GBA Brief

What’s old is new: how the GBA is changing from its Pearl River past

South China investor Joe Lo looks at how the Greater Bay Area is evolving from the Pearl River Delta era, and at what needs to happen to keep its economy firing.

Chinese president Xi Jinping has a grand vision, called the Greater Bay Area Plan, to transform the south coast of China into an integrated cradle of innovation that will help lead the country into a new era of prosperity. 

It’s a fantastic vision of the future. But for people who live and work in the GBA, it’s also a bit head-scratching. We’ve been living this dream for 40 years already, even if we did call the region the Pearl River Delta instead.

In 1979, then-paramount leader Deng Xiaoping made the stupendous decision to fence off parts of Guangdong and Fujian province as market-oriented special economic zones (SEZ) that would help lead the country out of poverty. Investors from Hong Kong and Macau, especially those whose family roots originated in Guangdong – which is most of us – quickly took advantage of the opportunities afforded by an abundance of cheap land and labour, greased by light regulation. 

My family was among those who made an initial bet on Shenzhen in the early 1990’s, establishing a plush-toys factory on property leased from Futian district. That our factory was successful had as much to do with cheap rent and the thousands of (mostly) young women surging into Shenzhen for new jobs and new lives as it did with our own business acumen.

Seeded by capital and expertise from Hong Kong and Macau, the GBA now produces more than a third of China’s exports and contributed 12% of China’s GDP in 2018, over $1.5 trillion. If the GBA were a country, it would be the thirteenth largest economy in the world, just behind South Korea and ahead of Spain and Australia. 

Joe Lo’s family were early investors in Shenzhen

What’s old is new in the GBA

To paraphrase Benjamin Disraeli, change is inevitable and constant. The last of the barbed wire fencing around the Shenzhen SEZ was finally taken down last year. And those young women that worked so hard in my family’s toy factory? Gone home to Hunan or Sichuan to raise families. There are fewer new arrivals to replace them, too. 

Cheap locations are also a thing of the past. Shenzhen’s landscape has transformed so completely that our old factory address, then on the outskirts of town, is now part of a high-density residential development in a central location, where a 1,000-square feet flat costs slightly more than $1 million.

These kinds of changes have necessitated that the GBA keep moving up the value-added chain in search of profit. So far, that’s been happening organically. Shenzhen has morphed into a dynamic centre for prototyping consumer electronics and software, underpinned by companies like drone-maker DJI, mobile phone giant Huawei, and internet linchpin Tencent.

And while the original Shenzhen model was all about making sales overseas, catering for China’s own middle-classes is equally important these days. Government forecasters say domestic private consumption will account for 80% of China’s GDP growth this year. So instead of making toys for export, I’ve invested in a startup that makes mobile games for Chinese millennials.

How can Xi help?

Formula One racing cars have a boost button that the driver presses for a jolt of extra power for overtaking. Xi’s plan for the GBA is essentially the same thing; let’s take China’s most dynamic economic region and supercharge it to help the country navigate its way past the impending middle-income trap.

One way that policymakers can make this happen faster is by ensuring that more convenient transport links are built for the GBA, particularly east-west links. It is critical that the construction of the Zhongshan-Shenzhen Corridor be completed as scheduled in 2024, for instance. Connecting the east and west sides of the Pearl River Delta will deliver more balanced growth. 

Currently, the only northern route across the estuary is the heavily used Humen Bridge running between Nansha and Dongguan. I drive often between Macau and Shenzhen and, even in light traffic, it’s a 4- to 5-hour journey, which often takes a lot longer. With the ZSC, that journey time is expected to be halved. It’s a shame the new bridge doesn’t include a high-speed rail line, as well.

It’s also critical to ensure that people can move about freely in the GBA, especially between Hong Kong, Macau and the Mainland, while still respecting ‘one country, two systems’. Cross-boundary movement sometimes seems to be policed irrationally in Macau, for example, where fears of inappropriate behaviour by Mainland cadres have led to tighter restrictions on access. In the last year, a routine invitation to Zhuhai officials to attend the annual dinner of a Macau trade association necessitated back-and-forth paperwork for months in advance. Further work in reducing overall red tape for businesses would also help. My own company employs an administrative assistant whose primary job is to queue – at the bank, at the tax bureau, at the labour bureau, and so on.

What can the GBA become?

Silicon Valley, or the San Jose metropolitan area, is most often mentioned as the target the GBA should be aiming for. This comparison is unfair and it sets the GBA up for failure. The GBA is a much more disparate world that includes very diverse micro-economies, from agriculture to technology. Silicon Valley is tiny, by comparison, and it has concentrated on software innovation. 

But there is one thing I believe the GBA must emulate, and that is Silicon Valley’s openness. Silicon Valley is world-class because it’s a melting pot of the brightest people and best ideas from all over the world. Taiwanese-Americans are well represented there and about 15% of the region’s startups are founded by Indians, who also lead some of its biggest companies, like Microsoft, Google and Adobe. 

Roles for each city in the GBA have been laid out in Xi’s plan and becoming a world-class region as a whole means each must be a leader in its field. But it’s not enough for Hong Kong and Macau to be international, while the rest of the GBA is cloistered. The region has a long way to catch up to Silicon Valley’s track record of dynamism and innovation. Let’s hope that Xi’s vision helps the GBA to create a whole that is, at the very least, greater than the sum of its parts.