Hong Kong as the International Business Hub for the Greater Bay Area (Executive Summary)

Background and Objectives of Study

The Central Government’s 2019 promulgation of the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (GBA Development Plan) officially launched a development strategy for the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). The GBA, comprising two special administrative regions and nine mainland cities, is home to a host of manufacturing industries, modern services industries and innovation and technology industries, as well as a cluster of the most competitive cities in the South China region.

What marks the GBA as special is the inclusion of Guangdong, Hong Kong and Macao. The three territories are under different local administrations, two systems and three legal jurisdictions and are implementing three sets of tariff policies and using three currencies. This feature brings both opportunities and challenges in the orderly flow of personnel, capital, goods and information within the GBA.

As the most internationalised and open city in the GBA, Hong Kong plays an important role in the region under the “one country, two systems” principle. To better understand how GBA enterprises leverage Hong Kong’s advantages and how to reinforce Hong Kong’s position as the international business hub for the GBA, the Hong Kong Trade Development Council (HKTDC) commissioned PricewaterhouseCoopers Advisory Services Limited (PwC) to conduct a study on Hong Kong’s position as the international business hub for the GBA, gathering views from senior business executives in the GBA. The study aims to examine Hong Kong’s current advantages as the international business hub for the GBA, as well as the opportunities and challenges it faces. Ways to strengthen Hong Kong’s position as the international business hub for the GBA are proposed from the results of the study.

The study focuses on how Hong Kong is playing its role as an international business hub in the following six key functions: (1) an international financial centre; (2) a centre for legal, dispute resolution and other professional services; (3) a logistics and transportation centre; (4) a trading centre; (5) an innovation and technology centre; and (6) a headquarters for business.

The study and related analysis were carried out from June to December 2019. The study consisted of two parts: in-depth interviews and a questionnaire survey.

Companies from six representative sectors, which have offices in the “9+2” GBA cities were selected and invited to participate. The six sectors were: financial services; logistics and transportation; trading services; manufacturing; legal, dispute resolution and other professional services; and innovation and technology.

As part of the study, PwC carried out in-depth interviews with senior executives from 75 companies operating in the GBA. In each interview, a number of open questions were asked related to each sector’s characteristics and development status in the GBA. There were also extensive discussions surrounding the objectives of the study. PwC also designed a questionnaire for quantitative analysis. Afterwards, it obtained feedback from senior executives of close to 400 GBA enterprises either through in-person, telephone or online interviews. The opinions collected from the interviews were aggregated, while the data obtained from the questionnaire were analysed.

The study looked at the development prospects for Hong Kong and the GBA in the next five to 10 years. This final report not only summarises the insights generated from PwC’s in-depth interviews and questionnaire survey, but also presents the SWOT analyses for Hong Kong as a whole and for the six key sectors respectively.

Further, it contains the GBA enterprises’ initial suggestions on how to best strengthen Hong Kong’s position as the international business hub for the GBA. It should be noted that, because this study (including the in-depth interviews and questionnaire survey) was carried out from June to December 2019, the results and related viewpoints did not take into account the impacts of subsequent developments, in particular the Covid-19 outbreak.

Hong Kong’s Overall Situation and Main Roles

Hong Kong has long maintained close ties with mainland China, and there have been important breakthroughs in connectivity in several areas. In infrastructure construction, the opening of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link and the Hong Kong-Zhuhai-Macao Bridge, as well as the Intermodal Transfer Terminal now under construction at the Hong Kong International Airport have great significance in enhancing the flow of people and goods among GBA cities.

In the area of boundary crossing and customs clearance, the opening of new control points, the implementation of the Single E-lock Scheme and the Hong Kong Authorised Economic Operator Programme help facilitating business.

In the capital market, with Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Connect up and running, there have been breakthroughs in the connectivity and opening-up of capital markets in Hong Kong and the mainland.

In goods trading, service trading, investment as well as economic and technology cooperation, the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) concluded between Hong Kong and the mainland offers more cooperation opportunities for manufacturers, service providers, professionals, domestic and foreign investors as well as businesspeople from both territories. In the areas of innovation and technology, education and personnel training, CEPA has also facilitated many exchanges and cooperation opportunities between the two territories.

As a highly competitive internationalised city in the GBA, Hong Kong has long committed to developing and promoting its functional advantages in the areas of international finance, transportation, trading, aviation and professional services. Hong Kong not only ranks among global leaders for overall competitiveness and business environment, it also plays a key role in GBA development.

The GBA Development Plan highlights the state leaders’ high aspirations for Hong Kong, and spells out the city’s functions, roles and objectives in the GBA development as follows: (1) consolidate and enhance Hong Kong’s status as international financial, transportation and trade centres as well as an international aviation hub; (2) strengthen Hong Kong’s status as a global offshore renminbi business hub; (3) develop Hong Kong into an international asset management and risk management centre; (4) establish Hong Kong as the centre for international legal and dispute resolution services in the Asia-Pacific region; and (5) make great efforts to develop the innovation and technology industries, and nurture emerging industries.

Through this study PwC sought to understand the strengths and weaknesses of Hong Kong as a whole in the role of GBA’s international business hub in four areas: connectivity, business environment, infrastructure and talent pool. The respondents generally believed that the key factors for Hong Kong’s being an international business hub are its robust legal regime, open business environment, free-market economy, sound infrastructure and transportation systems as well as its pool of top internationalised talent. These are also Hong Kong’s advantages as a business hub for the GBA.

In the area of connectivity, the senior executives interviewed fully recognised the role of Hong Kong in serving as a bridge between overseas and GBA enterprises in the course of the latter’s development, especially with regard to expansion beyond the mainland. In particular, Hong Kong’s well-developed sea, land and air transportation systems are its main advantage in facilitating connectivity.

As far as the business environment is concerned, the availability of a diverse range of professional services is one main advantage of Hong Kong in supporting the development of GBA enterprises. The main reason that Hong Kong is attracting GBA enterprises to set up branches or expand business is that Hong Kong possesses a diversified range of financial services and products, while its business environment is open and fair.

The study revealed that financial services are Hong Kong’s most sought-after service offering for GBA enterprises. This is especially true of commercial banks, whose services have been or are being used by 60% of the enterprises polled. The second most popular service is legal, dispute resolution and other professional services, which have been or are being used by more than half of the responding enterprises. Respondents also gave the highest rating to this type of service and they believed that there are plenty of providers and the quality of their services is high.

In infrastructure, the respondents said that Hong Kong’s simple and competitive tax system is one of its main advantages. Another important feature is that Hong Kong government procedures are open, transparent and easy to follow. With regard to the talent pool, respondents generally agreed that, within the GBA, Hong Kong is home to the largest number of world-class higher learning institutions, and that it has an abundance of professionals in the financial, legal and other professional services field, which is an attraction to international talents.

Yet, many respondents mentioned that as technology advances and mainland cities develop, Hong Kong’s talent competitiveness is gradually falling, and the professional talent pools in the sectors of logistics and transportation, innovation and technology are inadequate. There is still considerable room for improvement, particularly in innovation and technology investment and in talent nurturing policies.

Some respondents also said that Hong Kong’s talent admission policy has little appeal to high-calibre talent and, in comparison with other cities on the mainland, there is a dearth of incentive policies. Adding the fact that Hong Kong’s cost of living is higher than other GBA cities, many high-calibre talents have reservations in moving into Hong Kong out of consideration of the quality of life, their family and the education of their children.

Respondents said that, from the standpoint of a company, considerations such as personnel expenses, office rentals and other operating costs in Hong Kong may discourage them when they consider setting up a branch in Hong Kong. Also, many respondents said that though Hong Kong has first-class infrastructure, it offers insufficient support for the development of emerging industries, so much so that these industries are lagging behind other GBA cities. Moreover, the growth of neighbouring cities and regions, as well as the trade protectionist policies of some countries, are also presenting potential challenges to Hong Kong.

Although enormous challenges and trials lie ahead for Hong Kong, so long as the territory can adopt appropriate measures and seize opportunities brought about by the GBA development, future trends also have positive effects on strengthening Hong Kong’s position as an international business hub. The respondents believed that the five trends that are most important to Hong Kong in the next five years are: increasing application of emerging technology, integration of Hong Kong with the GBA – including capital connectivity, increasing cross-boundary transactions due to Belt and Road Initiative (BRI), extending global value chains out of the GBA, and industrial upgrade and transformation in the GBA.

Respondents believed that, in order to further enhance Hong Kong’s position as the international business hub for the GBA, the five most important measures it has to take are: facilitate free flow of capital in the GBA, improve protection of data privacy in GBA, improve R&D capability of Hong Kong, e.g. encourage R&D activities and adoption of emerging technology, promote tax simplification/harmonisation in GBA, and promote regulatory transparency in GBA.

Future Development Directions

Summing up the insights and opinions of senior executives from various sectors in the GBA, PwC proposes a range of measures for reinforcing Hong Kong’s position as the international business hub for the GBA. These measures are based on the opportunities and challenges facing Hong Kong and are directed at two levels – Hong Kong as a whole, and its six key functions.

For Hong Kong as a whole, as regards talent pool, it can cultivate the interest of local students in traditionally less popular subjects. In addition, it can offer them intern opportunities with local enterprises to cultivate their interest in sectors such as logistics and technology.

Hong Kong can also promote talent exchanges with overseas countries and the mainland., for example, by cooperating with Hong Kong companies already operating in the GBA to offer young Hong Kong people internships or work opportunities. It can also encourage young people to work in the mainland in order to gain an understanding of the market and enhance their own competitiveness.

Hong Kong can redouble support and financial aid for youth development, while encouraging the private sector to organise more exchange activities with the GBA as well as the establishment of youth entrepreneurship centres.

For future development, Hong Kong can strengthen cooperation between the two territories by negotiating with mainland governments to provide more preferential work policies. The ultimate aim is to complement each other to achieve a rational allocation of talent resources. In attracting talent to take up residence, Hong Kong can roll out other livelihood support, as well as preferential treatment and support in taxation.

When it comes to expanding into the mainland market, Hong Kong should take better advantage of the opportunities arising from the GBA development in the areas of academic research and start-up development. The relevant authorities in Hong Kong should consider encouraging enterprises to make full use of the resource advantages of other GBA cities in their business expansion.

The relevant institutions and departments in Hong Kong should intensify their communications with counterparts in other GBA cities to leverage one another’s complementing advantages. At the same time, they should address the needs of various sectors by further exploring policies and measures that would enhance connectivity.

Further, they should fight for more incentive policies for Hong Kong’s businesses and talents. Relevant Hong Kong departments should also speed up and intensify the implementation of relevant policies and be more responsive to development trends in emerging industries.

Hong Kong’s wide array of investment and financing platforms and the diversity of its offshore renminbi business and other financial services are great advantages. The fact that Hong Kong’s laws and regulations are more transparent is of utmost importance to the development of Hong Kong’s banking sector.

To reinforce its position as an international financial centre, Hong Kong should grasp the pace of innovation in technology industries, introduce new policies as necessary, review its public listing mechanism and plans on a timely basis and introduce more measures to increase flexibility.

By setting up ‘sandboxes’ of laws and regulations, Hong Kong can take the lead in reforming its financial regulatory system and turn itself into the preferred centre for raising funds and financing start-ups. Hong Kong should also continue to deepen connectivity with financial markets, drive the concerted development of the regulatory systems in Hong Kong and the mainland, broaden investment options for cross-boundary investment, as well as facilitating the development of cross-boundary financial products and services. Hong Kong should also continue to turn itself into a regional green financial centre, thus assuming an important role in the development of BRI projects.

In the area of professional services, Hong Kong can capitalise on its advantage of being familiar with the cultures and languages of both China and other countries, as well as its extensive professional knowledge and experience. It can collaborate with other GBA cities in conducting professional training programmes with regional characteristics in fields such as law, surveying, accounting, inspection and testing, etc. Those who have completed these professional training programmes will then be allowed to practise in specific areas within the GBA. This will strengthen exchanges and cooperation among professionals in the GBA so that they can capitalise on the wide range of market opportunities available.

Hong Kong is one of the arbitration centres in Asia most trusted by the international business community. It should therefore make better use of this professional advantage by stepping up publicity about its international arbitration and dispute resolution services. This way, it can attract more enterprises choosing Hong Kong as the venue to resolve disputes arising from GBA development and BRI projects.

Hong Kong should also take note of the demand for intellectual property trading and continue to establish itself as a protection base and trading platform for intellectual property in the GBA. Also, Hong Kong should discuss introducing a data and information management mutual recognition policy with other GBA cities in order to raise the efficiency of cross-boundary enterprises handling and managing data, so that information can flow more smoothly while use of resources can be optimised.

Hong Kong’s excellent geographical location and its well-developed transport network connecting with places all over the world are major advantages for the logistics and transportation sector. Hong Kong’s free trade policy and diverse value-added trade-related services make it a logistics centre and trading centre from which GBA cities can trade in goods and services with overseas countries.

In future, by issuing more licences for cross-boundary goods vehicles and by simplifying customs declaration and clearance procedures for goods within the GBA, Hong Kong can achieve coordinated development with mainland free trade zones or other related regions. Furthermore, to reinforce its position as a logistic, transportation and trading centre, Hong Kong should also establish a unified product quality certification mechanism with other GBA cities.

In the innovation and technology sector, other than increasing investment in hardware facilities, Hong Kong should also consider encouraging innovation in other areas, such as business models and management models. Hong Kong can also focus more on developing asset-light technology industries, such as virtual currencies, social media platforms, video games, etc. It can also make use of its abundance of talent in the healthcare sector to develop technology industries related to healthcare.

As the GBA develops, Hong Kong should cooperate in creating an ecosystem in which GBA cities’ relative advantages can complement each other and develop in concert. Some respondents also suggested that, through technology innovation, Hong Kong can establish itself as a pioneering smart city. In so doing, it will be able to attract the convergence of high-calibre talent and businesses, which will, in turn, create more opportunities and propel the economic development of Hong Kong as a whole.

For enterprises considering setting up business headquarters in Hong Kong, the majority of respondents pointed out that there has not been adequate publicity on Hong Kong’s various incentives. To attract GBA enterprises to develop their overseas markets out of Hong Kong, the SAR should improve the way related incentives are publicised, so that more GBA enterprises can learn about the details easily. Lastly, Hong Kong should also reinforce its existing advantages to further attract GBA enterprises to expand their business to Hong Kong.

Appendix

Methodology

This study was carried out through in-depth interviews and a questionnaire survey. From six representative sectors, PricewaterhouseCooper Advisory Services Limited (PwC) selected companies with offices in the “9+2” Greater Bay Area (GBA) cities and invited them to participate in this study. The six sectors were financial services, logistics and transportation, trading, manufacturing, legal, dispute resolution and other professional services, and innovation and technology. For the in-depth interviews, a series of open-ended questions addressing the characteristics of each sector and its current state of development in the GBA were prepared for exhaustive discussion. In the questionnaire survey, senior business executives were invited to answer and fill out a quantitative questionnaire via face-to-face, telephone or online interviews. PwC subsequently summed up the information gathered in the interviews and analysed the data collected in the questionnaire survey.

The target interviewees in this study were senior business executives of representative sectors in the “9+2” GBA cities. They included CEOs, CFOs, COOs and CTOs, as well as other top management personnel such as finance directors and general managers who understand the business operations of their company. They provided a great deal of insight, explaining to PwC the business and strategic directions of their companies in the GBA and sharing their viewpoints on the roles and functions of Hong Kong in the GBA.

Profile of Questionnaire Survey Respondents

398 companies with operations in the “9+2” GBA cities were sampled for the questionnaire survey. Of the respondents interviewed, 107 were from Hong Kong, 83 from Guangzhou and 44 from other core cities such as Shenzhen. The sample sizes of other cities were as follows: Foshan (30), Zhuhai (28), Dongguan (19), Zhongshan (18), Huizhou (18), Zhaoqing (18), Macao (17) and Jiangmen (16). In three cities, representatives of all six sectors were interviewed. Hong Kong provided the most interviewees from the financial and legal/professional services sectors, Guangzhou’s interviewees were mostly from the trading and legal/professional services sectors, while a large number of responding companies from Shenzhen came from the innovation and technology sector. Because of the smaller size of their economies, some cities were not able to provide interviewees from all six sectors. This was one of the limitations of the study. The distribution of samples, however, did highlight the relative sector advantages of the cities. For example, the Macao companies interviewed came mostly from the financial and legal/professional services sectors, while most of the responding companies from Zhongshan, Huizhou, Foshan and Dongguan were manufacturers.

The study covered all main legal status types of companies. Almost 70% of the responding companies were private firms, 20% were listed companies and the remaining 12% were state-owned enterprises. The sample proportions reveal that, in the GBA, the private-enterprise economy is thriving and its development is rapid.

Small, medium and large-sized enterprises were all well represented in the study. 39% of the responding companies had more than 250 employees, 22% had 50-249 employees, 25% had 10-49, and the remaining 14% were small enterprises of less than 10 employees.

6% of the responding companies had an annual revenue in the last financial year of over US$1 billion (HK$7.8 billion), 21% had an annual revenue of US$100 million-1 billion, but almost half had an annual revenue of less than US$10m. These companies were usually leaders of their industry sectors. This distribution demonstrates the diversity of the responding companies: the study includes large, established companies as well as SMEs with annual revenues of less than US$10 million.

The great majority of the responding companies have degrees of involvement in the global marketplace, with over two-thirds having set up some form of operations overseas. Among them, 36% have an overseas client base and overseas revenue base, 24% have overseas business partners and networks to leverage their strengths and specialities, while 20% have business operations overseas. 16% of the responding companies source materials, technologies or services globally even though they do not have any business departments overseas. Only 4% of the companies primarily focus on the domestic market and have no involvement in the global marketplace at all.

_{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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