+852 2956 3798

cw@cwhkcpa.com

New Business Opportunities in the Greater Bay Area for Foreign Investors

  • The Guangdong-Hong Kong-Macao GBA is a city cluster composed of two special administrative regions, Hong Kong and Macao, and nine cities in Guangdong Province.
  • This article offers an overview of the GBA and explores the business opportunities in this special cluster.

Background

On November 4, 2022, German Chancellor Olaf Schulz met with Chinese President Xi Jinping in Beijing. The visit of Schulz’s delegation, which included many German business executives, involved significant discussions regarding economic and trade cooperation between Germany and China. It sends a positive signal that China is deepening and expanding its global partnerships based on equality, openness and cooperation, especially after the easing of pandemic-related restrictions.

When talking about trade and investment opportunities in China, people always think of the Greater Bay Area (“GBA”). It is one of the most vibrant areas in China with the most abundant supply of talent. It is rich in resources and has excellent infrastructure. The advantage of being connected to the world through the Hong Kong Special Administrative Region (“HKSAR”) puts this city cluster in its own league.

This article offers an overview of the GBA and explores the business opportunities in this special cluster.

Overview of the GBA

The Guangdong-Hong Kong-Macao GBA is a city cluster composed of two special administrative regions (“SAR”), Hong Kong and Macao, and nine cities in Guangdong Province, namely Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Zhaoqing, Jiangmen and Huizhou.

(Source: “2022 Invest Guangdong” from the Department of Commerce of Guangdong Province)

The construction of the Guangdong-Hong Kong-Macao GBA is a major national strategy planned and promoted by President Xi Jinping. The deep cooperative ties between Guangdong, HKSAR and Macao, and the consolidation of their respective strengths through their synergistic partnership put the GBA in a prime position towards becoming a world-class, dynamic bay area with unlimited growth potential. In 2021, the overall economic aggregate of the GBA was about 12.6 trillion yuan; the GBA generates 12% of the Chinese economic aggregate while making up less than 1% of Chinese land area.

Economic Profile of Cities in the GBA (2021)

(Sources: Guangzhou Municipal Commerce Bureau, Statistics and Census Service of the Macao SAR Government, Macao Trade and Investment Promotion Institute, Guangzhou Statistics Bureau, www.bayarea.gov.hk

Core Strengths of Selected GBA Cities

The five aspects of strategic positioning of the GBA are:

  • A dynamic world-class city cluster
  • An international center for technology and innovation
  • A key component of the Belt and Road Initiative
  • A demonstration zone for cooperation between the Chinese mainland, Hong Kong and Macao
  • An ideal location for living, working and travelling.

The GBA, with a land area of 56 thousand square kilometers and a population of about 86 million, had a total trade volume of about 12.6 trillion yuan in 2021, an increase of around 2.4 trillion yuan from 2017. 25 businesses from the GBA have made themselves into the Top 500 enterprise list (including Lenovo, Tencent, Huawei, Midea, etc.), up by 8 from 2017.

Since putting forward the concept of GBA, the Chinese Government has introduced a series of policies and measures to pave the way for the GBA’s development. These include:

  • Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (2019)
  • The Plan for Comprehensively Deepening Reform and Opening up of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone
  • The Overall Plan for the Construction of the Guangdong-Macao In-depth Cooperation Zone in Hengqin (September 2021)
  • The Overall Plan of Guangzhou Nansha to Deepen Comprehensive Cooperation among Guangdong, Hong Kong and Macao with Global Perspectiv e(June 2022)
  • Regulations of Shenzhen Special Economic Zone on Foreign Investment (November 2022).

The economic and trade cooperation between GBA and overseas countries and regions continues to flourish.  Take Shenzhen as an example. Shenzhen has established friendly relations with 90 provinces, cities or regions in 57 countries around the world by the end of 2022. Despite the strain caused by the pandemic and the continued decline in direct investment in recent years, Shenzhen has maintained its allure for foreign investment.

According to data from the Commerce Bureau of Shenzhen Municipality, nearly 6,000 foreign-invested enterprises were set up in Shenzhen in 2021, with an increase of more than 30% from the previous year, and over USD10 billion in foreign capital was injected into Shenzhen, representing an average annual growth rate of 10.2% over the previous three years. Since the beginning of this year, various projects have been initiated by enterprises from the Top 500, such as the Postdoctoral Innovation Practice Base by Siemens Shenzhen Magnetic Resonance Ltd. and the Philips Shenzhen Innovation Center.

In the GBA, the HKSAR serves a unique role by helping the GBA distinguish itself from other Chinese Bay Areas through its cosmopolitan atmosphere, common law system and well-established intellectual property rules, which draws in overseas investors.

 
The Optimization of the GBA’s Industrial Structure

The GBA has seen an expansion of high-end Chinese manufacturing, a comprehensive upgrade in industrial chains and progress towards high-quality development. With its extensive network of manufacturers and suppliers, the GBA will continue to play a crucial role in the world’s industrial chains for the foreseeable future through the concentration of manufacturing capacities.

Currently, Shenzhen is constructing a “20+8” industrial cluster. For example, the connected smart vehicles sector is one of Shenzhen’s 20 key development areas of strategic emerging industries and one of the eight key development orientations of future industries. The strategic emerging sectors in Shenzhen will have an added value of more than 1.5 trillion yuan by 2025, making them the primary force behind high-quality economic and social development.

According to HKTDC Research, fields with particular potential for future Bay-to-Bay partnerships include:

  • Climate change (including shoreline resilience planning and design as cities adapt to sea level rise)
  • Clean energy (including zero emission fuels and vehicles, smart grid/distributed energy, demand-side management, green design, and smart appliances and lighting)
  • Healthcare (including home robotics, telemedicine, medical equipment and wearable devices)
  • Electric and autonomous vehicles (including research and pilot program testing and deployment)
  • Biomedicine and pharmaceuticals (including diagnostics and therapeutics, clinical trials and compliance, disease research, medical data analytics, personalized medicine, and patient monitoring/ wearables)
  • Fintech (including payments and securities settlement, digital authentication, AI for credit and risk evaluation, insurance vehicles, and green finance).
 
Innovation and Technology

Emulating the San Francisco Bay Area, the GBA used a similar economic system and development model primarily driven by technological innovation.

According to the Global Innovation Index 2021 by World Intellectual Property Organization (“WIPO”), Chinese clusters experienced the largest increases in science and technology output, with the median increase equating to +14.4%. The GBA is the second top-performing cluster again.

(Sources: Global Innovation Index 2021 by WIPO, WIPO Statistics Database, April 2021)

According to a government report in 2022, Shenzhen’s total social research and development investment accounted for 5.46% of its GDP, and the added value of emerging industries of strategic importance accounted for 39.6% of its GDP in 2021. As of July 2022, about 21,000 national high-tech enterprises, including 319 headquarters, were based in Shenzhen. Additionally, Shenzhen has the most Patent Cooperation Treaty international patent applications from any Chinese city.

Hong Kong and Shenzhen have joined hands to develop a preeminent global innovation and technology hub in the Shenzhen-Hong Kong Innovation and Technology Co-operation Zone at the Lok Ma Chau Loop.

 
Strategies for Expanding Your Business into the GBA
  • Leverage local and national policies

The GBA has formed mature industrial clusters with increasing foreign investment in strategic emerging industries. From the perspective of policy support, the GBA has been receiving support in the form of local policies and national strategies, such as the Belt and Road Inititiative, Regional Comprehensive Economic Partnership, as well as through the internationalization of RMB by the currency’s entrance into the Special Drawing Rights Basket.

  • Carry out a feasibility study

A pre-entry feasibility study to examine the viability of your investment project is a necessary step and can spare you from costly investment mistakes. Carry out an analysis of your business model and identify the key resources that you will need: Will your business need to rely heavily on sound supply chain management? Who is your target market? Do you need to look for talents with particular skillsets?

  • Choose the right location in the GBA

Gain a thorough understanding of the strengths of different cities and industrial clusters in the GBA. For example, HKSAR poses as an ideal launch pad for foreign companies to expand their businesses into other Asia Pacific markets. Establish what your expectations, goals and requirements are. Identify the best location by conducting a business site location analysis.

  • Make good use of the applicable tax incentives

Tax optimization is one of the main factors that needs to be considered in driving down the costs of business. Integrating tax planning in your business financial strategy and making good use of preferential tax policies are effective ways for enterprises to lower their tax liability.

 
What CW can do for you

Headquartered in Hong Kong, CW is a professional advisory firm that is very well-established in the core cities of the GBA with offices in Shenzhen and Guangzhou. We have accumulated years of experience serving foreign companies operating in Greater China and can help you structure your investments in the GBA and beyond.

For more information about investing in the GBA, please feel free to contact us:  cw@cwhkcpa.com