China's Dongguan transforms from opium battleground to hi-tech dragon

In the town of Humen, on June 3, 1839, Imperial Commissioner Lin Zexu ordered the destruction of more than two million pounds of opium seized from foreign traders, triggering the Opium Wars that forced a reluctant China to open to foreign commerce. More than a century later, in 1978 Humen, the south China coastal town now part of Dongguan city, became the site of the first foreign funded enterprise after Deng Xiaoping initiated the opening up and reform of the country, local officials say.

Those humble beginnings with the Hong Kong-invested Taiping Handbag Factory paved the way for transforming Dongguan into one of the "four little dragons" of the Pearl River Delta, after the neighbouring and better known Shenzhen Economic Zone bordering Hong Kong. Located between the international gateway of Hong Kong and the booming southern city, Guangzhou, and drawing on a ready supply of cheap migrant labour, Dongguan transformed rapidly from a farming and fishing economy in the 1970s into a manufacturing and hi-tech industrial base.

"The reason for this fast development is because Dongguan started this cooperation with foreign countries," Dongguan Mayor Li Guikang told visiting foreign reporters recently. From just one firm in 1978, the city now houses more than 14,000 overseas-invested enterprises from more than 40 countries. And the private economy reportedly accounts for about 80 percent of the city's total, the highest proportion in China.

Li said the city had attracted accumulated billions of dollars in total foreign investment, the majority of it coming from Hong Kong, Taiwanese and Japanese investors. "One third of the Dongguan economy relies on Taiwanese businesses," he said, with Taiwanese enterprises accounting for 30 percent of total export volume.

Dongguan's foreign trade reached 34.5 billion dollars last year, of which exports accounted for 19 billion dollars. And exports rose to 19.6 billion in the first 10 months of this year, according to official figures.

"Within 40 square kilometres of Dongguan, 95 percent of (the world's) computer components can be found," Li said. "That's very attractive to Taiwanese investors." He tells a local joke that if Dongguan production was interrupted for a day, the world's computer industry would be paralysed. But it is a joke with more than a grain of truth. Information technology and electronic products accounted for 8.7 billion dollars, or 45 percent, of Dongguan's export volume last year, with the city supplying products for IBM, Compaq, Nokia, Samsung, Philips, Seagate and Sony, among others.

Dongguan Nokia Mobile Phones Co. Ltd. general manager C.K. Choi said the local joint venture produced 11.6 million mobile phones last year. Similarly the Dongguan plant of TDK subsidiary SAE Magnetics (HK) Ltd. makes key components for hard disc drives, with the firm claiming a 27 percent worldwide market share in the third quarter of 2002, said senior vice president Hong Tian. "Margins aren't much, but we have some margins," he said.

China's rapid economic growth and rising prosperity have not, however, been without their problems. While the country's opening up has been accompanied by a rise in crime and corruption, Mayor Li said it was unfair to connect the two. "You can't link crime and corruption with reform and opening up. In China we have had problems with crime and corruption for a long time," he said. "We have established and improved the legal system so as to reduce the crime rate," he said, adding that the city would "establish a series of systems so all government services will be conducted in a fair, open and public way and efficiency will be promoted."

While foreign enterprises have served the city well, Dongguan is looking to develop its own core technologies and brand names, said Li. "This won't happen overnight, but for years we have been developing high value added products" to achieve this, he said.

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