China's Silicon Valley Blueprint Has Plenty of Holes
(Bloomberg Opinion) -- We got the plan. Where’s the road map?
Late Monday, the official Xinhua News Agency released details of the State Council's Greater Bay Area plan – a project to knit together Hong Kong and Macau with nine mainland cities into a global innovation hub to rival California’s Silicon Valley. The trouble is, there’s little new on how authorities plan to make this grand vision into a reality.
Announced by Premier Li Keqiang in March 2017, the Greater Bay Area forms part of China’s push for supremacy in technology, while also binding the former European colonies more tightly into the country. Hong Kong residents struggling with high housing prices will have the opportunity to move across the border and work in state-owned companies while people moving the other way will gain access to the city’s education and health systems.
Under the 11-chapter blueprint, Hong Kong will focus on international finance, navigation and trade; Macau will be an international tourism destination; Guangzhou will serve as an administrative center and “gateway city”; and Shenzhen will be a technology hub. In other words, the cities will continue to do more or less what they already do. Hong Kong is already the key initial public offering venue for Chinese firms, and an offshore yuan trading center (another role assigned to the city in the Bay Area plan).
There are some extra gimmicks here and there, such as the curious idea of turning Macau into a trading platform for Portuguese-speaking countries such as Brazil. The city is a former Portuguese colony, but use of the language has faded and it’s spoken by only a small minority. Hong Kong will set up a financing and investment platform for the Belt and Road Initiative, though the city’s banks already have the capability to fund such projects if they are commercially attractive. There will be support to develop cross-border yuan reinsurance businesses, and so on.
The fundamental obstacles to the integration of Hong Kong and Macau into a mainland Chinese economic cluster go largely unaddressed. These include vastly different political and economic structures, as we wrote in September. The cities have their own, freely convertible currencies, separate passport and customs controls, and legal systems.
Hong Kong looks to be the likely loser. In the same breath as the blueprint pledges to uphold the “one country, two systems” framework that governed the city’s return to Chinese sovereignty, it talks of creating “an international and market-oriented business environment based on rule of law, under the jurisdiction and legal framework of mainland China.” The plan was released in Chinese and not in English, one of the two official languages of the former British colony.
For Hong Kong entrepreneurs thinking of setting up over the border, there’s no word on whether they’ll continue to enjoy the city’s 17 percent maximum income-tax rate. The mainland rate is 45 percent for those earning more than 85,000 yuan ($12,500) a month.
There are undoubtedly advantages to being part of a bigger economic entity. The Bay Area region would have more than 67 million residents, a trillion-dollar economy and bigger exports than Japan, HSBC Holdings Plc has estimated. At the same time, the uncomfortable reality is that Hong Kong’s attractions for international business – such as rule of law and free flow of information – rest on its distinctness from the mainland system. The blueprint doesn’t explain how these advantages will be preserved while integrating the city more closely with its Chinese counterparts.
Preparations for the Greater Bay Area have already started to erode Hong Kong’s autonomy, particularly through the siting of a Chinese border post at the city’s new high-speed rail terminus. To facilitate immigration clearance, mainland law enforcement officers are stationed there and mainland laws apply. The plan was opposed by Hong Kong democracy activists and was ratified only when China’s national parliament got involved. Meanwhile, the opening last year of a $15 billion, 55-kilometer bridge linking Hong Kong with Macau and the mainland city of Zhuhai has spurred protests from Hong Kong residents angry at their neighborhood being inundated with mainland tourists.
The blueprint’s failure to delineate clearly how Hong Kong’s status will be protected suggests either that the Bay Area plan is more hype than practical program, or that political objectives will trump economic considerations. Neither conclusion is comforting.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
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