The Guangdong-Hong Kong-Macao Bay Area is already one of the most significant epicenters of economic output in the world, with enormous manufacturing capacity, rapidly growing financial centers and a huge talent pool.
Leveraging the different strengths of the cluster of 11 cities in the bay area is key to achieving the region’s overall prosperity, panelists told a China Daily Asia Leadership Roundtable on “Guangdong-Hong Kong-Macao Bay Area: Prospects for Hong Kong”, which was held as part of the 11th Asian Financial Forum in Hong Kong on Tuesday.
The bay area covers more than 56,000 square kilometers — larger than both the Greater Tokyo Area and the San Francisco Bay Area. It has a population of 67 million people spread across nine cities and two special administrative regions. With 1 percent of China’s land area, it recorded a GDP of US$1.3 trillion last year — 13 percent of the country’s total.
“The bay area is a national level strategy but different from other strategies, such as the Belt and Road Initiative,” said Zhang Yuge, director at the Center for Hong Kong and Macao Studies of Shenzhen-based think tank China Development Institute.
“It still has room for growth in terms of GDP per capita, tertiary industry ratio, the number of top global enterprises, as well as the cultivation of innovation in comparison with other developed bay areas worldwide.”
“The biggest, most important and most urgent problem to solve is the free flow of key elements in the bay area,” he said.
Solving these issues will be key to Hong Kong reaping the most benefits from the area’s growth. And, the key elements at play — the ones that need to move most freely — are talent and capital.
Attracting more capital to the area is an important challenge that must be addressed quickly, said Zhang.
“SMEs (small and medium-sized enterprises) in China have a lot of challenges when it comes to borrowing money from external sources,” said Susie Cheung, founder member and co-convenor of the Asia-Pacific Structured Finance Association. “Securitization is not the only means, but it’s an effective means to bring in capital.”
“For the enterprises in the bay area, the infrastructure projects need to attract revenue from institutional investors. We need to build up a pipeline of well-prepared bankable projects,” she said.
In this push to attract more capital and talent, Hong Kong could play a critical role in being the undisputed financial leader in the region.
“Hong Kong is a world-class financial center. Among the 11 cities involved in this initiative, Hong Kong stands out in terms of its capabilities in the financing arena, in equity financing and debt financing,” said Jing Ulrich, managing director and vice-chairman of Asia Pacific at JPMorgan Chase.
“Hong Kong can really become a leading financier for southern Chinese companies.”
Ulrich noted that more than half of the companies listed on the Hong Kong stock market at present are of mainland background. The mainland’s exposure to debt financing has also been increasing, accounting for over 30 percent of the total assets of Hong Kong-based banks.
A super-connected city
On top of being a leader in finance, Hong Kong is super-connected, has advanced and reliable technology with good ICT (information and communications technology) infrastructure, and also is home to many world-class accounting and legal professionals.
“Hong Kong can become an important knowledge hub, not just a financing center in the bay area,” said Ulrich.
Besides Hong Kong, Shenzhen’s rapid development has impressed the world. The city’s GDP has surpassed that of Hong Kong and Guangzhou.
“There’s some healthy competition as well among the bay area cities,” Ulrich added. “Hong Kong needs to work harder to avoid being marginalized.
Ginger Cheng, managing director and head of large and mid-cap corporates, institutional banking group, at DBS Bank (China) Ltd, told the forum: “This is an area where we’ve already seen rapid development in the past 20 years leveraging China’s open-door policy. This is the most market-driven area in all of China.”
“It’s evidenced by how the privately-owned enterprises in the region developed in the past year and have become global players,” she said.
Cheng thinks that a market-oriented culture is an asset for the bay area, and Hong Kong could tap into that.
“Hong Kong is already a leader in providing products and services to large companies via an equity capital market and offshore bond offering,” she added.
This year alone, the total bond issuance of mainland corporates reached a historical high of US$168 billion — almost doubled that of US$88 billion in 2016.
“Hong Kong probably needs to think of more innovative financing products and solutions for SMEs in China, as well as startups,” said Cheng.
Hong Kong Exchanges and Clearing — the city’s stock market operator — has already made some progress by moving toward allowing biotech and healthcare companies without profit track records to be listed in the local stock market.
“Hong Kong took up half of the imports of the bay area in the past three years, and the bay area took up about 60 to 70 percent of the total imports of China. This is a huge asset,” said HNA Innovation Finance Group’s Chief Innovation Officer, Ding Lei. “The ratios for export are relatively lower but increasing.”
“With such a huge imports and exports size, there’s still a lot of space for development based on commodities, warehousing and logistics that are related to the real economy,” said Ding.
A challenge, however, will be fostering innovation, particularly in Hong Kong.
“I see a lot of new talents and capital flowing into Shenzhen or Zhuhai very quickly. It’s easy to find human resources in these cities, but the policy is a bit tighter in Hong Kong for the financial industry,” said Ding. “Although the Hong Kong government is trying to push innovation in the city, there’s not much support.”
Strengths and weaknesses
Hong Kong does have a lot of strength that places it in a good position to attract talents and innovation. But, it also has weaknesses.
“Hong Kong’s No 1 weakness is its high cost,” said Ulrich. “Doing business in Hong Kong is very expensive. To attract the necessary talents into Hong Kong, the government can do more by offering attractive prices for entrepreneurs and startups.”
Ulrich further pointed out that improving education in Hong Kong is another way to enlarge the local talent pool.
“There needs to be a more effective coordination mechanism for the 11 cities,” she said. “We have three different currencies, three different customs, different immigration policies and different divisions of government. The central government can help coordinate the efforts in the bay area to make the movement of professionals much more expedient.”
“The integration of employment can be achieved by improving the commuter system of the metropolitan area and the custom clearance policy,” said Zhang.
Ding also said mainland conglomerate HNA will expand its operations in the bay area as it offers great opportunities for bulk commodities trading, warehousing and logistics.
The financial arm of HNA, which has diversified interests in aviation, tourism and real estate, was launched in Hong Kong in March this year, principally engaged in commodity trade, financial investment and consumer finance which, Ding believes, has huge potential and can play a key part in promoting internationalization of the yuan.
In less than one year since its launch, HNA Innovation Finance Group has sealed two deals. In March, it entered into an agreement to acquire a 51-per cent equity interest in Swiss commodities trader Glencore’s oil products storage and logistics business for US$775 million. It also agreed to acquire Singaporean logistics firm CWT in a US$1-billion takeover late last year.
The group is still looking for other merger-and-acquisition opportunities in areas linked to its core business, Ding said.
Such acquisition plans are in line with the nation’s strategy, he said, and the group wants to use its strengths to participate in the Belt and Road Initiative, the bay area development and renminbi internationalization.