SEPTEMBER 27, 1999 VOL. 154 NO. 12

PEARL RIVER DELTA: Birth of an Economic Powerhouse, 1984
Fertile Soil for a Commercial Miracle

John Stanmeyer/Saba for TIME Making Austin Powers dolls at a toy factory in the delta city of Dongguan.

By ISABELLA NG

"Made in China." The designation once was laughable, when the country's state-run industries produced little that consumers wanted and shipped most of their exports to undiscriminating buyers in the Soviet bloc. These days, of course, it's hard to find anything in Western stores not made in China. Toys, garments, even electronic goods: China makes, the world takes. Last year the country's exports totaled $184 billion, up 22% from 1996, before the onset of Asia's economic crisis.

The primary engine for this export push is the Pearl River Delta, the area that stretches from Guangzhou to Shenzhen just north of Hong Kong. Investment trickled in after 1978, when Deng Xiaoping introduced economic reforms. But the trickle became a flood in 1984, when Deng and then-premier Zhao Ziyang toured the delta to push for further reform and the Guangzhou government was allowed more autonomy in external trade and investment. At first, the investors came mainly from Hong Kong. Firms like toy manufacturer Jetta and Lee Kum Kee, the oyster-sauce producer, built giant factories. The border between colonial Hong Kong and communist China started to blur. Thousands of Hong Kong businessmen who came to make their fortunes took local mistresses, maintaining secret second families in this new land of opportunity.

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Next came the multinationals. Pepsi and Procter & Gamble, Mitsubishi and Korea's LG. China didn't offer the cheapest labor in the region, but it developed a gung-ho spirit and a reliable level of quality that made it many multinationals' top investment choice. From 1990 to 1998, foreigners invested $463 billion in China: 20% went to the Pearl River Delta. "It is the first place to get special authority to get things done easily," says George Lin, author of Red Capitalism in South China. "And its connection with Hong Kong, the gateway to the West and overseas, spurs its growth." Richard Ilek, general manager of PepsiCo (China) explains why the company chose to set up its factory in Guangzhou: "It is cheap and close to our regional office in Hong Kong."

If the multinationals are profiting, so are the locals. As the high-rise buildings and bright neon lights suggest, the delta has become one of China's wealthiest regions. Locals and foreigners alike spend freely at the giant seven-story Teem Plaza mall in Guangzhou. "I love shopping," says Ivy Zhou, a 25-year-old housewife who lives in the city. "Most of the stuff I have is foreign." She ticks off a few items: a National rice cooker, a Toshiba television, the bag of clothes she's holding from G2000.

Fifty kilometers southeast of Guangzhou lies Dongguan, once a sleepy town and now an industrial power in the making. Since 1989, Dongguan has attracted $9.6 billion in foreign investment. Giant industrial blocks have sprung up with money from Hong Kong (garments), Taiwan (paper mills) and Japan (electronics).

Once, Chinese who dared to dream of getting ahead slipped across the border to Hong Kong. Now many come to the Pearl River Delta, where jobs and decent wages beckon. Li Ziping moved from her native Guangxi province to Dongguan three years ago. Li, who studied philosophy in college, now supervises a Hong Kong-owned clothing factory. "I came south for a challenge," she says. "Guangxi has no future. The south looks far more promising." Li is content with her salary of $200 a month, twice as much as the average Guangdong worker makes and about four times the national average.

The Pearl River Delta's robust growth looks unstoppable for the moment. But with Shanghai challenging its role as the gateway for investment in China, the delta is seeking ways to extend its gains. Local authorities are forging ahead with vast infrastructure projects and granting more latitude to foreign investors--attracting even more capital. One recent example: a Sino-American joint venture sealed a deal this year with the Guangzhou government to make mobile phone switchboards. If Deng were to return to the delta today he wouldn't recognize the place--but he would certainly approve.