A house view on China's Plan for the Great Bay AreaThursday 21 February 2019
When the 36km bridge connecting Guangdong, Hong Kong and Macau was completed last October, people were pondering about the impact on the Great Bay area. We think such a mega engineering project will be the catalyst to accelerate the growth of a regional economy nearly as big as Korea – which by itself provides the scale for a meaningful China entry.
Now we have a plan. The China central government just released The Great Bay Development Guideline. It appears to be another grand plan by President Xi in the new year of the pig.
It is not a new plan. Urbanisation has been defined as one key economic growth engine for future China economic growth. 7 new mega cities have been defined in addition to the traditional top 4 tier 1 cities. And China has been actively driving the regional growth of the Bo Hai Bay area (Beijing, Tianjing and Hebei in the North), the Yangzi River Delta area (Shanghai, Jiangsu, Zhejaing and surrounding provinces in the East) and the Pearl River Delta region in the South (which is now extended to include Hong Kong and Macau). With this in context, the Great Bay plan is really an upgraded plan to further strengthen the market openness of the Pearl River delta region.
It's understandable that a grand plan / guideline from the China central government is typically broad and to some extent “vague”. One key role of the grand plan is to define the positioning of key cites in the region in sector development going forward, which has had some competition resulting in duplicates of investment.
In addition, it does point to a further promotion of regional integration in a few areas, including advanced manufacturing, financial services, technology and innovation, telecommunication 5G, emerging new strategic industries such as Green Tech and talent and education. What we think is interesting is the initiative to strengthen the ease of talent flow in the region, not only in terms of Mainland talents into Hong Kong/Macau, but also encouraging Hong Kong and Macau talents into the key cities in the region through access to career opportunities, public education and healthcare. In addition, a common 5G infrastructure construction will lay down a foundation for future innovation. All these initiatives, if implemented, will accelerate the formation of a regional market with nearly 700mn population with about 20,000 USD GDP per capita.
Whether the grand plan will have a long lasting impact on the regional economic growth will depend on how regional and local city leaders execute the plan, especially given the internal competition among cities within the region, e.g. among Hong Kong vs. Shenzhen and Guangdong vs. Shenzhen. Regardless, there will be a wave of infrastructure investment in rail, airport, etc. which surely provides short term economic stimulus for sagging economic growth.