By Alfred Romann
Dongguan, one of the world’s great manufacturing centers, has evolved over the past couple of decades from a dusty town pockmarked with factories into a thriving city. Shenzhen is a bona fide metropolis, even a futuristic one. Guangdong is one of the great engines of China’s economy and has moved from strength to strength. Macau is a world-class tourist spot with gaming revenues that are four times those of Las Vegas. Hong Kong is one of the top three financial centres in the world.
All these cities are part of the Greater Bay Area (GBA), an agglomeration of 11 cities in Southern China covering 56,000 square kilometres and home to 71 million people that generate $1.4 trillion in economic output. All these places grew to what they are today before anyone even mentioned the GBA.
Now, however, policy makers and businesspeople are eagerly anticipating even faster growth out of this area that is roughly the size of Croatia, a small country, but with enough people to make it the 20th most populous country in the world, on par with Thailand and the United Kingdom.
The best path forward for the GBA has been a topic of discussion since the plan was first floated in 2016. Hong Kong produced its own development plan in 2018 and, on Feb. 18, China’s National Development and Reform Commission (NDRC) unveiled its Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay area. A wide-reaching blueprint for the future of the GBA that aims to create a giant innovation hub by aligning the 11 cities more closely together and facilitating the flow of resources and ideas. The NDRC’s plan does allocate specific responsibilities to some of the cities, such as looking to make Macao a Chinese medicine hub and identifying Hong Kong as a core city along with Macao, Guangzhou and Shenzhen.
But, much like the GBA initiative itself, the plan is mostly a general outlook with few specifics.
Depending on the point of view, the challenges ahead could be myriad or non-existent.
In some ways, the term GBA is an arbitrary label on an already dynamic region. The question is whether the new label and focus on integration will translate into practical policies that facilitate growth or if the new policies will whitewash the independent identities and strengths of the of the 11 members.
As things stand today, the GBA has three different legal systems and three different customs zones. To travel throughout the GBA, one has to cross the equivalent of international borders more than once – from Hong Kong to Macau and to Mainland China or vice versa. To do business across the GBA, companies have to operate under three (or more) tax regimes – again Hong Kong, Macau and Mainland China.
Full integration is no easy task, particularly given how much emphasis Hong Kong puts in its “one country, two systems” approach to government and relations with mainland China.
“There are some barriers such as different legal, currency, tax, immigration systems among these cities,” says David Webb, a Hong Kong-based independent investor and activist. “Cities like Shenzhen, Zhuhai and Guangzhou are not special administrative regions like Hong Kong and Macau. The central government should expand the Hong Kong model, which is free market model, to the bay area, if not nationwide.”
For example, fintech
A case in point is financial technology (fintech). The approaches taken to fintech approvals by mainland China, Hong Kong and Macau tend to be quite different.
Hong Kong has managed to position itself as a global fintech hub, but mainland China has moved rapidly ahead with less global fanfare but with much greater practical success. In a survey at the end of 2018, PwC found that there is a lot of hope placed on fintech to integrate the region, but respondents said a lot will depend on whether the members of the GBA can align their regulations for seamless integration of financial technology, particularly in areas like banking.
“In the last ten years or so, China’s regulators have shown themselves willing to roll out defined liberalization measures that have created digital-only banks and world-leading payments business, and granted access to wider investment options,” said Matthew Phillips, PwC’s China and Hong Kong Financial Services lead for PwC speaking during Fintech Week last November. “The GBA and fintech will need more such initiatives if the GBA is to take off. But the growing sophistication of fintech solutions should make that feasible.”
Much of the research around the GBA suggests that economic growth in the region will be faster than the rest of China, but this would have happened with or without a GBA initiative. Even in the most positive research, the concern about the lack of actual regulations or coordinated regulations is never far from the surface.
Advancement good, but more regulatory clarity, please
A YouGov survey commissioned last October by KPMG China, HSBC and the Hong Kong General Chamber of Commerce (HKGCC) found that 82 percent of 714 business executives in mainland China, Hong Kong and Macau expect the GBA to help their businesses over the next three years and 34 percent expect more than 10 percent growth. Still, a majority of respondents said more regulatory clarity and better understanding of how governments in the region can reconcile the various tax, healthcare and visa regimes would go a long way to facilitate growth.
“The free movement of people and the potential reduction in transaction costs will underpin the GBA’s economic activity,” said Shirley Yuan, the HKGCC’s CEO. “With proper policy support and cooperation in the GBA… we think the optimism of the survey respondents is understandable.”
Ayesha Lau, managing partner for Hong Kong at KPMG China, noted in a commentary that the development of the GBA will depend on whether the various members find ways to unify and optimize their economies. And this will depend on how efforts to streamline regulatory systems evolve.
So far, these efforts have not led to significant changes. Not in the way that, for example, the long-standing Closer Economic Partnership Agreement (CEPA) between Hong Kong and southern China has done since 2003 by reducing policy restrictions.
In a paper it produced last year, the global accountancy body ACCA pointed to a number of specific areas that still have to be addressed for the GBA to play an active part in economic development. For instance, facilitating cross-boundary job rotation and removing hurdles to working elsewhere in the GBA would go a long way towards integration. Eliminating double taxation and facilitating access to finance throughout the region would also help.