Can China’s ‘Greater Bay Area’ match its New York and San Francisco counterparts? Much will depend on Beijing

Hurdles remain for scheme to integrate Hong Kong, Macau and nine mainland cities, including their three different legal systems and currencies

PUBLISHED : Friday, 11 August, 2017, 8:00am
UPDATED : Tuesday, 24 October, 2017, 11:51am

With its commercial skyscrapers, luxury shops and restaurants lined up along wide and clean thoroughfares, Nanshan could pass off as Central in Hong Kong.

Except, Nanshan is across the waters of Shenzhen Bay, opposite the packed residential district of Tin Shui Wai near Yuen Long, and it is one of the world’s biggest technology powerhouses.

The hub – a bright spark in the Pearl River Delta (PRD) with its otherwise fading reputation as the “world’s factory” – is seen as the heart of an initiative to transform the PRD into the “Greater Bay Area”, a development that weaves Hong Kong, Macau and nine cities in Guangdong even closer economically and socially.

On paper, the plan is a no-brainer, an instant sell.

But the hard facts on the ground are that the cities have very different systems and cultures, and much will depend on how far Beijing is prepared to make changes to facilitate integration and create a sustainable environment for cooperation to thrive.

How China’s Pearl River Delta went from the world’s factory floor to a hi-tech hub

The Greater Bay Area concept was championed by Premier Li Keqiang and involves creating a world-class technology hub based on increased cooperation in the region.

It has been compared to other bay areas around the world, such as the San Francisco Bay Area and the New York Bay Area. Although the Pearl River Delta did not invent the iPhone and lacks the draw of Wall Street, the Chinese cities there already have some of the attributes that make the two American bay areas so successful.

Hong Kong is a global financial centre, topping the global initial public offering chart last year by raising a staggering US$39 billion, according to Thomson Reuters.

Companies in the bay area intending to expand to international markets can leverage the city’s rich experience in interacting with foreign markets and capitalise on its financial infrastructure in raising funds and attracting investors.

The Financial Services and the Treasury Bureau told the Post that “the HKSAR government will seek to strengthen the connectivity of financial services within the bay area and develop additional cross-border financing channels”.

The bureau added that as the global hub for offshore renminbi, Hong Kong was also capable of meeting demand for offshore renminbi settlement, financing and capital management.

As for innovation, the frenetic tech activity across the border over the past decade is the underestimated shift among those sceptical about the concept of a bay area.

In Shenzhen, for example, among the entrepreneurs chasing their dreams is Leng Xiaokun, 25. Originally from Shandong, he is a co-founder and chief technology officer of start-up firm Leju Robotics.

“I was studying for my PhD at the Harbin Institute of Technology. A group of friends and I in the doctorate class decided to start our own business in robotics and artificial intelligence, so we set up our company in Harbin,” Leng said.

“But soon we found northeastern China wasn’t so great for our line of business, so we decided to move to Shenzhen because it has a lot of technology talent and a good economic value chain, ranging from research and development to production to marketing.”

Chinese start-ups are increasingly led by younger bosses

His company makes family-friendly robots that can “talk”, providing children and adults alike with weather reports and cooking tips, and dancing when called upon to do so.

Leng said the start-up had sold millions of yuan worth of robots since last October, but the Greater Bay Area idea would fuel further growth – and help it expand abroad. “I like the Greater Bay Area concept, which includes Hong Kong, because it will help us grow internationally,” Leng said.

He has no shortage of role models in Shenzhen, where internet giant Tencent, the third largest smartphone maker in the world, Huawei, and the global market leader in drones, DJI, are based.

The Shenzhen Nanshan area is home to the DJI headquarters, housing engineers, developers, research and development, as well as core sales and marketing teams.

“This enables us to have more control and flexibility of our operations, and allows us to roll out products quickly and efficiently,” DJI director of communication Kevin On said.

“Shenzhen is attracting a lot of talent from around the world, especially those with engineering, robotics and technology backgrounds, so this gives us access to some of the top talent,” On added.

Tencent is positive about the Greater Bay Area concept, though it is waiting to see what happens next.

“As a member of the innovation industry, Tencent will also benefit from the greater bay area,” a spokesman said.

“Cities like Dongguan have strengths in hardware production at a standard that is even recognised by Silicon Valley. Hong Kong has an international environment and international education, which is attractive to overseas talent. As our founder Pony Ma said, you have a good hand of cards. The key is how to play it.”

The Hong Kong government is now collecting views from stakeholders and will soon make a submission to the National Development and Reform Commission, which will collect the views of all the cities and draw up a blueprint for top leaders to consider.

During Chief Executive Carrie Lam Cheng Yuet-ngor’s visit to the commission in Beijing this month, she said Hong Kong would have “unlimited opportunities” under the bay area concept and the “Belt and Road Initiative”, which is China’s trade strategy linking business opportunities across more than 60 countries spanning Asia, Africa and Europe.

Earlier, Secretary for Constitutional and Mainland Affairs Patrick Nip Tak-kuen met representatives from the chambers of commerce and professional associations in Hong Kong to listen to their views.

His bureau, which is coordinating the government’s role in the bay area, told the Post that many of those consulted thought “cities within the bay area should, on the strength of their respective functional positioning, work to achieve coordinated and complementary development so as to bring about mutual benefits and win-win results”.

Suggestions so far include “how to foster the flow of people, goods, capital and information, and how Hong Kong could leverage its unique advantages”.

Can Hong Kong become indispensable to the nation again?

But Hong Kong is not the only city trying to position itself for the best opportunities. Ben Chan Han-pan, a lawmaker with the pro-Beijing Democratic Alliance for the Betterment and Progress of Hong Kong, said the cities in the bay area could be “competing against each other, rather than cooperating”.

Hong Kong’s market is fully open to mainland companies, but the mainland market is not open to Hong Kong companies.
Charles Mok, IT sector lawmaker

Earlier this year, he went on a tour to the area arranged by former chief executive Leung Chun-ying. “The plan is to have each city having its own strengths, so they are now drawing up their own plans,” Chan said.

Jonathan Choi Koon-sum, chairman of the Chinese General Chamber of Commerce, said: “Hong Kong needs to be proactive in the planning process.”

Choi said the city should focus on five areas based on its strengths, namely finance, trade and commerce, shipping and logistics, arbitration and training in innovation.

But lawmaker for the information technology sector Charles Mok is not convinced by the Greater Bay Area concept.

“Hong Kong’s market is fully open to mainland companies, but the mainland market is not open to Hong Kong companies,” Mok said.

“For example, China’s telecom market is not open to Hong Kong companies. Smartone and CSL can’t go into China.”

Choi is aware Beijing needs to do more if the Greater Bay Area concept – involving three different legal systems and three currencies – is to work.

He said examples of changes needed include the mutual recognition of professional qualifications, removal of the requirement for Hong Kong people to pay mainland tax after staying on the mainland for more than 183 days and allowing vehicles from Hong Kong to drive to bay area cities without the need to have mainland number plates.

But once the issues were resolved, Choi said, the area would become a “one-hour living circle” that would allow people to travel and work. “I believe the Greater Bay Area will grow into the world’s largest bay area in terms of GDP within 10 years.”

Infographics: The evolution of the ‘Greater Bay Area’

Thomas Cheung Chun-yung, a businessman and City University council member, thinks it is also important that Hong Kong finds a role connecting the bay area and the belt and road plan.

“Once you connect the Greater Bay Area concept with the Belt and Road Initiative, then Hong Kong’s role becomes obvious. Hong Kong will become the hub of these two initiatives with its strengths in finance and international business know-how,” said Cheung, who recently formed the Belt and Road Initiative and Greater Bay Area Synergy Alliance to promote opportunities.

“Hong Kong’s economic growth will improve if it works closer with the nine mainland cities, but much will depend on how courageous the central government is in making changes there to facilitate integration,” he said.

Tech firms look across the border for inspiration

Current examples of Hong Kong companies working with mainland Chinese cities in the Greater Bay Area may shed light on how further integration in the future will look like.

Local firms are already using cities like Shenzhen as a base for research and development as well as manufacturing, taking advantage of talent with good knowledge of the mainland market. Labour costs for companies with such strategies are also lower.

“We have a lot of programmers in Shenzhen with salaries of about HK$10,000 per month, but it will be HK$20,000 if we hire similar workers in Hong Kong,” said Stephen Lam, managing director of m-Finance, a Hong Kong based financial company specialising in online trading platforms.

“If you want to reach Chinese audiences and customers, then mainland programmers are very good at social media platforms like WeChat.”

But Lam said there were many companies in Shenzhen targeting the same pool of talent. “If you meet a candidate and don’t give an offer, he may have taken up another job by tomorrow.”

For Hong Kong start-up Lumos, which is based at the Science Park and designs innovative bicycle helmets, integration with other mainland cities is key to its business.

“Our firm has benefited from having people in Shenzhen,” said Eu-wen Ding, co-founder and CEO of Lumos, which is using Shenzhen as a second base for production.

“Manufacturing requires a lot of back and forth and spur-of-the-moment problem solving. Having people on the ground in Shenzhen gives us a real advantage not just in terms of cost, but more importantly in speed,” Ding said.

But Albert Wong Hak-keung, Hong Kong Science and Technology Parks Corporation CEO, said more was needed if Hong Kong was to fully grasp such chances.

“The Greater Bay Area development brings enormous opportunities for Hong Kong’s innovation and technology sector,” Wong said.

He thinks Hong Kong must catch up in terms of culture if it wants to capitalise on the growing trend.

“Industries and businesses should consider overhauling their current mode of operations with technology and innovation, and society should give stronger support to technology entrepreneurs and embrace start-ups which fail.

“We should feel compelled by a sense of urgency, or even start recognising that we are indeed not in front, but behind,” Wong said.