Personal Contacts, Subcontracting Linkages, and Development in the Hong Kong-Zhujiang Delta Region

Abstract

This paper examines the locational structure and economic consequences of Hong Kong's production subcontracting activities in the Zhujiang Delta, China. Based on a comprehensive investigation of firms in the three major Hong Kong industries, I found that the subcontracting activities from the territory were widely distributed in the Delta, with Shenzhen, Dongguan, and Guangzhou as the three major centers of concentration. This pattern is attributable mainly to the extensive use of preexisting kinship and Hong Kong business ties to establish linkages. Other causes are closeness between Hong Kong and the Delta, the efforts of Chinese authorities to attract foreign investments to the Delta, and the locational advantages or specialization of individual locales. The locations of subcontracting linkages vary with different transactional channels. Linkages based on preexisting kinship or Hong Kong business ties orient to the rural, those based on other contacts to the urban, areas of the Delta. The incorporation of preexisting kinship and business ties insured exchange reliability and facilitated further cooperation between firms, which encouraged Hong Kong firms to subcontract and provide equipment and training supports to their Chinese subcontractors. The development of subcontracting activities has promoted rapid industrial development in the Zhujiang Delta, and led to production integration and economic interdependence between the two places. The study shows the relationships between firms, both preexisting social-institutional and subsequent transactional, are important locational and structural determinants of vertically disintegrated activities. It also shows the structure of transactions, while complex, is organized. A detailed examination of such structure will provide an integrated and context-specific framework for industrial organization and location research.