GBA, Talking Point

In the zone

What do the big policy announcements on Qianhai and Hengqin mean?


In the news again this month: the border area between Shenzhen and Hong Kong

Sometimes it’s easier to breathe new life into a city by rebuilding it from scratch or moving it to an entirely new area. These scenarios can give metropolitan planners more freedom of manoeuvre. Resistance from vested interests can be less intense as well.

Brazil went for a change of capital city in the 1950s by relocating to Brasilia from overcrowded Rio de Janeiro, for instance. Egypt is doing something similar at the moment, building a yet-to-be-named ‘New Administrative Capital’ about 45km outside Cairo. Similar thinking has inspired the creation of the Xiongan New Area, established in 2017 to absorb the administrative overspill from Beijing, China’s centre of government (see WiC361).

Investors have also been watching the planning process for two of the cities in China’s most international – and most affluent – region. For decades Hong Kong and Macau have been cross-border hubs for the Pearl River Delta. Two new zones in Qianhai and Hengqin in nearby Guangdong were set up about a decade ago to pair up with the former colonies. The plan was to inject wider impetus into a region now better known as the Greater Bay Area, bringing together a diverse range of industries and cities.

That effort is continuing today: this month it was announced that Qianhai will grow eightfold in land area, while a new governance model led by two political bosses – one from Guangdong and one from Macau – will be introduced in Hengqin in a bid to boost its role as well.

What is the broader vision?

The announcement of the new blueprints – explained in bureaucratese as an effort to “comprehensively deepen the reform and opening up” in the new zones – came just a month after Beijing’s leaders dispatched a delegation to Hong Kong’s business community to explain the ramifications of the 14th Five-Year Plan (which runs from 2021 to 2025).

Many of the themes in the updated plans for Qianhai and Hengqin are unchanged, including the encouragement of “system innovation” and the creation of a “modern service industry cooperation zone”.

But what seems to be different is the sense of trying to speed up the pace of change on the Hong Kong and Macau sides of the boundary with mainland China. A slew of policy combos has been presented over the past week. For example, there was the official launch of the Wealth Management Connect scheme, which allows cross-border investment in wealth management products inside the GBA.

The People’s Bank of China then announced on Wednesday that the southbound channel of the Bond Connect Scheme will be launched on September 24, four years after the northbound route was cleared for foreign investment in the Chinese bond market (‘southbound’ flows imply mainland Chinese investors buying international bonds via Hong Kong).

There’s a new urgency to push for changes?

Luo Huining, head of the aforementioned delegation from Beijing that visited Hong Kong, concluded a speech in the city last month with a warning: “If you don’t advance, you will retreat – so do you advance slowly? The only way to win tomorrow is to do well today.”

Hong Kong’s competitive edge lies in its geographical position on the fringes of the world’s second biggest economy, he suggested. The closing message was blunt: the best way “to continuously improve” was to integrate further with China’s national development plans.

Policymakers in Beijing now seem prepared to set a more demanding pace for how they expect Hong Kong and Macau to respond to national-level plans, even if doing so provokes criticism of encroachment on the principle of ‘one country, two systems’.

In Hong Kong senior mainland officials have been amplifying the call for change over the past few months, with a growing focus on the sky-high property prices in the city. In July, Xia Baolong, head of the Hong Kong and Macau Affairs Office of the State Council, held a symposium to mark the first anniversary of a new national security law in Hong Kong.

During the meeting, he detailed his vision for the former British colony, including an end to one of the city’s worst symbols of inequality, its “subdivided flats and cage homes”. Because of soaring real estate prices, more than 200,000 families still live in ‘coffin cubicles’ or tiny partitioned flats, many of which can barely accommodate a bed, he said.

Over in Macau the prospects of a shake-up seem more focused on its casino sector. After extended speculation about how it is going to distribute new licences to its casino operators, Macau’s government said on Wednesday that it was beginning a 45-day public consultation process on the gambling sector. Among many sweeping changes on the agenda, the proposals hinted at increasing the number of casino franchises from six, and pushing harder for a diversification of the Macau economy (gambling contributes more than 60% of local GDP). Needless to say, the suggestion triggered an immediate meltdown in the shares of Macau’s casino operators.

So what is the Qianhai zone expected to promote?

Before the onset of market reforms in the late 1970, Qianhai and nearby Shekou were two of the preferred places for mainland Chinese to plunge into the sea in desperate bids to swim to Hong Kong.

Even as illegal immigrants, the hope was that better economic prospects awaited just a few miles away.

Qianhai is now unrecognisable from its impoverished past. The People’s Daily posted five photos last week showing the changes to its coastline since the 1980s, showing how quickly the area has transformed via land reclamation. More recently the empty fields have been replaced by a forest of skyscrapers.

One netizen responded by posting a similar image of the stretch of land in Hong Kong adjacent to its border with Shenzhen. The aerial view, with which some WiC readers will be familiar, shows pretty much the same marshland from the 1980s until now. Not much seems to have changed at all.

The creation of the Qianhai special area was announced a decade ago as part of the celebration of the 30th anniversary of the Shenzhen special economic zone (SEZ), a district that kickstarted Deng Xiaoping’s market reform era. About 15 square kilometres of uninhabited land was earmarked for Qianhai’s development. All of that land was fully utilised within 10 years, the Shenzhen SEZ Daily says.

In the latest Qianhai planning document, the State Council has expanded the zone’s surface area eightfold to over 120 square kilometres, or 1.5 times the size of Hong Kong Island. That means parts of nearby districts including Shekou and Nanshan (an area where a cluster of internet heavyweights including Tencent have established their Shenzhen headquarters) will become part of Qianhai.

Such a dramatic change in land usage would be almost impossible in Hong Kong, says Wenweipo, a local newspaper. It reported this week that development in the city can take more than 20 years from plot purchase to building completion, and in some cases longer. The reopening this month of the redeveloped Central Market complex in the city’s main business district after decades of delays has triggered similar conversations on the same point. A shortage of available land shouldn’t be cited as the main reason for the delays, the pro-Beijing Wenweipo newspaper believes, as 75% of the territory is still undeveloped (including a vast area of country park, admittedly). But red tape and a cumbersome urban planning process are just as much to blame, it says, serving as the “filibuster tool for vested interests” in the city and blocking efforts to increase land supply.

What is the updated game plan for the two zones?

Building a new town from scratch, such as the one in Qianhai, should be an easier task, perhaps. But the expectations that Hong Kong should be getting involved more eagerly in the new zone across the border also raises important questions about the role that Beijing wants Qianhai to play.

In the initial blueprint, officials have cited a role as a hub for cross-border finance. In the revamp last week they talked about more financial services companies setting up branches there, adding that they will be allowed to provide cross-border securities investment services.

But is the plan for Qianhai to support Hong Kong or to become an alternative hub, capturing some of the city’s expertise? That would pose an obvious threat to Hong Kong’s role as an intermediary between global capital and the Chinese marketplace. And in that event, some reluctance by Hong Kong officialdom to intensify the pace of any potential cross-border integration with Qianhai perhaps makes more commercial sense.

Hong Kong has already had to cope with a dramatic change in its relationship with nearby Shenzhen – the city that hosts the Qianhai zone. Formerly the drop-off point at the border for Hong Kong businesspeople visiting factories in the region, Shenzhen is now a commanding influence in key sectors like tech hardware, advanced manufacturing and burgeoning industries like autonomous driving. These are all areas where Hong Kong simply can’t compete. Critics of the city say that its ‘real economy’ (i.e. non-property, non-financial services) hasn’t produced a new billionaire in US dollar terms for decades. Perhaps that’s more of an expression of Hong Kong’s relative strengths – it hasn’t been home to a manufacturing sector for decades either. But it doesn’t stop the handwringing over the failure to seed a new generation of tech unicorns or the kind of black humour that describes the city as ‘South Shenzhen’.

In an ideal world China’s central government wants the best of all outcomes for Hong Kong and Qianhai (Shenzhen), just as it does for neighbouring Macau, Zhuhai and Hengqin. Its argument in favour of the Greater Bay Area as a supersized economy is that everyone benefits when the pie grows in size.

To make that happen policymakers have been calling for “system innovation” that combines the respective strengths of each of the cities (and the two special zones) in the GBA. This sense of trying new approaches helps to explain another of the experiments underway just across the border from Macau. The zone in Hengqin was established to help the city reduce its reliance on the casino sector by opening up new resources of land and professional skills, two things that the gaming enclave lacks. In the changes announced this month the zone will also run under a new leadership model co-led by Macau’s chief executive and the governor of Guangdong province. For the first time, the governing of a new zone inside mainland China will be partly overseen by representatives from Macau. By Chinese standards, this is a radical administrative change – and is viewed by some as a means to reward the Macanese government’s more pragmatic philosophy on regional integration.

Naysayers will see the plan as another chipping away of the ‘one country, two systems’ protocols agreed before the return of Hong Kong and Macau to Chinese sovereignty. But the Chinese government retorts instead that Qianhai and Hengqin were created to pioneer closer ties between the two cities in question and mainland China, bringing more growth to all concerned.

And behind the new efforts to boost the zones, there is also the signal that everyone has a role to play in making the plan a success. “After leaving Suzhou, one will find it hard to get a boat to ride on,” the deputy director of the State Council’s Hong Kong and Macau Affairs Office told another gathering in Hong Kong recently.

The proverb sounds obscure but it was another warning that Hong Kong must do more to capitalise on the expanding zone in Qianhai and wider commercial opportunity of the GBA.

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