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Opportunities highlighted for foreign investors under new development trend in Guangdong

The GAC TOYOTA production line in Guangzhou, Guangdong, China

“Foreign investment in Guangdong mainly falls into three types: foreign trade-oriented, manufacturing-oriented, and service-oriented. Service-oriented foreign-funded enterprises have shown a rapidly increasing trend in recent years,” Joanne Wang, Guangdong Markets Leader of PwC China, told GDToday and Lianhe Zaobao at a joint interview on the high-quality development in Guangdong, the province perceived as the economic engine of China.

She took Shenzhen as an example, saying that the city’s actual use of foreign investment in the high-tech industry hit 4.5 billion USD in 2022, accounting for 41 percent of the city’s total. The actual use of foreign investment in the high-tech service industry increased by 13 percent year-on-year, indicating a rise in the quantity and quality of foreign investment.

Manufacturing industry to see “qualitative breakthrough”

The Guangdong government vowed to boost high-quality development at a grand conference held on January 28, the first working day after the Chinese New Year holiday, which indicates a shift in focus from quantitative economic indicators to sustainable and environmentally-friendly growth.

The province emphasized the role of manufacturing industry in its new round of development, and highlighted its 8 industrial clusters with more than 1-trillion output, including new-generation electronic information, green petrochemicals, intelligent home appliances, advanced materials, modern light industry and textiles, software and information services, modern agriculture and food, and automobiles.

“Guangdong’s OEM service took off 45 years ago and drove the province’s foreign trade and overall development for years. Now that Guangdong’s manufacturing industry has achieved leapfrog development, it needs a qualitative breakthrough to drive further growth,” said Guo Wanda, Executive Vice President of China Development Institute (CDI).

Wang Jun, Former President of the Guangdong Academy of Social Sciences, analyzed that Guangdong is now driving the quality of its manufacturing industry through increasing the investment in basic research, saying, “It indicates that the province attaches great importance to original technological innovation.”

According to the Department of Science and Technology of Guangdong Province, Guangdong’s basic research funding accounts for 4.23 percent of the total research and experimental development (R&D) expenditure in 2018, which is relatively low nationwide. The number grew up to 5.87 percent in 2020 and 7.64 percent in 2022, and is expected to reach 10 percent by 2025 and 13 percent by 2030.

In addition, Wang believes that the electronic information industry which is a pillar industry of Guangdong, will provide the technologies and industrial facilities needed for smart manufacturing.

Position in global supply chain maintained with focus shifted

To draw in investment and boost the economy, emphasis is also placed on efforts to improve the business environment for foreign companies. Guangdong Governor Wang Weizhong said the province would implement the national treatment of foreign-funded enterprises and expand their market access.

Joanne Wang explained that policy transparency, government efficiency and tax costs are the three factors that foreign-funded enterprises are concerned with most when evaluating a business environment.

Klaus Zenkel, Vice President of the EU Chamber of Commerce in China and Chairman of the European Chamber South China Chapter, added that factors such as intellectual property rights protection, tax incentives as well as the supply of green energy are key to foreign companies when it comes to high-quality and sustainable development.

Guangdong is drafting an action plan to optimize the business environment, addressing issues such as the inadequate implementation of policy documents and prominent feedback from enterprises, according to Huang Huadong, Deputy Director-general of the Guangdong Development and Reform Commission.

Some foreign companies, including Toshiba and Samsung, have relocated their production lines from China to Vietnam, Thailand and other Southeast Asian countries over the past two years, sparking discussions about China’s changing position in the global supply chain.

Zenkel considers it a China Plus One Strategy that has been adopted by most multinational companies, that is, setting up factories in both China and other countries, to ensure a more flexible and complete supply chain ecology. “Our Business Confidence Survey shows most companies would like to stay in China and have no plan to move away from the country,” he said.

“China has maintained an important position in the global supply chain and served the global market for a long time with a complete range of industries, well-developed infrastructure and abundant industrial professionals. Southeast Asian countries lack these elements, as a result of which, the relocated manufacturers have not yet shown particularly good economic benefits,” said Joanne Wang.

Based on the Government Work Report, Guangdong will adopt a new pattern of investment promotion in 2023 and attract domestic and foreign capital to the entire industrial chain. It will prioritize technological and manufacturing enterprises with strong competitiveness.

Wang Jun said that compared with the labor-intensive industries such as furniture, clothing, and textiles in the 1980s and 1990s, future competition and opportunities lie in high-tech manufacturing and services. Provinces and regions of China are now putting solid efforts into attracting foreign investment in these sectors.

Source GDToday