GLOBAL CITY FOCUS
PEARL RIVER DELTA
Connectivity between the cities of China’s Pearl
River Delta is key to economic development. Ciara
Walker, Jim Sheerin, Weibin Xu, Francis Au and
Diane Legge-Kemp from Arcadis discuss how
investment in advanced infrastructure is creating
the world’s first ‘megalopolis’.
Covering less than 1% of land area, and housing less than 4% of the
population of China, the nine cities of the Pearl River Delta (PRD),
Guangzhou, Shenzhen, Foshan, Dongguan, Zhongshan, Zhuhai,
Jiangmen, Huizhou and Zhaoqing, account for almost 10% of China’s
GDP, almost 20% of its foreign direct investment and 25% of trade.
Previously known as the factory of Asia, the region is arguably the first
large scale pilot of a hyper-connected, polycentric city region, a model
believed by many to be the future of urban development.
Guangzhou and Shenzhen experienced huge growth in GDP (more
than 750%) since opening to Western markets in the 1980s. The recent
designation of Free Trade Zones alongside the £212bn investment in
150 major infrastructure projects in the region is providing the same
opportunity to the remaining 7 cities as they are connected to wider
markets and investments, foreign and domestic.
ECONOMICS AND POLITICS
City-region indicator
Data
Arcadis Sustainable
Cities Index
8th (Hong Kong)
Profit
GDP
£690bn
Year-on-year economic
growth (%)
7.8%
Unemployment rate (%)
3.4%
Class A office vacancy
rate (%)
6%
People
Urban Population
60m
Population growth rate
(annual %)
0.4-1%
Total no of tourists
294m (domestic), 33.6m
(overseas)
Year-on-year tourist
growth
9.9% (domestic), -1.2%
(overseas)
Planet
Green electricity
10.3%
consumed as a % of total
energy consumption
Greenhouse gas
emissions (metric tons
of CO2 equivalent)
610.5
The PRD is one of three ‘National Optimized
Development Zones’ in mainland China, however
the inclusion of Hong Kong (HK) and Macao in the
Greater Pearl River Delta (GPRD) makes it the most
globally integrated of the three. Huge growth in
manufacturing since the 1980s made the PRD an
export powerhouse, with higher export volume than
France and an economy the size of Indonesia’s at more
than £690bn. Manufacturing led growth contributed
to a high GDP per capita of £10,661 in 2014, more
than double the national average, and economic
growth of 7.9%, 1% faster than for China in 2015.
Though the national slowdown in economic growth
has reduced demand for the regions traditional
outputs, the ongoing transition to high tech and
high skilled manufacturing allowed above national
average growth of 7.9% in 2015, and growth to 2020 is
targeted at 7% annually.
Guangzhou and Shenzhen, the region’s two tier 1
cities, account for 41% of the urban population of
the PRD and 57% of GDP. Four of the 5 cities on the
West Bank of the delta are lagging behind without
the strong connections to the markets of HK and
Shenzhen on the East Bank. As the nine cities at
different stages of economic development grow into
a megalopolis through investment in connectivity,
a combination of regeneration and urbanisation
is needed to bring all areas of the PRD up to the
standards of its leading cities.
The importance of connectivity is clear: both
Zhuhai and Shenzhen were amongst the first to
be designated Special Economic Zones in 1980,
and by 2013 Shenzhen, with its proximity to HK,
had skyrocketed to £237bn GDP, compared to only
£27.3bn in Zhuhai. With improved transportation,
investment in industry, housing and office space will
become more attractive outside of the main cities,
driving growth in second tier cities. In particular,
the West Bank of the PRD, with historically poor
transportation options, will benefit from improved
connectivity, and can expect to see a boom in
industrial and commercial investment.
The national and local government’s effective
planning for specialisation in industry focus across
the cities (led through the special economic zones)
and planned infrastructure investment are spurring
healthy competition for residents and businesses
between the cities and smoothing urban development
across the region. Local government aims to capitalize
on its investment in infrastructure through better
economic outcomes for its citizens, expecting GDP per
capita to more than double to £24,828 by 2030.
The “new normal” is the Chinese national
government’s strategy to shift China away from
unsustainable high growth based on investment and
low value added manufacturing and on to sustainable,
slower growth based on domestic consumer
demand and more innovative, higher value added
manufacturing. Strategic directions include:
• Slower, more sustainable growth
• Moving up the value chain
• Rise of the consumer class
• Digital revolution
• Urbanization continues
• City competition
• Growth of domestic private enterprizes
• Deregulation and reforms
• Anti-corruption measures
• A sustainable future
The PRD has already embarked upon this
transformation, leading the nation in becoming a
centre for innovation with Shenzhen approaching
a level of R&D at 4% of GDP, not far off the world
leaders in innovation (South Korea at 4.4%, Israel at
4.2%).
Three complimentary plans are guiding the
development of the Greater Pearl River Delta (which
includes HK and Macao):
• At the national level the 13th Five Year Plan 2016-
2020
• Guangdong provincial Five Year Plan 2016-2020
• City level plans
TABLE 2: MAJOR INFRASTRUCTURE PROJECTS IN THE PRD
Connectivity
Infrastructure
Selected Major Projects under Construction/ Planning
Within the PRD and Guandong
Province
Railways
High-speed railways to Nanning, Guiyang, Xiamen and Maoming
1,890km of intercity railways linking the cities and major towns in PRD
Metros or urban transits in Guangzhou, Shenzhen and Dongguan
Cross-boundary links in the
GPRD
Expressways
1,110 km of national network and 3,410km of provincial network to be
completed by 2016
Railways
Guangzhou-Shenzhen-HK Express Rail Link
HK – Shenzhen Western Express Line
Expressways
HK – Zhuhai – Macao Bridge
Liantang/Heung Yuen Wai Boundary Control Point
International and external
connectivity
Airport
development
The 3rd, 4th and 5th runways of Guangzhou Baiyun Airport and its
neighboring economic zone
3rd runway of Hong Kong International Airport
3rd runway of Shenzhen Bao’an International Airport
Container
Terminals
Phase 3 of Nansha Port in Guangzhou
Container ferry in Yantian Port and phase 2 of Dachanwan Port in Shenzhen
CONSTRUCTION AND REAL ESTATE MARKET
The opening up through special economic zones and
the increased connectivity to previously untapped
areas are causing developers to look hard at the
PRD as an area of opportunity. The construction
market has experienced some deceleration due to the
economic slowdown in China from 18% output value
growth in 2014 to 9% in 2015, but remains strong.
Developer interest is particularly evident on the West
Bank where land prices are significantly lower, driving
some land speculation ahead of an anticipated boom
in construction once the Macau-Zhuhai-HK Bridge is
complete (expected in late 2018).
Construction output value in Guangdong province (in
which the PRD is situated) has grown on average by
16.6% per year since 2011 and there are questions as
to the capacity in the region to continue to respond to
such strong growth. In particular, the labor market is
a challenge, with the average age continuing to grow
and a lack of desire to enter into what is considered an
unattractive profession.
With the existing infrastructure construction
pipeline and the expectation of a surge in real estate
construction across the cities as they become better
connected, labor shortages will only get more acute
and are already contributing to delays in prestige
projects such as the HK-Guangzhou express railway.
The market remains dominated by Chinese
companies, who can in many cases build cheaper
and faster than foreign companies. Due to restrictive
licencing conditions it remains a difficult and lengthy
process for foreign construction companies to receive
a full licence to operate.
As the ‘new normal’ progresses, and quality continues
to grow in importance compared to speed, foreign
companies are increasingly engaged to lend expertise,
mostly in a consultative role. Though improving, there
are still safety and regulatory issues, for example
the Shenzhen landslide caused by construction
waste piled up on a hill. These are being addressed
through anti-bribery legislation and improved building
regulations.
INFRASTRUCTURE
Transportation will be the economic backbone of
the region, and regeneration is planned around the
transportation corridors to avoid isolated communities
and maximize the benefits of investment. The
National Development and Reform Commission
(NDRC) has ambitious plans for a “1 hour commuting
circle” in this region twice the size of Wales, ensuring
connection between all the cities within one hour
through High Speed rail connections and expansion
of expressways. Though this is a challenge, Chinese
expertise in large scale infrastructure construction is
helping meet the target. With Guangzhou at its core,
23 high speed railways will integrate the cities into a
diverse polycentric region offering multiple industries
for investment and multiple locations for citizens to
work, play, live, and learn in, all within one hour of
travel. Of these, 16 (or 1,480km) are to be completed
by 2020. The Macau to Zhuhai to HK Bridge will open
up the comparatively underdeveloped West Bank of
the Pearl River Delta. An additional bridge between
Shenzhen and Zhongshan will start in 2016 and be
finished by 2021, connecting the West Bank further.
Further connectivity will be ensured with investment
in intra-city travel by Guangzhou, Shenzhen and
Dongguan. Guangzhou will have the largest (20 line)
metro network in the GPRD by 2040. 13 routes with
a combined length of 228.9km have already been
approved by the NDRC at a cost of £129bn. The local
government in Shenzhen is building a 720km, 20 line
metropolitan system with 10 lines to be completed
by 2016. Dongguan is planning to establish a rail
transit network. These will connect previously isolated
areas in the cities and allow them to benefit from the
integration of the region.
TABLE 3: INDUSTRIAL PROPERTY RENT IN PRD
Shenzhen
Facilities
rental (£
per square
meters per
month)
Guangzhou
Foshan
Average: 3.72 Average: 2.83 Warehouse:
1.28 – 2.13
Factory:
1.38 – 1.59
Zhuhai
Dongguan
Huizhou
W: 1.17 - 1.91
W: 1.17 – 2.13
W: 1.17 – 2.13
F: 1.38 – 1.59
F: 1.06 - 1.59
F: 0.96 - 1.38
TABLE 4: COMMERCIAL PROPERTY MARKET IN PRD
Shenzen
Guangzhou
Foshan
Zhuhai
Dongguan
Huizhou
Stock (square
meters)
2,500,000
2,750,000
370,400
250,000
842,000
391,000
Monthly
Rents (£
per square
meters)
22.85
16.51
4.25 – 7.44
5.31 – 7.97
3.72 - 7.44
4.25 – 7.44
Major
Development
Ping An
Finance
Centre
Chow Tai
Fook Centre
Jinhai Plaza
Yanlord
Marina
Center
Hyphen
Commercial
Centre
China Central
Place
SOCIAL INFRASTRUCTURE
The household registration system (Hukou) in China
allows social services, including education, health,
etc. to be accessed only in an individual’s city of origin
and birth. Guangdong province government has
progressive plans to integrate household registration
across the PRD. They are allowing the population
to obtain social services anywhere within the city
region, further interlinking communities and allowing
access to healthcare and education for migrants who
previously could only access these illegally in the
PRD. Demand for social services will increase once
economic migrants can access them legally anywhere
within the region, presenting a significant challenge
for local governments with respect to affordability
and expansion of capacity of social services.
The innovation focus in the ‘new normal’ strategic
direction requires significant investment in the
education system to support the innovative and
high tech industries flocking to the PRD. As part of
this investment, the next phase of development
in Longguan (Shenzhen) will be an urban park
and planned university centre for as many as 10
international universities, of which 2 are already
being built.
INDUSTRIAL
An essential part of the ‘new normal’ is the move
towards higher value added manufacturing. The
heavily industrial PRD is at the centre of this and local
government is already pivoting away from low-skilled
manufacturing due to the global slowdown and
subsequent reduction in demand for its traditional
exports. Industry’s contribution to GDP has grown
from 36% in 1980 to 43% in 2014, and the tertiary
sector from 25.7% to 49%, a clear shift in composition.
As such, retooling of declining industrial and
logistics parks is necessary to make the best use of
existing land as low-skilled manufacturing moves
further inland and higher specification facilities are
demanded. In some areas this is already under way, for
example the development zones in Foshan have been
integrated into one national-level high tech zone and
six provincial level development zones. The wave of
industrial upgrading in the PRD means well facilitated
large-scale industrial parks with professional services
have begun to predominate across the region. The
PRD has also seen significant growth in logistics
stock during this transition, with 41.78% growth in
stock over the three years to 2014, to 6.38 million
square meters.
Improved connectivity across the region will allow
the cities to develop their own specialized industries
whilst benefiting from the cluster effect of the world
class supply chain which already exists in the PRD,
feeding off each other’s success whilst competing for
business. Shenzhen and Guangzhou dominate the
logistics hierarchy with 3m and 1.9m square meters
respectively, whilst Dongguan, Foshan and Huizhou
are building capacity to support their roles as massive
manufacturing hubs.
COMMERCIAL
The huge growth of the tertiary sector to 49% of GDP
has driven strong demand for office space particularly
in Shenzhen and Guangzhou. Shenzhen and HK will
be the world’s largest banking city cluster by 2025,
ensuring continued demand for office space in the
region. Shenzhen has seen an explosion in commercial
space in Qianhai, its financial and professional services
development zone. Demand in Shenzhen continued
to grow with net absorption rate increasing by 180%
from 2014-2015. A further 1.56m square meters is
expected to be added in 2016 in Guangzhou and
Shenzhen alone as demand for office space
remains strong.
In lower tier cities in the region, few wholly
commercialized office buildings built by developers
appeared until recent years, when a rush to build
commercial space left many new CBDs with high
TABLE 5: RETAIL PROPERTY MARKET IN PRD
Shenzhen
Guangzhou
Foshan
Zhuhai
Dongguan
Huizhou
Ground floor rental (£ per
square meter per month)
97
113
21.3 – 29.8
31.9 – 47.8
21.3 – 31.9
15.9 – 26.6
Stock (large scale retail
properties with retail GFA >
30,000 square meter)
2,250,000
2,000,000
1,428,000
233,000
1,600,000
419,000
Major Development
Sinus Iridum
Palace
Parc Central
Nanhai Vivo
City
Bossanova
Shopping
Centre
Pasadena
Lifestyle
Centre
Kaisa Centre
2016 in Shenzhen and Guangzhou alone. The retail
real estate market has shifted in the region from a
focus on quantity of supply to quality, with emphasis
on lifestyle and entertainment centres as opposed to
simply retail stock.
RESIDENTIAL
The residential market is mixed across the PRD region.
Shenzhen and Guangzhou have active markets
whilst second tier cities’ markets lag behind. Second
tier cities have recently emerged as key expansion
regions for well-known developers from Shenzhen
and Guangzhou such as Vanke, China Overseas and
R&F. Overseas developers and investors are also
extending footprints into these property markets,
including CapitaLand and ING Group, however due
to the current economic situation, and the success
of domestic players, this expansion has decelerated.
The investment in transport infrastructure over
the next Five Year Plan will make a big impact on
these markets, with improved connectivity allowing
for more efficient distribution of the population
across cities and driving an uptick in previously
underdeveloped residential markets.
vacancy rates. The investment in connectivity in the
region, as well as the ‘new normal’ shift towards
higher value-added industry and the tertiary sector
will provide significant momentum for the prime office
market, and demand is expected to be strong despite
the economic slowdown in China.
RETAIL
The PRD is a centre for retail in mainland China, with
7.9% of national retail sales and the highest number
of online shoppers, as well as significant (10.9%)
growth in retail sales in 2014. The region saw a boom
in shopping centre construction over the past 10 years
as disposable income and the middle class grew. By
the end of 2005, for example, Dongguan had over
12 large shopping centres clustered in 4 downtown
retail hubs.
The rapid development of retail real estate resulted
in many sites with unsatisfactory performance,
therefore alongside the current boom in retail space
development in Shenzhen and Guangzhou developers
are also adapting and updating poorly suited malls
built during the initial rush of demand. At least 1.16m
square meters of additional retail space is planned for
Though China’s residential development regulations
remain strict, incentives to residential development,
including successive interest rate reductions,
have been put in place by the local and national
government. These measures are feeding into
increased supply and demand in the prime residential
markets of Shenzhen and Guangzhou. Significant
development of prime residential real estate will be
needed to meet demand from the highly educated
talent the ‘new normal’ economic policies are
attracting.
TABLE 6: HIGH-END RESIDENTIAL MARKETS IN THE PRD
Price range (£ per
square meters)
Major
Developments
Shenzhen
Guangzhou
Foshan
Zhuhai
Dongguan
Huizhou
Average:
3,552
Average:
1,841
Apartment:
1,010 -1,700
Apartment:
1,382 -2,657
Apartment:
1,063 -1,913
Apartment:
744 - 1,594
Villa:
Villa:
Villa:
1,275 – 4,251 1,594 – 3,719 1,594 -4,251
Villa:
1,063 - 2,657
One
Shenzhen
Bay
Forest Hills
CITIC Lake
Vanke Hills
Top of the
Hopson
World Phase Regal Riviera
III
Bay
CONCLUSION
The sheer scale of the challenge of developing an urban area of 41,000 square km, 26 times larger than Greater
London, is difficult to comprehend. When you factor in the 80 million people expected to live in the Greater
PRD by 2020, the importance of planned investments in infrastructure, social infrastructure, commercial and
industrial space and housing become clear.
Improved connectivity throughout the region allowing its citizens wider options for employment, housing,
leisure and social services is ensuring no one city becomes overburdened. Investment in expansion of central
business districts and industrial parks across the region will also help to rebalance uneven development across
the PRD. As China transitions to the ‘new normal’, the PRD is making the investments necessary not only to
satisfy the needs of a more sustainable growth model, but also to serve as a model for polycentric city region
development. The PRD is at the heart of China’s transformation and is dependent upon its successful transition
to a more sustainable model.
As a pilot for the future of urbanisation, we can expect to see more growth and innovation from the Pearl River
Delta . City regions worldwide, such as the UK’s Northern Powerhouse, should look to the PRD as a model for
planning investment on a megalopolis scale.