TNAG-2792-FCO40-4031-Relations-between-Hong-Kong-and-China-1993 — Page 141

Tertiary

Industry

Table 1.1 Summary of Economic Reforms in the PRC

Reform Focus

Open Door Policy 1978

Objectives

Four Modernisations:

Agriculture Industry

Science and Technology National Defense

Reform Policy

Decentralise Central Planning of:

Prices

Production

Trade

To facilitate:

- Greater efficiency of production

Transfer of technology Foreign investment-

Action

Gradual reform characterised by. "Take a step, then take a look"

Guangdong selected as a regional testing ground for economic reforms.

Economic Impact

Sectoral Impact

The PRC has experienced significant growth over the last decade, characterised by the following trends:

Agricultural productivity increases

- Light industrial production

Foreign trade increased

Foreign investment increased

Agriculture

Economic Indicator

To improve agricultural productivity and contribute to growth of industry (urban and rural}

To improve the efficiency of production and distribution

To improve the ability of Chinese

manufacturing enterprises to compete in world markets

To improve the investment environment, particularly in higher value added industries and industries which involve the transfer of technology to local manufacturing operations

De-centralisation of decision making power from state determined production quotes

Prices liberalisation of agricultural goods

SEZs were declared

Industrial enterprises particularly COUS, assume responsibility for profits and losses

SEZs were declared

Provinces given control over foreign trade

Exchange markets for technology

efficiency of imports and exports

To develop and improve the

Abolish communes

Household responsibility system

Collectively owned units development

led by TVES. Agricultural and industrial production coordinated.

Contract management gave industry the task of keeping above quota profits with the objective of improving

productivity

Autonomy with accountability Facilities designed for desired industries and processes were established

Price led competition

Give foreign firms access to domestic markets in exchange for technology

Foreign trade is decentralised - provincial and individual enterprise permitted to negotiate transactions

Productivity increased:

Arable land decreased and agricultural output increased

• Development of cash crops

Agricultural products were exposed to market prices by 1990 only rice & tobacco were under price control

Trade characterised by out-processing for HK industry

Outprocessing gives => export processing as foreign investment increases

GVAO: increased from Rmb192.3 billion in 1980 to Rmb 815.7 billion in 1991. Over this period. GVAO decreased as a percentage of GVIO from 27 per cent in 1980 to 22 per cent in 1991

GVIO increased between 1980 and

1991 from Rmb $15.4 billion to Rmb 2.824.8 billion

The share of industrial ouput in Guangdong by ownership changed:

Foreign capital in the PRD in 1990 was US$ 10.14 bn of which:

1980

1985

1990

Foreign Capital in processing/ assembly operations declined 37 per cent

SOU:

63%

53%

35%

COU:

28%

31

27%

Other

5%

22%

Export orientated trade develops - begins to replace out-processing for HK businesses

Service sector led by real estate, construction and related sectors

FDI Increased:

1986 - US$673 million =>

1991 - US$2,582 million

HK accounts for 75% of total FDI for the period 1986-1991

Tertiary sector employment increased 65 per cent from

3.2 million employees in 1982 to 5.3 million employees in 1990.

GVIO: GVAO:

Gross Value of Industrial Output Gross Value of Agricultural Output

COU: TVE:

Collectively Owned Units Township and Village

Enterprise SOU:

State Owned Unit

SEZ:

PRD:

Special Economic Zone Pearl River Delta

"miracle" growth years. The early 1990s saw a continuation of this rapid economic growth. Should current growth rates be maintained, the province could reach the level of a middle ranking developed country by the year 2010. A summary of the economic reform process which stimulated this growth is provided on Table 1.1.

1.6

Guangdong is now China's leading industrial producer. The success of the province is largely related to the growth of industrial exports, which, during recent years, have grown by around 30 per cent per year. This industrial expansion has been mainly powered by private sector foreign investment. In the early 1990s, approximately 40 per cent of all industrial output was from foreign-invested and private firms, 35 per cent from state owned firms and the remainder from collectives. From 1979 through to the end of 1991 about US$ 20 billion of direct foreign investments were pumped into all of China of which some 40 per cent went to Guangdong. Within Guangdong, direct foreign investments have been concentrated in the Pearl River Delta. In 1991 approximately 75 per cent of the province's exports came from firms located within this area. Much of this investment originated in Hong Kong. Indeed Guangdong's "take-off" is to a large extent

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attributable to the province's links with the Territory. It is not without justification that that the “Economist” in 1991 dubbed Hong Kong and Guangdong as the "mother of all growth triangles". Recent growth is illustrated on Table 1.2.

1.7 The conditions that facilitated the dramatic economic rise of Guangdong lie in the shift from a planned to a "socialist market commodity economy". The process was, however, underpinned by industrial restructuring in Hong Kong and the growth of Hong Kong as an international financial and business centre. In Guangdong, the shift away from a planned economy began in the late 1970s and was characterised by:

(a)

the decentralisation of economic decision making;

(b)

the increasing use of price signals to regulate resource allocations; and

(c)

increasing links with the international economy, primarily through direct foreign investment.

1.8 This body of policy reforms is often collectively referred to as the "open door policy". These reforms