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The phenomenal link-up between the Hong Kong and Guangdong economies has been proceeding at a remarkable speed since the launching of the Chinese economic reform in late 1978. The process has largely been market-driven and seems to suit the short-run comparative advantage on both sides. In essence, however, it has been a result of a reallocation of resources across the border, made possible by China's open policy. It has not yet led to a benign form of developmental upgrading which embodies the strengthening of the long-term foundation for productivity and competitiveness enhancement. Indeed, the tremendous "windfall profits" obtained so far could be regarded as a disincentive for R & D investments as well as beneficial decisions that may incur painful side effects in the short run.

Problems which are structural and developmental in nature, including bias and duplication in production patterns, inflationary pressure, widening income inequality, and the loss of competitiveness, have emerged in both Hong Kong and Guangdong. These problems could be traced to the lack of countervailing forces that promote far-sighted strategies, vis-a-vis "short-termism" driven by market supplies and demands and yearly profit maximization.

In this paper, we argue that while better coordination should be pursued to ensure mutually beneficial developments and to avoid duplication in efforts and undesirable convergence in industrial structures, the future trajectories of the two economies will not and cannot be identical. Hong Kong and Guangdong are different in size and endowments, and face dissimilar political and economic frameworks. Independent policies and measures to nurture specific advantages and to solve internal problems have to be made. Indeed, a certain distancing in economic relations between the two economies will be healthy.


CAPS Working Paper Series No. 54 (10/97)

Recommended Citation

Tsang, S.-k., & Cheng, Y.-s. (1997). The economic link-up of Hong Kong and Guangdong: structural and development problems (CAPS Working Paper Series No.54). Retrieved from Lingnan University website: