Greater Bay Area: Connectivity fostering innovation

2020-04-24 15:46 Minggao SHEN

AnnexGreater Bay Area - Connectivity fostering innovation.pdf

From the Shenzhen Special Economic Zone to the Greater Bay Area:
a transition from high-speed growth to quality growth The Guangdong-Hong Kong-Macau Greater Bay Area (GBA) initiative marks a milestone as significant as the Special Economic Zone laid out in the early 1980s, and the Pudong New Area in the early 1990s. 2019-2035 will be a crucial period for China to shift its economy from rapid growth to high quality growth, from industrialization to modernization, and from a developing economy to an advanced one. The integration of the GBA is one of China’s major development strategies for the coming 15 years.

GBA lags behind world-class bay areas, but this suggests huge potential
A high-income economy is defined by the World Bank as a country with a gross national income per capita of over US$12,056. In 2017, the GBA had a higher GDP per capita of US$22,000, but this is just 40% of the Tokyo Bay Area, one fourth of the New York Bay Area, and one fifth of the San Francisco Bay Area.

Region could benefit from economies of scale and urbanization
The GBA has a population of nearly 70m, 1.6/3.4/8.9 times that in the Tokyo Bay Area/New York Bay Area/San Francisco Bay Area, which could mean it is able to benefit from substantial economies of scale. As seen in other countries, the higher the urbanization ratio, the more concentrated the population. In the US, 48% of the population live in the regions surrounding the top-three city clusters, while the ratio in China is just 28.3%. As such, the GBA is likely to see its population double in the future.

GBA strong in innovation upgrades and connectivity
Guangdong province has the world’s fifth largest manufacturing industry, making it the “factory of the world”. The province also enjoys leading advantages in terms of upgrading its manufacturing, with 14% of China’s engineers and 13.3% of China’s R&D investment in 2017, both higher than the proportion of its GDP during that year. In the GBA, openness and connectivity will mean reform and innovation. Going forward, well-controlled cross-border capital flows will be needed to meet the demand for global allocation of assets and resources.

Potential breeding ground for world-class companies, new trading hub and resource allocation platform
1) World-class enterprises are set to emerge in the area with the allocation of regional resources optimized via connectivity. Meanwhile, traditional competitive industries such as consumer, retail, healthcare and downstream manufacturing are likely to see higher concentrations. Midstream manufacturing could thrive on the back of economies of scale. Innovation upgrades and new business types could provide space for quality growth. 2) As China transfers its low-end manufacturing toward Southeast Asia, the GBA could rise as a new trading hub. 3) When the region develops its economy to a certain stage, cross-border capital and resource allocation will be required to make the GBA an important platform for global investment and asset management.

Risks Slower-than-expected progress for the initiative.

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