Zhongshan becomes ‘Third Italy’ in the Pearl River Delta

Because of improved transport links, Zhongshan has become closer to Guangzhou, Hong Kong and Macau

Zhongshan, birthplace of Dr Sun Yat-sen, has become one of the most important industrial cities in China. It is the one of the world’s largest producers of electrical appliances and its goods compete with those of advanced countries.
Zhongshan has developed clusters of production in its different townships, similar to those in Italy, leading people to call it the “Third Italy of China.”
The city has recorded rapid economic growth for the last three decades, enabling its per capita GDP in 2013 to reach USD13,473, ranking it among the upper middle income cities of the world.
The key to this success has been the development of its own brands and technology; it has not simply become a mass producer of goods for foreign companies, like many cities in China. This has enabled it to weather the storms in the international economy and build up a strong market share at home and abroad.
It has also become popular for second homes or retirement for Hong Kong and Macau people, through preserving its Cantonese character and a good living environment.
Xiangshan (Fragrant Mountain) was the name of Zhongshan until 1925; it was originally a group of islands in the sea at the western part of the Pearl River estuary.
The city had a strategic location guarding the entrance of the waterway to Guangzhou. When the Portuguese came in the Ming Dynasty, they settled in Macau and in Xiangshan. For 400 years until the late 19th century, Macau was placed under the jurisdiction of the Xiangshan county government. Together with Macau, Xiangshan enjoyed the benefits of the trans-continental cargo trade between the Portuguese colony, Nagasaki, Manila and Lisbon.
During the late 19th and early 20th centuries, there were large waves of out-migration from the region, in particular to the new continents of North America and Australia; Hong Kong was the most important transit point for the migration and remittances came back to the native towns and villages.
The whole delta was integrated into one economic system, although Hong Kong and Macau were under foreign rule. Because they were free trade ports, there were no restrictions on cross-boundary flows of goods and passengers. In fact, differences in tax levels in Hong Kong and Macau compared to other parts of the PRD stimulated smuggling from the two.  Xiangshan and Macau belonged to the same geographic and economic system. As residents could easily travel across borders, Macau served as the place for work while the towns and villages in Xiangshan remained as the homes for their families.
These close economic and social ties between Xiangshan and other PRD towns and villages with Hong Kong and Macau made the delta an outward-looking region before 1949. Xiangshan changed its name to Zhongshan in honor of its most famous son, Sun Zhong-­shan, after his death in 1925.
The Communist revolution unified China and brought long-term political and social stability. Despite political movements in the cities and collectivization in the countryside, the PRD did not suffer. The stability provided the best environment for the consolidation and further growth of agriculture in the county, with Hong Kong and Macau as lucrative markets.
The open-door policy and economic reform from 1978 revived the economic ties of Zhongshan with Hong Kong, which had marched forward to join the league of top ten industrial exporters in the world, with an intensive industrialization from the 1950s to 1970s. It suffered from cost inflation in the 1970s and tried to diversify its industry and economy. The opening up of the PRD with three special economic zones (SEZ) was the most opportune moment for Hong Kong to relocate its export industries to low-cost production sites in the villages and towns in the delta. The relocation first concentrated in Shenzhen and Dongguan, which were closer to Hong Kong. At that time, the delta had poor transport and telecommunication links, while Shenzhen was an SEZ next to Hong Kong.
Shenzhen and Dongguan became popular locations for Hong Kong firms to process industrial goods for export. Most of this was export-oriented industrial processing, which was determined by orders of buyers from Hong Kong and overseas. It was standardized mass production using low-cost labor and land and imported equipment. Because of the flexibility of institutions and policy in the areas, production grew at a very rapid pace. But most of the revenue and profits went overseas to buyers and their agents in Hong Kong and Taiwan.
Zhongshan and the neighboring cities of Foshan and Jiangmen pursued a different path − import-substitution producing by small and medium-sized firms, most of them for the Chinese market. Foreign investment was limited and what there was also targeted the domestic market. The first wave of investment was in electrical appliances and consumer electronics. In the 1980s and early 1990s, China faced a shortage in the supply of these modern goods from overseas. Demand was enormous; Zhongshan made the best use of its proximity to Hong Kong — convenient for the import of parts and components for assembly as well as production equipment, knowledge, technology and management. It became the largest producer of these new consumer durables in China. Local brands from the area have overtaken many national famous brands because of their timely import of styles, design and technology, especially from Japan and Italy, via Hong Kong. A very profitable synergy took place between Zhongshan and Hong Kong. Due to its early success in consumer electronics and electrical appliances Zhongshan was so prosperous that, with Dongguan, Nanhai and Shunde, it was named one of the ‘four little tigers of Guangdong’. It was as successful in its policy of import substitution as Dongguan was in export processing.
The changes in domestic consumer preferences and global demand led Zhongshan to develop new industries − small household appliances, like electric rice cookers and electric fans, of which Zhongshan soon became the biggest producer in the world. In addition, it made air conditioners with many varieties for industrial, office and home use and developed as an OEM (original equipment manufacturing) base for a comprehensive range of electrical appliances, including updated LCD panel televisions for all important Chinese brands; consumer electronics, especially acoustics; lamps and lighting fixtures; locks and security devices, including those used in cars; stoves and other kitchen and bathroom ware, including heaters; furniture, in particular made of mahogany and in US styles; elevators with German and Japanese technology and investments; garments and clothes, notably casual dresses, jeans and underwear; and paper and food for Guangdong cuisine.
Many local industries have become leaders in the country, like jean production, which constitutes 40 percent of national production, and lighting fixtures 60 percent. With its neighboring cities, Zhongshan has emerged as the largest production base of electrical appliances and small household appliances in the world, with specifications and standards equal to those of advanced countries like Japan and Italy. Compared with the industrial processing of Dongguan and Shenzhen, volume of production is relatively small. But factories in Zhongshan have developed their own R&D and brand names together with national and international distribution networks. Industrial processing firms are just OEMs, vulnerable to market shifts when buyers take their orders to those who offer lower production costs. Zhongshan’s manufacturers are capable of competing in the national and international markets independently and have built up the knowledge for further evolution and upgrading.
Most of the firms in Zhongshan are start-ups; most remain small and medium-sized, with those of the same industry grouped together in the same town to share local knowledge, resources and infrastructure. They are, in many ways, like firms in industrial districts in the so-called Third Italy. The specialties are lighting fixtures in Guzhen, elevators in Southern District, electrical appliances in Nantou and Dongsheng, household appliances in Dongfeng, acoustics equipment and locks in Xialan, mahogany furniture and jeans in Dachong, American-style furniture in Bangfu and processed meat in Huangpu. For each industry in each town, there is a cluster of several hundred up to 1,000 firms taking part in the production chain.
In the 21st century, the real estate and service sectors have become an important driver of the economy.
Because of improved transport links, Zhongshan has become closer to Guangzhou, Hong Kong and Macau; the three core cities have become one hour away. This has drawn residential and business demand from residents and firms in these cities, making the expansion of the service economy a healthy supplement to slower industrial growth. In particular, real estate development, especially housing for non-local residents, has become a major engine of growth. This is very attractive to residents in Hong Kong, who may or may not have social ties in Zhongshan; but all suffer from spiraling property prices at home.
Since 2000, Zhongshan has become one of the most popular locations for second homes or retirement for Hong Kong residents. This is due in part to the strong social ties between the two cities, including the Cantonese dialect and Guangdong cuisine, which make it different to Putonghua- speaking Shenzhen. It is also due to the fact that the city is more livable because it is less polluted by automobiles, commerce and overcrowding than Shenzhen and Guangzhou. Older Hong Kong and Macau residents can find many traces of their old city and social life of the 1950s and before in Zhongshan and living costs are much lower. It is easy to travel to Hong Kong, Macau and Guangzhou as local transport has been greatly improved. MDT/Macauhub