The Greater Bay Area

China’s Guangdong - Hong Kong - Macao Greater Bay Area (GBA), 粤港澳大湾区 Yuègǎngào dàwānqū, is a grandiose and ambitious scheme aiming at integrating the Pearl River Delta (PRD), securing its status as a major trading hub and cementing its role as one of the starting points of Xi’s ​​Belt and Road Initiative (BRI).

Although the term GBA was only coined during the drafting of China’s 13th Five-Year Plan (revealed in December 2016), the PRD had already played a significant role in China’s history. However, the sheer scale of this enterprise clearly sets the GBA apart from its predecessors. Indeed, as one of China’s richest areas, this venture is both paramount to the sustainability of China’s economic growth, and a pilot scheme for the “moderately prosperous country” China ambitions to become by 2049.

A Project of Ozymandian Dimensions

The GBA is composed of 9 municipalities (Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing) and 2 special administrative regions (SARs, Hong Kong, and Macao), hereinafter the “9+2”.

Together, these cities are home to just over 72 million people, equivalent to the entire population of France, or 5% of China’s total population, living in an area of 56,094 square kilometres accounting for less than 1% of China’s land area. With a combined GDP just shy of 1.7 trillion USD, the GBA accounts for 12% of the country’s GDP, and stands at twice the national average GDP per capita (although this figure hides massive disparities).

A Short History of the GBA

At a 2021 French Chamber in Hong Kong GBA event, Laurence Li SC, Chairman of Temple Chambers, argued that the GBA was bound to succeed as it was riding “the wave of history”.

The Pearl River Delta has since the late Ming dynasty been China’s main commercial hub. The Portuguese established themselves in the colony of Macao by 1557, which served as a base for commerce between European and Chinese merchants. Under the Canton System (1757/1760 - 1842), Guangzhou was the sole Chinese city open to trade with the West. The Cohong (a guild of Chinese merchants) were granted a monopoly over imports and exports, and managed the Thirteen Factories, whilst Europeans commerced there in the summer and winter in Macao (until 1806 when this mandate was lifted by emperor Qianlong).

After the Opium Wars, British merchants made several short-lived attempts at building the “Kowloon-Canton railway”, before construction finally began in 1904. Rough terrain and poor planning led to soaring costs (the railway was one of the most expensive in the world at the time, ballooning to HK$12 296 929). Nonetheless, the first step towards regional integration had been taken.

During Mao’s reign, a bamboo curtain descended over the PRD before Deng Xiaoping’s reforms revitalised the region (from the early 1980’s onward). As part of Ni’s and Coase’s (2013) “four marginal revolutions”, Shenzhen and Zhuhai were set up as Special Economic Zones in 1980. This led to the development of the famous “front-shop, back-factory” model, under which Hong Kong and the whole region prospered through regional specialisation. The low-cost Guangdong municipalities developed their manufacturing capabilities, whilst the European colonies transitioned away from the secondary towards the tertiary sector. “Having secured abundant inflows of capital, technology, talents, and experience in international management from the colonies, Guangdong soon grew into a leading global manufacturing hub, whereas Hong Kong and Macao further developed their professional services and tourism-leisure sectors.” (Li and Kwok, 2019). Already, Guangdong was a pilot zone, spearheading China’s reforming and opening-up policies.

After the colonies were handed over, numerous frameworks of cooperation between the newly formed SARs and the Guangdong hinterland were crafted. A “Closer Economic Partnership Arrangements” (CEPA) was signed in 2003, whilst the National Development and Reform Commission first mentioned the “bay area action plan [to] facilitate cooperation with Hong Kong and Macao” (National Development and Reform Commission, 2008), before the “Framework Agreement on Hong Kong/Guangdong Cooperation” was unveiled in April 2010. This last step triggered heavy debate about its potential conflict with the founding rule of “one country, two systems”.

Outlined Plans

Since its establishment, the GBA is expected to act as a gateway between China and the rest of the world. Most importantly, the GBA is also envisioned to play a key role in China’s BRI, as the starting point of the Maritime Silk Road.

Its main goal, however, remains to regionally integrate the PRD and transform the latter into a regional hub based on development of all kinds. For these reasons, the GBA incorporates twelve points in its key policy areas. Among others, the continuation of the enhancement of the innovation and technology field; the implementation of efficient financial services; the betterment of infrastructure connectivity and logistics; the safeguarding of a correct observance of CEPA between Hong Kong and the Mainland, and the possibility for Hong Kong professional services (e.g. architects, structural engineers, lawyers, doctors) to acquire the corresponding Mainland's professional qualifications through mutual recognition or examinations; the implementation of functional international legal and dispute resolution services; the easing of clearance facilitation; the amelioration of the medical and education services, the improvement of youth development; the sponsorship of arts and culture, creative industries, and intellectual property; the fostering of tourism; and, lastly, the compliance with environmental protection and sustainable development (Bay Area, 2022). These fields touch the 9+2 comprehensively, although delineating development imbalances due to their different states of progress.

Moreover, the total adherence to the “one country, two systems” founding principle plays a crucial factor in the smooth deployment of the project. This rule drives the country’s willingness to reaffirm the central government’s authority (“one country”) while also pledging to respect and leverage the SARs’ differences (“two systems”). In this regard, under the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, the GBA is expected to use the advantages of Hong Kong and Macao as free and open economies, and of Guangdong as the pioneer of reform and “opening up”.

In fact, while integrating the nine Mainland cities presents relatively minor difficulties, successfully integrating Hong Kong and Macao into the mix is a whole different story. The former European colonies have their own official languages as well as their own political, legal, monetary, and financial systems. Successfully bringing together these different environments into a coherent system might seem discouraging, though not impossible, but it would take decades to accomplish (Ballesteros, 2022).

Under the regional integration plan, four core cities have been identified as “engines” of development. They are the two SARs, Guangzhou, and Shenzhen. On the one hand, they foster regional development, due to the continued leveraging of their comparative advantages in striving for excellence and achievements. On the other, they strengthen the radiating spillover effect in leading the development of nearby regions (Bay Area, 2022). This is unsurprising, as each of them are leaders in their respective domain.

On the contrary, the other municipalities are expected to play a supportive role as “node” cities. In fact, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, and Zhaoqing are fully leveraging their strengths with distinctive qualities and characteristics, deepening reform and innovation, and forming key node cities with, complementary positioning, and strong competitiveness. To enhance development coordination, strengthen interaction, and cooperation with core cities, they drive the development of nearby towns with distinct characteristics, and jointly raise the development quality of the city clusters (Bay Area, 2022). To this purpose, each of these cities focuses on a particular sector. For instance, specific services are offered with indicators ranging from information and technology, market cooperation and infrastructure, to food production and financial services.

While the directions of development are clear, less clear cut is which policy area prevails over the other. So far, the GBA project promotes integration across many fronts, but infrastructure remains the most important one. The key objective is to achieve the so-called “one-hour living circle”, a multi-dimensional transportation network construction that could promote the flow of people, logistics, and business, but also of funds and efficient circulation of information (PwC, 2022).

Hong Kong and the Mainland are a clear example of the GBA’s infrastructure results and of the living circle. Indeed, they are closely connected with well-developed cross-boundary transportation networks and facilities. There are, in fact, frequent contacts between the two places and cross-boundary passenger traffic have been on the rise in recent years. According to recent figures, in 2019, over 236 million passenger trips crossed the border via land, with a daily average of over 640,000 passenger trips (Bay Area, 2022).

Infrastructure per se is a very broad concept, which includes airports, ports, railways, and bridges, some of the main projects have already been completed. So far, a striking accomplishment in GBA infrastructure is the Hong Kong-Zhuhai-Macao Bridge. The 55-kilometre bridge-tunnel system is both the longest sea crossing and open-sea fixed link in the world, and is symbolic of the kind of infrastructure that will soon interconnect the area. Similarly, the high-speed rail connecting Hong Kong, Shenzhen, and Guangzhou remains another iconic example of the GBA work (Ballesteros, 2022).

The GBA, the BRI, and China’s future growth

Interestingly, the first official mention of the term “Greater Bay Area” is to be found in the white paper “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road” (Li and Kwok, 2019). This highlights the significance of the GBA not only for the PRD and Guangdong, but also for Greater China and the world.

China’s economy has expanded at breathtaking speed over the past fifty years, with growth averaging 7.5% per annum, making their economy the fastest growing in the world (McKinsey, 2018). The Chinese recipe for growth can be coarsely summarised as relying on cycles of debt-fuelled infrastructure investments, which in turn attract foreign investment, enabling production capacities to expand, thereby yielding larger revenues from exports, which can be used to repay the debt and kickstart a new cycle (Chatham House, 2020). Whilst this model enabled China to prosper, it also exhibits diminishing marginal returns. Compounding this problem is the fact that most Chinese regions already have an oversupply of infrastructures since the late 2000s.

A new development paradigm was needed for China to escape the middle income trap and become a developed nation before its demographic dividend was exhausted. The new model relied on the re-gearing of production towards high value-added goods and services, the development of interior provinces, and the reliance on its colossal domestic market (i.e., the rapidly expanding and increasingly consumerist middle-class) to meet China’s gargantuan supply capacities. Additionally, China covets new markets to find demand for its overproduction.

Both those aspects are embodied in Xi’s concept of “dual circulation”, 国内国际双循环 guónèi guójì shuāng xúnhuán: a strong interior demand coupled with large, untapped export markets can meet domestic supply. In essence, the BRI’s role is to open, broaden, and develop new markets, both by emulating the successes of China’s debt-fuelled infrastructure investment model, and by building the infrastructures required for exports. In turn, the GBA embodies both facets of “dual circulation”. It is a starting point of the maritime Silk Roads: 40% of China’s exports to the world transit via the GBA, which harbours three of the world’s ten busiest container ports (Shenzhen, Guangzhou, Hong Kong), and two of Asia’s largest financial centres. Meanwhile, the GBA constitutes a “small scale” experiment of China’s new economic system: its endogenous expansion is sustained through innovation, enjoys a strong supply of qualified labour, robust financial infrastructures, and focuses on high-value added manufacturing and services, making the GBA home to an increasingly wealthy middle class.

The GBA is therefore at the forefront of China’s new development model: both as the main propeller of China’s economic growth, as its main area of innovation, and as one of the Middle Kingdom’s most affluent regions.

Challenges for the Future?

The GBA is an extremely ambitious plan, which is vital to the reformation of the Chinese growth model. Although it has an enormous potential - derived from its sheer size, its international position, its competitive companies, and its skilled workforce - some challenges might be considered.

On the one hand, GBA has the potential to extend its reach beyond the PRD region and catalyse China’s BRI, where Hong Kong should strengthen its role as a global offshore renminbi (RMB) centre and as dispute resolution hub for resolving investment and commercial disagreements within BRI projects (Guide Me Hong Kong, 2019). On the other, the full adherence to the ‘one-country two-systems’ founding rule tends to outline the complexities of the system itself. To mention some, the existence of three legal systems, three currencies, two land borders, two and a half data ecosystems, loads of various tax regimes, constraints over the free movement of people and goods across the area, the necessity for regulatory harmonisation, and the RMB non-convertibility issue, generate an over burden of complexities hindering the GBA’s smooth functioning. Even though integration is at the project’s core, ambiguity and uncertainty remain predominant. To make progress, intertwined policy promotion, and integrated processes and standards are needed.

Lastly, the COVID-19 pandemic has created tremendous disruptions to the pattern of economic growth in China during 2020-22. In the near-term, a key downside risk for China’s economic outlook is from new COVID-19 outbreaks, which could continue to act as a significant drag on economic growth momentum, including for the GBA. Even though economic activity has rebounded in June after pandemic restrictions in Shanghai and Beijing were eased, new COVID-19 cases have been reported (IHS Markit, 2022). In fact, the recent event reported in late October at the Shanghai Disneyland Resort has left the world stunned. Due to some visitors testing positive, thousands of tourists found themselves locked inside the Park for hours. Sources report the Park had previously remained closed for other months as part of Shanghai’s strict city lockdowns.

To conclude, despite high expectations, some say the connect schemes are faltering and there is still a marked slowdown in the development of areas such as innovation and technology, infrastructural connectivity, financial integration, and social betterment.

Lucilla De Stefano holds a Double Master’s Degree in Chinese International Relations, and Law from the China Foreign Affairs University of Beijing, and LUISS Guido Carli University of Rome. She visited China twice in her life, and lived in Beijing for a year. She is fond of the Belt and Road Initiative dynamics with Europe, which became the topic for her university dissertation. She is now working as an HR Analyst Junior Consultant at IFAD, a United Nations Specialized Agency. You can find her on LinkedIn.

Nicolas Guignard is a master student candidate within the Economics and Public Policy track of Sciences Po’s school of Public Affairs. He holds two bachelor’s degrees from Sciences Po and the University of Hong Kong (in Economics and Finance). A curious and eclectic mind, he has developed a long-time interest in China’s development framework. His main area of expertise revolves around economics and economic policymaking. You can find him on LinkedIn.

The opinions expressed here are those of the writers and do not represent the views of European Guanxi.

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