Connecting the dots

What’s the Greater Bay Area (GBA) and how can I do more business there? That was the basic proposition of HSBC’s GBA Connections conference in late June, where 60 clients from 13 countries came to Hong Kong for two days of presentations and debate, plus a day in-between of company visits to Shenzhen, reached by a 15-minute trip on the bullet train.

The companies hailed from a diverse mix of sectors – among others WiC spoke to the CFO of a British-based firm of architects; the representative of a family investment office in the Middle East; the boss of a semiconductor equipment firm from the US; and the head of a toy licencing business headquartered in Europe. All had an interest in understanding the GBA better, something that HSBC was keen to facilitate. Here’s our review of some of the main themes that came up in discussion.

The GBA: a new concept that is still taking shape

The large majority of attendees had visited Hong Kong on business trips in the past, often several times, but the wider region was new to them as a concept. Broader knowledge of the GBA was still relatively limited: most knew that Shenzhen was a city on the rise and they were aware of Macau as a casino destination, but the eight other cities in the region were largely unknown.

Stuart Tait, HSBC’s head of Commercial Banking in Asia-Pacific, acknowledged the relative novelty of the GBA as a concept in his opening remarks, but he said that HSBC is taking the lead in introducing its clients to what they should see as a major opportunity.

Companies should grab the chance to get in early as the GBA gains altitude, he suggested. He noted that there are 4,500 high-tech companies in Guangdong province, concentrated in the GBA where Shenzhen has already earned a reputation as the Silicon Valley of China.

A later session introduced the building blocks of the plan, including its titling as one of the key strategies of China’s leader Xi Jinping, which means that it will be getting more of a push from policymakers. However, attendees wanted more detail about how things were going to work across the three main jurisdictions (Hong Kong, Macau and mainland China). The speakers predicted that more practical policies will come with time, aligned with the guidelines in the Outline Plan that was published in February. One example was the way that the authorities are starting to subsidise income taxes for people from Macau or Hong Kong coming to work in the GBA’s nine mainland cities – a new measure announced last month that means Hongkongers working across the border would pay 15%, or roughly equivalent to what they would pay in Hong Kong.

Small in size, but bigger in impact

The GBA was described as a relatively small area geographically, but as an economy that’s already the same size as Canada’s. Its contribution to China’s economy is also outsized at 12% of Chinese GDP and 37% of its exports, but with the potential to grow much bigger.

Why was HSBC so confident that this growth is going to happen? In part, it’s down to history, Tait said, highlighting how the GBA has its roots in the Pearl River Delta, the manufacturing zone that powered much of China’s boom in the late 1980s and 1990s. Those 25 years of extraordinary economic achievement largely came about from the bottom up, he added, often from businesses with limited value-add. Imagine what might be achieved through investment in next-generation sectors, plus a more coordinated approach that draws on the skills of the GBA’s different cities.

Politics matters, and other challenges too

The political picture loomed large in the keynote address at the conference, which discussed the implications of Donald Trump’s priorities on the GBA’s prospects, particularly the trade and tech rows between Washington and Beijing. As China’s leading region for exports, and as home to some of its high-tech champions, the GBA is a more-than-interested party in how these disputes are resolved.

Most of the three days were focused on the commercial opportunities in the GBA, although the political backdrop was difficult to disregard completely.

Participants hoped the trade row would soon be resolved, although a timeframe was difficult to pin down. But the tensions are pushing the Chinese to generate more of their growth in their domestic economy, where the GBA will be a key demand driver. They have also intensified the focus on technology and innovation, two areas where the Chinese are determined to get more self-sufficient. Both trends should open new opportunities for trade and investment, it was thought.

Most of the questions on the sidelines of the conference were more about the details of getting things done in the GBA, rather than the bigger-picture politics. Queries included how many driving licences were needed to cross the HK-Zhuhai-Macao Bridge; how companies cope with the different data privacy laws across the region; and how much longer the telecom providers will levy data roaming charges on customers who move about the GBA.

All in all, it was a reminder that the practicalities usually outweigh the politics when businesses are looking for new markets.

Connections matter

All conferences need buzzwords and last week’s gathering was no different.

Connectivity was an early contender for number one spot, with ‘city clusters’ and the ‘one-hour living circle’ getting honourable mentions.

More broadly, presenters described how the density of the 11-city economy was crucial to its future growth, powered by the four ‘core engines’ of Macau, Hong Kong, Guangzhou and Shenzhen.

Simply put, none of the cities in the GBA are too far away from any of their counterparts, with new roads, bridges and railways shrinking distances ever further.

Helen Wong, HSBC’s chief executive for Greater China, made the point in more practical terms, outlining how the region’s connectivity would help companies launch new products. Each and every activity could be completed within not much more than an hour’s radius, she believed, with the GBA bringing together the same skillsets that exist in the US but which are far more dispersed geographically: namely finance (New York), tech (San Francisco), manufacturing (the Midwest) and entertainment (Las Vegas).

“Perhaps the enterprise starts out with research at one of Hong Kong’s universities or science parks. Then it moves on to prototyping one of its new product ideas on a manufacturing line in Shenzhen,” Wong suggested. “The product then comes back to Hong Kong for further refinement before a market-ready version is taken to Dongguan for mass production. The goods are shipped to overseas markets from one of the world-class container ports in Nansha or Shenzhen. Maybe the business starts to do well, so it needs more trade finance, which it sources from Hong Kong. If it really prospers, maybe it does an IPO here too. And when that happens, the management team heads off for a weekend of celebrations in the casino resorts in Macau!”

Later, the founder of a wearable tech brand that makes training devices for musicians explained how he did all of his R&D in Hong Kong but that he crosses into Guangdong to find his manufacturing partners. “I don’t think people realise how straightforward it can be to source components there and find someone to assemble the final product,” he said. “When we started out, we simply researched our potential suppliers on Alibaba, called them up on the phone, and arranged site visits the next day.”

It’s all about technology

Another major theme was how the GBA is at the forefront of technological change. All the usual suspects came up for mention: particularly AI, facial recognition, Big Data and 5G. The spread of social media and the ubiquity of WeChat – Tencent’s messaging app – was also discussed, including a presentation from Tencent’s WeChat Pay on how the payment app was spreading into virtually every consumer-facing sector.

Another startling stat: WeChat now boasts more than a billion active users.

The following day there was feedback from the visits to companies in Shenzhen, including a trip to DJI, the world’s top-selling dronemaker. The overall impressions of Shenzhen’s main business districts were good too, with a greener, more open feel than most people had been expecting. Others remarked on a local business culture with greater freedom to test out ideas.

“There seemed to be so much scope for experimentation, much of which would have been strangled by regulation in my home market,” was one comment.

Discussion like this led to the inevitable question of whether the GBA is going to ‘overtake’ Silicon Valley. Shenzhen already has a claim to be the best place to build hardware, it was suggested, although it’s not as competitive in software, where the Californians are still king.

One response was that software expertise isn’t as concentrated in Silicon Valley as it once was, and that places like Florida’s Space Coast, Boston and Austin all have claims to leadership in particular applications. But other delegates took the bait, arguing that Shenzhen would soon be top dog because of the ferocious work ethic in the local workforce, the readily available pool of capital for innovative companies, and the single-minded support of a government that wants the GBA to be a world-beater

Indeed, the new obsession with tech was even spreading to investors in Hong Kong, who are typically more focused on “surer things” like property, another contributor suggested.

What’s changed is that people have seen the successes of the ‘unicorns’ at companies like Ping An, as well as the new reach of the tech businesses backed by giants such as Tencent (both of which are based in Shenzhen). “The unicorns are key – they are getting everyone interested in tech as an investment,” he argued.

And don’t forget the GBA as a market

Another talking point was how the GBA should be on company checklists as a marketplace, thanks to its 70 million, increasingly better-off consumers.

GDP per capita in the GBA region is now $23,000, more than double China’s national average, and well above that of a middle-income country. That meant that talk of the GBA as a zone for testing out ways of freeing China from the ‘middle income trap’ (countries that lose their competitive edge in exports because of rising wages) was missing the point, it was also suggested. In fact, the GBA has escaped the trap already.

The GBA also offers interesting opportunities for integrating healthcare, particularly between Hong Kong (where many mainlanders often come for specialised treatment and vaccinations) and the major cities across the border. One speaker with a Hong Kong-based firm in the field said its tech-driven approach had seen it manage the healthcare needs of a million people across the GBA, with access to a pool of 600 doctors. It had seen 100% GBA revenue growth in the past two years, he said.

A previous session had focused on one of the main beneficiaries of China’s consumer boom, when one of the early executives at Alibaba talked about how it won the e-commerce wars.

Alibaba isn’t a company based in the GBA, but it was an interesting presentation in outlining how its commercial approach kept changing in pursuit of profit. Nor was it ever a case of simply copying a business model that had worked in the West. Indeed, Alibaba triumphed by doing the opposite, crushing rivals like eBay by tailoring its approach to the local marketplace.

Along similar lines, one of the final sessions looked at the GBA’s consumers, and in particular its millennials, a group that is willing to spend more of its discretionary income.

Participants discussed some of the similarities with the same generation in other countries, but recognised a greater preference for shopping online in China, and an almost universal expectation to be able to pay for goods and services digitally.

Work-life balance was also mentioned, with the claim that work always takes precedence for millennials in the GBA (there was a separate discussion of the ‘9-9-6’ culture in the local tech sector: i.e. 9am to 9pm working hours, 6 days a week).

That same work ethic wasn’t something that applied to the millennials in his workforce, one business boss from Europe wistfully whispered to WiC.

As for working life in the GBA, perhaps the best example was given by Neo Wang, HSBC’s co-CEO for Guangdong. He commented that a typical day might see him hold a staff meeting at 9am in Guangzhou; get to Shenzhen for a client lunch at midday; catch the bullet train to Hong Kong for a regional meeting at 4pm; and be back across the border at his apartment by 8pm.

Welcome to the future…

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