GBA: more than the next Silicon Valley

A new high-speed rail linking Hong Kong into the mainland China network-  together with a 36 kilometre long bridge connecting Hong Kong and Macau -  are just two of the ambitious engineering projects in China’s Greater Bay Area (GBA) – a location increasingly dubbed the ‘next Silicon Valley.’

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Yet these mega-projects do more than offer a – literally - concrete symbol of China’s efforts to integrate Hong Kong and Macau with the mainland: they are indicators of a broader strategic vision to help reform the economy, enhance competitiveness and move China up the value chain through a domestic focus on consumption, innovation, finance and trade.

"“The Hong Kong-Zhuhai-Macau Bridge… is the length of 50 Sydney Harbour Bridges end-to-end”

Scale of ambition

The “Greater Bay Area” refers to a Chinese Government initiative to link the 11 cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zohongshan, Donnguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub.

As is often the case with China, the scale of the ambition is difficult to comprehend for a country like, say, Australia with just 25 million people.

The Hong Kong-Zhuhai-Macau Bridge (which opened to traffic in October) is the length of 50 Sydney Harbour Bridges, cutting the Hong Kong to Zhuhai journey from four hours to just 30 minutes.  Integrating nine mainland cities along with Hong Kong and Macau, the GBA encompasses almost 68 million residents. With a combined GDP of $US1.56 trillion it is $US240 billion larger than Australia’s GDP.

The GBA is one of 19 “city clusters” in China and one of three the central government is building into a world-class cluster by 2020 - by which time it’s predicted that its economic output will be comparable to the Tokyo Bay.

By 2030, it’s predicted to surpass New York, the largest bay area in the world.

The development of the GBA presents massive opportunities for domestic and foreign investors but this is not guaranteed. The diverse collection of cities entails enormous complexity; different road regulations and rules of law mean the intricacy of the GBA is as astounding as its scale.

City clusters

There is nothing new about this ‘super-cluster’ approach. The Asia Development Bank (ADB) has argued city clusters enhance productivity to at least 2-3 times that of the non-urban areas.

The contribution of city clusters to the global economy is considerable. Silicon Valley and San Francisco boast an economy the size of Thailand, New York’s approaches Canada.

These clusters share several common traits – all have a thriving services sector, solid transport infrastructure, top-ranked universities, access to a world class financial centre and an active innovation hub.

This model is increasingly popular across other developing nations. Take India’s Bangalore, among the largest technology clusters in the world.

Comparative advantage

What sets China’s Greater Bay apart is the breadth and scale of skills and services encompassed by cluster. Each of the 11 cities offer distinct strengths and a strategic combination of diverse yet complementary advantages.

The region can draw on strong manufacturing bases in Dongguan, Guangzhou and Foshan. Shenzhen (the home of Huawei and Tencent) offers advanced manufacturing, IT and strength in innovation; Hong Kong is a global financial capital, asset management and offshore RMB hub. Macau is a global tourism and leisure mecca.

Down by the GBA

As an international financial centre, Hong Kong has developed sophisticated financial infrastructure and systems which should facilitate the GBA’s integration into the global financial market. The city can continue to support China’s capital account liberalisation and RMB internationalisation.

Shenzhen is now the headquarters of several high-tech and internet companies; high-tech exports have already started to predominate in trade.

This fast-growing technological innovation lifts demand for high-tech talent. The resulting hiring boom lifts salaries, driving talent to acquire skills and move to the city for higher paying jobs. At the same time, Hong Kong provides a great source of talent with higher education qualifications.

With the shrinking salary gap and shorter commute time between the cities, talent will be more willing to consider taking up positions across the border.

- Ivy Au Yeung, CEO of ANZ Hong Kong 

Australian opportunities

Recent analysis by AustCham Hong Kong and KPMG identified a number of key opportunities for Australian businesses in the GBA. These range from innovation and technology to data management, infrastructure and construction, manufacturing, financial services and arbitration.

Education – along with research and institutional links - may be another significant opportunity that Australian providers cannot ignore.

To attract world-class talent, the GBA will need internationally recognised secondary qualifications for children of expatriates such as the Victorian Certificate of Education; a program which has been completed by more than 4000 students in China since 2002.

One country, two systems

So, what hurdles could this ambitious vision face?

Infrastructure and physical connections between cities are not a problem - the key obstacle city clusters face all over the world is fragmentation.

City clusters often suffer due to the complexity and difficulty of meeting the needs of different administrative stakeholders - each with independent authority over tax and budget systems, land use planning, transport infrastructure and traffic management, industrial park developments, open space planning and environmental protection, and even labour markets. In the case of the GBA, there are also different traffic laws, dual legal systems and three separate tax regimes.

While the complexity arising from the GBA’s one country, two systems environment does increase administrative complexity, it also creates significant opportunities for foreign investors.

For example, companies can use Hong Kong as the gateway into the GBA by taking advantage of its international financial centre for fundraising and its IP protection laws; in the 2018 International Property Rights Index, Hong Kong SAR ranked 17th globally with a score of 7.849, compared to China’s rank of 52nd with a score of 5.904.

The next Silicon Valley?

The ambition behind the GBA reflects what has been achieved in Silicon Valley over the past 40 years. In the 1970s, Silicon Valley was still in its infancy and was yet to become the internationally recognised epicentre of the computer industry.

Companies like Atari and Apple were just starting, others were still ideas in basements dotted around Silicon Valley. Today it is almost a $US3 trillion economy.

While the GBA’s complexity and scale are beyond that of Silicon Valley, there are similar lessons for Australian companies looking to Asia for opportunities. Just as few businesses were alive to the potential of Silicon Valley in the initial years, those that moved early like Apple (founded in 1976) and Oracle (founded in 1977) found, as first movers, they had significant opportunities.

To move early on opportunities in the GBA, Australian businesses need to be on the ground. The knowledge, relationships and ability to adapt that come with being on the ground (whether or not the business opportunity succeeds or fails) is what will determine whether Australian business win overseas in the long run.

Philomena Leung is Professor of Accounting and Governance and Associate Dean International Engagement at Macquarie University. Luke Hurst is the Director of Research and Information at Asialink Business, the National Centre for Asia Capability.

This article draws on insights from a recent business forum on the GBA, curated by Asialink Business in collaboration with Macquarie University. 

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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