‘The Industrial Revolution’ Guangdong struggling from over capacity, says expert

Jeremy Sargent

Over the last twenty years the MSAR’s neighboring region, Guangdong, has undergone some significant changes, particularly relating to its infrastructure and legal framework, said Jeremy Sargent, managing director and partner of Guangzhou-based law firm JSA.

Speaking on the sidelines of the British Business Association of Macau breakfast meeting, Sargent – who is also the chair of the British Chamber of Commerce Guangdong – discussed Guangdong’s “industrial revolution”, citing infrastructural works such as hundreds of underground railways and direct international flights.

“Over the last twenty years […] the changes have just been enormous in Guangdong as a whole. Twenty years ago when I arrived, [the city was] sort of very rundown and dirty and now [there are] huge investments and infrastructures,” explained Sargent.

There were also several alterations in the legal framework. Two decades ago, there was a fairly basic legal framework for foreign investment, allowing outsiders and foreign businesses to set up business only under extensive restrictions and specific conditions.

According to Sargent, a would-
be investor had to have a Chinese joint venture partner to establish a business in the territory, adding that foreign businesses were also restricted by rules around trading in China.

Yet with China’s entry into the World Trade Organization (WTO) in 2000, traders saw a relaxation in the region’s trade laws.

“There are still some restrictions but compared to twenty years ago, [it’s a] big change,” Sargent noted.

When China joined the WTO, the country signed an accession document, which listed the extent to which various industries would have to liberalize and over what period of time.

Sargent implied that the progressive relaxation of trade rules has meant year-on-year growth for foreign investments.

“Traditionally China is attracting [between] USD50 [to] USD70 billion a year of FDI [foreign direct investment]. As the rules relaxed, the scope of engagement in the Chinese economy hugely changed. In the old days it was pretty much manufacturing and export, but now it’s almost everything.”

He also highlighted that Chinese residents have embraced the Internet, highlighting the growth of e-commerce in China, as seen in the rise of shopping websites Alibaba and Taobao.

Sargent warned that infrastructure investment could decline in tandem with the slowdown in Guangdong’s economy, but noted that there are still some 250 airports being planned for construction in mainland China.

“GDP growth was 12, 13 percent in the early days [but] it’s now probably 5 to 6 percent. Nobody really knows the true figures. The growth rate has slowed.”

The expert added that certain industries in China are struggling as there is “huge over-capacity and lots of consumer goods” in several industries.