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The PRD, Differences Among Guangzhou, Hong Kong, and Shenzhen

Source: Global From Asia

For so many years, the most common question we like to chat about at happy hours is, where is the best place to setup your business operations in South China? The top 3 places, in my opinion, are Hong Kong, Guangzhou, and Shenzhen.

So today, let’s do some “battle” between each and see what city is the best for your situation.

Guangzhou, The Capital of Guangdong Province

So let’s start with a city I haven’t talked about much on Global From Asia – and this is Guangzhou. It is a massive city that is the capital of the “factory province” called Guangdong. It has been around for-ever! Lots of history, lots of culture, and a deep rooted culture.

It is about an hour and a half away from Hong Kong, if you take the “normal speed” train. Faster with these new trains being built. Lots of Hong Kong companies like Guangzhou for their trading headquarters because it also speaks the native language of Cantonese.

It is central to most of the other cities in Guangdong, bordering with Dongguan, the factory center! I have worked with Hong Kong trading companies that are setup like this:

- Logistics center and sales office in Hong Kong

- Trading office in Guangzhou

  • Factory network in Dongguan

This is a pretty common combination. And Hong Kong companies made a fortune over the past few decades with this setup. Try to envision it like this, you have the trade shows in Hong Kong, you have the tri-lingual sales and marketing team they’re going to the trade shows, getting the clients, you then ask the Guangzhou office to source those products from your own factory and other components from other neighboring factories. Then the mass production gets sent to Dongguan where your production team and factory manager does the physical labor.

Guangzhou also has a ton of small trading markets, mostly in the clothing and “household goods” industry. This means non-electronics. You can walk for floors and floors of small booths of traders between multiple buildings in neighborhoods focusing on certain product categories. Buy a small wholesale order, or ask them to buy a larger quantity from a factory they work with or know.

So Guangzhou is more the wholesale markets, the non-electronics, center of the South of China. The language is mostly Cantonese, as it is the capital of Guangdong (Canton). They are slowly picking up more Mandarin, but a lot of the locals still hold onto their Cantonese language and heritage.

Shenzhen, The New City, The Electronics Capital

Next up let’s chat about Shenzhen. We have a few guides on the blog about this city, What I Would Do if I just moved to Shenzhen, and comparing Shenzhen to Hong Kong for living and work. So definitely dig into those.

On a high level, Shenzhen is the up and coming (or already made it) city in the South. It is only 30 years old and turned from a small fishing village between Guangzhou, Dongguan, and Hong Kong into a massive 15 million plus population super city.

My friends in Hong Kong explain that when they drove between Hong Kong and Guangzhou, there was nothing to even look at in Shenzhen, it was a flat plain with fishing boats and trees. Now there are skyscrapers that are the tallest in the world!

As the city grows, so does the cost of living. It is moving from a manufacturing hub to a financial and business center, and salaries and education and experience levels are going up.

Still, there are a ton of the electronics centers it is known for, most famously Hua Qiang Bei electronics market. Similar to what we discussed in the Guangzhou writeup, instead of being textile markets, Shenzhen has electronics markets. Many come here to source wholesale or even drop ship directly online to their end customers.

But times are changing, as costs continue to rise in Shenzhen, factories as well as these traders are moving inland. I took a trip to Hua Qiang Bei a month or two ago, and a lot of these trading shops are closing up.

Shenzhen is becoming more of a direct replacement and competitor to Hong Kong, wanting to get the high end financial jobs and creative jobs.

Hong Kong SAR

Hong Kong, is, well, Hong Kong – a special place. A special economic region to be more exact. It is China, but at the same time it isn’t China. It was handed over to Mainland China from the British in 1997 but they still keep their dual special zone, let’s call it that. That means they have their own legislation and financial systems.

Hong Kong has its own currency, the Hong Kong dollar (HKD) and it is pinned to the USD at approximately 7.78 HKD/USD. The economy is free trade, and the taxes are rather low compared to the rest of the world.

This is why it is a focal point of the Global From Asia blog, you get the best of both world. Mainland China at your doorstep, with multi-currency bank accounts, English (British) influenced legal systems, and favorable corporate tax rates.

The people of Hong Kong though are not so happy. They are caught in the middle of being a gateway to China, and being independent. They see more and more Mainland Chinese immigrating, and the culture and language is moving from Cantonese to Mandarin.

As most readers today are business owners, let’s stick to the business. Hong Kong is a great place to center your headquarters and banking, but at the same time it’s not Mainland China. Some people ask me if they can get fapiao (receipts) to sell to Chinese from Hong Kong – but that won’t work. To sell and do business in China, you need a Chinese company.

So for Mainland China business, you’d have to look into opening a company in Shenzhen, or Guangzhou – or any Chinese city for example. We have heard Foshan is working hard to attract foreign investment to setup their businesses there, and lots of action in all these Chinese cities to get Westerners to set up shop in their town.

Looking At Each Point For Your Comparison

So now we had an overview of each place, let’s take some points to highlight on and compare.

Factory Access

Hong Kong used to be the import / export center. Then it moved to Guangzhou. As the educational systems have improved in Mainland China, you are able to find many multi-lingual sales and admin staff here and can save a lot of money in salary cost by going to Guangzhou.

In many Wechat groups I have seen people say Guangzhou is great as is the center of all the factories. A short cab ride or bus to get to most of their factories in the Pearl River Delta (south China).

So if you’re doing trading, in textiles and non-electronic items, I’d say set up your office in Guangzhou. If you’re doing electronics, I’d say Shenzhen. But there isn’t much reason to pick Hong Kong for product development and import export, in my opinion.

Access to Talent

What kind of people are you trying to hire, and in what languages?

Shenzhen is a tough place to hire, and this isn’t must my opinion. As Shenzhen is a young city, it is a melting pot city. People from around the world and around China have immigrated here, and they all have big dreams. They want to make big money, and build their life. This is a challenge for employers, as they see staff moving in and out of their company quickly to get a higher salary or to start their own business.

So I have to say, Shenzhen is probably the most difficult of the 3 to find long term staff. Not to say they are qualified and quality workers, they just aren’t in Shenzhen for the long haul. They sacrificed living with the family in their hometown or home country to build a better life.

Compare that to Hong Kong or Guangzhou, and there is more “established” cultures and families there. Hiring local talent there, they are looking for long term and stable employment. They want to remain where they are living for the long term, and they want to support their families. They can even keep their costs lower as they live with their parents or with their siblings.

Many other entrepreneurs have told me these facts, and you will notice this yourself after doing business in this region for only a few years. Yet as Shenzhen grows older there are more people raising families here and calling this city their home, so career paths and culture will soon stabilize.

In China, Vs. Next To China

Hong Kong is known around the world as the gateway to China. I remember when I first landed in Hong Kong and spent a week with my college friends who were locals, they thought I was crazy to consider living in Shenzhen! Decade or so ago, it may have been unlivable by many, and foreigners lived in Hong Kong and ventured into “big, bad, China” for a day trip or an overnight to see the factories.

But as China has grown, it has become more livable. More and more Westerners live in China, and do their business here. No need to live in Hong Kong and commute into China.

So as this has happened, those who live in Hong Kong can no longer stay as in tune and as competitive with the China markets as those willing to live and world on the ground. I have many friends in Hong Kong who make a great living there, but they aren’t as up to date with the newest technology and trends in Mainland China.

So how important is it for your to “keep up to date” with China business is another factor on your checklist of where to setup your operations.

The Internet Works in Hong Kong

I’ll try to hold my breath here, but I just like to say that the Western internet doesn’t work in Mainland China. I’m an old man now and can say I was here when Facebook and Twitter worked (2007-2009), but those have been blocked seven years now and counting.

No hope for these Western sites to get unblocked as far as I’m concerned.

China has its own internet, its own online world. If you are living here, you must embrace it. Wechat for chat and social media, Baidu (or maybe Bing.) for search, Youku for videos.

Yes, yes, there are VPNs to get around the Great Firewall, but the Chinese government has gotten better at detecting and blocking those too. It is a cat and mouse game, and many Westerners have given up trying to get around the Chinese firewall and just surf what is allowed.

So how important is accessing the outside world’s internet for you and your business? If you’re a low tech business, focused more on manufacturing and product development, it may not be so important. But if you’re trying to build the next Facebook or killer app, you should look at Hong Kong or maybe even Singapore.

But at the same time, if you want to crack the Chinese internet market, and do Wechat marketing and Baidu SEO, you should have a marketing office on the ground in Mainland China. Just like the Western internet is hard to access from inside China, accessing the Chinese internet is slow and painful from outside.

I am a bit emotional about this, as it pains me to think so many people are locked from reading very helpful and valuable free information on the internet to make them a better person, but alas, we need to pick our fights. This very website is not accessible most of the time from inside China too.

What Language(s) Do you Need?

The south of China is very multi-lingual. Some of my friends living in the north of China say that it is hard to learn Mandarin here in the south. They come for a visit and speak good Chinese. But when they talk to a taxi driver, his (or her) Chinese is sub-par! Yes, a Chinese taxi driver who doesn’t speak Chinese. Sounds crazy ,but as this city is a melting pot, a lot of uneducated Chinese come in. Well, uneducated is a harsh word, those who speak their local dialect, or Cantonese only. And then they’re here in Shenzhen, and it is a mis-mash of Chinese dialects and cultures.

This can be a boon or a curse for your business. What is important for you? Cantonese? Then south of China, probably Guangzhou, is best. Mandarin? Maybe North China is better. Want a combination of all 3? Maybe Guangzhou or Hong Kong.

Think about this a bit, of course people in China are from all over the place, but what is the language people will speak in the office, and to your customers and suppliers?

Lastly, many people in Hong Kong can get by through their daily life dealing only in English. Most Hong Kong people speak good English, and almost all restaurants and local businesses speak good English. If this matters to you.

Cost Of Doing Business, Cost of Living

And of course, the real bottom line of a business is the numbers. Of these 3 choices, Guangzhou is the cheapest option. Even though it is the capital of Guangdong, there are many places in the city here you can get low rent and low salary workers.

Shenzhen used to be “cheap”, but the costs of rent and salary steadily are increasing. And as mentioned earlier, the people who come to Shenzhen are looking to make as much cash as possible, not as much as sacrificing short term gain for long term career goals.

And Hong Kong is still the most expensive choice of the 3. Salary is getting to compare with Shenzhen (yes, crazy I know) for local and entry level staff, but rent is still extremely high in Hong Kong.

Some of my friends in Hong Kong have found old factories or warehouses that have converted to living (or, under the table) to save money, but to get good location and “proper” apartments, you’ll pay about 50% more than in Shenzhen, and probably double what you can find in Guangzhou.

But of course, there is quality of life, which leads us to next point.

Quality of Life

South of China has been getting better at controlling the pollution. Still much higher than most places on the Western hemisphere, but better than Beijing and Shanghai for sure.

Not only lower pollution, but also better access to Western food. Hong Kong is an open market, and it is such a diverse place to get food and products from around the world. As many ship their goods first to Hong Kong, and then get them into Mainland China, people located here get “first dibs”. Of course more and more Mainland Chinese shoppers are tapping into the access of these lower taxes, quality foreign goods, but by living here in Hong Kong you can get immediate and regular access.

So still, Hong Kong has the highest quality of living standards of these 3 in today’s guide. But that comes at a price in higher rent and cost of living.

Culture

Shenzhen, being only 30 years old, doesn’t have many tourist attractions. Sure, there is Windows of the World and Splendid China, but really it is manufactured and not in the history books. When friends come to Shenzhen to do touristy things, I don’t have much to recommend to them.

And the same goes for the local people. Basically, there are no local people and local traditions. It is a melting pot of people from around China and the world. Which is cool in and of itself, but you won’t get the stories of “this place has this tradition” and “in this place, this famous act happened”.

Guangzhou and Hong Kong have tons of tourist things to see. And ancient temples and buildings to visit.

But if you’re a business owner, this may not matter too much to you. But I do think it is rather nice to see some “old town” sights while going between business meetings.

So Where Do You Prefer? Shenzhen, Hong Kong, or Guangzhou?

Thinking about moving and setting up shop in the Pearl River Delta (PRD)? These are the top 3 choices, and I hope today gave you some points to use in your decision making.

The crazy thing about the South of China, people are always traveling between these cities. Business people are trying to maximize the positive and decrease the negative in each location. You will constantly talk to someone on Wechat that is on a train between Guangzhou and hong Kong. Going to a trade show here, a bank in Hong Kong, a business meeting in Foshan, a factory visit in Dongguan.

These are not right next door! Hours between each other, but it is all in the life of a South China business person. There were times I had places to live in each city and spend a couple days in each. Talk about exhausting!

How about you, lived in any or all of these cities? Have a favorite? Where are you now, I’d love to hear feedback in the comment section below, cheers!