GBA’s three big zones keep reform flame flickering

The provincial government has released a Five-Year Plan for the development of its three main special economic zones of Nansha (Guangzhou), Qianhai (Shenzhen) and Hengqin (Macau). It reads like a plan for a bygone age, but nevertheless makes clear that the GBA’s masterminds still see prospects for further “reform and opening” ahead.

The document is full of jargon, talking about the three zones being carefully aligned in their planning. In fact, they have missions that appear to be largely indistinguishable. The plan is for Nansha to be some kind of central point for the GBA, while Qianhai seems to be focused on working with Hong Kong, and Hengqin with Macau. Yet all three places already have major projects well under way that obviously overlap with each other in their objectives. For example, all three have so-called international arbitration centers; special incentives for Hong Kong people and companies; and a desire to be both “financial centers” and “talent magnets”. Nansha and Qianhai are major shipping hubs. All three love their tech plans.

Among the three, Hengqin seems to have the most realistic chance of success in the foreseeable future. Macau will pursue its “diversification” mission there with zeal for the next few years. Having lots of cheap land, plus a 15% personal and corporate income tax, should make it fairly easy to attract some big SOEs to set up subsidiaries in Hengqin. Adding another 600,000 residents should also be a cinch. Its office towers, now standing empty, should fill up quickly once Macau starts pulling in Chinese companies for smart manufacturing, medicine, and financial services (with a little help from Hong Kong). Its MICE industry, meanwhile, is sure to boom, as the casinos will be keen to sponsor events that enable attendees to receive special visas for Macau. And in the longer term, the casinos will likely be invited in to build more large-scale non-gaming resorts.

(GBI has a special 60-page report on Hengqin, which is distributed to consulting clients. Please get in touch if you are interested.)

Qianhai looks more like quicksand for Hong Kong investors. It is hard to see what the zone offers that cannot be done more efficiently in Hong Kong. The land is not that cheap, the arbitration center is still a work in progress that no serious international firm would use when they can rely on Hong Kong’s courts, and most financial firms are little more than admin offices. And there is no bullet train running there yet. Cross-border currency trading is already a thriving business in Hong Kong; why would banks and insurers need to set up in Qianhai as well?

Nansha, likewise, fancies itself as a future international financial center, with its Hengli “financial island”. But what is that besides a naked attempt to hollow out highly priced commercial real estate in Central? It might be in the geographic center of the GBA, but that also means that it is in the middle of nowhere. It is a long trip by MTR from downtown Guangzhou, and getting there by bullet train from Hong Kong is not yet easy. Nansha is a better bet as a hub for scientists, but even in this respect, it is hard to see it becoming international in a way that might draw resources from Hong Kong. Its real strength remains as a cutting-edge manufacturing hub, notably for electric vehicles, and as a port, for cargo running up to Guangzhou. In both areas it will compete hard with the expanded Qianhai, which now bleeds into Shenzhen’s hi-tech district next door.

In reality, China probably is long past the need for special economic zones. It should be conducting any experiments it deems necessary directly in the two Special Administrative Regions. Still, at least the provincial government is keeping the faith with the Reform and Opening agenda. It will be interesting to see how long its ambitions last under the country’s new twin drives of Dual Circulation Theory and Common Prosperity.

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