China’s Central Government promotes the Guangdong­‑Hong Kong­‑Macao Greater Bay Area

9 June 2017

Beijing has thrown its weight behind the ambitious Guangdong-Hong Kong-Macao Greater Bay Area project that it hopes will build a world-class urban cluster in the region by 2020.

In terms of territorial coverage, the Greater Bay Area includes the nine cities in the Pearl River Delta (PRD) region of Guangdong along with the two Special Administrative Regions (SARs) of Hong Kong and Macao.

These are the constituent areas of the Greater Pearl River Delta region that have been under discussion for decades, although the concept never reached the planning stage until 2011; the cities and Special Administrative Region   have remained independent of each other.

Efforts have been made by the provincial government to group the nine cities into three sub-regions of economic integration led respectively by Guangzhou, Shenzhen and Zhuhai by means of bilateral agreements among the city governments.

The process of sub-regional economic integration is already underway, with the Guangzhou-Foshan-Shaoqing hub the most successful and the single-city integration of Guangzhou and Foshan advancing most quickly, thanks to the long economic and cultural integration of the two cities and their spatial proximity.

There has also been bilateral economic cooperation between Hong Kong and the Guangdong provincial government for decades. A similar bilateral mechanism also exists for Macao.

It is easy for the PRD to connect closely through the recent installation of a dense web of railways (subways, inter-city railways and inter-provincial railways that intersect the region), in which the cities are all within one to two hours of each other, despite the relative administrative and financial independence of the cities in the region.

The development of cross-boundary railways and highways between the SARs and the PRD has been lagging by a large margin. Moving around the region is still time-consuming, although transportation is much better than before the establishment of the SARs in the late 1990s. Cross-boundary travel in the region remains difficult when compared with neighbouring countries in other parts of the world.

The PRD is a functioning concept that has grown in dimension and intensity with time. To residents and firms there are no visible barriers to mark the boundaries of the constituent cities in the PRD. For them, the region is increasingly becoming a single space – economically, socially and soon even for government policies and regulations.

If the Greater PRD has yet to be born, what does it mean when the Central Government introduces the regional concept of the Greater Bay Area, which is spatially the same?

One may speculate that there may be some particular intentions behind the government’s policy initiative.

First, even though the Central Government does not push for any planning and administration integration or coordination for the local economies involved, it nevertheless appears to want to see closer cooperation among them, particularly for the two SARs.

The Greater Bay Area concept is modeled on the San Francisco Bay Area in California, which centers on the cities and towns adjacent to San Francisco. The metropolis and neighbouring cities and towns are closely integrated together to form a functioning regional economy and society, making the Bay Area one of the most innovative and dynamic regional systems in the world.

The Central Government would like the nine cities and two SARs of the PRD to follow the example of the San Francisco Bay Area by joining together to push for regional development for innovation and socio-economic advancement. This may be a lesson learnt from the very modest progress that has been made under the Greater PRD. The Central Government has tried to take the lead by persuasion, incentivisation and other means to nudge the cities and SARs to work together for a common goal.

Second, the San Francisco Bay Area is famous for the continuous evolution of its local innovative information and telecommunication industries and services. Shenzhen and other cities in the PRD are moving towards this direction and have shown initial successes under local initiatives and national programmes, such as “Made in China 2025” and Internet Plus.

China’s State Council announced “Made in China 2025” in 2015 as a national initiative to improve the manufacturing industry with the goal to transform China into a leading manufacturing power. The Internet Plus action plan aims to integrate the Internet with traditional industries in order to fuel economic growth. The action plan will integrate mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to help Internet companies increase their international presence.

The Central Government hopes that cities in the PRD will join hands with the SARs in their fast industrial and knowledge upgrading so as to capitalise on the competitive advantages of the latter and to move forward quickly to achieve the goal of becoming the Silicon Valley of China, or the Chinese example of a global competitive innovative region for fast growth and development.

Third, given the unsatisfactory economic performance of Hong Kong following the Occupy Central movement and Mong Kok riots and that of Macao due to the decline in casino revenues in 2015 and 2016, the Central Government has to take the lead to push these cities forward for better integration with the more innovative and dynamic PRD local economies.

So far it has not been evident that the Central Government has directly intervened in the establishment of the Greater Bay Area, except perhaps for the establishment of a new science and innovation region on the bank of the Shenzhen River.

The involvement of the Central Government is mostly through persuasion and encouraging Guangdong province to play a more active role. One still needs to see what concrete policies and measures will come forth from the province and city governments and how they will push the two SAR governments to participate more willingly in regional cooperation.

The past experiences of Guangdong-Hong Kong cooperation might suggest that this will be an uphill struggle. The best hope for turning the Greater Bay Area into reality will depend on having policies initiated by the Central Government for local governments in the region, including the SAR governments.

An important factor for the development of the Greater Bay Area is the recent transformation of the PRD economies, which has fundamentally altered the economic balance between Hong Kong and Macao and the PRD economies.

GDP statistics for 2016 confirm the lacklustre performance of Hong Kong, the largest economy in the 9+2 Greater PRD system. Its annual growth rate that year was only 1.9 per cent, showing the downturn trend since the post tsunami financial recovery of 2010 and 2011.

The PRD regional economy is now about three times larger than that of Hong Kong, and with the large annual growth differential, in two years the local economies of Guangzhou and Shenzhen will be on a par with Hong Kong and will start to overtake the SARs.

More importantly, the retail sales, fixed asset investment and research and development (R&D) spending of the two PRD cities have been leading Hong Kong. These indicators much better illustrate the growth of economic capabilities and competitive advantages than do GDP or per capita GDP, the latter of which still shows Hong Kong ahead of the PRD cities.

In particular, R&D spending is a leading index to show how the economy is progressing along the development ladder of industrial upgrading and technological innovation. Hong Kong has long suffered from a lack of R&D spending, probably a legacy of the colonial regime. It’s ratio of R&D spending to GDP is a meagre 0.8 per cent, in great contrast to the 2.5 per cent of Guangdong and over 4 per cent of Shenzhen.

Despite the similar size of the Hong Kong and Shenzhen economies, the latter’s annual expenditure for R&D is five times larger. Research investment in Shenzhen has pushed the city to the top ranks of international research oriented nations led by Israel and Korea. Even the ratio of Guangdong province on average is similar to the average OECD economies, which represents the level of advanced industrial countries.

Shenzhen has taken the lead in R&D investment, and the other PRD cities are following its example. Foshan is cooperating with Germany in the development of the robotics industry and the training of skilled labour. The PRD cities have been seeking help and cooperation from the United States, Germany, Israel and Italy.

The nominal GDP of the PRD was RMB6.79 trillion in 2016, close to US$1 trillion. In terms of its economic size, the region ranks 16th in the world, on a par with Mexico, and larger than Indonesia, Turkey and Saudi Arabia; its per capita GDP was over US$16,000, breaking through the middle-income trap, with Shenzhen at US$25,000.

The PRD is export-oriented with large recurrent trade surpluses. By whatever definition, it stands very competitively in the world and has a strong motivation and capability to move further forward, in particular when it is part of the huge national economy of China.

The Guangdong-Hong Kong-Macao Greater Bay Area may well be the policy instrument and platform needed for the Central Government to push the two SARs to work with the aggressive PRD to transform the Greater PRD area. (Macao Magazine, by Thomas Chan, Director of the One Belt One Road Research Institute of Chu Hai College of Higher Education in Hong Kong)