According to the Development Plan of the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area) announced on February 18, the Greater Bay Area includes Hong Kong, Macao, as well as Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing of the Guangdong Province. It has a total area of 56,000 km2, and a population of approximately 70 million at the end of 2017.
This area is one of the most developed regions in China. The basic estimation of Anbound's macro research team shows that the nine cities in the Guangdong Province, Hong Kong and Macao of the Greater Bay Area have the GDP of approximately RMB 10.6 trillion in 2018 (about US$ 1.5467 trillion based on the exchange rate at the end of 2018). When this is compared globally, the size of the economy of the Greater Bay Area in 2018 would be roughly equivalent to the Korean economy in 2017, which was ranked 11th in the global economy. It is undoubtedly one of the regions with the highest degree of openness and possesses the strongest economic vitality in China.
If the economy of the Greater Bay Area is that developed, why would China want to introduce a national-level plan to re-integrate it? From the perspective of national goals, how should the Greater Bay Area be developed?
According to official reports, the Greater Bay Area was personally planned and promoted by President Xi Jinping, which indicates its planned development has an important strategic position in the overall development of the country. The planning outline of the Greater Bay Area shows that its strategic positioning is to build the area into a global base of emerging industry, advanced manufacturing and modern service, and simultaneously construct a world-class urban agglomeration. In terms of development timing, the plan has defined the development and divided construction goals into two periods. In the first phase, which takes place from the near future to 2022, the comprehensive strength of the Greater Bay Area will be significantly enhanced, and its world-class framework and urban agglomeration will be foundationally formed. In the second phase, for the long term up to 2035, an economic system and development model with innovation as the main support structure will be formed, establishing the Greater Bay Area as a first-class development.
Anbound's researchers believe that the Greater Bay Area has several unique status and characteristics. First, its economic scale and importance far exceed other regions in China. Second, the Greater Bay Area encompasses what is known as "one region, two systems, three jurisdictions"; which is to say that the development involves complex institutional integration. Third, the development of the Greater Bay Area has political significance. It tries to achieve the integration of economic factors within the region under the hybrid-system, and further expand Hong Kong and Macao in the geo-economy and incorporate them into the "Greater China Economy". At the same time, it aims to drive the development of the Pearl River Delta with the vitality of Hong Kong and Macao. Although the Chinese central government did not explicitly state this policy, we can see that the importance of the Greater Bay Area is indeed a major one for China.
It is worth noting that the integrated development and innovative breakthrough in the financial sector is an important goal for the development of the Greater Bay Area. The planning outline proposes to expand direct financing channels, relying on the regional equity trading market and building a platform to provide financial support for scientific and technological innovation.
This can specifically include:
(1) Hong Kong: Supporting Hong Kong's private equity funds to participate in the financing of innovative technology companies in the Greater Bay Area, thereby allowing qualified innovative technology companies to enter the Hong Kong-listed fund-raising platform and develop Hong Kong into a high-tech industrial financing center in the area, in addition of supporting Hong Kong to develop more offshore RMB, commodity and other risk management tools.
(2) Guangzhou: Supporting Guangzhou to build a regional private equity trading market, a regional trading center for property rights and commodities, and an innovative futures exchange with carbon emissions as the first priority. Studies should be conducted to explore the establishment of the Greater Bay Area International Commercial Bank in the Guangdong Pilot Free Trade Zone.
(3) Shenzhen: Supporting Shenzhen to develop its capital market with the Shenzhen Stock Exchange as its core, establishing insurance innovation development experimental zone.
(4) Macao: Supporting Macao to build a financial service platform for China-Portuguese-speaking countries, establishing an export credit insurance system, and building an RMB clearing center for Portuguese-speaking countries. Studies should be conducted to explore the construction of a Macao-Zhuhai cross-border financial cooperation showcase zone. The study establishes a securities market, a green financial platform, and a Chinese-Portuguese financial service platform that adopts the RMB as its main denomination.
In the financial and insurance fields, The Greater Bay Area's insurance institutions should be supported to jointly develop innovative cross-border motor vehicle insurance and cross-border medical insurance products to provide convenient insurance, survey and claims services for cross-border insurance customers. This will also support insurance institutions in Mainland China, Hong Kong and Macao to carry out cross-border RMB reinsurance businesses. In the cross-border businesses, the scale and scope in cross-border use of RMB in the Greater Bay Area will be gradually expanded. Banking institutions there may conduct cross-border RMB lending, RMB forward foreign exchange transactions, and cross-proxy sales of RMB-related derivatives and wealth management products in accordance with relevant regulations. Enterprises in the Greater Bay Area can issue RMB bonds across the border based on the regulatory rules.
In terms of market and trade integration the level of market integration will be greatly enhanced. CEPA, the series of agreements between the Mainland China, Hong Kong and Macao, to promote financial, educational, legal and dispute resolution, shipping, logistics, railway transportation, telecommunications and Chinese medicine for Hong Kong and Macau will be implemented. Special measures should be implemented in areas such as construction and related projects. Studies on abolishing or relaxing restrictions on Hong Kong and Macao investors' qualification requirements, shareholding ratio and industry access will also need to be further conducted. Qianhai's development and the offshore account (OSA) function should be expanded. In this aspect the free trade account system (FTA) of the Shanghai Pilot Free Trade Zone can serve as an example for the Greater Bay Area to explore the effective path of capital account convertibility.
Final analysis conclusion:
On the whole, China hopes to establish the Greater Bay Area as the developmental pillar of Southern China and make it an area of international influence. The Greater Bay Area will be developed along with the Yangtze River Delta on the eastern coast and the coordinated development of the Beijing-Tianjin-Hebei region in the north China. It would presently seem that the Greater Bay Area has a dominant development foundation, but the integration of economic, legal and regulatory systems in the future is still full of challenges.
