Great prospects in the Greater Bay Area: Four lessons in how to thrive
There’s no doubting the sheer dynamism that makes up the Greater Bay Area, a vast conglomeration of urban population and talent covering Hong Kong SAR, Macau SAR and Guangdong Province in mainland China. So, what is it that makes it such fertile territory for small to medium sized businesses with an international mindset, and why should companies consider setting up or expanding there?
It has been called the next Silicon Valley, and the Home of the Unicorns – but China’s Greater Bay Area (GBA) is already proving to be much more than the sum of its parts. It’s probably no surprise, given that this vast urban region of manufacturing, innovation, technological, banking and professional services excellence has already clocked up a GDP, which in its own right is about half that of France or the UK – currently sitting at US$1.6trn1 and projected by Hong Kong SAR’s own figures to reach US$4.6trn by 2030.
There’s nothing mythological either about the unicorns in the GBA – Fintech News of Hong Kong reported in December 2019 that the region is home to 43 unicorn businesses “valued at a combined US$1.1trn”.
Eye-watering numbers like these will dictate that businesses worldwide have a naturally intense interest in this economic powerhouse. Not only is it a strategic business move for multinationals and smaller tech businesses alike, it plays a huge role in the domestic health of China alone. With only 5% of the country’s population the GBA contributes nearly 12%2 of the country’s GDP.
But what do businesses need to know in order to play a part in this vast success story?
Lesson 1: Position yourself in the most strategic zone for your purposes
GBA is a multi-specialist zone that is home to technological innovation and high-end manufacturing as much as it is to financial or professional services and consumer goods.
Tom Simpson of the China-Britain Business Council is a strong evangelist for the GBA. Among the hundreds of businesses his trade and investment support organisation has helped, two otherwise simple and small UK businesses stand out as having had significant success thanks to the GBA. One drinks and spirits distributor has based itself in Hong Kong to take advantage of its hub status, while a leading company producing heating and boiling control components for kettles also set up in Hong Kong to establish its first manufacturing facility in Guangzhou.
“The success of these businesses is down to the decision to pivot to the GBA,” Tom says. “They’re now thriving. They’ve managed to leverage the advantages of the local shipping infrastructure mainland-side, through the hub that is Hong Kong, and remain globally competitive.”
Stephen Phillips of InvestHK, champions the perfect alignment of innovation and connectivity with a large consumer base: “For most international companies, what’s really attractive is that the consumers are packed tightly into highly-dense areas,” he argues. “The connectivity is phenomenal, roughly one hour’s travel between any pair of cities inside the GBA.
“From an operations or sales point of view, it is very efficient and productive in terms of developing the marketplace.”
Lesson 2: Consider the tax implications and how they can keep you competitive
Sarah Chan, Tax Partner at Deloitte, is highly experienced in the tax systems in both Hong Kong and mainland China. Her take is that there is enough incentivisation and subsidies available for businesses to leverage when setting up in the GBA.
“The Chinese authorities have been trying to ease the individual tax burden on people going into the GBA,” she says. “Also, there are preferential rates for high-tech or qualified advanced service companies – plus a super-deduction of up to 150% if you are reinvesting revenue in Research & Development. These are of course well-received by multinational companies setting up in the GBA.”
Also, a tax subsidy system means that, if you are working in Hong Kong, your individual tax liability can remain at 15% – even if you cross ‘over the border’ for a period, where it would normally be as high as 45%. Known as the IIT Subsidy, this works if you are classed as high-end talent, and work in the GBA for at least 90 days.
Paul Yeung of HSBC echoes this strategic thinking: “You should take advantage of the fact that we have one country, two systems. The tax benefits could be the determining factor in where you place yourself among the competition in your market.”
“Also, if you go into Hong Kong and mainland China, be mindful of the nature of cashflow and exchange. These are two areas with very different restrictions when it comes to how you invest capital, or the tools you might need to account for exchange rates between the different jurisdictions.”
Lesson 3: Understand the interregional business potential and use it to your advantage
The GBA is not stopping any time soon. It’s already the 11th largest economy in the world in its own right.3 And looking towards 2030, the GBA is predicted to move up the table quickly.
“It’s too big, too exciting to ignore,” says Stephen. “For me, the key ingredients that we have in the GBA that make it so exciting are the financial and professional services in Hong Kong, combined with the logistics, ports and the airport – and the scale and advanced nature of the innovation in technology that’s taking place across the cities within the GBA. Shenzhen is home to many of China’s leading tech companies, but there are great companies in many other cities within the GBA, too.
“I genuinely believe that the GBA is one of, if not the most exciting economic developments on the planet today.”
Lesson 4: Conduct due diligence on products, partners and regulations
Many businesses may want to try linking up with a partner before exploring the options for setting up in the GBA. Tom’s rule is one that he would give for any business anywhere: “Do your due diligence on any potential partners. Make sure you understand their capabilities and the resources that they have. Be very clear about both your expectations and the strategy with which you seek to develop your business in China, both in the short and long term.
“Also remember – if your distributor in China is a successful one, they’ll be getting approached by a lot of different companies representing different brands. You need to ensure that they keep your products front of mind.”
Regulations, too, still remain different across the territory, according to Stephen – something that will need your attention when setting up. “Think early on about the regulatory and standards implications for what you make or do,” he says. “Within the GBA you are dealing with three different legal systems, three different certification and standards systems. While these might harmonise over time, you still need to understand that it is a complex environment that is shifting.”
The GBA is a region that has never before seen such fast growth – can you afford to ignore it? There is vast potential for businesses looking to innovate in growth areas such as technology, financial services, healthcare or high-value manufacturing – whether in your own right or in partnership with a booming commercial network of agents and investors already there.
Talk to your relationship manager today about how we can help you expand into China’s Greater Bay Area to make the most of the opportunities available.
