New bridge heralds improve hk-macao

5 May 2011

NEW BRIDGE HERALDS IMPROVED HONG KONG – MACAO COOPERATION

By Thomas Chan*

The Hong Kong-Macao-Zhuhai Bridge is expected to open in 2016. This coincides with the completion and launch of the high-speed Express Rail Link between Hong Kong and Futian in Shenzhen and Panyu in Guangzhou, though it is years behind the start of the Zhuhai and Guangzhou fast-speed train service scheduled for later in 2010. Although there are still six years to go, there has been much excitement about the bridge that will integrate the two Special Administrative Regions of China, both of which also serve as gateways to and from mainland China via their international free ports.

Hong Kong versus Macao

Hong Kong and Macao have long been in cooperation and competition over the past centuries. The rise of Hong Kong since the mid-nineteenth century as the bridgehead of British commercial, financial and political interests in the Far East eroded the role of Macao as the gateway port for Southern China.

After 1949, the closure of mainland China to the outside world made Hong Kong the only international city for China, eclipsing both Shanghai and Guangzhou. With the economic link to the Pearl River Delta region denied and without the economic scale and international connections to the Anglo-Saxon global system, Macao was unable to compete with Hong Kong. It retreated into a quiet ‘South European’ town next to the rapidly expanding British colony. Hong Kong became the ‘city’ and the route to the wider world (except the Portuguese world) for residents and companies of Macao. The opening up and reform of China, spearheaded by the Pearl River Delta region, has at least partially restored the economic dynamism of Macao.

In preparation for the handover in 1999, just two years after the handover of Hong Kong, there was an influx of people and capital from the mainland. Thanks to this, Macao has been able to expand again. Undoubtedly, it is impossible to compare between Macao and Hong Kong in terms of scale and size. But, in the brief span of little more than 10 years, Macao has succeeded in coming from a long way behind to overtake Hong Kong in per capita GDP, showing the enormous competitive advantage it has gained from its return to mainland China, and more precisely, to the Pearl River Delta region.

Macao is now no longer just the sleepy town next to the bustling city of Hong Kong. It is a city in its own right, albeit smaller and with a different economic focus, on a par with Hong Kong and enjoying the same political status in the hierarchical national system of China.

Guangzhou becomes central city in Pearl River Delta

The recent integration of the Pearl River Delta region, or more precisely, metropolitanisation process centering on Guangzhou, offers challenges and opportunities to both Hong Kong and Macao. The revival of Guangzhou as the central city of the region poses a direct challenge to Hong Kong. Over the last decade, it seems that Guangzhou has been able to stand on its own feet again. It has been using the economic restructuring of the regional economy, its political controls over policy resources within the province and access to national support to subdue localism, including that from the semi-detached special economic zones of Shenzhen, and to a lesser extent, Zhuhai.

The outline of the PRD Reform and Development Plan (2008-2020) and the framework agreements of economic cooperation with Hong Kong and Macao all have explicit, strong Central Government endorsement. They are indicative of the success of Guangzhou to re-establish its indisputable leadership in the region even beyond the province of Guangdong, through the high-speed railway hub it is due to create in the next few years, incorporating the new networks in Fujian, Hunan, Guangxi, Guizhou and Hubei.

For Hong Kong, the metropolitanisation process initiated by Guangzhou serves more as a challenge than throwing up opportunities. Local industrial processing and producer services have already relocated to Shenzhen and Dongguan, while consumer services in Guangzhou are catching up fast and attracting most local demand in the PRD cities away from Hong Kong. Even the new initiative of Qianhai includes plans to relocate financial services away from Hong Kong. The fundamental problem for Hong Kong is that its economy lacks further development to create new industries and economic competitiveness, while the existing industries, services and the market they have set up over the past decades have all now been either relocated or import-substituted and taken over by the Guangzhou-centered PRD cities.

The metropolitanisation process is simply enhancing further the agglomeration and scale economies of the collective efforts of the PRD cities and the leadership of Guangzhou, thereby speeding up the processes of relocation, substitution and diversion from Hong Kong.

Macao benefits from PRD metropolitanisation

Macao, on the contrary, has not been threatened by the PRD metropolitanisation process. Its economy has been so unique and guarded by institutional factors that its main competitive advantage could not be reproduced elsewhere in the PRD or further afield. In other industries and services, Macao is in fact lagging behind Guangzhou, Shenzhen and even Zhuhai. Deep integration led by Guangzhou or others, leading to faster development in the PRD, would simply create more demand for both the current core services or any new services to be set up that enjoy late-comer benefits. Even Hengqin Island will increase space for the expansion of the Macao economy and the infrastructure built there will improve its accessibility and connectivity with the PRD.

Connecting Macao up

Macao will also find itself better connected than Hong Kong within the PRD. This year and next will see the two Guangzhou-Zhuhai railways coming into operation. The Zhuhai terminal of the railways at Gongbei will reach Macao city centre in around half an hour. Hong Kong, by contrast, is much larger than Macao, and from the boundary checks to Hong Kong city centre it will take much longer – over an hour, even by train. The Zhuhai terminal for intercity railways could serve easily as the terminal for people going into and out of Macao and be connected to the PRD fast-speed railway network and inter-provincial high-speed train services.

Meanwhile, Hong Kong will have only the XRL in operation probably no sooner than early 2016; before then, the Futian Railway Terminal, which will be in operation in 2012, will still be too far away from the city centre in Hong Kong. Connectivity means ease of transportation of passengers to and from Macao with the PRD. Thus the integration of Macao with the integrating and metropolitanising PRD will be greater in breadth and depth than that of Hong Kong, and at a much lower cost in time and money.

Macao may also benefit more than Hong Kong from the 2015 opening of the Hong Kong-Macao-Zhuhai Bridge. For the first few years, the road traffic, and therefore passenger flow, between Hong Kong and Macao might not be able to increase too much and too fast, due to the lack of railway connections and the inconvenient immigration and customs controls. The bridge will mostly serve to provide a 24-hour service and more convenient connections to Hong Kong than the current ferry services.

The improvement in connectivity will be small and therefore optimal in the sense that it will prevent too large an inflow of people and cars into the already congested small city of Macao. The bridge will be both a facilitator and constraint to Hong Kong-Macao passenger flow in an optimal mix that will not cause too much of a burden to the city, as it gains improved connectivity with Hong Kong. Physical integration with Hong Kong will therefore be restrained to defend domestic transport and urban lifestyle within Macao.

Linking east to west

According to integration planning of transport and other key infrastructure investment projects for the PRD, published by the Guangdong Provincial Government in August, there will be more crossings in the estuary of the Pearl River connecting the west coast to the east coast. Before 2020 we will see the connection — tunnel rather than bridge — between Shenzhen and Zhongshan and a second Humen Bridge at the tip of Nansha in Guangzhou. Both will improve the connectivity of Zhuhai to Shenzhen, Dongguan and, indirectly, to Hong Kong.

Without immigration and customs controls, it will take less time to travel across from the east to west coast and vice versa. These crossings will definitely reduce the importance of the Hong Kong-Macao-Zhuhai Bridge. But they will also certainly improve the connectivity of Macao with the east coast cities, especially with Shenzhen and Dongguan, and beyond to Huizhou and Eastern Guangdong along the new high-speed railway that goes from Shenzhen all the way to Chaozhou and Fujian, Zhejiang and Shanghai. With the use of the Zhuhai railway terminal and the Zhuhai highway links, Macao will be able to use these crossings to gain greater connectivity and integration with the eastern PRD cities, probably more effectively than through and from Hong Kong.

On the other hand, the Guangdong Government is committed to putting the western coastal railway into operation by 2013. Western Guangdong will then open up to Macao via Zhuhai. Macao will also be able to use Foshan, via Zhuhai, as the link to the two inter-provincial high-speed railways to Guiyang in Guizhou and Nanning in Guangxi and further to southwestern China and to countries in Indochina. As not only Hong Kong but also Guangzhou and Shenzhen are more concerned with the more developed localities in the eastern part of the PRD, the western part of the PRD and Western Guangdong could well be an exclusive hinterland for Macao, in cooperation with Zhuhai.

Macao will be at a great advantage in having better physical integration with the PRD cities, mostly due to the economic complementarities it has with these cities. Apart from gaming, Macao has no vested interests in opposing any upgrading of its services and its internationalisation directed towards the Portuguese-speaking world, including those Portuguese-speaking countries in Africa and South America – part of the emerging markets –, the EU and the wider world through Hong Kong. The cost of services in Macao are lower than in Hong Kong and, at least for the western cities in the PRD, no major cities could have strong enough service industries to compete with Macao, even Zhuhai, whose local services are too small in scale and too narrowly based.

Macao’s challenge

The challenge for Macao is how to build up service industries alongside the gaming industry to capture the great market opportunities offered by the rapid metropolitanisation of the PRD and the greater connectivity and physical integration of Macao with the PRD.

Given the small scale of the local economy and population, it will be impossible to rely on organic growth of the local service sector. The best strategy is probably to rely on the advanced and no doubt also saturated service industries of Hong Kong. To do so, Macao could and should try to integrate its local industries and market with those of Hong Kong.

One quick fix would be for Macao to merge its free-port economy with that of Hong Kong by means of a bilateral free trade agreement (FTA), built on the basis of the CEPAs of the two Special Administrative Regions with mainland China and the two economic cooperation framework agreements with Guangdong. Such a Hong Kong-Macao bilateral FTA should be broader and more liberalised than the CEPAs and framework agreements, as the two SARs are already free-trade economies with little market entry and trade barriers.

Because of the smaller scale of the population and industries in Macao and the much higher local per capita GDP, Hong Kong would not be afraid to integrate its market and economy with Macao. And for Macao, since Hong Kong is not a low-cost production base, there would be no danger of low-cost labour flooding the Macao market; the constrained connectivity between the two SARs, even after the opening of the Hong Kong-Macao-Zhuhai Bridge, would also serve as a barrier against a free flow of low-skill and low-cost daily workers from Hong Kong.

With the bilateral FTA, Macao would gain free access to the established service industries and well-trained and experienced professionals and service workers from Hong Kong almost at no cost. Indeed, the cost of training and educating professionals and service workers as well as institutional and infrastructural investments would entail inward direct investment of service companies. Macao could become the physical extension — even for daily commuting from localities in Hong Kong — of the multinational service industries of Hong Kong and immediately upgrade the local economy and reduce its dependence on the gaming industry. Both the Central Government in Beijing and the Guangdong Government in Guangzhou would be happy to see a bilateral FTA between Hong Kong and Macao; all parties involved would benefit, creating a long-term win-win situation.

A new transborder region

Under a bilateral FTA and with the Hong Kong-Macao-Zhuhai Bridge, Macao and Hong Kong may be able to repeat the successful example of the Oresund Bridge connecting Copenhagen in Denmark to Malmo in Sweden, with an annual passenger flow of 26 million per year after 10 years’ operation, to form a flourishing trans-border region in Europe.

*Head–China Business Centre- The Hong Kong
Polytechnic University
Photos by Eric Tam, Mércia Gonçalves, José Simões Morais

MACAUHUB FRENCH