Yangtze River Delta region's prosperity showcases the benefits of 'dual circulation'

A recent drive from Hangzhou, capital of Zhejiang province, to the smaller city of Huzhou in the same province was an eye-opening experience. The whole area looks prosperous with world-class infrastructure. Many factories, both small and large, are visible throughout the area. The Yangtze River Delta region is one of the most dynamic manufacturing and business centers in the world.

How was this accomplished?

In his well-known book, The Great Divergence, University of Chicago professor Kenneth Pomeranz argued that the Yangtze River Delta region in the 17th and 18th centuries was on the verge of becoming the first region of the world to achieve an industrial revolution, instead of northern England, but that its distance from sources of coal limited its power usage. His main point is that traditional Chinese business and governance institutions were a sound basis for development, making the Yangtze River Delta region probably the world's richest region before the 19th century. According to Pomeranz, China's inability to take the next step to a steam-powered industrial revolution was an accident of geography, not the consequence of cultural or governance issues.

In some ways, the current prosperity of the region is a return to its historical roots. But its development was far from a historical inevitability. Without good governance－the rule of commercial law, strong support for infrastructure and education, a supportive business environment－the growth of the Chinese economy would not have been possible.

A team of China Daily reporters recently had the opportunity to visit some factories in Huzhou and talk with their executives. Even in relatively small counties on the outskirts of Huzhou, we were able to meet with four high-tech firms plus a variety of other companies.

To make their businesses work, the high-tech companies need a good supply of educated workers and excellent infrastructure. They rely on a good business environment and on friendly, helpful relations with local governments, which see the businesses as the key to providing prosperity and good jobs in the region.

For all these companies, the domestic market is the overwhelming source of demand for their products. This indicates that the newly formulated "dual circulation" economic development strategy, emphasizing the domestic market while maintaining openness to trade and foreign investment, will be a straightforward transition for many firms in the Yangtze River Delta region.

Another key factor enabling the success of these firms is that they are immersed in industrial clusters－meaning conveniently located suppliers, competitors, customers, distribution network, shippers, workers and so forth－in the same industry. The geographic proximity of needed inputs and industry-related expertise allows firms to specialize and become more productive. Many countries have tried to create industrial clusters, but it is very difficult to replace all the integrated industrial and supply networks needed. Despite protectionism from other countries, it is highly unlikely that industrial clusters can be reproduced or moved. So, most industrial production won't be leaving China anytime soon, if ever.

We visited several long-established, fairly large, private high-tech companies. Zhejiang Jiuli High-Tech Metals Company, in the Wuxing district of Huzhou, makes specialized stainless-steel pipes, enameled wire, steel structures and industrial parts, mostly for the energy and petroleum industry. And the DTIOT factory in the Nanxun district makes fiber optic cable.

Both companies face strong domestic and international competition in some of their core products, especially within the Chinese market. To maintain a competitive advantage, they invest heavily in the research and development needed to develop higher profit, specialized, niche products. To do this, they need access to capital, a good business environment, and a qualified workforce. Support of both local and national governments has been critical in creating the needed environment that allows these companies to compete.

We were also able to visit Zhejiang ZXBio Co Ltd, a new startup in the Deqing county of Huzhou that makes products used in diagnostic testing in hospitals. Zhang Yang, the 30-year-old founder and president of the company, said that a supportive environment created by the local government was critical to his decision to start his company in the area. Also, the local government has concentrated on providing technical education to the local people, so he is able to find qualified workers.

Zhejiang TopRS Technology Company, the only State-owned company we visited, produces highly detailed aerial and satellite-based maps that are used in agriculture, ecological protection, and urban planning. Their products will enable their customers to improve productivity in a wide variety of industries. As with other high-tech companies, this company relies on local government support that has created a geospatial imaging industrial park that is important to founding a cluster of specialized expertise. Also, local education emphasizes giving workers the specialized skills needed in the industry.

We also met with Pu Xinquan, president of Jintongwang Dress Company, maker of K-Boy and K-Girl brand of children's clothing. He said that the company devotes many resources to R&D to meet the needs of China's large consumer market. He sees no need to move to export markets.

Clothing manufacturing is exactly the type of industry that might be expected to leave China as wages rise, but Pu said that spending on R&D, moving to higher value-added products, and investing in advanced manufacturing processes make it possible for his company to adapt.

Like the other companies, Jintongwang found local government support key to surviving the COVID-19 epidemic and keeping its employees on the payroll. Pu said:"The government has done a lot, now it is up to us."

We were also able to visit two companies that illustrate Chinese consumers' desire for vacation opportunities in the countryside. Giraffe Manor is a beautiful outdoor zoo with giraffes, raccoons, monkeys, and lots of birds－parakeets, parrots, macaws and other birds I can't even identify. It's a paradise for kids, bird-watchers or photographers. And, the Miaoxi Homestay is a small hotel－designed in an elegant modern style－that brings income to a rural area.

Huzhou is a microcosm of the big changes in the Chinese economy over the last 40 years. The region developed through a combination of a very entrepreneurial, hardworking population combined with government policies that have built a good business environment with access to a skilled workforce and excellent infrastructure. The industrial clusters make the Yangtze River Delta region perhaps the most impressive manufacturing center in the world.

Ma Zhenhuan, He Wei and Xiao Da in Huzhou contributed to this story.