Latest Developments of the Greater Bay Area and Hong Kong’s Role

Latest Developments of the Greater Bay Area

In early 2017, development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) was incorporated into the Government Work Report by Chinese Premier Li Keqiang. The report specifies roles for the “9+2” GBA cities – the nine on the mainland and Hong Kong and Macao. The four core cities - Hong Kong, Macao, Guangzhou and Shenzhen - are to be the engines driving the GBA’s development and supporting Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing to help them fully leverage their strengths. The aim is to establish a world-class city cluster. In August 2018, the Leading Group for the Development of the Guangdong-Hong Kong-Macao Greater Bay Area, headed by Chinese Vice-Premier Han Zheng, was set up to guide the implementation of the GBA at national level.

The concept for the GBA originated from the Pearl River Delta economic region, which was established by Guangdong’s provincial government in 1994. The region covers the nine cities of Guangzhou, Shenzhen, Foshan, Zhuhai, Jiangmen, Zhongshan, Dongguan, Huizhou and Zhaoqing. Its development is fuelled by investment from neighbouring Hong Kong and Macao. The intention of the national strategic plan for the GBA was to create an area comparable to the Beijing-Tianjin-Hebei city cluster and Yangtze River Delta (YRD) city cluster, and make it an extension of the Belt and Road Initiative (BRI). It is also designed to increase economic collaboration between the mainland and Hong Kong and Macao, following the earlier initiatives of the Closer Economic Partnership Arrangement (CEPA) and Pan-Pearl River Delta Regional Cooperation.

The 11 cities of the GBA can be grouped into three regions: the east coast (Huizhou, Dongguan, Shenzhen and Hong Kong), the west coast (Zhongshan, Zhuhai, Jiangmen and Macao) and the north (Guangzhou, Foshan and Zhaoqing). The GBA covers an area of 56,000 sq km and has a total population of 70 million. It is larger in size than other world-class bay areas such as the San Francisco Bay Area (18,000 sq km) and the Tokyo Bay Area (36,500 sq km). Its population is double that of the Tokyo Bay Area. The GBA is also close geographically to the rapidly-growing economies of South-east Asia and countries and regions along the BRI routes.

Figure 1: Area (in sq km) and Population (in 10,000s) of “9+2” GBA Cities, 2019

The combined GDP of the GBA cities amounted to RMB11.6 trillion in 2019, making up 11% of the country’s GDP. Its annual growth rate between 2014 and 2019 stood at 8.2%, outstripping the 7.7% growth rate of the country as a whole. Guangdong has always ranked top among Chinese provinces in terms of economic output. In 2019, its economic output totalled RMB10.8 trillion. The combined GDP of Guangdong, Hong Kong and Macao topped RMB13.7 trillion, and accounted for 13% of the total economic output of the country (including Hong Kong and Macao).

According to projections made by the China Center for International Economic Exchanges, the GBA’s economic output will catch up with that of the Tokyo Bay Area in 2020. By 2030, it’s expected to climb to US$4.6 trillion (around RMB32.6 trillion¹), surpassing that of the Tokyo Bay Area (US$3.2 trillion) and the New York Bay Area (US$2.2 trillion), to make the GBA the bay area with the highest economic output in the world.

Figure 2: GDP (in RMB 100 million) of GBA Cities, 2019

The GBA encompasses a mix of manufacturing, financial and high-tech industries located in the most competitive cities in southern China. The west coast of the GBA is dominated by technology-intensive sectors, modern services and advanced manufacturing industries, including electronic products and medical equipment. The east coast comprises mainly knowledge-intensive industries and service sector businesses in areas like finance, emerging industries, hi-tech, internet services and electronic communication. In the north, the focus is gradually shifting from labour-intensive to technology-intensive industries, and the main sectors there include parts and components manufacturing, machinery and equipment, automobiles and agriculture.

As far as the cities themselves are concerned, the area around Guangzhou (including Dongguan and Foshan) has been hailed as “the world’s factory”, with a significant manufacturing cluster established there since China’s reforms and “opening up”. Shenzhen is a global leader in the hi-tech and internet services sectors, Macao is an entertainment capital known as the “Las Vegas of the east”, while Hong Kong is a world-renowned financial centre.

While economic growth in Hong Kong and Macao is driven primarily by the services sector, most of the mainland GBA cities (in particular Foshan, Huizhou, Zhuhai, Zhongshan and Dongguan) are dominated by manufacturing. The huge discrepancy in economic development between the GBA cities also means that the level of foreign direct investment in the cities varies considerably. With Hong Kong and Macao functioning as a two-way gateway between the GBA and the rest of the world, coupled with the innovative “one country, two systems” policy implemented there, the “9+2” GBA city cluster is well positioned to become a world-class bay area with enormous opportunities.

Figure 3: Industrial Structure of GBA Cities, 2019

The three economic regions of Beijing-Tianjin-Hebei, YRD and GBA are widely recognised as the future economic centres of China. The plan for the integrated development of Beijing, Tianjin and Hebei was proposed by Chinese Premier Li Keqiang in the Government Work Report in 2014. It covered 11 prefecture-level cities, including Beijing, Tianjin and Baoding in Hebei. In April 2017, the State Council established the Xiongan New Area in Hebei to help boost efforts to integrate the region.

The concept for the YRD economic region was first put forward in 1982. Initially, it included the five cities of Shanghai, Nanjing, Ningbo, Suzhou and Hangzhou. In May 2016, the State Council approved a city cluster development plan for the YRD region. It encompassed 26 cities including Shanghai, nine cities in Jiangsu including Nanjing, eight cities in Zhejiang including Hangzhou, and eight cities in Anhui including Hefei. The YRD economic region ranks first among the three in terms of number of cities, population size and total economic output. However, measured by per capita GDP, the GBA outperforms the other two by a wide margin.

Hong Kong’s Role

As the most competitive and internationalised city in the GBA, Hong Kong has worked hard to develop and promote its advantages in international finance, transportation, trade, aviation and professional services. Capitalising on the strengths of the “one country, two systems” policy and its free and open economy, the city has taken a crucial role in the development of the GBA.

Hong Kong has long been ranked highly internationally for its competitiveness. In the latest competitiveness ratings released by the World Economic Forum (WEF), Hong Kong ranks third after Singapore and the US. In the Doing Business 2020 Report published by the World Bank, Hong Kong was placed third worldwide for “ease of doing business”, doing well in the areas of “paying taxes”, “getting electricity” and “starting a business”. The city also excels in aspects such as its macro economy, healthcare system, financial system, commodities market and infrastructure facilities. Taking advantage of its location and links with both mainland and international cities, Hong Kong has become a significant conduit connecting the China market with overseas markets. A huge amount of capital, talent, technology and international management experience are brought into the GBA through the city.

The development of the GBA entered a new stage when the GBA Development Plan came into effect on 18 February 2019. The Plan highlights the government’s expectations for Hong Kong, and spells out the city’s functions, roles and objectives in the GBA project. These are:

     i. Consolidating and enhancing Hong Kong’s status as an international financial, transportation and trade centre and aviation hub;

     ii. Strengthening Hong Kong’s status as a global offshore renminbi business hub;

     iii. Developing Hong Kong into an international asset management and risk management centre;

     iv. Establishing Hong Kong as the centre for international legal and dispute resolution services in the Asia-Pacific region; and

     v. Developing the innovation and technology industries, and nurturing emerging industries.

In the past few years, Hong Kong has put a great deal of effort into enhancing connectivity with other GBA cities by building infrastructure facilities. The commissioning of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link has substantially shortened the travelling time between Hong Kong and Shenzhen, Guangzhou and other PRD cities. Passengers from Hong Kong can also use the express rail network to travel to other mainland cities.

In October 2018, the Hong Kong-Zhuhai-Macao Bridge commenced operation. Since then, the Hong Kong government has been in continuous dialogue with mainland authorities to gradually increase the number of cross-border vehicle quotas and increase usage of the bridge. The two sides have also looked at boosting customs clearance facilities, with boundary control points to enhance connectivity between Hong Kong and mainland cities and provide greater convenience for travellers. Self-service clearance for travellers and other clearance facilitation measures have been implemented to make customs clearance more efficient.

Meanwhile, Hong Kong is pressing ahead with the construction of a seventh land boundary crossing between Hong Kong and Shenzhen – the Liantang/Heung Yuen Wai Boundary Control Point. Steps have also been taken to increase the number of clearance points in GBA cities and Guangdong covered by the Single E-lock Scheme. Under this scheme, electronic technology and global positioning systems are deployed to reduce duplicate inspections on the same shipment by customs authorities on different sides of the border. This helps streamline clearance procedures and expedites the flow of transshipment cargoes, promoting the development of the GBA’s logistics sector. Hong Kong has also put in place the Authorised Economic Operator Programme to facilitate trade and business transactions.

To consolidate its status as an international aviation hub and a regional logistics centre, Hong Kong has embarked on a number of infrastructure projects designed to increase its aviation capacity and meet the ever-rising demands of air traffic. These include the three-runway system project, the Intermodal Transfer Terminal aimed at improving multi-modal transport links within the GBA, the express air cargo terminal expansion project and the SKYCITY development project. The green light has also been given for the establishment of the Hong Kong International Aviation Academy, aimed at improving manpower training and nurturing talent.

Hong Kong is also one of the world’s largest shipping centres, operating the busiest and most efficient port in the world. To increase its competitive edge, the city has signed agreements with over 40 trade partners on double taxation relief for shipping revenue and preferential port tonnage tax treatment for Hong Kong-flagged ships. A phased expansion of the Kwai Tsing Container Terminals and cargo handling areas is being planned, with a number of sites being put out to public tender by the Hong Kong government. The idea is to develop multi-storey modern logistics facilities with port back-up functions and provide more barge berths in order to increase container handling capacity.

Once these measures have been implemented, Hong Kong should be able to offer wide-ranging shipping and trade services to more GBA enterprises and improve connectivity among its infrastructure facilities. Overseas companies will then be able to capitalise on the city’s comprehensive business network and sea, land and air transport services to access the China market through multiple channels.

In the capital market, remarkable progress has been made in fostering mutual access and connectivity between Hong Kong and mainland cities. The launch of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect, together with the mutual recognition of funds between the mainland and Hong Kong, have strengthened connections among capital markets in the GBA and helped boost the development of the financial sector as a whole.

Hong Kong is working hard to consolidate its status as a global offshore renminbi business hub by promoting cross-border use of renminbi in the GBA. Hong Kong institutional investors receive support when they make investments in renminbi in the GBA under specified conditions. Hong Kong is also eagerly driving the development of green finance, rolling out the Green Bond Grant Scheme to provide incentives for the creation of green financial products. The ultimate goal is to establish Hong Kong as a green finance hub.

The signing of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) is helping liberalise trade in goods and services, investment and economic and technical cooperation. Mainland authorities give preferential treatment to producers, service providers, professionals, investors, overseas investors and the businesspeople from Hong Kong when entering the mainland market. Hong Kong professionals can venture into the mainland market through mutual recognition arrangements under CEPA, or register to practise, set up a business or cooperate with mainland firms in the form of partnership associations in designated provinces and cities.

In order to encourage mainland enterprises to use Hong Kong as a platform for settling cross-border commercial disputes, the China Council for the Promotion of International Trade and the Hong Kong Mediation Centre have opened the Mainland-Hong Kong Joint Mediation Centre in Hong Kong. The Hong Kong government has also set up the Mechanism for Settlement of Investment Disputes to resolve cross-border disputes involving mainland investors. Both sides are continuing to explore opportunities for collaboration in this area.

Innovation and technology development is another area in which Hong Kong should look to strengthen its competitiveness in the GBA. The Hong Kong government has made good progress in nurturing technology talent, building technology infrastructure facilities, developing R&D resources and advancing technological research collaboration with the mainland. Projects include the Mainland-Hong Kong Joint Funding Scheme launched by the Ministry of Science and Technology and the Hong Kong government; the Memorandum of Understanding on Establishing Affiliated Institutions by the Chinese Academy of Sciences in Hong Kong, drawn up by the Hong Kong government and the Chinese Academy of Sciences to promote the establishment of two research clusters focusing on healthcare technology, artificial intelligence and robotics; and the Greater Bay Area Academician Alliance aimed at grooming technology talent and driving technological development in Hong Kong and the mainland.

Hong Kong and Shenzhen have also partnered to build the Hong Kong-Shenzhen Innovation and Technology Park at the Lok Ma Chau Loop. Meanwhile, policy support measures such as the arrangement for Hong Kong universities and research institutes to apply for cross-border remittance of technology funding, as well as special tax concessions for eligible R&D expenditure, have helped to accelerate technological development in the GBA.

Hong Kong boasts a number of world-class universities, and has actively cooperated with the mainland to promote the development of tertiary education, establish new schools, facilitate student exchanges and advance vocational and professional education. The Hong Kong government helps Hong Kong tertiary education institutions set up education establishments in the GBA in order to introduce internationalised education concepts to the mainland. The Sister School Scheme has been launched by Hong Kong and the mainland to help schools on both sides enhance mutual understanding through exchanges and cooperation.

Hong Kong also implements preferential policies for students holding the Mainland Travel Permit for Hong Kong and Macao Residents studying on the mainland, and provides assistance to vocational schools in Guangdong, Hong Kong and Macao in areas like enrolment, employment, training, student and teacher exchanges and skills competitions. Measures such as the Admission Scheme for Mainland Talents and Professionals, the Quality Migrant Admission Scheme and the Technology Talent Admission Scheme have helped attract high-calibre talent with a global outlook to Hong Kong to strengthen the talent pool and provide mainland talents with job opportunities in the city. In June 2019, the Education Bureau signed the Letter of Intent on Qualifications Framework Cooperation with the Department of Education of Guangdong Province in order to promote education development and talent exchanges in the GBA.

In recent years, many GBA cities have grown rapidly, injecting new vigour into the area’s economy. However, the increasingly complicated political and economic global environments, trade friction between the US and China, the slowing down in economic growth and increasingly fierce competition between cities are presenting grave challenges to Hong Kong. It is imperative for Hong Kong to make an accurate assessment of the global picture, and identify its strengths and weaknesses as well as the challenges and opportunities that will arise in the future. The city must try to integrate with the mainland to open up new frontiers, create opportunities in all sectors, advance the region’s economic development, and foster collaboration with other GBA cities to benefit the entire economy.

¹ US$1=RMB7.04, based on exchange rate on 10 December 2019

For the background information about this report, please refer to the appendix in Hong Kong as the International Business Hub for the Greater Bay Area (Executive Summary).

_{The Chinese version of the report is prepared by PricewaterhouseCoopers Advisory Services Limited. The English version of the report is translated by the Hong Kong Trade Development Council based on the Chinese version. Should there be any inconsistency or ambiguity between the English and Chinese versions, the Chinese version shall prevail.}

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