All posts by anthony@greaterbayinsight.com

Ren Zhengfei’s black swans prove prescient

The newswires are full of analysis today of President Xi Jinping’s visit to a Rare Earths plant and his extolling of “Long March spirit”. We won’t add to it. Better to focus on Ren Zhengfei, enigmatic leader of Huawei, who gave another interview this week at the company’s Shenzhen HQ that demonstrates what the president is talking about. 

This is a man who had black swans placed in the artificial lake outside his windows years ago. If US President Donald Trump’s team thought they were going to catch Ren unawares by putting Huawei on a blacklist last Friday, they clearly haven’t been reading Nassim Nicholas Taleb like he obviously has.

Ren listed a number of measures the company had taken in recent years to prepare for what happened last Friday and which was acted upon yesterday by various US firms such as Google, Intel, Qualcomm and others. If Ren is concerned about Huawei’s ability to survive the depths of the China-US trade war, he isn’t showing it. He had the gumption not only to hit back at the Trump administration, but also to not-so-subtly hint to Chinese policymakers – at least, those that might have been entertaining the thought of intervening – to stand back and let him manage this crisis with his team.

We don’t yet know how much any of this will mean, given the uncertain reaction of consumers to product changes, as well as the extent to which Huawei is exposed to the US ban. That will take time to ascertain. We do admire Ren’s coolness, however, and believe it will come as reassuring not only to Huawei staff, but to many others in the company’s supply chain, and many others who call the Greater Bay Area home.

As we have written previously, Huawei is not any company. It is a symbol of China’s emergence as a tech power every bit as much as it is a tech innovator. If Huawei is able to make good on Ren’s promises in the coming weeks and months, many participants in the GBA economy will have less to worry about, not just all those gazing out at the black swans.

Where the China-US trade war goes next is anyone’s guess. We are still on the side of the cautious optimists who believe that reason will prevail, in time, and the worst-case scenarios being reflected in recent waves of stock-market selling will not be realized. In the meantime, it’s best to stay tuned to SupChina, Sinocism and Trivium for detailed daily analysis at the national level, and stay tuned to GBA Today at the regional level.

Ho Iat Seng to run for Macau CE

Whenever Hong Kong politicians and media refer to the GBA as “Hong Kong and the 10 cities”, one has to feel for Macau. The other SAR, although less than a tenth of Hong Kong’s size, deserves better credit for its key role in the region’s “9+2” masterplan. Macau is slated to integrate with the GBA primarily via Hengqin island, but it is also expected to act as a bridge between China and the Lusophone countries. The former Potuguese colony’s casino revenues, meanwhile, are driving the growth of a world-class tourism industry on the western side of the Bay and will continue to provide an economic engine for thousands of SMEs throughout the region in the coming years.

Moreover, there is clearly a much bigger, more carefully guarded, role for Macau to play in the GBA’s integration over the remainder of the 50-year  term outlined in the SAR’s mini-constitution, the Basic Law. It is to forge ahead in finding creative ways to merge the legal and regulatory systems of the three vastly different jurisdictions of Hong Kong, Macau and Guangdong. Nearly halfway to 2047, Hong Kong is incessantly paralysed by political gridlock; Macau, on the other hand, has two things going for it: a populace less inclined to agitate for broader political participation, and a political/business/bureaucratic elite less steeped in colonial-era institutionalized mindsets. The city’s community of lawyers, academics and other thought-leaders is better positioned to find outside-the-box solutions to the conundrum of how to merge East and West ideologically and legally upon the expiration of the two SARs’ agreements with their former colonial masters.

The person who will likely get started on that effort stood up yesterday and declared his candidacy for Macau’s Chief Executive election. Ho Iat Seng (pronounced ho yat seng) is currently the president of Macau’s legislature. He has been the focus of intense speculation in Macau for many years, accelerating in recent months as the election has drawn nearer, as to his political ambitions. His announcement yesterday that he will resign his position on the NPC Standing Committee in Beijing  (which alone speaks volumes of his political pedigree) and run in the elections is being widely seen as Beijing’s informal nod for him to take the job.

There is still the formality of an election to go through, of course, and it is possible that the current Secretary for Finance and the Economy, Lionel Leong, will stand against him, which will ignite further speculation about a competitive tussle for the reins of power in Macau. But no well-informed analysts still think this will be more than a show.

Ho is an interesting person, as a recent backgrounder from Macau Business magazine explains (available to subscribers in PDF). His grandfather founded the forerunner of today’s flagship newspaper, Oumun Yatbo (Macau Daily News) and his father began building the family’s industrial fortune in the 1950s. What is more interesting for current events, however, is how Ho chose to prioritize his statements to the media when announcing his candidacy yesterday. As reported by Macau Business:

When replying about the reasons for accepting entering the “hot kitchen”, Mr. Ho said “many people put their expectations on me.”

“I could play an appropriate role in connecting the Macau and the Mainland legislative systems,” he told journalists. “I hope I could bring my legislative experience to the better integration of Macau into the Greater Bay Area and the development of a diversified economic environment.”

This is someone to watch in the coming days and months.

Premier pledges boost for investors in HK, MO, Taiwan

China’s newly revamped Foreign Investment Law will bring greater opportunities for investors in Hong Kong, Macau and Taiwan, Premier Li Keqiang has announced. The premier further said that specifics are being worked out and will soon be clarified through detailed supporting regulations, reports the South China Morning Post.

Speaking at the Boao Forum on Thursday, Li said preferential policies that had proved effective would remain unchanged and the country would broaden market access for investment from the three regions, further opening sectors such as finance, professional services and high-end manufacturing.

Read more here. 

Guangdong research funding open to HK, MO institutions

Scientific research institutions from Hong Kong and Macau are now eligible for research funding granted by Guangdong and may use them in the SARs, according to a report in China Daily Hong Kong.

Previously, institutions from the two special administrative regions had to form joint ventures with other mainland institutions or set up branches in Guangdong.

Under the new three-year pilot scheme, which was unveiled this week, two institutions from Hong Kong and Macau will enjoy equal rights with their counterparts in Guangdong in competition for a total of RMB500 million (US$74.2 million) in funding and key sci-tech projects supported by the province.

The policy also encourages cooperation in key fields identified by the Greater Bay Area masterplan, such as artificial intelligence and robotics.

Read more here.

Comparing the regions

Here is a rough comparison of how the GBA stacks up against the other “Bay Regions” in its weight class.

Greater Bay Area Tokyo Bay Area New York Bay Area SFO Bay Area
Land (km²) 56,000 36,500 21,500 17,900
Pop. (mn) 69.6 44.0 20.2 7.7
GDP
(US$trn)
1.6 1.9 1.7 0.8
GDP Per
Cap. (US$)
23,000 42,000 82,000 102,000
Cargo (TEU) 7,499 773 625 237
Airport Pass. (mn) 200 120 130 80
% of Nat’l
GDP
11.8% 37.6% 9% 4.2%
Services (%
of GDP)
64.9% 82.3% 89.4% 82.8%

The Greater Bay Area: Introduction

Map: bayarea.gov.hk

The long-awaited Guangdong-Hong Kong-Macau Greater Bay Area (GBA) masterplan was released on February 18, 2019. As had been expected, the 59-page English translation reads like a broadly ambitious guide to how the region is expected to develop over the coming years, leaving more specific implementation details to be fleshed out by local authorities, albeit under the guidance of the central government.

Although short of detailed prescriptions, the document provides a glimpse into how quickly the region is likely to change in the coming years: by 2035, nine Guangdong cities plus the Hong Kong Kong and Macau SARs (“9+2”) should be the world’s leading “bay area”. This would involve roughly doubling the region’s GDP over the next 15 years, thereby surpassing Greater Tokyo, Greater New York and Greater San Francisco.

Continue reading The Greater Bay Area: Introduction