01 February 2019

No longer just a slogan: The Greater Bay Area takes shape

This article was written by Haidi Teng, David Olsson and Intan Eow.

The long-awaited blueprint for China’s Greater Bay Area (GBA) initiative is expected to be unveiled shortly. Not only is it one of the Chinese government’s economic policy priorities for 2019 and beyond; it is emerging as a useful framework for foreign companies seeking to refresh their existing China market entry and engagement strategies.

Formalised in July 2017 by the signing of a Framework Agreement[i], the GBA goals are ambitious: to create a massive urban cluster around the delta of the Pearl River including Hong Kong, Macao and the nine most developed cities (including the mega cities of Guangzhou and Shenzhen) in the adjacent Guangdong province; a prototype for closer cooperation between Mainland China and the two special administrative regions of Hong Kong and Macao; a top-ranking international bay area intended to rival other bay areas including the San Francisco Bay Area, the Tokyo Bay Area and the New York Bay Area; and an urban environment that provides the highest quality for living, working and tourism.

The Framework Agreement seeks to bring together the relevant infrastructure, policies and regulations to ensure people, goods and services are able to flow freely within the region. Efforts to establish the GBA are well underway, and a more detailed blueprint for the formation of the GBA and related policies are expected to be published soon.

Connectivity to create a dynamic economic region

While the early manifestations of the initiative are reflected in the Hong Kong-Zhuhai-Macau Bridge and Guangzhou-Shenzhen-Hong Kong express rail link that opened in late 2018, the longer-term vision is about the growth potential that will flow as the GBA develops as an internationally important, globally connected economic zone.

Rather than pitting its cities against each other and against more developed rivals abroad, the GBA initiative adopts an approach that will integrate Hong Kong, Macau and nine cities in South China into a single integrated economic zone by 2035.

China hopes to achieve this by integrating the cities' infrastructure and expertise in finance, technology and manufacturing by removing trade barriers, encouraging cross-border business, and eventually creating a single market.

The ambition of China should not be underestimated. Today the GBA is home to nearly 70 million people, with a GDP of US$1.5 trillion putting it just ahead of Australia’s US$1.32 trillion and not far behind the US$1.61 trillion GDP of Greater New York and US$1.78 trillion of Greater Tokyo. If the GBA were a nation state it would rank 12th in the world.

Even with China’s recent slowdown, the GBA is still growing at twice the OECD average. This equates to a threefold increase in GDP by 2030 – to reach about US$4.6 trillion. This would make it the top spot among all ‘bay areas’ in the world, including Tokyo and San Francisco.

From competitors to partners

China’s leaders increasingly conceptualise the nation’s development through the promotion of coordinated regional development – by building out key geographical urban clusters and focussing on creating economies of scale and network effects to drive growth.

In line with this concept, the goal is to put in place policies that will allow the key cities within the GBA to cooperate with each other to take advantage of their respective comparative advantages.

  • Guangzhou, the capital of Guangdong Province, sits at the heart of multiple global value chains that have been built on China’s heritage as a leading global manufacturer. Global trade patterns may be changing, but growing domestic demand in China and other emerging markets ensure that Guangzhou’s role as centre of commerce and as a logistics hub will become more relevant over time. 

  • Shenzhen has emerged as one of the world’s leading high-tech innovation centres and home to companies such as internet and technology giant Tencent, drone manufacturer DJI, telco innovator Huawei and battery and electric vehicle manufacturer BYD. 

  • Hong Kong has long acted as the global gateway to the Mainland, with a well-established world-class finance and professional service industry, as well as top educational institutes and bi-lingual talent. Its role as an international finance centre and global logistics centre is expected to be elevated as part of the GBA. The Shenzhen and Hong Kong stock markets together are larger than Tokyo and 10 times bigger than Singapore. By 2020, they could easily rival the NASDAQ in the total value of listings.

  • Macau’s contributions to the GBA will be incorporated with the city’s strategic roles as, a world centre of tourism and leisure, and a commercial and trade cooperation service platform between China and Portuguese-speaking countries.

By bringing all of these locations together, rather than pushing them to compete, the GBA initiative is designed to help create a sizeable and powerful proposition that points to a new growth and development model for China, and one that will be difficult for foreign companies to ignore.
What makes the GBA so different from other large metro areas is that it combines the established strengths and comparative advantages of cities in the region into one gigantic innovation, manufacturing, and logistics hub.

Opportunities for business

In our view the main opportunities are informed by the “key cooperation areas” outlined in the Framework Agreement, and include:

  • Infrastructure – as existing and new transport and infrastructure links are upgraded or built, there will be an ongoing need for infrastructure services and expertise. The GBA is also seen as an important Belt & Road hub providing opportunities for international cooperation in infrastructure connectivity, as well as commerce, trade and logistics.

  • Technology and innovation – from creating smart cities, to encouraging start-up and innovation culture, the GBA is promising to become a world-class economic system propelled by innovation, providing opportunities in research & development and innovative technologies.

  • High-end manufacturing and industries will be “nurtured” in the GBA with a strong focus on green and low-carbon technologies.

  • Services – as the focus on improving the “livelihood of people” increases, so does the need for providing high quality public services, including health, education and tourism.
In healthcare, for example, plans for smart hospitals and other e-health systems are being created to radically transform the way in which healthcare services are delivered.

We expect to see significant opportunities in the burgeoning professional services sector, especially in banking & finance, insurance, legal, tax and advisory services. Finance is particularly interesting with entrepreneurial start-ups reinventing the way in which capital is raised and payments are made. Many fintech projects on e-wallets, cross-border e-payments, insure-tech and e-trade transactions are already well underway.

Operational challenges

Accommodating the different legal and regulatory frameworks across one country, two systems, three customs territories and four core cities will require the GBA to adopt a unique operational model to facilitate the convergence and mobility of talent, technology and funding and to showcase its potential for becoming a top global bay area.

We will be commenting more on these issues as the new policies are released.
But whatever the policy framework, the dynamic and innovative nature of the Greater Bay Area economy means that this is a part of China which will further increase its influence on the global economy. Policymakers and businesses globally would do well to pay more attention to this powerhouse of China’s economy.

Want to know more?

Last year King & Wood Mallesons announced the creation of the KWM International Centre in the Greater Bay Area to combine the expertise of our Shenzhen, Guangzhou, Hong Kong and Sanya offices, as well as the resources of our global network, to provide a one-stop comprehensive legal services for our clients in China and abroad.

Our publication Law and Practice in the Greater Bay Area provides an in depth commentary on the GBA, including potential investment opportunities for foreign companies, factors relevant to investments, capital raising and finance, intellectual property protection and dispute resolution.

 [i] Representatives from Mainland China, the Hong Kong Special Administrative Region (HKSAR) and the Macao Special Administrative Region (MCSAR) signed a framework agreement to form the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), an integrated economic and business hub, in July 2017.

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