THE VIEW
The View
by

Environment in Hong Kong, Pearl River cleaning up as old factories move out

PUBLISHED : Monday, 04 May, 2015, 8:30am
UPDATED : Monday, 04 May, 2015, 6:52pm

I like to joke that I moved to Hong Kong hoping for a competitive advantage, after hearing it was the densest city in the world.

It turns out they were talking about population density. Hong Kong maintains its long-held title of the city with the highest population density – except that now it is part of the largest urban zone in the world.

According to the World Bank, the Pearl River Delta has grown to become the world’s largest mega-city as measured by both area and population. And the World Bank wasn’t even including Hong Kong in the Pearl River Delta, as the Organisation for Economic Cooperation and Development does.

In a study published this year, “East Asia’s Changing Urban Landscape”, the World Bank found that the Pearl River Delta has overtaken the greater Tokyo metropolis as the largest in the world.

In 2000, the Pearl River Delta had 27 million people; by 2010 it had “an astounding 42 million” to quote the World Bank’s astonished demographers. This includes the nearly 20 million people living in Shenzhen and Guangzhou alone in 2010, split about evenly between the two places.

More recent estimates, and including Hong Kong and Macau, bring the Pearl River Delta’s population to roughly 65 million.

Not only is the Pearl River Delta expanding in numbers, the region is becoming more sprawling as surrounding rural lands are urbanised and industrialised. In 2000, the Pearl River Delta covered 4,500 square kilometres, and it grew a rapid 4.5 per cent a year to nearly 7,000 square kilometres in 2010.

There are many stories within this mega-city story, but here’s a quick, selfish angle: what does it mean for pollution in the region?

As the World Bank report emphasised, population gain and pollution often go hand and hand, for the simple reason that with more people and industries, more fossil fuels are burned. And the fact that China’s urban density has not increased – that much of the urbanisation is being created by expanding metropolis’ boundaries – intensifies the pollution problem.

On the other hand, urbanisation also increases productivity, which brings higher per capita income - which, in the long run brings the money and the demand for cleaner air.

It’s a slow process. In the past decade, Guangdong province has been trying to attract and focus on higher-end manufacturing, finance, real estate and services.

As result, the Pearl River Delta hasn’t exactly rolled out a red carpet for low-end and worker-intensive industries. In particular, municipal governments in the region started enforcing environmental regulations more stringently. Hundreds of thousands of low-end manufacturers have thrown in the towel; others who keep their factories have nevertheless chosen to expand elsewhere.

The evolution is slow because of the benefits of industrial clustering and good infrastructure – some 60 per cent of the world’s toys are still made in the Pearl River Delta, for instance, and footwear and textile output is still quite significant.

Still, by raising environmental standards and setting the mainland’s highest minimum wage, in time the region hopes to one day specialise in higher-value-added manufacturing. Not that cars and chemicals aren’t polluting either, but the good thing about getting rid of the old industries is that those factories were built in days of less-stringent environmental standards.

Meanwhile, the region’s services industries are expanding at pace. And if the Pearl River Delta wants to be a financial services powerhouse – and it already has three areas designated as financial services trade zones – then it has a strong imperative to hasten its clean-air initiatives.

Every time an old factory moves facilities to inland China or another country altogether, that is more space available to be converted into other, less polluting businesses – from research and development to back office facilities for a Hong Kong bank to a tech start-up.

In a way, the ongoing equity bull market in China is a wind at the back of this trend. By creating a viable “exit” for private equity investors, Shenzhen’s ChiNext board has attracted private equity firms, and when ChiNext opens to Hong Kong investors as expected later this year (through the Shenzhen-Hong Kong Connect scheme), the tech board will get even more turbo-charged.

All this activity will be good for the region’s revenues, setting the stage for a further raising of environmental costs and more government investment in transport alternatives to cars.

So let’s hear it for China’s bull market.