Co-ordinated development – The gateway to the Bay Area Development

The Guangdong–Hong Kong–Macao Greater Bay Area (the Greater Bay Area) has been an enduring growth pole for global economic development and a source of new technologies, industries and business models, as well as a hub for innovation and development. The Greater Bay Area is a ‘9+2’ urban agglomeration formed by nine cities in Guangdong Province – including Guangzhou, Shenzhen, Zhuhai, Foshan and Dongguan – and two special administrative regions, Macao and Hong Kong. A vital driver of regional economic growth, it is China’s gateway to fully implementing the policy of ‘opening‑up’. 

The Greater Bay Area possesses an advanced port infrastructure, comprehensive industrial clusters and a highly developed urban mass, and forms a high-quality habitat and innovative ecological resource network, with prospects of becoming an economic bay area of world-class status. Promoting the development of the Greater Bay area is of great strategic significance, and will deepen the integration of Hong Kong, Macao and mainland China, drive forward the development of the Pan-Pearl River Delta (Pan-PRD) and aid the construction of the Belt and Road Initiative (BRI). It will broaden China’s influence by spearheading a new round of innovation and development and a new type of globalisation through the construction of a highly competitive innovation centre.

The key to the construction of the Bay Area Development is to achieve mutually beneficial co-operation and co-ordinated development. Co-ordinated development emphasises the ideas of making up for weaknesses, of opening up and advocating interaction to achieve common prosperity and promote cross-regional capacity and competitiveness. However, deeper integration within the Bay Area Development is currently challenged by conflicts between regional departments, and ingrained institutional and cultural differences. Therefore, Guangdong, Hong Kong and Macao must build a mechanism for regional integrated development and institute an over-arching plan. This requires allowing full rein of the market in resource allocation and inviting enterprises to collaborate with the government in policymaking to dismantle regional co-operation restrictions and administrative regional barriers, and release the systemic dividends of the ‘one country, two systems’ policy. Based broadly on a regional integrated development mechanism, this policy in the Greater Bay Area should enhance multifarious co-ordination in exerting innovative potential and competitiveness, for example, by optimising the industrial structure, enhancing talent aggregation, improving financial services, promoting innovation and co-operation, continuing and reinforcing opening up and strengthening infrastructure interconnection – thereby jointly building a world-leading bay area city cluster. This article proposes six suggestions for transforming the Greater Bay Area into a leader among global economic hubs.

1. Encourage joint development. Industrial division should be enacted only on the basis of complementary advantages – core cities can establish themselves as leaders, but the comparative advantages of other cities should be recognised. A systematic industrial chain offering the benefits of sharing should be cultivated. Each city in the Greater Bay Area has different advantages in resources and function, so huge potential exists for synergy and complementarity. This combination of factor endowments and industrial strength will lead to a multilevel and diversified urban industrial division and synergy system, and raise the level of industry convergence. It will encourage joint development in the region and create a community of mutual benefits and common prosperity. To strengthen the agglomeration and spillover of economically beneficial effects from the core cities, a transferral should take place of some industries from metropolitan cities to small and medium-sized ones. This will drive the formation of specialised industrial clusters in the surrounding areas and thus build three comprehensive and co-ordinated chains for industry, technology diffusion and market division. Priorities include augmenting Hong Kong’s position as the nucleus of the financial, shipping and trade circles of the Greater PRD; building Shenzhen into a high-quality industrial innovation centre at the heart of China’s own ‘Silicon Valley’; and securing Guangzhou as the core regional manufacturing, science and education centre and benchmark for intelligent manufacturing and the regional/education/cultural tourism industry. Great efforts should be made to upgrade industry and prioritise high-end manufacturing and modern service industries through intensive division and co-operation, replacing the past concept of the ‘world factory’ with the new ‘intellectual economy’, and advancing Guangdong, Hong Kong and Macao to the top of the global high-end industrial chain.

2. A platform for talent exchange. A talent development strategy should be implemented in the Greater Bay Area to jointly cultivate diversified talents and build a platform for talent exchange. Talent flow and creativity must be encouraged via a better, more mobile intellectual mechanism across regions and industries. Talent is the strategic resource for realising national rejuvenation and besting international competition. To gather more high-quality talent, the Greater Bay Area must address regional differences and remove restrictions on talent mobilisation, joint talent cultivation and talent exchange. First, it is necessary to deepen co-operation in the education sector in the Greater Bay Area by integrating high-quality educational resources and permitting private capital access to it. Newly formed university clusters should use their knowledge, skill and innovative capability to train talent. Second, an inter-
regional talent exchange platform should be established to create diverse student-exchange programmes, explore mechanisms for mutual recognition of academic credits and degrees, and encourage young people to participate in academic exchanges and co-operation in research and development across regions and disciplines. At the same time, institutional arrangements that support the flow of talent and solve the cross-regional and cross-industry barriers created by the two systems policy must be streamlined. A high-end talent settlement, housing guarantee and green-card clearance system should be instituted, and free-flowing and optimised human resources allocation in the Greater Bay Area facilitated. The Greater Bay Area will be an open, free, inclusive and harmonious social and cultural environment that is a high-quality habitat, is business-friendly and will attract more international and versatile talents.

3. Systemic financial improvement. The Greater Bay Area should boast an improved financial regulatory system, and promote and strengthen the co-ordinated development of its financial markets. Healthy financial development will allow the economy to thrive. Two-way liberalisation of financial markets must be accelerated and the integration of elements such as trade, technology and manufacturing into finance should be deepened. Co-operation between financial institutions in Guangdong, Hong Kong and Macao should be promoted, including interconnectivity of financial markets, mutual recognition of products, mutual exchange of financial infrastructure, interaction of financial talents and enhanced compatibility of regional capital markets. Making full use of its advantages as an international financial centre, Hong Kong should be considered as an interpreter and a converter in resolving the differences between domestic and overseas financial systems. The two major domestic and international financial markets should be closely connected with Hong Kong, and all financial resources must be efficiently utilised. The connectivity mechanism in capital markets such as the Shenzhen–Hong Kong Stock Connect, the Shanghai–Hong Kong Stock Connect and the Primary Equity Connect should be aided to allow Hong Kong and Macao’s financial service agencies to enter markets in the Chinese mainland, assist mainland China companies’ listings in Hong Kong and promote the two-way opening‑up of capital markets. This will advance the utilisation of digital financial technologies such as the internet and big data, expand cross-border electronic payment services, increase cross-border renminbi transactions, and promote the free flow of goods and currencies. The mechanism of financing and financial risk regulation should be improved by enhancing co-ordination and co-operation in regional financial regulation, promoting linkage and data exchange between financial regulatory information systems and laws and regulations, and establishing better information exchange among individuals and enterprises in the credit reference system. 

4. Collaborative innovation. A mechanism for regional co-operation, collaboration and innovation should be established to strengthen in-depth co-operation in production, learning and research, integrating resources for regional innovation and stimulating the innovative vitality of entrepreneurs. Collaborative innovation is key to the co-ordinated development of the Greater Bay Area. Already, it possesses great potential in innovation because of its high number of top universities and scientific research institutions, its mature and highly experienced industrial cluster, its complete industrial chain and large manufacturing capacity. However, the main innovators often fail to co-operate and interact. Therefore, to release the bottleneck that hinders the rational flow of innovative elements, the logical allocation of innovative resources, complementarity of innovative functions and potential to mobilise various types of innovative entrepreneurs should be utilised. The Bay Area Development must broaden co-operation between industry, academia and research, and promote a winning combination of knowledge and technological innovation to jump-start innovative capability, innovative efficiency and the market value of technological achievements. 

An open innovation system will be established in the region to strengthen the introduction and application of scientific research achievements by domestic, international and multinational corporations. Cross-region innovative alliances and innovation centres will also be at the top of the development agenda to help Chinese mainland enterprises develop cross-region business. The Greater Bay Area should combine Shenzhen’s strengths in entrepreneurship, innovation and technological achievements with Hong Kong’s in invention and financial services, and Guangdong’s in manufacturing to accelerate the cultivation of its influential core technology, brand advantages and business model. Full use should be made of the leading role of large scientific and technological enterprises in encouraging regional innovation and co-operation in small, medium-sized and micro‑enterprises. 

5. Strategic interlinking. The Greater Bay Area’s regional advantages should spur on the construction of bonded areas and a free-trade zone, and more intertwined internal and external linkage to serve the BRI. Opening up and interaction are integral concepts to the development of the Greater Bay Area, and an impetus for propelling it to world-class status. The global stature of its aviation and shipping markets entitle the region to become an international integrated hub. The Greater Bay Area also enjoys a superior geographical position in both its bay and its vast economic hinterland. As the heart of the Maritime Silk Road and the main driver of the Silk Road Economic Belt, connections between home and abroad, via sea and land, can be realised via the construction of the BRI in tandem with the Greater Bay Area. If the Greater Bay Area acts as a bridge linking China with the countries along the BRI, it should become a productive service hub for the BRI and an integrated transport hub in the Asia-Pacific region by establishing an international mechanism of dialogue and exchange, and a platform for economic and trade co-operation. The Greater Bay Area’s cities should also be encouraged to strengthen strategic linkages with countries along the BRI and develop international co-operation in industries, energy sources, finance, technology and services. The Bay Area Development must improve the modern freight logistics system, strengthen the integrated functions of international trade, facilitate trade and investment, and further liberalise the investment and trade policies on the basis of the existing Mainland and Hong Kong Closer Economic Partnership Arrangement, free-trade zones, special economic zones, state-level new zones and comprehensive reform pilot zones. With the preferential policy of Hong Kong’s free port to the Chinese mainland, the opportunity should be seized to transform the Greater Bay Area into the largest bonded area and free-trade zone in China, and achieve trade liberalisation and market integration between mainland China and Hong Kong. The Greater Bay Area should embrace globalisation to create an internationally compliant business environment to further enhance its internationalisation.

6. Infrastructure interconnection. Integrated infrastructure in the Greater Bay Area should increase the accessibility of land, sea and air networks, facilitating efficient and unlimited flow of various production elements. The governments of Guangdong, Hong Kong and Macao should make comprehensive cross-
region plans for a transport system, manage major road transport infrastructures and optimise the spread of transportation networks such as expressways, railways, urban railways and inland waterways. Commuter lines around the Hong Kong–Zhuhai–Macao Bridge should be harmonised, and relevant services such as traffic and border control, ports, ecology, and communications and signalling optimised. It is necessary to simplify customs clearance procedures in Hong Kong and Macao, establishing a ‘one-hour living area’ in urban agglomerations through internal and external connectivity. To enhance efficient and effective information services, the Bay Area Development will further develop information infrastructure and build a shared information network. Sophisticated technologies such as logistics networks, big data, cloud computing and artificial intelligence should be introduced into traffic management systems to establish the Greater Bay Area as a world-class harbour terminal and a global shipping centre. Once this is achieved, the harbour area and airport complex will supply a superlative international business service and ceaselessly spread its economic benefits throughout the region.

This article is part of The IFF China Report 2018, which draws mainly on content provided by China-headquartered think tank, the International Finance Forum, and is published in association with Central Banking.