In August 2019, the Chinese Central Government issued a policy document outlining reform and development guidelines for Shenzhen which supported the implementation of the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area, or GBA) Development Plan. This issuance followed the release of two documents by the Guangdong Government in July – the Implementation Plan for the Outline Development Plan for the GBA and a Three-Year Action Plan for Building the GBA (2018-2020).
The GBA Development Plan could warrant closer attention from entrepreneurs in Hong Kong. While there has been other regional economic development plans in the past, most notably the Pearl River Delta Economic Zone, experts point out that the GBA is fundamentally different.
“This is the first time that a regional development plan is directly endorsed and led by the central government of Beijing,” says Nicholas Kwan, Director of Research at the Hong Kong Trade Development Council (HKTDC) in an interview with American Express. “Under GBA there is a formal management structure led by Vice Premier Han Zheng, one of the seven Politburo members. Key ministries are also directly involved.”
Kwan says that for the first time, two of mainland China’s Special Administrative Regions (SARs) namely Hong Kong and Macao are under a Chinese economic plan. The objective of having high level political involvement however is not to subsume the SARs into China’s central economic planning but is to facilitate the development of economic flows among Guangdong regions and the SARs.
“The purpose is to coordinate the development of the different systems, each government looking after their own areas while ensuring that the borders do not cause disruptions to flow of people, product, capital, services and information,” says Kwan.
“For example, by allowing the custom authorities of both sides to set up a system of straight through processing, products could be identified under seal and cross border without being checked twice. Also there could be special visas granted to residents or foreigner-residents of the regions to allow them to travel freely within the regions.”
As a hotspot for entrepreneurship, Hong Kong may stand to gain from greater economic integration in the GBA. Given its limitation of market size, space and small industrial base, entrepreneurs usually have to look abroad early in their development. With a geographic area of 56,000 square kilometers, the GBA is about three times the size of the San Francisco Bay Area. Its combined population of over 70 million people and a GDP of around US$1.6 trillion make it comparable to that of Tokyo Bay Area and New York Metropolitan Area.
Entrepreneurs in technology and innovation sectors could adopt a regional approach when developing their businesses. The GBA development plan aims to promote the GBA Science and Technology Corridor comprising Hong Kong, Shenzhen, Dongguan and Guangzhou. Each of these cities has complementary advantages. For example, Hong Kong is a magnet for international talent, Dongguan has extensive manufacturing capabilities, Shenzhen is notable for application development, while Guangzhou provides broad market coverage.
In a policy guideline issued last month, the central government plans to support Shenzhen in raising the level of opening up to Hong Kong and Macao, and speeding up the construction of the Shenzhen-Hong Kong technology innovation cooperation area. Innovation sectors include 5G, artificial intelligence, cyberspace technology and bio-medical technology.
For foreign entrepreneurs eyeing opportunities in the region, Hong Kong may still be the first stop. “The operating environment in Hong Kong is still more user friendly for those coming from developed countries and may not be comfortable going straight into China,” Kwan points out. “They may have genuine concerns such as intellectual property protection and tax status.
Kwan says work is being done to address some of these concerns. “While Hong Kong and mainland China will maintain their respective legal systems, Hong Kong entrepreneurs might be able to enjoy Hong Kong levels of protection in terms of intellectual properties and commercial disputes settlements through the setup of Hong Kong arbitration centers on the mainland.”
Tax regulations for Hong Kong residents are also being relaxed. For example mainland Chinese individual income tax subsidies will be granted to eligible talents working in the region so that they do not have to pay more than what they would have to at home.
The GBA may help not only entrepreneurs thinking of expanding or developing in the GBA region. Those seeking global expansion may turn to sources of financing from within GBA. According to HKTDC, in Shenzhen alone, there are nearly 4,000 active venture capitalists.
“China is investing more than US$120-US$130 billion to the rest of the world each year, 60% is destined for or routed through Hong Kong. The largest single source of investments is from Guangdong. The GBA is a major source of outward investment for the region and rest of the world,” says Kwan. “They are hungry for investment opportunities especially under current trade environment. A lot of Guangdong-based investors are looking for more meaningful returns and diversification of investments.”
As business opportunities grow within the GBA, entrepreneurs across different industries are likely to require effective solutions to support their cross-border transactions. For payment processes, American Express (Amex) has found that common pain points with Mainland Chinese partners include unfavorable payment terms, limited visibility on payment status, seasonal fluctuations and resource-intensive manual processes.
These are due to the fact that many businesses are still relying on outdated payment mechanisms such as telegraphic transfer, banker’s drafts and cheques. By offering a global US dollar payment solution which is electronic and technology-driven, Amex can help Hong Kong businesses reduce their pain points and allow them to focus on their international expansion strategies.