Greater Bay Area: Opportunity or Threat

by | February 26, 2019

Greater Bay Area: Opportunity or Threat

February 26, 2019

This article originally appeared in the 197th edition of the DutchCham Magazine. A magazine that is published six times per year and distributed to various businesses and individuals in Hong Kong.

Just as one of the many Dutch men and women in Hong Kong, my job involves doing business with China. A small difference is that I do not actually reside in Hong Kong, but just across the border in Shenzhen. Here our company, 1421 Consulting Group, advises Western businesses on doing business in China. As such, the DutchCham asked if I could write about the development of the Greater Bay area and the implications for European companies from the standpoint of someone outside of Hong Kong.

 

Greater Bay Area: Just a name change?

The Greater Bay Area (GBA) was first mentioned in the 13th 5-year plan of China, on December the seventh, 2016. Before the 13th 5-year plan the area was known as the Pearl River Delta or PRD. The GBA is an area located in South China around the Guangdong province. Cities which are included in the GBA are Shenzhen, Hong Kong, Guangzhou, Macau, Zhuhai and more. Since, all the cities are connected via different roads, subways, ferries and air routes, the region is considered to be an emerging megacity.

The unofficial capital of the Greater Bay Area is Shenzhen. Shenzhen is known for its high-tech industry, software development sector and R&D center. Many people compare Shenzhen to the Silicon Valley in the US, calling it the new Silicon Valley of the world. This comparison is particularly interesting, because Silicon Valley lies in the Bay Area in the US. The name Greater Bay Area for the upcoming area in China is most likely not a coincidence.

 

Hong Kong

For a long time Hong Kong was a colony of the UK. However, more than 35 years ago in 1984, China and the UK signed a treaty that Hong Kong would return to Chinese hands on July 1st 1997. There was a condition however, China could not impose their socialist regime for another 50 years and Hong Kong could have a separate economic and administrative system.

This principle is called the ‘one country, two systems’ principle. Now we are over the halfway point and changes can be seen already. Hong Kong has prospered due to China’s presence, which cannot be denied. However, has Hong Kong currently been outcompeted by China? Or is the Greater Bay Area an opportunity for European companies?

 

China’s effort & the role of Hong Kong

At our firm we believe the GBA is going to be a threat to the way Hong Kong is currently doing business. Shenzhen is building an area called Qianhai. Many say the aim of the Chinese Government is to relocate the financial center role of Hong Kong to Qianhai. Qianhai is offering huge tax breaks for companies setting up in the financial sector. Tax breaks which coincidentally equal Hong Kong’s current taxes. Whether the plan will succeed or if the tax breaks will actually be granted consistently remains to be seen. Nevertheless the initiative can be seen as a drop of paint in a glass of water.

China is trying to spread the power of Hong Kong across the GBA region. An example of the strategic move is the Free Trade Zones which are popping up all over the Chinese side of the GBA. Initiatives like Qianhai and these new FTZ’s are in order to merge Hong Kong with China. Not to lose the territory.

For Hong Kong cooperating with China is therefore imperative. The collaboration of Hong Kong is something that is happening already and can be witnessed in daily Hong Kong life. Conduct a short research online for GBA and you easily find five websites based in Hong Kong promoting the cooperation.

 

Ready to accept the shift in gravity?

In Shenzhen changes in the dynamic can be felt already. Opening companies in China is more standardized than ever and foreign transactions are also relatively easy to arrange compared to previous years. Furthermore, a new high-speed line between the Futian district and Hong Kong makes travel faster than ever. Within 14 minutes one can get from the central business district of Shenzhen to the sprawling district of Kowloon in Hong Kong. Other subtle changes are that the popular payment method in China via WeChat is now also available almost everywhere in Hong Kong. It feels like both the cities are integrating more and more.

For European companies the shift of gravity in the region means the old way of doing business with Hong Kong in combination with China might soon be outdated. However, where changes happen one can also look for the opportunities. We believe that the merging of the area will make it easier for businesses to flourish in more than one city simultaneously due to the close proximity. Areawide initiatives to clean up the environment, and the availability of work in high-tech industries and other innovative areas will only be more numerous due to this. The GBA is influencing Hong Kong, whether people like it or not. The question is if you are ready to accept it and adapt.

What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.