Nobody likes a trade war. However, if one had to look around the country at the moment, trying to decide where is the best place to park an investment while the China-US relationship heads south, the Greater Bay Area is probably it. Now that all of the region’s 11 cities have reported quarterly results, a few things have become clearer that should allow for confidence among investors. This is not to try to sound cheerful at a funeral, or to feel relief at being less miserable than the neighbors, but there are reasons to be relatively more optimistic here.
The first is that emerging technologies and higher value-added industries are replacing traditional industries in the region’s production machine. It’s not yet the futuristic industries of AI, autonomous vehicles, or robotics that have sustained growth in the Bay recently while the external environment has deteriorated; it’s “advanced and high-tech manufacturing industries”, which are doing better than anyone would have anticipated when the year began. In Dongguan, for instance, it’s smartphones, where Huawei, Oppo, and Vivo saw sales surge in Q1, pushing their home city’s GDP to 8.5% YoY growth. In Shenzhen, it’s tablets, exports of which grew 50% YoY in Q1 and helped keep the region’s biggest economy growing at a rate of 8.1% – a rate that Shanghai would have dearly liked. In Guangzhou, meanwhile, “emerging industries” now contribute nearly 20% of GDP. Thanks to these drivers, which are doing well at home, gaining market share under pricing pressure in the traditional export markets of the US and Europe, and developing new markets in Africa and South America, the region is performing well above the national average. Guangdong, far from being hit hardest by US tariffs as many media had predicted when the China-US conflict broke out, actually increased its share of the country’s foreign trade in Q1. The GBA makes stuff. It makes this stuff better than anywhere else. Tariffs are going to hurt; but the GBA is taking the opportunity to learn from the pain and climb the chain.
The second reason for cheer is that this is the part of China where the private sector is kicking in the strongest as the country rejigs its economic model. Investment levels here are rising sharply, led by tech behemoths, or wanna-be tech behemoths like Country Garden and Evergrande, the country’s two biggest property conglomerates. The government is doing its bit, for sure, with infrastructure spending continuing at a strong pace. But it’s also increasingly getting out of the way. Every municipality is thinking long term, and thinking big. Tech parks, special zones, futuristic industrial clusters: the GBA has ‘em in abundance. And they are all a short hop away from Hong Kong’s international equity and debt markets.
The third is the resilience of the consumer. This is the richest region of China, and its consumer class is taking up the call to go on holiday more often and spend more on themselves rather than hoarding their fen. Macau and parts of Guangdong had record visitor numbers over the recent Labor Day holidays.
Like the business mantra goes, the best time to implement change is when facing a crisis. The GBA has some strong leadership around its 11 cities. And the door is opening wider to them despite this trade war dragging on. It’s going to get harder before it gets better, but there is lots to be optimistic about down here on the southern tip of China..