It's either boom or bust for Qianhai investors

Hongkongers have long had their eyes on the development zone, but is it all it's cracked up to be?

PUBLISHED : Tuesday, 14 August, 2012, 12:00am
UPDATED : Tuesday, 14 August, 2012, 2:58am

Will Qianhai become the "Manhattan of the Pearl River Delta", or will it become just another property project like countless others in southern China? That's the million-dollar question that many local bankers and brokers want to know the answer to.

Hongkongers have had their eyes for some time on the Qianhai development zone, which the Shenzhen government in 2010 vowed to turn into a financial hub rivalling Manhattan. The 15-square-kilometre special zone, a reclaimed area located west of Shenzhen, is only one hour by car from Hong Kong.

Besides its proximity, Hong Kong lenders have to take Qianhai seriously because Beijing in June announced it would use the special economic zone as a test ground for yuan capital account convertibility and cross-border yuan lending.

Sounds good, right? This is why 37 firms - including HSBC, Bank of East Asia and Bank of Tokyo-Mitsubishi UFJ - last month all signed a non-binding agreement of interest to invest in Qianhai. In addition, seven local brokerage bodies are arranging tours to visit the area to identify opportunities.

But let's not to get carried away. Firstly, Beijing has not yet announced any details of the test ground for yuan capital account convertibility so we can only use our imagination on how far it will go.

What Beijing considers a big breakthrough may only to those in the West be a baby step towards liberalisation. Beijing in June said it would offer lower taxes to attract companies, legal and financial firms and talent from Hong Kong and elsewhere. This may not be enough of a lure as Hong Kong tax rates are already low and Singapore and many markets offer tax incentives.

What would make Qianhai attractive would be the scope of customers it can serve. If China will allow any Hong Kong or overseas firms to be based in Qianhai and allow them to serve all 1.3 billion mainland customers, many banks and brokers would rush there immediately. But with Beijing still keeping a tight grip on Western firms working on the mainland, this scenario is just a dream.

If Beijing would even allow Western banks or brokers to serve Guangdong province, that is already a very attractive proposition. Being allowed to serve Shenzhen residents is already a big business opportunity. Should Qianhai-based firms, however, only be allowed to serve customers in Qianhai, which is expected to have only 800,000 residents, it would be hard to attract anybody. Many of the past proposals for Qianhai have been rejected by Beijing, including setting up banks that would focus on online services, a commodities futures exchange, a reinsurance transaction centre and a pilot debt-for-equity scheme. Expectations for the new financial hub are running high. There is already a property boom there. Prices for some new residential projects near Qianhai last month went up to 3,800 yuan (HK$41,100) per square metre. That is nearly double the going price in Shenzhen. Whether the boom turns into something tangible for the muddy reclaimed area remains to be seen.