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The Greater Bay Area: China's gateway to the world
AT a time of rising protectionism, China's Belt and Road Initiative (BRI) may mark the next phase of globalisation. The BRI not only burnishes China's image as the champion for globalisation but helps encourage further cooperation within the country. An important aspect of the BRI is the development of the Greater Bay Area (GBA), which is expected to promote economic integration among Hong Kong, Macau and the Guangdong province and act as the gateway for Chinese companies looking to expand their business overseas.
AN UPGRADED VERSION OF THE PEARL RIVER DELTA (PRD)
There is often confusion between the GBA and PRD as they both comprise Hong Kong, Macau and nine cities in Guangdong province. The concept of the GBA first surfaced in a 2011 report, "The Action Plan for the Bay Area of the Pearl River Estuary", and the idea was revived after Chinese Premier Li Keqiang talked about developing the GBA at the National People's Congress session in March this year.
Three reasons underlie the GBA initiative.
First, the PRD needed a new development plan to serve as the gateway for Chinese companies expanding overseas as its traditional manufacturing industry was faltering. The PRD concept first surfaced in 1994. Its geographical advantages and lower labour costs attracted manufacturers and trillions of dollars in foreign direct investments flowed into the PRD. This validated the country's opening-up strategy of "Bringing In" to boost economic growth.
The PRD also benefited from demographic dividends (See table). With less than one per cent of China's territory and 4.3 per cent of China's population, the PRD's GDP (excluding Hong Kong and Macau) of about US$1 trillion represented 9.1 per cent of China's GDP. The GDP of the PRD (excluding Hong Kong and Macau) grew by 8.3 per cent year-on-year in 2016, outpacing Guangdong (7.5 per cent year-on-year) and China (6.7 per cent year-on-year).
However, these demographic dividends are diminishing. An ageing population and rising labour costs have driven manufacturers away as many moved their factories to the inner cities or South-east Asia. Against this backdrop, the central government needed a new plan to help sustain the PRD's growth.
Second, the GBA could act as an innovation centre for the BRI. In fact, the PRD has witnessed successful industrial upgrades, which allowed the area to recover soon after the global financial crisis with its GDP growth far outpacing Guangdong's and China's since 2013. Previously, the East Bank of the PRD (Shenzhen, Guangzhou) was famed for electronics and IT products while the West Bank (Zhuhai, Foshan, Zhongshan) manufactured mostly household appliances. Leveraging these strengths, the eastern and western part of the GBA will specialise in advanced IT industries and advanced equipment manufacturing respectively.
This transformation is borne out by the numbers. In 2016, advanced manufacturing and high tech industries accounted for 54.9 per cent and 32.5 per cent of the PRD's total production respectively and invention patent applications increased by more than 50 per cent. The number of high-tech companies in the PRD increased by 78.8 per cent to 18,880 in 2016 and is expected to rise to 23,000 in 2017. In addition, government investments in science and technology in the PRD jumped 88 per cent year-on-year in 2016.
Third, the central government aims to develop a city cluster that could rival bay areas such as San Francisco or Tokyo. Under the new plan, four cities will drive development. Hong Kong will continue to play its role as a financial centre and serve as a platform for mainland companies to go global. Macau, together with its neighbour, Hengqin, will form an international gaming and tourism hub.
Meanwhile, Shenzhen will build on its innovation and technology capabilities, while Guangzhou leads the way as an advanced manufacturing and modern services centre. Furthermore, as Guangzhou represents the starting point of the "Silk Road", the PRD will be able to support the BRI. The "Going out" strategy is clearly the foundation for the PRD's future development.
With the new development plan, the PRD may be able to overcome the challenge of waning demographic dividends; lead the industrial upgrade and economic transition in China; compete with the world's rival bay areas; and facilitate the BRI.
The BRI is a boon to further strengthening of China-Singapore relations, and both countries have agreed to work on boosting connectivity cooperation, financial cooperation and cooperation with third parties. One-third of China's investments into Belt and Road countries have flowed through Singapore, while Singapore contributed 85 per cent of the inward investments into China.
This underpins the connectivity role that Singapore and OCBC Bank can play between China and Singapore, and for that matter, China and South-east Asia through Singapore. South-east Asia in particular could present interesting opportunities for Chinese companies. The GBA can act as a springboard to resource-rich countries such as Indonesia, Malaysia and Myanmar.
As a leading global financial hub, Singapore is well placed to fulfil the BRI's capital financing needs. OCBC Bank's strengths - our in-depth market knowledge, ready access to local funding, and seamless connectivity within the wider OCBC network (over 100 branches and offices in Hong Kong, China and Macau) - support cross-border financing opportunities for our customers along the "Belt and Road".
With the GBA and Belt and Road initiatives coming onstream, Singapore companies will do well to continue positioning themselves as a bridge not just between Singapore and China, but between China and South-east Asia.
- The writer is head of Greater China Research, OCBC Bank