(Yicai Global) Oct. 9 -- An agricultural county on the fringes of Guangzhou and Shenzhen grasped the opportunities brought by international industrial transfer to become a world-renowned manufacturing base since the advent of China's economic reform 40 years ago.

This place with the courage to innovate is Dongguan. It introduced China's first foreign material processing enterprise, created a development mode of processing with foreign materials and designs, assembling overseas components and compensation trade, to form an export-oriented growth pattern which skipped the two polar ends of production and focused on the middle processing segment as the prevailing plan for coastal region economic growth.

Dongguan's industrial foundation was quite weak in 1978. A few plants produced hardware, firecrackers, wickerware, basketry and rattan and sausages. Regional gross domestic product was only CNY611 million (USD88.24 million), while fiscal revenue was CNY66 million (USD9.53 million) that year.

Dongguan's economic aggregate last year reached CNY758.21 billion (USD109.55 billion) in a 276-fold rise from 1978, and with an average annual growth rate of 15.5 percent. Dongguan has achieved rural urbanization and urban-rural integration and become one of China's top 100 cities in comprehensive economic strength.

Dongguan's economy has been growing rapidly for the last four decades. It occupies a mere 0.03 percent of China's land area but generates 0.9 percent of the country's GDP, contributes 1.6 percent to the nation's tax income, takes in 0.9 percent of the employed population and provides 4.6 percent of China's foreign exchange income.

Dongguan's achievement is attributable to the objective reason that it borders on Hong Kong and Macao. Many export-processing industries moved from Hong Kong at the beginning of the Chinese economic reform to neighboring Shenzhen and Dongguan. 

The industrial shift to Dongguan became more intense following Shenzhen's migration to the high-tech sectors after the 1990s, Lin Jiang, a professor at Sun Yat-sen University and the deputy chairman of the Center for Studies of Hong Kong, Macao and the Pearl River Delta, told Yicai Global.

The result also has its roots in Dongguan's own efforts, Lin said. The local government encouraged villagers to mortgage their collectively-owned land for financing and built many factory buildings for Hong Kong and Taiwan companies to rent when these firms arrived with cash and equipment in hand, thus kick-starting the county's rapid development.

The local government also set up an office specially for the foreign material-processing industry, providing one-stop services for companies active in it. These system innovations, which were the first in China, provided the vital spark for Dongguan's explosive growth.

Dongguan gradually became the world's largest manufacturing base in five pillar industries -- the production of electronics, electrical machines and equipment, clothing and footwear, food and beverage, and paper and paper products -- as its export processing industry developed.

Dongguan, an ordinary prefecture-level city, has now surpassed Wuhan, Changsha and other Central Chinese provinces' capital cities in economic aggregates by 2006, to rank it 15th among Chinese major cities.

Dongguan's export-oriented economy suffered greatly from the 2008 international financial crisis. Its economic growth rate dropped from two-digits to single-digits in 2008, and even logged negative growth in 2009's first quarter.

The county hastened its industrial transformation and organizational optimization under such conditions. This transition mainly unfolded in two phases. One was stock adjustment and the other was incremental expansion.

On the stock adjustment side, Dongguan had more than 11,000 processing companies, most of which originally lacked research and design capabilities, but improved greatly through this transformation. Local manufacturing businesses such as garments and furniture all underwent transformation and upgrade.

On the incremental expansion side, the smartphone industry, as an example, became Dongguan's most important and representative industry through years of industrial organizational optimization, transformation and upgrade. Dongguan now boasts world-renowned smartphone brands like those of Huawei Technologies, OPPO Electronics and Vivo Technology.

The city's current high-tech productions mainly focus on electronics and information technology, biotechnology, new materials technology, optomechatronics technology and new energy and energy efficient technology, among which electronics and information technology make up half of the entire product range.

Industrial upgrades included original and new industries, Lin said. Dongguan's industrial transformation and upgrade made progress mainly in new industries such as the rapidly-expanding smartphone sector. The local original industrial upgrade still has some shortcomings, however. In some areas, the traditional sectors still lead, Lin noted.

"Dongguan's achievement in the last 40 years is not replicable. It is the result of a confluence of factors," Lin said. What Dongguan will do in the future is repeatable, which is to greatly enhance the knowledge economy and build a high ground for innovation by drawing in talents and designating supporting policies. "Dongguan needs to shift from a non-replicable growth mode to a replicable mode," Lin observed.

Editor: Ben Armour