40 years on from China's first efforts to open up the economy in the form of the Shenzhen special economic zone (SEZ), the country is poised to replicate that success on a grander scale.
The Greater Bay Area (GBA) initiative aims to unite nine cities in Guangdong province and the special administrative regions of Hong Kong and Macau in an SEZ of sorts to leverage the region's massive potential and rival similar hubs in San Francisco, New York and Tokyo as a driver of economic growth.
The reasoning is clear. The GBA accounts for only 0.6% of China's land area but hosts 5% of the total population, and contributes 12% of the country's GDP. In 2017, the combined GDP of the GBA was US$1.83tn, and the region is set to be the largest economy of its kind by 2020.
Home to more people than the Tokyo metropolitan area, the world's largest in terms of total population, the GBA represents a massive domestic market thanks to a rapidly urbanising and increasingly wealthy consumer base. It is also emerging as a lynchpin of global trade as it is expected to play a key role in China's ambitious Belt and Road Initiative, which will eventually connect markets across Asia, the Middle East, Africa and Europe.
Foreign investors looking to launch or expand operations in China, as well as Hong Kong and Macau companies aiming to enhance operations on the mainland, can benefit from the GBA's many strengths.
Infrastructure and innovation
The region offers companies a highly efficient and steadily improving supply chain, with access to three of the world's top 10 busiest seaports, and a network of expressways, high-speed rail and airports connecting the cities to each other, the rest of the Mainland and the world. Recent major enhancements to connectivity include the 42km-long Hong Kong–Zhuhai–Macau bridge - the world's longest sea-spanning bridge – in the Pearl River Estuary, as well as a new high-speed rail network linking Hong Kong to the mainland.
The GBA provides a platform for various industries to thrive. Guangzhou counts its healthcare and biotech sectors among its main strengths, while Hong Kong's credentials as a global finance hub and the world's largest offshore renminbi financing centre are well established.
Shenzhen, a former manufacturing powerhouse, has taken on the mantle of China's high-tech and innovation engine, home to global giants like Tencent, Huawei and ZTE. Neighbouring cities such as Huizhou and Zhuhai are sophisticated manufacturing centres. Macau, already the world leader in casino revenues, is keen to take on the role of a tourism and leisure industry capital.
The region is also home to several universities that foster advancements and provide a steady stream of skilled talent to local businesses. As of 2015, the R&D expenditure of the nine mainland cities in the GBA accounted for 2.7% of China's GDP, nearly matching those of the US (2.8%) and Germany (2.9%).
The GBA's infrastructure and industry opportunities are being complemented by a range of policy and tax incentives. GBA-area free trade zones provide tax relief in the form of double taxation agreements, tax credits for companies in green and high-tech industries, as well as various government incentives and subsidies. Individual income tax benefits are also available to workers in specific sectors such as finance and technology, helping businesses attract global talent.
And crucially, the regulatory transparency and operational efficiencies of the various GBA jurisdictions benefit foreign investors by expediting the incorporation of their companies in the region and facilitating day-to-day operations.
Coping with challenges
The GBA's rise will not be without challenges.
China's trade dispute with the US carries significant risk and the potential to have a longer-term impact. Higher tariffs can increase manufacturing costs, hurt demand and weaken businesses in the GBA's export-oriented economy, at least until domestic demand can pick up the slack.
China's capital controls, its relatively opaque policymaking system, and the mosaic of legal, tax and governance structures across Guangdong, Hong Kong and Macau, are also challenges that foreign investors have to cope with. Companies may want to consider engaging the help of a partner with strong expertise and a presence across the GBA to help navigate these challenges.
Working with a service provider such as TMF Group, that understands the various company establishment processes in the region as well as discrepancies among local accounting, tax and regulatory frameworks, can help businesses select the optimal locations and business structures for their operations, and take full advantage of the various benefits and incentives emerging across the GBA.
It is clear the trade dispute and other short-term headwinds will do little to derail China's overall reform drive, or the GBA's emergence as an increasingly integrated zone boasting opportunities for companies from Asia and farther afield.
As President Xi Jinping noted recently in Shenzhen: "China's reform and opening up will never stop. And China will have more achievements to impress the world with in the next 40 years."
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