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Hawksford: China's Greater Bay Area - The next Silicon Valley

The Greater Bay Area ('GBA') is a Chinese Government initiative aimed at promoting closer cooperation and economic integration between 11 cities of the Pearl River Delta among which, Hong Kong, Macao, Shenzhen, and Guangzhou shall serve as core engines.

In March 2019, at the China Development Forum held in Beijing, Hong Kong Chief Executive, said: “In my view, the Greater Bay Area has good potential to become not only the Silicon Valley of the East but also Silicon Valley and Wall Street within the same city cluster.”

In terms of scope, the GBA will be comparable to the San Francisco Bay Area, Greater Tokyo Area and New York Metropolitan Area and will represent one of the largest urban areas both in size and population. It represents 12% of China’s national economy (equivalent to US$1.4 trillion), generated by only 5% of the country's population. According to Colliers’ research, the GBA economy is expected to reach US$3.6 trillion by 2030. Among others, trade and logistics, financial services and R&D in innovative technologies will most likely benefit from the GBA ecosystem.

To understand the potential of the GBA, we need to screen its main features. Common characteristics of major technology hubs around the world include basic but very important ingredients: infrastructure, talent, money and market opportunities.

• Infrastructure

Major infrastructure developments in the GBA are increasing connectivity between the 11 cities of the GBA. The 36-kilometre-long bridge connecting Hong Kong to Macau opened in October 2018 and the high-speed rail linking Hong Kong to Shenzhen within 15 minutes, and Hong Kong to Guangzhou within one hour, is operating since March 2019. These two symbolic engineering projects of the GBA illustrate China’s efforts to integrate Hong Kong and Macau with the mainland. Both projects are strong indicators of a broader strategic vision to help reform the economy, enhance competitiveness and move China up the value chain through a domestic focus on consumption, innovation, finance and trade.

• Talent

Building a city cluster aimed at innovation is only viable when the right talent is attracted. That is why most technology hubs have grown and developed around top research universities. For San Francisco, there is Stanford and the University of California, Berkeley. Tokyo has the University of Tokyo. Within the GBA, Hong Kong has 5 universities among the world’s top 100, 2 of the world’s top 10 universities for AI research, and one of the world’s highest concentrations of top-quality research universities for computing. This gives GBA a strong basis for technology innovation.

• Money

Availability and accessibility to investment is another key factor for a successful city cluster. As a leading financial center, Hong Kong is recognized for its robust financial infrastructure, sound regulatory framework and mature legal system. The Hong Kong currency is pegged to the US dollar and is freely convertible, which is the reason why Hong Kong still represents 35% of the equity financing of Chinese firms.

The GBA infrastructure and industry opportunities are being complemented by a range of policy and tax incentives. GBA provides tax relief in the form of double taxation agreements, tax credits for companies in tech industries, as well as various government incentives and subsidies. Individual income tax benefits are also available to workers in specific sectors such as finance and technology, helping businesses to attract global talents.

• Market Opportunities

Companies providing employment opportunities are another key ingredient of major city hubs. Right next door to Hong Kong, Shenzhen is headquarter and R&D center of many Chinese technology giants, such as Tencent, Huawei, ZTE, BYD and BGI.  1.5 million technology professionals are estimated to work there. Surrounding cities such as Dongguan, have also evolved into hi-tech manufacturing centers, enabling the cost-effective production of AI-powered robots, drones, equipment and devices. Besides, Shenzhen, Hong Kong and Guangzhou already rank within the world’s top 10 container ports, ensuring convenient global distribution. This makes the GBA an ideal end-to-end supply chain for innovation and technology products, encompassing research, design, production and global distribution.

IT Hub comparable to Silicon Valley

The Greater Bay Area plan aims to link by 2035 Hong Kong, Macau, and nine cities in the Guangdong Province – including the megacities of Shenzhen and Guangzhou, into a giant science and IT hub comparable to the combined size of San Francisco and Tokyo's bay areas. The major cities of the Greater Bay Area will establish themselves as hubs for different sectors. As a key city of the GBA, Hong Kong will focus on international finance, navigation and trade. Macau will become an international tourism city and a platform for trade with Portuguese speaking countries such as Brazil. Guangzhou, formerly known as Canton, will take the role as an administrative hub. While Shenzhen – home to Huawei Technologies Co., will expand its role as a special economic zone and tech hub.

The GBA unquestionably shares common features with other shore or bay areas worldwide. All have a strong services sector, solid transport infrastructure, top-ranked universities, access to a world-class financial center and an active innovation hub. It remains to be seen whether these 11 cities will be able to work together and overcome their respective weaknesses, for the betterment of the whole. While it might take some years to achieve, the development of the GBA already presents massive opportunities for domestic and foreign investors.