'Our province is facing unprecedented challenges to its development. International competition is growing more intense by the day. Trade protectionism is rising. Prices of petrol and other important fuels are fluctuating,' he said at the opening of the Guangdong Party Congress.

Guangdong also faced great pressure from resource and environmental degradation, while costs in the Pearl River Delta were rising and social conflicts increasing, he said.

'Strengthening innovation is the core of our economic upgrading. We have to transform a resource-driven economy to an innovation-driven economy.'

Mr Zhang pledged to speed up investment in risky and innovative ventures and step up protection of intellectual property rights, and spoke about promoting entrepreneurship.

He promised stronger co-operation with Hong Kong and Macau on cross-border infrastructure projects, finance, logistics, professional services, science, education, culture, tourism, police, customs, food, health, environmental protection and in other regional areas.

On environmental protection, the party chief said awareness should be raised in rural and mountainous areas, and the migration of pollution from developed to undeveloped areas would be strictly prohibited.

Without mentioning the headline-grabbing corruption and land disputes in Taishi and Dongzhou that were violently put down in 2005, Mr Zhang said Guangdong had seen fewer cases of 'mass incidents' - party jargon for mass protests and riots.

He said a mechanism to resolve social conflicts would be completed and grassroots organisations strengthened to resolve disputes locally.

He suggested there was a need to widen social security coverage for displaced farmers and find them jobs.

A Guangdong Academy of Social Sciences source questioned how much longer Guangdong's export-driven economy could sustain itself, given the bottlenecks posed by limited resources, environmental pressures and the demand from people for a better life.

'It's a long road to be innovative. Only three developed regions in the world can call themselves innovative: they are North America, EU countries Britain, Germany and France, and Japan. If Guangdong does not take this path, there is no other path,' he said.

'We have to talk about innovation for years before it can happen - this is not like other slogans.'

The academy source gave high marks to Mr Zhang's comments on the economy but said his report on the political situation paled in comparison.

'The economic report is tailor-made for Guangdong but the points on politics are not specific to it.'

A Sun Yat-sen University academic said measures to handle social disputes were provided for under the recently amended petition regulation, which required problems to be handled at the source.

However, they had their pros and cons.

'On the one hand, once an incident occurs, compensation is paid within a day or two. On the other hand, local officials are muzzling the press and using force resolutely to suppress any unrest, even though they know they will be criticised,' he said.

In addition to reviewing the province's economic development, the five-day party congress will elect the province's representatives to the 17th Party Congress to be held later this year and to a new provincial party leadership.

Economic indicators

Over the past five years, per capita GDP in Guangdong rose 80 per cent to (in yuan): 28,077

Urban incomes rose 9 per cent to: 16,016

Rural incomes rose 6.1 per cent to: 5,080