Date: June 23, 2022

Author: Guo Wanda, Executive Vice President, China Development Institute

“The development of the Guangdong-Hong Kong-Macao Greater Bay (GBA) saw progress in three major aspects,” said Guo Wanda, Executive Vice President of China Development Institute (CDI). In addition to the improvement in transportation network & institutional connectivity and the industrial clusters & innovation ability, Guo highlighted the various platforms built to boost Guangdong-Hong Kong-Macao cooperation.

“We established major cooperation platforms like Hengqin, Qianhai, Nansha and Hetao as well as special platforms in cities such as Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing. These platforms have been particularly significant since the plans for Hengqin and Qianhai released last years and have the two regions to drive regional integration and development,” said Guo.

The GBA is a focal point in the report of the 12th CPC Guangdong Provincial Committee through which the Party summarized the province's performance over the past 5 years while unveiling future development blueprint. Having read the report, Guo shed insight into the government’s latest plans for the GBA, one of China’s most economically active regions, in a recent interview with GDToday.

Hengqin, Qianhai cooperation platforms proven effective

The report sets it a major goal to further reform and opening-up through the ‘synergistic effect’ generated by the development of GBA, Shenzhen as a pilot demonstration area of socialism with Chinese characteristics as well as Hengqin and Qianhai cooperation zones.

Guo elaborated the ‘synergistic effect’ means the effects on opening up to Hong Kong, Macao, to the world, and to global talents. “For example, the Hengqin and Qianhai cooperation zones have been piloting institutional reforms which allow Hong Kong and Macao professionals to provide services in the mainland much more easily. These platforms have proven effective as they facilitated regional integration and attract more foreign direct investment.”

According to a press conference on April 19, Hengqin has seen more than 4.7 thousand Macao-invested companies which have tripled over the past 2 years while 2021 has seen a 156 percent year-on-year increase of Hong Kong-invested enterprises settling down in Qianhai. As for Shenzhen, its actual use of FDI hit 11 billion USD in 2021 with a 10.2 percent of average annual growth in 2019 to 2021.

Guo highlighted Hengqin, Qianhai platforms are not only leading the integration of GBA but overflowing their effect into surrounding areas.

“Shenzhen Development and Reform Commission launched a research on joint development between Qianhai as well as Cuiheng and Binhaiwan, two cooperation platforms respectively in neighboring Zhongshan and Dongguan. The research examines the possibility of integrated development of the east bank and west bank of the Pearl River, which shows the overflow effect of the Qianhai,” said Guo.

High-tech industry, international cooperation highlighted in Nansha plan

Guo pays close attention to the overall plan for Nansha District in Guangdong's provincial capital Guangzhou to deepen comprehensive cooperation between Guangdong, Hong Kong and Macao, saying, “Nansha is positioned high as a‘major strategic platform’ for GBA integration and global cooperation.”

The Plan released by China’s State Council sets out 5 key directions for Nansha including high-level opening-up, rule-based connection mechanism, cooperation for sci-tech innovation, co-operation in youth innovation and entrepreneurship, and high-quality urban development. From 2022 to 2024, 10 billion RMB of new local government debt will be allocated to Nansha every year.

“The plan for Nansha might involve similar advantageous measures as the Plans for Hengqin and Qianhai, which makes sense considering the effective practice in the two cooperation zones. However, I would highlight Nansha has its unique industrial clusters that focus heavily on high technology,” said Guo,

According to the Nansha government, 744 high-tech enterprises and more than 620 AI and bio-tech companies have settled in the district. The auto industry is the pillar industry to drive development with an annual output of more than 154.8 billion RMB in 2021. Nansha is also one of the two districts that have given a green light to launch automatic driving on the pilot roads and areas.

“Nansha not only could be the manufacturing base for high-tech industries, but also provides an relatively open environment to apply these technologies such as unmanned vehicles, aircraft and underwater vehicles. It could facilitate the development of upstream industries such as new material and marine energy as well.”

Moreover, Guo considers Nansha’s development is highly related to the ability of technological innovation. The Hong Kong University of Science and Technology set up its Guangzhou campus in Nansha and will open in September this year while the Chinese Academy of Sciences (CAS) has landed a number of research institutes in the districts.

“When I visited Nansha, I was deeply impressed by the cold-seep seafloor ecosystem research device being built by the South China Sea Institute of Oceanology, CAS. Cold seeps are located at the sea floor where hydrocarbon-rich fluid seepage occurs. A deeper research into the cold seeps will reveal the secrets of the evolution of life on Earth, and contribute to research on energy and bio-technology,” he said excitingly.

Now that the plan positions Nansha as a strategic platform for global cooperation, Guo was invited by Nansha to research on more detailed strategies to develop the district into an international platform.

In his opinion, regulations up to international standards are fundamental to attract global players. “For example, our medical system is different from other countries. We need to press international standards on medical institutes, drug, and medical equipment manufacturers. Or if we plan to involve Hong Kong, Macao counterparts in urban development, more reform is required to recognize their different certificates and standards in the professional services sector.”

Platforms in other GBA cities have their own strengths

The report of the 12th CPC Guangdong Provincial Committee emphasizes the development of cooperation platforms in other GBA cities including Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.

Guo summarizes 4 major characteristics of the cooperation platforms in these cities. On the one hand, they emphasize the development of advanced manufacturing industries and strategic emerging industries which require a certain amount of R&D ability. On the other, they stress ecological conservation, smart city development, and the cooperation with Hong Kong and Macao.

“The Sanlongwan and Binhaiwan are respectively located in Foshan and Dongguan, the two cities with GDP exceeding 1 trillion RMB. Foshan is known for its well-developed manufacturing base while Dongguan is also a manufacturing city with rapid development in AI, bio-technology and information technology. The Cuiheng platform in Zhongshan will face enormous opportunities as the Shenzhen-Zhongshan link is schedule to open in 2024. We saw several major projects in the fields of manufacturing and energy settled in the platform in recent years,” said Guo.

He added the advantageous policies might slightly differ from platforms to platforms in terms of tax preference, rent, subsidies, and accommodation support policies. He suggested that people could make the decision considering the different geographic locations, strengths, costs, and cultures of these cities if looking to start their business or career in the GBA.

(Source: GDToday)

Author: Liu Guohong, Assistant President, Director of Department of Financial Development and State-owned Assets and State-owned Enterprise Research.

As the Omicron outbreaks slowed down production across the globe, funding options have become limited but also urgently needed for private companies. Over the last two years, financial relief policies had been delivered rapidly to those pandemic-hit cities in China. In this regard, the accumulated experiences in policy implementation could serve as the role to stabilise and stimulate the market to greater effect.

What are the Problems facing China's post-Covid financial relief policies?

Policies that are packed with low-interest rate loans in order to reach more beneficiaries will lead to increased financial risk as the return on such loans cannot cover the cost of capital. Resultantly, financial institutions will become reluctant to supply the market with more capital, thereby compromising the efficiency of the financial relief policies.

The suppressed funding needs of certain companies rise to the forefront due to the surge of overeager bankers and the sudden drop in cost of funds. Thus, these companies sign on to financing programmes without a clear business plan. The compulsive investment into rapid expansion only leads to short-lived prosperity while losses and financial risks will increase with time goes on.

At the same time, customised policies for a green economy alongside science and technology innovation, finance are not widely known among MSMEs, which as such will not be able to take advantage of the prescribed financial concessions or privileges.

How to make the financial relief policies more effective?

Financial institutions, serving as middlemen between the capital supplier and receiver, bear the responsibility of not only providing necessary funds for the receivers on the demand side but also ensuring the safety and return of the capital. If fulfilled, people will then entrust financial institutions with their savings, allowing capital to be utilised and circulated. In other words, the sustainability and value addition capability of financial products are crucial for attracting more capital to empower the real economy. Therefore, financial institutions need to vet companies and supervise the relevant funds to suitably perform their role in capital allocation and risk management.

In the current context, financial relief policies should enable financial institutions to freely price their services within the policy’s selected range. In addition, more freedom in decision-making should be given, ensuring that limited financial resources and services are allocated to the companies with higher potential.

Moreover, the customized policies for a green economy alongside science and technology innovation finance need to be further promoted. The private sector, especially the MSMEs, need to prepare and make full use of these policies which allow financial institutions to have a higher tolerance for risk in the targeted sectors. This will be supportive to the fulfilment of stable and sustainable development.

Lastly, competition and cooperation among financial institutions should be encouraged. This can be promoted by additional service licenses being provisioned to the market by financial policies. With more financial institutions entering the market, the quality and efficacy of financial services will be able to improve further whilst costs diminish. In the meantime, the diversified financial service providers and the increased competition and cooperation within the industry will facilitate sustainable economic development and promote high-quality development.

Because of the long Chinese New Year holiday, the statistics bureau only announced price, financial and PMI data in February. Producer prices grew more slowly. PPI rose 9.1% y/y, down another 1.2 pps from December. The ex-factory price index of industrial goods rose 8.85% y/y, while CPI growth also slowed. CPI rose 0.9% y/y in January, down 0.6 pps from December. In particular, food prices fell -3.8% y/y, down 2.6 pps from December, dragging CPI down 0.72 pps. That is the leading factor lowering CPI. The falling price levels offer ample room for further money expansion.

At the end of January, M2 rose 9.8% y/y, up 0.8 pps from the end of December, and up 0.4 pps from January 2020. M2 is not strongly affected by the Spring Festival effect. The significant trending upward reflects expansionary monetary policy. M1 fell -1.9% y/y. The adjusted growth rate after taking out the effect of the New Year’s holiday was around 2%. M0 rose 18.5% y/y, a major increase. 

The societal financing scale increased by 6.17 trillion yuan in January, much higher than in January 2020, and market expectations. The societal financing scale increased 10.5% y/y, up 0.2 pps from December. The structural composition of societal financing is also improving. PMI fell, but was still in the improvement zone in January. In particular, PMI was 51%, down 1.2 pps from December. This indicates that the overall economic situation is good, and in an expansion zone, but the trend is slowing.

The Ministry of Finance disclosed on February 14th that to that date, some 1.788 trillion yuan ($278 billion) of this year's newly-increased debt limit of local government bonds had been allocated in advance. Of the amount already allocated, 1.46 trillion yuan is for the local government special bond quota. We expect this expansionary fiscal policy to bolster local government financing needs and investment, to ensure growth stability. The early distribution will also have a larger spillover effect for the rest of the year. The government debt ratio in China is still much lower than it in the United States, so financial risk should be containable.

The COVID-19 lockdowns in Shanghai and some other cities since late March have halted the strong economic recovery. In Q1, GDP was up 4.8% y/y, up 0.8 pps from Q4 2021, but 0.2 pps lower than in Q1 2020. Industrial output rose 6.5% in Q1, up

2.6 ppts from Q4, but down 1 pps from January-February. Investment rose 9.3% y/y in Q1, up 4.4 pps from 2021, but 2.9 pps lower than in January-February.

In March, overall PMI, manufacturing PMI, and non-manufacturing business activity PMI were 48.8%, 49.5% and 48.4% respectively, all falling steeply from the previous month, demonstrating that the economic environment has been shrinking in all dimensions.

In Q1, retail sales of consumption goods were up 3.3% y/y, down 9.2, 0.2 and 3.4 pps from 2021, this January and February respectively. In March, consumption fell -3.5% y/y; restaurant income fell -16.4% y/y, its first negative turn after more than one year.

Exports rose 13.4% y/y in Q1, down 4.6 and 0.2 pps from Q4 2021, January-February. Weak export is more because of foreign weakening demand factors, including the Russia-Ukraine war and the Fed raising rates, than because of domestic lockdowns.

In Q1, PPI rose 8.7% y/y, down 3.5 pps from Q4. Production material slowdown is the main reason for lagging PPI growth, and its growth rate was 4.8 pps, down from Q4. In Q1, CPI rose 1.1% y/y, higher than last year. In March, CPI rose 1.5% y/y, a clear rise from January and February. We expect higher CPI to persist.

Shanghai, China’s largest economic and financial center, has been under lockdown since March 27th. On April 26th, Beijing was put on Omicron alert. China's yuan fell to a one-year low, at 6.5 against a strengthening dollar on April 25th, extending losses after posting its worst week since 2015. The economy will be volatile in the near term. However, a depreciating yuan benefits export. The Chinese government is also accelerating fiscal expansion to keep the economy afloat. For example, infrastructure investment rose 8.5% y/y in Q1, up 8.1 and 0.4 pps from last year and January- February respectively.

On April 19, Prof Fan Gang, President of China Development Institute, and Prof Bert Hofman, Director of the East Asian Institute at the National University of Singapore, provided their insights on China’s economy in the hybrid talk held by the Singapore Institute of International Affairs.

• On China’s economic growth amidst the ongoing pandemic

The second quarter could see 2% growth, lower than it is expected due to the resurgence of the epidemic, which exerts negative effect on consumption, production and transportation. Collective efforts are being made across the nation in speeding up vaccination rate, building module hospitals and launching more stimulative measures, in hope to contain the pandemic and reactivate the market.

• On China’s debt issues

China’s government debt over GDP is at 46%. Comparatively, Japan is at 260%, U.S. 130%, and European countries are mostly over 100%. With enough reserve and resources, China’s debt issue is generally manageable. It is also trying to improve the efficiency of distant spending. China has announced the third pillar pension system, which is a privately supplied pension saving scheme, providing people an alternative for investment while preparing the society for an aging population.

• On China’s long-term economic outlook

Green investments in energy transition could be the next growth driver for China’s economy. Investments in urbanization will continue to be crucial, as the urbanization rate in China is still lower than that of most developing countries which shows that urban facilities and services are in great need. At the same time, as the service sector grows and consumption prices increase, China’s share of exports in GDP will begin to decline.

• On China and the regional economy

China is strongly connected with its Asian trade partners. With RCEP taking effect in 2022, China will further open up to its regional partners and with whom jointly promote regional economic growth.