The Qianhai and Hengqin Masterplan: Business Prospects and Key Facts
24 September 2021
C H Poon
On 5-6 September 2021 the Central Committee of the Chinese Communist Party and State Council promulgated respectively the Overall Plan for Building Guangdong-Macao In-depth Cooperation Zone in Hengqin (“Hengqin Plan”, Chinese only) and the Plan for Comprehensive Deepening of the Reform and Opening Up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone (“Qianhai Plan”, Chinese only). Following the construction of Qianhai and Hengqin for over 10 years, the Plans set out the latest development directions for the two co-operation zones, creating huge opportunities for many sectors in Hong Kong and Macao.
This article will discuss the key points in the Qianhai Plan and Hengqin Plan to help Hong Kong businesses better understand the Plans and the opportunities therein.
Of particular interest in the Qianhai Plan is the substantial increase in the area of Qianhai. Originally covering a site of 14.92 sq km, the Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone will be greatly enlarged to 120.56 sq km comprising five areas: the original area of 14.92 sq km, Shekou, Dananshan and Xiaonanshan area of 22.89 sq km, Bao’an Center and Dachanwan area of 23.32 sq km, Airport and its surrounding area of 30.07 sq km, and Shenzhen World Exhibition and Convention Center and Haiyang Xincheng area of 29.36 sq km.
The vast expansion of the Qianhai Co-operation Zone carries significant implications. First, an area of 120.56 sq km is larger than the total area of all residential, commercial and industrial zones in Hong Kong (111 sq km)1, and comparable to many mainland pilot free trade zones (such as Beijing, Tianjin, Fujian and Sichuan). This means that land supply will not be much of a constraint for industries seeking development there. Second, most of the expanded portions are well-developed districts, with the co-operation zone now linked to at least five subway lines and served by a full range of support facilities. Enterprises starting a business in the expanded Qianhai Co-operation Zone can readily enjoy the convenient transport and other support facilities there, shortening the time needed to adapt to the new environment.
In the Qianhai Co-operation Zone, an emphasis is placed on developing the service industries. Major development directions for various industries outlined in the Qianhai Plan are as follows:
Technology and research
Convention and Exhibition
It is evident from these development directions that the Qianhai Co-operation Zone prioritises forging collaboration between the mainland and Hong Kong and Macao, and expanding cross-border and international trade in services. At a press conference on 13 September 2021, the Shenzhen Municipal People’s Government announced that the Qianhai Co-operation Zone will study drafting a negative list for cross-border trade in services.
Implementing a negative list for cross-border trade is a measure by the Chinese government for promoting foreign investment and enhancing regulatory oversight. In July 2021, the Ministry of Commerce unveiled the country’s first negative list for trade in services: Special Administrative Measures for Cross-Border Trade in Services at the Hainan Free Trade Port (Negative List) (2021 Edition). The list defines cross-border trade in services as the provision of services by overseas service providers through cross-border channels to customers in designated areas. Sectors not included in the list are managed under the principle whereby the same treatment is given to domestic and foreign services and service providers. Therefore, the negative list to be released by Qianhai is expected to specify prohibitions and limitations on cross-border trade in services, facilitating enterprises in planning their business.
It is also notable that the Qianhai Plan spells out the policy of “supporting Qianhai in building a cultural product development, creation, publication and distribution base for overseas markets” and “building a base with cultural soft power”. In fact, the cultural industry is not new to Qianhai. In the Notice on Preferential Policy on Enterprise Income Tax and Catalogue of Incentives for Hengqin New Area of Guangdong, Pingtan Comprehensive Experimental Zone of Fujian and Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone of Shenzhen (Cai Shui No.26 ) released by the Ministry of Finance and State Taxation Administration as early as in 2014, the cultural industry is listed among four sectors eligible for a preferential 15% enterprise income tax rate.
In the Notice on Extending the Preferential Policy on Enterprise Income Tax for Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone of Shenzhen (which is an extension of Cai Shui No.26 ) issued by the Ministry of Finance and State Taxation Administration in May 2021, eight business service sectors are added to the list of industries eligible for the preferential 15% enterprise income tax treatment, including legal services, exhibition services and intellectual property services, etc.
Apparently, Qianhai plans to drive its industrial growth by widening its industrial base and fostering expansion of existing sectors.
Notably, no new tax incentive has been laid down in the Qianhai Plan, and neither has the preferential enterprise income tax policy been extended to cover all areas in Qianhai. The Qianhai Plan stipulates that: “various relevant departments should enhance guidance and support to business enterprises, and extend all supporting policies (except the preferential enterprise income tax policy) to all areas specified in the plan in accordance with the relevant procedures”. In the Notice on Preferential Policy on Enterprise Income Tax in Qianhai, the areas covered are those specified in the Master Development Plan on Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone approved by the State Council in August 2010, i.e., the original 14.92 sq km. The government has yet to decide on whether the preferential enterprise income tax policy will be extended to other areas.
According to the Notice on Preferential Policy on Enterprise Income Tax in Qianhai, however, eligibility criteria for the preferential policy have been relaxed. Previously, to be entitled to preferential enterprise income tax treatment, an enterprise had to set up a business in a sector listed in the Catalogue of Enterprise Income Tax Incentives, with its principal business revenue contributing over 70% of the enterprise’s total revenue. The ratio has now been lowered to over 60%, allowing enterprises to conduct business more flexibly.
Despite the absence of tax incentives in the Qianhai Plan, a number of measures supporting various industries and enterprises have been laid down. Examples include:
In the course of developing the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), mutual recognition of qualifications and formulation of common standards and rules among Guangdong, Hong Kong and Macao are issues of great concern. If further consensus can be reached in these respects, the GBA will see an enhanced flow of people and capital and its capacity to serve both the mainland and international markets will also be boosted.
Indeed, the stipulation in the Qianhai Plan that people from Hong Kong and Macao, as well as foreigners working and living in Qianhai, can participate in Qianhai’s governance and serve in statutory bodies in the Qianhai Co-operation Zone is one such measure to cement ties among the three places. Such support measures in the Qianhai Plan, coupled with the opening-up policies for various sectors outlined above, suggest that Qianhai will remain pivotal for fostering co-operation among Guangdong, Hong Kong and Macao and advancing mainland opening-up.
Implementation scope and management system
Hengqin is an island located at the western tip of Macao and southern tip of Zhuhai. With an area of 106 sq km, the Hengqin Guangdong-Macao In-depth Co-operation Zone covers the whole of the Hengqin island. Geographically, Hengqin falls within the boundaries of Zhuhai, yet the co-operation zone will be managed by the Guangdong province as specified in the Hengqin Plan. The Guangdong Provincial Party Committee and Guangdong Provincial Government will set up offices to manage the zone and work closely with the zone’s management and executive authorities to take forward the zone’s development.
Meanwhile, a co-operation zone management committee will be established by the Guangdong province and Macao to make decisions on major plans, policies and projects as well as personnel appointments and dismissals in accordance with the committee’s terms of reference. The Governor of Guangdong and Chief Executive of the Macao Special Administrative Region will jointly serve as the committee’s directors.
Also, as authorised by the National People’s Congress Standing Committee, the Hengqin campus of the University of Macau and the Macao port zone of the Hengqin port will be managed by the Macao Special Administrative Region Government in accordance with the relevant systems and regulations in Macao. These areas will be fenced off from other parts of the island.
The Hengqin Co-operation Zone implements a two-line administration system for goods entry and exit, whereby goods passing through the “first line” are subject to less control compared to the “second line”. The first line governs the entry and exit of goods between the co-operation zone and Macao, whereas the second-line is for goods between the mainland and the co-operation zone.
At the first line, filing management will continue to be implemented for goods entry and exit. Except for goods and articles which are non-tax-exempt (bonded) as specified by national laws and administrative regulations, other goods and articles entering the co-operation zone are tax-exempt (bonded). On the other hand, goods passing through the second line will go through customs procedures in accordance with the relevant import regulations.
Customs tariff and import taxes (i.e., value-added tax and consumption tax) will be levied on goods entering the mainland from the co-operation zone. However, for goods which do not contain imported materials and parts or contain imported materials and parts but have taken on a processing value-added of 30% or more in the co-operation zone, import tariff will be waived when they enter the mainland via the second line. Macao do not levy customs tariffs on imports, meaning that Hengqin will virtually become a tariff-free zone if it imports and exports goods through Macao.
One of the major goals in constructing the Hengqin Co-operation Zone is to assist Macao in developing a moderately diversified economy. As such, major efforts will be placed on expanding four industries:
1. Scientific and technological research and high-end manufacturing
Through constructing technological infrastructure, and high-quality developing the University of Macau and Macau University of Science and Technology, Hengqin will foster the growth of sectors like integrated circuits, electronic components, new materials, new energy, big data, artificial intelligence, internet of things and biomedicine.
2. Industries with established Macao brands, such as traditional Chinese medicine (TCM)
Hengqin will develop trade in TCM services and a platform for innovative TCM research and transformation with self-owned intellectual property rights and Chinese characteristics. For TCM products, as well as food and health products approved and registered in Macao and manufactured in the co-operation zone, the use of “supervised in Macao”, “manufactured in Macao” or “designed in Macao” logos will be allowed.
3. Cultural, tourism, exhibition and trade industries
On the basis of existing industrial infrastructure, Hengqin will vigorously expand industries such as leisure vacation, conferences and exhibitions, sports events and tourism as well as “big health” sectors like leisure and wellness, rehabilitation and medical care. Notably, exhibition staff, exhibitors and domestic and foreign travellers holding proof of admission to cross-border exhibitions in the co-operation zone staged jointly with Macao can apply for multiple entry and exit visas and travel freely between Zhuhai and Macao through the Hengqin port multiple times.
4. Modern financial industry
Hengqin will give full play to Macao’s role as a window to Portuguese-speaking countries and develop a financial services platform linking up China and Portuguese-speaking markets. The Hengqin Plan stipulates that assistance will be rendered to the co-operation zone in launching cross-border RMB settlement business, and encouraging and supporting domestic and foreign investors to use RMB in cross-border venture capital projects and related investment and trade. Support will also be lent to Macao in further opening up its service sectors, and lowering the entry threshold for Macao-funded financial institutions in establishing banks and insurance companies. Moreover, the co-operation zone’s financial market will strengthen its links with the offshore financial markets in Macao and Hong Kong.
Preferential policies on enterprise income tax and individual income tax have been rolled out in the Hengqin Co-operation Zone, with a 15% enterprise income tax being levied on eligible industrial enterprises in the co-operation zone. For local and overseas high-end talent and talent in short supply working in the co-operation zone, the portion of their individual income tax burden in excess of 15% is waived, and high-end talent and talent in short supply enjoying preferential policies are subject to list management.
Support policies in the Hengqin Co-operation Zone aim to facilitate Macao residents working and living in the zone. Professionals in fields like finance, architecture, planning and design with practice qualifications in overseas places including Macao and meeting the relevant industry regulatory requirements will be allowed to provide service in the co-operation zone upon record filing. Efforts will also be made to link up with Macao’s education, medical, social services and other public services and social security systems.
Furthermore, steps will be taken to strengthen Hengqin’s infrastructure. The Hengqin Plan specifies support for extending the Macau light rapid transit to the co-operation zone to connect with Zhuhai’s urban rail network and integrate into the mainland rail network. The mainland government will accelerate building corridors connecting the co-operation zone and its surrounding areas, and take forward the planning and construction of projects such as the Guangzhou-Zhuhai (Macao) high-speed rail and Nansha-Zhuhai (Zhongshan) intercity railway. This means that in future, passengers will be able to travel to Hengqin from the mainland through the intercity railway or from Macao through the Macau light rapid transit.
The Hengqin Plan also calls for further co-ordination in the functions and development of the Zhuhai airport and Zhuhai port. According to the HKSAR of the People’s Republic of China The Chief Executive’s 2020 Policy Address, the Airport Authority of Hong Kong is supported to inject equity into the Zhuhai airport in 2020 and build closer links between Hengqin and the Zhuhai airport, more benefits and opportunities are expected to be generated for Hong Kong.
In view of the government policies and market potential in the Qianhai and Hengqin Co-operation Zones, Hong Kong enterprises have good opportunities in at least three aspects:
1. Preferential policies
In accordance with the Enterprise Income Tax Law of the People’s Republic of China, only new- and high-tech industries given key support by the state, mainly those in the manufacturing sector, are entitled to a preferential 15% enterprise income tax rate. On the other hand, the modern service industry is the key development focus in the Qianhai Co-operation Zone. In the Catalogue of Enterprise Income Tax Incentives of the Qianhai Shenzhen-Hong Kong Modern Service Co-operation Zone (2021 edition) under the Notice on Preferential Policy on Enterprise Income Tax in Qianhai, 30 service sectors in five major categories are covered. Given Hong Kong’s vibrant service industry, which accounts for over 90% of the city’s GDP, Hong Kong service enterprises making a foray into Qianhai can readily enjoy Qianhai’s preferential policies on taxation and other areas.
2. Participating in development planning
The development of Qianhai and Hengqin aims not only at furthering co-operation between Guangdong and Hong Kong or Guangdong and Macao, but is also closely related to the expansion of Shenzhen and Zhuhai. According to the Outline of the 14th Five-Year Plan for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 of Shenzhen, the city will step up constructing western regions to fuel the integrated and co-ordinated development of both sides of the Pearl River estuary. A spatial configuration marked by “multiple centres, networking, clustering and a healthy ecosystem” will be put in place, and Xin’an and Xixiang districts in Bao’an area are to be incorporated into the core city zone.
For Zhuhai, in accordance with the Outline of the 14th Five-Year Plan for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 of Zhuhai, active efforts will be made to build a technological innovation centre in the west bank of the Pearl River estuary to attract more laboratories, provincial-level R&D institutions and competitive, innovative enterprises to the city. The construction of research bases for transforming technological achievements in fields like traditional Chinese medicine will also be expedited. With such plans in place, the development of Qianhai and Hengqin is poised to create a win-win situation for all parties, including Hong Kong, Shenzhen, Macao and Zhuhai. Hong Kong enterprises taking part in the planning and development of Qianhai and Hengqin may be able to enjoy a first-mover advantage.
3. Points to access mainland market
To many enterprises, expanding into Qianhai and Hengqin may just be a means to an end, their ultimate goal being to tap the market in GBA cities or even the entire country. In light of the mainland market’s fierce competition, it may take a long period for Hong Kong enterprises to understand and adapt to the mainland market before securing a firm foothold there.
At Qianhai and Hengqin, a raft of measures have long been implemented to attract enterprises and talent, an example being the measures of the Qianhai Shenzhen-Hong Kong Modern Service Industry Co-operation Zone relating to office rental subsidy to encourage businesses to return to Qianhai promulgated in July 2019. Enterprises can make use of such policies to lower operating costs at the initial stage of operation, and gradually develop their business on the mainland.
After the Qianhai Plan and Hengqin Plan were released, concerns were voiced in Hong Kong over whether Qianhai and Hengqin will become Hong Kong’s rivals. This is an issue requiring more comprehensive discussion. First, under the “one country, two systems” principle, Hong Kong has a unique system in which the common law regime is practised, and free flow of capital is allowed, resulting in Hong Kong’s unique service sector. While Qianhai and Hengqin emphasise institutional innovation, their systems are still distinctly different from Hong Kong’s. Hong Kong’s institutional advantages and uniqueness should not be overshadowed by the publication of the Qianhai Plan and Hengqin Plan.
Second, Hong Kong boasts a highly internationalised service industry. According to Hong Kong’s Trade in Services Statistics for 2019, 62.3% (HK$474.2 billion) of Hong Kong’s exports of services were engaged with trade partners other than the mainland, underscoring the abundant experience and international expertise of Hong Kong service providers in cross-border trade in services. Hong Kong service providers’ expertise can be given full play in Qianhai, where a development focus is on cross-border and international trade in services.
Third, Hong Kong enterprises should not overlook the potential synergy to be created between Qianhai and Hengqin and Hong Kong. In close proximity to Hong Kong, Qianhai and Hengqin have convenient transport links with the city, making them ideal destinations on the mainland for Hong Kong companies to set up branches which can liaise closely with their Hong Kong parent companies.
Indeed, a number of Hong Kong companies are well aware of the benefits of such a move. As of August 2021, 11,500 and over 1,900 Hong Kong-funded enterprises have domiciled in Qianhai and Hengqin respectively2. Establishing a presence in Qianhai and Hengqin offers a fast and cost-controllable path for enterprises seeking to exploit the mainland market. Hong Kong enterprises should keep abreast of developments in Qianhai and Hengqin so as not to miss out on any good opportunities.
1 Source: Planning Department of the Hong Kong Government
2 Source: Hengqin FTZ (Hong Kong) Representative Office
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