A private factory owner waits to recruit workers in downtown Jiangmen, Guangdong province. Many industries in the Pearl River Delta are having to deal with the rising costs of labor and raw materials.[Photo/China Daily]

Improve, don't abandon

In Zengcheng, a suburb of Guangzhou known for its jeans industry, businesses large and small are also battling rising wages and production costs. More than 3,000 major producers there churn out about 200 million garments annually.

Conshing Group alone hires about 3,000 workers on its 32-hectare site and can produce more than 50,000 pairs of jeans a day. The company reaps about 300 million yuan a year from the domestic market.

But Landy Wu, the human resources and administration manager, said the company is also focusing on worker welfare and the environment as part of efforts to upgrade its business.

"We have increased investment in our water treatment facilities, for example, because of the huge amounts of water we use to wash our jeans," Wu said. "We need to think about how we can keep our business sustainable, beyond short-term economic gains."

Chen Guanghan, an economics professor and delta specialist at Sun Yat-Sen University, said it is inevitable that the delta fully upgrade its industries but it could take about 20 years.

"It took us three decades to get here, so it will also be some time before we can change," he said. "But we should not totally dismantle or abandon the industries that our success is built on. The idea is to improve and innovate from these sectors. Some of the businesses are already doing this in the electronics and even furniture industries.

"The government must be very careful in directing the change. It should just provide the framework and necessary support. It is still best to let the businesses and the market make the changes and the upgrade."

Education, migrants

The delta lacks the centers of learning, like Beijing's Peking and Tsinghua universities and Shanghai's Jiao Tong, that are needed to attract top talent to work in the area, Vettoretti said.

"Most of the jobs for such talent are lacking across many industries here. Most of our members (in the European Chamber of Commerce in China) will say that getting and retaining top talent is one of their most important priorities. If you want go 'change the spots of your skin' and go high-tech, obviously you need top people. Does the Pearl River Delta currently have that? That's a big question mark.

"There are some good universities here and they are also developing joint programs with Hong Kong and Macao, but this is work in progress. For the time being, they are caught in between wanting to be something else and what they have always been."

Chen from Sun Yat-sen University said any development plan for the delta will have to take into account the relations between the migrant population that provides the labor for the region's factories and the resident population that is more well off.

"A small town could have 300,000 workers who have come from other provinces and areas, against a resident population of about 50,000 people," Chen said. "It might not be noticeable in the initial stages, but the differences in lifestyle and access to education or other public services that favor the long-time residents could become more pronounced and that might become problematic."

Changed focus

Nevertheless, many agree that the delta's low-end model is unsustainable in the long run. Factors such as the dependency on exports, environmental degradation, factories moving out to cheaper Asian countries, and rising costs in a fast-urbanizing Guangdong are all indicative of the changing trend, Vettoretti said.

He said the delta will need to invest more in the global market if it wants to upgrade and "to promote all the incentives or new industries and what is available from the government."

Susanne Zhang Pongratz, chief representative of the Austria-based Raiffeisen Bank International's Zhuhai office, said the area still offers many advantages for foreign businesses.

"The Pearl River Delta . . . was one of the first places to open up to the outside world, and many businesses started here. The region was hit quite badly during the financial crisis because many of its businesses were small enterprises involved in intensive labor with small profit margins. (They) are trying to move away from export-driven financing, to focus on the domestic sector and move up the chain, but these cannot happen overnight."