The growing use of a digital lifestyle will further increase market efficiency. In China, consumers demand convenience and efficiency and are highly willing to adopt new digital trends. They also build communities by sharing experiences and stories through different social media. Businesses in China too are quickly adopting digital strategies and creating new ways to interact with consumers and provide more personalized products and services. In the future, both work and life will be increasingly online and consumption of both products and services through online portals will increase. Digital platforms are enhancing efficiency and new opportunities are emerging to better fit into consumers’ digital lifestyles.
Smart infrastructure will vastly improve the work and social lifestyles of GBA’s population, embedding technologies such as AI, IoT, 5G and blockchain into the infrastructure. Real-time data acquisition and analysis shall allow cities to make more informed decisions, to plan better and to address urban challenges through smart public services. GBA cities (in particular Shenzhen and Guangzhou) are innovative and they are willing to experiment with disruptive technologies, which leads to increased opportunities for local businesses. New centers of commercial activities will spawn in more remote areas, such as lower tier cities, due to more efficient infrastructure. Logistics will become more efficient, bringing businesses closer and more reactive to consumer needs. More distributed and remote working styles will come into being and talent will be increasingly cross-border. In particular, industries building on these disruptive technologies will have significant potential due to the increasing connectivity.
Part of the plan of course involves close cooperation with Hong Kong. The Closer Economic Partnership Arrangement (CEPA) promulgated in 2003 was a step towards strengthening cooperation between Hong Kong and mainland China and promoting their joint development. One of the key steps in this respect is to help GBA cities internationalize through Hong Kong, since its well-respected legal system, low taxation and status as a global financial center make it a highly attractive gateway to China for foreign companies. Hong Kong and Shenzhen’s international ports also provide opportunities for businesses in the region to expand beyond their immediately accessible markets and reach international coverage.
Would Hong Kong’s Unrest Matter?
The current unrest in Hong Kong has cast uncertainties on future participation of Hong Kong in the GBA. Hong Kong’s legal and tax systems, freely convertible currency and active debt and equity markets cannot be easily replicated in mainland China (at least not in the near-term). However, while it is true that Hong Kong plays a key role in the GBA as an international center, many of the GBA’s key developments such as smart infrastructure and technology development can continue with or without participation of Hong Kong.
In August of this year, China’s State Council and the Central Committee of the Communist Party issued a new guideline outlining an ambitious plan for the future of Shenzhen. It set out plans to transform Shenzhen into a “pilot area and a leading city in the world in economic strength and quality of development, with the focus on research and development, industrial innovation, public services and ecological environment”.10 The plan calls for the city to become a “global benchmark city in its competitiveness, innovative capacity and influence” by mid-century. A new pilot program was also announced to ease the yuan’s convertibility in Shenzhen.11 Meanwhile, Macao has also been investigating the possibility of becoming an offshore yuan trading center and has submitted a proposal to create an offshore yuan-based stock exchange to the central government.12 This would provide another channel for GBA companies to raise capital.
Of course, Hong Kong’s financial industry and infrastructure are much more mature and sophisticated than the rest of the GBA. But are the plans in Shenzhen and Macao a signal of China preparing contingency plans for the longer run?
What Does It All Mean?
The GBA still faces some challenges and will continue to face some governance structural barriers such as legal systems, fluctuations in exchange rates and physical movement across borders. One difficulty that companies face would be protection for intellectual property rights (this is a focus point in the current Sino-US trade negotiations). This is one area where Hong Kong has in the past, been able to attract investment from foreign companies looking to enter China. There are also local-level challenges that need to be addressed in different areas, such as the differences in education systems, public transportation network and right of abode which make things difficult for people who work or travel between the regions (although a number of infrastructure projects such as the Zhongshan-Shenzhen bridge are in full steam and will make travel between cities increasingly easy).
The GBA will likely offer good opportunities for investments in key areas or industries such as AI, blockchain and IoT. More key players will likely emerge in the region and this will represent increased competitiveness of companies in the GBA as they go global. For companies not based in the GBA, partnerships with GBA companies and/or working with their ecosystems could be beneficial, especially as GBA companies are going international.
Many companies in the GBA will leverage the government’s policies and priorities to decide the areas of their focus. They will also participate in the GBA ecosystem and not just in their base or local city. There are also some upcoming industries that will face major disruptions caused by the GBA’s development, including smart infrastructure, AI and IoT. Consumer segmentation and demographics are also likely to change and expand and lifestyles will become more digitalized, personalized and ubiquitous. Business solutions will need to be designed to face cross-border competition.
The GBA constitutes an opportunity for Hong Kong to be more closely involved in China’s development. While Hong Kong is important to the GBA’s future, the reverse is also true. Participating in the GBA ecosystem will bring new opportunities for Hong Kong companies, especially in the context of new innovative business models and solutions that need to be created to adapt to Chinese consumers’ demands and the rapidly changing environment. When new demand patterns are emerging in the market, companies should learn to embrace co-opetition through partnerships with competitors or players from adjacent industries to build capabilities and capture opportunities.
The GBA represents many new opportunities in the future for businesses, both local and global. At the same time, companies operating in the region will also face challenges, especially due to the ever-changing nature of the business environment and policies. Companies that can seize these opportunities will be among the true winners.
Efforts to advance the GBA plan is continuing despite the unrest in Hong Kong. In early November, new policy on lifting previous restrictions on Hong Kong and Macao people buying homes in the nine mainland cities was announced. They will enjoy the same treatment as residents of the mainland cities. They will be also able to enroll their children in mainland local schools. Other policies include cross-boundary wealth management schemes and professional qualification extensions.13
The GBA is an ambitious plan of Beijing to create a large cluster of cities. Due to its scale and complexity, making it happen will be quite a daunting task. However, if it is successful, the impact will be huge.
Like many of Beijing’s initiatives in the last four decades of reform and opening, the plans seem large and unattainable when they are first announced. Some of the plans did not fully materialize or even ended up as a flop. However, in many cases, China was somehow able to find ways to achieve (and sometimes even over-achieve) the original goals, albeit after experiencing some ups and downs along the way. Given its past record, no one should underestimate China’s wherewithal to make the GBA happen.
In our view, the current Hong Kong unrest may cast doubts on the viability of the GBA and perhaps slow down its progress. However, over the next several months as Hong Kong’s situation begins to stabilize, rationality will prevail and the GBA’s strategic sense will present itself.
Companies, whether headquartered in mainland China or in Hong Kong or Macao (or beyond) should evaluate carefully what the GBA really means in terms of opportunities and risks. They will need a GBA strategy.
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