Bay Area's development will facilitate HK's third economic transformation

Yu Wah-yung discusses important ways in which Hong Kong can not only contribute to national rejuvenation but also revitalize its own economy.

At the seminar celebrating the 40th anniversary of the country's reform and opening-up, Wang Zhimin, director of the Liaison Office of the Central People's Government in the Hong Kong SAR, called for Hong Kong to proactively participate in the country's national rejuvenation, particularly the development of the Guangdong-Hong Kong-Macao Greater Bay Area. Indeed, by proactively participating in the city cluster project, Hong Kong will not only contribute to national rejuvenation but also benefit tremendously from it. The development of the Bay Area, which has complete modern industrial chains, will help facilitate Hong Kong's third economic transformation, and accelerate the process of the city developing an international innovation and technology hub while strengthening its status as an international financial, shipping and trade center. This will surely help diversify Hong Kong's functions as well as sharpening its competitive edge.

Hong Kong has undergone two economic transformations in the past. The first one began in the 1960s, when a new wave of industrial restructuring was taking place on a global scale. At that time, Hong Kong preempted other Asian economies in developing labor-intensive industries such as textiles, clothing, etc. In the process, the SAR became the most important doorway for the Chinese mainland to conduct economic exchanges and trade with the rest of the world.

The Chinese mainland started the reform and opening-up process in 1978. Hong Kong's manufacturing industries took the great opportunity to gradually relocate to the Pearl River Delta to shun the high operating costs in Hong Kong. As the country had yet to fully open its market at the time, a huge volume of imports and exports still had to be transshipped through Hong Kong, and this brought in a considerable amount of fund settlement business in the city. Hong Kong's economy quickly completed its second transformation, shifting from manufacturing industries to service industries. By the end of 1980s, service industries accounted for more than 80 percent of Hong Kong's GDP, and the city gradually established its status as an international trade and financial center.

As the reform and opening-up on the mainland deepens, the competitive edge of Hong Kong as a doorway is gradually diminishing. A large number of latent and deep-seated economic problems begin to surface. Major issues, including the sharp decline in the size of the overall manufacturing industry and industries becoming more homogenous, are seriously hampering the next economic transformation. By studying various major economies around the world, we have realized that none of them has abandoned their secondary industries, i.e. the industrial sector. However, Hong Kong's industrial sector withered, with its ratio over the GDP falling to only 7 percent at the end of 2014, of which the manufacturing industry accounted for less than 1.5 percentage points.

However, Hong Kong's economy still enjoys many favorable conditions and development opportunities. Internally, Hong Kong has a healthy financial condition and increasing fiscal surpluses. Externally, the Belt and Road Initiative and the construction of Bay Area city cluster have brought unprecedented opportunities for Hong Kong. Constrained by its flawed industrial structure, Hong Kong has been confronting the dilemma of a lack of new economic growth points in recent years; the Bay Area project can hopefully inject new momentum into the Hong Kong economy, facilitating its third economic transformation and diversification.

For companies residing in the Bay Area, Hong Kong enjoys a comparative advantage as a global hub for economic activities and a convenient platform for reaching to the global industry chains. It has become a popular location for mainland companies to set up regional headquarters to manage their overseas businesses as well as to enter the international market. The Bay Area development can help Hong Kong enterprises expand their presence on the mainland. Hong Kong can deepen collaboration with regional cities in areas such as financial, innovation and technology, supply chain management, professional services, transportation and logistics sectors to support the Belt and Road Initiative. This will expand the scope of economic development necessary for completing the third economic transformation.

The Bay Area development can promote the third economic transformation in three ways:

Firstly, Guangdong proposes to work with Hong Kong to create a Guangzhou, Shenzhen, Hong Kong and Macao Science and Technology Innovation Corridor dedicated to innovation development in the Bay Area. Shenzhen's robust technological capabilities can help kick-start the economic development momentum of Hong Kong and Macao, while Hong Kong can complement Shenzhen's inadequacies in finance, higher education, medical and other public service sectors, and Dongguan with its strong manufacturing capabilities can give a hand in promoting technological advancement, institutional innovation and internationalization of the Bay Area. Innovation and technology will surely become an important area for collaboration between Guangdong, Hong Kong and Macao, as well as a major driving force for Hong Kong's third economic transformation.

Secondly, the impact of the Bay Area development on Hong Kong will go far beyond the economic sphere. The proposed "Bay Area high-quality living circle" has great appeal to residents living in the region. The future development will base on connectivity through high-speed rails and infrastructural facilities, and on effective sharing of public services. This will create a high-quality living space for Hong Kong residents and particularly for the youth.

Thirdly, the Bay Area can be developed into a giant hub for the BRI, a world-class economic platform and an international innovation and technology center, which houses advanced manufacturing industries and modern service sectors. The Bay Area has mature manufacturing chains, good production bases and ample hardware facilities. It has transformed in recent years from a resource-driven, "a shop in the front and a factory at the back" mode of operation to a region propelled by innovation, advanced manufacturing industries and modern service sectors. It has provided sufficient driving forces for the manufacturing industry to move up the value chain, as well as promoting various innovative economic activities that can help facilitate Hong Kong's third economic transformation.

If Hong Kong can leverage its unique advantages under the "one country, two systems" policy to unleash its development potential and integrate itself into national development, it will be able to accelerate its third economic transformation. By then, the city will have a good chance of breaking its economic bottleneck and revitalizing the economy.

The author is the vice-chairman of the Chinese General Chamber of Commerce and a Standing Committee member of All-China Federation of Industry and Commerce.

The above is an editorial published by China Daily on Dec 14, 2018.