A tax-free area could lead to an integrated cross-border economy, says think-tank A proposed tax-free industrial zone on the Hong Kong-Shenzhen border could be a starting point for the formation of a fully integrated economic community between the two cities, says the head of a leading mainland think-tank. Li Luoli, secretary-general of the China Development Institute, said the industrial zone proposed by tycoon Li Ka-shing - during a meeting with President Hu Jintao in Beijing last month - could tap Shenzhen's strengths in manufacturing and relatively cheap labour as well as Hong Kong's advantages in service-oriented industries. His institute is a Shenzhen-based think-tank with close links to the Development Research Centre of the State Council, the Shenzhen municipal government and the National Development and Reform Commission. The institute has proposed that Hong Kong and Shenzhen forge a free-trade zone to ease the flow of goods between the two cities. Under the proposal, cargo would be cleared by customs at the border between Shenzhen and the rest of Guangdong, instead of at the border between Hong Kong and the special economic zone. All products delivered from Hong Kong, even if they were not manufactured in the city, would enjoy zero-tariff treatment when delivered to Shenzhen. 'It would provide a broader frontier for economic development of Hong Kong, which only occupies 1,100 sq km, and help reduce the costs of production and living in the city,' Professor Li said. The proposal has been submitted to Shenzhen authorities, and a research team comprising officials from several central government agencies visited Shenzhen in July to explore the special economic zone's future development strategy. But Professor Li conceded the proposal was unlikely to be adopted in the near future because it involved fundamental policy changes. He said a tax-free industrial zone on the border could serve as a starting point for the eventual formation of a Hong Kong-Shenzhen free-trade zone. This zone would be suitable for developing information technology, biotechnology and the watch and clock industries. He said products manufactured in the zone could enjoy zero-tariff treatment under the Closer Economic Partnership Arrangement, and manufacturers could tap talent from hi-tech industries in Shenzhen. Secretary for Commerce, Industry and Technology John Tsang Chun-wah said the proposal put forward by Li Ka-shing, chairman of Cheung Kong Holdings, was too expensive because no infrastructure was in place. Chief Executive Tung Chee-hwa said on October 19 that he had held talks with Mr Li about the proposed industrial zone Professor Li said Hong Kong officials should not reject Mr Li's proposal simply because of technical difficulties.