The Greater Bay Area – a 2,500-mile coastal strip that includes Macau and Hong Kong – amounts to only 1 per cent of mainland China’s land mass, but roughly 12 per cent of economic output. Now policymakers want to increase connectivity further and lift its productivity to make it a world-class city cluster.

It houses 86 million people and has a GDP per head of USD23,000, which is more than double the national average but still far below other global city clusters such as New York Metropolitan Area, San Francisco Bay Area or Tokyo Bay Area because labour productivity is less than half of these regions.

Each part of the Greater Bay Area has its unique strengths. Hong Kong is an international financial centre; Shenzhen an innovation and technology hub; Guangzhou a manufacturing base and trade window to the mainland.

Bridging the distance across the region through infrastructure is important for deepening integration and shortening travel times. The Hong Kong-Zhuhai-Macao Bridge, the world’s longest sea bridge, has reduced a four-hour drive from Hong Kong International Airport to Zhuhai to just 45 minutes; a Shenzhen-Zhongshan bridge is set to open in 2024.

But besides physical connectivity, standardising policies can unlock the area’s comparative advantages and improve people mobility.

Qianhai has plans to attract people and investment to strengthen its high-value-added services such as finance, medicine, technology and legal services. It will probably reduce the ‘negative lists’ that restrict market access or foreign investment in some sectors. Innovation will remain key, as science and technology are Shenzhen’s strength, and will be complemented by greater standardisation in the area, such as making professional certifications valid across the region.

Meanwhile Hengqin’s development plan seeks more balanced and sustainable diversification. It looks to boost frontier-technology fields such as artificial intelligence, big data and fintech, which can help drive longer-term growth, as well as supporting the development of industries like traditional Chinese medicine and tourism. Tax incentives can help level Henggin with areas such as Qianhai or Hong Kong.

The planned Northern Metropolis along the Shenzhen-Hong Kong border aims to build more than 500,000 homes and create as many jobs. This should help alleviate Hong Kong’s housing shortage while easing cross-border travel and integration.

Strengthening financial links is important too. The new Wealth Connect and Southbound Bond Connect programmes will allow mainland investment overseas and foreign private investors to buy mainland Chinese assets. Cross-border financing in renminbi can also help its adoption as a global payment currency.

Talent and language skills, combined with longstanding experience in financial markets, make Hong Kong a key offshore-financing hub for mainland Chinese firms and for foreign investment into the mainland China. Hong Kong can also play a role in new financial initiatives to help the Greater Bay Area become a green-finance centre, including aiding development of the Guangzhou carbon-futures exchange.

Shenzhen, meanwhile, is an innovation powerhouse. R&D expenditure is 5 per cent of the city’s GDP, double the nationwide or OECD averages, and it submits 30 per cent of the nation’s international patent filings.

Wider tax incentives plus foreign visas and preferential housing or education can further encourage the inflow of highly-skilled talent from mainland China and abroad to the Greater Bay Area.

Policy reforms may encourage further international collaboration and incentivise domestic innovation. Besides reducing negative lists, there is likely to be increased enforcement of intellectual-property rights in mainland China while Hong Kong aims to strengthen entrepreneurship by modernising its copyright regime.

However, it will take time to implement these plans and challenges include the pandemic continuing to hinder cross-border activities. But continued policy support and integration should help leverage the Greater Bay Area’s strengths and support longer-term growth.

 

First published 20 October 2021.

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