Guangdong deserves praise for reaction to US trade war

The province is making serious efforts to woo overseas investors and shore up domestic manufacturers by rolling out measures to relax foreign ownership rules and reduce costs

PUBLISHED : Tuesday, 25 September, 2018, 7:53pm
UPDATED : Tuesday, 25 September, 2018, 10:14pm

Guangdong has suffered erosion of its international competitiveness for years from rising labour, land and utility costs. There have been promises of more reforms and opening up that would have enabled the province to compete with emerging markets, but little action until now. The United States trade war has made the difference, and its impact is held partly to blame for a contraction in Guangdong’s export industry last month. Moreover, the longer it continues the greater the incentive for companies to relocate to other places in Southeast Asia and Africa. To counterbalance the trade war’s increasing impact, the province is making serious efforts to woo overseas investors and shore up domestic manufacturers by rolling out measures to relax foreign ownership rules and reduce costs. This follows a direction from the Politburo at the end of July to take steps to stabilise an economy facing downward pressure on growth from the trade war as well as from Beijing’s campaign to reduce “risky” shadow bank lending.

Even without the trade war, reforms to free up the private sector, the backbone of the economy and job creation, have long been needed to ensure a sustainable model of economic growth. The measures were therefore overdue. According to new foreign investment rules, Guangdong will allow foreign investors to set up wholly owned ventures to manufacture new-energy vehicles, aircraft, drones and other high-end products – without a local joint-venture partner, and promises to provide free land for any projects with an investment of more than 2 billion yuan (HK$2.3 billion). Allowing wholly owned foreign ventures in areas where they will compete with a number of Chinese players is a significant step.

China willing to talk trade but not with American ‘knife at its throat’

To help save the existing manufacturing industry, the government rolled out 10 major measures, including corporate tax cuts in the province as well as reduced costs for land use, electricity, transport, financing and payments for employees’ social security. Collectively, these moves are estimated to cut costs by 200 billion yuan up to 2020. The scope of the incentives reflects the weight of pressure from emerging-market competition and trade tensions.

As the heart of China’s export industries, Guangdong was always going to be the first province with comprehensive measures to help local factories, setting an example that others can soon be expected to follow. Given China’s size, manufacturing will be an important economic sector and job creation force for the foreseeable future. Guangdong is to be commended for taking the first concrete steps to enable it to remain competitive in the face of trade tensions and protectionism. If they prove successful, it is to be hoped that other provinces will soon follow.