This Research Bulletin has been published in Regional Studies, 50 (6), (2016), 1069-1081.
Please refer to the published version when quoting the paper
In the past several decades, globalization and worldwide capitalist restructuring have profoundly changed the spatial organization of world economy. Selective economic concentration, deconcentration, and re-concentration have not only reconstructed the economic structure of cities and regions, but also reshaped their functional connections with the outside world. One significant outcome is the emergence of prominent city regions with complex internal networks and external linkages all over the world (HOYLER et al., 2008; PAIN, 2012). These regions, often preceded by “global” or “mega”, have become key arenas for high-end economic activities and the generation of innovations (SCOTT, 2001, 2008; HERRSCHEL and NEWMAN, 2002; BRENNER, 2004). At the same time, their prosperities are increasingly attached to their capability to combine a healthy “local buzz” with “global pipelines” (MALMBERG, 2003; BATHELT et al., 2004).
Many studies have been undertaken to capture the mechanisms of such global/mega city regions under current processes of global economic restructuring (to list a few, HALL and PAIN, 2006; REGIONAL STUDIES, 2008; TAYLOR et al., 2009; LÜTHI et al., 2010; DERUDDER et al., 2012). One common feature of them is that most are limited to developed economies. However, with ongoing globalization, regions in developing areas are also increasingly connected to the global economic system, being reshaped by such processes, and, in their turn, boosting globalization into a new level (DOUGLASS, 2000; FLORIDA et al., 2008; JONES and DOUGLASS, 2008). Due to their success in manufacturing (usually foreign investment-driven, export-oriented, labor-intensive assembling), research on these regions has basically focused on the process and influence of rapid industrialization. In comparison, although displaying considerable growth, services, especially advanced producer services (APS), have only attracted marginal attention (DANIELS et al., 2005). How regions in developing countries are reshaped by advanced services and how they are connected to the global urban system has remained a black box.
This research focuses on the Pearl River Delta (PRD), the famous “workshop of the world”, to explore its internal and external service networks drawing on the model developed by the GaWC1. Several characteristics compared to its western counterparts make the PRD especially interesting. Its extraordinary size, over fifty million residents make it one of the most densely populated regions in the world. Its rapid industrialization and urbanization, from 1978 to 2006 the level of urbanization in the region increased from 16.26% to 79.6% (XU and LI, 2009). Its important role in China’s economic landscape, it created more than 9% of China’s GDP and nearly 30% of its export in 2010. In addition, its distinct path of modernization with complicated, even opaque, state-market relations (JACQUES, 2012). The purpose is drawing on a methodological framework based on regions in advanced economies to study a developing and transitional city-region to gain new insights on this evolving urban form. The central question is how the PRD is reshaped by advanced producer services in terms of regional spatial equality, national and global linkages. The article starts with a brief review of the theoretical progress on globalization and regional development and restructuring in China, focusing on the PRD. Then some basic information about the economic development and transition of the PRD in the past three decades is provided. The fourth section deals with methodology and data. Main findings are presented in the fifth part followed by a final discussion.
Globalization and regional development and restructuring in the PRD
Since the 1990s, the integration of China within the world economy and its regional restructuring and development have become an important research area. The PRD, as the first region experiencing globalization and economic transition in China, is of particular interest to researchers. Due to the key role of foreign investments in the region during its initial developmental stage, most early studies focused on the characteristics of foreign investments and their spatial effects, especially their influence on the regional urbanization process. A common finding is that during the 1980s and early 1990s, FDI (primarily from Hong Kong) flowed into the PRD mainly concentrated in small and medium scale, labor-intensive, processing-types and export-led manufacturing, promoting the “foreign-investment-induced exo-urbanisation” characterized by the predominant growth of smaller urban places and rural areas, especially along the border with Hong Kong and Macao, at the expense of a declining primacy of Guangzhou and other traditional centers (SIT and YANG, 1997; see also XU and LI, 1990; ENG, 1997; LIN, 2001). Later, SHEN et al. (2000) noticed that this pattern had begun to change with a diffusion, accelerated remarkably since 1990, of foreign investments from zones near Hong Kong to surrounding areas. Recently, ZHAO and ZHANG (2007) distinguished two types of FDI: production-oriented FDI that favored urban outlying areas or small cities/towns, and FDI focusing on high-end services which concentrated in the CBD of major global cities. According to them, the interaction of these two processes enabled the rapid growth of Chinese global city-regions, including the PRD. Except highlighting the crucial influence from Hong Kong, these earlier studies paid little attention to the external connections of the region with the world economy.
More recently, partly influenced by the “relational turn” in economic geography (BATHELT and GLÜCKLER, 2003) in general and the work on global production networks (GPN) (DICKEN, 1998; HENDERSON et al., 2002; COE et al., 2004) in particular, scholars shifted their interest to the global-local linkages and interactions between the PRD and the GPN, as well as their regional implications. LEUNG (1996) noticed that the production and linkage characteristics of foreign manufacturing investments in Guangdong were complex and varied between firms from different source countries. YANG (2007), YANG and LIAO (2010) also proved that clusters in the PRD with investments from Hong Kong and Taiwan had evolved in different sectoral and spatial patterns, and had adopted different approaches to organize their cross-border production since the late 1990s. At the same time, other studies began to pay attention to the localization of foreign investments in the PRD and a new process of industrial upgrading and regional restructuring. LU and WEI (2007) deemed that unlike the externally-driven development in the 1980s, new economic activities and spaces in the PRD were more part of an external- and internal- integrated development path. MEYER et al. (2012) observed a tendency of localization and upgrading in the electronics sector in the region. They proposed that the early “front shop-back factory” model between Hong Kong and the PRD needed to be modified. In the ICT industry, however, WEI et al. (2012) found that foreign ventures’ local embeddedness was still limited. YANG (2012) revealed the obstructive effects of prevailing institutions for further regional restructuring in the PRD.
In sum, during the past two decades, studies on globalization, regional development, and economic restructuring in the PRD have moved from depicting the distribution of FDI and exploring its influence on the regional urbanization process, to more detailed analyses of the region’s external connections with the GPN, the changing patterns of global-local interactions, in relation to regional economic restructuring. As the primary driving force of the “workshop of the world”, manufacturing has taken up the central position of investigation. Service sectors, especially APS, so far only attract marginal attention (YEH, 2005; LIN 2005; YANG et al., 2009).
Producer services can play significant roles in regional development: promoting economic growth, aiding firms in all sectors to export and to increase productivity and competitiveness, facilitating economic change and adaption, etc. (DANIELS, 1993; COFFEY, 2000). Besides, they are also important drivers in reshaping regional spatial structures and functional connections. Internally, shifting toward service economies causes simultaneous processes of concentration and deconcentration within the broader area, promoting the formation of multi-centered service clusters (DANIELS et al., 2005) and polycentric city-regions (SCOTT, 2001; HOYLER et al., 2008). Externally, through their transnational office networks, the “global players” of APS firms maintain flows of information and interactions among different centers of knowledge creation all over the world (TAYLOR, 2004), linking cities and regions to the global knowledge economy (HALL and PAIN, 2006).
Given the fact that globalization of services is increasingly expanding into traditional manufacturing areas in developing countries and leading to a general shift of service centers from “West” to “East” (DERUDDER et al., 2010), it is worth paying attention to the argument made by DANIELS et al. (2005): “the tertiarization process and experience within the Asia-Pacific does follow in some respects the broad outline of the trajectories shown by the mature economies of the Atlantic core, but there are some significant contrasts.” Therefore, more empirical work is needed to understand how current manufacturing regions in developing countries are being reconstructed and reconnected by modern service activities within the broader economic network, and how this process is influenced by local specific contexts.
The Pearl River Delta: the “workshop of the world” in transition
With China gradually practicing economic reform and opening up to the world from 1978 onwards, the PRD has become one of the fastest growing and globalizing city-regions in the world. Located on the southern coast of China, it comprises nine municipalities from Guangdong province with a total population of 56 million. Geographic proximity to Hong Kong and extensive social network connections with oversea Chinese entrepreneurs enabled this region to be chosen by the central government as the first place to practice flexible economic policies (LIN, 2001). Two of China’s earliest Special Economic Zones (SEZs), Shenzhen and Zhuhai, were established here in 1980 and the entire region was designated as an Open Economic Zone in the late 1980s. The opening up of the PRD coincides with the global shift of manufacturing activities from advanced to newly industrializing economies since the 1980s (DICKEN, 2011).
A large and cheap labour force, sufficient land resources, as well as support from local authorities attracted huge overseas investments, primarily from Hong Kong, Macao and Taiwan, but also from Japan, the United States and other developed economies (SIT and YANG, 1997). Between 1980-1993, the accumulative foreign investment in the PRD reached up to US$ 20 billion, accounting for 68% of the total in Guangdong and 17% in mainland China. Most investment (nearly two thirds) flowed into manufacturing. As a result, the PRD has quickly transformed into an “industrial-based export-oriented economy” characterized by labor-intensive, assembly manufacturing types of industrialization (SIT and YANG, 1997). Subsequently, it has become the famous “workshop of the world” (DICKEN, 2011; JACQUES, 2012), home to many world leading manufacturing clusters (YEUNG, 2003), and an important gateway in integrating China with the world economy. Such internal structural transforming and global integrating have brought this region dramatic growth and a rising status within China’s economic landscape in the past thirty years (Table 1).
Table 1: Growth of the PRD 1979-2010
* No data for Zhongshan and Jiangmen.
Source: Guangdong Wu Shi Nian 1949-1999 (Fifty years of Guangdong 1949-1999), Guangdong statistical yearbook 2011, China Statistical Yearbook 2011.
However, great success in manufacturing does not tell the whole story. Although initiated by manufacturing, economic growth in the PRD has been accompanied by the development of services from the start. As shown in figure 1, the tertiary sector experienced the fastest growth in the last three decades. In 2010, it already took over the secondary sector as the primary contributor to local GDP. Unlike the linear consecutive and progressive sector transition in western countries, economic growth and transition of the PRD is characterized by a simultaneous expansion of both manufacturing and service economies (see LIN, 2005).
Figure 1: The change of the composition of GDP in the PRD
After entering the new millennium, export-oriented industrialization in the PRD has encountered enormous challenges due to the rise of labour costs, appreciation of RMB, inflation and rising costs of raw materials, and a shortage of labour (YANG, 2012; The ECONOMIST, 2012). High-end producer services are becoming a potential growth engine and an important impetus for upgrading the region within the global value chain. Between 2003 and 2010, producer services in Guangdong showed significant growth (table 2). Employment in these sectors almost doubled from 2.41 million to 4.65 million. Their share in the employment of total services and total industries increased from 19.8% and 5.5% to 23.8% and 8.1% respectively. Meanwhile, FDI actually realized in producer services also doubled from 2.83 USD billion in 2006 to 5.68 USD billion in 2010. In total, 75% of FDI in services and 27% in all sectors went into producer services (Table 3). Realizing the important function of producer services in attracting investment and stimulating economic growth, the governments at different levels take fostering their growth as a key regional development strategy. Advanced producer services stand out in “The Outline of the Plan for the Reform and Development of the Pearl River Delta (2008-2020)” and many municipalities’ “Twelfth Five-year Plans”. It is quite common to see local municipalities actively building modern infrastructures, CBD, technical park, logistics center etc., as a way to attract higher-end business services.
Table 2: The growth of employment in producer services in Guangdong
Table 3: FDI actually realized in producer services in Guangdong
With the increasing pressure to upgrade manufacturing, the fast growth of producer services, and the support from governments, it seems likely that the PRD is now entering a new phase of economic transition toward the higher-end of the global value chain. Modern producer services will be a key driving force and a beneficiary of this. Such industrial transition will not only affect the PRD’s economic performance, but also restructure its connections with the broader economic network.
Method and data
The Interlocking Network Model
The interlocking network model, as demonstrated by the GaWC, is a useful tool for estimating linkages between cities within the global service network (TAYLOR, 2001, 2004, 2012). The POLYNET project expanded it into the study of functional connections of city-regions in Western Europe and generated new insights (HALL and PAIN, 2006). Its basic idea is that the spatial organizations of multi-location APS firms are the outcomes of their long-term operational strategies, reflecting their considerations of the investment conditions and potential values of different places. A city entering the office network of a single firm can be interlocked with other cities through flows of information and knowledge within such network. Two cities may have a stronger connection if they share more office networks from the same firms. The importance of a city in the overall economic system can also be deduced from the features of networks it is connected to. So, in the absence of comprehensive relational data, a close examination of firms’ office networks can provide a surrogate measure of the functional connections between cities where these offices located in, and the position of each city within the regional/national/global economy2.
Five APS sectors were selected for this research: banking, insurance, accountancy, law, and advertising. This is a smaller selection compared to the POLYNET project which used eight sectors. Design consultancy and management consultancy were excluded because a pilot data collection showed that these two sectors were still very new in the PRD and only a few multi-location firms existed. Logistics was left out due to data collecting difficulties. The construction of the service value matrix includes three steps:
To make data collection and analysis feasible, a limited but sufficient number of cities was selected at the regional (the PRD), the national (mainland China), and the global scale. Regionally, all nine cities within the PRD were selected. National cities were chosen according to cities’ administrative function (i.e. provincial capitals) and economic performance (i.e. GDP) in the national city system. The selection of global cities was primarily based on the GaWC’s world city index 2008 (all ALPHA and BETA cities), complemented by some extra cities which were found important during data collection. Finally, 9 regional cities, 43 national cities, and 95 global cities constitute the city set.
Typically, studies using interlocking network models only focus on leading international firms. But in this research, since APS industries are not highly developed in the PRD and only a limited amount of international firms are located there, it is necessarily to include firms varying from large multinationals to small local operators. For conducting the analysis, a firm had to meet two basic criteria: it should have at least two offices (multi-location firms), and at least one of its offices should be located within the PRD. Besides, some firms only had offices within the region, while others also had offices outside it and even abroad, so sets of firms were different according the scales of analysis. No single database containing a complete list of all APS firms within the region was available. Firms were identified from different sources, including statistical yearbooks, reports from specialized associations, and business rankings etc. Different sources were mutually checked to ensure that all important firms were included.
For banking and insurance, only a limited number of banks and insurance firms operated in China, and even fewer had offices within the PRD, so all firms from these two sectors met two criteria were selected. For law, accountancy, and advertising, the number of firms was quite large. However, most of them were small single-office firms which could not be used for the network analysis, and the number of identified multi-location firms was, hence, relatively small. So, basically, most multi-location firms in these three sectors were included.
Information concerning offices’ location and function was collected mainly from firms’ official websites, supplemented by some specialist statistical websites and other internet sources. Firms with no information available were excluded. The final database comprises 219 APS firms (Table 4).
Table 4: Distribution of APS firms across selected cities
Determining Service Value Matrix
To make the different firms comparable, each of their locating cities was allocated a service value. This service value indicated the importance of a city within a firm’s overall business network. Service values needed to be allocated on a unified scale. GaWC used a 6 grades system from 0 (no office) to 5 (headquarter) to study the world city network, while the POLYNET project reduced it into 4 (from 0 to 3) to coordinate different research teams. A single valuing system is less problematic when firms are similar in size (e.g. when all of them are large international firms). However, since firms used in this research differed in size, ranging from small local firms with only two offices to large international ones, it was necessary to consider such difference.
The strategy used was setting a maximum service value for each firm according to the amount of its locating cities, ranging from 3 (headquarter city of a firm locating in less than 20 cities) to 5 (headquarter city of a firm locating in more than 40 cities). All cities with a firm’s presence were initially allocated a standard service value 2 (a standard office), while cities with no office scored 0. Then, a city’s service value might be lowered to 1 or be raised to 3, 4 or 5 according to the sizes and/or functions of its offices. It was relatively easy to identify headquarters and the absence of office. But the identification of higher or lower level offices proved more difficult due to the limited availability of information. This may result in some subjective valuation for some cities. Since the number of firms is large enough, the aggregated service value should be valid to reflect cities’ real condition.
Mapping the intra- and extra-service networks of the PRD city region
Firms and Offices
The 219 firms operate through 569 offices in the region (without repetitively counting offices belonging to a firm within the same city) (Table 4). Most firms (79%) choose to maintain a presence in Guangzhou. Especially in advertising, all 36 firms have set up an office(s) in the provincial capital city. Shenzhen follows Guangzhou not far behind, attracting about two thirds of all firms. It even takes the lead in banking and insurance. The gap between these two cities and other followers is quite large. Among the rest, Dongguan, Foshan, Zhuhai and Zhongshan can be classified into the second group. However, none of them has offices from over 50 firms. Three geographic peripheral cities (Jiangmen, Zhaoqing and Huizhou) are chosen by only a few firms.
Table 4 also shows that different APS activities have quite diverse location strategies. Insurance and banking are two most widespread sectors within the PRD. They also maintain extensive international service networks. This indicates that banks and insurance firms have a strong demand to keep close relations with local clients and, therefore, maintain a broader service network. Many firms from these two sectors are large international or national financial suppliers with widespread offices in the PRD. They can make significant contribution to this region’s overall connectivity. Accountancy is the most ubiquitous sector at the global scale. However, it is relatively concentrated in the PRD. Most accountancy firms provide services to the region mainly through only one or two service centers (typically, either Guangzhou or Shenzhen). Advertising is also a highly internationalized sector. About half firms in the database are international advertising companies with headquarters outside China. However, advertising firms prefer a single-office operating strategy in the PRD. Apparently, Guangzhou is the most attractive city. This sector significantly improves the PRD’s global connectivity, but it contributes almost nothing to its regional connectivity. Law is highly concentrated at both scales. Although in this sampling it contains the largest number of firms, their average size is the smallest at the global level and second smallest in the PRD. It is the most localized sector with quite limited contribution to the region’s overall connectivity.
Networks and Connections
This part examines the pattern of the PRD’s service connections by adding up office linkages between pairs of cities and mapping outcomes within different geographic territories.
Figure 2 shows that the strongest service connection within the PRD is the one linking Guangzhou and Shenzhen, confirming the dominance of these two core cities in the regional service market and intensive interactions between them. Next are four connections between this pair of cities and two important regional manufacturing centers: Guangzhou-Foshan, Shenzhen-Foshan, Guangzhou-Dongguan, and Shenzhen-Dongguan. However, they are much weaker compared to the primate one. Even the second strongest connection (Guangzhou-Foshan) is only about 37% of that between Guangzhou and Shenzhen. Other relatively robust connections are those connecting Guangzhou/Shenzhen and two smaller cities (Zhongshan and Zhuhai). Obviously, most minor urban centers in the PRD are primarily connected with Guangzhou and Shenzhen, but not well connected with each other. An uneven spatial pattern can be observed. Four geographically nearby cities (Guangzhou, Shenzhen, Foshan, Dongguan) compose a well-connected regional core, and connections of other cities decay with the increasing of their distances from this core area.
Figure 2: Regional connections of the PRD
This pattern indicates an emerging regional service network, although still at an early stage, in the PRD. Financial sectors (banking, insurance) are main contributors to this regional network formation. This network has a very strong bias toward regional core cities, especially provincial capital Guangzhou and financial center Shenzhen. Most firms’ regional headquarters concentrate in these two cities with only two exceptions (one law firm in Foshan, one bank in Dongguan). Therefore, it can be inferred that market demand is the primary driving force for firms to extend their networks into other cities.
Beijing and Shanghai are the two best connected national cities with the PRD (Figure 3). These two cities perform “qualitatively different roles” with Beijing as the historical political center and, linked to that, also a significant economic center, and Shanghai as the largest city and the most important financial and commercial center in mainland China (LAI, 2012). They occupy key positions in China’s national urban system and share the majority of national headquarters of APS firms. It is not surprising to see them standing out in the PRD’s national service network. Following them are a series of important regional centers in both economic and administrative senses, such as Chengdu, Hangzhou, Tianjing, Nanjing, Wuhan, etc. In comparison, provincial capitals with less economic importance in the middle and western part of China (e.g. Guiyang, Langzhou, Lasha, Yinchuan, Xining) have the weakest connections. On the other hand, some cities (such as Suzhou, Wuxi, Tangshan etc.) showing very impressive economic performance but undertaking less administrative functions compared with provincial capitals, only have middle-level connections with the region. So it is appropriate to infer that most regions in China are connected with the national service network mainly through one or two regional centers. These centers are not solely determined by pure economic achievements, but also influenced by their administrative functions.
Figure 3: National connections of the PRD
Specific to individual cities, their national connections are quite similar with each other, basically copying the pattern of the region in total (Figure 4). For all cities, Beijing and Shanghai are the two best connected service centers with an obvious advantage. Following them are several major regional centers such as Hangzhou, Chengdu, Wuhan, Tianjing. Although their rankings change slightly among different cities, gaps between them are quite small. This pattern suggests that cities in the PRD have very similar ways to connect with the national service network. No city has a unique orientation toward any preferential region.
Figure 4: Top five connected national cities of different cities in the PRD
Figure 5 shows the top 30 global cities in terms of connections with 9 cities of the PRD. Hong Kong is the city with which most linkages exist. Due to its strong global city status, competitive institutions and regulatory policies, geographic and socio-cultural advantages, and, moreover, the role of an “offshore financial center” which offers an enclave within China with much less currency restrictions (LAI, 2012), Hong Kong is chosen not only by most international service firms as the hub of management and control in the market of China and even Pacific Asia, but also by many Chinese firms as the first springboard for abroad. This dual role makes it an important gateway to connect the PRD with the global service market. Three cities have connections with the PRD amounting to more than 60% of Hong Kong: London, New York and Singapore. London and New York are the two most widely-acknowledged leading global cities which can be found on tops of most rankings of global economic or financial centers. Their multiple connections with the PRD benefit from hosting headquarters for most large international APS firms. Singapore’s situation is similar to Hong Kong but to a lesser degree. It is preferred by both international and Chinese APS firms as the hub of South East Asia. So its high degree of connection reflects the tight relationship between the PRD and this area. After these four cities there are a series of familiar global cities such as Tokyo, Sydney, Paris, Dubai, Seoul, Moscow and Frankfurt. Most of them are leading managing and servicing centers in their respective regional markets and the first choice of international firms as regional headquarters.
Figure 5: Global connections of the PRD
In general, Pacific Asia is the best connected region with the PRD. More than one third of the top 30 connected cities are from this area. Geographic proximity, socio-cultural similarity, and close economic connections are important explaining factors. After Pacific Asia, Western Europe and North America are highlighted, reflecting the dominant positions of these two areas in the global service market. In comparison, although China’s economic connections with Africa and Eastern Europe have grown in recent years, only a few cities sharing important service connections with the PRD can be found in these two regions. It is worth noting that these well connected cities are also core cities from major trade partners of Guangdong province3. This pattern implies a close interrelation between international trade and business services, and the key role of core cities within both trade and service networks.
Similar to the national connection pattern, the global connection of individual cities are also very alike between each other. Every city has the strongest connection with Hong Kong, followed by several major global cities like London, New York, Singapore, and Tokyo at some distance (Figure 6). This is because minor centers in the PRD are connected with the global service network mainly through several big international firms, whose location choices are quite similar to each other. Most cities do not have the opportunity to enter different global service networks.
Figure 6: Top five connected global cities of different cities in the PRD
Cities within Networks
The final part compares the relational significance of cities within service networks through accumulating their linkages with other cities at different scales. Figure 7 shows that Guangzhou and Shenzhen have maintained their dominating positions across all regional, national and global networks. Their relative importance also increases sharply with the upgrading of geographic scales. Clearly, these two cities function as hubs in the regional service network and in linking the region with the wider service markets. It is interesting to observe that, although lagging behind in the absolute number of offices, Shenzhen equals Guangzhou in network connectivity at the regional scale and even slightly surpasses the latter at the national scale. The explanation can be found from Shenzhen’s good performance in banking and insurance, not only in terms of the quantity of offices, but also with respect to their functions within the whole network. Shenzhen hosts 12 national headquarters for banks and insurance firms, much more than Guangzhou which has only 2. Since these two sectors are well distributed regionally and nationally, they contribute greatly to cities’ regional and national connectivities, and help Shenzhen compete with, even surpass, Guangzhou at these two scales. This outcome reflects Shenzhen’s important role as a financial center in mainland China. Financial services have begun to develop substantially in China only after it started economic reforming and transition in the late 1970s. Instead of being encumbered by a short history, Shenzhen benefits from its newly emerging urban identity and SEZ status. One of the two stock exchanges in mainland China was located here in 1990. This gives Shenzhen significant advantages in attracting financial investments in the PRD. Building on this, Shenzhen has rapidly grown into a major national financial center, attracting headquarters of several important Chinese financial institutions such as Ping An Insurance (Group) Company and China Merchants Bank. According to “Global Financial Centres Index 10”4, Shenzhen ranks 25th of all 75 global financial centers and 3rd in mainland China following Shanghai and Beijing. Financial services become a pillar sector in Shenzhen and also play a key role in connecting it with the broader economic system.
Figure 7: Network connectivities of the PRD at regional, national and global scales
However, Guangzhou regains the “First City” status at the global scale with a substantial lead. Advertising and law are the main contributors to its leading position. Most foreign firms (for law, also firms from Hong Kong) in these two sectors choose to set up their regional offices in Guangzhou, contributing to a near monopoly in connecting the region with the global legal and advertising markets. These two sectors may be attracted by Guangzhou’s long-standing significant regional influence and cultural legacies. Guangzhou has been a regional economic and cultural center in southern China for more than 2000 years. For a long time, it was the largest port in China and, linked to that, a major gateway in linking the country with the world economy (XU and YEH, 2003). Although under challenge (particularly in manufacturing) from other regional cities since the 1980s, it is still the most important regional hub in southern China, performing a coordinating role in commerce and trade. Besides, related to this historical legacy, Guangzhou enjoys an absolute advantage in educational and cultural resources. By 2010, it is home to 65 universities and colleges (about two thirds of the total in the PRD). In comparison, Shenzhen has only 85. It can be expected that, Guangzhou’s strategic role in the regional commercial network and large knowledge pool from universities could be very attractive for foreign advertising and law firms who want to enter the market in southern China.
There is a clear gap between two leading cities and the other ones. The nine cities can be divided into three categories, with Guangzhou and Shenzhen as leaders in the first tier, Foshan, Dongguan and (to a lesser degree) Zhuhai following in the second, and the other five in the last. Foshan has been an important manufacturing center with a long history. Benefiting from this manufacturing tradition, it has developed a strong local industry based on domestic enterprises. Dongguan, in contrast, is a typical foreign investment boosted and export-oriented city6. High service connectivities of both cities reflect their strong overall economic foundations and huge markets brought by manufacturing activities. Another interesting case is Zhuhai. Although with a relative smaller market (the smallest population and second lowest GDP) in the PRD, it ranks fifth among nine cities at all scales. This is, arguably, related to its SEZ status and geographic proximity to Macao. It also attracts some back-end processing functions in the banking sector. In general, the spatial distribution is more or less in correspondence with cities’ geographic locations spreading from the Guangzhou-Shenzhen axis to the periphery of the PRD.
Through analyzing the spatial organization of 219 APS firms, this article examined the intra- and extra- service networks of the PRD city-region. It reveals how advanced service activities are inserted into the regional urban system where they are still at an infant stage and also how a predominantly manufacturing city-region is being reshaped by APS activities and being reconnected to the national and global economic system.
With fast-growing APS activities, an emerging service network is taking shape in the PRD. However, unlike the manufacturing sector which has a more balanced developmental pattern, producer services display a strong bias toward major regional centers. The two core cities, Guangzhou and Shenzhen, act as hubs in organizing regional service networks and in linking the region with the broader service market. In comparison, other cities mainly function as customers of such services in these networks. On the one hand, this reflects the uneven development created by producer services at the regional scale, leaving nonmetropolitan, and even smaller metropolitan areas relatively disadvantaged (COFFEY, 2000). On the other, it indicates a top-down developmental trajectory of producer services in this region.
Due to the important role of foreign investments in the region, it is plausible to expect that the PRD’s global service connections will resemble its FDI pattern. This research shows that although some similarities do exist, there are also clear divergences. Hong Kong is the best connected global city with the PRD. But compared to its dominating role in channeling FDI into this area, this city’s influence in the service sector is less preponderant. London and New York also show a high level of linkages with the region. What is more, they monopolize most global headquarters of large international firms. With only a modest global headquarter function (except in banking), Hong Kong is more like a service intermediary between the PRD (and mainland China) and the global service market. The same pattern can be found for two other important regional FDI sources, Taiwan and Macao. Singapore and Tokyo, instead, appear as major overseas service centers for the PRD in Asia. This wider pattern reflects the dominance of western international firms in global services and the concentration of “command and control” functions in a few cities (SASSEN, 2011).
However, this does not mean that geographic and socio-cultural factors can be overlooked. East-Asian cities show a high presence in the PRD’s external service network, especially compared to their rankings in the GaWC’s world cities assessment (GaWC, 2012). The reason is that besides large, western-dominated international firms, there are also many Asian and Chinese firms (concentrating in financial sectors) operating in the East-Asian local market. These emerging service providers tend to choose geographic proximate and culturally similar regions, which already have a long history of intensive economic interactions, as first places to extend overseas business. They thus improve the connections between cities and regions in the East-Asian area. Although still smaller in size, these rapidly growing firms may create a special East-Asian service network and economic space in the future.
The findings also shed light on processes of globalization and regional development in emerging economies. Firstly, the impact of globalization can change very fast. In just three decades, foreign investment-driven, export-oriented manufacturing has transformed the PRD into the famous “workshop of the world” with a more decentralized regional structure. However, with the region starting to move up the value chain, such balanced developmental pattern already seems to change. High value-added, advanced services activities are much more prone to agglomeration economies and, this may cause a new process of re-concentration and increase inequality within the region.
Secondly, cities can follow different routes of development and globalization. Guangzhou, although lagging behind in the last round of low-end manufacturing-led development, starts to regain the leading position in advanced service economies, drawing on its regional economic and cultural center status formed in a long history. Shenzhen, benefiting from its SEZ status, also attracts some high-end service functions and maintains its advantage in the region. These two contrasting cases show how local specific factors can interact with globalization and influence cities’ development in different ways.
Finally, institutional arrangements also matter. As just mentioned, the idiosyncratic performance of Shenzhen in some APS sectors is, to a large extent, benefit from its SEZ status designated by the central government. More generally, a city’s importance in the national service network is not completely determined by sheer economic factors, but also influenced by its position in the national administrative system. Administrative capitals, national or provincial, enjoy more advantages in attracting higher APS functions than other cities. Understanding regional development in China also means taking the historical and institutional context seriously.
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1. Centered in the Geography Department at Loughborough University, the GaWC (the Globalization and World Cities) is a research network focusing upon the external relations of world cities (http://www.lboro.ac.uk/gawc/).
2. A detailed introduction to this model please see Taylor et al., 2008.
3. See “16-6 Total Value of Imports and Exports with Main Countries and Regions”, Guangdong Statistical Yearbook 2011.
4. The Global Financial Centres Index (GFCI) is produced by the Z/Yen Group, available at: http://www.qfc.com.qa/Files/Reports/Global_Financial_Centres_Index_10.pdf.
5. Source: Guangdong Statistical Yearbook 2011.
6. In 2010, domestic-funded enterprises take up about 78% of all industrial enterprises in Foshan, in contrast, this number is only 34% in Dongguan. Source: Guangdong Statistical Yearbook 2011.
Note: This Research Bulletin has been published in Regional Studies, 50 (6), (2016), 1069-1081