Greater Bay Area gives full play to Hong Kong’s strengths
By Ding Heng
China is on a path towards building its own version of Silicon Valley, as it pushes ahead with the Greater Bay Area Initiative. The idea is to create a tech hub by facilitating the free flow of talents, goods, services, and other resources among Hong Kong, Macau, and nine mainland cities in the Pearl River Delta including Shenzhen and Guangzhou.
Some critics of the plan have argued that Beijing is attempting to erode Hong Kong’s special political status. More than 20 years after Hong Kong’s return to China, the mainland has significantly narrowed the economic gap with Hong Kong. Last year, for example, the GDP in Shenzhen overtook that of Hong Kong for the first time. And although Hong Kong introduced the Octopus card and installed a no-cash payment system in 1997, it is still largely a cash-based city today, whereas on the mainland, WeChat Pay and Alipay have rendered many stores virtually cashless.
Photo taken on August 25, 2017 shows a view of the world's longest cross-sea bridge, the Hong Kong-Zhuhai-Macao Bridge, under construction against Hong Kong's Lantau Island in the background. [File Photo: IC]
Hong Kong’s status as a special administrative region doesn’t mean it should be left to stagnate as development of the mainland gallops ahead. The Pearl River Delta is one of the most economically advanced regions on the mainland. If better integrating Hong Kong into this region so it can access more business opportunities isn’t a good idea, then I don’t know what is. And Hong Kong’s autonomous government and its business community don’t view the Greater Bay Area project negatively. Patrick Nip Tak-kuen, the official in charge of Hong Kong’s mainland affairs, is optimistic that Hongkongers will start to see the benefits of the project by 2022. At least two-thirds of the business and financial professionals surveyed last year by the Hong Kong arm of the global consultancy ACCA responded that the initiative will generate benefits for the city such as bigger markets for its industries and more job opportunities.
Hong Kong is an international financial hub on par with London and New York. Some 70 percent of the world’s top 100 banks have operations here. No other city in the Greater Bay Area can rival its capability for providing financial services. Although Shenzhen boasts its own stock exchange, its market is only about one-third the size of the Hong Kong Stock Exchange. There were nearly 2,600 startups across the Greater Bay Area in the first half of 2018, up from 445 in 2013, according to the startup data provider Iyiou. The focus on innovation and technology in the Greater Bay Area Initiative means that many more startups will sprout in the region, which will in turn create a large number of investment opportunities for Hong Kong’s venture capitalists and private equity fund managers.
Some of these startups will go on to become large companies that will seek to raise capital from the stock market to fund their development. As the Shenzhen-based financial services company Guosen Securities noted in a report last year, there are up to 35 unicorns – later-stage startups valued at more than 1 billion U.S. dollars – located in the Greater Bay Area, and more than 80 other startups in the region have the potential to become unicorns in the near future.
Tech companies usually favor a dual-class shareholding structure that gives top managers a larger say than other shareholders. In 2014, Alibaba decided to float on the Nasdaq mainly because Hong Kong’s equity market didn’t accept dual-class shareholdings. Last year, reforms of the Hong Kong market accommodated dual-class shareholding companies and pre-revenue biotech firms, which helped Hong Kong regain the global IPO crown it lost to New York the previous year. However, Hong Kong’s tech IPO ambitions have a new challenger – the new tech board at the Shanghai Stock Exchange. To make listings easier, the new board in Shanghai has adopted a Western-style registration-based IPO mechanism. To defend its share of the IPO market, Hong Kong should look to the vast number of private tech companies, and especially the unicorns, in the Greater Bay Area. As the region becomes more interconnected, it will make more sense for the region’s companies to float in Hong Kong rather than elsewhere.
The Greater Bay Area has a population of 71 million people, larger than that of Britain or France. The per capita GDP of Macau and that of Hong Kong rank among the global top 20. The per capita GDP of the mainland side of the Greater Bay Area reached 18,500 U.S. dollars in 2017, which would have put it in the 40th spot in the global rankings were the region an independent economy. Morgan Stanley forecasts that the economy of the Greater Bay Area will more than double from its current level by 2030. The region has tremendous wealth, and its wealth looks set to keep growing.
In addition to its finance sector, Hong Kong’s research institutes will also benefit from the city’s participation in the Greater Bay Area Initiative. In Silicon Valley, top-notch research projects at universities such as Stanford are the real engine of innovation. The Greater Bay Area boasts global top 100 universities, and they are all in Hong Kong. In the future, we may see an ecosystem where research from Hong Kong university labs is commercialized at Shenzhen’s tech companies and the products are made in cities like Dongguan where there is strong manufacturing infrastructure.
To some extent, Hong Kong seems to be gradually losing its advantage over the mainland in the realm of scientific research. In 2011, The Hong Kong University of Science and Technology (HKUST) ranked 41st in the world in the Times Higher Education World University Rankings, above Tsinghua University in the 58th spot. Last year, Tsinghua rose into the 30th place, and HKUST slid slightly into the 44th spot. The number of scientific papers to come out of Hong Kong is smaller than the number that comes out of either Shanghai or Beijing, according to Shenzhen-based think tank the China Development Institute.
If Hong Kong hopes to remain competitive in research, it seems increasingly necessary for its universities to engage with the mainland on a broader scale so they can make use of the mainland’s educational and academic resources. Some of Hong Kong’s universities are already moving in this direction. The Chinese University of Hong Kong set up a campus in Shenzhen in 2014. The HKUST is in talks with the Guangzhou city government and Guangzhou University over a plan to set up a campus in that city. And the government of Guangdong Province has announced that it will abolish administrative barriers that prevent research and development funds it provides from flowing into Hong Kong and Macau.
There will of course be some technical issues when it comes to deepening integration in the region. The mainland and Hong Kong have different laws, tax systems, and currencies. But if they can successfully tackle a project as mammoth as the Hong Kong-Zhuhai-Macau Bridge, then surely solutions can be found for these technical issues in the long run.
Note: Ding Heng is a current affairs reporter with China Plus.