Title

Author(s)

A comparative study of the business environment of Guangzhou

and Shanghai

Lee, Yin-yi, Joey.; .

Citation

Issued Date

URL

Rights

2004

http://hdl.handle.net/10722/31989

The author retains all proprietary rights, (such as patent rights)

and the right to use in future works.

Chapter 1: Introduction
1.1 Research background and objective
After the implementation of new economic reform, China has made great progress in
its economic development. With the operation of economic reform and open door policy
initiated in 1978, Chinas GDP rose by annual average of 14.4% from 1978 to 2001
(National Bureau of State Statistics of China, 2001). Chinas economic miracle not only
improves the living standard and increases the wealth among the Chinese, but also
gradually enhances her international status in the past two decades. The successful
accession to WTO in 2001 was undeniably the remarkable milestone in Chinas economic
development. In fact, the economic development of China has become a worthwhile
discussion topic in international forum for a long time. Some economists comment that her
success is mainly attributed by the openness of economy for trade and investment outside
to the world1. In order to attract the investment capital into China, the existence of
favourable business environment is definitely the necessary and essential element. To
achieve this goal, the central government is very eager to develop the potential coastal
cities with the favourable business environment which are compatible with the needs of
international investors.
Since the late 1970s, under Dengs rule, the central government has decided to

1
Lin Yifu, Cai Fong and Li Zhou, The China Miracle: Development Strategy and Economic Reform, (Hong
Kong, 2003), p.198, the composition of foreign trade, domestic investment and introduction of foreign capital
take the largest share (80%) for attributing Chinas Economic growth rate in 1997.

develop Guangdong as the one-step ahead in China. Having fully benefited from the
support of the central government, Guangdong, in particular the Pearl River Delta (PRD)
region has successfully built up its favourable business environment and has enjoyed the
rapid economic growth since the 1980s. Not only that the economic growth rate in the PRD
is listed among the quickest in China2, but also the PRD became the main region in
absorbing foreign capital and creating foreign exchange earnings in the 1980s3. Among
various cities in the PRD, the provincial capital Guangzhou, has incessantly gained the
dominant position in the economic growth. Up to 2001, the total GDP of Guangzhou has
ranked first among the cities in the PRD accounting for RMB 268.576 billion. The total
general export value was also the highest in the PRD with 4.16 billion USD (Guangzhou
Statistical Bureau, 2002). The economic development of the PRD has undeniably
contributed the economic success to China. After consolidating the economic position of
southern China, the Yangtze River Delta has become another centre attention to the central
government in the national development programme since the 1990s. Through opening
Pudong and positioning Shanghai as the leader of the Yangtze River Region for attracting
domestic commerce and foreign investment, the central government intended to create the
Yangtze River Delta as another ideal business environment in China. In 1996, new district

Anthony Gar On Yeh & Chai Kwong Mak, Chinese cities and Chinas development, (Hong Kong, 1995)
p.262, Between 1980 and 1991, the growth rates of total social output value, national income and gross
industrial output value were 19.2%, 16.0% and 22.1%.
3
Ibid, p.262, in 1991, the main economic indicators, foreign capital and the total export value of exports
amounted to 18.4% and 14.8% of the total national value in PRD respectively.
2

of Pudong in Shanghai already attracted vast amount of foreign investment projects from
more than 60 countries in the world, which amounted to USD12.4 billion (Liu,1999). Up to
2002, the total GDP of Shanghai reached 495.084 billions RMB, which was the highest in
China (Shanghai Statistical Bureau, 2003). On the other hand, many cities and counties in
Jiangsu and Zhejiang provinces are adjusting their industrial structures and development
trends to strengthen the commercial linkage with Shanghai4. All demonstrate that the
Yangtze Delta has successfully developed its favourable environment for business activities
since the 1990s. Reviewing the twenty-year reform, the emergence of the successful
business environment in the Pearl River Delta and the Yangtze River Delta for boosting
economic and commercial activities seems to be the economic engine of the whole Chinas
economic development. As the premier cities of the Pearl River Delta and the Yangtze
River Delta respectively, the business environment of Guangzhou and Shanghai are the best
representations of the new economic direction and situation in China, thus they serve as the
worthwhile study topic in understanding Chinas development.
This research aims to examine the similarities and differences of Guangzhou and
Shanghai in terms of business environment. Throughout making the comparisons between
the two cities, this study attempts to explore the economic importance of Guangzhou and
Shanghai in Chinas development. Besides, this comparative study may provide some

Anthony Gar On Yeh & Chai Kwong Mak, Chinese cities and Chinas development, (Hong Kong, 1995)
p.246
3

insights for investors and businessmen upon the economic prospects of the two cities,
hence facilitating them to make the clear investment direction in foreseeable future.
1.2 Research questions and Hypotheses
There are 3 research questions posed on this research:
- What are the economic potencies of Guangzhou and Shanghai?
- How far does the different business environment generate different economic
directions and performances in Guangzhou and Shanghai?
- What are the comparative advantages and disadvantages of Guangzhou and Shanghai
in terms of trade or business investment?
To facilitate the investigation of the research questions identified above, three working
hypotheses are made:
- The similarities and differences between Guangzhou and Shanghai in terms of
business environment are the results of place-specific political, economic,
socio-cultural and technological conditions.
- Differences in the business environment contribute to different growth rates and
development directions in the two cities.
- The economic performance of the Pearl Delta Region and the Yangtze Delta Region
are related to the development of the business environment in Guangzhou and Shanghai
respectively.

1.3 Study Area

The concept of business environment is the main focus in this research. This research
is based upon a macro perspective to view the business development in Shanghai and
Guangzhou, a broader context is expected in this study. Political, economic, social and
technological factors will be employed as the major criteria for assessing the business
environment of the two cities. The development of Guangzhou and Shanghai since the
1980s will be included as the main part of my research. By making the comparisons
between the two cities, some evaluations about their future development will be examined
in part of my study. In addition, some background information about the development of
the Pearl River Delta and the Yangtze River Delta will be explored as well, since these two
regions play the vital role as the source region for bringing the rise of the business
environment in Guangzhou and Shanghai. Without relying upon their hinterlands, it cannot
be assumed that the two cities develop such the successful environment for commercial and
business activities today. In short, this research is composed of three elements: the concept
of business environment, the comparisons between Guangzhou and Shanghai at different
grounds and some information about the Pearl River Delta and the Yangtze River Delta.
1.31 Why Shanghai and Guangzhou?
Existing studies have tended to put much concentration on the comparisons between
Hong Kong and Shanghai without paying the special attention to the importance of

Guangzhou. In fact, the economic significance of Guangzhou is as crucial as Hong Kong

which should not be ignored. Guangzhou has served as the economic focal point and the
southern trade gateway of China for more than 500 years, which is even earlier than Hong
Kong. In historical perspective, to a certain extent, Guangzhou and Shanghai are the
traditional competitors of each other for business and trade since the 19th century. Despite
of the weaker economic performance today, the economic direction and development is
very similar to Shanghai.
Guangzhou and Shanghai are the central cities located in the Pearl River Delta and the
Yangtze River Delta respectively, with which these two regions are both the economic
focus under the economic reform. Unlike the situation of Hong Kong, they share the
similar political background in which they are fully under PRC sovereignty. In economic
term, both of their economic mainstreams are also based upon the trade and business sector,
the business environment is an essential component for bringing their economic success in
the past twenty years. Despite of these similarities, Guangzhou and Shanghai perform
different styles of development. The economy of Guangzhou is mainly based upon
manufacturing export trade: From 1997 to 2001, the gross industrial output value took
almost half of the total GDP in Guangzhou. With light industrial products as the major
export output, the light industrial export products occupied around a quarter of the total
export trade value, the foreign investment in manufacturing trade also took about two third

of the total investment projects in Guangzhou(Guangzhou Statistical Bureau, 2003). All

reveal that the economic source of Guangzhou is mainly from manufacturing trade. On the
other hand, Shanghai intends to exert a pull on service trade. As Dr. Cui Gonghao claimed,
Shanghai is aiming at developing tertiary sector such as finance, information and real
estate industries in order to rest its central position in Far East5. From 1990 to 2000, the
average growth of service sector was the highest in Shanghais economy. It can be expected
that service trade will be the future development direction of Shanghai. Given various
similarities and differences, Guangzhou and Shanghai are the suitable comparative pair in
studying Chinas development, they act as the best models that represent two different
types of the new business environment in China brought by the open door policy.
1.32 Study period
In order to compare the business environment of Guangzhou and Shanghai more
specifically, this research is confined to the period from 1980 to 2001. Before 1978, there
were no major changes made in the basic framework of Chinas traditional economic
system6. The economic reform constituted by Dengs leadership contributed the economic
turning point in China. Under Dengs rule, China has adopted the strategy with market
system economically, but a socialist system politically7. The implementation of open door
5

Cui Gonghao, Development of Shanghai and the Yangtze Delta, Anthony Gar On Yeh & Chai Kwong Mak,
Chinese cities and Chinas development, (Hong Kong, 1995) p.253
6
Lin Yifu, Cai Fong and Li Zhou, The China Miracle: Development Strategy and Economic Reform, (Hong
Kong, 2003), p.138
7
YM Yeung and Sung Yun-wing, Shanghai: Transformation and Modernization under Chinas Open Policy,
(Hong Kong, 1996), p.98
7

policy in 1979 not only marked the beginning of the formation of business environment in
China, but also paved the way for the successful economic growth in the next two decades.
Another critical point for Chinas economic development is the year 2001, in which China
successfully entered WTO. The accession not only acts as the milestone of Chinas open
door policy in international trade, but also implies the role of business and trade is
becoming more and more significant in Chinas economy. Facing such direction, China
may need to address itself to the importance of business environment in future. It is
undeniable that the successful business environment contributed by the central government
plays an influential role on contributing such the impressive economic progress in China.
Without providing such the favourable business environment, neither domestic investment
nor foreign capital would be attracted; China would not enjoy the economic success in the
past two decades as well as the complimentary economic prospect. As a result, my research
will be concentrated on such the critical period of time.
1.4 Methodology and data collection
A qualitative approach is adopted in my study. Information and materials which are
related to the background and situation of Shanghai and Guangzhou since the 1980s, such
as books, articles and journals etc., will be explored. As long as some statistical resources
are also required for identifying and analysing the patterns of the business environment of

the two cities, the statistical data is obtained from Statistical Yearbooks of China, Shanghai
and Guangzhou. Besides, some other useful information is also obtained from some
relevant websites.
1.5 Organization and limitations of the study
This study is composed of eight chapters. The above reviewed Chapter One is the
introduction part of this research. Chapter Two is the literature review concerning the issue
of business environment. Chapter Three examines the background of the two cities as well
as the economic development of their hinterlands, the Pearl River Delta and the Yangtze
River Delta. Chapter Four attempts to examine and compare how the public policies and
the role of the government shape the business environment of the two cities. Chapter Five
looks into the current economic situation, the development of secondary and tertiary
industries and the patterns of foreign trade and investment in Guangzhou and Shanghai.
Chapter Six perceives the influence of social elements like demographic structure, living
standard and labour supply of the two cities. Chapter Seven mainly concerns about the
technological and scientific development of Guangzhou and Shanghai. Finally, Chapter
Eight is the evaluation remarks on the prospects and the positions of the two cities. Because
of the time and resource constraints, this study only covers 4 key areas that are the most
critical to the topic. Some elements like legal issue though not insignificant have to be
excluded.

Chapter 2: Literature review

2.1 Definition of Business environment
In general, business environment is defined as the external conditions for which
businesses exist and operate 8 . There are several components involved in business
environment. These may include: economic structures, social relations, cultural values,
political institutions, technological development, legal framework, demographic structure
and global competitive environment (Morrison, 2002). These factors influence commercial
and business activities taken place in society. The components of business environment can
be subject to many changes which vary from different time and situation. In academic
perspective, business environment can be identified and assessed by the PEST analysis
(John Sloman, 1998). The following is the brief introduction of PEST analysis:
PEST indeed means:
Political environment

(P)

Economic environment

(E)

Social environment

(S)

Technological environment

(T)

1) Political environment:
The political factor is an essential element of business environment. The nature of political
system and the outbreak of political events directly affect commercial and business
8

Malcom Surridge, Tony Bushell and Philip Gunn, The Business Environment, (London, 1993), p.11
10

activities in a country. The government always plays an important role on shaping the
business environment of the country. For instances, the governments involvement in the
operation of economic structure and its attempt to intervene the market and consumption
behaviour, may do the direct and/or indirect influence to business activities (Worthington,
1997). Also, various public policies and regulatory frameworks, like the context of laws,
regulations and codes, as well as imposing taxes etc, are all recognized by the government
and which act as the influential components affecting the flexibility of business
environment (Needham, 1997). Therefore, the political environment is a necessary factor in
assessing the business environment.
2) Economic environment:
Economic factor indeed can be varied from local to national to international. In general,
economic environment can be divided into two levels. i.e. microeconomic environment and
macroeconomic environment. Microeconomic environment includes all economic factors
that are related to the operation of firms in a market. The competitive market, consumers
taste and demand and rising costs etc are the key concerned elements in the
microenvironment (Sloman, 1998). Macroeconomic environment is associated with the
regional, national or international economic situation. The economic system, economic
development and current economic circumstance affect the operation of business activities
in a community. For instance, the occurrence of economic recession may generate the

11

decline in business transactions in society, vice versa (Needham, 1997). The adverse
influence of Asian Financial Crisis on the economic growth in Hong Kong after 1997
serves as the paradigm for illustrating the importance of economic environment. Thus, the
economic environment is a vital factor which affects the attractiveness of business
environment.
3) Social environment:
This aspect concerns social attitudes and values in society. These include the attitudes of
labour towards working conditions, the length of working days, the equal opportunities and
the working ethnics among different groups of people. With its own social value, living
preferences and standard, a society may influence business operations in the country. The
social factor thus becomes one of the major considerations for businessmen to decide their
investment participation in the specific environment. Besides, some social trends like the
change of features of the population and the rise in consciousness of environmental
conservation can affect the business actions in society (Campbell, 1997 and Sloman, 1998),
because these tendencies can do the impacts on the demand and consumption in the market,
consequently affect the business direction and operation in the community. So, the social
factor plays the vital role on influencing business environment.
4) Technological environment:
Technological characteristics include the level of advancement of knowledge and

12

equipment in society as well as the rate of development and application of such knowledge
(Needham, 1997). Investment in technology and innovation is key to the success of
business operations, and in a macro perspective, technological development is often a vital
factor in increasing the competitiveness of different countries, since it not only helps a
business to reduce the production costs and generate the better and more accurate decisions,
but also enables the business to enhance the speed of production, the productivity and the
quality of products (Campbell, 1997). It is true that the technological development
facilitates the emergence of favourable business environment (Worthington, 1997).
2.2 Empirical Studies
2.21 Global Business environment
In international yardstick, the Economist Intelligence Unit (EIU) produces a
business-ranking model in 60 countries covered by Country Forecast9 using a standard
analytical framework to measure the quality or attractiveness of business environment (See
appendix 1). It is based upon the historical and anticipated conditions in the past and next
five years. The following ten separate categories are examined in the business-ranking
model10:
-

Political environment

Macroeconomic environment

Country Forecast, August 1995

Reference to Lau Sau Man, A comparative study of the business environment of Hong Kong and Shanghai,
(Hong Kong, 2003), p.24
10

13

Market opportunities

Policy towards free enterprises and competition

Policy towards foreign investment

Foreign trade and exchange controls

Taxes

Financing

Labour market

Infrastructure
The higher ranking obtained, the higher quality of business environment is supposed to

be provided. From 1998 to 2002, western countries were mostly highly- ranked that graded
as good or very good, reflecting their very stable political and economic environment,
efficient financial sector, high quality infrastructure and well-educated labour force. Hong
Kong was ranked first before 1997, but dropped 12 places from 1998 to 2002, reflecting the
deterioration in the business environment as a result of the impact of the financial turmoil
in Asia. Comparing with Hong Kong, although China has made great progress in the past
ten years, her business environment was still graded as moderate ranking 45 among 60
countries, which reflects that Chinas business environment is still far behind Hong Kongs
or other developed countries in the international standard.
To further examine Chinas business environment thoroughly, Business Monitor

14

International (BMI) has conducted an assessment on merely Chinas business environment

since the 1990s11. The assessment is mainly based upon seven criteria, which include:
-

Foreign investment

Foreign trade

Industrial development

Labour Market

Infrastructure development

Taxation

Environmental conditions
According to the reports, undoubtedly, China remains as one of the most popular and

potentially rewarding locations for foreign investors and trade partners, but there are
numerous hurdles that place Chinas business environment still to be claimed as
unfavourable. These hurdles are often referred as the difficulties in investment approval,
final clearance and complications operating business, such as unexpected changes in key
variables like tax and tariff rules, serious payment problems and delays in the transfer of
funds. Besides, the frequent official and general corruption and the slow and inefficient
bureaucratic system are deemed as the hindrances to Chinas business environment (BMI,
1995-2001). As a result, China may have to pay more concerns to these problems so as to

11

Business Monitor International, China : Annual Report on Government, Economy, and Business
Environment, Capital Markets and Industry, with Forecast, 1995-2001 (London)
15

enhance the competitiveness of her business environment. Despite of those unfavourable

conditions, China is still the most popular developing country in the world for foreign trade
and investment12, and the continuous rise of her business environment can be expected in
foreseeable future, in particular after the accession to WTO in 2001.
From these findings, it seems that there is no specific definition for business
environment, the application of different definitions is just depended on different purposes
and circumstances. It is true that business environment is always an indispensable element
which affects the development of a country, whereas the flexibility and attractiveness of
business environment is also influenced by political, economic, social and technological
conditions of the country in reverse. Hence, to a certain extent, the business environment is
often an effective indicator reflecting the pace and direction of the economic development
of the country.
2.22 Shanghais Business Environment
Among different cities of China, the business environment of Shanghai seems to be
the most favourable since the 1990s. In fact, such amazing achievement is attributed by
many political, economic and social factors. EIU provides an analysis on the business
environment of Shanghai issued by Business Asia13, on which it outlines nine significant
elements for bringing the favourable business environment in Shanghai. These include:
12

National Bureau of State Statistics, China Statistical Yearbook, 2002, the total value of imports and exports
reached RMB 42.1933 billion, whilst the total amount of FDI in actual utilized was USD 46.87bn and the
number of FDI projects was 26140.
13
Business Asia, Nov, 17, 1997, titled China : Investing in Shanghai, p.4-7
16

Strong political and financial backing

The status of the city has greatly enhanced since the 1990s as a result of the coastal
development strategy in the YRD. With the present municipal leadership remains in
power and the great support from the central government, Shanghai has bigger
bargaining power and gains much more resources and privileges than other provinces
for creating the better business environment.

Relatively clean bureaucracy

According to EIU, there are less bureaucratic problems in Shanghai than elsewhere in
China. The customs is relatively corruption-free. Though the municipal government
behaves rather rigid to the business rules, officials are generally business friendly.
Indeed, doing business there is a breath of fresh air for companies which prefer to
follow the rules

14

Sound infrastructure
Infrastructure is always an important essence of the ideal business environment. The
massive spending on roads, rails, ports and utilities etc will be important for Shanghais
future development.

Falling property prices

Though the property price of Shanghai was hugely overpriced during the last decade,

14

Ibid, p.4
17

the burst of speculative bubble has dropped down the price dramatically since the late
1990s. Together with 50% of office vacancy, Shanghais property market seems to carry
potential development and is favourable to its business environment in future.
-

Expensive, but quality labour

Although Shanghais labour cost is among the highest in China, the high quality and
skilful labour is still an attractive factor in pulling the attention of businessmen.

Emerging financial centre

The completion of the new stock-exchange building in Pudong, the licensing of foreign
banks to conduct RMB business and the presence of plenty foreign banks provide the
foundation to Shanghais financial development. Yet, EIU suggests the further
loosening of the license restrictions for reminbi banking will be significant for
establishing the more flexible business environment in future.

Vast retail market

Potential retail market is often significant for attracting business and investment. With
the large population size of 1.3 million and the access of huge customer base
in the Yangtze River Delta, the retail sector becomes the major charisma of Shanghais
business environment.

Good sourcing
The favourable geographical location enables Shanghai to play an excellent role on

18

sourcing and allocating the resources and capital between suppliers and investors, and
which is critical for bringing the successful business environment.
-

Improving life quality

In foreigners points of view, the upgrading of living environment and public facilities,
the alleviation of congestion and housing stock in recent years help enhance the quality
and attractiveness of Shanghais business environment.

2.23 Guangzhous Business Environment

In studying the business environment of Guangzhou, Zuo Zheng points out five exclusive
features which contribute the successful business environment of this provincial city (Zuo,
2003):
-

Deep river-sea connected water port

The possession of the non-silted deep water port has been one of the significant factors
in facilitating the sustainable superiority in trade and business of Guangzhou for 2200
years.

Access to Hong Kong

The great accessibility to Asian metropolis, Hong Kong, is undoubtedly favourable to
Guangzhous commercial and business development since the vicinity of the world
trade window Hong Kong can greatly facilitate the economic and trade connection of
Guangzhou with foreigners.

19

Circulation node advantage

Owing to the geographical advantage, the commercial and trade area can be easily
established in Guangzhou. The city not only serves as a storage and transfer centre for
the products of southern China, but also acts as a key node for domestic products,
capital, technology, telecommunication services and expertise to connect and access the
international market. The role as the second international circulation node after Hong
Kong is a critical element of Guangzhou in establishing the favourable business
environment for attracting foreign investors.

Superior development in tertiary sector

With the unique function as the special circulation centre provided by the superior
geographical economic location, Guangzhou gains more favourable conditions for
developing tertiary sector than other cities. The rapid development of financial and
insurance services, catering services, transport and postal services and social services
not only facilitate the economic development of the city, but more importantly act as
the compatible components for the formation of the comprehensive business
environment of Guangzhou.

Unique and great cultural heritage

This referred to that, as a result of the international connections and the cultural
exchange with the west, Guangzhou has absorbed superior cultural elements from the

20

world and has established the unique Linnan Culture, which carries the open,
generalized and commercialised features, whilst such superior culture is conducive to
the economic development as well as the business environment of Guangzhou.
2.24 Comparative study
Although many scholars have also made their attempts on analysing the business
environment in either Shanghai or Guangzhou, a few scholars and economists have
directly compared the business environment of Shanghai and Guangzhou. Shadid Yusuf
and Weiping Wu is the exception. They compare the urban development of Shanghai,
Guangzhou and Tianjin. By analyzing the economic performance, urban growth and
development of the three cities, various findings are drawn out towards the similarities
and differences of the development direction, model and pace of the three cities15. In
terms of the similarities, they find out that the economic centre of gravity of the three
cities is in manufacturing sector. Second, all three cities carry the distinctive
geographical locations in the regional context: their coastal locations enable them to
provide large and busy ports and be well served by their hinterlands. Third, being the
typical and major industrial centres in China, the three cities have a relatively high
concentration of state-owned enterprises. Fourth, owing to the large share of
state-owned industry, the labour market in these cities was subject to much rigidity.

15

Shadid Yusuf & Weiping Wu, The dynamics of urban growth in three Chinese cities, (Oxford, 1997)
21

Fifth, all three cities belong to the selected open cities that play as the super head of
Chinas opening to the outside world and the pioneers in the reform. Sixth, all three
cities receive a substantial volume of FDI and benefit from the outspread effects
radiated from their neighbouring economies (Yusuf and Wu, 1997).
Despite of these similarities, Yusuf and Wu discovered several differences of the
three cities in terms of economic growth, industrial performance, labour workforce,
economic development direction and external competition. During the period of
1978-1993, as a result of the greater economic autonomy and a relatively smaller share
of centrally managed state industry, Guangzhou enjoyed the fastest annual economic
growth rate of 11.3%, which was above the national average, whereas Shanghai and
Tianjin grew at about 8%, which were even below the national average for more than
1%. The industrial performances were also varied among the three cities. Both
Shanghai and Tianjin have broader and stronger industrial bases than Guangzhou,
whilst Shanghai dominates Tianjin and Guangzhou in profitability and productivity
across the six industries. Shanghai and Tianjin tend to specialize in heavy and high-tech
industries but Guangzhou specializes in light manufacturing industries. In terms of
workforce, Shanghai and Tianjin are confronting the problem of aging workforce. The
population group above 50 years of age in Shanghai took 20% of the municipal
population in the 1990s, which was much higher than the average national level (12%),

22

Guangzhou (14%) and Tianjin (16%). Shanghai also has the lowest birthrate among the
three cities, while Guangzhou has the highest. The ageing workforce definitely
sharpens the demand for the long-term social security system and weakens the
competitiveness and productivity of the city (Yusuf and Wu, 1997). Nevertheless,
Shanghai has gradually improved the situation by devising some welfare mechanisms
in recent years. The economic development direction of the three cities is different as
well: Shanghai has great potential to become a world-class financial centre, whereas
Guangzhou is eager to develop trade-related services, and Tianjin concentrates on
transport-induced activities. Concerning the external competition, except Shanghai
remains highly competitive in the YRD, both Tianjin and Guangzhou have experienced
the intensive regional competition from the secondary cities in their hinterlands since
the last decade. For instances, Shijizhuang is challenging Tianjin in both textiles and
clothing industries. Foshan and Dongguan are the rival competitors of Guangzhou in
clothing and electronic industries. Nonetheless, all three cities still possess advantages
in the development of large industries, such as machine building, chemicals, metallurgy
and transport equipment. In short, the similarities and differences generate Guangzhou,
Shanghai and Tianjin to develop their own uniqueness in terms of economic model and
urban development, and which also act as the new representations of Chinas
development today.

23

2.3 Conceptual framework

Owing to the limited findings of the comparative study of the economic
development of Guangzhou and Shanghai, this research aims at examining the business
environment of the two cities by comparing them with a broader framework. In order to
conduct the concrete research, PEST analysis is used as the main criterion for assessing
the business environment of Guangzhou and Shanghai. Throughout comparing the
political, economic, social and technological environment, a macro-outlook on the
business environment of the two cities can be attained.

24

Chapter 3 An overview of economic development

Both Shanghai and Guangzhou are economic focal cities of China and they have
experienced dramatic economic changes after 1978. Before examining 4 major elements of
the business environment and making the comparisons of the two cities, it is necessary to
review their background information and their economic positions in their hinterlands.
These can serve as the foundation of the comparative study of Shanghai and Guangzhou in
next four sections.
Map 1 Map of China

Source: http://worldatlas.com/webimage/countrys/asia/cnlarge.htm

25

3.1 Background review of Shanghai

Shanghai is situated on the estuary of the Yangtze River in East China Sea and is
bordered by Jiangsu and Zhejiang provinces. It is one of the four municipalities that are
under direct jurisdictions of the central government. It has a total area of 6,341 square
kilometers and the population is 13.34 million. Shanghai is well known for its rich water
resources, with many rivers and lakes. Most rivers are tributaries of the Huangpu River.
Pinhu Oilfield is one of the precious natural resources in the southeast of Shanghai to turn
out crude oil and gas and mainly supplied to Shanghais area (Shi, Lamy and Kapp, 2003).
Historically, Shanghai is a traditionally indispensable city of China. It served as a
gateway to the world in the past two centuries. Although Shanghai only took approximately
1% of the national population, it contributed a fifth of the industrial output and handled 2/3
of the foreign trade. It was also once Asias financial and commercial center, dwarfing
Tokyo (Yusuf and Wu, 2002). Since 1949, after the communist party came to the power, its
role as a financial and commercial centre was replaced to be a key industrial city of China,
in which they concentrated on heavy industries and supplied industrial products, skilled
personnel, and huge amount of revenue to the central government. Despite of the alteration
of its economic function, the annual growth rate of Shanghais national income during the
period of 1953-1978 amounted to almost 9%, which was not only the fastest in the country,
but also higher than that of the other leading coastal provinces.

26

Nonetheless, such superiority was no longer sustained after the introduction of open
door policy in the early 1980s, from which the central government largely heeded to the
economic development of Guangdong and Fujian. As a consequence, the economic
significance of Shanghai fell behind these two provinces, in particular Guangdong province.
For instances, its share in Chinas gross industrial output was cut almost by half, from 12%
in 1978 to only 5.5% in 1994. Shanghais share in the national total exports also fell
precipitously from about 30% in 1978 to mere 7.5% in 1994. After 1986, Guangdong had
already replaced Shanghai as Chinas leading exporting province (Yeung and Sung, 1996).
The turning point has fortunately appeared since the early 1990s, after Jiang Zemin and
then Zhu Rongji headed the local administration before becoming the premier leaders in the
central government, Shanghai can once again become the economic focal point of China.
With the ease of heavy control of the central government, the encouragement of massive
inflow of foreign investment, the boost of its trade and financial development, Shanghai
has regained some its lost glory. With only ten-year time development, Shanghai not only
becomes the premier city in China, but also carries the greatest potential for developing
itself as the first Asian Metropolis of China.

27

3.2 Shanghai in the Yangtze River Delta

Map 2 Map of the Yangtze River Delta

Source: Yeh and Mak, 1995, p.242

3.21 Basic Background of the Yangtze River Delta

Since Shanghai is situated on the estuary of the Yangtze River, Shanghai is well served
by its fabulous hinterland --the Yangtze River Delta (YRD). Undoubtedly, the YRD is one
of the most significant regions in China, it has a third of Chinas population and 40% of
Chinas gross domestic product (GDP). The Yangtze River Delta includes seven cities in
Jiangsu Province (Nanjing, Zhengjiang, Yangzhou, Suzhou, Wuxi, Changzhou and
Nantong), three cities in Zhejinag Province (Hangzhou, Jiaxiang and Huzhou), together
with Shanghai, totaling eleven cities and covering 62,000 square kilometers.
28

During the past four decades, the Yangtze Delta has grown into a comprehensive
industrial base characterized by the coordinated development of light and heavy industries.
The light industry generates more than 60% of the total industrial products, and takes 23%
of the national total light industrial products. Since the past two decades, the YRD has
developed the new economic direction and has concentrated on the high-tech industrial
development. So far, there are 7 national grade high technology development zones in the
Yangtze Delta, including economic technical development zones, environmental protected
industrial zones, scenic spots, some provincial grade development zones and township
industrial parks. These development zones play the positive role on attracting foreign
investment, importing technologies and rationalizing distribution in the region. There are
over 200 enterprises, 100 research institutes and colleges located in various
high-technology development zones in Suzhou, Wuxi and Changzhou (Yeh and Mak,
1995).
Apart from the industrial base, the YRD plays as an important transport hub that
connects south and north part of the country as it lies at the heart of eastern China. At
present, there are 6 open river/sea ports along the Yangtze. The comprehensive transport
network which consists of container facilities, airport and roads can be founded in the YRD
as well.

29

3.22 Economic position of Shanghai in the Yangtze River Delta

Undeniably, Shanghai occupies the leading economic position in the Yangtze River
Delta region. After the grant of preferential privileges to Shanghais Pudong since the mid
1990s, the status of Shanghai as the dragon head seems to be more evident and steady.
Economically, Shanghai often plays as an agent or a coordinator of the economic
development programme of the YRD. As the agent, Shanghai concentrates on tertiary
sector and provides the effective service to generate and facilitate the industrial
development of other secondary cities in the YRD. With the close co-operation, a concept
called Shops at the front and factories at the back has been formulated between Shanghai
and other cities in the YRD. Nowadays, owing to the strong trading power of Shanghai,
many cities and counties in Jiangsu and Zhejiang provinces are adjusting their industrial
structures and development trends so as to strengthen their linkages with Shanghai and
vitalize their industrial economies (Yeh and Mak, 1995). High technology, light industry,
textile industry and tourism are very important in the regions of Suzhou-Wuxi-Changzhou
and Hangzhou-Jiaxing-Huzhou, whilst heavy industries such as petroleum, metallurgy,
building materials and automobile are well developed in Nanjing, Zhejiang and Yangzhou.
Besides, Shanghai is a significant transport node that connects all cities in the YRD
and plays as the gateway of the region to the world. Almost every transport planning is
focused around Shanghai. For example, Shanghai is the nuclear point of east-west corridors,

30

which include the Shanghai-Nanjing, Shanghai-Hangzhou and Hangzhou-Ningbo

expressways, Xuzhou-Nanjing-Shanghai-Hangzhou and Hangzhou-Ningbo expressways,
Xuzhou-Nanjing-Shanghai dedicated high speed passenger railway, Shanghai-Chengdu
national highway, Nanjing-Nantong Railway and Nanjing-Xiangfan Railway(Yeh and Mak,
1995). The construction of the Pudong international Airport and the expansion of Shanghai
Hongqiao Airport in recent years are partially for catering the need of the YRD
development programme.
In addition to the role of leader and coordinator, Shanghai plays a significant role on
lubricating the economic development in the YRD. Without the promoting effort and the
encouragement of the Shanghai Municipality, the inflow of FDI would not be so
tremendous in the YRD cities (Walcott, 2003).
Despite of the economic significance, the leading position of Shanghai in the YRD is
not totally undisputable. Though Shanghai is certainly the largest city in the delta, it does
not own the best port. The leading position in seaport is greatly challenged by Ningbo port.
Besides, the rapid rise of other cities in the YRD like Chongqing and Wuhan may cause the
potential threat to Shanghais leading status in the future. Nonetheless, regardless these
hindrances, to a large extent, Shanghai still occupies the premier position in the Yangtze
River Delta region, as its economic significance is irreplaceable by any cities in the YRD.

31

3.3 Background review of Guangzhou

Situated in the Pearl River Delta near South China Sea and adjacent to Hong Kong and
Macao, Guangzhou is the capital of Guangdong province. The total area is 7434 square
kilometers whilst its water area covers for 10% of Guangzhous total area, and its
population is 7.20 million. With a sub-tropical climate and ample rainfall, Guangzhou is
suitable for year-round farming, which is also the reason for the city to be well known as
the City of flowers. Same as Shanghai, Guangzhou is also a place with rich resources.
There are 52 varieties of mineral deposits, including coal, lead, zinc, niobium, gold and
other ferrous, non-ferrous, rare and precious metals at 396 locations (Shi, Lamy and Kapp,
2003).
To trace back the economic history, Guangzhou possesses the more impressive and
profound background than Shanghai to a certain extent. Owing to its coastal geographical
location, Guangzhou is Chinas the largest and the most prosperous southern city, an
important sector for foreign trade and a famous historical and cultural city over 2000 years.
The unique position of Guangzhou became more explicit in the mid-nineteenth century-- it
was designated as the only Chinese port for trade with foreign barbarians. After the loss
of Qing in the first Opium War, Guangzhou was one of the five treaty ports established by
the Treaty of Nanjing in 1842. As Chinas foreign trade slowly expanded under the treaty
order in the late nineteenth century, Shanghai quickly replaced Guangzhou as the premier

32

trading port of China whereas the city could only maintain a distant second important place
during this period. In the early 20th century, as the treaty ports gradually developed into the
hubs of modern industrial development, Guangzhou became one of the notable industrial
centers in textile and flour-milling with the second rank importance, which came after
Shanghai. After the establishment of Peoples Republic in 1949, Guangzhou was
unfortunately perceived as a centre of foreign and capitalist contamination by the new
Communist authorities in Beijing, thus its economic significance seemed to be downgraded
in the 1950sGuangzhou not only was no longer designated as the key point for
industrial construction, but also was assigned to promote the development of provincial
agriculture and to serve the needs of agriculture in terms of Chinas national economic
requirements. The citys status could not be revived until the Great Leap Forward
Movement in 1958, from which Guangzhou was built as a modern industrial city for
national industrialization. Such superior status was sustained even during the worst years of
the Cultural Revolution, Guangzhou played the predominant role on financing, ownership
and control, and material allocations at provincial and municipal level of the country.
Guangzhou also retained its old imperial role as the window to the world (Yu, 1997).
The leading position of the city has been further consolidated by the introduction of
open door policy since 1978, the grant of preferential status to Guangdong has contributed
plenty of economic opportunities to Guangzhou, which is the provincial capital of the

33

province. With the adoption of economic reform, Guangzhou has been classified as danlie
chengshi, i.e., a city being specifically considered by the central government in its overall
economic planning, instead of being subsumed under provincial levels economic planning
(MacPherson and Cheng, 1996). Hence, Guangzhous economic development could
perform rapidly and impressively in the past 20 years.
3.4 Guangzhou in the Pearl River Delta
Map 3 Map of the Pearl River Delta

Source: http://www.cityu.edu.hk/lib/collect/prd/maps/map_prd.htm
3.41 Basic Background of the Pearl River Delta
The economic importance of Guangzhou, to a large extent, is contributed by its
hinterlandthe Pearl River Delta (PRD). This amazing hinterland is composed of the
provincial capital Guangzhou, 3 SEZs: Shenzhen, Zhongshan and Zhuhai, and 8 cities,
including Foshan, Jiangmen, Dongguan, Shunde, Nanhai, Huizhou, Zhaoqing and Panyu,
covering an area of about 20000 square kilometers. The population of the region is about
34

33.08 million, which is only 30% of the provincial total (Guangdong Statistical Bureau,
2003).
Since the early establishment of economic reform, Guangdong has been granted as
one of the preferential provinces in economic development. Being the heart of the province,
the PRD has become the focal point of economic revitalization. Thanks to the past
two-decade effort, the region is one of the most prosperous regions in China. Its economic
performance reached its peak in the 1980s. The GDP in 1988 reached RMB 65.92billion,
accounting for 59.5% of Guangdongs total. The economic growth rate in the PRD is listed
among the quickest in China. Between 1980 and 1991, the growth rates of total social
output value, national income and gross industrial output value were 19.2%, 16% and
22.1% (Yeh and Mak, 1995). All of them were higher than the national growth rates. Up
until 2002, the region still performed the outstanding economic developmentthough its
population size is only 30% of Guangdongs, it attributes 86% of FDI, 71% of GDP, 89%
of exports and 66% of retail sales to the province. The PRD economy is mainly
characterized by two elements. First is the emphasis on foreign investment and export trade.
The PRD absorbs huge foreign capital on account of cheap labour and land as well as
special policies given by the central government. It also makes full use of the advantages
formed by industrialization and urbanization to attract foreign capital. The other is
industrial-oriented feature. In the PRD, the light industry seems to be more predominant

35

than the heavy one. Before the implementation of open door policy, the industry in the
region was mainly related to agriculture, such as food processing, silk reeling, textile
industry, sugar refining, agricultural tools and chemical fertilizers. However, since the
1980s, some changes occurred in which the manufacturing of electric appliances, plastic
industry, textile and clothing industry and food processing industry have gradually become
the chief industries in the PRD.
Similar to the Yangtze River Delta, the PRD also serves as a transport axis of
Guangdong province, yet its function as a bridge connecting Hong Kong, Macau and the
mainland together seems to be more significant than the internal connection with other
provinces (Chan, Hsueh and Luk, 1996). Airport, piers, railways and superhighway can be
founded in many cities of the PRD. In sum, the PRD serves as the regional growth centre in
south China.
3.42 Economic position of Guangzhou in the Pearl River Delta
Being the provincial capital of Guangdong, most people recognize Guangzhou as the
dragon head not only in the Pearl River Delta, but also in Guangdong. Undoubtedly,
Guangzhou often plays as the pioneer of the economic development in the region. In the
beginning years of the economic reform, Guangzhou often act as a demonstrator and
carried radiation effects to other cities in the PRD. For example, in the early 1980s,
Guangzhou concentrated on light manufacturing industries. With the operation of the

36

small-scale intensive industrial model, textiles, flour and paper-making, oil refinery,
chemical and other engineering industries were flourished in the city. Such successful
development aroused many cities and counties in the region to learn from Guangzhou in
boosting their industrial development.
Like Shanghai, Guangzhou has also tried its best to develop itself as the service hub in
the PRD since the early 1990s. They put special attention on several tertiary industries like
banking, commerce and trade, information and other specialized services (Yeh and Mak,
1995). Guangzhou also strengthens its cooperation with other cities in the PRD so as to
strive for the leading position of the regional service agent and facilitate the industrial
development of the region.
Apart from the regional service agent, Guangzhou is also one of the traditional and vital
transport nodes which connects the cities in the PRD with Hong Kong. Kowloon-Canton
Railway is the earliest transport route which links Hong Kong with the mainland. In fact,
except Hong Kong, Guangzhou is also the second important international transport hub
which connects the PRD with the outside world. The Baiyun International Airport and the
Huangpu seaport of Guangzhou also carry the crucial position in international transport
sector of the PRD.
Despite of these leading advantages, the status of Guangzhou as the dragon head of
the PRD seems to be relatively unstable when comparing with Shanghai. The intensive

37

competition is the main obstacle faced by Guangzhou. Since the late 1980s, the economic
performance of Guangzhou has become less competitive when comparing with other
uprising cities and counties in the PRD. The small tigers in the region are having the
higher productivity than Guangzhou in the course of economic restructuring (Chan, Hsueh
and Luk, 1996). The industrial development of the city has been declined as well, the
percentage of the growth of output value of industry (GOVI) of Guangzhou with reference
to the Pearl River Delta dropped from 62.82% to 24.39% between 1980 and 1990. In 2002,
its GOVI even dropped to 18.95% in the PRD. Refrigerators, electric fans and washing
machines from Shunde and Zhongshan have enjoyed a comfortable share in the national
market comparing with the products produced in Guangzhou (Yusuf and Wu, 1997).
Though the city has repositioned itself as the service hub of the region, the rise of Shenzhen,
which carries the similar economic direction with Guangzhou, has become the great
challenge and threat to Guangzhou as the dragon head of the PRD.
Whether Guangzhous leading position in the PRD is disputable, it is an undeniable fact
that the city carries the indispensable economic significance in the region, yet striving for
and consolidating the dragon head status in the region is still the main goal for
Guangzhou in a long term.
After examining the background of Shanghai and Guangzhou, several similarities can
be obviously discovered in terms of geographical location, history as well as economic

38

structure and direction. More importantly, their superior economic importance in their
hinterlands contribute them to play as the most vital economic focal point in east and south
of China respectively. Providing such similar background, Shanghai and Guangzhou seem
to be the most suitable comparative pair among various cities in China.

39

Chapter 4 Political Environment

The political factor is an essential component in business environment. The nature of
political system and the outbreak of political events directly affect commercial and business
activities taken place in a community. The occurrences of economic shock in Taiwan and
USA after the outbreak of the election crisis and the 911 attack in recent years demonstrate
the influence of politics upon the economic environment of the country. In fact, the
government always plays an important role on shaping business environment. Various
influential components affecting the attractiveness of business environment, like public
policies, regulatory frameworks, taxation and construction of infrastructure, are all
responsible by the government (Worthington and Needham, 1997). In China, especially
when comparing with other capitalist countries, the role of government, no matter at
national or regional level, seems to be very influential in the business environment. As long
as both Guangzhou and Shanghai are under the same central authority in China, the role
and the public policies of the municipal government in Guangzhou and Shanghai as well as
the infrastructure of the two cities will be the main focus in the following discussion.
4.1 Role of the government in Shanghai
4.11 Support from the central government
Although Shanghai did not immediately gain the preferential treatment under the
implementation of open door policy in the 1980s, the gain of attention from the central
government has contributed a turning point to the economic development of Shanghai since
40

the 1990s, so the central government undeniably plays a critical role on the citys economic
revitalization. The success of winning the preference from the central government mainly
hinges on two reasons. First, in the 1990s, inasmuch as the central government needed to
find an economic, banking and finance centre in China, Shanghai became its ideal choice
since it can produce radiation effects on benefiting the Yangtze region and the eastern
China, and acts as a catalyst for economic development in China (Yeung and Sung, 1996).
Second, the tilt of attention from Guangdong to Shanghai was indeed partly because of the
political influence of the former Shanghai mayors, Jiang Zemin and Zhu Rongji. Thanks to
their rise in political prominence and their political quest in the central government since
the 1990s, Shanghai can gain more attention from the central government in the national
economic modernization. During the 14th Party Congress held in mid-October 1992, Jiang
Zemin pointed out that Shanghai should be built into the international economic, financial
and commercial centre as soon as possible. By granting the preferential status to the city,
the central government provides Shanghai municipal government more autonomy on its
economic planning, for instance, the authority to issue bonds, receive credits, and rights to
export and import goods were gained. Also, more resources have been channeled to
Shanghai since the last decade. Comparing with Guangzhou, Shanghai seems to have more
political bargaining power for its economic development, in particular during the period of
1990s.

41

4.12 The Municipal government as the pilot

Planning and policy making
Undoubtedly, the role of Shanghai municipal government on creating the favourable
business environment is as essential as the central government. Traditionally, Shanghai
municipal government is often business-friendly; it plays a pivotal role on the citys
economic development. Thanks to the strong central support since the 1990s, Shanghai
municipal government gains more autonomy on inheriting the favourable business setting
for the city. In order to carry out the comprehensive and well-organized development, the
Municipal Integrated Economic Leading Group has been formed to improve the macro
management and co-ordination of various departments. It serves to formulate the
development strategies on the issues of personnel, capital and materials, and to implement
economic policies of the city (Yeung and Sung, 1996). Several planning projects and
policies have been carried out for boosting its economic development. They are mainly
subject to three objectives, which include attracting and supporting investment, strategic
positioning, selective intervention and fostering competition, and efficient allocation of
resources in Shanghai (Zhang, 2003). For attracting investment, the municipal government
has contributed the greatest effort to Pudong development project during the past ten years.
In fact, the potential of Pudong was discovered by the central government. The speech of
the former president Deng Xiao Ping in 1992 serves as the best illustration of the
importance of Pudong: Development of the Pudong district will have a great impact, not
42

just on the district itself, but on all of Shanghai, which in turn will serve as a base for the
development of the Yangtze delta and the whole Yangtze Basin. So we should lose no time
in developing the Pudong district and persevere until construction is completed16. Owing
to the request of the central government, the municipal government plays as a pilot on
developing Pudong as a new centre for attracting foreign investment and capital to
Shanghai. Several development zones have been gradually established, these include:
Lujiazui Financial Area, Waigaoqiao Bonded Free Trade Zone, Jinqiao Export Processing
Zone, Sunqiao Modern Agriculture Development Zone and Zhangjiang High Tech
Industrial Park etc. In addition, the municipal government also provides nine preferential
policies to investors in Pudong17. Thanks to the planning and organizing efforts of the
municipal government, Pudongs development has been amazingly rapid during the past
ten years, it has gradually become the ideal business environment for foreign investors.
Apart from opening Pudong, the municipal government carries out a set of new policies for

16

17

Ibid, p.106
Ibid, p.277-8 Nine preferential policies for Pudong: 1.Regulations for the Administration of Financial Institutions

with Foreign capital and Financial Institutions with Foreign capital and Financial Institution with Chinese and Foreign
Joint Capital in Shanghai. 2. Regulations on Reduction and Exemption of Enterprise Income Tax and Industrial and
Commercial Consolidated Tax to Encourage Foreign Investment in Shanghai Pudong New Area. 3.Customs Regulations
of the Peoples Republic of China concerning Control Over the goods, Means of Transport and Personal Articles Entering
or Leaving the Waigaoqiao Free Trade Zone of Shanghai. 4. Regulations of the Shanghai Municipality for the
Encouragement of Foreign Investment in the Pudong New Area. 5. Measures on Administration of the Waigaoqiao Free
trade Zone of Shanghai 6.Provisions of Land Administration in Shanghai Pudong New Area 7.Provisional Measures on
the Administration of Planning and Construction in Shanghai Pudong New Area. 8. Examination and Approval Measures
for Foreign-invested Enterprises in Shanghai Pudong New Area. 9. Guidelines for Industries and Investment in Shanghai
Pudong New Area.

43

attracting foreign investment to the city, like the provision of special funds, tax rebate and
exemption, duty-free import privileges to those foreign-invested enterprises, R&D centres
and foreign technology-intensive enterprises.
Strategic positioning implies the diversification of Shanghais economic structure
through prioritizing its tertiary-sector development and supporting pillar industries. It plans
to expand a wide range of high-end service and high-tech manufacturing activities, like
car-making and new materials industries, banking, investment trusts, insurance business
and security brokerage. To re-structure its economy, the municipal government plays as a
facilitator and offers a number of incentives to investors in tertiary industries, such as tax
holidays, subsidies loans and greater operational autonomy for relevant investors and the
encouragement measures for foreign investment. In addition, the municipal government
implements various new policies for encouraging the pillar industries, including the
exemption from corporate tax and the rebate on local turnover tax in excess of designated
amounts etc.
For fostering the competition and improving the allocation of resources, the
municipal government adopts 3 prolonged strategies to local industries. These include
nurturing the pillar industries and the related corporations, strengthening well-known brand
products through the merge and re-organization, and developing the towering
conglomerates through the control of capital. Nevertheless, such strategies lead to the

44

misallocation of resources in the city. It is necessary for the municipal government to

modify the strategies for maximizing the efficiency in use of allocation.
Infrastructure development
Urban infrastructure is an extremely crucial component for Shanghai to become the
most important economic powerhouse of China or even the Asian metropolis, because it
acts as an engine that inspires the economic development of the city. In a broader
perspective, infrastructure development not only is an indicator of the level of economic
development, but also acts as a pulling element of attracting FDI and generating business
opportunities. Hence, both the central and the municipal government pay a lot of concerns
to the development of urban infrastructure of the city. They often play as the leaders who
conduct the planning, the decision-making and the implementation of infrastructure
projects of Shanghai. Since the 1990s, the municipal government has recognized the
infrastructure projects as the focus of the citys urban development. It invested over 310
billion yuan (nearly US$ 40 billion) in infrastructure improvements during the last ten
years (Walcott, 2003). By renewing and constructing new urban infrastructure, Shanghai is
eager to develop itself as the most advanced city in China.
Concerning the transportation infrastructure, the municipal government has conducted
various large construction projects so as to enhance the accessibility of the city during these
ten years. In the year 2000, 15 major projects were completed, which included the Nanpu

45

Bridge and the Yangpu Bridge across Huangpu River and 2 tunnels underneath, an
overhead inner-ring road, an outer-ring road, a six-lane north-south expressway along
Chengdu Road. The subway system and Peal Line light rail have commented their services
since 1994 and 2000 respectively. According to the 20-year blueprint, the city will
continuously construct 11 subway lines, 7 light rail lines and 3 suburban railways in future
so as to solve the transport bottleneck problem of Shanghai. In order to strengthen the
external connection with other parts of the country, superhighways and railway networks
have been built to connect the city with Beijing, Hangzhou and other cities in China.
Besides, the establishment of new Pudong international Airport in 1999, which runs regular
routes to Western Europe, US, Japan, Australia, New Zealand and Hong Kong, is served as
a big infrastructure project to relieve the immense pressure of Hongqiao International
Airport and to accommodate the future international development of the city. To cater the
rapid expansion of sea transport and to deal with the intensive competition from Ningbo
port, the municipal government not only has continuously enhanced port facilities of
Shanghais port, but also plans to develop another new deep-water port in Da Yang Shan
and Xiao Yang Shan Islands in future (Hong Kong Trade Development Council, 2001).
The telecommunication infrastructure is becoming more and more indispensable in the
business environment today. Shanghai is developing the high quality IT infrastructure,
which includes integrated information pipelines, a broadband IP urban network, a data

46

network, cable television, and a broadband information exchange center. The Info Port
Project provides a network capacity of 1500 megabytes, covering 95% of urban families in
Shanghai. Urban renewal is being achieved through the redevelopment along the famous
Nanjing Road. According to the statistics, more than 4 million square metres floor area of
old buildings were demolished from 1991 to 1993 (Yeh and Mak, 1995). There is also the
improvement on public utilities. New gas and water works have been recently completed,
along with additions to a thermal power plant. The Seven Connections (electricity, gas,
fiber optic network, highway, sewer, telecommunications, water) are all provided
adequately to the citys families.
By examining the planning and policy-making as well as the infrastructure
development, it is obvious that both the central government and the municipal government
play the leading and facilitating role on the formation of the favourable business
environment in the city. Throughout developing urban infrastructure, opening up Pudong
and carrying out the preferential policies, the government is eager to shape Shanghai as the
tertiary-oriented service centre in combination with the high-tech industry, with these two
sectors serve as the essential components of the citys business environment.
4.2 Role of the government in Guangzhou
4.21 Support from the central government
Likewise, the decision of the central government is the origin of the rise of the
economic advancement of Guangzhou. Comparing with Shanghai, Guangzhou enjoyed an
47

earlier start of the economic expansion under the open door policy. Since the early 1980s,
owing to the urge of the adoption of economic reform with market mechanisms, the central
government intended to choose the southern coastal region, which carries geographical
advantages, as the pioneer of the economic reform. Hence it granted the preferential status
to Guangdong for developing the new economic model and attracting foreign investment.
Being the provincial capital of the province, Guangzhou was able to reap enormous
benefits from the open door policy. With the endowment of the status of danlie chengshi
and sets of preferential treatments since 1984, like greater administrative autonomy and the
increase in fiscal revenue, Guangzhou can move faster and earlier than Shanghai in
pioneering the dismantling of the socialist system and in implementing market-oriented
reforms during the beginning years of the reform (Chan, Hsueh and Luk, 1996). The
preference of the central government in Guangdong is undeniably significant as it has
paved the way for the flourish economic development of Guangzhou since the 1980s.
4.22 Role of the municipal government and the provincial government
Planning and policy making in the 1980s
Different from the direct municipal level of Shanghai, the economic development of
Guangzhou is highly subject to both the provincial government and the municipal
government take in-charge of. Yet, the provincial government mainly plays as a supervisor
and a facilitator whilst the municipal government serves as a director and an implementer
on the economic reform of the city. Despite the fact that the municipal government is
48

subject to the authority of the provincial government, Guangzhou municipal government

still enjoys great autonomy on its economic development policies. Thus, to a certain extent,
the municipal government plays as a pilot on leading the citys economic development. In
order to accommodate the economic transformation of the country and attract FDI for
boosting its economy, the municipal government has established a series of policies and
planning projects during the past two decades. In the 1980s, the policy direction was
mainly based upon four perspectives (Zuo, 2003). First was to strengthen the radiation
function of the city. With the implementation of the economic reform, the municipal
government encouraged the city to play as a pioneer of the commercialization of products
at both regional and international level, by which enhanced the market development of
various products. Second was to re-vitalize the superiority of the light industry of
Guangzhou. With the need of industrial structural adjustment, the municipal government
intended to boost the development of sixteen light industrial focal products so as to
consolidate the dominant position of the light industry in the citys economy. Third was to
enhance the development of the external-oriented economy of the city. Throughout
granting various preferential treatments like tax reduction and organizing the international
trade fairs every two years, the municipal government was eager to attract FDI and external
trade transactions so as to gain more foreign capital for the citys economic development.
Fourth was to strengthen the urban function of the city. By enhancing the development of

49

infrastructure, the municipal government intended to adjust the economic structure

indirectly and to modernize the city with secondary and tertiary oriented economy so as to
provide the favourable business environment to foreign investors.
To a large extent, the municipal government contributed the fabulous economic
development to Guangzhou in the 1980s, no matter in developing Guangzhou as the
commercial radiation centre or industrial development centre, the city often enjoyed the
leading status in the PRD. For instance, the city successfully attracted 27452 FDI projects
with a total amount of USD 3.133 billion during the period of 1979-1989. Such massive
inflow of foreign capital was conducive to the economic development and act as a vital
symbol of the favourable business environment of Guangzhou. Nonetheless, owing to the
problem of gradual saturation occurred in the citys development and the fierce competition
from Shanghais Pudong and other cities in the PRD, its policy direction has undergone
some changes since the 1990s.
Policy making and planning in the 1990s
As a result of the lower competitiveness of the city, and, to a certain extent, because of
the emergence of the energetic leader, like the former Mayor Li Ziliu in Guangzhou since
the 1990s, the municipal government has been eager to play a leading role on reforming the
economic development of Guangzhou. As Mr. Li claimed, further expanding the reform

50

and open policy is their way to survive the economic austerity programme

18

in the region,

so it is necessary to transform Guangzhou into a prosperous, stable and modern central city,
an international trade center, a national shopping center, and the nexus in finance,
information, science and technology, transportation and communications, as well as culture
and entertainment, in south China. In order to consolidate the leading status as the dragon
head in the Pearl River Delta, the municipal government has announced Guangzhous
Development Proposal to Achieve Basic Modernization in Fifteen years for building
Guangzhou into a modern metropolis by the year of 2005. Several development strategies
are included in the proposal (Zuo, 2003).
First, rather than emphasizing old themes, such as upgrading Guangzhous light textile
industry, or promoting both domestic and external trade in general, the Proposal suggests
that the city should further boost its financial development. Throughout opening the
financial market, establishing new financial organizations, improving the management of
brokerage market, strengthening the linkage between Guangzhou and the international
financial market and training the financial professional personnel, the city attempts to
position itself as the financial centre of southern China. Second, the municipal government
determines to develop the capital-intensive and high-tech industry for enhancing its
economic superiority in the region. In order to achieve the goal, the Guangzhou Economic

18

Stewart MacPherson and Cheng YS Joseph, Economic and Social development in South China,
(Cheltenham, 1996) p.126-8
51

Technological Development Zone (GETDZ) and Nansha Economic Development

Technological Zone have been established; automobile industry and electrical industry are
identified as key areas for investment in the coming years. Third, the Proposal suggests the
re-adjustment of economic structure. By transforming the city from the industrial
manufacturing oriented to the tertiary service emphasis, Guangzhou can gradually develop
itself as the regional service centre in the PRD, by which specializing in R&D,
management, consultation and technological service. Fourth, the municipal government
emphasizes the market mechanism in Guangzhou. Specific measures include the building
of financial market, real estate market, technology market, labour market, producer goods
market, and consumer goods market. Related policy measures such as the regulatory
framework and the encouragement of market-related services, such as accounting and legal
services are also proposed. Fifth, the Proposal points out the need of a new approach to
urban planning. In particular, the developed area within the urban core of Guangzhou will
be drastically expanded from the existing 187 sqkm to 335 sqkm. The municipal
government intends to move the citys commercial centre from the crowded Dongshan
district to the eastern district of Tianhe, by which it can facilitate the expansion of the citys
tertiary industry. Sixth, restructuring enterprises is another key element. The emphasis is on
the strengthening of eight enterprise conglomerates, including famous corporations as
Wanbao Electrical Appliances, Guangzhou Beiyunshan Enterprise Group, and Nanfang

52

Department Store Group as well as the promotion of rural enterprises in the suburban areas
and nearby counties.
Externally, the Proposal suggests further accelerating the development of external
economies. In order to further attract the productivity of foreign investment, the city
organizes various promotion events, like the conference of multinationals in Guangzhou.
Besides, the municipal government intends to enhance the communication and compromise
between exporters, customs, tax bureau, quarantine, foreign exchange control and banking
sector as well as continue the implementation of multi-faceted export strategies like, tax
redemption, entire export registration system and the expansion of export production
franchise, so as to attract new investors from Latin-America, Africa, Soviet Union, Eastern
Europe, Middle East and Central Asia, US, EU, Japan, Korea and Taiwan. After Chinas
accession to WTO in 2001, Guangzhou has abolished various inflexible regional policies,
laws and regulations that are incompatible with international situation, whilst increasing the
degree of coalition and transparency of policies for catering the WTO requirements (Zuo,
2003).
Infrastructure development
Since the 1990s, the urban development direction of Guangzhou has been similar to
Shanghais. As a result of the awareness of the significance of transportation infrastructure
for the economic competitiveness of the city, the municipal government decides to highly

53

develop the logistics sector and regards it as an essential engine for the future economic
growth of Guangzhou. It boosts the infrastructure construction of air transport in Huadu,
railway transport in Fangcun, sea transport in Huangpu and logistics in Nansha. For air
transport, instead of expanding facilities of the existing Baiyun International Airport, the
municipal government has concentrated on the construction of another new international
airport in Huadu, which serves as the crucial international infrastructure not only for
Guangzhou, but also for the entire south China since the late 1990s. Owing to the close tie
of Guangzhou with other cities in the PRD, the provincial government makes a lot of
efforts on providing highways which serve as the major transport links of the region. The
Guangzhou-Shenzhen

Superhighway,

Guangzhou-Panyu

and

Guangzhou-Zhuhai

Superhighway are major land routes in Guangzhou, which link up the city with different
cities in the PRD, like Shenzhen, Zhuhai, Foshan and Huizhou etc. In addition, Guangzhou
is also well connected with Hong Kong and Beijing by the comprehensive railway network.
In order to attract the greater volume of international marine traffic, Guangzhou
government allocated RMB 2 billion to dredge the 12 metres river channels in Guangzhou
Port and Huangpu Port in 2002. Chinas first container route between Guangzhou and
Shanghai was inaugurated in November 1993 so as to develop the more intimate economic
linkage with YRD region (Hong Kong Trade Development Council, 2001). Thanks to the
efforts of the government, the comprehensive transportation infrastructure helps

54

consolidate the citys status as the regional transportation centre in south China and
strengthens the economic competitiveness of Guangzhou.
4.3 Conclusion
By examining the political environment of Shanghai and Guangzhou, it is easy to
find out that both of their economic development is highly influenced by the
government. The central government is the key for opening the economy of the two
cities. Without the grant of the preferential status for attracting foreign trade and
investment, both Shanghai and Guangzhou could not perform such the flourish
economic development. Undeniably, both of the municipal government of Shanghai
and Guangzhou play the influential role on directing and shaping the economy of the
two cities. To a large extent, both of them are also business-friendly and proactive in
attracting FDI into the cities. In respect of the development direction, both Shanghai
government and Guangzhou government also intend to shape their own city as the
tertiary-oriented service centre in combination with the high-tech manufacturing
industry. Despite of these similarities, some differences are necessary to be pinpointed.
Although the central government perceives both Shanghai and Guangzhou as the
significant economic cities of China, the central government seems to pay more
attention and do more influence to Shanghais economy. Apart from the eagerness in
shaping Shanghai as Chinas international economic centre, the central government also

55

pays much concern to the opening of Pudong. Relatively, Guangzhou has yet enjoyed
such favourable attention from the central government. Such difference is indeed
mainly attributed by different political backgrounds and administrative levels of the two
cities. Because of the greater political bargaining power contributed by the Former
mayor, Jiang and Zhu, and the higher administrative level as the direct municipality,
Shanghai is able to gain more attention from the central government than Guangzhou.
Also, inasmuch as Guangzhou is under the authority of Guangdong government, a
certain degree of restrictions on the policy making and the policy implementation are
unavoidable, though the city enjoys the high administrative autonomy.
There are some differences in policy direction between Guangzhou and Shanghai
municipal government as well. The policy direction of Guangzhou seems to be less
consistent and less clear-cut than Shanghais. Owing to the fierce competition from
other cities in PRD, the economic direction of Guangzhou has been urged to transform
from the intensive manufacturing oriented to the emphasis on high-end tertiary
industries for maintaining its economic competitiveness since the mid 1990s. Relatively,
Shanghais economic development direction is very clear and persistent, in which
financial, real estate, banking, trade and high-tech industries always serve as the focal
development sectors in Shanghais economy. Whats more, the aims of the two
municipal governments are varied from each other. Guangzhou municipal government

56

is busily striving for the economic dragon head of the Pearl River Delta, whereas
Shanghai obviously not only is eager to develop itself as the dragon head in the
Yangtze region, but also becomes the Asian Metropolis of China. Inasmuch as these
differences, the development of the business environment of Shanghai is more
advanced and well-developed than Guangzhous during the past ten years.
From these findings, it is evident that the political actions and public policies of
the two cities are highly influenced by the economic development. Undeniably, the
economic environment is indispensable and detrimental in affecting the attractiveness
of the business environment of the two cities, and which will be discussed in next
section.

57

Chapter 5 Economic Environment

The economic development is the most explicit element which reflects the direction
and attractiveness of business environment. After the implementation of open door policy
since the 1980s, the direction and development of Chinas economy has been under the
great transformation. By adopting the market-oriented strategy on its economic system and
the welcome of the inflow of foreign capital and investment, both secondary and tertiary
industries have spontaneously become more important and act as the economic pillars for
supporting Chinas economy. Hence, to a large extent, manufacturing industries, tertiary
services, foreign trade and investment are essential engines that drive the rapid economic
development of the whole country. For Guangzhou and Shanghai, these four sectors are
indispensable components for bringing up their economies. In this chapter, manufacturing
industries, tertiary services, foreign trade and investment of the two cities will be looked
into for investigating their economic performances.

58

5.1 Current Economic Overview of the two cities

Figure 5.1 Gross Domestic Product of the two cities, 1980-2002

6000

5408.76

1980

756.45
6

12
4.3

1985

12
43
.06

466.75

9.6

311.89

1000

31

2000

16
46
.26

2642.57

3000

23
75
.9 1

3360.21

30
01
.4 8

4000

26
85
.76

4551.15

57
.5

100 million yuan

5000

4950.84

1990

1995

1997

2000

Year

2001

2002

Shanghai
Guangzhou

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

Reviewing the current economic situation, both Shanghai and Guangzhou are enjoying
the prosperous economic growth. The GDP growth of the two cities is shown in Figure 5.1.
In Shanghai, during the past ten years, the average annual GDP growth rate was 12.3%,
whilst the citys GDP reached USD 54.8 billion and a per capita GDP of US$ 4,169 in 2002,
which is the highest in the mainland and five times that of the mainland average. Among
three economic sectors, the growth rate and the proportion of tertiary sector reached the
highest in the citys total GDP (See Figure 5.21).
Guangzhous economic development slightly lags behind Shanghai. In 2002, the GDP
value of Guangzhou was only USD30.01 billion and a per capita GDP was US$5,060,
which increased for 13.24% than the previous year and ranked fourth in the country.
Among the three economic sectors, the tertiary industry took the largest proportion and

59

enjoyed the fastest growth (12.4%) in the total GDP of the city (See Figure 5.22). Though
both cities also enjoy the rapid economic development and the similar economic direction,
the size, the pace and the prospect of Shanghais economy seem to be more optimistic than
Guangzhous.
Source: Shanghai Statistical Bureau, 2003

Figure 5.21 Proportion of three econmic sectors in

Shanghai's GDP, 2002 (%)
1.63%
50.96%
47.41%

Primary Sector
Secondary Sector
Tertiary Sector

Figure 5.22 Proportion of three economic sectors in

Guangzhou's GDP, 2002
3.44%
40.88%

55.68%

Primary industry
Secondary industry
Tertiary industry
Source: Guangzhou Statistical Bureau, 2003

5.2 Performance of manufacturing sector

For most developing economies, like China, manufacturing sector is always an initial
driver which generates the economic growth of the country. The development of secondary
60

industry thus is significant for assessing the business environment of Chinese cities.
5.21 Shanghai
Industry was the most important sector in Shanghais economy before the 1990s.
During the Maoist era, Shanghai was assigned as an industrial city which specialized in
heavy industries. Its industrial-oriented function was persisted even during the beginning
years of open door policies. From 1979 to 1990, the secondary industry produced the
highest GDP value, which took almost 60% of the total in Shanghais economy, reaching
48.27 billion yuan in 1990. Nevertheless, Shanghais industry did not take the significant
position in the national economy as expected. Owing to the competition from preferential
Guangdong province in the 1980s, Shanghai only accounted for 11.6% of the national
industrial output in 1980, and even dropped to 6.9% in 1994. The share of Shanghaiese
products in Chinas exports also declined sharply throughout the 1980s and 1990s, falling
from 17.7% in 1978 to 6.1% in 1992. Such decline was mainly due to that Shanghais
industries failed to bid for raw materials and the foreign industrial investment from
Guangdong during the 1980s. Hence, though the manufacturing industry was placed as the
significant sector in Shanghai, it could not make the outstanding achievement before the
1990s, in particular in light manufacturing industries.
Since the early 1990s, as long as the central government has concentrated on
developing Shanghai as the national economic centre, the industrial development of the city
has achieved a breakthrough. Under the consideration of the strong competition from
61

Guangdong in light manufacturing industries, the municipal government has adopted the
industrial strategy that highly emphasizes the development of high-tech and capital
intensive industries so as to create the uniqueness and the specialized advantages in
manufacturing sector. Since 1991, the municipal government has designated six pillar
industries, namely the iron and steel industry, the automobile industry, the electronic and
telecommunications equipment industry, the household appliance industry, the power
station equipment and parts manufacturing industry and the petrochemical and fine
chemical processing industry (Zhang, 2003). Meanwhile, Shanghai has placed information
technology (consisting of microelectrode, computer information and telecommunications),
new materials manufacturing (including automobile, bio-environmental, construction and
multifunctional

materials),

biological

technology,

advanced

manufacturing,

and

environmental protection as top high tech industries for the development. By granting the
preferential treatment, like tax breaks and tariff cuts in these new industries, the
government intends to attract more FDI to Shanghais industrial sector. On the other hand,
Shanghai also attempts to cut down traditional industries with labour-intensive feature,
such as textile industry and general machinery manufacturing so as to avoid the
competition from Guangdong. Between 1993 and 1997, Shanghai eliminated about 1
million spindles and shut down half of the state-owned textile factories. By the end of 2000,
its textile industry was largely downsized with only 195 300 textile jobs remained in the

62

city (Zhang, 2003).

By continuously boosting the inward-oriented industries as well as eliminating the
traditional industries, Shanghai is eager to build up itself as the high-tech and
capital-intensive industrial centre and regards this as the major economic competitive
advantage in the country. During the past ten years, Shanghai has experienced the rapid
development in both capital-intensive and high-tech industries. Table 5.1 shows the
development of six key industries in 2002. The industries contributed 451.78 billion yuan
of GOVI accounting almost 60% of the total, whereas electronic information manufacture
and auto manufacture industry even largely increased to 130.52 billion yuan and 94.27
billion yuan in 2002 respectively. Meanwhile, the GOVI of high-tech industries rose from
167.43 billion yuan in 2001 to 198 billion yuan in 2002, contributing the revenue of 200.23
billion yuan in 2002 (See Table 5.2).
However, these high-tech industries have yet undergone the steady growth, the growth
of these industries has been uneven. While electronic telecommunications equipment
manufacturing, power station equipment manufacturing and power station equipment and
fitting manufacturing grew by 31.4% and 24.1 % per annum respectively, steel industries
declined by 3.7% per annum, household equipment manufacturing and petrochemical
industries also suffered the slow growth(Zhang, 2003). Thus there is large room of
improvement for Shanghais industry in a short term. Undoubtedly, Shanghai has some

63

comparative advantages in high-tech industries due to its better skills endowments, but to
sustain the long term development, the industries should eliminate its inward-oriented
feature and make themselves to be competitive in international market.

Table 5.1

SHANGHAI'S MAJOR INDICATORS FOR SIX KEY INDUSTRIES

(2002)

Revenue of
Gross Output
Number of Enterprises

Products

Year-end Employees

Sectors

Value of Industry
(unit)

Sales (100

(10000 persons)
(100 million yuan)

million yuan)
Total

2 838

76.41

4 517.88

4 574.42

516

17.90

1 305.24

1 313.33

309

9.54

942.47

945.15

650

12.89

846.67

850.75

Fine Steel and Iron Manufacture

118

6.07

581.57

613.91

Equipment Complex Manufacture

950

23.12

634.27

634.79

Bio-medicine Manufacture

295

6.88

207.67

216.48

28.4

30.8

58.4

57.3

Electronic Information Product

Manufacture
Automobile Manufacture
Petrochemical and Fine Chemical
Industry

Percentage of the Six Key Industries

in Shanghai (%)
Source: Shanghai Statistical Bureau, 2003

Table 5.2 SHANGHAIS MAIN FACTS ABOUT HIGH AND NEW TECHNOLOGY
INDUSTRY (2001-02)

Gross Output Value of

Revenue of Products

Industry

Sales

(100 million yuan)

(100 million yuan)

Indicators
2001
Total
Proportion (%)

64

2002

2001

2002

1 671.43

1 980.08

1 704.16

2 002.30

21.8

23.4

22.8

24.1

Grouped by Registration Categories

State-owned

55.64

54.91

55.63

58.59

Collective-owned

49.28

41.34

46.64

39.41

Share Holding

49.61

62.16

59.54

69.26

1 158.94

1 556.13

1 172.08

1 562.70

Electronics and Information

914.11

1 190.25

936.52

1 200.00

Biology and Medical Technologies

152.12

163.68

161.63

170.02

Photoelectric, Mechanical and Electrical Products

164.87

186.44

165.90

188.63

Environmental Protection

4.51

4.19

4.24

4.18

Aviation and Aerospace

8.71

6.59

8.25

6.47

Earth, Space and Ocean Projects

1.42

1.22

1.27

1.21

Nuclear Utilization Technology

0.04

0.05

0.04

0.06

Foreign Funded
Grouped by Technology Areas

Source: Shanghai Statistical Bureau, 2003

5.22 Guangzhou
Since the 1980s, after gaining the preferential status as open city, Guangzhou has
quickly developed the secondary industry as the mainstream of its economy. Owing to the
massive inflow of foreign capital and investment into Guangdong, Guangzhous industrial
development has been largely benefited. During the period of 1980s, Guangzhou greatly
specialized in light manufacturing industries, from which they gained a foothold in a
number of major subsectors, including clothing, textiles, consumer electronics, household
durables, bicycles, motorbikes, leather, sporting goods and food processing industries. They
also began exploring metallurgical, petrochemical as well as cosmetics industries etc.
Thanks to the rapid and multi-faceted industrial development, the city produced
tremendous industrial outputs. In the 1980s, the light industrial output constituted about

65

60% of the total industrial output in Guangzhou. The annual industrial growth rate of
Guangzhou was 16.5%, reaching 44.24 billion yuan in 1990, which was above the national
average GDP level (Yu, 1997). So far, Guangzhou still ranks fourth in China in terms of
gross value of light industrial outputs after the three metropolitan economies of Shanghai,
Beijing and Tianjin during this period. Undoubtedly, the beginning years of economic
reform was the glorious period of Guangzhous industrial development.
However, in the late 1980s, because of a large concentration of state-owned
enterprises, an outmoded urban infrastructure and a lack of policy privileges which granted
to special economic zones, Guangzhous industry was greatly challenged by the little
tigers in the PRD, such as Foshan, Huizhou, Dongguan and Zhongshan, the growth of
Guangzhous industrial development seemed to be less competitive and sluggish (Chan,
Hsueh and Luk, 1996). For instance, during the period of 1981-90, the annual growth rate
of the provinces GDP was 12.3% while Guangzhou was 11.8%. Facing the decline in
manufacturing industry, Guangzhou has changed her industrial policy direction since the
early 1990s. In order to increase its competitiveness in the region, the city follows the
Proposals suggestion and attempts to undergo the industrial restructuring and explore the
technological intensive industry. Telecommunication, vehicles and petroleum industries are
designated as three pillar industries. Besides, the city concentrates on the development of
Nansha industrial base, Guangzhou scientific city, Tianhe software garden and Guangzhou

66

International Biological Island etc, so as to re-adjust Guangzhou as the high-tech industrial

centre in the Pearl River Delta Region. Such re-adjustment has contributed a breakthrough
to Guangzhous industries in recent years. In 2002, the industrial output of three pillar
industries reached 84.8 billion RMB, taking 25% of the citys total. The output of other
high-tech industries also rose by 30.7%, reaching RMB 60.86 billion; the total industrial
output even reached RMB339 billion growing by 9.76% than the previous year, topping all
other cities in the PRD (Zhu, 2002).
To a large extent, the industrial development of the city has been under the great
transformation during the past 20 years. From the light manufacturing base to the
technological industrial centre, Guangzhou often intends to consolidate its leading position
in manufacturing industry. In foreseeable future, Guangzhou carries tremendous potential
for developing the technological intensive industry, which may become its main industrial
competitiveness in the region. When comparing with Shanghai, it is obvious that
Guangzhou carries the similar direction which concentrates on the development of
technological intensive industries. However, they share some differences in terms of the
mode of development. In Shanghai, inward-oriented and import-substitution strategy is
greatly adopted on its industrial development, whereas Guangzhou emphasizes the
export-oriented feature. It is likely that Guangzhou still tends to rely on the light
manufacturing sector, while the high-tech industry in Shanghai has already been

67

well-developed and has taken a root in the secondary sector. To compare with, in the
current stage, Shanghais industrial performance is much more competitive and satisfactory
than Guangzhous as a result of its better developed industrial competitiveness and
uniqueness. GOVI of the two cities shown in Figure 5.3 is one of the indicators of their
manufacturing performances. The chart clearly indicates that Shanghai has achieved more
rapid progress than Guangzhou in industrial development during the past twenty years. To
Guangzhou, the high-tech industry is still the infant industry, it still needs more time to
grow in the current stage.

Figure 5.3 Gross Output Value of Industry of the two cities, 1980-2002
8476.05

1980

1985

33
93
.2

31
00

1642.75

19
3

862.73

44
2.4

598.75
1

2000

17
7.9

4000

5.3

5349.53

88
.9

6989.18

6000

7656.96

37

8000

88
.

100 million yuan

10000

1990

1995

2000

Year

2001

2002

Guangzhou
Shanghai

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

5.3 Tertiary services

Tertiary services are as significant as manufacturing industries for observing the
economic environment. As long as the tertiary service can act as a facilitator for providing
the favourable business environment, the development of tertiary sector of the two cities is
necessary to be reviewed.

68

5.31 Shanghai
Since the 1990s, Shanghai has given the development priority to the tertiary service.
By concentrating the development of tertiary sector, Shanghai intends to build up itself as
the economic service centre of the country. Shanghai has designated six service industries
as the prior development sectors since the 1990s. These include finance and insurance,
wholesale, retail & catering trade, telecommunications and transportation, real estate,
tourism, and information. Given only ten-year development, Shanghai enjoys the
prosperous growth in tertiary industries. By 2002, the tertiary sector took over 50% of the
total GDP of the city, reaching RMB 275.58 billion, comparing with RMB 24.17 billion ten
years ago. During the period of 1990-2002, the service sector enjoyed the highest average
growth of 15.14% in Shanghais economy. Among six pillar services, real estates and
financial services enjoyed the highest growth rate (See Figure 5.4).
Figure 5.4 Tertiary services in Shanghai's GDP, 1990-2002
Education, culture,
broadcasting

196.5

44.8
12.73

328.86

83.01

Social Service
14.8
Real Estate

373.63

91.29

2002
1995

3.75
584.67

245.45

Bnaking and insurance

1990

71.07
Wholesale and retail

602.29

269.49
51.84

Transportation and
telecommunication

382.82

169.76
62.44
0

100

200

300

Source: Shanghai Statistical Bureau, 2003

69

400

500

600

700
100 million yuan

Undeniably, the financial service and the real estate sector of Shanghai have made the
greatest progress since the last decade. Currently, the financial service already
accomplishes the outstanding performance and contributes the city to gain the leading
position as the international financial centre of China. Thanks to the implementation of the
financial reform, institutional elaboration of the banking industry and capital markets have
been widely promoted. After establishing the Shanghai Stock Exchange in December 1990,
Shanghai has started to develop its international stock market for both domestic and foreign
investors. So far, the Shanghai Stock Exchange has about 7 million registered investors,
and it is already the second largest exchange in the region (excluding Japan) after Hong
Kong. In order to facilitate foreign trade transactions, the first interbank currency market
was founded early in 1994 so as to remove the ceiling for exchange quotation and facilitate
individuals to trade foreign currency freely. Besides, Shanghai has successfully built up
itself as the home to a large number of foreign financial institutions in China. In 2000, there
are about 163 foreign banks in the city, which accounted for 46% of the total foreign bank
activities in China. Shanghai is also only one of the two cities open to foreign insurers, with
which nine of the foreign invested insurance companies also locate the city as their
headquarters in China. (Hong Kong Trade Development Council, 2001)
Real estate sector in Shanghai has undergone the rapid expansion as well. In 2003,
the investment value and the transaction value in real estate sector were 92.69 billion RMB

70

and 25.76 billion RMB respectively, increased by 23.3% or 5 times than the previous year
respectively. Shanghai has also experienced a higher growth rate in residential market. In
1998, the newly commenced volume of residential property was only 972.84000 sqm, it
sharply increased for three times and reached 2700,000 sqm in 2003. Besides, there is a
rising demand for residential property. The sales volume greatly increased from 958.67000
sqm in 1998 to 2212000 sqm in 2003, whereas the selling price also rose from $3834
RMB/sqm in 2000 to $6090 RMB/sqm in 2003. The office market is undergoing the great
expansion too. Owing to the positive economic development of the city, there is an
immense demand for Class A office, the price sharply climbed from 0.59 USD/sqm/day in
2001 to 0.66 USD/sqm/ day in 200319.
It is obvious that Shanghai is experiencing the rapid expansion in tertiary sector, and
the tertiary sector will continue to be the engine of growth in future Shanghais economy.
Yet, there is still room of improvement for the city. For instances, in the field of financial
service, Shanghai still faces a problem of the lack of a solid domestic base of institutional
investors, with which limits the growth of the sector in a long term. Also, Shanghai is
facing the high vacancy problem in both residential and office property. There is still some
time for the city to adjust and eliminate the deficiencies in future (Hong Kong Trade
Development Council, 2001).

19

Source: Centaline (China) Property Consultants Ltd. China: Real Estate Research: 2003 Overview,
(Shanghai, 2004)
71

5.32 Guangzhou
Before the 1990s, except catering and retail service, Guangzhou did not put the
tertiary service as the prior sector as a result of its focus on manufacturing industries. Only
until the 1990s, under the implementation of economic restructuring, the tertiary industry
has replaced the secondary industry as the prior development sector in the citys economy.
In the past twenty years, there has been the great development in tertiary service sector. By
boosting the development of traditional service sub-sectors, such as banking, commerce
and trade, tourism, hotel and accommodation and information services etc, the scale and
the quality of tertiary industries have been further upgraded. Besides, some new service
sectors, like finance and insurance, postal and telecommunication have been widely opened
and are promoted in the city since the mid 1990s. As long as the rise in living standard
among Guangzhou citizens, the rising demand accelerates the pace of the development of
tertiary industries.
Currently, the tertiary industry achieves the advanced development and becomes the
most important economic sector in Guangzhou. In 2002, the tertiary industry contributed
the GDP value of RMB 16.71 billion, taking 55.68% of the total GDP of the city. Its growth
rate was also the fastest among three economic sectors, increasing by 14.13% than the
previous year. In Guangzhou, transportation and telecommunication, catering, retail and
wholesale trade as well as social service sector are major sub-sectors in the citys tertiary

72

economy, which took 15.58%, 10.04% and 9.69% of the total GDP in the tertiary industry
in 2002. Meanwhile, some newly developed services like real estate service and mass
media industry etc, also experienced the rapid growth, which rose to 17.04% and 22.14%
respectively. Retailing and catering services business are set to continue the outstanding
growth. Figure 5.5 shows the total sales of consumption products in Guangzhou. In 2002,
the total sales of consumption products reached 137.07 billion yuan, increasing for ten
times than 1990, of which wholesale and retail businesses took 70% reaching 97.33 billion
yuan, following by catering services with 26.59 billion yuan. There were totally 2116
catering organizations in the city, Guangzhou ranked third in retail sales after Beijing and
Shanghai in the same year (Guangzhou Statistical Bureau, 2003).

100 million yuan

Figure 5.5 Guangzhou's total sales of consumption products, 1980-2002

1400
1200
1000
800
600
400
200
0

129.03
208.15

127.96
239.92

131.13
265.98

Others

109.92
96.29

783.95

880.39

2000

2001

973.31
Catering

343.75
1980

1985

1990

1995

Year

2002
Wholesale
and retail

Source: Guangzhou Statistical Bureau, 2003

It is clear that Guangzhou intends to develop itself as the economic service centre and
supplies the tertiary service to the southern region. Notwithstanding its rapid development
in tertiary sector, the position of the regional service centre has been yet fully
73

consolidated. The rise of Shenzhen has already posed the great challenge to the city. The
incredible expansion of the financial service and the real estate sector of Shenzhen
indirectly expose the incomprehensive development of Guangzhous tertiary industry.
Facing the intensive demand for financial services, Guangzhou has yet been able to
establish its own stock exchange market. Also, the demand in real estate market, in
particular the office market seems to appear saturated in Guangzhou (Centaline Property
Consultants Limited, 2004). All reflect that there is still large improvement room for
Guangzhou in developing and improving its tertiary industries. Undoubtedly, in terms of
tertiary services, Shanghai seems to achieve the better and more mature performance than
Guangzhou. So far, Guangzhou still has to strive for the status of the regional service
headquarter in southern China, whereas Shanghai has already consolidated its leading
position in tertiary services at both regional and national level. Such advanced development
is difficult for Guangzhou to catch up and compare with in a short term.
5.4 Foreign investment
International capital flows to areas where the best business opportunities exist, thus
Foreign Direct Investment (FDI) not only plays a crucial role on affecting a citys economy,
but also is an important indicator of the citys business environment.
5.41 Shanghai
Since Shanghai is the economic focal point of the country, the city is often perceived
as the centre for attracting foreign direct investment. Since the early 1990s, Shanghai has
74

been more eager to attract FDI throughout the world so as to absorb more foreign capital
and expertise for equipping and developing its domestic economy. With the support of the
central government and its efforts on opening Pudong, Shanghai has performed well in
attracting FDI. During the period of 1979 to 1993, foreign investment in Shanghai was only
US$ 5,091 million, generating a total of US$ 3,885 million in exports. In 2000, over 15,930
foreign-invested enterprises were in operation (Shi, Lamy and Kapp, 2003). In 2002, the
total foreign investment capital reached USD 10.58 billion, the value of actual absorbed
foreign capital also increased from USD 4.39 billion in 2001 to USD 5.03 billion in 2002.
Direct foreign investment came from widely 57 countries and regions, mostly come from
Hong Kong, Japan, United States, Singapore, Germany and Taiwan (See Figure 5.61).
Figure 5.61 Major FDI countries in Shanghai,
2002

8%

7%
Hong Kong

9%

40%

Japan
United States

18%

Singapore

18%

Germany
Taiwan
Source: Shanghai Statistical Bureau, 2003

Foreign investment in Shanghai appears to be predominantly inward oriented rather

than outward oriented. In 2000, Shanghai approved 1814 FDI projects. Among the
approved projects, 944 projects were production-related while 870 projects were service
oriented. Most of the foreign investment is in high-tech industry, real estate sector and

75

other services, of which it has a relatively high proportion of investment in transport and
communication. The most outward-oriented type of foreign investment is the investment in
processing operations. Among the FDI in Shanghai, over 30% of the investment is in
Pudong.
The degree of participation of Multinational National Corporations (MNCs) in host
countries sometimes reflects the attractiveness of the business environment of Shanghai.
Owing to the potential development and the optimistic prospect20, MNCs often carries the
enthusiastic and ambitious attitude towards Shanghai. In 2000, 254 of the Fortune 500
companies invested or established offices in Shanghai, such as Alcatel, Volkswagen,
General Motors, NEC, Dupont and IBM. Some of these firms even express their interests in
the shift of their regional headquarters to Shanghai.
From the volume and pattern of FDI, it is clear that Shanghai is highly attractive to
foreign investors. In fact, the success in attracting FDI can be largely explained by
Shanghais favourable location, its industrial tradition and the opportunities available in
and from the city, especially the Pudong area (Zhang, 2003). Shanghai has already
consolidated its leading position as the FDI centre of China. In the current stage, FDI is
very vital to Shanghais economy as the city heavily relies on FDI for developing its

20

Hong Kong Trade Development Council, The Two Cities: Shanghai, Hong Kong, (Hong Kong, 2001) p.28
According to a study of the activities of MNCs in Asia-Pacific, 88% of the responding firms believed that
their Shanghai operations would become more important in the future. In another survey conducted by the
Chinese edition of Fortune magazine in October 1999, foreign-funded enterprises preferred Shanghai to all
cities in the mainland for investment.
76

technological industries and high-end services. Hence, Shanghai carries the potential
development in absorbing more FDI, it also implies that the city carries the favourable
business environment in the eyes of investors.
5.42 Guangzhou
Foreign investment is always crucial as it contributes the inflow of capital to
Guangzhou. Since the 1980s, owing to the favourable geographical location and the
preferential status as open city to foreigners, Guangzhou was the most attractive city to
foreign investors. During the period of 1980s, the city absorbed massive foreign investment
and capital. To the end of 1989, a total of 9804 foreign investment contracts were
concluded with Guangzhou amounted to US$1.46 billion; The major source of investment
was Hong Kong, followed by Taiwan, but American, Singaporean, and Japanese
businessmen also committed some involvements in Guangzhous economy. Most of these
investments were mainly engaged in light manufacturing industries and tertiary services.
Like Shanghai, Guangzhou was the major base for FDI in China during the 1980s.
Since the 1990s, as long as Guangzhou has faced the great challenge from other cities
in the PRD in attracting FDI in manufacturing21, the growth rate of FDI of Guangzhou has
been no longer the fastest in the region. Nonetheless, owing to its predominant economic

21

Stewart MacPherson and Joseph Chan Y.S, Economic and Social Development in South China,

(Cheltenham, 1996), p.123, Shenzhen had attained a GDP almost 60% of that of Guangzhou and attracted
almost twice the amount of foreign investment and export two-thirds more than Guangzhou in 1993.

77

position, the city can maintain the steady growth in absorbing FDI so far. In 2000,
Guangzhou still recorded an increase of 8.1% foreign capital and a total 647 approved
contracts. FDI came from 46 countries and regions mainly from Hong Kong, Taiwan,
Cayman Islands and Singapore, Japan, USA and British Virgin Island (See Figure 5.62).
Until the end of 2002, there were already 776 approved FDI contracts which contributed
the total investment capital of USD 3.02 billion to the city, the actual absorbed foreign
capital reached USD 2.28 billion in the same year, which was the second recipient just after
Shanghai.
Source: Guangzhou Statistical Bureau,

Figure 5.62 Major FDI countries in

Guangzhou, 2002
Hong Kong
6% 3%

2003

Comparing with Shanghai, it is

Japan
Singapore
49%

34%

3% 5%

obvious that Guangzhou carries the

British
Virgin Island
Cayman
Island
Taiwan

earlier development in attracting

FDI. Yet, owing to the intensive

competition from the region, the development of FDI of Guangzhou seems to be greatly
undermined since the 1990s. On the contrary, the rapid rise of Shanghai eclipses
Guangzhou as the most attractive city for FDI in China. Indeed, the distribution of FDI
implies and reflects that, in the view of foreigners, the investment environment of Shanghai
is more preferable to Guangzhous in recent years.

78

5.5 Foreign Trade

Like FDI, foreign trade is often the most important economic activity in assessing the
business environment of a city because it can bring more inflow of foreign capital and the
economic dynamics to the citys business environment.
5.51 Shanghai
Figure 5.7 Shanghai's Export and Import of Foreign Trade, 1980-2002

100 million USD

500
400
300
200
100

-40.02

0
-100

40.26

15.48

32.11

-56.42

-85.54

41.29

Import

-200

Year 1980

1985

1990

1995

Export

2000

2001

2002

Balance

Source: Shanghai Statistical Bureau, 2003

Trade is definitely an indispensable sector in Shanghais economy since it serves as an

engine which initiates the economic growth of the city. Figure 5.7 indicates the citys
export and import trade in the past twenty years. In fact, Shanghai was eager to develop
trade early in the 1980s, but the preferential Guangdong and Fujian led Shanghai to fall
behind and become less competitive in foreign trade, in particular the export trade. In 1992,
the citys exports were only 2.2% of Chinas exports, whereas the share of Shanghaiese
products in Chinas exports declined sharply throughout the 1980s and 1990s, falling from
17.7% in 1978 to 6.1% in 1992. All reveal that Shanghai was a very small trading centre
for Chinas exports before the 1990s.
79

After gaining the preferential status since the 1990s, the city has placed foreign trade
as its focal economic activity. Thanks to the central support and its favourable geographical
location, foreign trade has undergone the rapid expansion during these ten years. Foreign
enterprises accounted for 60% of the citys trading activities. During the period of
1990-1999, the citys foreign trade expanded by over 20% annually and the importance of
foreign trade to its GDP doubled from 33% in 1985 to 79% in 1999. 2002 saw a sharp
increase in Shanghais foreign trade, which came to US $ 72.66 billion, up by 19.32 % in
2001 (US $60.89 billion) Total exports rose by 24 %, from USD 38.43 billion in 2001 to
USD 47.31 billion in 2002, equaling 49.1% of the total GDP. Shanghais export also
occupied 10.2 per cent of the countrys total export value, ranking the third in the nation.
Among the key export markets, Japan came first while USA took the second place in 2002.
Shanghais foreign imports increased by a rate of 16.02% in 2002, registering a total value
of US $32.06 billion, comparing with the total value of USD $27.63 billion in 2001.
Imports were mainly the manufactured products, totaling USD 16.09 billion, or almost 40%
of the total import value.
From the volume and pattern of Shanghais foreign trade, it is easy to find out that
foreign trade is pivotal to the citys trading activities. The continuous expansion in both
export and import trade implies that Shanghai is an ideal sourcing centre for Chinas
products in the eyes of foreign businessmen, which is a good sign of showing its favourable

80

business environment. Yet, due to the heavy import-substituted strategy in the past few
years, the higher growth rate of import trade than export trades has generated an imbalance
in foreign trade since 1999 (-1.03 billion USD), the imbalance even increased to -8.55
billion USD in 2002. Thus it is necessary for Shanghai to alleviate the problem and achieve
the balanced growth of foreign trade in foreseeable future.
5.52 Guangzhou
For Guangzhou, foreign trade is as important as for Shanghai. After the economic
reform has been carried out, because of its favourable size, industrial base, port facilities,
and services, Guangzhou has become the major city for foreigners to engage trade and
business with China. Therefore, Guangzhou has been well-performed and has remained
extremely competitive in foreign trade since the 1980s, especially in the export sector. In
1985, the export trade was only valued at $413 million but it sharply rose to US$870
million in 1998. Since the early 1990s, Guangzhou has taken the advantage of proximity to
Hong Kong market and has further expanded its export trade economy. By 1993, the export
trade value even achieved a breakthrough to US$ 3.5 billion. Major export commodities
were light industrial products, food, and textiles, with roughly two-third of them going to
Hong Kong. Its export growth rate (34%) was even higher than that of other key Chinese
cities, including Beijing, Shanghai and Tianjin in the 1990s (Yu, 1993).
In current years, Guangzhou is still proactive in foreign trade, both the export and

81

import trade are continuously under the expansion. In 2002, the total trade value of
Guangzhou stood at USD27.93 billion, up by 21.23% on USD 23.03 billion in 2001. Both
export and import trade took half of the foreign trade value. The citys total exports were
worth USD 13.78 billion, up by 18.54% over USD 11.62 billion in 2001. Hong Kong, USA,
Germany, Japan, UK and Germany are the major export markets of Guangzhou (See Figure
5.8). The import value even showed the greater increase, which totaled USD 14.15 billion,
a rise of 23.97% over USD 11.62billion in 2001. All clearly show that Guangzhou remains
strong in foreign trade, whilst it serves as an ideal place for doing business in southern
China. In foreseeable future, its leading position in foreign trade will not be easily
challenged by other cities in the PRD.
Figure 5.8 Major export countries of Guangzhou, 2002

Hong Kong
10%

4%

USA

4%

Japan
33%

49%

Germany
Belgium

Source: Guangzhou Statistical Bureau, 2003

Yet, comparing with the rapid rise of Shanghai, there is still a lag for Guangzhou to
catch up in a short term. Likewise, Guangzhou also needs to concern about the
development of export sector for maintaining the balance of trade in future. According to
the statistics, the import trade in 2002 already took 50.06% of the total trade value of the
city, which implies that Guangzhou may encounter the risk of the unbalanced trade in

82

future (Guangzhou Statistical Bureau, 2003).

5.6 Conclusion
By examining the current economic circumstances, the development of manufacturing,
tertiary service, foreign trade and foreign investment in Shanghai and Guangzhou, it is
clear that both of them are under the rapid economic growth. Moreover, Guangzhou and
Shanghai are sharing the similar economic development direction, as both of them are
adopting the external economies that are heavily reliant on foreign forces for their
economic development. They also serve as the pioneers in leading the manufacturing and
the tertiary service development of the region. At regional level, there is no direct
competition occurred between the two cities as they serve different markets in north and
south of China respectively. However, some degree of competition is inevitable between
them, especially in terms of absorbing foreign capital and investment. Owing to the rapid
pace of development and the consistent economic policy, the overall economic
performance of Shanghai seems to be better than Guangzhous. In economic sense of view,
Shanghai provides the more favourable business environment as a result of its better
economic performance and prospect. There is still a considerable lag for Guangzhou to
catch up in terms of economic development, notwithstanding its stable economic
performance in recent years. To be comparable with Shanghai, Guangzhou may need to put
more efforts on consolidating its economic leading status in southern China.

83

Chapter 6 Social Environment

Social circumstance is vital for affecting the attractiveness, the competitiveness and
the development of a business environment in a country. Though most social components
may not produce initial effects or changes, they have the profound impact on the
development pattern and direction of business environment. Among various social factors,
demographic structure, living standard and labour supply seem to be the most crucial for
affecting business operations of most businessmen in China. Hence, these three
components in Guangzhou and Shanghai will be mainly examined in this chapter.
6.1 Demographic structure
Figure 6.1 The population growth of Guangzhou and Shanghai, 1978-2002

million

15

Shanghai

10
4.82

13.34

13.27

13.21

13.01

12.83

12.16

11.46

10.98

5.01

5.45

5.94

6.47

7.12

7.007

7.206

Guangzhou

0
1978

1980

1985

1990

1995

2000

2001

2002 Year

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

6.11 Shanghai
Figure 6.1 shows the growth of population of the two cities. The population of
Shanghai has been continuously increased during the past twenty years. At the beginning
year of the reform, the population of Shanghai was only 10.98 million, but it sharply rose
for more than 2 million reaching 12.83 million in 1995. Up to 2002, there were 13.34

84

million people living in Shanghai. Among the total, 10.18 million people were classified as
the non-agricultural population, which accounted about 76% of the total population.
Although the city has experienced a low birth rate, which dropped for approximately 7% in
the past ten years and there has been a decline in natural growth rate, which fell from
4.49% in 1990 to 3.47% in 2002, the great increase in migration during the past two
decades has kept the population growing steadily. In 2002, there were about 169,300 of
immigrants inflowing to Shanghai, whereas the net migration growth rate greatly rose from
1.1 % in 1990 to 8.3% in 2002, which increased for 8 times during the past twenty years
(See table 6.1). The steady growth of population, to a certain extent, implies the optimistic
and stable socio-economic prospect taken place in Shanghai, and which also indicates that
its business environment is favourable.

Table 6.1

MIGRATION IN MAIN YEARS IN SHANGHAI

Inflows
Year

Outflows

Mechanical Increase

Population

Rate of Inflows

Population

Rate of Inflows

Population

Rate of Inflows

(10 000 persons)

()

(10 000 persons)

()

(10 000 persons)

()

1978

24.83

22.7

18.13

16.6

1980

28.75

25.2

21.08

18.5

1985

18.29

15.1

12.99

10.7

1986

19.77

16.1

13.50

1987

22.17

17.9

15.40

1988

22.11

17.6

1989

21.09

1990

18.87

1991
1992

16.70
17.53

7.67
5.30

6.1
6.7
4.4

6.27

5.1

12.4

6.77

5.5

17.02

13.6

5.09

16.6

16.95

13.4

4.14

3.2

14.7

17.41

13.6

1.46

1.1

14.54

11.3

2.16

1.7

14.92

11.6

2.61

13.0
13.6

11.0

6.70

85

4.0

2.0

1993

18.55

14.4

11.86

9.2

6.69

5.2

1994

19.96

15.4

12.54

9.7

7.42

5.7

1995

19.47

10.2

6.27

4.8

1996

19.87

15.2

13.47

1997

17.81

13.6

13.06

10.0

4.75

3.6

1998

18.52

14.2

12.35

9.5

6.17

4.7

1999

23.87

18.2

14.98

11.4

8.89

6.8

2000
2001
2002

20.06
17.58
16.93

15.0

15.2
13.3
12.7

13.20

10.3

8.87

6.7

8.50

6.4

5.88

4.4

6.40

11.19
9.08
11.05

4.9

8.5
6.9
8.3

Source: Shanghai Statistical Bureau, 2003

6.12 Guangzhou
To compare with, Guangzhou is very similar to Shanghai. The size of Guangzhous
population is only half of Shanghais, but the growth rate is as rapid as Shanghais. In 1990,
the population of Guangzhou only totaled 5.936 million. But in 2002, the total population
size of the city already reached 7.2 million, which increased by 11.14% or 80.2 thousands
of people than the previous year. Like Shanghai, Guangzhou has a high proportion of urban
population, which took 81.3% of the total population in the city. The non-agricultural
population of Guangzhou (5.02 million) also took the majority of the citys total population,
which accounted for 69.7% in 2002.Yet, unlike Shanghai, Guangzhou has still experienced
the positive natural increase growth rate which helps sustain the population growth rate
during the past two decades. Up to 2002, the natural birth rate grew steadily at a rate of
8.64%, whilst the natural growth rate increased for 3.10%. In addition to the natural
increase, the rapid growth of Guangzhous population is contributed by the massive
floating and immigrated population. In 2002, there were 181,543 immigrants migrating to
86

the city with a rate of 25.9%. Most of the immigrants were come from Guangdong province,
which took 71.83% of the total. Meanwhile, there were 2.92 million people identified as
the floating population; most of them usually engaged in the manufacturing sector as
construction workers and textile workers. The inflow of immigrants contributed the net
migration increase rate of 11.96%. The steady increase in the population growth rate means
the huge labour market occurred in Guangzhou. More importantly, the more relaxed
migration control in Guangzhou enables the city to absorb more cheap labour than
Shanghai for fostering and developing light manufacturing industries, and which is
conducive to attracting investments and businesses in the manufacturing sector. Therefore,
the rapid population growth seems to be more favourable to Guangzhou as it carries a
higher degree of labour intensive economic feature than Shanghai in the current stage.
6.2 Living Standard

yuan

Figure 6.2 Total consumption expenditure of the two cities, 1980-2002

16000
14000
12000
10000
8000
6000
4000
2000
0

13966.53

9038.16

8868

14694

9336

13380.47
10464

5868

553

606.12

1980

2748.95
1099.77 1937
585

1985

1990

1995

2000

2001

Year

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

87

2002

Shanghai
Guangzhou

6.21 Shanghai
With the rapid economic growth, the living standard of the Shanghaiese has
continuously been enhanced since the 1990s. This can be observed from the income and the
expenditure of Shanghai people. In 2002, the average annual income of working staffs and
workers in Shanghai was 23959 yuan, which was top ranked in China. The income of
workers in business brokerage, banking service, real estate and information and
consultancy services was even above the average level. With higher annual income, the
expenditure of Shanghai people has been greatly enhanced as well. From 1980 to 2002, the
annual consumption expenditure was expanded from 553 yuan to 10646 yuan, which was
sharply increased for 20 times. There are some changes in the expenditure pattern. In the
1980s, Shanghaiese spent over half of the share on necessities, such as food and clothing.
Figure 6.31 shows the consumption pattern of the Shanghaiese in 2002. The situation has
been changed in recent years that Shanghai people have put more attention on recreation,
education and culture services as well as residence; the share increased from 8.9% and
4.8% in 1980 to 15.9% and 11.4% in 2002 respectively, though necessities still took the
biggest share in the household consumption of the Shanghaiese. The increase in income
and expenditure as well as the change in consumption habits reflect that the living standard
of the Shanghaiese has been rapidly enhanced in the past twenty years. The better living
standard not only demonstrates the optimistic economic development, but also implies the

88

great attractiveness of the business environment of Shanghai.

Fgure 6.31 Distribution of the total consumption expenditure in

Shanghai, 2002
Food
Clothing

4%

11%

Household facilities

39%

16%

Medicine
Traffic

11%

7%

6%

Recreation,
education
Residence

6%

Others

Source: Shanghai Statistical Bureau, 2003

6.22 Guangzhou
The living standard of Guangzhou people is higher when comparing with Shanghai. In
2002, the average annual income of working staffs and workers was 25,583 yuan, which
was greatly increased by 13.4% than 2001 and ranked the highest among all cities in China.
The income of workers in the sectors of energy supplies, banking and insurance and the
public organization were almost twice of the average level. Figure 6.2 indicates the total
consumption expenditure of the two cities, it reveals that the expenditure volume of
Guangzhou citizens is greater than the Shanghaiese. According to the statistics, the average
annual consumption expenditure of urban population was 13380.47 yuan, which was 6
times of that of 1990. The consumption pattern is also slightly different from Shanghais.
Although necessities took the biggest share of 40% in the total, the expenditure on services
gained a prominent share of about 1/3 of the total, of which transportation, medical care
89

and entertainment even grew quickly in recent years. The rest was often spent on residence
and others (See Figure 6.32) (Guangzhou Statistical Bureau, 2003). The higher income and
the more diversified consumption expenditure not only mean Guangzhou people enjoy the
higher living standard, but also imply its business environment is enormously attractive,
especially in the tertiary service sector.

Figure 6.32 Distribution of the total consumption expenditure in

Guangzhou, 2002
Food

4%

9%

Clothing
Household facilities

42%

16%

Medicine
Traffic
Education, recreation
Residence

11%
6%

7%

5%

Others

Source: Guangzhou Statistical Bureau, 2003

6.3 Labour
6.31 Shanghai
Employment Structure
In 2002, Shanghai had 7.92 million of working population, increasing for 5.3% than
2001. In this huge working population, 10.63 % of the total working in primary sector,
50.41% in secondary sector and 48.84% in tertiary sector. Although the state owned and
urban collective owned enterprises still dominate Shanghais employment structure, it is
expected the employment in the private sector will be gradually enlarged as a result of the
increase of FDI involvement in future. Nevertheless, as long as the state owned enterprises

90

are eliminating the staffs to enhance their efficiency and increase their competitiveness, a
large group of non-skilled labour is expected to appear on the labour market in a short term.
In 2001, Shanghais unemployment rate was 4.3% and was expected to increase in the
coming years (Lau, 2003).
Local labour quality
Shanghai makes a lot of efforts to transform its large population into a valuable
resource. Shanghais workforce is endowed with impressive educational skills. Most
workers have elementary education or better, and the vast majority has at least graduated
from junior high schools. In industrial sector, 85% of workers have completed a minimum
of eight grades and 6% of them have some college education. The shares are much higher
in transport, government, and of course, R &D (Yusuf & Wu, 1997). Tertiary education of
the city makes the greatest achievement on raising the quality of labour. In 2002, 55,198
university graduates were produced, which the number greatly increased by 28.8% than the
previous year. Among 50 universities in Shanghai, 8 of which, such as Tongji University,
Fudan University and Jiaotong University, are Chinas top universities reaching the
international standard. They often give great hand in producing the high quality work force,
not only by expanding the size of student enrolment, but also by improving the quality of
courses so as to cater the future development and the international needs. For instances,
Fudan University provides technical and applied programs in the science and engineering.

91

It also develops numerous partnerships with foreign universities including one with MITs
innovative Sloan Business School, whereas the school of Management establishes a
Sino-Japan International Management and Technology Center.
Attraction of foreign talents
Since the 1990s, the city has attempted to attract more foreign professionals (including
overseas Chinese and local Chinese who have studied aboard) to start and develop their
careers in Shanghai. In 2002, there were 61,610 foreigners in Shanghai, most of them were
come from Japan. 78% of foreigners were either the businessmen or working at
foreign-funded enterprises as managers. The rest were engaged in scientific research,
cultural development publishing, education, health and media (Shanghai Statistical Bureau
2003 and Hong Kong Trade Development Council, 2001).
Throughout examining the labour market of the city, it is obvious that Shanghais
workforce is highly competitive. With the attraction of more foreign professionals,
Shanghais labour force is becoming more diversified. The higher quality and more
diversified labour indeed is the crucial asset to Shanghai in increasing the attractiveness of
the business environment.
6.32 Guangzhou
Employment structure
The size of working population of Guangzhou is larger than the Shanghais. According

92

to the statistics, the working population of the city was 5.12 million in 2002, rising for
22,000 than 2001. The majority labour workforce mainly engaged in manufacturing and
service sector, which accounted for 42.53% and 47.15% of the total workforce respectively,
whereas only 0.94 % of the workforce belonged to agriculture sector. Unlike Shanghai,
both state-owned enterprises and other private sectors dominate the citys employment
market. Since the economic restructuring has been gradually well adjusted, the
unemployment problem has been slightly alleviated in recent years. In 2002, the
unemployment rate of Guangzhou was only 3.56%, vaguely fell by 0.2% than 2001 (The
editorial committee of Guangzhou, 2003). The lower employment rate and the large
working population reflect the potential economic development and the stable employment
structure occurred in the city.
Local labour quality
In terms of labour quality, Guangzhous workforce seems to be less competitive
when comparing with Shanghai. Unlike Shanghai, as long as labour-intensive
manufacturing industries were still dominant in the citys economy, the large influx of the
floating population from poor provinces who serve as the major labour force of the
manufacturing sector were often low-educated and unskilled. Most of them may only
receive primary education with no technical training. Consequently Guangzhou does not
possess the better educated secondary workforce. Nevertheless, the quality of labour in

93

tertiary service sector is as high as Shanghai. Same as Shanghai, Guangzhou also highly
concerns the development of tertiary education as it can enhance the quality of workforce
in professional sectors. In 2002, there were 39 tertiary educational institutes for producing
the high-educated and professional labour force in the city. In order to accommodate the
citys economic development in future, the government not only expands the number of
university students and postgraduates, but also implements the IT education project and
generalizes the English Language projects among universities so as to produce the
competitive local talents for meeting the international trend. Moreover, the city
concentrates on the development of vocational education and adult continual education,
hoping to ensure the quality of labour and cultivate different kinds of the professional
labour force which are competitive in the PRD region (Zhu, 2002).
Attraction of foreign talents
Like Shanghai, Guangzhou also intends to attract foreign talents for generating the
more diversified labour force in the city. In 2002, there were already 2057 registered
foreigners in Guangzhou, which were mainly come from Hong Kong, Macau, and Taiwan,
whereas 34,865 overseas students were admitted in the city.
By examining the labour situation of Guangzhou, it is clear that the labour of
Guangzhou and Shanghai are somehow different. Shanghais labour force is usually
featured as highly skilful, whereas Guangzhous workforce is more diversified. Such

94

difference leads to the different economic development in the two cities. The pool
diversified labour enables Guangzhou to sustain its labour-intensive manufacturing
industries, whereas the skilful workforce facilitates Shanghai to be well-performed in
high-tech industries and high-end services.
6.4 Other social elements: Education, Medical care and Environmental protection
Apart from the aforementioned three social components, other social elements do
influence the development of the business environment, notwithstanding their impacts are
less obvious.
6.41 Education
Shanghai is the first city in China to carry out the nine-year compulsory education. In
order to generalize the education in the city, the expenditure on this sector has been
continuously expanded. The government has built more schools and tertiary institutions
during the past twenty years. In 2002, there were 751 primary schools, 1069 secondary
schools, 700 research institutes and 50 regular institutions of higher education, whereas
331,649 students were admitted to the universities. The teaching staffs even reached
241,700 in 2002. The educational development of Shanghai is becoming more
comprehensive.
The educational development in Guangzhou is more rapid and comprehensive than
Shanghai. Although the city implemented the nine-year compulsory education late in 1986,

95

it has carried the fast expansion during the past two decades. By expanding teacher training
projects, increasing the construction of schools as well as imposing the education-added
tax, the student enrolment ratio already reached 98% by 1993 (Postiglione and Lee, 1995).
Up to 2002, there were 1566 primary schools, 425 secondary schools and 39 tertiary
institutions. Meanwhile, there were totally 136,045 teaching staffs to serve 299, 037
undergraduates, 600,430 secondary students and 816,617 primary students in Guangzhou.
6. 42 Medical care
Medical care in Shanghai is under the stable development. The municipal government
provides the full medical coverage to people with no income and provides subsidy of up to
5000 yuan to people with family at the poverty level (Lau, 2003). Yet, there is a rapid
decline in the number of hospitals, which greatly decreased for 4 times from 462 in 1990 to
192 in 2002. The ratio of the number of hospital beds and doctors to the citys population
also experienced a gradual decrease, which reduced from 44:10000 and 52:10000 in 1993
to 33:10000 and 48:10000 in 2002 respectively (See Table 6.2). The decline in medical
provision is possibly due to the rising population and the reduction of the expenditure on
medical care in recent years.

96

Table 6.2 BASIC STATISTICS OF PUBLIC HEALTH IN SHANGHAI, 1979-2002

Health

Care of which

Doctor

per

10

000 Hospital Beds per 10 000

Year
Institutions (unit)

Hospital

Population (person)

Population (bed)

1979

5 627

394

32

42

1980

6 067

399

34

43

1985

7 245

405

40

44

1990

7 690

462

45

48

1991

7 554

463

46

49

1992

7 363

454

46

50

1993

6 077

486

44

52

1994

5 606

497

43

53

1995

5 286

485

41

52

1996

5 200

477

40

52

1997

5 028

474

34

52

1998

4 637

473

39

52

1999

4 620

465

39

54

2000

4 400

459

38

55

2001

3 813

432

37

58

2002

2 422

192

33

48

Source: Shanghai Statistical Bureau, 2003

Unlike Shanghai, Guangzhou does not provide the full medical coverage welfare to
the poor. However, the medical insurance service is provided so as to lower the medical
burden bore by the citizens (Guangzhou Yearbook Publishing House, 2003). To compare
with, Guangzhou provides the better and more comprehensive medical care service than
Shanghai. Figure 6.4 shows the number of hospitals in the two cities. Though the
population of Guangzhou is about half of Shanghais, there are more hospitals and medical
organizations in the city, totaling 198 and 3253 in 2002 respectively. Besides, Guangzhou
people possess more medical resources. In 2002, every 10000 people shared 53.3 hospital

97

beds, 30.9 doctors and 27.6 nurses. It seems that the medical service in Guangzhou is better
than Shanghai.

number

Figure 6.4 Number of hospitals in the two cities, 1980-2002

500
400
300
200
100
0

399
139

405
141

462

485

459

432
192

163

221

252

253

198

1980 1985 1990 1995 2000 2001 2002

Year

Shanghai
Guangzhou

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

6.43 Environmental protection

The rapid economic growth brings the severe pollution to Shanghai. The coal burning
smoke and vehicle exhaust are the main sources of air pollution. Besides, the increase in
living standard causes the increase in waste disposal in the city. In order to reduce the level
of pollution, the municipal government imposes several measures to lower the use of coal
and other fuel resources. The government accelerates the process of natural gas supply and
sets the standard on industrial pollution as well. To eradicate the pollution, the municipal
government invested more than 16.24 billion yuan on environmental control in 2002,
increasing by 45% than 1999 (Lau, 2003). The pollution control seems to be effective in
certain areas. Table 6.31 indicates the environment improvement of Shanghai. The
percentage of noise control greatly rose from 56% in 1999 to 92.4% in 2002. The discharge
of wastewater also steadily reduced from 22.85 million tons to 19.21 million tons during
98

the same period. Shanghai also makes a lot of efforts to enhance urban greening. By the
end of 2002, the green area in the city was increased to 18,758 hectares, which was
increased for 6 times during the past ten years. Yet, the city is still unable to solve the air
pollution effectively. According to the statistics, the emission of waste gas continuously
increased from 3543.900 million cu.m in 1990 to 790200 million cu.m. in 2002. Besides,
the rate of treatment of the citys wastewater has also continuously dropped during the past
few years, which reflects the city is not effective enough in solving the water pollution.

Table 6.31 SHANGHAIS ENVIRONMENT IMPROVEMENT

Indicators

1999

2000

2001

2002

100.0

100.0

100.0

100.0

56.0

80.7

84.8

92.4

Treatment of Hazardous Waste (%)

99.9

99.3

99.9

99.9

Rate of Treatment of City Waste Water (%)

50.4

49.4

53.3

18.8

Pollution Control
The Coverage Rate of Soot Control (%)
Rate of Reach Standard of Noise Control (%)
Rate of Comprehensive Utilization

Environment Protection
Environment Protection Investment (100 million yuan)

111.57 141.91 152.93 162.39

Environment Protection Investment Compared to GDP (%)

2.8

3.1

3.1

3.0

Green Area
Total Area of parks, gardens and green area (hectare)

11 117 12 601 14 771 18 758

Coverage of urban green area (%)

20.3

22.2

23.8

30.0

20.28

19.37

19.50

19.21

Waste Discharge
wastewater discharge (100 million tons)
waste gas discharge (100 million cum)

5 479.5 6 398.1 7 620.0 7 902.0

Source: Shanghai Statistical Bureau, 2003

The pollution in Guangzhou is also severe. The emission of toxic substances, such as

99

sulphur dioxide and carbon dioxide cause intolerable air pollution in the city. The increase
in industrial wastewater and urban noise adversely affect the citys environment. In order to
solve these problems, the government sets the standard on wastewater, polluted air and
noise to factories, urban households and vehicle users. In addition, the government has
constructed the water sewage plant and undergoes the water quality supervision so as to
reduce the pollution level in Zhujiang River. The government also highly emphasizes the
significance of urban greening, so ecological parks and other public green areas have been
built since the 1990s. Thanks to these measures, there are some improvements on
environmental control. Table 6.32 indicates the environment improvement of Guangzhou.
According to Guangzhous statistics, the traffic noise level was slightly reduced from 68.9
decibels in 2001 to 68.6 decibels in 2002. The containing of carbon dioxide and sulphur
dioxide in the air was largely reduced and was fallen below the national level. The green
area was also expanded from 28,073 hectares in 1995 to 108,815 hectares in 2002, covering
32.64 % of the total urban area. However, the sewage level of the citys wastewater
remained rather low at only 30%, which was far below the national level of 60%. There
was also an increase in the discharge of the citys wastewater and industrial polluted air
from 2001-2 (Guangzhou Statistical Bureau, 2003). All reflect that there is big room for
Guangzhou to improve its pollution problem.

100

Table 6.32

ENVIRONMENT IMPROVEMENT IN GUANGZHOU

Indicators

2001

2002

The Coverage Rate of Soot Control (%)

100.0

100.0

Controlled soot and dust zone (sqkm)

297.5

355.2

Rate of Treatment of City Waste Water (%)

Not provided

<30%

Total Area of parks, gardens and green area (hectare)

10 611

108 815

Coverage of urban green area (%)

31.44

32.64

10.48

11.51

2 249.2

2 355.5

68.9

68.6

Pollution Control

Green Area

Waste Discharge
wastewater discharge (100 million tons)
waste gas discharge (100 million cum)
Noise (decibels)

______________________________________________________________________
Source: Guangzhou Statistical Bureau, 2003

In terms of environmental protection, it is evident that both cities also put a lot of
efforts to eliminate the pollution. However, Shanghais environment seems to be better
controlled and cleaner, it is possibly due to its more effective policies and better public
awareness than Guangzhous.
6.5 Conclusion
There are several findings discovered from the similarities and differences of the
social environment of Shanghai and Guangzhou. It is undeniable that various social
components, like education, medical care and environmental protection etc in both cities
101

are well developed. The provision of the comprehensive social infrastructure means that
both cities achieve the high level of stability and prosperity, which is very essential for
forming the favourable business environment. Generally speaking, it seems that
Guangzhou achieves the better performance than Shanghai in enriching its social
components. Nonetheless, in social perspective, both Guangzhou and Shanghai possess
their unique competitive conditions for attracting the business investment. In terms of
labour supply, Shanghai seems to be more competitive than Guangzhou, whereas the higher
living standard in Guangzhou serves as the more attractive element for attracting business
investments, especially in retail and wholesale sector. Their different advantages contribute
them to attract different business operations and investments. The high quality of labour
force in Shanghai helps attract high-end professional services or high-tech industrial
operations, whilst the better living standard enables Guangzhou to be the regional
consumption centre in southern China. To reach the international standard, there is still
large room for both Shanghai and Guangzhou to improve their social inputs for attracting
more business investments in foreseeable future.

102

Chapter 7 Technological Environment

In recent years, the technological factor has become more and more vital for affecting
the economic development of a country. As long as technological advancement can
enhance economic competitiveness, investment in technology and innovation, thus it serves
as a key element of the favourable business environment (Worthington, 1997).
Despite the fact that Chinas economy is not technological-driven, the country is also
eager to enhance her technological development level so as to attract more domestic and
foreign business operations. As the economic leading cities in China, Shanghai and
Guangzhou become the pioneers of technological development in their hinterlands.
Technological infrastructure, technological professionals and technological performances
of the two cities will be looked into in the following discussion.
7.1 Technological infrastructure
7.11 Shanghai
As long as Shanghai intends to develop the new economy with high-tech feature, the
city largely concentrates on the development of technological infrastructure. Since the early
1990s, Shanghai has given its full support to various national and city levels Economic and
Technological Development Zones (ETDZs), of which three development zones carry high
profiles, including the Shanghai-Minhang Economic and Technological Development
Zones (SMETDZ), which opened in 1985 and located in a satellite city to the southwest of

103

central Shanghai, Shanghai-Cohejing Hi Tech Park (1988), which is close to Hongqiao

Airport within central Shanghai, and Zhangjiang Hi Tech Park(ZHTP) in Pudong since
1992. Other Shanghai area High Tech Parks include the Shanghai Manufacturing
University Science and Technology Park (1994), the International Fabric Science and
Technology City (1994), Jingqiao Manufacturing and Exporting District and Jiading
Science and Technology Park, which was launched in 1994.
SMETDZ is Shanghais first industrial park which opens to foreign firms with the use
of the citys satellite town. The zone specializes in manufacturing industries and some
consumer business with a good labour base. By 1999, there were 141 projects in the Zone
representing over US$ 1.75 billion of investments from eighteen countries and regions.
Foreign firms such as Coke, Pepsi, Johnson & Johnson, and Xerox maintain their ventures
in this crowded area. Yet, the zone lies relatively far away from Shanghai and it lacks the
flashier and lucrative technological segment (Walcott, 2003).
Shanghai-Cohejing Hi Tech Park possesses the geographical advantage that is the
vicinity of Hongqiao Airport and the CBD. The zone serves as Chinas Silicon Valley,
which the former president Jiang Zemin advocated this concept. Cohejiang mainly
specializes in telecommunications, microelectronics, computer software, and synthetic
materials of bioengineering. Currently, there are almost 300 Chinese companies and
institutes stationing in the park. Compared with other ETDZs, the prospect of Caohejiang is

104

the most optimistic as there are more and more foreign involvements in the expansion of
parkland. For example, a Sino-British joint consortium is building a new technology park
within this zone and is going to complete the project by 2010. However, its development is
hindered by insufficient environmental amenities (Walcott, 2003).
Zhangjiang High Tech Park is built to be a science and education zone, which places
its emphasis on high technologies and newly developed industries, such as precision
medical apparatus, computer software, artificial intelligence, lasers, electronics and
information transmission. The main weakness of ZHTP is the lack of an important onsite
university to closely co-operate with, but bus lines now run frequently around the research
universities of Fudan and Jiatong for transporting the employees from those campuses to
outside Pudong has gradually made up for the problem. ZHTP seems to be the most
ambitious as its overall goal is to narrow the gap of science and technology between China
and other advanced countries and develop industries of the 21st century instead of
remaining in manufacturing (Yeung & Sung, 1997).
The motivation of establishing the technological parks indeed is to attract more
foreign investors to involve local high-tech industries so as to speed up the scientific and
technological development.
Besides setting up the ETDZs, the government issued new preferential policies, like
tax breaks and tariff cuts to encourage foreign investors to set up research and development

105

(R & D) centres in Shanghai. With more foreign involvements, the city attempts to build up
itself as the leading high-technology production and research centre (Hong Kong Trade
Development Council, 2001). The city has continuously expanded the funds for financing
the scientific and technological field as well. In 1985, the funds were only amounted to
1.991 billion yuan, but it sharply rose to 24.399 billion yuan in 2002, the input in R &D
also greatly expanded from 0.2 billion yuan in 1980 to 10.24 billion yuan in 2002. Since
the late 1990s, the city has even made the technology to be widely applied to the daily life
of Shanghaiese. By establishing the network convergence project in 2000, the city aims to
build itself as the information port. The inter-network connection project mainly includes
linking the citys telephone, cable TV and Internet networks together so as to speed up
Internet access and business interconnections for increasing the operation efficiency in
commercial field (Hong Kong Trade Development Council, 2001).
7.12 Guangzhou
Guangzhou shares the same starting point with Shanghai in technological
development. Since the late 1980s, Guangzhou government has focused on technological
infrastructure so as to develop new high-tech industries for revitalizing the economy. Like
Shanghai, the city spends the massive amount of money on the scientific and technological
development. In 2002, the city spent 11.5 billion yuan on this sector, of which 0.4 billion
yuan was spent on R&D projects, increasing by 19.7% than 2001.To achieve the

106

comprehensive development, Guangzhou has also launched several ETDZs since the late
1980s, of which the most well-known are Guangzhou Economic Technological
Development Zone (GETDZ) in 1988 and Nansha Economic Technological Development
Zones (NETDZ) in 1993. In recent years, Guangzhou has established other different new
types of technological production zones, including Guangzhou scientific city, Tianhe
software garden, Huanghuagang technological garden and Guangzhou international
Biological Island etc (Zuo, 2003). The purpose of developing technological infrastructure is
same as Shanghais, by which the city also intends to attract more foreign investments for
speeding up the new and high-tech industrial development and enhance its economic
competitiveness in the region.
GETDZ is the most famous and the best-run development zone not only in
Guangzhou, but also in Guangdong province and in the whole country. It lies 35km east of
the city centre, the zone is well-connected with the citys principal port, Huangpu Harbour
and Guangzhou-Shenzhen rail line. The original area was only 9.6sq km that lied in
Huangpu area, but it now expands to eastward Nangang and to northeast Yonghe. Huangpu
area mainly serves bonded-ware-houses for duty-free storage, Nangang area mainly
specializes in high-tech industries, whereas Yonghe is planned to be the pharmaceutical
base. GETDZ involves the high level of foreign investments, notably US consumer goods
giant Procter & Gamble, Colgate-Palmolive and British ICI-Delux are also major

107

investment participants in the zone (EIU, 2000).

Nansha zone is a newly developed zone. It has the strategic location that is situated
near Zhuhai and opposite Dongguan. The zone is also located next to Human Bridge which
enhances its level of accessibility. Besides its location, the newness of the zone, the offer of
more favourable terms and the flexible officials are the attractions for pulling FDI in the
zone. The development direction of Nansha is similar to GETDZ, with which also intends
to specialize in new high-tech industries (EIU, 1995).
Although GETDZ and Nansha ETDZ perform outstandingly in the country, the
technological infrastructure of Guangzhou is not as well developed as Shanghais. Despite
the fact that Guangzhou has established the development zones with more varieties, the
performance of these zones is less satisfactory. Owing to the unfavourable location, limited
area for exploration and the occurrence of complex relationships etc, these new
development zones do not carry the clear and major development direction, consequently
they are weak in attracting big and significant technological projects. It is true that there are
thousands of foreign enterprises, but there are too few large high-tech industrial enterprises
and professional high-tech research centres stationing in these new zones (Zuo Zheng,
2003). As a consequence, the technological and scientific development of these zones
remains sluggish without achieving any breakthroughs during the past ten year. Hence, to
compare with, Guangzhous technological infrastructure seems to be less developed and

108

less comprehensive than Shanghais.

7.2 Technological professionals
7.21 Shanghai
Technological professionals are the crucial asset to Shanghai in scientific and
technological development. Since the early 1990s, Shanghai has been anxious to cultivate
and attract the talents who specialize in technological sector. The government pays many
efforts to nurture the potential professionals. For instances, the Innovation Centres of some
technological parks in Shanghai regularly supply some funds to well-known scientists for
providing them better working facilities outside their universities, as well as providing the
incubator space for students over a three-year period. The city also intends to attract more
professionals from other provinces or even overseas. Thanks to their great concern, the size
of technological professionals was greatly expanded in the early 1990s. Table 7.1 shows the
basic statistics of technological development of Shanghai. During the period of 1985 to
1993, the number of people engaging in scientific and technological activities increased
from 151,200 to 203,500. The number of scientific and research institutions also rose from
816 to 1266 in the same period. Nonetheless, it is surprising to find out that the number of
technological professionals in the city has been greatly reduced since the mid 1990s,
though the technological importance is still addressed in the city. Since 1995, the number
of personnel engaging in scientific and technological activities declined to 182, 5000. In

109

2002, the size even shrank to 151, 8000. The number of engineer personnel and scientific
personnel largely reduced from 263,000 and 25,500 in 1990 to 165,600 and 15,900 in 2002
respectively. Meanwhile, the percentage of scientific and technological research
expenditure in local finance was greatly cut from 5.4% in 1985 to 1.7% in 2002 (See
Figure 7.1). The reduction of professionals and expenditure is possibly contributed by the
outflow of professionals to other parts of the country as well as the citys emphasis on the
tertiary service development in recent years.

Table 7.1 BASIC STATISTICS OF SCIENTIFIC AND TECHOLOGICAL ACTIVITIES IN MAIN

YEARS

Number of
Scientific &

Persons

Funds Financed for

Local Financial

Percentage of Expenditures

Technological

Engaged in

Scientific and

Expenditures of Scientific

of Scientific and

Research

Scientific and

Institutions

Technological

Year
Technological Research and Technological Research Technological Research in
(100 million yuan)

Local Finance (%)

(100 million yuan)

(unit)
1980

551

1.38

7.2

1985

816

15.12

19.91

2.49

5.4

1990

1 053

19.34

32.47

2.44

3.2

1991

1 092

19.05

42.72

2.10

2.4

1992

1 043

18.88

60.57

2.30

2.4

1993

1 165

20.35

72.57

2.60

2.0

1994

1 148

19.50

95.11

3.43

1.7

1995

1 266

18.25

122.49

5.12

2.0

1996

1 018

19.11

127.41

5.63

1.7

1997

1 133

17.99

153.77

7.65

1.8

1998

1 022

18.72

140.24

8.28

1.7

1999

915

16.25

153.05

10.82

2.0

2000

894

16.31

201.45

10.08

1.6

2001

826

15.19

218.18

12.39

1.7

110

2002

848

15.18

243.99

15.25

Source: Shanghai Statistical Bureau, 2003

7.22 Guangzhou
Guangzhou also attempts to cultivate the technological professionals for its economic
development. To compare with, Guangzhou seems to be more dedicated and better
performed than Shanghai in nurturing the professionals in recent years. Figure 7.1
compares the local expenditure on scientific and technological projects of the two cities. In
2002, the scientific and technological research of Guangzhou took 3.64% of the total of
local expenditure, the percentage was much higher than Shanghai. The government not
only has continuously re-structured 25 provincial and city levels research centres, but also
provides funds to finance and encourage the professionals to undergo R & D projects as
well as to cultivate the new professionals in this sector. In 2002, there were 1060 research
students specializing in the technological field in Guangzhou. The positive development of
the city can be easily observed. Yet, there is a large gap for Guangzhou to catch up
Shanghai in terms of the size of development. Figure 7.2 shows the number of
technological personnels in the two cities. Up to 2002, there were only 183 independent
scientific and technological research institutes, whereas about 415,000 professionals
engaging in technological field, of which there were only 7418 scientists and engineers,
10830 military technical professionals and 20312 technical professionals. To advance its
development, Guangzhou needs to pay more efforts to cultivate and upgrade the

111

1.7

professionals in future.

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

Figure 7.1 The total percentage of local expediture on scientific and technological
projects in the two cities, 1995-2002
5
4.2

3.64
3.14

3
2

1.71

1.7

1.6

1.7

0
1995

2000

2001

2002

Percentage
(Guangzhou)
Percentage
(Shanghai)

Year

Figure 7.2 Number of scientific and technological personnel in the two cities, 1990-2002

10,000 people

200

193.34

188.8

182.5

163.1

150

151.9

151.8

100
50
0

31.9

1990

38

34.2

1992

43.7

1995

2000
Year

42.8

2001

41.5

2002
Guangzhou
Shanghai

Source: Shanghai Statistical Bureau, 2003; Guangzhou Statistical Bureau, 2003

7.3 Technological performance

7.31 Shanghai
Despite the fact that Shanghai has paid less attention to nurture the professionals since
the mid 1990s, Shanghai always achieves the outstanding technological performance. It can
be viewed from several aspects, including technological applications on economic sectors,
112

scientific and technological achievements and foreign involvements.

Technological applications on economic sectors
In Shanghai, technological knowledge is widely applied for facilitating the
development of several high tech industrial sectors, which include electronics,
communication, and medical manufacturing, whereas the auto-industry, manufacture of
electronic and telecommunications equipment, equipment for power plants, heavy-duty
machinery and electronic equipment, patrol and precision chemistry; iron and steel industry
and manufacture of household appliances even seem to be more attractive to foreign
investors. Since the 1990s, various technological development projects have been
implemented so as to advance and accelerate the industrial development. In 2002, there
were totally 3,955 projects implemented accounting for 12.57 billion yuan, of which new
products development projects took 0.61 billion yuan. Meanwhile, the city produced 2736
new product items in the same year, which mainly included in the field of general and
transportation equipment manufacturing as well as medical manufacturing (Shanghai
Statistical Bureau, 2003). All these statistics demonstrate the high level of technological
application in different economic sectors. The advanced technological development also
generates the higher economic return. For instances, the gross output value of high-tech
industries increased from 167.14 billion yuan in 2001 to 198.008 billion yuan in 2002,
whereas the revenue generated from high-tech industries rose sharply from 170.41 billion

113

yuan in 2001 to 200.23 billion yuan in 2002, increasing for about 2%. Apart from high-tech
industries, the revenue and the gross revenue of six key industries reached 457.44 billion
yuan and 451.79 billion yuan in 2002 respectively (Shanghai Statistical Bureau, 2003).
Such the fruitful turnover is, to a certain degree, contributed by the advanced technological
development in Shanghai.
Foreign involvements
As previously mentioned, Shanghai is eager to attract more foreign participants in its
technological sector. There is a high degree of foreign participation in the technological
development of the city. With the provision of preferential treatments, numerous foreign
companies are attracted to set up their technological investments in Shanghai, and the city
becomes the R& D headquarter of foreign companies in China There are already over 70
foreign and JV companies setting up their research and development centers in various
industrial parks, of which there are 45 medical joint ventures and ten biotech operations
(Yusuf and Wu, 2002). MNCs like Du-Pont, GM, GE, IBM, French-owned Alcatel and
Unilever also launch their own R&D centres in Shanghai, with which serve as their
technological development headquarters in China. The active foreign participation not only
means the strong confidence of foreigners in Shanghais technological sector, but also
implies the city is enjoying the rapid and advanced technological development facilitated
by the foreign involvement.

114

Scientific and technological achievements

Shanghais technological capability is undeniably strong. According to the data
provided by Yeung and Sung, Shanghais technological capability is the second which
comes only after Beijing in terms of the number of institutes of higher learning and
scientific research as well as the actual number of technical personnel, engineers and
scientists engaging in research and development. Also, Shanghai always scores well in
nation-wide competitions for scientific and research and development awards organized by
State Science Commission (Yeung and Sung, 1996). Undoubtedly, Shanghai keeps its
efforts on maintaining its outstanding achievements. Table 7.2 indicates the scientific and
technological achievements of Shanghai. From 1985 to 1992, the number of scientific and
technological achievements kept steadily increasing from 1957 to 2557 items.
Notwithstanding there has been a gradual impediment since 1993 due to less expenditure
and professionals, the city was still able to maintain at a high level of over 1000 items of
achievements every year. Whats more, the achievements seem to be more upgraded to the
international standard. Since the mid-1990s, there has been a gradual increase in the
number of achievements attaining advanced world levels or being first created in the world,
which rose doubly from 332 items in 1995 to 668 items in 2002. Besides, the proportion of
these achievements has even got bigger and bigger. In 2002, the number of achievements
reaching international levels already took over half of the total, reaching 668 items. These

115

statistics clearly show that there has been a rapid progress in scientific and technological
achievements in Shanghai and the development has advanced to the international standard.
The sustainable strong and stable performance of Shanghai seems to make Guangzhou and
most Chinese cities difficult to compete with in the current stage.

Table 7.2

SHANGHAIS ACHIEVEMENTS IN SCIENTIFIC AND

TECHNICAL RESEARCH

(19852002)
By Level of Achievements

Achievements in
Year

Science and
Technology

Attaining Advanced
World Levels or Being

Attaining Advanced Domestic Levels

First Created in the

or Being First Created in China

World
1985

1 957

253

1 439

1986

2 123

400

1 388

1987

1 955

427

1 521

1988

2 062

446

1 616

1989

1 855

423

1 405

1990

2 092

465

1 597

1991

2 588

640

1 483

1992

2 557

463

1 634

1993

1 995

401

1 212

1994

1 715

390

1 039

1995

1 350

332

802

1996

1 094

358

711

1997

1 193

442

719

1998

1 305

524

749

116

1999

1 252

498

729

2000

1 102

507

569

2001

1 338

620

560

2002

1 418

668

569

Source: Shanghai Statistical Bureau, 2003

7.32 Guangzhou
To compare with Shanghai, the technological performance of Guangzhou is
undoubtedly weaker as a result of its less available resources and the slower development
pace. However, Guangzhou still performs its uniqueness and superiority at regional level.
Technological application on economic sectors
Similar to Shanghai, the city widely applies the technological knowledge to its
industrial sectors. The technological and scientific advancement not only gives birth to new
high-tech industries, like software engineering, calculating equipment and Chinese
medicine, but also facilitates the development of the three pillar industries
(telecommunication, vehicles and petroleum) and other traditional light manufacturing
sectors, such as textile, food processing and the assembly of electronic components etc.,
because the advanced technology helps upgrade the efficiency and the quality of the
industrial production. According to the statistics in 2002, there were 5951 technological
projects for the industrial development in the city, increasing by 9.6% and reaching the
amount of 4.52 billion yuan. In the same year, Guangzhou also contributed 53 newly
invented products to the province, of which 20 items even reached the national level.

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Technological advancement contributes the high economic returns as well (Guangzhou

Statistical Bureau, 2003). Though the amount of high-tech industries is smaller than
Shanghai, the growth rate is quicker. In 2002, the gross output value of high-tech industries
reached 82.17 billion yuan, increasing by 34.51% than 2001, the contribution rate of
industrial technology even reached 49.6%, which was 0.5% higher than the previous year.
The export value of high-tech products greatly increased for 74%, reaching US 1.37 billion
dollars. The software manufacturing sector even gains the dominant position in the
province, its production occupied 57% of the total of Guangdong in 2002.
Foreign involvements
Although Guangzhou cannot challenge the position of Shanghai as the R&D
headquarter of foreigners in China, the city is also able to absorb a lot of foreign
investments for facilitating its technological development. Different from Shanghai, the
foreign investment in Guangzhous high-tech sector only interests in the production
segment instead of R&D. There are thousands of foreign ventures located in the citys
industrial parks and ETDZs, but their major activities in the zones are only confined to the
high-tech industrial production. The aforementioned MNCs like Procter and Gamble,
Bosch and Owen-Corning etc. also follow the similar suits. Under such situation, the city
thus behaves more actively and attempts to absorb more foreign technological elements by
launching R&D centres overseas; Baiyun Shan enterprises, Guangzhou electrical

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appliances export company and Guangzhou Hitachi elevators company launch offices and
R&D centres in Australia and other countries are good examples, by which they can learn
more technological knowledge and thus upgrade their product quality in the future (Zhu,
2002).
Scientific and technological achievements
The scientific and technological capability of Guangzhou is definitely incomparable
to Shanghai in the current stage. However, it achieves the satisfactory performance at both
national and provincial level as well. Up to 2002, Guangzhou totally gained 6 awards in
various national scientific and technological competitions, whereas it gained 139 awards at
the provincial level. The city also totally published 2489 academic articles related to the
scientific and technological field, of which 253 papers were internationally published. It is
obvious that there is still a large distance for Guangzhou to reach the international standard
in terms of scientific and technological achievements. To make the further progress,
Guangzhou may need to show more efforts, in particular facing the rapid rise of Shenzhen,
it is more necessary for Guangzhou to consolidate its leading position in the province so as
to maintain its economic competitiveness.
7.4 Conclusion
In terms of technological development, Shanghai undeniably achieves the advanced
level and carries the dominant position in the country, though it has diminished its

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concentration on this field in recent years. Guangzhou carries the progressive attitude
towards the technological development, but it is unlikely that Guangzhou can perform as
outstanding as Shanghai in the current stage because of its less-organized planning and less
available resources. Regardless of the gap between Guangzhou and Shanghai, it is
necessary to note that the technological development is very important for increasing the
economic competitiveness of the two cities. The rapid and strong technological
advancement greatly facilitates the development of economic sectors, especially the
industrial sector. The newly rise of high-tech industries brought by the technological
development in the two cities increases their economic competitiveness and consolidates
their dominant position in the region. Hence, no matter to Guangzhou or Shanghai, the
technological development is very significant for bringing the favourable business
environment.

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Chapter 8 Conclusion
8.1 Summary of findings
After examining the political, economic, social and technological environment of the
two cities, it is obvious that Shanghai and Guangzhou share the similar development
direction and possess favourable components for upbringing the business environment.
Both of them are also following the same path to develop themselves as the economic
centres with the emphasis on tertiary services and hi-tech industries. Fortunately, both
Shanghai and Guangzhou also possess their unique components for cultivating the
favourable business environment and become the dragonheads in the YRD and the PRD
respectively.
Nevertheless, in spite of the similar development direction, it is argued that there is no
direct competition occurred between Shanghai and Guangzhou in terms of business
environment as their levels of development are somehow different.
Shanghai enjoys the overall better development than Guangzhou. Owing to the greater
administrative autonomy and the unlimited support from the central government, Shanghai
can provide the flexible policies and the comprehensive infrastructure to enhance the
attractiveness of its business environment. Guangzhou also gains high level of
administrative autonomy, but the policy planning and the infrastructure development are
highly subject to Guangdong provincial government, a certain degree of hindrances to the

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citys development is inevitable. The development strategy of Guangzhou is also less

consistent and less distinct than Shanghai as a result of the intensive external competition
from the cities in the region.
As long as the excellent performance in tertiary services and hi-tech industries,
Shanghai not only stably consolidates its unique leading position in the YRD, but also
becomes the economic dragonhead in China. On the contrary, though Guangzhou achieves
well in the economic development, its dragon head status in the PRD has yet been well
secured. The emergence of the rise of Shenzhen is posing a great challenge to Guangzhou
in every aspect, not even saying the competition coming from Hong Kong.
Though Guangzhou seems to perform better in providing the favourable social
environment, there is still a considerable gap for Guangzhou to catch up Shanghai in terms
of the labour quality and the technological development. To compare the two cities,
Shanghai of course provides better conditions than Guangzhou in upbringing the ideal
business environment. Hence, there is little evidence that Guangzhou can challenge
Shanghais status in a short term. Instead, Hong Kong, which has better international
exposure and higher-level economic development, is more likely to be the real competitor
of Shanghai in terms of business environment.
8.2 Prospects
The favourable business environment in Shanghai and Guangzhou has contributed to

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the rapid and strong economic development during the past ten years. As long as China
enters WTO, some positive impacts on the business environment of the two cities are
expected. After Chinas entry of WTO, more economic sectors will be gradually and widely
opened to the world, the more open and flexible environment not only enhances the
attractiveness of the business environment to foreign investors, it also provides more
opportunities for Shanghai and Guangzhou to improve their business environments for
accommodating the international needs in foreseeable future. More importantly, as the
WTO entry helps generate more business activities and economic interactions with other
countries, the economic development of the two cities will be greatly beneficial.
Yet, the entry of WTO has different impacts on the two cities. For Shanghai, the entry
of WTO may increase its international exposure in the economic aspect, generating the
more dynamic growth in FDI, foreign trade and tertiary service sector. The further inflow
and participation of MNCs in Shanghai is expected as a result of the WTO entry, since the
city is always the first and the best choice for MNCs to enter the market at their first
presence in China.
To Guangzhou, though the WTO entry can also enhance its international exposure and
business interactions, the degree of impacts is obviously less than Shanghai. Instead,
Guangzhou seems to be more influenced by Closer Economic Partnership Arrangement
(CEPA) which is derived from the WTO entry. The signing of CEPA in 2003 removes the

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economic barriers between Hong Kong, Macau and PRC, by which enables the more
flexible business interactions occurred among three sides. As a matter of fact, CEPA not
merely brings economic benefits to Hong Kong and Macau economy, but also brings a
certain degree of goodwill to China. Owing to geographical and cultural proximity, CEPA
seems to be more meaningful to Guangzhou than to Shanghai. With the removal of
economic barriers, more Hong Kong and Macau people move to the mainland and set up
their business in China. Likewise, Hong Kong and Macau businessmen may also perceive
Guangzhou as an ideal place for their business operations at the first entry of Chinas
market. Hence, CEPA enables Guangzhou to gain more inflow of investment, capital,
management expertise and technological knowledge from Hong Kong and Macau. To
attract the business investment of Hong Kong people, Guangzhou has constructed the
shopping mall Hong Kong City this year for facilitating their business operations in the
city.
Both Shanghai and Guangzhou carry the more favourable and optimistic prospects
under the entry of WTO and the CEPA agreement. Shanghai seems to have more
international business interactions, whereas Guangzhou gains benefits from the business
involvement of Hong Kong and Macau.
8.3 Positioning of Shanghai and Guangzhou
Despite the fact that Shanghai has built the better business environment, there is little

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evidence that Shanghai is preferable to Guangzhou for operating business. Both

Guangzhou and Shanghai carry their own economic uniqueness in their regions. Shanghai
undeniably serves as the Asian metropolitan of China, which mainly engages the
international business activities, whereas Guangzhou acts as the regional economic centre,
which supplies business services to southern China. Shanghai is the dragonhead of eastern
China and involves more international business activities, Guangzhou mainly serves
southern China and mainly engages close interactions with Hong Kong and Macau. So,
there is indeed no contradictive relationship involved between the two cities.
8.4 Research significance
Guangzhou and Shanghai are the two metropolitan cities emerged in the past two
decades under Chinas opening and reform. Through comparing the business environment
of Guangzhou and Shanghai, more understanding about Chinas new economic situation
and potential development can be attained. This comparative study not only enables us to
know more about the economic development and the relative advantages or limitations of
Guangzhou and Shanghai, but more importantly it can provide a reference for Hong Kong
businessmen and foreign investors about the ways of exploring business opportunities in
China as well as perceiving the competitiveness of Hong Kong in China.
To the government of Guangzhou and Shanghai, this comparative study can serve as
the reference to facilitate them in shaping their future economic directions, so as to upgrade

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the business environment to the international level.

This comparative study can also act as the guidelines for Hong Kong government to
recognize the development direction and to develop the further economic integration with
Guangzhou and Shanghai as well as with the PRD and the YRD in future.

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Appendices:
Appendix 1: Business environment scores & ranks
1993-97
1998-2002
Total
Total
Rank
Rank
score
score
Netherlands
8.5
4
8.82
1
UK
8.59
2
8.87
2
Canada
8.33
6
8.63
3
US
Singapore
Switzerland
Denmark

8.44
8.52
7.99
8.06

5
3
9
8

8.59
8.4
8.39
8.37

4
5
6
7

Sweden
Ireland
Germany
New Zealand

7.81
7.94
7.9
8.14

13
11
12
7

8.36
8.28
8.27
8.23

8
9
10
11

France
Hong Kong
Australia
Finland

7.7
8.81
7.96
7.71

15
1
10
14

8.22
8.21
8.21
8.17

12
13
14
15

Belgium
Norway
Spain
Taiwan

7.52
7.67
6.87
7.34

17
16
22
20

8.16
8.07
8.04
7.97

16
17
18
19

Austria
Chile
Portugal
Italy

7.49
7.48
6.82
6.37

18
19
23
29

7.91
7.88
7.77
7.68

20
21
22
23

Japan
Argentina
South Korea
Malaysia

6.72
6.68
6.38
7.15

24
25
28
21

7.57
7.16
7.15
7.08

24
25
26
27

Israel
Poland
Philippines
Hungary

6.47
5.55
5.77
5.71

26
36
33
34

6.9
6.88
6.83
6.82

28
29
30
31

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Czech Republic
Mexico
Thailand

6.22
5.41
6.46

30
40
27

6.79
6.78
6.76

32
33
34

Greece
Brazil
South Africa
Peru

5.88
5.19
5.46
5.35

32
44
38
42

6.71
6.32
6.31
6.19

35
36
37
38

Colombia
Turkey
Egypt
Slovakia

5.6
5.51
5.36
5.27

35
37
41
43

6.18
5.97
5.91
5.9

39
40
41
42

Saudi Arabia
Sri Lanka
China
India

5.44
5.07
4.68
5.15

39
46
47
45

5.88
5.83
5.67
5.75

43
44
45
46

Indonesia
Bulgaria
Russia
Romania

6.1
3.81
3.95
4.16

31
54
53
52

5.63
5.63
5.62
5.6

47
48
49
50

Venezuela
Vietnam
Pakistan
Kazakhstan

4.57
4.41
4.3
3.41

48
50
51
57

5.54
5.23
5.21
5.02

51
52
53
54

Ecuador
Ukraine
Algeria
Nigeria

4.55
2.92
0.48
3.62

49
59
56
55

4.94
4.86
4.73
4.17

55
56
57
58

Iran
Iraq
Average
Median

3.13
1.76
6.11
6.16

58
60

3.51
2.03
6.78
6.83

59
60

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Change in total
score

Change in rank

Qualitative assessment
1993-97

1998-2002

Netherlands
UK
Canada
US

0.32
0.18
0.3
0.15

3
0
3
1

Very good
Very good
Very good
Very good

Very good
Very good
Very good
Very good

Singapore
Switzerland
Denmark
Sweden

-0.12
0.4
0.31
0.56

-2
3
1
5

Very good
Good
Very good
Good

Very good
Very good
Very good
Very good

Ireland
Germany
New Zealand
France

0.34
0.37
0.08
0.53

2
2
-4
3

Good
Good
Very good
Good

Very good
Very good
Very good
Very good

Hong Kong
Australia
Finland
Belgium

-0.6
0.25
0.45
0.63

-12
-4
-1
1

Very good
Good
Good
Good

Very good
Very good
Very good
Very good

Norway
Spain
Taiwan
Austria

0.39
1.17
0.63
0.41

-1
4
1
-2

Good
Good
Good
Good

Very good
Very good
Good
Good

Chile
Portugal
Italy
Japan

0.39
0.94
1.31
0.85

-2
1
6
0

Good
Good
Moderate
Good

Good
Good
Good
Good

Argentina
South Korea
Malaysia
Israel

0.48
0.76
-0.06
0.44

0
2
-6
-2

Good
Moderate
Good
Moderate

Good
Good
Good
Good

Poland
Philippines
Hungary
Czech

1.34
1.06
1.12

7
3
3

Moderate
Moderate
Moderate

Good
Good
Good

0.57

-2

Moderate

Good

1.37
0.3

7
-7

Poor
Moderate

Good
Good

Republic
Mexico
Thailand

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Greece
Brazil
South Africa

0.83
1.12
0.85

-3
8
1

Moderate
Poor
Poor

Good
Moderate
Moderate

Peru
Colombia
Turkey
Egypt

0.84
0.58
0.47
0.55

4
-4
-3
0

Poor
Moderate
Moderate
Poor

Moderate
Moderate
Moderate
Moderate

Slovakia
Saudi Arabia
Sri Lanka
China

0.63
0.44
0.75
1.08

1
-4
2
2

Poor
Poor
Poor
Very poor

Moderate
Moderate
Moderate
Moderate

India
Indonesia
Bulgaria
Russia

0.6
-0.47
1.82
1.67

-1
-16
6
4

Poor
Moderate
Very poor
Very poor

Moderate
Moderate
Moderate
Moderate

Romania
Venezuela
Vietnam
Pakistan

1.44
0.97
0.81
0.9

2
-3
-2
-2

Very poor
Very poor
Very poor
Very poor

Moderate
Moderate
Poor
Poor

Kazakhstan
Ecuador
Ukraine
Algeria

1.61
0.39
1.94
1.25

3
-6
3
-1

Very poor
Very poor
Very poor
Very poor

Poor
Very poor
Very poor
Very poor

Nigeria
Iran
Iraq
Average

0.55
0.38
0.27
0.67

-3
-1
0

Very poor
Very poor
Very poor

Very poor
Very poor
Very poor

Median
0.67
Note. Qualitative grades are assigned according to the following scale:
very good, score more than 8; good, 6.5-8; moderate, 5.5-6.4; poor,5-5.4;
very poor, less than 5.
Source: EIU, Country Forecast, dated August 5, 1998, (London, 1998)

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