Trade has always managed to find its way to Guangzhou on the Pearl River in Guangdong province. The city has been a commercial hub for more than two millennia, and, possibly as a result, its people seem to have business savvy encoded in their DNA. In the last 27 years it has been the controlling centre of the Pearl River Delta (PRD), one of the busiest and most productive regions on Earth.

Through those years, Guangzhou's economy has grown fast, easily outpacing the country's overall growth rate each year. Last year's economic census - China's first - revealed Guang dong's GDP to have been undervalued by 17.6 percent, making it the country's richest province by an even wider margin than was originally thought. Guangzhou's 8 million inhabitants have the country's second-highest per capita income - after neighbour Shenzhen.

The growth has come mainly in the form of manufacturing, through the investments of foreign and Hong Kong/Taiwan companies. The PRD's thousands of factories, many of them located in Guangzhou, have churned out everything from toys and candy to steel and automobiles, which have been sent out all over the globe via Guangzhou. The busy ports of Hong Kong and Shenzhen (the world's busiest and fourth-busiest in the world by container volume, respectively) are just next door, and Guangzhou's own port (seventh-largest in China) is no slouch, either.

Southern gateway

For hundreds of years, going through Guangzhou was the only way for the West to have access to China's tantalizingly massive markets, and it has been China's only continuously open port. When the Portuguese arrived in the 1500s, the Chinese authorities confined them to Guangzhou, as well as Macau. The British received the same treatment when they came two centuries later to trade balls of opium for porcelain and silks. Shamian Island, an oasis of late 19th century European charm with Chinese characteristics in the centre of the city, still has the buildings and some of the feel of those times.

Guangzhou (once called Canton in English, a misunderstanding derived from the name of the province) declined in importance when the country was forced open in the 1840s, with foreign trade being dispersed amongst the string of China treaty ports along the coast. But after the Communist victory in 1949, China's business links with the outside world were once again focused on Guangzhou.

Today, however, there ae more options. Guangzhou and the PRD are facing stiff competition from Shanghai and the booming Yangtze River Delta (YRD), and increasingly from the Bohai Sea Economic Zone, which includes Beijing, Tianjin and Qingdao. Despite the PRD's ostensibly healthy economic situation, leaders are worried about staying on top."In the 27 years of opening up and reform, Guangdong has accumulated a lot of manufacturing assets, economic power and experience of success," said Huang Huahua, governor of Guangdong, at the recent Provincial People's Congress. "All these are advantageous to our future growth, but at the same time, brother provinces are growing rapidly, our strengths are weakening and some profound problems have not been resolved."The "profound problems" the governor spoke of are social. While Guangdong may be China's richest province in aggregate, it also contains some of the country's poorest areas. The relatively small PRD area accounts for 80 percent of Guangdong's overall GDP. Rural unrest has been most intense in the province, and several recent heated land disputes have resulted in tragic violence.

It seems like these incidents have highlighted the importance of improving the stark inequalities between urban and rural areas.Among the "weakening strengths" is the region's declining competitiveness. New foreign direct investment in the province fell last year, prompting concerns that labour costs have risen too high. "After about 20 years' rapid development, every sector is now relatively saturated in terms of attracting foreign investment," one academic said of the situation. In other words, foreign-funded manufacturing is only a short-term way to maintain growth.

The long-term plan for the PRD, then, is to push manufacturing into less developed areas while moving its own economy up the value chain. Authorities have talked about the creation of a "Pan-PRD" super-region, made up of the nine mainland regions of Fujian, Guangdong, Guangxi, Guizhou, Hainan, Hunan, Jiangxi, Sichuan, and Yunnan, plus the two special ad-ministrative regions (SARs) of Macau and Hong Kong, which would eliminate tariffs and trade barriers and allow free movement of labour.

9+2 = modernization

The so-called "9+2" scheme, first proposed by Guangdong Party Secretary Zhang Dejiang in 2003, amounts to a gigantic restructuring of south China. In practice, it would develop the poorer interior provinces by integrating the region's relatively iso-lated economies into the PRD machine. Since the YRD already gets good mileage from its convenient access to east China's 200 million people, linking up south (and west) China's 450 million people would seem the logical way to compete.

Despite the rhetoric, not much has been done with 9+2 just yet. While the Pan-PRD may be a distant objective, the more immediate task is to restructure the economy of the PRD itself before dealing with neighbouring provinces. "Manufac-turing is tending to move out from Guangzhou into satellite cities," says John Jamison, executive director of the British Chamber of Commerce in Guangdong.

One of the buzzwords of the newly insti-tuted 11th Five-Year Plan is encouraging "inde-pendent innovation" - that is, a more domes-tically driven economy with local companies making local investments and paying local taxes. Towards this goal, Guangdong is cur-rently spending more than any other province on science and technology. But aside from Shenzhen, the PRD is still not known for high-tech business.

"I would set up in the Suzhou, Jiangsu area," says Lucent Technologies Guangzhou General Manager Cary Zhou, given the choice between opening a high-tech factory in the PRD and YRD, despite admitting that costs might be slightly higher in Jiangsu. "We need skilled workers, engineers - it's easier to hire them around the Shanghai area. Guangzhou has manufacturing, but not exactly in our field."

Part of the plan for Guangzhou's future is to further develop its role as a global logistics base. Over US$25 billion has been set aside to im-prove Guangzhou's transportation infrastructure, most notably the second phase of Baiyun Inter-national Airport, which will turn it into a major international passenger and air freight hub by 2010. Carriers like Air France and Lufthansa are opening new international routes to Guangzhou, and FedEx will be moving its Asian distribution centre from the Philippines to Guangzhou in 2008. A high-speed railway linking Guangzhou and Hong Kong is scheduled to be completed in 2013.

Delta vs delta

Guangzhou's service sector is also getting a boost, and planners want the city to become the financial centre of south China. The city has ear-marked a special US$6.2 million fund subsidiz-ing financial institutions that set up in its central business district. Not that it's necessary - foreign financial firms are lining up around the block to buy majority stakes in Guangdong's failing banks, hoping to restructure them when (or even before) WTO reforms take effect at year's end. "Banking is on the upswing," says the Brit-ish Chamber's Jamison. "There are more interna-tional banks coming in, and the restrictions are getting lighter."

The city also hopes to build on its image as the world's window on southern China. The semi-annual Canton Trade Fair, which show-cases the region's wares and brings in piles of export orders, will be held for the 99th straight time this month. A new convention and exhibi-tion centre will be the biggest in China, second only to Frankfurt's in size. "Exhibitions will a major business for Guangzhou," says Joseph Chung, general manager of the Marriott-owned China Hotel located in the central business dis-trict. The city hopes to boost its visibility on the world scene when it hosts the 2010 Asian Games. "With so many people coming here to do busi-ness, more international hotels are coming too," Chung says, listing future newcomers Sofitel, Westin and Four Seasons, which should open next year.

For all the competitive fire between the two deltas, their respective build-ups do not seem to amount to a fight to the death between east and south. China has grown to the point where it can accommodate multiple centres of enor-mous growth. "People realize that Shanghai Shanghai, and the southern part of China is the southern part of China," says Chung. The fact that Guangzhou and the PRD are revamping shows the region is healthy, not facing extinction.