Tag Archives: special economic zones

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.

Hengqin plan is game-changer for Macau

Hengqin, the special economic zone opposite Macau’s Cotai casino district, has been turned into a bold new experiment. Macau will essentially take over the daily management of the zone from Zhuhai, but will have to consult the provincial government on major policies.

The zone will be jointly managed by a committee, but Macau will be in the driver’s seat: This is clear from the fact that Macau will appoint the Executive Deputy Director of the zone’s management committee. Although Macau’s CE and Guangdong’s governor will be co-heads, the EDD will run the show on a daily basis. The language of the announcement makes it seem like this is a JV, but really this is Macau’s project. 

There is much talk about diversification, with hi-tech industries, including manufacturing, and financial services being given lots of ink. But tourism is still the key. The plan makes no mention of the gaming concessionaires, and the tourism section calls it “cultural tourism”. But make no mistake, what this means in practice is that SMEs will get subsidies to pursue tech ideas, most of which will flop, and the banks will be able to build up some wealth management products in Hengqin, but the only projects that will actually make money will be in tourism, and so they will get the lion’s share of attention and resources.

This will take time, however: No one should expect a press release on the casinos being given a role in Hengqin before the concessions are renewed next year. The deadline for getting the management committee fully functional is only 2024. The goal for integration to be fully realised is only 2035.

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Qianhai to grow 8X, boosting property developers

Shenzhen has decided to widen the administrative boundary of its Shekou Qianhai special economic zone, promising to speed up long-promised reforms in financial services and use the zone as a test bed for further opening the country to international capital flows. Yet what this really is, is a property play.

Here is the SCMP story on the initial announcement, which is full of commentary about how this announcement is a massive win for Hong Kong and should be seized upon by Hong Kong businesses, which currently only account for around 10% of all investment in the zone.

This follow-up story gushes further, adding assurances that lots of experimental stuff will be happening in Qianhai, and that one-third of the newly-vacated land will be set aside for Hong Kong investment.

However, a few days later, another SCMP report hit the nail on the head: the biggest beneficiaries of the new plan are the state-owned property developers with the largest land banks in the area: China Merchants, Grand Joy, and Shenzhen Metro.

It also notes that property prices now have to deal with cooling measures being implemented across the country, which has resulted in a “cap” being placed on the Qianhai market that is 7% beneath the level reached at the most recent land auctions.

That is just for residential. Office vacancy rates in Qianhai have been climbing steadily since 2014, and now stand at around 23%. This is nearly three times higher than in Hong Kong, which has been hammered in recent years by a combination of protests and Covid-19. And yet officials say the reason they are expanding Qianhai is because it lacks room to grow?

Macau discusses Hengqin integration

Macau’s integration with neighboring Hengqin New Area under the GBA masterplan appears to be picking up after a high-level meeting was held between Macau and Guangdong last week. Macau Chief Executive Ho Iat Seng spoke of several areas of practical focus between the two sides after meeting his counterpart, Guangdong Governor Ma Xingrui, according to local media.

Foremost of these was the joint development of an area on Hengqin, yet to be formally defined, called the Intensive Cooperation Zone. It is not yet clear how this zone-within-a-zone will be governed, but it is possible that Macau law might be extended to it. This would be groundbreaking if it happens, as no such plan has yet been proposed for either of Guangdong’s two other New Areas ­– in Guangzhou’s Nansha or Shenzhen’s Qianhai. (Read our backgrounders on all of Guangdong’s zones, as well as specifically Nansha and Qianhai.)

What makes Hengqin more important to Macau is that the SAR is running out of space for development. Its current 20-year masterplan (2020-2040) does include land reclaimed from the sea, but nearly all of it is earmarked for residential development. Hengqin, opposite the casinos on Cotai, is seen as a place to expand industries and business – with some space already set aside for non-gaming tourism, Chinese medicine, technology, and the MICE industry, among others.

Read more on Asia Gaming Brief.

Greater Bay Insight provides bespoke consulting services for anyone interested in a deeper dive into Hengqin. We have a detailed report showing all available land usage approvals, as well as an analysis of Hengqin as a potential investment destination. Contact us for more details.

Zhuhai, Shenzhen launch new promos

On the eve of their 39th anniversary (officially) as China’s first special economic zones, both Shenzhen and Zhuhai have launched concerted efforts to portray themselves as “international” cities. These are noble efforts, and the slick videos they have produced are well worth watching.

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