Special Feature
Navigating the Greater Bay Area
Navigating the Greater Bay Area<br/>探索大灣區

More than 700 business executives revealed their strong confidence in the Greater Bay Area (GBA) in the second survey conducted by HKGCC, KPMG China and HSBC. More than three quarters (77%) of respondents say they expect the GBA’s economic growth to exceed that of the rest of China over the next three years.

In the 12 months since our inaugural survey, interest in and understanding of the GBA has risen strongly. We have also seen new initiatives introduced by the governments in Guangdong, Hong Kong and Macao to improve the flow of capital, goods and people within the region.

Our survey respondents, who are from companies operating in the GBA, see technology and innovation, trade and logistics, and financial services as the sectors likely to do particularly well as the project unfolds. Other industries, including healthcare, transport, and professional and business support services also look set to benefit.
 
Overview
What makes the GBA unique is its potential to leverage Hong Kong’s financial, trade and professional services strengths with the manufacturing and innovation capabilities of the other cities to create an equal to the bay areas of San Francisco, New York and Tokyo.

The positive outlook of business executives regarding the initiative generally is mirrored by optimism regarding their own companies. Some 70% of those polled expect that the GBA will contribute to the growth of their businesses over the next three years. Only 2% indicate it will have a negative impact.

On the initiative’s main benefits, 68% of respondents highlighted the potential for increased business opportunities, while 53% flagged its potential for greater synergy through pooling resources. In addition, new transport infrastructure will facilitate cooperation between businesses in Hong Kong and the rest of the GBA.

However, a majority of respondents would like greater regulatory clarity, and to see how the governments in the region can reconcile their different tax, healthcare and visa regimes.

But with 57% of the companies saying they either already have a strategic plan for the GBA in place, or are in the process of drawing one up, the current regulatory ambiguity is not preventing them from preparing to commit themselves to the region.

 
A “quality living circle”
A key priority of the GBA is enhancing liveability for its citizens, including through the creation of a “quality living circle.” This includes the development of housing, healthcare and education as well as facilities for sports, arts and tourism.

A key step in this direction will be developing more service industries. The GBA remains heavily industrial, with a services sector that accounts for just 60% of its total economy – below the 80% level of the San Francisco, Tokyo and New York bay areas. While governments are expected to take the lead in laying out priorities, high levels of private sector participation will also be called for.

Greater coordination between cities across the GBA could also benefit the environment, another goal outlined in the Framework Agreement for the GBA. For example, real-time traffic data shared between cities could help ease vehicle congestion.

The GBA also provides opportunities for smart city development. This could extend to transforming the region into a well-connected “mega smart city.”
 
Technology and innovation

According to our survey, the GBA’s greatest area of potential lies in technology and innovation. About 81% of technology and innovation industry respondents say they believe their business will grow as a result of the GBA’s development over the next three years, with 23% expecting growth of more than 10%.

Since the announcement of the GBA initiative, cities in the region have launched various schemes aimed at encouraging collaboration in technology and innovation. One example is the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop, which will be home to around 600 high-tech firms by 2020.
 
Trade and logistics
The GBA is already one of the world’s leading export-manufacturing regions, with a well established network of transport and shipping infrastructure. Even so, companies in the industry foresee further possible gains arising from a more integrated region.

For trade and logistics companies, having integrated customs administration is crucial, with 79% of respondents from the sector viewing it as important for the free movement of goods within the region (compared to 68% of all respondents).
 
Financial services
The growth of new business across the GBA looks certain to offer ample opportunities for growth in financial services, particularly for companies with cross-border needs. As a leading international financial centre, Hong Kong has a vibrant capital market and serves as a conduit for financing both inbound and outbound investment and trade in the GBA.

Furthermore, Hong Kong’s development into a venture capital hub and Shenzhen’s status as a centre for start-ups is creating one large venture capital ecosystem. Of the financial services executives surveyed, 82% expect their business to grow as a result of the GBA’s development over the next three years.

The GBA’s fintech industry is also expanding rapidly. Shenzhen-based Tencent remains a major innovator, with its WeChat Pay now being used by more than 700 million people, while smaller companies, such as Hong Kong-based WeLab, are offering an ever-increasing range of services.
 
What does the GBA offer to SMEs?
The development of the GBA is not only about big business. The initiative’s focus on tech and innovation is also about fostering a vibrant SME ecosystem that promotes entrepreneurship. So far, policies within Guangdong look to be generating success, with the number of high-tech companies increasing exponentially over the last five years.

However, the survey results indicate that fewer SMEs than larger businesses currently have a GBA strategy. Nurturing an ecosystem to support start-ups should be a priority of policymakers across the region.
 
Challenges
Despite the significant growth opportunities and ongoing initiatives to further develop the GBA, there are still challenges for businesses. The issue of “policy/regulatory ambiguity, uncertainty and unfamiliarity” was selected by 68% of respondents overall. “Intellectual property infringement” and “foreign exchange volatility” were also cited as significant challenges.

Interestingly, more executives in the technology and innovation sector view the cross-border movement of people (30%) as an issue than the overall respondents (20%).

With 40% of the executives we surveyed citing visa-free travel as a key issue, getting this scheme right is likely to prove important.

Looking forward
Already, some 57% of business executives say their companies either have a GBA strategic plan in place or are in the process of formulating one. Leading the way are financial services firms, with 72%, followed by healthcare/life sciences, and technology and innovation.

Physical connectivity has seen heavy investment in recent years. However, other aspects of integration need further attention. Companies singled out three issues in particular: manpower solutions, legal advisory/services and financing.

Protecting intellectual property will be essential for the long-term growth of an innovation-based economy. One possible way forward would be a greater use of arbitration services drawing on Hong Kong’s experience in this area.

Tax is another key area of focus. The differences between the tax regimes of Mainland China, Hong Kong and Macao are a challenge for businesses as complying with the different tax rules can significantly increase operating costs.

Governments in the GBA also need to streamline customs and immigration procedures, devise ways of ensuring healthcare coverage is more widely available, and ensure professional qualifications are recognised.

One key challenge noted across all sectors and company sizes is the need for regulatory harmonisation. The business community across the GBA looks forward to greater clarity from regulatory and government authorities in order to turn the opportunities into reality. 

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