Golden pentagon slowly taking shape
In the first part of a series on the mainland's economic zones, we look at how backwater areas of Hengqin and Qianhai form the template for bigger plans
The constant whirr of construction cranes slices through the afternoon silence of yesterday's wastelands as they craft tomorrow's economic powerhouses in the Pearl River Delta.
At the heart of the ambitious project is the transformation of two backwater areas - Hengqin, an island in Zhuhai; and Qianhai, a reclaimed land in Shenzhen.
The two areas, when the cranes leave, along with Hong Kong, Macau and Guangzhou's Nansha, will form what some analysts are calling the "golden pentagon".
The plan is to make this hub the template of free-trade zones that the central government wants to replicate across the country.
"Qianhai is basically a construction site now while Hengqin has completed the new campus of the University of Macau and is about to finish Chimelong Ocean Kingdom, the mainland's largest theme park," said Fang Zhou, an assistant chief research officer at One Country Two Systems Research Institute.
"Nansha, however, has relatively a longer history of development. How successful they will be hinges on how much they will open themselves to foreign investors."
Proponents of the "golden pentagon" believe Hong Kong's sound legal system and its strength in financial services, logistics and information flow should be fully integrated into the economic zones of Hengqin, Qianhai and Nansha to advance Guangdong's next phase of development in the coming decades.
The economic zones are key to the province's survival. Governor Zhu Xiaodan said in a working report in January the province's economic growth would taper to 8 per cent in the next five years from 10.2 per cent last year, with the double-digit growth rate of the past two decades to become a thing of the past.
The province is fighting an uphill battle to reposition itself by shedding its "factory of the world" tag for low-end goods to become a hub for higher-end and environmentally friendly products.
"It is a mega merger of markets, which will create a golden pentagon," said Caesar Wong, a partner at Deloitte's tax and business advisory services. "Hong Kong must embrace this dream or risk lagging behind as its neighbours power ahead."
Wong said transport infrastructure such as rail and superhighways were largely in place in the delta, slowly weaving the pentagon into shape.
He said that once the Hong Kong-Zhuhai-Macau bridge was open - which should happen in three years - it would shorten the travelling time by car between Central and Zhuhai to 30 minutes from the current 90 minutes by ferry and road.
In the next two years, Guangdong plans to complete 17 intercity railway projects in the delta, with an investment budget of 111.2 billion yuan (HK$140.9 billion). By the end of 2015, a 386-kilometre rail network will connect nine cities in the delta, including Shenzhen, Guangzhou and Zhuhai.
But critics warn that competition for capital, talent, technology and know-how will heat up in the region, which may have the effect of drawing foreign investments away from Hong Kong.
Niu Jing, who heads the still-nascent Hengqin economic zone, told the South China Morning Post it would soon issue 1.5 billion yuan of dim sum, or yuan-denominated, bonds in Hong Kong and was also planning listing on the city's stock exchange next year a portfolio of property and infrastructure projects in a two billion yuan fundraising plan.
This could lift the curtain on Hengqin's upcoming cash calls, which would help fund at least 500 billion yuan worth of projects in the next few years, Niu said.
Hengqin wants to transform itself from an oyster bed into the "Orlando of China" or "Monte Carlo of the East" by developing leisure and tourism, high-technology manufacturing, filmmaking, services, education and health care industries. About 200 projects in these sectors are already up for grabs.
As of now, only the University of Macau campus, which cost six billion yuan to build, towers over the 106 square kilometre Hengqin zone. It is due to receive its first student in autumn.
The new zone is racing to finish the 20 billion yuan Chimelong Ocean Kingdom, the mainland's largest theme park, by the end of this year.
To attract talent, Hengqin and Qianhai are offering tax incentives for qualified Hong Kong and Macau residents. They have also promised to lower corporate income tax to 15 per cent from 25 per cent now. This would be below Hong Kong's 16.5 per cent.
"Investors should not take this [as a goal to become] a tax haven," Wong said. "The market widely expects Nansha will offer similar incentives on individual income tax."
Meanwhile, Qianhai, which is the smallest of the three economic zones at only 15 square kilometre, is pushing ahead with its ambition to become the "Manhattan of Guangdong", with yuan trade settlement centre as its backbone business.
Although it has so far sold only three sites and is about to put eight to 10 more on the market, Qianhai is angling for an annual gross domestic product of 150 billion yuan in seven years.
HSBC, Hang Seng Bank and Bank of East Asia have already received approvals to set up offices in Shenzhen, from where they can serve Qianhai companies.
Before that, 15 lenders were allowed to offer a combined two billion yuan in loans - the first cross-border yuan loan - to companies in Qianhai.
According to Zhang Bei, who heads the Qianhai development, cross-border yuan loan demand from Qianhai enterprises stood at 525 million yuan as of the end of May.
Nansha is widely expected to offer inducements for foreign investors soon. There is also talk that Guangdong's capital will move from Guangzhou to Nansha in future.
Dong Ke, a member of the standing committee of the Nansha district, said the economic zone was expected to attract 400 billion yuan in foreign investment by 2017.
The zone is positioning itself as a cluster of hi-tech manufacturing, logistics, deep-port terminal, marine, tourism and tertiary education facilities.
The biggest investor in Nansha, the family of the late Fok Ying-tung, would keep pouring investment into his hometown, said his son, Ian Fok Chun-wan.