COLUMN ONE : Province of Wealth and Power : Economic growth in China’s Guangdong region and neighboring Hong Kong has been explosive. Already there are dramatic effects in the region and the U.S.

CANTON, China —  Six years ago, Chen Zhanhong the tailor made eight to 10 pieces of clothing a day as he pedaled a foot-powered sewing machine on the sidewalk. He earned $100 a month.

Today, Chen, 35, rules over five factories, four shops and 500 employees, with sales last year of $2 million. He casually predicts that by the end of this decade, sales for One Plus One Clothes-Making Ltd. will reach $100 million.

“I’ve expanded more than 100 times in the past six years, so why shouldn’t I be able to expand by 50 times in the next 10 years?” he asked with cool confidence.

Such are the visions born of the world’s most extraordinary economic expansion: the explosive growth of a “Cantonese enclave” of Guangdong province and its neighbor, the British colony of Hong Kong. Locked by geography, culture and politics in ties of mutual support, China’s quasi-capitalist province and Hong Kong are racing toward expanded wealth and power. With a population of 70 million, more than that of France, the enclave now boasts a heftier economy than any Southeast Asian nation.

Ambitious workers and managers such as Chen--along with Hong Kong money, management and marketing--have helped propel Guangdong to an average 12.4% annual growth over the last five years, excluding the effects of inflation. That’s unmatched by any country. Guangdong’s fastest-growing rival, South Korea, averaged 10.8%. By the year 2000, Guangdong’s annual output is expected to approach $120 billion.

Meantime, Hong Kong, an “advanced nation” with a per-capita income estimated at $13,530 this year, is predicted to grow 6% a year on average during this decade.

Although overshadowed by lingering anger over the Tian An Men massacre of pro-democracy protesters in 1989 and worry over Hong Kong’s fate after its 1997 return to Chinese sovereignty, the Guangdong-Hong Kong success story is having dramatic repercussions. More than half the $10-billion U.S. trade deficit with China has been linked to goods produced in Guangdong. Other Asian nations are feeling competitive heat from the region. And the area’s economic machine is likely to prove crucial in the overall development of China.

While China’s agreement with Britain for taking over Hong Kong includes a promise not to impose communism for at least 50 years, it looks as if the capitalist colony is turning the tables economically and culturally--much to the delight of mainland Cantonese, many of whom have kin across the border.

Despite half-hearted official efforts to ban the practice, round rooftop television antennas aimed at Hong Kong are a common sight in Guangdong. Shops sell Hong Kong pop music tapes. Hong Kong money is everywhere.

Officials and bankers estimate that from one-fifth to one-third of Hong Kong’s currency circulates in Guangdong. In the special economic zone of Shenzhen, next to Hong Kong, visitors often don’t bother to exchange money. Cabdrivers accept--indeed, often demand--Hong Kong dollars.

“There are probably more $1,000 notes ($128 U.S.) floating around in Guangdong than there are in Hong Kong,” mused Martin G. Barrow, a director of Jardine Matheson, the giant British trading and investment company that has played a prominent role in Hong Kong’s economy since 1832.

Chen, who worked at a state-owned knitting factory before becoming a street tailor, said his own firm’s growth began when he hired other tailors to help make garments for private shops that were springing up in Canton. But the big break came when Hong Kong merchants noticed “the attention we paid to quality” and started placing orders for exports, he said.

Stan T. K. Cheung, a Hong Kong tycoon, found his breakthrough by looking toward Guangdong.

When he returned to Hong Kong in 1977 after studying in the United States, his father was running two factories making sweaters and toys. Together, the factories were worth $250,000.

“The average factory size in Hong Kong was 29 workers, and we had 40 at each of our factories. It was OK with my father, but it was clear that we were going nowhere,” he recalled. So he looked to China for cheap labor.

Cheung found willing workers and cooperative officials in a town outside Canton. But transportation was so bad that his work trips required a bumpy four-hour ride in the back of a truck.

Even after 14 years, doing business in China is still hard. “They improve by leaps and bounds, but . . . my expectations grow faster,” he said. “Every year I find the same heartburn and frustration. But when the chips are down, I say, ‘What are my choices?’ If I want to survive in this business, I have to go back to China.”

Today, the family firm, Herald (Hong Kong) Ltd., has assets of $64 million and employs 4,000 workers in China and 1,400 in Hong Kong. Like most Hong Kong manufacturers, Cheung provides all of the machinery, and mainland partners provide the factory buildings. The bulk of the products must be exported, but Chinese authorities have permitted him to market 25% of production in China--”so I can sell the rejects,” Cheung said.

“If I didn’t have the 4,000 workers in China, I couldn’t afford the 1,400 in Hong Kong,” he said.

At least 80% of Hong Kong manufacturers have moved some production to Guangdong, Barrow said. About 14,000 Hong Kong manufacturing firms now employ an estimated 2 million workers in Guangdong. Hong Kong itself has only about 700,000 factory workers.

The Cantonese--who speak their own Chinese dialect and have had two centuries of notable overseas contacts--have a reputation for being open-minded and flexible. But the province was largely cut off from the world by the 1949 Communist revolution. In the late 1970s, Canton was still a sleepy town of decaying apartments and inefficient workshops, where foreigners quickly drew gawking crowds.

Then Beijing authorized Guangdong to “go one step ahead” in market reforms. The province was so distant from Beijing--and so poor--that failed experiments with capitalistic methods would not matter. Local officials and ordinary people, aware of the wealth that capitalism had brought their cousins in Hong Kong and overseas, grabbed their chance and ran with it.

Feng Xiaowen, 35, a former factory worker, started raising rare and unusual birds, including green peacocks, a protected species in China. Although Feng presents herself as an environmentalist, she acknowledged that she gets a tax exemption for such efforts. Her main business, she explained without embarrassment, is raising non-endangered species such as blue peacocks, ostriches and pheasants for sale to specialty restaurants in Guangdong and Hong Kong.

Profits for the bird farm run by Feng and her husband--who in their old jobs earned a total of $100 a month--ran at about $50,000 last year, she said.

The open door also helped make Guangdong a winner in the massive transfer of manufacturing bases going on throughout Asia.

Tony Young described how his Australian firm, Apollo Bicycle, purchased bikes for sale in Australia first from Japan, then Taiwan and then Hong Kong. Now, he said, it is buying bikes from the China Bicycle Corp. factory in Shenzhen at prices ranging from $160 to $320 and selling them in Australia for between $240 and $800.

Schwinn is one of three owners of the company, which now ranks as the world’s second-largest bicycle exporter. Technology from Schwinn helps. But the low wage costs help more: Salaries run about $100 a month, including bonuses.

Throughout the province, wages average $60 a month, less than one-tenth of those in Hong Kong. And, with China’s 1.1 billion people, the labor supply is effectively limitless, unlike some Southeast Asian rivals such as Malaysia and even Thailand, where labor costs are rising rapidly.

But the migration of workers to Guangdong in pursuit of job opportunities has created severe problems.

“Two million people have come in from other areas, but the Guangdong government has been able to provide facilities for only 400,000 of them. That means there are 1.6 million stragglers. This could turn into social unrest. Already, public security in Shenzhen is worsening,” said Hiroshi Fujiwara of the Japan External Trade Organization in Hong Kong.

Barrow of Jardine Matheson said crime in certain cities of Guangdong “has become a worry--and is feeding into crime in Hong Kong.”

“Canton has become a city noted for a danger of theft,” added Sadao Akiyama, deputy general manager of Tokai Bank’s Hong Kong branch. “Disorder will appear, although it could be a temporary unavoidable evil.”

Nonetheless, the outlook is for continued, burgeoning growth. Predictions range from 9% to 16% per year, not counting inflation.

“Once they have the infrastructure in place, the potential is unlimited,” Barrow said. “The feeling in Guangdong is very much like it was in Hong Kong 20 years ago.”

Guangdong already feels almost like a foreign land to visitors from the rest of China. Its per-capita income of $500 a year is more than 50% greater than that of the nation as a whole. Among all China’s provinces, Guangdong has emerged as the top producer of goods and services and the biggest exporter.

With 5.4% of China’s population and less than 2% of the country’s land area, it accounts for 8.5% of China’s GNP. It also has attracted more foreign investment than all the rest of China put together.

Fancy shops offer imported designer-brand clothes selling at prices found in New York--$50 for a shirt, for example, at one of Chen’s stores. Many urban homes boast TV sets, videocassette recorders, washing machines and microwave ovens. And former peasants have built themselves three- and four-story homes, sometimes renting out the upper floors to Hong Kong factory managers who spend the work week in Guangdong.

Guangdong is laying the foundations for continued growth, even if manufacturing investment from Hong Kong slows down.

Plagued by traffic jams, repeated electrical brownouts and jammed ports, Guangdong plans a six-lane tollway that will crisscross the province, 3,125 miles of ordinary roads, port construction, power plants and telephone lines.

Much of this will be financed from Hong Kong, which already has provided about 80% of the province’s “foreign investment.” Guangdong itself will pour $13 billion into upgrading 400 factories.

Although Beijing has adopted a strategy of “regional growth” in hopes of eventually spreading “ripples of growth” throughout the country, “the overall Chinese economy won’t be able to develop without Guangdong as a base,” said Toshikuni Hirai, general manager of the Mitsubishi Bank in Hong Kong. It will take Shanghai 10 years--”or maybe 20”--to get rolling, and Dalian, the targeted northeast growth center, is too small, Hirai said.

With more than half of China’s exports to the United States produced in Guangdong, worries have emerged about the heavy reliance upon the American market.

John T. Kamm, vice president of Occidental Chemical Far East, said that Guangdong--”the province that has the best record on human rights”--would suffer about half of any loss for China as a whole if the United States were to stop granting most-favored-nation tariff preferences.

“If trade relations snap, Guangdong would suffer a serious recession, if not a depression,” Kamm said.

Worries remain in Hong Kong over whether China will uphold its promise of political liberties and a capitalist system after 1997 when it takes over.

But China has already staked much on Hong Kong’s future. It is now the No. 1 outside investor there, with more than $10 billion of equity in real estate and such businesses as airlines, power companies, hotels and department stores.

“They have spread their wings over all sectors of the Hong Kong economy,” said Esmond K. Y. Lee, the Hong Kong government’s top economist.

And some view the issue as not a question of whether capitalism will survive in Hong Kong for 50 years but whether communism can survive in Guangdong. Experts estimate that 85% of Guangdong’s economy already operates on market principles, outside the framework of state plans.

“Does socialism exist there now?” Barrow asked. “South China has a life of its own.”

Huang Yantian, president of the Guangdong International Trust and Investment Co., which is owned by the provincial government, was asked whether his company intends to become a socialist trading company.

Responding with a hearty laugh, he said, “We would like to develop into a multinational corporation.”