2019-02
GREAT EXPECTATIONS 魅力湾区

The eagerly awaited Greater Bay Area masterplan has fin …

GREAT EXPECTATIONS 魅力湾区 2019 Year

The eagerly awaited Greater Bay Area masterplan has finally been unveiled, launching the next phase of the region’s economic development. Now is an appropriate time to look back on past successes and appreciate the challenges – and potential gains – that lie ahead.

The Greater Bay Area is much more than a land mass of 58,000 sq km, home to 68m people clustered into 11 cities. It is a dream of China’s future. This dream, which envisages a Chinese region standing high on the global leaderboard of developed economies, has been talked about in many shapes and forms over several decades. As this issue of Macau, Inc. was going to press, the dream was given a new masterplan by the State Council, setting out a series of steps for the Greater Bay Area to be turned into a concrete reality.

The new plan is long on ambition, short on specifics. It has set lofty goals for the nine cities of Guangdong and the two Special Administrative Regions of Hong Kong and Macau. These include: Improving infrastructural connectivity and quality of life, building a globally competitive commerce and industrial system, protecting the environment while also ensuring energy security, and supporting China’s international trade strategy known as the “Belt and Road Initiative”.

Macau’s role in the plan has been affirmed: to build a globally competitive tourism hub and provide a platform for trade with Portuguese-speaking countries. Together with Hong Kong, which remains the region’s financial center, Guangzhou, which is the provincial capital and commercial center, and Shenzhen, which is an innovation and technology development center, the Greater Bay Area will more tightly integrate connections between and among its smaller cities, Zhuhai, Zhongshan, Jiangmen, Zhaoqing, Dongguan, Foshan, and Huizhou.

Few of these goals will surprise observers who appreciate the complexity of the challenges facing a coordinated regional development plan. Boldness is required. The devil, however, will be in the details of proposed solutions to these challenges that must now be drafted by the cities. They must be drawn up in such a way that the plan’s goals can be seen to be realistic.

The plan cannot be seen to be a product of mere wishful thinking if it is to work. The cities must strike a balance between the need to more closely integrate their three very different regulatory systems and the need to respect the autonomy granted to the two Special Administrative Regions under their Basic Law mini-constitutions. This is a daunting task.

Previous attempts at deeper regional integration have run aground on bureaucratic and political rivalry, which was always to be expected. As much as technocratic-minded observers like to suggest that “specialization” is the antidote to regional economic rivalry, in reality it is hard to expect participants in a market-oriented economy to neatly stake out their areas and avoid going after their neighbors’ business.

This should be obvious in reviewing the past achievements of the Greater Bay Area’s constituents. Shenzhen and Guangzhou, megalopolises that stand on a par with Hong Kong in terms of size of population and GDP, would not be what they are today without dynamic service industries that a decade ago were seen as the preserve of “Asia’s World City”. Dongguan and Foshan, once seen as low-cost alternatives to their big neighbors, have in recent years been competing just as aggressively in high-tech areas that were once considered the bread and butter of Guangzhou and Shenzhen. And the smaller cities are no longer content with being seen as minnows, today offering incentives to attract the kind of investments that also once went to Guangzhou and Shenzhen, never mind Dongguan and Foshan. Zhuhai, for instance, has recently attracted Apple supplier Foxconn to build a US$9bn factory for producing chipsets. Zhaoqing is where “China’s Tesla”, Xpeng, is building electric vehicles.

Hong Kong and Macau, meanwhile, have had substantial advantages over the “nine dragons” of Guangdong. Foremost of these are globally respected legal systems and freely convertible international currencies. And yet both SARs are gripped by anxiety about their eroding competitiveness as they see their mainland compatriots outcompeting them in innovative new industries such as fintech.

To be sure, there are synergies that can be better harnessed so that the sum of the “9+2” is greater than its components. Standardizing processes, adjusting tax rates, dismantling redundant regulatory barriers, improving transportation infrastructure – all these efforts will likely spur a continued burst of economic activity that will benefit the entire region. The Greater Bay Area masterplan obviously aims to do all of that and more, going beyond mere exhortations by creating a political framework within which cooperation becomes more feasible. Incentives provided by the Central Government are welcome. But guidance and, dare we say it, boundaries will be equally necessary for Beijing to provide on an ongoing basis.

It is reassuring to know that the country’s top leadership considers the Greater Bay Area a high priority. President Xi Jinping has personally encouraged its development during several inspection tours of the region. Hong Kong leader Carrie Lam has described the plan as having the president’s “personal touch”.

The appointment of Vice Premier Han Zheng to oversee its implementation should ensure that local squabbles will not slow momentum at any stage. It has been made clear that “one country, two systems” will be respected in the GBA masterplan; but it has also been made clear that the two SARs, nearly halfway through their 50-year limited-autonomy contracts, will henceforth be expected to give more than lip service to the pursuit of national interests.

If all 11 can pull together more efficiently, an enticing prize awaits. It is to secure a place in history as the largest and most dynamic of the planet’s “Bay Area” economies. By 2035, it is envisaged that this region will have surpassed Greater New York, Greater San Francisco and Greater Tokyo on the world stage (see box). With financial services, high-end technology, and tourism as three key pillars of a powerhouse regional economy, it is hoped that the Greater Bay Area will shine a brilliant light on China’s place in the world order.

At this point, however, readers could be forgiven for asking a skeptical question: Why this particular Greater Bay Area? What makes the “9+2” so well suited to lead China’s quest for global competitiveness? The answer requires an understanding of the region’s history.

It would be tempting to say that the Greater Bay Area story began in Shenzhen. The city’s role in the modern era of China’s economic development is well documented. This year, Shenzhen is set to pip Hong Kong in absolute size of GDP (US$356bn vs. US$353bn). This is a city which, 40 years ago, was mostly farmland. One could say, therefore, that the Greater Bay Area had its genesis when former paramount leader Deng Xiaoping asked Xi Zhongxun, father of the current paramount leader, President Xi Jinping, to create a new Special Economic Zone along the border with Hong Kong. That was December, 1979. The zone’s original borders can still be seen on the outskirts of the Luohu district.

The Shenzhen SEZ was followed soon afterward by the establishment of a similar zone in Zhuhai, facing the region’s other SAR. From then on, the economies of Hong Kong, Macau and Guangdong’s leading cities clustered around the Pearl River Delta started to be inextricably entwined, not only with each other, but with the global economy, too, as the rise of the world’s biggest mercantilist trade success story got going.

But the seeds of the Greater Bay Area actually go much farther back than that, to a time even before the arrival of British gunboats in the Fragrant Harbour in the early 1800s. The Pearl River Delta, a collection of not one but several rivers whose origins lie far away in the Tibetan plateau, has been home to China’s most tightly integrated maritime trading networks for millennia. They survive today in the “clan associations” founded upon common surnames – Ho, Chan, Li, Wong, Cheung, to name but a few – that have traded from bases in the region since at least the early days of the Nanyue Kingdom, spread across Vietnam, Yunnan, Guangxi and Guangdong, which predated the founding of the Qin Dynasty more than 2,000 years ago.

These trading networks have been bound by deep, ancient extended-family ties. Their strength is reflected in the resilience of their common language. Although Cantonese is barely heard in Shenzhen these days, it is still widely spoken throughout the region, more than a century after Mandarin was established as the national language, because it has long been the common lingo streamlining commerce across dozens of dialects throughout Guangdong. These dialects are still spoken today in homes and tea houses across the province.

In short, the Greater Bay Area has been a fairly well integrated economic entity in practice for a long, long time. Its clans have survived the upheavals of the Opium Wars and other regional conflicts. These included the Japanese occupation of Hong Kong in 1942-45, when smugglers kept many of the city’s residents from starving, and the US Embargo of China during the Korean War in 1950-53, when some of Macau’s elite families ran supply operations that supported the struggling new government to rebuild the country. They survived the internal disruptions of the Civil War of 1945-49 and the Cultural Revolution of 1966-76. They thrived under the yoke of the British and Portuguese, and they thrived once their colonial overlords packed up and left.

And so, when Deng and Xi (Sr.) began the great experiment of the Shenzhen SEZ in late 1979, there was plenty of experience to draw upon. What happened next was partly a re-establishment of trading patterns and regional economic activity rather than the launch of something entirely new and untested. Hong Kong was a natural conduit for capital to kickstart the region’s reawakening because so many of its leading industrialists were accustomed to crossing the Kowloon-Canton border at Lowu (Luohu) for tomb-sweeping trips to their ancestral hometowns. It wasn’t hard for them to pick out the best spots around the countryside to move their factories into, and their relatives provided the first round of hires.

This is not to take away from the incredible achievements that have been witnessed in the Greater Bay Area since 1979. Even if Guangdong, Hong Kong and Macau had a strong cultural and socio-economic foundation upon which to build, the success engendered by pioneering reforms over the past 40 years is testament to the creativity and resourcefulness of the people who have built the region into what it is today. Indeed, much of what is now springing up in places like Zhongshan, the birthplace of Sun Yat-sen, would have been unimaginable just years ago. Visionary, energetic leadership in both the public and private sector has been a hallmark of the region’s modern era.

The results have been mind-boggling by any historical standards. An economy today worth US$1.6trn, bigger than Australia or Canada, was virtually dormant when the Shenzhen experiment began. Breakneck growth doesn’t begin to describe what has happened here. Indeed, there has seldom been a moment since 1979 when any government official or business executive in Guangdong has been able to rest on their laurels. The story of the past 40 years has been one of constant renewal and upgrading, with annual growth rates only recently dipping into single digits now that the absolute size of the region’s economy has started to come within reach of developed-economy levels. For four decades, growth rates in the region have consistently been more than 10% YoY, and always several percentage points above the national average. Nowhere else on the planet has grown this fast, for this long.

The amazing success of the region’s macro story is really, however, a collection of astonishing micro stories. Perhaps the best of these is the rise of Tencent. The region’s most famous company was founded by an unassuming young man, Pony Ma Huateng, in Shenzhen 20 years ago. Tencent slogged its way through the early development of China’s internet for the first half of its existence and then, in 2007, while the Global Financial Crisis was dominating world headlines, its online-gaming business took off. A few years later, it developed the WeChat app, which now sits on more than a billion smartphones. From there, the company’s growth went hypersonic.

Today, this is how Tencent sums up its business empire on Wikipedia:

Tencent controls hundreds of subsidiaries and associates in numerous industries and areas, creating a broad portfolio of ownerships and investment across a diverse range of businesses including e-commerceretailvideo gamingreal estatesoftwarevirtual realityride-sharingbankingfinancial servicesfintechconsumer technologycomputer technologyautomobilefilm productionmovie ticketingmusic productionspace technologynatural resourcessmartphonesbig dataagriculturemedical servicescloud computingsocial mediaITadvertisingstreaming mediaartificial intelligenceroboticsUAVsfood deliverycourier servicese-bookinternet serviceseducation and renewable energy.[24] It is one of the most active and successful investment corporations in the world, with stakes in over 600 companies,[25] and recent focus on start-ups within Asia’s burgeoning tech scene.[26][27][28]

Could Tencent have achieved this anywhere else in China? Possibly. Alibaba hails from the Yangtze River Delta. Bytedance is from Beijing. But it could also be argued that Tencent, as well as numerous other Greater Bay Area colossuses such as Huawei and ZTE (telecoms), Ping An (insurance), DJI (drones), and BYD (electric vehicles) owe much of their success to geography and socio-cultural environment. The city in which they are based sits within a province that has always been China’s most outward-looking, most plugged into the global economy. Moreover, entrepreneurs in Shenzhen, Dongguan, Guangzhou, and Huizhou, on the eastern side of the delta, have had relatively quick and easy access to Hong Kong since highways were built connecting them in the early 1990s. With the recent opening of the HZMB bridge, the world’s longest sea crossing, the cities of the western side have also been brought into close proximity. High-speed railways, meanwhile, have reduced travel times from hours to minutes. The pipeline of ideas and capital between the Chinese mainland and the world is nowhere else as short as it is here.

Incredible success stories inevitably attract critics who predict that such long, uninterrupted runs cannot last forever. The Greater Bay Area has heard plenty over the past 40 years. Every time they appear, the mantra has been the same: the region is heading for a middle-income debt trap and will struggle to reinvent itself without major reforms being implemented. The latest countrywide economic slowdown, exacerbated by the trade dispute between China and the US, has brought such criticism to the fore again.

It was to be expected. Accounting for a quarter of China’s total foreign trade, Guangdong’s total value of imports and exports passed the US$1trn mark last year. Naturally, this puts the region on the forefront of any ill-effects of a trade dispute, especially the imposition of tariffs.

It will likely get worse before it gets better. With GDP growth across Guangdong already expected to slip by 0.6 percentage points this year, down from last year’s 7.6%, there is no way for the Greater Bay Area to avoid further economic damage should the US decide on March 1 to raise tariffs from 10% to 25% on US$200bn of Chinese goods. Hong Kong and Macau cannot expect to escape the fallout: property prices in Hong Kong have been declining for nearly six months, same as Macau’s gross gaming revenues, which turned into negative YoY territory in January.

The critics’ chorus appears to be warming up. The Greater Bay Area’s dependence on exports of goods has left it vulnerable, some say. Consumption and domestic demand require deregulation and liberalization if they are to become stronger drivers of growth in the future, others prognosticate.

Which makes the timing of the Greater Bay Area masterplan’s release all the more important. The region that has led China’s opening and reform program since 1979 is, inevitably, being asked to do so again. Change is in the air. Private enterprise is being promoted as the champion of the next stage of the country’s economic miracle. Foreign investment laws are being rewritten. Trade barriers are being pulled down. Investment incentives are being rolled out. Infrastructure plans worth hundreds of billions of yuan are being taken off the shelf once more. Innovation is the watchword.

It’s time for the next great economic leap forward to begin. The Greater Bay Area is where it will happen first, and fastest. Stay tuned.

 

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