In 1978, China launched its economic policy of ‘reform and opening up’ that catalysed its development into an economic powerhouse. A leading plank in this strategy was South China’s Pearl River Delta region, including Shenzhen – the country’s first special economic zone.
The same region is now at the centre of China’s blueprint for its Greater Bay Area, designed to integrate the special administrative regions of Hong Kong and Macau with nine cities in neighbouring Guangdong province.
The Guangdong-Hong Kong-Macau Area spans 56,000 square kilometres – around three times the size of California’s San Francisco Bay Area – and has a population of more than 72 million. Annual gross domestic product (GDP) is around $1700bn, which is comparable to that of the New York Metropolitan Area and Tokyo Bay Area, according to the census and statistics department of Hong Kong.
China aims to harness the collective strengths of the region through a co-ordinated economic development, which differentiates the roles of the cities so they do not compete with each other. With an overall focus on technology and innovation, Hong Kong will specialise in finance, Macao in tourism and Shenzhen in technological development.
The plan is for Hong Kong to consolidate its role as a financial centre, according to new policies unveiled in the ‘Opinions concerning financial support for the establishment of the Greater Bay Area’, released by the People’s Bank of China (the central bank) in May 2020.
The new policies include offshore use of the Chinese renminbi in Hong Kong– and Macau, allowing mainland China residents to open cross-border accounts in Hong Kong and easing the financial integration of the three regions, which each use their own currency.
The account system will function as a “financial cross-border bridge” and “will help financial institutions to innovate their services and products”, Song Yuesheng, vice-chairman and chief executive of Hang Seng Bank China, told state-owned newswire China Daily.
Another policy announced in the opinions is the ‘insurance connect’, which allows customers who purchase insurance in Hong Kong to access claims services in mainland China, supporting the establishment of foreign-invested insurance companies in the mainland region.
“The insurance connect will enable Hong Kong insurers to provide services in the Greater Bay Area via an online platform,” says Sally Wan, CEO of AXA Hong Kong and Macau. “The market penetration rate of life insurance in the nine mainland cities was less than 5% in 2019. We expect 22 million households in the Greater Bay Area to need insurance plans in the next decade, meaning that the potential is huge.”
Shenzhen is at the forefront of China’s ambitions to develop an international innovation and technology bay area, as the city continues to transform from a manufacturing hub to an innovation centre.
Reflective of this evolution, greenfield investment projects into Shenzhen’s manufacturing sector have decreased over the last decade, whereas project numbers in research and development have risen to consecutive record-breaking years in 2018 and 2019, according to greenfield investment monitor fDi Markets.
“Shenzhen has outstanding investment prospects. It has been the centre of much of the innovation and high-tech development of the country,” says Joe Ngai, managing partner at McKinsey Greater China, which opened offices in Shenzhen in 2013.
The city hosts the head offices of smartphone makers Huawei Technologies and ZTE; electronic vehicle producer BYD Auto; drone maker DJI; and WeChat provider Tencent Holdings.
Since Hong Kong was linked to China’s high-speed railway network in an $11bn project, travel times between the cities have been cut to just 15 minutes, giving Shenzhen greater access to Hong Kong’s foreign capital and international tech talent.
Open for visitors
Often described as the ‘Las Vegas of Asia’ due to its large casinos and vibrant nightlife, Macau is set to specialise on its tourism sector.
Though the special administrative region has yet to show an uptick in inbound greenfield projects in the tourism sector, the June 2019 expansion of Crystal Pavilion hotel complex by Wynn Macau, subsidiary of US-based casino operator Wynn Resorts, was worth an estimated $2bn, according to fDi Markets.
Testament to its potential, Macau placed second in fDi’s 2019/20 Tourism Locations of the Future awards, not only due to its leisure tourism but also its cultural attractions, which include 12 Unesco-listed heritage sites.
Hong Kong’s tourism sector has also grown as a result of improved connectivity with the other cities of the Greater Bay region. Following the September 2018 completion of the $20bn Hong Kong-Zhuhai-Macao Bridge, same-day tourist arrivals from China showed a 30% year-on-year increase in the fourth quarter of 2018, accounting for nearly half of all inbound tourists in the period, according to the Hong Kong Tourism Board.
As Hong Kong’s tourism prospects have grown, there has also been an uptick in greenfield investment, and Hong Kong attracted its highest number of projects in the tourism sector in a decade in 2019, according to fDi Markets.
Hingeing on integration
As well as key infrastructure projects, the Chinese government has implemented policies to facilitate the flow of people between the regions of the Greater Bay Area, such as the Mainland and Hong Kong Closer Economic Partnership, which has liberalised the trade of services, including healthcare.
“With our medical centre in Guangzhou, we regularly invite our Hong Kong-based medical professionals to participate in events to share knowledge and best practices,” says Elaine Chu, general manager at Hong Kong-based Quality HealthCare, which, in January 2020, became the first foreign-invested wholly owned medical centre to qualify as a network medical facility in the Greater Bay Area. “Having a trusted healthcare service can help increase movement in the area and attract Hong Kong residents to live in the region,” she adds.
Hong Kong has been a crucial intermediary in Western businesses gaining access to the Chinese economy, dating back to when the Chinese economic reforms began in the late 1970s. More recently however, the ongoing political tensions between the Chinese administration and Hong Kong have threatened this status – as evidenced by slowing cross-border financial investment between the two, and the US signing of an order to rescind special trade and economic privileges for Hong Kong.
Though the policies, infrastructure and plans are being implemented, how far the Greater Bay Area fulfils its ambitions as an economic hub and metropolis also hinge on the political challenges inherent in integrating Macau, Hong Kong and China.
This article first appeared in the August - September edition of fDi Magazine. View a digital edition of the magazine here.