Building a Modern Economic System in the Greater Bay Area

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This article is part of The IFF China Report 2018

The construction of the Guangdong-Hong Kong-Macao Greater Bay Area (the development of the Bay Area) should comply with the new requirements of the 19th National Congress of the Communist Party of China on building a modern economic system. This modern economic system that China will build will be an industrial system comprising the real economy, technological innovation and the coordinated development of modern financial and human resources.

The biggest difference between the current development cycle and those of the past three decades is that in the past, China has emphasized rapid growth, but now focuses more on high-quality development. Thus, the development of the Bay Area should establish an industrial system linked with the real economy, technological innovation and modern financial and human resources, and will promote the transition from high-speed growth to high-speed development. high quality in the great bay area. .

A central indicator of high quality development is the growth of total factor productivity in the Greater Bay Area through changes in quality, efficiency and motivation. Therefore, to develop such a strategic emerging market, the construction of the Bay Area Development must evolve into a new era of high-quality progress.

The seven strategic emerging industries identified by the Chinese government include THIS, biotechnologies, new energies, new energy automobiles, manufacturing of high-end equipment, new materials and energy savings. To integrate these strategic emerging industries into Bay Area Development, technological innovation is the priority. The indicator of progress in scientific and technological innovation should be investment in research and development (R&D) – this should be the full year expenditure on social research and experimental funding as a share of GDP. In 2016, the intensity of R&D investment in Guangdong province reached 2.56%, exceeding the Organization for Economic Cooperation and Development average of 2.4%. From the point of view of R&D and bringing innovation, Bay Area Development already has the foundations and conditions for the development of strategic, innovation-driven emerging industries.

However, this index only indicates that the inflow has reached its goal. To reach the stock of R&D and inflows of innovation, Guangdong will need 10 or even 20 years of hard work. In the Greater Bay Area, Hong Kong R&D the intensity is 0.73%, which is relatively low. The government of the Hong Kong Special Administrative Region has explicitly proposed that R&D investment intensity in Hong Kong is expected to reach 1.5% by 2022. By then, the total funds invested in R&D in the Bay Area Development will exceed RMB220 billion per year. Currently, the R&D input intensity in Shenzhen is 4.1%.

IFF China Report 2018 Zhang Yansheng

Zhang Yansheng

Despite the low intensity of R&D and innovation in Hong Kong, it still has some of the advantages that Guangdong lacks. First, it has four world-class universities, while neither Shenzhen nor Guangdong is home to one of the top 100 universities in the world. Second, the establishment of modern and world-class direct financing systems is of crucial importance for building the modernized economic system in the Greater Bay Area.

There are perceived shortcomings in the direct funding systems in Guangzhou and Shenzhen, and Hong Kong has a global advantage in providing modern multi-tiered and diversified direct funding tools for technological innovation. Third, with a high degree of internationalization, sound economic environment and comprehensive legal conditions, Hong Kong is able to form a complementary joint mechanism with Guangdong.

In China, several areas are able to compete with the urban cluster of the Greater Bay Area. For example, investment in innovation in the Yangtze River Delta (YRD) metropolitan area in 2016 reached RMB420 billion – about double that of Bay Area Development. In the YRD major cities in the metropolitan area, R&D the intensity reached 3.82% in Shanghai, 2.43% in Zhejiang and 2.66% in Jiangsu – that is, both Shanghai and Jiangsu. R&D intensity ratios were higher than those in Guangdong. Another example is the Beijing–Tianjin–Hebei region – known as the Jingjinji metropolitan area. Its investment in innovation has reached RMB240 billion, slightly more than that of the Bay Area development. In this region, the R&D Beijing’s intensity in 2016 and 2015 was 5.96% and 6.01%, respectively. It is the highest in all of China, reflecting Beijing’s position as the home of China’s top universities, research institutes and enterprise innovation platforms, and some of the most talented science and technology innovation. most notable in the country.

The Xiong’an New Area has further enhanced the innovative advantages and potential of the Jingjinji, Beijing-Tianjin-Hebei metropolitan area. The key to future development lies in the region’s leadership, which creates strategically emerging industrial bases and clusters of world-class cities. In this regard, the Bay Area Development and the YRD The metropolitan area, as well as the Jingjinji metropolitan area, will surely come into fierce competition with each other.

Globally, the landmarks for Bay Area development progress will be the New York Bay Areas, a hub of global finance; San Francisco, a global hub of technological innovation; and Tokyo, a global hub of modern manufacturing. There are three metropolitan areas in the Greater Bay Area. First, the Guangzhou-Foshan-Zhaoqing metropolitan area, which has a mission to connect with Hong Kong and Macao, to identify its function in the development of the Bay Area. Second, the Shenzhen-Dongguan-Huizhou metropolitan area, which will unleash mutually beneficial advantages over Hong Kong and Macao, promoting diversified development. Third, the Zhuhai-Zhongshan-Jiangmen metropolitan area, which has the task of strengthening cooperation with Hong Kong and Macao to exercise their own advantages. The disparities in the three metropolitan areas determine the approaches adopted to build a regional and even global financial network center, an innovation network center and a modern service network center that can participate in international competition in the Greater Bay.

The construction of the Bay Area Development must be based on a high level of investment, business and market environment. Over the past 30 years, Guangdong has accumulated rich experience in co-
operation with Hong Kong and Macao. The most important was the combination of the “invisible hand” of the market with the tangible hand of the government, together with the forces of a harmonious society, and “openness” to form a systematic cooperation mechanism to promote the economy and social reform and development.

Over the past 30 years, the proportion of private enterprises in China’s manufacturing industry has reached 61.2%, that of foreign investment has reached 11%, and state-owned enterprises (state enterprises) reached 27.8%. It is not difficult to see that the Chinese manufacturing industry has formed a mixed ownership structure.

However, not all industries are the same. For example, in the financial sector, the share of state enterprises is 90.7%. In the medical and healthcare industry, that number is 89.9%. In the fields of culture, education, scientific research, retail and wholesale trade, the proportion of state enterprises is greater than 60% in all cases. Therefore, for a better construction of the Bay Area development, it is necessary to create a fully open market and an investment and business environment that leads to a rational distribution system for private enterprises, state enterprises and foreign investments in different fields.

This article is part of the IFF China Report 2018which draws primarily on content provided by China-based think tank, the International Finance Forum, and is published in association with Central Banking.

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