CHINA BUSINESS – CLOSER ECONOMIC PARTNERSHIP IN PRD

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Earlier this year, a 30-member AmCham delegation made an exploratory trip to Zhuhai – one of the three key areas in the Guangdong Pilot Free Trade Zone – to meet with Chinese officials and business leaders and to learn more about business opportunities in a region well-positioned to become an economic powerhouse

By Leon Lee


Following the success of the establishment of the Shanghai Free Trade Zone (FTZ) in 2013, the State Council of China announced plans for the construction of three additional FTZs in Guangdong, Fujian and Tianjian in April 2015. Each was strategically chosen to leverage the unique aspects of their locations and other advantages in developing the Chinese economy.

For the Guangdong Pilot Free Trade Zone (GDFTZ), it will assist in Closer Economic Partnership in PRD cooperation between Guangdong, Hong Kong and Macau as well as the development of the burgeoning Pearl River Delta. According to a 2015 report from the World Bank, the Pearl River Delta collectively has overtaken Tokyo to become the world’s largest urban area in terms of size and population.

Economic viability

The GDFTZ consists of three areas – the Nansha New Area of Guangzhou, Qianhai and Shekou in Shenzhen, and the Hengqin New Area in Zhuhai. While Shenzhen is just over the border from Hong Kong, Zhuhai also provides an attractive option to not just Hong Kong but to Macau businesses as well.

The city of Zhuhai is conveniently located only 34 nautical miles away from Hong Kong while Macau is less than 200 meters away from the narrowest point of Hengqin. And when the Hong Kong-Zhuhai-Macau Bridge is completed, Zhuhai will be the only city in the world to be directly linked to both metropolises.

With this connectivity comes access to five international and domestic airports, four deep-water ports and eight expressways to various parts of China. The goal is to make the region both an international and regional economic center.

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Through experimental reforms over the next few years, the GDFTZ will create a law-based, market-oriented and internationalized business environment and establish a new and open economic system with in-depth integration between Guangdong, Hong Kong and Macau.

The Hengqin New Area of the GDFTZ is one of three state-level economic districts in Zhuhai, which itself is one of the four original Special Economic Zones in China. It focuses on industries such as travel and leisure, business services, financial services, science, education and R&D, cultural and creative industry, TCM and Healthcare.

The Hengqin New Area also offers favorable policies to businesses in various industries. Besides 24-hour customs clearance, simplified clearance procedures are in place for both Hong Kong and Macau residents into the area. The transportation of freight and goods will fall under the principle of “relaxed control at the first line, strict control at the second line [in] a categorized management [system].”

Financial capacity

A number of policies have been implemented for the financial services sector to boost the ease of doing business in the GDFTZ. Financial institutions in the trade zone may borrow Renminbi (RMB) funds from overseas lenders. Those with parent companies based in Hong Kong and Macau can issue RMB-denominated bonds in China. Also, non-banking financial businesses located in the FTZ can conduct cross-border RMB settlements.

The GDFTZ is poised to become a trade zone where eligible foreign financial institutions can establish banking joint ventures with Chinese enterprises or set up foreign-owned banks in the trade zone while commercial banks are encouraged to set up a business to conduct offshore foreign currency activities. Eligible insurance companies based in Hong Kong or Macau can also set up branches in the area.

In Hengqin, the threshold of required total assets for Macau-based banks seeking to set up branches in the region has been reduced to US$4 billion. According to the government website, financial institutions are “given support to launch a pilot franchise business of individual domestic and foreign currency conversion and to explore and develop a pilot two-way conversion for RMB, Macao Pataca and Hong Kong Dollar under individual item and within certain quota.”

Tax exemptions are implemented in the Hengqin New Area with the enterprise income tax set at 15 percent for eligible enterprises. Hong Kong and Macau residents working in the area will be levied the individual income tax equal to that of their resident cities. A full subsidy will be given to the difference of individual income tax.

For production-related goods made in Mainland China and sold to Hengqin, they will be considered exports, and tax refunds will be handled as such. Goods traded between businesses in the Hengqin New Area will be exempted from value-added tax and consumption tax.

Steady growth

Even before the announcement of the GDFTZ in Zhuhai, Zhuhai has been flourishing in the past several years. In 2013, its GDP was RMB 166.2 billion, up 10.5 percent from the previous year. In 2014, the GDP jumped over 10 percent to RMB 186.72 billion, with the industry sector accounting for 45 percent of it. Forecast for their 2015 GDP has it equaling or even surpassing its 2014 GDP growth.

According to an article published in The Telegraph, Zhuhai has attracted US$3.06 billion in European investment in 2014 alone, with large corporations like BP, Shell and Bosch having a presence in the city. Out of the world’s top 500 companies, 42 have investments in the city.

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Delegates visit the headquarters of major appliance corporation Gree Group

As for the Hengqin New Area, it has already attracted around US$36.5 billion in investment capital for 56 projects in commerce, tourism, entertainment, scientific research and technology, amongst other sectors. By April 2015, more than 8,400 companies, including over 850 financial institutions, have registered in the region.

The Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of China have already established operations in Hengqin. Macau’s BNU is looking to open its first Mainland branch in Hengqin in the second half of this year.

In the legal profession, a new joint venture in the trade zone was announced last month by Hong Kong’s Fongs Lawyers, Beijing’s Zhong Yin Law Firm and Macau’s Rato, Ling, Lei & Cortes (Lektou). As the first of its kind in China, it will bring together over 1,000 lawyers specializing in corporate, banking, finance and M&A.

In August 2014, the University of Macau moved into its brand new campus on Hengqin Island, which covers an area of around one million square meters, 20 times of its old campus. The new space has more than 70 buildings and can accommodate 15,000 students. The construction was a collaborative project between Guangdong and Macau, which China’s policymakers applauded as a new pilot development scheme under the “one country, two systems” framework.

Another collaboration between the two regions is the Guangdong-Macao Cooperative Science and Technology Industry Park. Developed as an international industrial zone for science, technology and healthcare, particularly traditional Chinese medicine (TCM), it focuses on the high-quality development in the aspects of health services, information and industry culture. The project is jointly planned, invested and run by Guangdong and Macau.

In tourism, the Chimelong International Ocean Tourist Resort opened in January 2014, which includes the Zhuhai Chimelong Ocean Kingdom and Zhuhai Chimelong Hengqin Bay Hotel as well as one of the longest roller coasters in the world. It received seven million visitors with operational revenue of about RMB 2 billion in the first year. Earlier this year, construction began on a new ocean park featuring an 800-meter long undersea tunnel for visitors to experience marine lives.

The bridge

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Executive Director of HZMB Authority Wei Dongqing and AmCham HK President Richard Vuylsteke

The 42-kilometer-long Hong Kong-Zhuhai-Macau Bridge will certainly play a big role in connecting the three cities and its economies. When completed, it will feature dual three-lane highways, shortening the travel time between Zhuhai and Hong Kong from over four hours to 40 minutes. Amongst the many advantages of the bridge currently under construction, one is the greater access to the Hong Kong International Airport.

Governments of the three cities involved in the project share a portion of the total cost of construction, and each is responsible for building and running their sections and boundary-crossing facilities of the extensive bridge. However, the project has been facing some headwinds. Originally scheduled to be completed by the end of 2016, it is estimated to take another year.

Parts of the construction of the bridge in Hong Kong have been delayed due to a number of difficulties, such as labor shortage, unstable supply of building materials and challenging environmental requirements. The cost of the project has also risen, and additional funding of HK$5.4 billion has been approved by the government in January. Despite delays, the project linking three cities is moving forward, with the first 3.3-kilometer of the bridge now open to traffic between north Hengqin and Hongwan.