Beijing promises to let Hong Kong tap mainland data and research funding

5 min read
A border bridge connecting Hong Kong and Shenzhen. (Image credit: Bigstock/Askarim)

The Greater Bay megacity cluster at Guangdong’s Pearl River Delta is exciting. The newly published regional Development Plan doesn’t change the fundamentals: it announces no significant reforms, opens no borders, offers no billions to cross-border business. But it signals new openings on the border of which both sides can take advantage.

The document is a strategy. I’ve read and studied it all, highlighting the most interesting elements. Let me share some of those here.

The plan’s most important statement is that the region is to be “driven by innovation and led by reform.” To start with, it outlines the strengths of various cities in the Greater Bay Area and aims to build on those. No surprise there. By highlighting the areas of competition and industries of strength and strategic importance for the different cities, the message encourages specialization.

But the plan won’t stop cities from competing with each other. Whether it will be supported or subsidized, it is a different question. For example, Hong Kong is marked as the financial center of the region, but it is not indicated that Shenzhen should stop IPO activity. Hong Kong is supposed to be the maritime and trading center, but that won’t stop the expansion of the Guangzhou and Shenzhen ports—mostly at Hong Kong’s expense. Shenzhen was declared the innovation powerhouse of the 11 cities, because, well it is the innovation powerhouse, Still, the city of Foshan was not told to halt its ambitions in innovation and high-end manufacturing.

A key challenge addressed by the document is the three different legal and tax systems at play, but the lawyers and accountants are still trying to figure out what integration will mean there. As a businessman, I can see three areas where the plan signals real opportunities: data, R&D, and fintech.

What to bet on

The flow of data is of such strategic importance that it has been called “the new oil.” And data is, well, not flowing extremely well, let alone uninterrupted, between China and the rest of the world. On a micro level, nowhere is more exposed to data barriers than the Greater Bay.

According to the document to goal is “…to pursue the development of the Guangzhou-Shenzhen-Hong Kong-Macau innovation and technology corridor, explore policy measures to facilitate the cross-boundary and regional flow of innovation elements such as talents, capital, information and technologies, and jointly develop a Greater Bay Area big data center, as well as platforms for international innovation.” Not a detailed plan, but I see intention, and I repeat: opportunity.

With policy-makers interested in promoting data flow, new standards and practices, there is simply no better place on Earth to test and implement them than this region, especially Hong Kong, Shenzhen, and the new Lok Ma Chau “Loop” science park. The Development Plan mentions data and data-centers and as this special new economic zone is situated in Chinese territory, but governed by Hong Kong law, it is probably the best place for experiments.

The second element I appreciate is the importance dedicated to research and development. Shenzhen’s proportion of R&D spend of GDP at almost 4.7% is on par with the most innovation-driven countries in the world with similar populations like Israel and Sweden are 4.25% and 3.25%, respectively, It is far ahead of Hong Kong’s 0.73% and Guangzhou’s 2.7%. The combined R&D spend of Guangzhou, Hong Kong, Macau and Shenzhen accounts to more than $23 billion and 2.4% of total GDP. The equivalent figure for California is 4.4%; the US state is comparable in population and economic diversity with the four major GBA cities together.

Collaboration between enterprises and academia is mentioned multiple times. According to the document, there is a clear intention to “…support Guangdong, Hong Kong, and Macao enterprises, higher education institutions and R&D institutes in jointly developing quality collaborative platforms for coordinated innovation, and promote the commercial application of technological achievements.”

This is good news for Hong Kong: it is the education and knowledge capital of the region with four global top 100 universities, positioning the city to benefit from new sources of research and development funding. Hong Kong and Macau institutions are signaled to get access to generous mainland academic and research funding schemes. This means (Hong Kong) dollar signs. Academic fame. And opportunity.

Third, the document spends a good number of words on fintech and techfin, innovation in cross-border insurance and harmonization of regulation for both the finance and insurance space, with a special attention to technology. The Hong Kong fintech scene has been growing stronger—leveraging the strengths of both sides of the border could bring unique opportunities and results.

What’s next?

Nothing has changed over the past week really. I won’t move to Shenzhen, I won’t buy land in Zhuhai (I should have done that years ago!) and there is no GBA crypto currency to buy (thankfully).

The plan has critics, especially in Hong Kong. Some say integration will undermine Hong Kong’s free market system. This could sure happen – but the plan probably isn’t the vehicle. It doesn’t describe that kind of control, in my view the mainland doesn’t think control would be in its interests.

The document certainly doesn’t overwhelm you with detail—it’s a signal of the government’s intentions, not a road map to execution. And that’s fine.

There are clearly major hurdles not tackled in the document, legal obstacles to the flow of people, capital, and goods, as well as three disparate tax and legal systems. But it would have been naive to expect concrete solutions before the basic principles were laid out. This will be a hard, and probably pretty slow process.

But look across the border. It’s a one hour trip from my sofa in Hong Kong to my preferred coffee shop in Shenzhen, in the shade of the Ping An Tower. Many Western entrepreneurs and business people would love to do business with and in China, but don’t know how. Young Hong Kong people and entrepreneurs have skills positioning that other nations’ children can only dream of. Now is the time to seize these opportunities.

China’s largest property developers spent $16 billion on Greater Bay land in 2018. And no wonder: 18 million people are expected to move into the 11 cities by 2030.

No one should expect any hand-holding. The competition is insane. It won’t be an easy ride—it has never been—for businesses, nor for political integration. The Greater Bay Area won’t become the EU overnight. It might never come close, but integration will create wealth and value, because quite simply the whole is bigger than the sum of its parts.