Greater Bay Area: What Does It Mean for Hong Kong 
Greater Bay Area population and economy data

Top-10 Busiest Container Ports

Compound Annual Growth

Service Sector's Increasing Importance in the GBA

Since it was highlighted in Premier Li Keqiang’s Government Work Report released in March 2017, the concept of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) has been embraced by much of the local business community. As part of the 13th Five-Year Plan (FYP), the importance of the Greater Bay Area as a national economic development strategy is apparent. 

Background of the Greater Bay Area
The GBA consists of the special administrative regions of Hong Kong and Macao, as well as nine cities of the Pearl River Delta region (Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, Huizhou and Zhaoqing). With a total population of 67.65 million residing across a total area of 56,500 sq km, this region is one of the most developed and vibrant areas in China. Featuring three of the world’s top ten ports in Shenzhen (3rd), Hong Kong (5th), and Guangzhou (7th) (see Chart 1), the GBA represented approximately 12.5% of the country’s GDP in 2016.

The development of the GBA initiative is designed to strengthen infrastructure linkages among the cities involved and stimulate economic cooperation. A point in fact is that the existing GBA already possesses notable economic strength and is comparable to the other leading bay areas around the world. With an aggregate GDP of some RMB 9,332 billion (US$1,345 billion) in 2016, the GBA’s economic output was far higher than that of San Jose-San Francisco-Oakland, which is one of the most highly recognised bay areas around the world.

The Right Numbers

The GBA’s eleven cities have a total population of nearly 67 million, which is greater than the Tokyo Metropolitan Area - the world’s largest city cluster with a population of 44 million. The GBA also has a combined GDP of US$1.34 trillion, which is lower than the US$1.61 trillion of Greater New York and US$1.78 trillion of Greater Tokyo. Hong Kong remains the single biggest economy of the area, but only just. Its GDP, at US$319 billion in 2016, is likely to be overtaken by Guangzhou (US$285 billion) and Shenzhen (US$283 billion) in the foreseeable future.

High-level Backing

The concept of GBA dates back to 2011 with a study called “The Action Plan for the Bay Area of the Pearl River Estuary,” that was jointly prepared by officials from Hong Kong, Macao, Shenzhen, Dongguan, Guangzhou, Zhuhai and Zhongshan. The idea of a city cluster in Southern China was reinforced when the 13th Five Year Plan (2016-2020) was endorsed in March 2016. Premier Li Keqiang subsequently announced in the annual government report in March 2017 that the authorities were going ahead with the initiative.

This led to a framework agreement in July 2017, which was signed by China’s top policy-making body, the National Development and Reform Commission (NDRC) and the governments of Guangdong, Hong Kong and Macao.

One of the GBA’s key objectives is to improve the level of cooperation within the region. This includes identifying the core competitive advantages of the cities within GBA and exploring ways for them to complement one another. One example of this is to build on the strengths of Hong Kong’s financial and professional services sectors, Shenzhen’s high-tech manufacturing and innovation skills, and the manufacturing strengths of Dongguan and Guangzhou.

Within China, the GBA has the potential to extend its reach beyond the Pearl River Delta to the nearby provinces of Fujian, Jiangxi, Hunan, Guangxi, Hainan, Guizhou and Yunnan. Beyond China, it will be aiming to reach markets in Southeast and South Asia.

The development of the area should also act as a catalyst for China’s Belt and Road Initiative - an ambitious strategy that aims to link the economies along the Silk Road Economic Belt (Central Asia to Europe) and the Maritime Silk Road (South Asia to Africa and the Middle East) together.

Hong Kong’s Role in the Development Strategy 
Over the last 25 years, the 11 cities in the GBA have registered an average of 15.1% annualised growth rate, with Hong Kong recording the lowest (see Chart 2). In part a measure to stimulate the economy, Premier Li suggested that the development of the GBA would “give full play to the distinctive strengths of Hong Kong and Macao, and elevate their positions and roles in China’s economic development and opening up.”2 To capitalise on the opportunities, we believe Hong Kong could utilise the strength of its pillar industries and actively participate in the nation’s drive towards economic growth.

One possible way for Hong Kong to do this is through our service sector, which represents around 90% of our GDP. Comparatively speaking, the service sector represented 56% of the nine cities’ aggregate economic output in 2016 (see Chart 3), which is slightly higher than the national average of 51.6%. Adhering to international standards, the cumulative expertise and experience of Hong Kong’s service sector through years of interactions with global market players is clearly an important asset. Hong Kong can build on such a comparative advantage and contribute to the Mainland’s goal of upgrading to a service-oriented economy. A broad-brush recommendation would be for Hong Kong to contribute through knowledge transfer of financial services (17.6% of its GDP in 2015) and professional services (4.9% of its GDP in 2015), as Hong Kong’s legal, accounting and other professions are trusted and utilized by international businesses. 

Among other attributes, Hong Kong’s external-oriented feature is also important for the development of the GBA. In the past, Hong Kong’s role in assisting in the build-up of the Mainland’s export capacity was commonly attributed as a key driver of the rise of the country’s economy. This was done through Hong Kong first serving as a trading hub of goods produced in the Mainland, and later as the “testing field” for nationwide economic development and policy directions.3 Such a role in the country’s economic development and opening up will remain as specified in the 13th FYP.

 

Conclusion
With improved connections between Mainland cities and the rest of the world, the “front shop, back factory” model of division of labour between Hong Kong and other GBA cities may no longer be fully applicable, and a new mode of collaboration should be sought. 

We must bear in mind that the development of the GBA is not at all a zero-sum relationship for the cities involved, and thus a competing mindset against each other should not exist. Rather, cities within the GBA should utilise their respective comparative advantages in producing certain goods or services to supplement each other. For instance, Xiao et al (2015) asserted that, with close ties with global cities like Hong Kong, Foshan secured linkages to the rest of the world. As a result, the latter could focus on the development of skills and capacity in specialized sectors, such as lighting and furniture manufacturing.4 Should this recommendation be adopted, the 11 GBA cities can strengthen their industrial upgrading and integration through the utilisation of complementary resources and connections. 

By achieving this goal, the development of the GBA will enhance the overall competitiveness of the region, which in turn will contribute to the national economic growth. Being part of the GBA and through the collaboration process, Hong Kong may find a new direction for its economy to develop as well. 


1 San Jose-San Francisco-Oakland CSA had a GDP of US$758.5 billion in 2015
2 Report on the Work of the Government
3 The Greater Pearl River Delta Business Council (2010)
4 Xiao, G., Zhang, Y. S., Law, C. K., Meagher, D. (2015) China’s evolving growth model: The Foshan story

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