all the things needed to become a true international financial center – free convertibility, foreigners able to invest and Chinese being able to invest offshore – if China did all the things today that would be necessary to create the preconditions for Shanghai to become a truly international financial center, actually all the business would still come to Hong Kong."
The reason, he said, is Hong Kong's superior infrastructure, the regulatory environment, the accounting standards. It will be a generation, at least 15-20 years, before Shanghai can match Hong Kong right up and down the line in terms of the fluidity of the markets, the trust the people have in the markets. "People are not going to trust the Shanghai market very soon," Enright said.
The longer China stays closed from international flows, in some ways the stronger Shanghai becomes in a relative sense because the domestic capital market will continue to be focused on Shanghai. Under this scenario, if Shanghai develops the skills, capabilities and infrastructure, both hard and soft, serving domestic capital markets, and basically gets the critical mass that way, China will see dual financial centers.
Hong Kong will continue to be the destination for raising international capital, but Shanghai may be the "go-to" for international firms raising renminbi capital.
The whole point is not that the Yangtze River Delta or Shanghai is not a dynamic economy – it is a very dynamic economy – but that the Greater Pearl River Delta is also a very dynamic economy and already an economy of more than comparable size. It is an economy that in some ways has more flexibility than the YRD because of multiple jurisdictions in which both international firms and domestic firms operate effectively.