Regional economic cooperation is a world development trend. The intended objectives of this strategic move are to enable free flow of goods and services as well as to encourage flow of production factors, achieve better allocation of resources and eventually to raise a region's competitiveness.

China is a huge country, both in terms of population and geographic areas, and it is not surprising to have different levels of development co-existing among regions. Such regional disparities in economic well-being have been exacerbated by the opening up of the country over the past two decades. Regional development theory suggests that a growth pole can serve as a catalyst to a larger region's economic development. Given China's huge area and diversity, it may form several economic regions with each region having a growth centre (or growth-pole) serving as a catalyst to the respective region's economic development.

Aiming to narrow the regional disparities, China has embarked upon regional development strategies, encouraging better linkages between the developed and the underdeveloped regions. For example, besides the development of the Western region, it was also stipulated in the 10th Five-Year Plan that it is necessary to strengthen the growth-pole function of relatively well off regions, such as the PRD and the YRD.

A new frontier of regional co-operation in development

The coastal regions, after years of rapid growth, are beginning to experience bottlenecks in land, electricity as well as labour supply. On the other hand, inland provinces, though richly endowed with natural resources and close to Guangdong geographically, have been lagging behind in economic development partly as a result of poor linkages.

Given its economic strength, the Greater Pearl River Delta (GPRD), that is the integration of the Pearl River Delta and Hong Kong, can be seen as a large-scale growth centre. Through closer ties and cooperation, the GPRD and its neighbouring areas can engage in smoother processes of filtering down benefits of economic development as well as economic structure transformation. The advocacy of the Pan-PRD development strategy is exactly aiming at this end.

Materialising the concept of Pan-PRD

The concept of a Pan-PRD regional development strategy was first advocated by Guangdong Party Secretary Zhang Dejiang in July 2003. After the co-operation agreement was signed by the relevant government leaders in June 2004, the Pan-PRD concept has come to life. The Pan-PRD region comprises nine mainland provinces (namely Guangdong, Sichuan, Fujian, Hunan, Jiangsi, Guangxi, Yunan, Guizhou and Hainan) and two special administrative regions (SARs, namely Hong Kong and Macau) in the southwestern part of China. That is why Pan-PRD is also referred to as "9+2".

The Pan-PRD regional development strategy has the blessing of the central government. Besides the National Development and Reform Commission, officials from other departments such as Ministry of Communications, Ministry of Railway and National Tourism Administration have also expressed support for the development of Pan-PRD. Relevant projects, such as transportation, will also be implemented in helping to materialise the Pan-PRD regional integration.¹

A brief history of the Pan-PRD evolvement

Complementary, open, market-orientated - keys to Pan-PRD co-operation

The theme of the Pan-PRD Regional Co-operation Forum held in June 2004 in Hong Kong was "Prosperity through Partnership". Such a theme exactly reflected the essence of co-operations among the 9+2. Judging from the current agreement, the Pan-PRD regional co-operation is not intended to be a rigid and formal organisation or agreement as the European Union or NAFTA. What it aims to achieve is to raise the overall regional competitiveness through better and closer co-operation.

The signatories to the co-operation framework agreed to participate on a voluntary basis in all or some of the co-operation areas in order to achieve mutual benefits. Besides, there are three important guiding principles of the 9+2 co-operation:

• Complementary -- given the extensive geographic coverage of the Pan-PRD region and differences in resources and comparative advantages of participating provinces and SARs, individual members should be able to complement each other in the development process;
• Open and fair - co-operation should aim to promote intra-regional trade and remove local protectionism or discriminative trade practices;
• Market oriented -- the role of governments is to create a conducive business environment, enabling the market to function so as to obtain optimal allocation of resources.

10 areas of co-operation are identified

A tri-partite analysis model for the Pan-PRD

The Pan-PRD co-operation is a regional development initiative not only having implications to mainland provinces, but to Hong Kong and foreign investors; forces of these implications are interwoven and having an impact on each parties, forming a spiral effect on the region's development and growth. For example, the function of Hong Kong as a trading platform will be further enhanced through closer integration with the Pan-PRD provinces where more mainland companies are going to utilise this platform. The growing clustering effect resulting from the integration will further build up Hong Kong's competitive advantage which in turn will offer better services to its enlarged hinterland. Therefore, the following analysis will look into the benefits of the Pan-PRD development from the perspective of Hong Kong as well as foreign investors, besides the benefits to the mainland provinces.

The Pan-PRD -- a large and diversified market

The total GDP of the nine provinces reached RMB3,883 billion in 2003, about 33.3% of China. If taking into account of Hong Kong and Macau, the total GDP of "9+2" reached RMB5,248 billion (US$634 billion), bigger than two Switzerland. The region also accounted for 47.7% of the mainland's total utilised foreign direct investment in 2003.

The total population of the nine provinces amounted to 450 million, roughly equal to that of the "enlarged" EU² and accounted for 34.8% of China's total. In terms of retail sales, the nine provinces accounted for 31.6% of the mainland's total in 2003.

As a consumer market, the Pan-PRD is not only huge in sales volume. The wide range of income levels within the Pan-PRD region also suggests that the region can offer opportunities for a wide spectrum of products targeting at different segments of consumers. For example, the per capita GDP of the nine provinces ranges from RMB3,601 to RMB16,990. The per capita GDP of Hong Kong and Macau even reached US$23,300 (about RMB192,850) and US$17,782 (about RMB147,180) respectively in 2003.

Basic economic indicators of the Pan-PRD (2003)

Consumer characteristics also vary among different provinces within the Pan-PRD. For example, due to geographic proximity to Hong Kong and a long history of opening up, Guangzhou follows the consumption trend of foreign markets (especially Hong Kong's) more closely than any other inland cities. Despite their willingness to spend, the income level and product knowledge have constrained the appetite of the mass market of consumers in Chengdu for high-end products or leading international brands. Therefore, the Pan-PRD is truly a large and diversified market for various segments of products.

Removing intra-regional trade barriers

To foreign investors, one major obstacle for developing a national market in the Chinese mainland is regional protectionism where frictions or non-tariff barriers are deterring trade across regions. The problem is not unique to foreign companies, but domestic enterprises are also handicapped. Regional protectionism generally takes the form of local governments employing executive orders to limit movements of goods between cities or provinces. In some cases, there are barriers on the outflow of natural resources or energy; in other cases, there may be barriers on the inflow of manufactured goods in order to protect local producers. In recent years, regional protection is also creeping into the realm of services sectors.

Barriers can be of different types, such as quantity restrictions, licensing or product standards, or various types of extra fees or charges. For example, in order to protect local production of automobiles, there may be higher registration fees for cars produced "outside" the province, or restricting taxi operators to use local produced cars. A segregated market will create problems in distribution and result in lower efficiency and higher costs.

Moving towards a "single market" environment

To enhance the free flow of goods, Pan-PRD members will work together in removing regional blocs, and building a healthy, fair and open market system. One important area is to work out a common product safety system for both manufactured and agricultural products. Within the national regulatory framework, the Pan-PRD will work out a common yardstick of product standards, and certificates issued by authorised units in different provinces will be mutually recognised.

To push forward these policy objectives, representatives from quality supervision and inspection departments of local governments met in Guangzhou on 4 September 2004. Participants agreed to eliminate all discriminating measures, such as duplication in product testing and inspection, registration or certification etc., against non-local products or services entering the local market. Another significant move is the establishment of a system for concerted efforts in IPR protection, including co-operation in cracking down on fake products and IPR infringement investigation.

A "single market" benefits both companies and the economy

As the 9+2 markets integrate, the subsequently increased economies of scale and scope, competition and productivity at the company level are expected to lead to higher investment flows, more intra-regional trade and the emergence of robust and competitive enterprises.³ It is recognised that eliminating non-tariff barriers, such as harmonising or mutually recognising product and technical regulations, and remove duplication in testing and licensing procedures, should be a major policy initiative in achieving a single market.⁴ Judging from this perspective, the Pan-PRD cooperation has taken necessary steps in materialising a "single market" business environment, which is conducive to different market players targeting a wide spectrum of market segments.

A market is not just a place for selling but sourcing as well

A "market" literally means a place at which people meet for the purpose of buying and selling. Therefore, when we say the Pan-PRD is a diversified market, it represents not only a place for selling consumer or industrial goods, but also a region where overseas buyers can source or manufacture different types of products, either for local consumption or export. The total wholesale value of the Pan-PRD region accounted for about 32% of the national total. In terms of exports, the region also accounted for 43% of the national total in 2003.

The Pan-PRD is a broad base of different supplies

The diverse natural endowments and economic structure within the Pan-PRD mean that the region can be a supply base of a wide spectrum of manufactured goods as well as primary products. For example, while Guangdong is the leading manufacturing base of China with the secondary sector accounting for 52.4% of the province'