As Hong Kong seems to be continuing its descent irretrievably, and the US-China trade war seems to be inching closer to a ceasefire, it is worth stepping back from the fray and considering the short and long-term future for the Greater Bay Area, based on newsflow over the past week.
There are some key trends affecting the region that deserve better attention. First and foremost is what is happening to the country. China is decoupling from its technology-transfer relationship with the United States, which has benefitted it enormously over the past 40 years. Despite what happens in the current round of trade talks, the actions of Huawei Technologies in shuttering its US research arm this week speak louder than words. Huawei is just the most visible example of what is happening across the board: Chinese investment in the US is all but evaporating. It is not likely to recover in the foreseeable future.
In every crisis, there is opportunity. This sad reality means Shenzhen and the rest of the Greater Bay is poised to receive a flood of policy-related support from the central government, as well as good old cash. If China can’t rely on Silicon Valley, it is going to have to create its own. Progress is not going to stop; there are still 400 million people waiting to be lifted out of poverty, and 800 million that are waiting to get their fair share of Prada’s Fall Collection. The best place to create a Chinese vision of Palo Alto-San Francisco is the 9+2 cities of the GBA.
There were two key events this week that took place to support this view. The first was the minutes of a meeting held by the country’s chief agency responsible for Reform and Opening, the CCCDR. Never heard of it? It’s chaired by the Chairman, and it announced 11 key measures to bolster economic reform. No. 10 was: “Supporting Shenzhen to become a pilot demonstration area for socialism with Chinese characteristics.” In plain English: Shenzhen is going to start testing some pretty radical reforms. Again.
In our view, this is long overdue, but it is welcome nevertheless. It is as clear a declaration as is needed that Hong Kong cannot be relied upon any longer, and that Shenzhen is going to have to lead the way in implementing the legal and (daresay) political reforms necessary for China’s step up to the next level of its economic development. China cannot build a Silicon Valley if it doesn’t have the legal and political structures to support its growth. The leadership recognizes this. Yeehah.
The second event this week to suggest the GBA is poised to capitalize on the relocation of the tech center of the universe was the announcement that Shenzhen will qualify for subsidies from the central government to keep its housing rental market subdued. You can’t build a talent magnet if it’s too expensive. As we said, there’s policy support and then there’s redback support. Both are welcome, and we expect both to keep flowing.
The second key trend affecting the GBA that came into sharper focus this week is happening at the local level. Hong Kong is crumbling. The idealism that has held One Country, Two Systems together in the minds of many for 22 years is disappearing. Chinese media are now openly broadcasting what is going on in the city – selectively, of course – in anticipation of the central government asserting its control more overtly. For many, including us, this is sad. But it appears that we are moving inevitably toward the ending of what was once widely seen as a promising experiment. It is time to face this reality, and consider what comes next.
What could Hong Kong become? The pessimists will say, “Just another mainland city.” The optimists would say, “More like China, less like the UK.” Somewhere in between, but closer to the optimistic side of the scale, is the most likely outcome we see. Which means? In the wider lens: less focus on individualism, more on communism. At the micro level: Shenzhen races to catch up quicker to Hong Kong’s standards of efficiency in its capital markets and courts, while Hong Kong continues to have a functioning offshore currency and company registrar.
That doesn’t mean Hong Kong will be easily forsaken by the central government. It just means that priorities will have to be shifted around.
This is a fast-developing story, of course. Let’s see what happens this weekend in Yuen Long.