[Big read] From factories to AI: Can Guangdong catch up? 

“Aluminium is not moving right now, and market demand is nearly at a standstill.” Liu Yongtao, an aluminium sales representative in Foshan, lamented to Lianhe Zaobao that China’s sluggish real estate market has severely impacted upstream and downstream industries, pushing the aluminum industry into a deep freeze.

Liu said his company’s revenue dropped significantly by 30% last year, and this year is expected to be even tougher, with further declines in earnings.

Dali Town in Foshan is one of China’s largest hubs for aluminum production and trade, boasting a complete industrial chain from raw material processing to finished product sales. However, due to the prolonged downturn in China’s real estate market, this once-thriving industrial town has lost its former vitality.

In late February this year, Lianhe Zaobao visited the Fengchi Decoration Materials Market (凤池装饰材料市场) in Dali. This large market, covering an area of more than 45 football fields and accommodating thousands of shops, now has a vacancy rate as high as 40%. Business activity has dwindled, and many store doors remain shut.

Liu Yongtao said: “In the past, securing a shop here was nearly impossible. The market was bustling with people and traffic, it was so crowded it was difficult to move. Now, the main roads are quiet, and there are more cars from merchants than customers.”

Foshan, Guangdong’s third-largest economy, has been significantly impacted by the sluggish real estate market in recent years. The struggles of leading property developers like Country Garden and Midea Real Estate have further dragged down the local economy and related industries. In 2024, Foshan’s GDP growth rate was only 1.3%, ranking the lowest in the province.

Beyond construction, the downturn in the real estate sector has also affected downstream industries such as home furnishings and appliances. This trend is especially evident in Shunde, Foshan’s furniture manufacturing hub.

“Before the pandemic, we had more orders than we could handle, but now we often go several days without receiving a single order,” said Wu Xiu, who has been in the furniture industry for 20 years. Over the past year, her factory’s business has declined by 50%, with most of the losses coming from the Chinese market.

She said: “As long as the real estate market does not recover, we have no hope.”

Song Ding, a senior researcher at national think tank China Development Institute (CDI) in Shenzhen, noted that there is a saying in praise of Foshan: “Every home has something made in Foshan,” showing that its industrial structure is heavily reliant on the real estate sector. “When the property market slows, demand drops, orders shrink, and businesses face mounting pressure, dragging down the overall economic growth momentum.”

The manufacturing downturn in Foshan reflects the broader economic challenges in Guangdong. As a major manufacturing province, Guangdong is facing increasing economic pressures due to a combination of internal and external challenges.

In 2024, Guangdong’s GDP reached 14.16 trillion RMB (US$1.95 trillion), maintaining its position as China’s largest provincial economy for 36 consecutive years. However, its lead is narrowing — Jiangsu followed closely behind with 13.70 trillion RMB, shrinking the economic gap between the two provinces by 43% over the past five years.

Additionally, Guangdong’s economic growth rate in 2024 was only 3.5%, whereas Jiangsu’s reached 5.8%, expanding the growth rate gap between the two regions to 2.3 percentage points.

When interviewed, Yu Hong, a senior research fellow at the National University of Singapore (NUS)’s East Asian Institute (EAI), said: “If the current trend continues, Jiangsu’s total GDP could surpass Guangdong’s within the next two years.” He said this would be a “seismic change” in China’s economic landscape.

Yu pointed out that the core issue behind Guangdong’s sluggish growth is regional imbalance, with many areas still heavily reliant on traditional industries and lagging in industrial upgrades.

For years, the nine cities of the Pearl River Delta have accounted for around 85% of Guangdong’s total economy, while the economies of eastern, western, and northern Guangdong combined are less than one-fourth of the Pearl River Delta’s. The income gap between these regions remains significant.

“If this imbalance persists, underdeveloped regions will struggle to take off economically, becoming a drag on Guangdong’s sustainable growth,” Yu said.

Among Guangdong’s 21 prefecture-level cities, only Shenzhen recorded a 5.8% GDP growth rate, exceeding the national average of 5%.

Yu attributed Shenzhen’s success to its fast and aggressive industrial transformation, allowing it to seize opportunities in emerging strategic industries — an advantage other cities currently lack.

For example, in the automobile industry, Shenzhen’s BYD has leveraged strong R&D capabilities and market competitiveness to dominate the new energy vehicle sector. In contrast, Guangzhou’s auto industry has been slower to upgrade.

As a pillar industry that once accounted for over 20% of Guangzhou’s total GDP, traditional automobile manufacturing is now under greater pressure due to intensifying competition in the new energy vehicle (NEV) sector, which has weighed on the city’s overall economic growth. In 2024, Guangzhou’s GDP growth rate was only 2.1%.

CDI’s Song said the GAC Group’s new EV brand, AION, has been a key player in Guangzhou’s auto industry. However, its sales dropped by 21.9% last year, causing a decline in traditional fuel vehicle sales, while the NEV segment failed to offset the losses.

He said: “XPeng has emerged as a rising force, but its market share remains too small to drive overall industry growth.”

Despite falling short of economic expectations in the past two years, Guangdong has set its 2025 economic growth target at around 5%, the same as last year.

Song analysed that during 2025 and the upcoming 15th Five-Year Plan period, Guangdong must leverage its strengths and fully accelerate industrial transformation and upgrading, with a strong focus on high-tech and strategic emerging industries to maintain and enhance competitiveness.

He emphasised that Foshan and Guangzhou’s real estate and auto industries still have significant potential, but the key lies in technology-driven transformation to achieve high-quality growth.

For example, Foshan’s home appliance industry can boost competitiveness by integrating AI and Internet of Things (IoT) technologies, advancing toward smart home solutions, while Guangzhou’s auto sector should accelerate intelligent driving technology innovation, shifting toward NEVs and smart vehicles.

He said: “These two cities must seek breakthroughs while stabilising existing industries. Abandoning pillar industries due to short-term economic setbacks is neither practical nor beneficial for long-term development.”

Guangdong has recognised these challenges and highlighted technology-driven manufacturing as a key agenda item at this year’s Two Sessions (National People’s Congress and Chinese People’s Political Consultative Conference).

During an open session at the Guangdong People’s Congress, GAC group chairman Feng Xingya announced plans to launch airworthiness certification for flying cars this year while simultaneously setting up production lines to accelerate the commercialisation of low-altitude transportation.

He emphasised that flying cars, as a crucial component of the low-altitude economy, share technological synergies with intelligent connected NEVs, helping China maintain its competitive edge in this emerging sector.

NUS’s Yu believes that while Guangdong pushes for technological upgrades, it must also improve the business environment to stimulate economic vitality. Guangdong boasts China’s most dynamic private sector, yet in recent years, many enterprises have struggled with market uncertainties and financing difficulties, hampering their growth.

To support private businesses, Yu suggests that the government optimise the tax system, lower financing costs, and strengthen intellectual property protection. He said: “Restoring confidence among private enterprises will directly drive manufacturing, technological innovation, and modern services, strengthening Guangdong’s economic resilience and competitiveness.”

Guangdong has long relied on foreign trade to drive economic growth, but in recent years, geopolitical uncertainties have posed severe challenges to this model. Experts interviewed emphasised that expanding domestic demand must now be Guangdong’s top priority.

As the province with the highest amount of foreign trade, Guangdong accounts for nearly one-quarter of China’s total trade volume. With a 64% trade dependency ratio, the province has been a key player in China’s export-driven economy. However, global economic slowdown, rising trade protectionism, and supply chain restructuring have intensified pressure on Guangdong’s exports, exposing structural vulnerabilities in its economy.

In an interview with Lianhe Zaobao, D.Werkz Precision founder Zhang Weilun said that his Dongguan-based company’s export orders dropped by about 25% last year. He attributed this decline to weak market demand and tighter client investment.

His company specialises in high-precision metal molds, primarily exporting to European and American automakers. However, demand for such products plummeted last year as many car manufacturers slowed down new project development.

He said: “The European market shrank due to declining car sales, while in the US, uncertainty surrounding last year’s presidential election caused many companies to delay investment decisions.”

Since taking office in January, US President Donald Trump has introduced a series of trade measures against China, including raising tariffs on Chinese imports to 20% and imposing additional tariffs on all steel and aluminum products.

Under this high-tariff pressure, many US buyers have begun demanding that Chinese suppliers absorb part of the extra tariff costs or relocate supply chains to avoid the tariffs, otherwise, orders may be reduced or cancelled.

For a while, the Trump administration also scrapped duty-free exemptions for small imported goods, dealing a direct blow to China’s low-cost cross-border e-commerce exports. Sectors such as apparel and toys will now face significant tariffs, severely weakening Guangdong’s price competitiveness, as the province is a major hub for such businesses.

Nomura Holdings economist Lu Ting said in a note that major Chinese cross-border platforms such as Shein and Temu collectively shipped around US$46 billion worth of small parcels to the US last year. However, he said new tariffs and additional costs are expected to significantly reduce shipments, and forecast a 1.3 percentage point decline in China’s export growth in 2025 and a 0.2 percentage point drag on China’s overall GDP growth.

NUS’s Yu noted that Trump’s “America First” policy means US-China trade tensions are unlikely to improve in the near term. He predicts that 2025 and beyond will bring even greater challenges.

He said, “Guangdong must accelerate its economic transformation and shift towards domestic demand-driven growth. Strengthening local investment and consumption is essential to boosting economic resilience — otherwise, future growth momentum may be insufficient.”

In 2024, Guangdong’s total retail sales of consumer goods were estimated at 4.79 trillion RMB, marking a year-on-year growth of only 0.8% — a sharp decline from 5.8% in 2023. Additionally, this growth rate lagged far behind the national average of 3.5%, reflecting a significant weakening in consumer spending.

Yu pointed out that Guangdong is not only an economic powerhouse but also a highly populated province, and “there is no reason domestic demand cannot thrive”. He said to truly stimulate internal demand, the key lies in improving public welfare, particularly in areas like healthcare and education, to ensure stable and sustainable consumer spending.

He said structural reforms are needed to address weaknesses in social security and income distribution, including reforming the household registration (hukou) system, enhancing social welfare systems, making tax and fiscal adjustments, and raising the minimum wage.

The rise of Hangzhou-based DeepSeek has put pressure on Guangdong, sparking discussions about the province’s innovation competitiveness. Experts stress that Guangdong must revive its pioneering spirit of reform and opening-up while avoiding superficial efforts and inefficiencies.

DeepSeek quickly became a national sensation after its February 2025 debut, sparking reflection across government and industry. Despite Shenzhen’s tech hub status, it has yet to produce a company of similar scale, fuelling widespread discussion.

In response to rising intercity tech competition, Guangdong’s provincial and municipal governments have convened multiple high-level meetings over the past month to strategise for this year’s economic and technological development.

Following the Chinese New Year, Guangdong party secretary Huang Kunming praised DeepSeek and Unitree Robotics as part of Hangzhou’s “Six Little Dragons”, highlighting the need for Guangdong to stay competitive in the tech race. He later held an industry roundtable to advance AI and robotics development.

At the National People’s Congress in March, Huang emphasised learning from other regions and adopting best practices. He urged Guangdong to lead in technological innovation and industrial integration, asserting that a modernized industrial system is crucial for maintaining its role as a major economic powerhouse in China.

These statements highlight Guangdong’s growing urgency in promoting tech- and innovation-driven high-quality growth. As China’s innovation capital, Shenzhen is now redefining its role and responsibilities in this technological revolution.

On 3 March, Shenzhen rolled out four major action plans, focusing on AI development, smart device applications, robotics innovation, and support for high-growth enterprises. On the same day, the city also announced plans to enhance its business environment by making it more market-oriented, law-driven, and globally competitive, with a specific focus on meeting the needs of startups.

Peng Peng of the Guangdong Provincial System Reform Research Association said Guangdong has already invested heavily in emerging technologies such as AI, semiconductors, low-altitude economy, and green energy in recent years.

However, compared to cities like Hangzhou, Shanghai, Beijing, and Chengdu, Guangdong’s performance has not been particularly outstanding. He said: “Guangdong needs to stay committed to developing these strategic industries, while also driving clearer market-focused breakthroughs.”

CDI’s Song said Guangdong’s sense of urgency regarding high-quality development is understandable, because it has weak areas in basic research as compared to Zhejiang.

He noted, “The Yangtze River Delta region has top universities such as Zhejiang University, the University of Science and Technology of China, and Fudan University, which give it a stronger research foundation. While Guangdong is propped up by Hong Kong’s universities, weak industry-academia collaboration has limited the transformation of research into market applications.”

Song emphasised that AI development is not solely dependent on basic research — a complete industrial chain and diverse application scenarios are just as crucial.

He continued, “Guangdong cannot afford to fall behind in this AI wave; it has to catch up. How to do that is another question. But what is certain is that Guangdong has already begun making strategic moves. Given its traditional economic strengths and technological capabilities, there is still plenty of hope for it to catch up.”

This article was first published in Lianhe Zaobao as “传统产业不振 广东经济下行潮难逆？”.

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