Concrete Analysis

Time to plan for Hong Kong’s stepped-up integration with Pearl River Delta

As the Pearl River Delta integrates, the city's authorities need to make preparations for a future as part of a mega metropolis

PUBLISHED : Tuesday, 28 October, 2014, 9:44am
UPDATED : Wednesday, 29 October, 2014, 4:52am

After becoming a special administrative region 17 years ago, Hong Kong is now a key gateway for Chinese capital. Investors and corporate occupiers have been deploying smart money in the city, snapping up commercial real estate and residential assets.

Hong Kong has also become an important fundraising destination for Chinese entities, with more than 700 mainland companies listed on the Hong Kong stock exchange. With new financial market policies such as the proposed Shanghai-Hong Kong Stock Connect scheme, a closer bonding between the financial markets in Hong Kong and the mainland is expected.

The broad agenda for mainland China to gradually open up its financial markets to the rest of the world will see Hong Kong assuming a unique role, one that is not easily replaceable by other financial hubs within the region.

Hong Kong entrepreneurs see the mainland as an unmatched market to grow their business. The top 10 listed Hong Kong property developers in China, combined, have more than 10,000 hectares of land bank on the mainland, seven times the 1,500 hectares they stock in Hong Kong. They also own a combined 3.3 million square metres of Grade A office space in the four first-tier cities on the mainland, accounting for 23 per cent of total stock in these cities.

In addition to fund and money flows, people and trade flows across borders have also become increasingly important for Hong Kong. Last year, the city welcomed 54 million tourists; 40 million, or 75 per cent of them were from the mainland. They spent HK$169 billion on shopping, accounting for 34 per cent of Hong Kong's total retail sales.

Indeed, Hong Kong has been one of the world's best performing retail markets over the past decade. For six of the last 10 years, Hong Kong has registered double-digit retail sales growth.

Within this growing integration with mainland China, the rise of a mega metropolis in the Hong Kong-Pearl River Delta region will result in dramatic changes in the long term. Traditionally led by Guangzhou, the delta has long been positioned as a manufacturing hub until recent years when low value-added activities moved to inland cities where labour and land costs are more affordable.

The rise of technology giants and insurance companies in southern China, combined with financial sector firms doing direct and indirect business with the Shenzhen Stock Exchange, has turned the delta into another service-sector hub for China after Shanghai and Beijing. Today, the delta contributes 12 per cent of China's gross domestic product (excluding Taiwan).

With the upcoming special economic zone in Shenzhen's Qianhai and the future tourism hub planned for Zhuhai's Hengqin, the delta's future is prosperous and Hong Kong is on its way to emerge as a part of a Greater Pearl River Delta mega metropolis of 70 million people.

It is encouraging to learn the Hong Kong government is planning to develop a bridgehead economy on Lantau to relieve some of the city's burden in the downtown areas, while paving the way for a third-generation central business district should Kowloon East also reach its capacity in the future. The Hong Kong-Zhuhai-Macau bridge will also shorten the physical connections.

While the greater delta is set to become a key tourism node for Asia, business travellers will also find it easier to commute between Hong Kong and Qianhai. A potential 16-18 million sq metres of office space will be built and occupied by enterprises in Qianhai; all this just 30 minutes away from Hong Kong.

The way that the greater delta cities are connected with each other is set to promote Hong Kong as a key transit hub for the region. There will be flows of all kinds through the territory - from business, knowledge and money, to people and trade. It is always a hot topic that Hong Kong is running at stretched capacity but this fast-paced development occurring within the greater delta region places significant and immediate pressure on the Hong Kong government and officials. They must adequately plan short, medium, and long-term strategies to cater for and prosper from the integration of 70 million people who will be within a two-hour commute.

Craig Shute is senior managing director, Hong Kong, Macau & Taiwan, CBRE