The Chinese region faces considerable challenges, exacerbated by a global slowdown on demand for its products.

Guangdong has been one of China's fastest-growing provinces, with the Pearl River Delta region emerging as a national focus of export growth since the early 1980s. But it now faces considerable challenges, exacerbated in the short term by the effect of the global slowdown on demand for what the region produced.

Guangdong owed its economic pre-eminence to massive inflows of foreign direct investment and the associated development of labor-intensive export manufacturing activities.

However, price advantages have eroded in the region, posing new challenges. Furthermore, where the Pearl River Delta's (PRD) labor-intensive manufacturing used to be the main engine of China's economic growth, higher value-added activities in the Yangtze River Delta region (YRD) have more recently emerged as a more important focus of growth as China seeks to move up the value-adding chain.

Recent challenges. For some time, export-orientated industrialization in the PRD has encountered serious challenges:

Slowing export growth. In the face of the recent economic downturn in major overseas markets, exacerbated by the renminbi's appreciation, export-orientated industries have faced increasingly difficult conditions. These will intensify in coming months as the global economy slows.

Rising raw material costs. Sharp increases in energy and raw material prices have eroded the competitiveness of many export industries. This has had serious implications for small and medium-scale enterprises (SMEs), which have been a dominant force in Guangdong and whose profit margins are often fragile.

Tax rebates adjustments. Since mid-2007, tax rebates on export items have been reduced or eliminated. Many of the goods affected--such as clothing, footwear, toys and other light industrial products--are what the PRD produces.