In 1994, Paul Krugman, a well-known US economist, made a prediction that the economies in the East Asian countries may have trouble soon.

Krugman's conclusion was based on the research of Lawrence J. Lau, another economist.

According to Lau, there are two sources for economic growth: More input of resources and higher economic efficiency. The economic growth achieved in the East Asian countries was purely generated by a heavy investment of resources, which could not be sustained in the long run because the resources were limited.

What happened in 1997 during the Asian financial crisis was proof, not only for Krugman's prediction, but more importantly, for Lau's theory.

Lau's theory is warning. Currently, it is also not difficult to see that an economy will see a downward curve in economic growth after it reaches a certain level if it does not change the current mode of development featuring heavy input of resources.

As a matter of fact, a slow-down of economic growth does exist in certain regions of China, among which Guangdong Province is a typical example.

As one of the most developed provinces in China, Guangdong lost its leading position recently. The two biggest economic hubs of the province, the cities of Guangzhou and Shenzhen, both saw a decline in GDP growth rates in the first three months of this year. Other regions in the province also saw a decrease in their growth rates of added value of industrial output, some of which were as dramatic as 30.1 per cent less than the same time last year.

Guangdong Province is among the first regions to be granted favourable policies by the central government at the beginning of the reform and opening-up policies in the late 1970s.

With favourable polices to attract investment, Guangdong saw the establishment of huge numbers of factories focusing on the processing trade, which, in turn, lured labour from inland areas.

Since the processing trade only involves technology that is easily duplicated, these factories can also be copied and developed.

As a result, favourable policies, capital, labour and technology worked together to support economic prosperity in Guangdong before all the other regions of the country even began to realize it.

This mode of development offered valuable experiences of reference for the rest of the country.

However, the development mode also threatened the sustainability of economic growth.

Take Guangzhou, the capital city of the province, as an example. All the 380 square kilometres of usable land of the city has been occupied. It relies on other cities or even other countries for coal, petroleum and iron. And electricity is facing severe shortages there.

Focusing on the processing trade, the province cannot get high profit margins because of its heavy dependence on other regions both for the raw materials and the market of the products it turns out.

In recent years, Guangdong has also lost its competitive advantage in favourable policies.

As a result, Guangdong is seeing a slow-down in economic growth when it is troubled with several serious problems, like labour shortages, capital flight and industry shifts.

To find solutions to these problems, it is necessary to find the exact reasons for them.

"Labour shortages," which troubled many factories in Guangdong so severely and hit the headlines early this year, actually means a shortage of practiced technicians.

Given the gigantic population in China, there is no such problem as "labour shortages." What the factories really needed and could not get was technicians.

In practice, both the authorities and businesses has not paid adequate attention to the research and development of technologies.

The processing factories use low quality technology in their processing, so their workers do not have to be technicians.

But when such processing businesses with low added-value can no longer maintain the same development momentum because of limited resources, fluctuating markets or other reasons, workers without due knowledge in technology or skills will become "negative assets" of the industry and are no longer needed.

Capital flight and industry shifts happening in Guangdong are inevitable choices for businesses when they find the business environment is no longer desirable.

The financial services supplied in Guangdong are far less mature than what businesses can get in Shanghai. The financial institutes are reluctant to lend to businesses with higher risks.

As the central government is trying to develop the central and western areas of the country, many of these areas offer favourable tax treatment and relative policies to investors.

Compared with these regions, Guangdong has higher land prices, labour costs, inadequate financial services and heavier tax burdens.

Statistics show that the investment in fixed assets in Guangdong in the first five months of the year was 16 per cent higher than the same period last year, which is about 10 percentage points lower than the average figure around the country.

This gap should not be mistaken as a signal of sluggish economic growth caused by inadequate investment.

Instead, it only reveals that the growth driven by heavy input of capital and high consumption of energy is seeing a potential crisis.

As one of the regions achieving early economic prosperity around the country, Guangdong has also seen the pain caused by developing before others.

If it does not switch into another mode driven by technological progress, the current economic slow-down may become an economic recession.

And if the rest of the country does not draw lessons from Guangdong in time, what happened in Guangdong today may take place in other areas before too long.