Economy

Chinese City, Global Hub: Hong Kong’s Future in China’s Greater Bay Area

Wednesday, June 8, 2022

A key player in the Guangdong-Hong Kong-Macau Greater Bay Area, China’s regional development plan, Hong Kong could benefit greatly from the opportunities the initiative offers, especially as its traditional European and US business partners remain in the midst of economic recovery. But as 2020/21 Jason Yip, AsiaGlobal Fellow and CEO of Hong Kong-based think tank MWYO, and MWYO researcher Justin Chan write, the success of the GBA depends on a range of factors from resolving corporate cultural clashes to working around the geopolitical climate.

Chinese City, Global Hub: Hong Kong’s Future in China’s Greater Bay Area

Growing connections, glowing opportunities: The Hong Kong-Zhuhai-Macau Bridge, which links both sides of the Pearl River Delta, opened in October 2018 (Credit: HZMB)

Hong Kong has become increasingly torn between its dual roles as one of China’s most developed cities and an international financial center. Since the start of the pandemic, Hong Kong has been adhering to a “zero-Covid” strategy in line with mainland China with the aim of suppressing all Covid-19 outbreaks as soon as possible. That strategy has meant strict social distancing rules, extended quarantine periods for those entering the city, and flight bans on numerous countries. This has caused some grievances in the international business community, with multinational corporations contemplating the relocation of their Hong Kong offices to Singapore, the city’s major competitor in the Asia-Pacific region. Hong Kong’s policy of isolation is at odds with a world that is growing to accept the “living-with-Covid-19” approach.

The Greater Bay Area and Hong Kong’s integration with the motherland

Hong Kong’s strategies of integrating with mainland China and aligning with its policy objectives extend far beyond Covid-19. Over the last few years, Hong Kong has been part of China’s broader regional development plan, the Guangdong-Hong Kong-Macau Greater Bay Area (GBA). Announced in 2017, it aims to enhance the economic cooperation and integration of nine cities in the Guangdong province (including Shenzhen and Guangzhou) and the two Special Administrative Regions (SARs), Hong Kong and Macau. By coordinating the region’s economic development, the local governments would harness the strengths and advantages of each city, thereby combining competitiveness and promoting efficiency.

This strategy incorporates the idea of the spatial division of labor, where each region specializes in economic activities in which it has a comparative advantage. In the case of the GBA, Shenzhen specializes in technology, innovation, and research and development (R&D); Hong Kong specializes in professional services such as finance, banking and legal services, while boasting an international outlook and a strong ability to draw foreign investment. In addition to the comparative advantages of each city, the GBA is itself a massive market: the GDP of Guangdong province grew 8 percent to US$1.92 trillion in 2021, potentially larger than South Korea’s GDP of US$1.82 trillion. Meanwhile, Hong Kong’s per capita GDP – at approximately US$47,000 – is among the world’s highest.

As Hong Kong’s traditional business partners including European countries and the US remain in the midst of economic recovery, it is perhaps logical for Hong Kong to integrate with its immediate neighbors more closely and rejuvenate its growth potential. We have also observed multinational corporations and other countries realigning their strategies to seize opportunities brought about by the rapid growth of the GBA. HSBC set up a GBA office in 2021, while Singapore seeks collaboration in various industries in the region. According to a 2022 survey by the American Chamber of Commerce in Hong Kong, about 60 percent of surveyed firms have business operations in the GBA.

Tapping into the GBA market

In 2021, MWYO, a Hong Kong think tank, conducted a survey of 1,002 local young people to gauge their thoughts on the potential of the GBA and whether they are interested in relocating to mainland cities in the GBA to capture the opportunities there. This data collected may serve as a good reference point for multinationals and other enterprises hoping to enjoy a slice of the GBA pie.

Around 13 percent of the respondents expressed interest in developing a career in the GBA. Among them, 68 percent cited the GBA’s better industry prospects and overall competitiveness (in comparison to Hong Kong) as the primary reasons for their interest.

The Greater Bay Area

Credit: Ismoon

Graduates appear to gravitate towards cities where they can better utilize their professional skills. For instance, young people eyeing a career in R&D are more likely to have better prospects in GBA mainland Chinese cities. Thirty-two percent of those graduating with IT-related degrees and 25 percent of those graduating with natural science and math-related degrees (a percentage that is higher than graduates of all other subjects) believe their career prospects in the GBA are better than in Hong Kong. These two subject areas are intertwined with R&D and technological innovation and are also the main drivers of development and growth in GBA mainland cities, especially Shenzhen. If a young professional (from Hong Kong or overseas) wishes to develop their career in R&D and would like a taste of the Chinese market, the GBA, where most of China’s R&D resources and talent demand are concentrated, would be an ideal choice.

Respondents in service industries, for which Hong Kong is renowned, tend to believe that they would find similar prospects in GBA mainland cities and Hong Kong. Seventy-one percent of those graduating with education degrees and 61 percent of those graduating with management and finance-related degrees believe their prospects in GBA and Hong Kong are similar. Hong Kong has more developed and sophisticated education and finance industries than GBA mainland cities, having accumulated more experience of success and a more pronounced international reputation.

Demand for such services through the GBA continues to grow. Despite the mainland government’s recent curbs on the private education sector, demand from middle-class families for foreign education with international curricula remains strong. The proliferation of large businesses and a rising number of high-net-worth individuals mean a continued thirst for sophisticated financial and asset management services. These are markets that have still much untapped potential.

Barriers to jumping on the GBA bandwagon

While the GBA development strategy makes sense, its potential would ultimately be limited if it only attracts domestic capital and talent. This is especially true for Hong Kong, as its status as an international business hub is one of its most valuable assets. Drawing overseas capital and talent to the whole of GBA beyond Hong Kong could be challenging.

Local corporate culture and employer expectations in mainland Chinese cities may differ from that of multinational or Hong Kong companies. English language skills and an international outlook are essential for working at multinational firms. These skills, however, may not be that helpful in a company that primarily serves the domestic Chinese market and has no plans to expand overseas in the near future. Thus, Mandarin skills and strong local connections may instead be much more helpful assets, though they are uncommon among Hongkongers and expats.

Additionally, there may be differences in corporate values and practices. We interviewed Hongkongers who had previously worked at mainland companies in the GBA. One of them, who worked at a tech company, mentioned that his previous employer did not see intellectual property as a top priority in its R&D. A person who worked at a PR firm that partnered with mainland companies was concerned about two issues when considering employment at a GBA mainland company: First, they might have compliance issues when conducting business; second, their employees work very long hours and lack work-life balance. On the other hand, this could be an opportunity for non-local talent. One GBA employer we interviewed said that Hong Kong workers had better professional ethics and more respect for intellectual property rights to the extent that they were more suited for working on product development and handling confidential information.

On a more practical level, the relatively low wages in GBA mainland cities may deter some Hongkongers and expats from entering the job market. A 2019 report from Hong Kong Baptist University details the average wage levels of positions in Hong Kong and three major GBA mainland cities – Guangzhou, Shenzhen and Dongguan. Most jobs in these three cities had average annual wages that were below 60 percent of the salary of similar positions in Hong Kong.

Source: “Guangdong-Hong Kong-Macao Greater Bay Area Pay and Benefits Level Survey 2019”, Hong Kong Baptist University Centre for Human Resources Strategy and Development

There are exceptions: tech jobs and managerial positions. The GBA-Hong Kong wage gap for managerial staff is small compared to lower-level positions. Four such positions in Guangzhou offered an average salary that is 12.4 to 34.1 percent lower than Hong Kong’s level: administrative/general services manager, engineering manager, quality control manager, and logistics manager. Unless these positions involve interacting with actors in the foreign market, however, they would likely require familiarity with the region’s workplace culture and knowledge of the local industry ecosystem.

As mainland China’s tech hub, Shenzhen offers high-paying jobs in the IT industry that rival, and even surpass, similar positions in Hong Kong. In 2019, software engineers earned on average an annual base salary equivalent to around HK$407,000, compared to around HK$341,000 in Hong Kong. These IT giants offer competitive salary packages for programmers and software engineers. The same may also be true for luxury brands and private education companies.

The tax system further complicates the issue of wages. In mainland China, the income tax rate can go up to 45 percent for the top tax bracket, and expats enjoy the same rate as Chinese nationals. Currently, expats enjoy deductions for housing rental and children’s education, but Beijing has announced plans to phase out these tax breaks by 2022. Together with restrictions on the flow of capital, individual investors and job seekers have always been wary of injecting their financial resources into the Chinese market.

Skepticism, geopolitics and Covid-19

Without the recognition and interest of the international community, GBA is just another television drama made for local audiences. Internationally, there is general skepticism towards China’s grand experiments of development. From the “Go West Plan” to develop northwestern China at the start of the century to all the free trade zones across the country and the well-known Belt and Road Initiative, the international community is not unfamiliar with Chinese economic plans with ambitious goals but moderate success.

Will the international community place their bets on the GBA game? It is perhaps still too early to say.

The geopolitical backdrop of the China-US rivalry may have further complicated the potential success of the GBA strategy. Bearing the collateral damage of the rivalry, Hong Kong’s reputation has suffered. In 2020, the city’s top officials were subjected to economic sanctions by the US government over human rights allegations. The US-based conservative Heritage Foundation removed Hong Kong from its Index of Economic Freedom in 2021, after it had topped the ranking for 25 years. Thus, it should come as no surprise if more international investors refrained from increase their investments in or via Hong Kong. Without Hong Kong performing its role as the gateway to international capital, the GBA plan faces a bumpy road ahead.

Needless to say, new norms will arise in the aftermath of the disastrous Covid-19 pandemic. One of the phenomena in discussion is the remapping of the global supply chain, with more international firms diverting away from China their production plants, which are currently concentrated in Guangdong province. This trend has yet to become widespread, but it could be intensified by unexpected US tariffs, punitive sanctions or other China-containment policies. If that happens, the GBA plan may only be left with the domestic market.

The GBA’s solutions to success

Over two years into the pandemic, China’s economic recovery has been stronger than countries in Asia and the West. For Hong Kong, it makes easy sense to take advantage of the market and development potential of its immediate neighbors in the GBA, especially when there are few viable options elsewhere. Young talent in sectors where GBA mainland cities have concentrated their resources (e.g. R&D) and in-demand sectors in these cities, e.g. professional services, may be drawn to relocating to the GBA to gain work experience. However, the success of the GBA as a project of economic integration relies on both internal and external factors.

Internally, better coordination among GBA cities and the enhancement of efficiency in various economic activities would provide impetus to further economic development. The discrepancy in the corporate cultures of Hong Kong and GBA mainland cities should be resolved to foster more cooperation. As China has a track record of efficient governance, with the Beijing Winter Olympics being a recent example, overcoming these hurdles should be manageable. At the same time, the wage gap between Hong Kong and GBA mainland cities and subsequent concerns such as tax and capital flow restriction may still be a turnoff in the near term.

Interest and recognition from the international players are also crucial for the GBA to reach its full potential. Under the current geopolitical climate, the response to China and its economic initiatives has ranged from neutral to negative, and neither China nor Hong Kong as a city can easily mitigate the uncertainties. The only way to encourage interest in the Chinese market is to ensure sustained domestic growth in China and further market liberalization so that international players may be interested in seizing business opportunities in the country, especially in the integrated GBA.

Opinions expressed in articles published by AsiaGlobal Online reflect only those of the authors and do not necessarily represent the views of AsiaGlobal Online or the Asia Global Institute

Author

Justin Chan

Justin Chan

Researcher, MWYO

Justin Chan is a researcher at MWYO, a “think-and-do tank” on youth policy in Hong Kong. He specializes in employment policy and economic analysis related to Hong Kong’s youth. He has written and co-written several research reports, and regularly writes opinion pieces for local newspapers such as the Hong Kong Economic Journal and the South China Morning Post. He graduated from the University of Warwick with a bachelor’s degree in philosophy, politics and economics and University College London with a master’s degree in public policy. He is pursuing a master’s degree in business analytics at Imperial College Business School.

Jason Yip

Jason Yip

2020/21 AsiaGlobal Fellow, Asia Global Institute, The University of Hong Kong

Jason Yip is the chief executive officer of MWYO, a “think-and-do tank” on youth policy in Hong Kong. After working as an investment bank financial analyst, he changed his career to work on humanitarian issues in underprivileged countries. Before returning to Hong Kong in 2019, Jason was the regional head of the unit at the government affairs and donor relations division of the International Committee of the Red Cross (ICRC), covering China, Malaysia and Singapore. During his tenure, Jason worked in Geneva to develop dialogue and mobilize resources with the member states to the Geneva Convention. He had previously been stationed in Palestine, Afghanistan and Myanmar as an ICRC delegate to implement humanitarian interventions. He also contributed to various emergency relief initiatives including for the 2008 earthquake in China’s Sichuan Province and the Rohingya migrant crisis in the Andaman Sea in 2015. He holds a bachelor’s degree in business administration from The University of Hong Kong and a master’s degree in international relations from Waseda University, which he earned with a scholarship from the government of Japan. In 2018, Jason was awarded a Medal of Honour by the Hong Kong Special Administrative Region Government and was selected as one of the year’s Ten Outstanding Young Persons by the Junior Chamber International Hong Kong. In 2020, he was selected as an AsiaGlobal Fellow.


Recent Articles
Recent Articles