design and implement beneficial special policies to encourage the collaboration of the local governments of the PRD and the rest of the provinces to facilitate industry relocation.

There are signs that “double transfer” policies might have started bearing fruits. Many industrial transfer parks have been created in Guangdong and some labor intensive industries in the PRD have been transferred to the rest of the province. There also have been cases of industrial transfer from Guangdong to Jiangxi, Hunan, and Sichuan. Since the establishment of the first batch of Guangdong Industrial Transfer Park in 2005, there has been 35 provincial Industrial Transfer Parks at the end of June 2011. The establishment of the Industrial Transfer Parks contributed to the reallocation of the rural labor force. The share of additional/new rural migrant workers from within Guangdong to the PRD declined from 43.2 % in 2005 to 23.1 % in 2010, and that to the rest of the province increased from 56.8 % to 76.9 %.<sup>8</sup> Some new towns and small cities have emerged along with the establishment of the Industrial Transfer Parks, which, if designed and managed properly, can contribute to the acceleration of urbanization.

# **5.2 Policy suggestions for sustainable inclusive development**

In China, industrial clustering and agglomeration has generated significant productivity effects (He and Wang 2012). A successful transfer of industries is not about spreading the economic activities equally across geographic areas, but about facilitating the allocation and reallocation of capital and labor to the areas where they best suit the comparative advantages. To achieve a geographically more balanced development pattern efficiently and effectively, the implementation of the double transfer strategy needs to draw on the respective comparative advantages of the Pearl River Delta and the lagging periphery with a focus on the upgrading of the production structure and labor structure in both areas in an inclusive and sustainable manner.

For development to be sustainable and inclusive in Guangdong, we suggest a four-prong approach to improve the business environment, support the realization of latent comparative advantages, upgrade the skill level of labor force to support the upgrade of production structure, and protect the vulnerable (Box 2). Developing own-source revenues at the local level (including both own-source taxes and equalization transfers) and ensuring sustainable access to credit are key elements to support the emergence of the new hubs and their sustainability.

## **Box 2 Policy suggestions for inclusive development**

First, provide an enabling business environment to support a level playing ground for all regions

- Realize the benefit of agglomeration economies through a higher density in traditional and emerging centers (develop Pearl River Delta as global economic center).

- Reduce the distance to improve regional transportation and communication infrastructure (link the lagging regions to the Pearl River Delta).

- Eliminate divisions to promote intra- and inter-provincial market integration (support the economy of Guangdong to move up the global value chain).

Second, develop special regional policy to support the realization of latent comparative advantages

- Use the off-the-shelf technologies to build on the advantages of backwardness.

- Support “flying geese” / transfer of industries for the upgrade of structure.

Third, improve the skill level of the labor force to support the sustainable upgrade of production structure - Improve education and match the market demand for skills.

- Provide on-the-job training to attract and retain high quality local and migrant workers.

> 8  “Double Transfer in Guangdong”, NanFang Daily, 2011-09-14

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