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Business
Adapting to a New World
Guangdong could be an ideal testing ground for economic innovation
By Bryan Michael Galvan | NO. 50 DECEMBER 10, 2015

Derrick Xiong (left), cofounder of Ehang Intelligent Co. Ltd., shows his company’s new product to visitors (WEI YAO)

Captains of foreign industries gathered at the warm capital of south China's Guangdong Province, Guangzhou, to set forth plans for increased investment and cooperation in China. This year, "innovation" was the most repeated topic at the International Consultative Conference on the Future Economic Development of Guangdong Province held on November 19.

Key questions central to the meeting included: As China shifts its main economic engine from export and investment toward consumption, what roles will these companies play in the region's future? How will Chinese companies address environmental concerns while simultaneously pushing for profits?

Zhu Xiaodan, Governor of Guangdong, presided over the meeting which included executives from Maersk, BP and Siemens, among 17 other prominent foreign-owned companies.

Realizing the challenges lying ahead, Zhu told Beijing Review  that a main problem has been that the demand from industrialized countries has declined in recent years. He also cited "a rise in terms of costs with increased competition from Southeast Asia" as an ongoing issue for China as it implements its 13th Five-Year Plan for 2016-20.

One of the key aspects of the plan is to continue growth at a "new normal" pace of 6.5 percent, while maintaining the environment and opening up further to the outside world, according to a recent interview with Chinese President Xi Jinping by Xinhua News Agency.

"There would also be many other problems," Zhu noted, in addition to environmental concerns, "such as the availability of resources. Therefore, the province will take the coming years as a period of a comprehensive transformation of its manufacturing industry, where innovation and new technologies should form the central driving forces for improvement."

Opportunities for innovation 

Successions of manufacturing bankruptcies in recent months have rocked the China Pearl River Delta region, where Guangzhou is located. In addition, 38 percent of the region's enterprises that have been funded by Hong Kong and Taiwan are suffering from decreases in orders, according to a survey by Standard Chartered Bank.

In spite of this weakening performance, technology-centered industries that are geared toward consumers and environmental protection are growing. This growth was reflected in the tone and content of the foreign executives' comments at the conference as they discussed the area's burgeoning potential.

Rudolf Scharping, former German Minister of Defense and now head of the private consulting firm RSBK, described Guangdong's environment as conducive to innovation thanks to the "open policies" of the local government.

At the individual level, Scharping encouraged people to "think, discuss, make decisions and act--be ready to act informatively and most of all, be ready to take risks." Regarding changes to Chinese society, he also encouraged people to create opportunities and an environment that is accepting of failure. In closing, he said that "innovation is the key to making Guangdong ready for the future."

Creating, acquiring and promoting talent represent the actual basis for innovative development, according to Zhu. Indeed, with increased government support in emerging fields such as mobile apps, consumer electronics and renewable energies, China has seen a surge in startups with 3.16 million new companies registered from January to September this year, according to the State Administration for Industry and Commerce.

Among these pioneers is Derrick Xiong, the 26-year-old cofounder of Ehang Intelligent Co. Ltd., based in Guangzhou. His company produces unmanned aerial vehicles, also called drones, which can be controlled through the use of a smartphone and supports virtual reality technology.

At an interview with Beijing Review , Xiong, who has also started companies in incubators in the Silicon Valley, Israel and Singapore, is adamant about the business prospects in China.

"I feel this is the right time for entrepreneurs like me that have been educated in the West and understand a local market--they can come back to China to make a product here in a really fast-paced environment and then create an overseas market. So I think that is the best thing about China," he stated proudly.

"This is the best time, the best location and the best [country] to do business in these days," Xiong exclaimed excitedly, adding that more and more Western entrepreneurs are moving to China. Even Silicon Valley startups such as Uber have started encroaching on the world's largest personal transportation market.

Desay SV Automotive Co. Ltd., based in Huizhou, another city of Guangdong, also attributes its success in becoming one of the leading manufacturers of automotive electronics in China to innovation. "Chinese companies are no longer copying [others] today, but instead going into alliances with leading suppliers," said Tan Choom Lim, President of Desay SV Automotive. "In a globalized economy that is an important and legitimate way to bring about new technologies in the shortest possible time," Lim emphasized.

Environmental impetus 

A dense scourge often hangs ominously over the heads of commuters during Beijing's winter months, blotting out the sun and forcing people to seek refuge from the pollution. Although China is the world's largest emitter of greenhouse gases, it is also currently one of the world's leaders in renewable energy production.

Yet the question remains: Can China break free from its fossil fuel addiction?

During the Communist Party of China's Central Committee meeting in October on the draft of the 13th Five-Year Plan, there was a focused discussion on how the plan would help curb emissions and support investments in clean energy sources as a way to provide greater energy security.

While Beijing grapples with mounting concerns over the use of coal for power plants and the air pollution levels which have reached "hazardous" levels several times in recent months, it also sets a precedent for other provinces that have pledged to comply with greener regulations.

"The environment is our top priority for continued development, and we will focus on keeping our city's air and water clean," said Mai Jiaomeng, Mayor of Huizhou, which is considered a major site for the petrochemical industry as well as an important location for emerging information technology sectors. In his remarks, Mai put emphasis on striking a balance between ecological sustainment and economic development.

"Environmental protection is tough, but we will abide by the Central Government's regulations. It is our obligation to future generations," he said.

Meanwhile, the drive for greener solutions is pushing local industries toward compliance.

Gestamp Group's Dongguan factory in Guangdong manufactures automobile components for a variety of foreign and domestic companies. General Manager Michael Resha moved from the United States to China in order to follow the opportunity for growth amidst what he claims to be the world's largest automobile sales field in the world.

Although the recent economic slowdown had led to lower sales during the second quarter of 2015, Resha told Beijing Review  that recent government tax incentives have actually reversed the figures and increased car sales. In addition, the added demand for greener technology has allowed Gestamp Automotive to develop "light but thick" car components that reduce fuel consumption in cars.

Staying ahead for hi-tech businesses is a key concern, Resha said. "We're already looking toward the future. We need to stay ahead of the competition."

In fact, the large factory is filled with a number of state-of-the-art robots handling heavy metal parts, dangerous lasers and red-hot products. It houses 394 workers from the region, but the rest of the space is filled with robots.

China is no longer a low-cost country, Resha explained as he provided a tour of the facilities to Beijing Review . "Our factory is now setting the benchmark for Europe as well as China in terms of robotics," he said, claiming that they are 10 years ahead of local competition in integrating automation into their assembly lines, including their work on more eco-friendly parts.

Work remains 

Although China is still heavily reliant on coal as a source of energy, the China National Coal Association (CNCA) reported that the country's coal consumption had decreased in the first 10 months of 2015. The economic slowdown, falling production numbers and the increasing use of renewable energies were key factors, according to the CNCA.

Alternatives to fossil fuels are also an increasing source of interest in China to foreign investors.

Japan-based Marubeni Corp. already has plans for investing in Guangdong. Teruo Asada, Chairman of Marubeni said the company was "actively investing in renewable energies such as solar and wind power in China."

As China looks to open a new chapter as a leader in advanced manufacturing and innovative industries, Guangdong may prove to be an effective testing ground. Since the late 1970s, the region has successfully made the transition toward industrial modernization. But whether or not Guangdong, or China more generally, can foster innovation and see climate change as an opportunity and not just a challenge, remains the key question.

Copyedited by Mara Lee Durrell

Comments to yushujun@bjreview.com

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