The Greater Bay Area’s masterplan is not yet a year old – it began on the auspicious date of 02/18/2018 – and yet it has become economic scripture, cited by officials and entrepreneurs throughout the region’s nine cities and two Special Administrative regions. This is not only because of the top-down way China is governed. It is also because the GBA plan is a well-researched and concisely written 60-page document. The vision it lays out for the region’s integration is clear, and the priorities it lays down for the governments of Guangdong, Hong Kong and Macau are coherent. As the GBA leaves behind a difficult 2019 and moves into an uncertain 2020, it would be fair to say that a good start has been made along the road to 2035, thanks to a clearly marked roadmap.
It is far from perfect. As the military mantra goes, no plan survives contact with the enemy. The GBA plan could never have anticipated, for instance, that socio-political turmoil would consume Hong Kong, barely a month after its launch. Neither could it have expected the US-China trade war to deteriorate so sharply and drag on for so long. Nor could it have forecast that industrial upgrading might hollow out some city economies quicker than they would have liked, especially in Shenzhen, where factory relocation helped clip a full percentage point off GDP in the first three quarters of 2019; or in Jiangmen, Zhongshan and Huizhou, where traditional industries, like old habits, have not been easy to change.
Yet these were all implementation details that the plan was not supposed to have imagined. It was supposed to have got the ball rolling, and it was supposed to have ensured that all its constituents knew what to aim for. This, it did.
Admittedly, as Year 2 of the masterplan looms, it’s a challenge to be upbeat about the region’s potential for closer integration, let alone stronger, sustainable regional growth. Trade has always been the GBA’s thing. This is the most open part of China; the most globally connected. Without trade firing on all cylinders, keeping the economic engines humming here has been, and will continue to be, a tough task. In this context, bringing down internal barriers to the movement of people, goods and capital has been a big ask, and will remain so for the foreseeable future.
Even without the trade war, disappointment was always likely once the GBA plan was launched. This is a Herculean mission. That is why it was planned out over a long-term timeframe which still has 15 years left to go. There is a long to-do list and not much precedent to follow.
It might have gotten off to a quicker start if the GBA’s leadership team had been fully staffed before launch. It still isn’t. This should come as no surprise, however: thanks to One Country, Two Systems, Vice Premier Han Zheng could hardly have been expected to put a Steering Committee in place quickly. Finding a full-time cohort of experienced administrators with the necessary political skills to integrate nine cities and two SARs is more complicated than putting up a few posts on LinkedIn. The best he could have been expected to achieve, which he did, was to get the leaders of Hong Kong and Macau to attend a few meetings in Beijing, where a modicum of progress was made on cross-border bread-and-butter issues.
If Han can get a GBA Steering Committee established, with a chairperson, this year, he will be deserving of a medal.
There are bigger fish to BBQ than that, of course. Never mind the challenges Guangdong faces in its ambitious industrial-upgrade plans, which will require far-reaching regulatory changes. Hong Kong’s Carrie Lam and Macau’s Ho Iat Seng have monumental work ahead this year to get their GBA projects moving. Lam has to overcome the resistance of a powerful property oligarchy; Ho has to contend with a shadow-banking sector which is probably larger than the real economy. Getting these vested interests to play ball within the GBA plan will require fortitude and perseverance.
There will undoubtedly be times ahead at which tasks like these seem impossible to achieve, like Sisyphus rolling his proverbial boulder uphill. Yet they should not detract from the progress that is being made in smaller, less noticeable ways. Schemes like the Insurance Connect and Wealth Management Connect, for instance, appear to be advancing, albeit more cautiously, in a phased approach, with the first phase including the establishment of after-sales centers in Guangdong for Hong Kong-based insurers. This is the kind of thinking that will likely spur progress in 2020.
Another example can be found in the slow but steady growth of traffic on the Hong Kong-Zhuhai-Macao Bridge. The 55km-long structure doesn’t need AI-monitored license plates for its users just yet. Cautiously adding license quotas, based on carefully monitored flows, however, is ongoing progress worth crowing about. Initiatives like this have a tendency to take on a life of their own, and likely will accelerate in 2020.
Similarly, Guangdong allowing Hong Kong and Macau residents the same hukou rights as locals in other GBA cities might not exactly have opened the floodgates to “talent migration”, yet, but floods cannot start without a trickle. More incentives for the best GBA people to go where the best GBA jobs are can likely be expected in 2020.
This is not to say that the GBA’s architects need to lower their longer-term ambitions. Even without Hong Kong being fully geared up, the region has many diversified strengths that can be drawn upon to keep progress going. Take Macau as an example. A year ago, few could have imagined what a blast of fresh air Ho Iat Seng has turned out to be. Macau becoming a more potent economic driver for the region is an unforeseen positive that should be watched closely in the coming months.
Or look at Dongguan’s two most impressive achievements of 2019: launching one of only four advanced neutron colliders in the world, and seeing cross-border e-commerce sales take off within months of setting up special bonded zones. This is a city that was renowned a decade ago for cheap knockoffs and dodgy karaoke palaces. It seems likely to continue pushing the boundaries of economic reforms this year and should remain the fastest-growing of the 11 cities – unless Zhuhai moves to warp-speed once the Hengqin Railway Station opens.
Another city worth looking at more closely is Foshan. It stumbled at the start of 2019, but recovered to see its economy grow 7% and punch through the 1 trillion-yuan mark by the end of the year. This kept it ahead of Dongguan in overall size and ranked third in Guangdong, behind Shenzhen and Guangzhou. Thanks to some astute industrial-upgrading efforts and far-sighted changes in its hukou policy, the momentum is there to see Foshan through 2020 at an above-average pace.
Then there is Guangzhou, which appears to be growing comfortably into its role as the administrative center of the GBA. It runs most of the region’s Intercity Railways, is the home of the country’s first Internet Court, and is driving the formation of a GBA International Bank. Meanwhile, the Baiyun International Airport is being built into a template of what aviation industry clusters can look like. Just as all roads in Europe and Africa once led to Rome, it seems clear that all road+rail networks in the GBA are being designed to lead to Guangzhou, with Baiyun destined to become the center of air-land commerce in southern China.
The city of more than 20 million people is no longer being seen as merely a heavy industry haven, either. Once chided for slipping behind tech-savvy Shenzhen, Guangzhou has established pioneering high-tech projects of its own, particularly the “Science City” rising in Nansha and the “Knowledge City” being built with Singaporean help in Huangpu. And its integration project with Foshan around the Guangzhou South Railway Station – a trillion-yuan behemoth – is just getting started.
Hong Kong woes to continue
To be sure, it would be nice if Hong Kong could rejoin the GBA’s party in the spirit that had been expected of it. The region needs Hong Kong for many special purposes, putting to use the skills and strengths it uniquely possesses. Its universities and think-tanks could yet contribute much to Guangdong’s industrial-upgrading needs. Its MICE sector could play a key role in promoting the GBA to a global audience. And its lawyers, accountants and other professionals could do better for the entire GBA as cross-border barriers to trade and investment come down.
None of these strengths have necessarily been lost to the GBA, despite seven months of mass protests. On the contrary, Hong Kong’s most important function within the regional plan, as a financial center, seems untouched. Alibaba restored some confidence with its mammoth IPO, which put the Hong Kong stock exchange back into the world No. 1 spot for IPOs. And despite panicky headlines about wealthy people moving assets to Singapore, the reality has been that financial flows into and out of China show no sign of being diverted via Singapore, or anywhere else in Asia. Rather, Trip.com, Netease, and other tech giants are lining up for their own secondary IPOs on the Hong Kong bourse.
Even better, a growing number of economists believe global portfolio fund flows are likely to start seeking higher-yielding returns from emerging markets again in 2020. China is still the world’s best emerging-market bet, and Hong Kong is still the primary channel through which this money will enter the country. The city’s financial sector should do just fine this year.
Perhaps most importantly, the rule of law, despite some scares, has held firm in Hong Kong. At one point, the National People’s Congress Standing Committee seemed poised to intervene in the Appeal Court’s review of the government’s face-mask ban. But then it didn’t. Hong Kong’s courts remain free from political interference.
While it is hard not to recoil at the sight of “Hong Kong is ON” ads in major global media, given the pain being felt by workers here as the tourism industry implodes, it is undeniable that Hong Kong remains a great place for multinationals to incorporate and run their China businesses. Social turmoil is for the masses to endure. The enduring solidity of contracts signed here is for businesses to appreciate. That is the sad reality of the situation. A thuggish police force doesn’t matter to share prices, as long as it is not being used as a blunt tool to settle commercial disputes the way men in blue uniforms often are in other jurisdictions.
This is not to blithely suggest that Hong Kong’s protests don’t matter at all. Hong Kong needs to get a better governance system in place for the longer term. The intention here is only to recognize near-term realities for what they are, and persuade readers to stop taking alarm at sensationalist proclamations that Hong Kong is “just another Chinese city”.
In sum, for those interested in pursuing opportunities in the GBA, or those wanting to understand what makes the world’s 11th-largest economy tick, 2020 is likely to be an interesting year. It will be full of challenges, again. But the drama that was experienced in 2019 is unlikely to regain its stranglehold on the public’s consciousness, despite the ongoing protests in Hong Kong.
Instead, as China passes landmark legislation to support the protection of intellectual property rights and opens sectors of the economy to wider private-sector participation, especially by foreigners, 2020 could be a year of unprecedented opportunity for investors looking at the GBA. It might not grow fast enough to overtake Canada and leap into the World No. 10 spot just yet, but this is still likely to be one of the best places in the world to be investing over the coming year.
Here are the Top 10 milestones to watch out for:
- Infrastructure will keep improving: New metro, intercity, and high-speed railway lines will open, bringing the GBA cities within a one-hour traffic circle, and linking them to the rest of the country. These projects will include, in particular, the Guangfo Line, connecting the whole of Foshan to the rest of the GBA via Guangzhou South; the Hengqin Line, connecting downtown Zhuhai to its special zone opposite the Macau casinos in Cotai; and key metro lines running north-south across Shenzhen and Guangzhou, and east-west across Dongguan.
- Industrial upgrading will continue: Cross-border e-commerce pilot zones will be expanded, which will rapidly take a bigger share of foreign trade as GBA manufacturers learn how to trade directly with consumers overseas; technology upgrades will continue to drive productivity improvements among traditional industries; and “innovation zones” will continue to attract venture capital with heavy government support, while private-sector giants such as Ping An, Tencent, Huawei and China Evergrande will pour resources into developing new technologies, preferably those that increase their independence from US supply chains. It should also be expected to see the Science and Technology Innovation Corridor gain more media coverage, especially as 5G networks are rolled out. However, funding all these initiatives will likely be even harder than it was in 2020, as the central government’s financial de-risking program continues.
- Qianhai, Nansha and Hengqin will lead deeper reforms: The region’s special zones will be at the forefront of change, especially in cross-border finance. Nansha will likely launch a new futures exchange focused on trading carbon credits; Hengqin will work with Macau on jointly administering companies within their zone that can trade the Renminbi more freely across borders; and Qianhai will experiment with legal, academic and other freedoms as part of Shenzhen’s new status as a Pioneering Zone for Socialism with Chinese Characteristics.
- The private sector will expand faster: Guangdong has a bigger percentage of its industrial output produced by private firms than the national average. Thanks also to the proximity of Hong Kong and Macau, the region is best positioned to take advantage of the central government’s determination to stoke the private sector by opening up more sectors of the economy to private firms. This is a good time to have a solid research partner on the payroll.
- New financing channels will open: This will be the year when talk of getting more financing to SMEs turns to concrete action. Guangdong’s 45,000 National-Level High-Tech Companies need funding, and the provincial government is on the case. It should be expected to see various new financing initiatives get under way, including the establishment of Macau as a viable center for trading RMB-denominated corporate bonds, as well as the completion of a feasibility study to create a new RMB-denominated stock exchange. Most interesting to watch will be the rollout in Shenzhen of a blockchain-based Digital Assets Exchange, aimed at allowing tech firms to securitize their intellectual property. It should also not be surprising to see Guangzhou launch its own STAR market like the one in Shanghai, aimed at getting unprofitable tech firms with talent listed quicker.
- Digital payments will explode: Shenzhen is where the new sovereign digital currency, known as the DCEP, is being tested. It should launch soon. Hong Kong, meanwhile, will see its coddled banking cartel blown open by the launch of eight new online-only banks, probably by Q2. These changes will cause pain to traditional banks, which employ tens of thousands, and will particularly come at the worst possible moment for HSBC as it struggles to shake off the ire of anti-establishment protesters. But they will unleash new energy among SMEs and likely bring Hong Kong more tightly into the region’s thriving digital economy.
- Hong Kong’s wealth gap will widen: Layoffs in the banking sector will exacerbate the unemployment situation in Hong Kong as its tourism industry continues to shrink. But the financial sector as a whole will keep growing. Saddled with high mortgages and rents, the newly unemployed will find it hard to get back to work, causing unprecedented pain in a city that has long been accustomed to near-full employment. It will take years before the government can claw back idle land from developers and build more social housing, even with the appointment of a new Liaison Office chief. In the meantime, the government’s revenues will plunge along with a decline in the property market. Lacking a diversified tax base and a strong leadership, the government will struggle to manage its economic crisis, despite having more than US$1 trillion in fiscal reserves. Recession is likely to continue this year, but the pain will not be equally felt, further fueling the anger of protesters.
- Macau will settle its casinos, but focus on Hengqin: Macau’s six gaming concessionaires will have at least some of their anxiety lifted when the government introduces a new policy platform, probably by March. It is likely to explain how and when it will launch the next round of bids for the concessions, which expire in 2022. But the government is not likely to spend much time thinking about the concessionaires in 2020. Its focus will be firmly on plans to integrate with Guangdong via a jointly administered area of land on neighboring Hengqin. Priority will be given to creating new sectors of growth, in order to diversify the economy away from gaming in the longer term. This means fast-tracking plans to build a financial center, and welcoming more mainland enterprises to use Macau as an international springboard.
- GBA’s GDP will grow 5% to US$1.65trn: Much depends on the renminbi exchange rate in this estimate, but the GBA won’t likely overtake Canada to make the world’s Top 10 list this year. Hong Kong and Macau are still a drag on growth, while the smaller cities of Jiangmen, Zhongshan, Huizhou and Zhaoqing will underperform, just as Guangzhou, Shenzhen, Dongguan, Foshan and Zhuhai will outperform. Industrial upgrading will still need some time to kick in for a region that is still heavily dependent on traditional manufacturers. But by 2021, the No. 10 spot should belong to the GBA, eh?
- Risks will come out of nowhere: Will SARS make a dreaded return? Will other meat-based food industries be hit by outbreaks of disease? Will war between the US and Iran send economic shockwaves around the world? These and many other as-yet unforeseen questions will undoubtedly be raised in 2020. The GBA is a highly internationalized, globally connected region. How it performs in 2020 is dependent on many factors beyond the control of the GBA’s masterplanners.
Editor’s note: We would welcome feedback from readers on this outlook for 2020. What have we missed? What do you see? Write to us or comment below.