By Chen Dingding Source: The Diplomat Published: 2019-8-5
In recent decades, in addition to the famous Belt and Road Initiative (BRI), China has aimed to reshape the Pearl River Delta, which includes Hong Kong, Macao, and nine cities in Guangdong province. The goal was to create one economic entity called the Greater Bay Area. According to the Development Outline published by the State Council of China on February 18, 2019, the Greater Bay Area will represent China in industrial competitions worldwide and provide opportunities for internal economic transformations.
This ambitious plan soon caught the attention of the rest of the world. Some, like the BBC, which calls the Greater Bay Area plan “ambitious but vague,” noticed the vastness of China’s new plan — aimed at “spurring the economy” — and yet question whether it can truly achieve its goals. Others, looking at the region’s industries and finances wonder if it truly can compete with Silicon Valley, the other Bay Area, someday.
While recognizing the Greater Bay Area’s potential, some such as the Washington Post detected Beijing’s integration attempt on Hong Kong, as the Bay Area plan connects Hong Kong and mainland China through infrastructure projects and criticized the “steady rollback of political freedoms.” Even Chen Guanghan, a professor from Sun Yatsen University’s Research Institute of the Development of Guangdong, Hong Kong and Macao, commented that the “vision of the Greater Bay Area is far more than just a bridge or a railway. No country has ever tried something like this before, merging different tax and customs and legal systems.”
In other words, the reaction of the international community toward the Greater Bay Area remains uncertain. Most are still waiting and seeing whether if China truly can pull off such an aggressive economic plan and merge the region into one.
Indeed, the Greater Bay Area has its unique advantages and the characteristics to be a world-class player, especially considering its population and size. For instance, while the San Francisco Bay Area has a population of 7.8 million, the New York city metropolitan area 20 million, and the Tokyo Bay Area 44 million, the Greater Bay Area boasts a population of 69.5 million. Furthermore, its size of 55 thousand square kilometers also stands out while compared to the New York city metropolitan area’s 21 thousand sq. km, the San Francisco Bay area’s 18 thousand sq. km, and the Tokyo metropolitan area’s 13.6 sq. km. And while its relatively low GDP per capita also exposed its weaknesses and the lack of economic efficiency when contrasted with the other 3 areas, on the other hand, this insufficiency also hints at the region’s huge potential for growth.
But the true advantage of the Greater Bay Area rests not in its size or scale. After detailed analysis, one can easily detect that New York is indeed a financial region: for instance, 14 of the 22 world top 500 enterprises in this area are financial and insurance companies. On the other hand, the San Francisco Bay Area gained its name as a technology leader due to the well-known Silicon valley and the huge profits its tech companies bring. There is some diversity in representation of the Tokyo Bay Area, consisting of strong manufacturing industries covering steel, chemicals, semiconductors, automotive, electronics, and so on. But unlike its competitors who all had distinct characteristics of their own, the Greater Bay Area has achieved a rare balance in its industrial structure development. 20 of the world’s top 500 companies are based there and includes almost all major sectors of the modern industrial system, such as automobiles, home appliances, real estate, internet, and finance.
In other words, the diversity of industry sectors present in the Greater Bay Area allows it to compete in multiple sectors on a world-class level. Hong Kong’s financial influence can rival New York, while Shenzhen’s tech enterprises and internet companies such as Tencent, DJI, Huawei, and ZTE can slowly grow into strong competitors of the members of the Silicon Valley. Guangzhou’s auto industry and the appliance industries in Zhuhai and Foshan are also forcing their counterparts in Tokyo to move further upstream of the industry. Last but not least, Macao offers the best tourism and gaming services in the Eastern Hemisphere, not only perfectly addressing the entertainment needs within the area, but also attracting capital flows from all East Asia.
Undoubtedly, this type of industrial division helps foster deep and frequent cross-integration within the Greater Bay Area, leading to the birth of more new technologies and products, which, in return, establishes unique advantages in seizing the emerging industries in the future, such as artificial intelligence, intelligent manufacturing, and the Internet of things.
Nevertheless, despite its advantages, the Greater Bay Area also faces various challenges.
While the Bay area has achieved world-class competitiveness at these levels, it cannot hide the embarrassment of lacking core technologies, specifically in the area of semiconductors. U.S. sanctions on ZTE in 2018 almost drove China’s leading telecommunications company to the brink of collapse and exposed China’s weakness in semiconductors and chips. If China cannot make a breakthrough, the survival of tech manufacturing industry in the Greater Bay Area, or the entire country, will depend on foreign companies.
Fortunately, efforts are under way and bearing fruit. 5G chips designed by Huawei’s Hisilicon company are said to be as capable as similar products from Qualcomm. And in terms of chip manufacturing, Guangzhou has also broken ground on two fabs and foundries successively.
In addition, the Greater Bay Area will have to counter the challenge of regional administrative barriers. Within the geographical scope of the narrow Bay Area, every city cannot help but face fierce internal competition in order to obtain more resources and economic advantages, which will lead to inefficient allocation of resources. Twenty years ago, in order to connect the pearl river delta, Hong Kong, Shenzhen, and the west bank of Macao, the region spent $20 billion and 10 years to build the Hong Kong-Zhuhai-Macao Bridge, connecting Hong Kong, Macao, and Zhuhai, while the densely populated and economic competitive Shenzhen was left out. Now, they have to build a separate bridge linking Shenzhen to the opposite bank, which, due to its impact on Guangzhou’s ports and shipping routes, might face endless delays. Overall, the internal competition in this region will never cease.
Last but not least, just as the Washington Post mentioned, the Greater Bay Area will also have to face the striking differences in administrative and value systems between Hong Kong, Macao, and Mainland China. Even though the development plan of Greater Bay Area aims at eliminating the differences between both parties to a certain extent, the recent protests and demonstrations in Hong Kong have clearly showed that no matter the geographic distance, the more international and “western” Hong Kong seemed to have a hard time integrating into Mainland China. In the short term, neither Hong Kong nor China will find the key to solving this dilemma.
Just as it hopes to gain more advantages and say in international trade through the BRI, the planning of the Greater Bay Area also leaves hopes that China will gain a higher position in the international industrial chain. Whether it can overcome the many challenges that still exists will become the key to the realization of this hope.
Chen Dingding is a visiting fellow of Chongyang Institute for Financial Studies at Renmin University of China.