Guangdong’s Economic Transformation in the ‘12th Five-Year Plan’ and Hong Kong’s Opportunities


Commerce, Finance and Business | 2011-08-30

The GDP per capita of Guangzhou or Shenzhen is projected to surpass that of Hong Kong over the next decade, according to a research report released by the Bauhinia Foundation Research Centre (BFRC) today.

The BFRC report says that Hong Kong should spare no efforts to capture the rapidly growing market of Guangdong with a population of 100 million as a matter of priority with a view to maintaining its competitive edge in the Pearl River Delta (PRD).

By consolidating the findings of the previous Bauhinia studies, the research involved in-depth interviews with the relevant officials and experts in Hong Kong, Beijing, Guangdong and Shenzhen, economic projection, data analysis as well as field work studies.

The BFRC Chairman Anthony Wu said, “Obviously, opportunities abound. The series of new measures as announced by the Vice-premier Li Keqiang and the encouraging outcomes of the latest Hong Kong/Guangdong Cooperation Joint Conference have set a very good scene for Hong Kong-Guangdong collaborations.

“Moving forward, it is imperative that we better understand what the emergence of an enormous domestic consumption market of Guangdong will mean for Hong Kong.”

With Hong Kong playing an intermediary role, the traditional ‘front shop, back factory’ model had served Hong Kong and Guangdong well over the past three decades. But in the aftermath of the global financial crisis three years ago, Guangdong has started to move up the value chains of its economy with more emphasis placed on heavy and high-tech industries as well as modern service industries. Another noteworthy development is the growth of home-grown brands in the PRD market.

Among other things, the report highlights a number of key challenges facing Hong Kong in the process of Guangdong’s transformation:

Guangdong has gradually reduced its reliance on Hong Kong as a primary source of Foreign Direct Investments partly as a result of the abundance of its capital and funds in tandem with the rising affluence of the province. The province has also expedited the process of developing its domestic market after the global financial crisis, thereby weakening Hong Kong’s traditional intermediary role.

As most Hong Kong’s enterprises based in Guangdong are SMEs, they generally lack the necessary expertise and technological know-how to play a major role in its heavy and high-tech industries (e.g. car manufacturing, petroleum industry, new energy and biotechnology, etc). While Hong Kong companies are gradually losing their market shares in these industries, state-owned enterprises and MNCs are expanding their roles and operations.

Following continuous enhancement of Guangdong’s modern service industries (e.g. service outsourcing, convention and exhibition and logistics) in terms of capacity building and service standards, the competition between Hong Kong and Guangdong in this area has become increasingly evident.

The increasing use of localized languages and culture in product promotion and sales in Guangdong’s consumption market has posed a challenge to Hong Kong companies that are geared towards exports and re-export businesses.

In the face of these challenges, Mr Wu said, “We see more room for cooperation than competition between Hong Kong and Guangdong, especially in the areas of service industries where Hong Kong has competitive edges. This will call for a rethink of our export-oriented strategy, and the key is how fast we can capture the emerging domestic market of Guangdong resulting from its rapid economic transformation.”

The report recommends (1) implementing the financial service initiatives announced by the Vice-premier Li Keqiang as early as possible with a view to reinforcing Hong Kong’s leading role as an international financial centre in the PRD which will become a regional centre of financial collaboration. Among others, this will include allowing Hong Kong companies to invest in the Mainland with RMB, introducing RQFII and ETF, institutionalising and expanding the scale of the RMB bonds as well as facilitating Mainland enterprises to be listed on the Hong Kong stock exchange.

Meanwhile, Hong Kong is well placed to help Guangdong enterprises to develop and expand overseas markets. Mainland companies can also raise international confidence in their high-end products through the city’s certification and laboratory testing, which are recognised worldwide. Another possible area of cooperation is the extension of Hong Kong’s healthcare services into the PRD. Hong Kong-style hospitals can be set up in Shenzhen as a pilot scheme to help enhance heathcare standards and provide services for Hong Kong people residing there.

(2) Cross-boundary infrastructural projects should be better coordinated to provide much-needed land resources for shopping, dinning and entertainment facilities in view of the surge of Mainland visitors. The northern New Territories and Lantau Island can be developed into a multi-modal transportation hub.

The report recommends developing a ‘Hong Kong-Shenzhen free trade zone’ encompassing Hong Kong’s border areas, Qianhai and Hetao. Mr Wu said, “This should become an ultimate goal for both sides, although they can make their separate planning at the initial stage. The zone can become a vibrant economic, trading, entertainment and R&D centre for local and overseas investors.”

(3) A roadmap with concrete action plans should be worked out as a matter of priority to implement the target as set by the Vice-premier for CEPA, i.e., to basically achieve a full liberalisation of trade in services for Hong Kong by the end of the 12th Five-Year Plan period.

(4) A review should be conducted on Hong Kong’s manpower planning having regard to the economic transformation of Guangdong. To better facilitate the people flow between Hong Kong and Guangdong, the report highlights the need for relaxing the visa requirements for employees of Guangdong enterprises based in Hong Kong as well as granting visa-free entry for foreign nationals travelling between Hong Kong and the Mainland for business purposes. Those who reside and work in the PRD for a long time should also be given access to the e-Channel.