Presentation delivered by Robert Koepp, Director, The Economist Corporate Network, The Economist at the marcus evans Private Wealth Management Summit APAC Fall 2019 in Macao

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China’s Greater Bay Area
Asia’s new “super cluster”?
Robert Koepp
Director, Chief Economist; Hong Kong
October 2019
corporatenetwork.com
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Plans and economics for the Greater
Bay Area

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1. Background of the Plan
Ø Hong Kong, Macau + 9 PRD cities
Ø 70m people (cf 66m for UK, Thailand, France; 7.7m for San Francisco Bay Area)
2. Overall Requirements
3. Spatial Layout
4. Developing an International Innovation and Technology Hub
Ø Building an Open Community for Coordinated Innovation (構建開放型區域協同創新共同體)
5. Expediting Infrastructural Connectivity
6. Building a Globally Competitive Modern Industrial System
7. Taking Forward Ecological Conservation
8. Developing a Quality Living Circle for Living, Working and Travelling
Ø To shape the Greater Bay Area’s cultural values (塑造灣區人文精神)
9. Strengthening Cooperation and Jointly Participating in the BRI
10. Jointly Developing Guangdong-Hong Kong-Macao Cooperation Platforms
Ø “… a legal system that is commensurate with development of an open economy, and
strengthen judicial cooperation and exchanges between Hong Kong and Shenzhen.” (“合理運用
經濟特區立法權，加快構建適應開放型經濟發展的法律體系，加強深港司法合作交流。”)
11. Implementation … with fine print: “In case of discrepancies, the Chinese text prevails.”
粵港澳大灣區發展規劃綱要
Blueprinting the Greater Bay Area

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Physical infrastructure plans all key but far from
independently sufficient for integration
Transport links that connect the blueprint
Structuring the GBA
• September 2018: HK-Guangzhou HSR
• October 2018: HK-Zhuhai-Macau Bridge
Ø 55 km, world’s longest sea crossing
• February 2019: GBA “blueprint”
• Super cluster prospects
Ø “Soft” integration—regulations, human
and financial capital—more important
than “hard” links
Ø No other major tech or metro clusters in
the world are cross-jurisdictional
Ø “Geopolitical balance” could help or hinder
• GBA: a version of “BRI” for the “PRD”
Ø Silicon Valley, Tokyo, London et al clusters
molded by transportation, economic
institutions, and administrative policy
Rou

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In coming urban population gains, Shenzhen leads; five GBA cities rank high
Demographic push factors

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Forecast
363.2 385.2 634.2
374.0
381.0
837.0
0
100
200
300
400
500
600
700
800
900
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Hong Kong Guangzhou Shenzhen
111.7
1,510.0
165.7
385.2
0
200
400
600
800
1,000
1,200
1,400
1,600
1999 2004 2009 2014 2019
Guangdong Hong Kong
Evolving GDP implies need to respond to shifting economic power
GBA’s compelling economic rationale
Source: The Economist Intelligence Unit
Compare
Spain GDP:
US$1.485trn
Australia GDP:
US$1.414trn
Student-to-master
1999 – 2019 select years (US$bn)
Hong Kong: becoming “third-tier” GBA city GDP
2017 – 2029 (US$bn), 1H19 forecast

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Advantage of advanced (and improving) air transport hard-soft infrastructure
HKIA: a major fulcrum point in the GBA
Source: Airports Council International, South China Morning Post
• World’s largest air cargo airport: 5.1 mmt
• Asia’s No. 1 airport for international
passenger traffic: 74.3m
• 100 airlines
Ø1,100 scheduled flights
Ø220 destinations (50 in the mainland)
• Already a global air hub for South China
and mainland overall
ØServing GBA and BRI
• By 2025, China likely will become the
world’s largest passenger market
• HKIA third runway expansion
Ø2024 completion target
ØCosted at HK$141.5bn (US$18bn)
Ø3,800 metre third runway
ØNew terminal building >280,000 sqm

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Relatively narrow in mobile telephony but still a strong base
GBA’s techno cluster potential
• Patents one of many indicators of tech cluster strengths (patent quality matters)
• Asia occupies 60% of the Top 10 global rankings
• Shenzhen-Hong Kong ranks ahead of Silicon Valley in patent output

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GBA connectivity: challenges and
opportunities

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Hong Kong-mainland protests in context
Source: South China Morning Post, Hong Kong Free Press, Foreign Correspondents Club, Ming Pao
Summer 2019 Summer 1967

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2017: a sign that not all BRI ties are “win-win”

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2019: Ali “bye bye”
• Alibaba’s highly anticipated end-August Hong Kong listing
Ø <US$20bn raise (potentially world’s biggest equity deal in 2019)
Ø Geopolitical significance: China’s leaders want to bolster nation’s stock markets
(including Hong Kong’s) to match Wall Street
• 2 August 2019: Shanghai-Shenzhen exchanges reveal consideration of HKEX
dual-class listings for Stock Connect
• 21 August 2019
Ø Unnamed Alibaba source: “It would be very unwise to launch the deal now or anytime soon”
Ø “It would certainly annoy Beijing by offering Hong Kong such a big gift”
- Alibaba could potentially re-launch the deal from October 2019…
- July 2019: Anheuser-Busch InBev canceled planned <$9.8 billion Hong Kong IPO for its
Budweiser Asia unit—would have been the largest IPO for 2019 at the time
• Relevance to Hong Kong financial market reform
Ø Alibaba skipped HKEX for IPO because prohibited dual-class shares (weighted voting rights)
Ø September 2014: Alibaba raised $25bn on NYSE, world’s largest-ever stock market flotation
Ø April 2018: HKEX allows dual class shares and pre-revenue biotech companies to list
Ø Alibaba’s secondary will be a big step in getting Hong Kong closer to Wall Street
Source: Reuters, Wall Street Journal
largest
follow
share
sale in
seven
years
Digging deeper, Alibaba’s (still) planned secondary shows how
Shenzhen and Shanghai bourses aren’t close to replacing HKEX

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Clearly (and overall growing) superior positioning for two core mainland cities
Four Dragons: GDP summary outlook
0
50
100
150
200
250
300
350
400
450
500
550
2018 2019 2020 2021 2022 2023
Nominal GDP
(US$bn)
Guangzhou Shenzhen Hong Kong Macau
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2018 2019 2020 2021 2022 2023
Real GDP
(% change)
Guangzhou Shenzhen
Hong Kong Macau
Source: The Economist Intelligence Unit

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Hong Kong and Macau clearly do more with less… for now
Four Dragons: population and wealth outlooks
0
2
4
6
8
10
12
14
16
2018 2019 2020 2021 2022 2023
Population
(m)
Guangzhou Shenzhen Hong Kong Macau
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2018 2019 2020 2021 2022 2023
GDP per head
(US$)
Guangzhou Shenzhen Hong Kong Macau
Source: The Economist Intelligence Unit

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Major potential, yet still requiring major action
GBA: final points for consideration
• How are the GBA’s major urban economies—the Four Dragons—
positioned for greater integration?
Ø Mainland cities: size, growth, technology advantages
Ø SARs: global integration, capital, advanced economics
Ø Three separate national jurisdictions until 2047
• Can—or should—this “super cluster” take on the original Silicon
Valley?
Ø Shenzhen technology is world-leading in certain categories
Ø Still lacking in other fundamental technologies: eg, chips, biotech
Ø China’s overall geopolitical economic relationship with the US and other advanced
economies being severely testedàhow well companies like Huawei fare and
integrate within the GBA will answer core elements of this question
• How exposed are the GBA’s economic engines to the fallout of the US-
China trade war and growing technology schisms?
Ø Extremely…

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Rob Koepp
Director
The Economist Corporate Network
www.linkedin.com/in/robertwkoepp
robkoepp@economist.com