China Expands Qianhai Reform Zone Eightfold to Boost Hong Kong Integration
China’s financial reform zone in Shenzhen has been allowed an eightfold expansion that will eventually make it twice the size of New York City’s Manhattan district as part of a plan released by the government to further integrate Guangdong province with the Hong Kong special administrative region (SAR).
The Qianhai cooperation zone has seen its geographic boundary increase eightfold to 120.56 square kilometers from 14.92 sq km, according to the plan (link in Chinese) released Monday by the State Council and the Central Committee of the Communist Party. The zone will broaden its focus from financial services, technology, and logistics to manufacturing and the marine industry, and will continue to test financial reforms in areas such as cross-border yuan use, and boost green finance and connectivity with Hong Kong’s financial markets. It will also host a big data platform for cross-border trade.
The CBD of Shenzhen’s Bao’an district
The plan was released a day after Beijing announced a new cooperation zone on the island of Hengqin, some 60 km southwest of Qianhai across the Pearl River estuary, to integrate with the Macao SAR, which lies 2 km to the northeast. The area will focus on scientific research and development and advanced manufacturing, including integrated circuits, new energy and big data. It aims to help make Macao’s economy less dependent on gambling and tourism. Hengqin and Macao are already well connected. Parts of the island were leased to the SAR by Beijing in 2009 and Macao law applies in those areas.
The proposals are part of the Greater Bay Area (GBA) strategy, an ambitious plan announced in 2017 to transform the Pearl River Delta into a world-class city cluster to rival famous bay areas centered on Tokyo, New York and San Francisco. A detailed roadmap was released in February 2019 by the State Council and the party’s central committee covering nine cities in Guangdong province along with Hong Kong and Macao aimed at turning the region into a technology hub and finance powerhouse with advanced manufacturing and a modern services industry.
One major issue the new Qianhai plan is aiming to address is to encourage companies that are registered in the zone to base their operations there rather than in other parts of the country. The Qianhai authorities have been trying to encourage those companies to move their operations to the zone since 2018 by improving infrastructure and policy support, but have been constrained by the physical size of the zone.
“As the zone becomes more developed, some companies registered here are considering locating their offices here, and the original 15 sq km area is too limited to house so many companies and people,” said Guo Wanda, executive vice president of the China Development Institute, a Shenzhen-based think tank. Peng Peng, executive chairman of a government-backed think tank, told Caixin that the expansion of the Qianhai cooperation zone will lead to economies of scale for companies that would lower their costs.
The Qianhai zone, officially called the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, was approved in 2010. The coastal zone was slated to (link in Chinese) explore and deepen cooperation with Hong Kong and become a world-level modern services industry cooperation zone by 2020. Incentives including tax breaks were put in place to attract companies. By August 2020, some 173,000 companies (link in Chinese) had registered in the zone and by August 2021, 11,500 Hong Kong-invested enterprises (link in Chinese) had registered. Foreign banks including HSBC Holdings PLC, Credit Suisse AG and UBS AG have set up operations in the area.
In 2015, the cooperation zone was incorporated into the newly designated Guangdong Pilot Free Trade Zone focused on developing finance, modern logistics, information services, technological services, port services, shipping services and other emerging service industries. The Shenzhen government has been lobbying to expand Qianhai for several years (link in Chinese) — back in 2017 it was aiming to increase the zone to 77 sq km, compared with Manhattan’s 59.5 sq km.
Under the new plan for Qianhai, the focus will be on developing high-tech industry, creating a better business environment for foreign investment and the private sector, further opening up the financial and legal services sectors, and deepening international collaboration. However, tax breaks will not apply to companies registered in the new parts of the zone.
“This shows that the zone’s expansion isn’t aimed at attracting more industries through preferential tax policies, but will rely on institutional innovation and an improved business environment to attract talent and industries." Guo said.
There will be more integration with Hong Kong and Macao in the services sector, with harmonized rules in areas such as standards and certification. Services to help young people from Hong Kong and Macao to study, work, and start businesses in Qianhai will also be expanded.
Hong Kong and Shenzhen have agreed to set up a high-level working group to expedite cooperation and identify more measures to implement in Qianhai, said Carrie Lam, chief executive of the Hong Kong SAR.
“The promulgation of the Qianhai plan will foster Hong Kong-Shenzhen co-operation at a higher level under which the two cities can serve as dual engines to drive development in the Greater Bay Area,” Lam, who was in Shenzhen for meetings to discuss Hong Kong-Shenzhen cooperation, said in a press release Monday.
Contact reporter Zhang Yukun (firstname.lastname@example.org) and editor Nerys Avery (email@example.com)
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