The Greater Bay Area, a megalopolis comprising nine Guangdong’s cities plus Hong Kong and Macau, epitomises Aristotle’s “the whole is greater than the sum of the parts”. The global innovation hub builds on Shenzhen’s phenomenal technology output, Hong Kong’s unique financial prowess and Guangzhou’s AI-augmented industrial capabilities. China’s long-held vision is being turned into the model innovation megaregion of the future.
In this first part of the three-parts series, we unfold the overall potential of the Greater Bay Area, as well as deep dive into Shenzhen’s role as its technology nerve centre. In the second part, we will touch on Hong Kong’s financial ecosystem as the primary platform for financing innovation within the Greater Bay Area. Finally, in the third part, we will describe Guangzhou’s role as the AI-driven industrial hub of the Greater Bay Area.
China’s Main Engine of Growth
The Reform and Opening-up policies (改革开放) of the ‘80s paved the way for the Chinese economic miracle. Since then, the meteoric rise of the Chinese economy has been headed by four core engines of growth: Shenzhen, Guangzhou, Beijing and Shanghai. Over the course of four decades, they all played a major role, as all of them posted an average annual GDP growth rate surpassing China’s average of 9.4%.
However, if we had to identify China’s main engine of growth, that would unquestionably be Shenzhen, a megacity whose GDP grew by a mind-boggling 1.2 million percent. Right after Shenzhen’s average annual GDP growth rate, a staggering 20.7%, Guangzhou records an enviable 13.1%, a figure that is above Beijing’s 10.4% and Shanghai’s 9.9%. Shenzhen and Guangzhou, plus seven other municipalities of the Guangdong Province and the two Special Administrative Regions of Hong Kong and Macao, form the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), a massive productivity cluster.
Fig.1 – Average annual GDP growth rate (%) of Shenzhen, Guangzhou, Shanghai and Beijing compared to China’s total and for each one of the four decades of China’s opening-up. Throughout the whole period, Shenzhen and Guangzhou have been consistently leading the renaissance of the Chinese economy. Sources: CTB Research and National Bureau of Statistics of China.
The megaregion boasts a total population of over 70 million and a combined GDP figure around USD 1.8 trillion. To make sense of these numbers, GBA’s land area of 56’000 km2 is slightly bigger than Ireland’s, but with a population larger than Italy’s and an economy that would rank 11th in the world, ahead of South Korea and just behind Canada.
In terms of GDP PPP, Guangdong alone tops China’s thirteen provinces (eleven actual provinces plus Beijing and Shanghai municipalities) with a figure larger than USD 1 trillion. Guangdong’s USD 3.1 trillion is just about UK’s GDP PPP. Jiangsu follows, with a USD 2.9 trillion GDP PPP which is almost France’s.
Fig.2 – China’s provinces with 2019’s GDP PPP larger than USD 1 trillion and flags of the sovereign states with the most similar GDP figure. Guangdong (circled) is the Chinese province with the largest economy and has a GDP PPP comparable to that of United Kingdom. Sources: CTB Research and IMF.
Bay Area with World’s Fastest Growing Economy
The potential of this megaregion is unparalleled. Not only the GBA accounts for 13% of China’s economy with just 5% of the country’s total population (and less than 1% of its total land area), but it’s also the bay area with the fastest growing economy in the world.
In the table below are summarized relevant statistics for comparing the GBA with the San Francisco Bay Area (SFBA), the New York Metropolitan Area (NYMA) and the Tokyo Bay Area (TBA). The findings clearly demonstrate two facts. First, as the bay area with the world’s fastest growing economy, the GBA holds his own in economic terms. Second, and maybe more surprisingly, the GBA is already the largest manufacturing, trading and logistics hub by a great deal, as the throughput figures show.
Fig.3 – Table of comparison for the four major bay areas: China’s Greater Bay Area (GBA), San Francisco Bay Area (SFBA), New York Metropolitan Area (NYMA) and Tokyo Bay Area (TBA). GBA’s economy, which already surpassed SFBA’s and NYMA’s, is approaching TBA’s GDP with a growth rate of 6.9%, the fastest pace among all four bay areas. Moreover, the GBA is already the largest manufacturing, trading and logistics hub in the world. Source: CTB Research.
In February 2019, the Outline Development Plan for the GBA was released. Its detailed strategies, accompanying policies and, above all, sociocultural and political implications are out of the scope of this article.
However, in order to comprehend GBA’s role in shaping China’s technological developments, it is worth to emphasize that the goal of this Plan is to optimize the integration of the involved areas by playing to their strengths and complementarity. This will be done by exploiting the area’s high degree of market openness and internationalization, the strong industrial foundation allowing new and old economies to coexist and, finally, by exploring synergistic development models for city clusters.
More specifically, the Plan’s overall success is tied to two enabling factors. First, to the extent Hong Kong (international financial hub) will integrate with Shenzhen (national innovation and technology centre) and Guangzhou (provincial political centre and industrial hub). Second, to the radiating effect this major integration will have in leading the development of the surrounding cities, which themselves are renowned hubs for strategic industries spanning from petrochemical and electronics manufacturing to tourism and leisure.
Fig.4 – Cities comprising China’s GBA. Each city serves as a development cluster for a targeted sector and complements each other. By integrating them all, China aims at building a deeply interconnected megaregion that can compete on a global scale. Sources: CTB Research and CGTN.
Three Ingredients for Establishing a Globally Competitive Innovation and Technology Hub
The word “innovation” appears over 130 times in the Outline Development Plan. To build the world’s next innovation powerhouse, policymakers need to devise smart measures and target them on three strategic objectives:
Fig.5 – The three priorities of the GBA. Source: adapted from Invest Hong Kong.
Progress towards the achievement of substantial results for each of these pillars will depend on properly blending three ingredients: technology output, financing capabilities and AI-driven industrialization. In turn, these ingredients are the specialties of Shenzhen, Hong Kong and Guangzhou, respectively.
The boundless tech potential of the GBA is epitomised by Shenzhen, which already is the most technologically sophisticated and highest-GDP city in the south of China. Shenzhen is also home to tech giants such as Tencent, Huawei and SenseTime.
Not only Shenzhen easily leads the way in many so-called deep tech industries and, more recently, in bolder market opening policies, but it’s also the nerve centre for the superb logistic infrastructure of the GBA. It is still hard to internalize that it will take just 25 minutes to travel from Shenzhen to Dongguan, which is twice as large as Rome, and just 30 minutes from Hong Kong to Guangzhou, whose land area is five times London’s.
Shenzhen Is a Globally Competitive Producer of Patents and Publications
By looking at geographical areas with a high density of inventors and scientists, in 2020 the GBA comes out as the second most vibrant science and technology cluster worldwide. While Tokyo-Yokohama retains the top spot of this ranking - mainly because of its strong patenting performance - its lead is narrowing quickly and the GBA is taking over.
Because of the 5-year time window on which this ranking is based, the results achieved by the GBA are noteworthy for three reasons. First, they reflect the stability and persistence of GBA’s innovation ecosystem. Second, this stable ecosystem has been built in a time that is surprisingly shorter when compared to the time taken by any other cluster to up its rank. Third, GBA’s tech prowess add to that bolstered by Beijing and Shanghai, which also earned enviable positions in the top 10 ranking.
In other words, according to the data gathered by the World Intellectual Property Organization, it appears inevitable that China soon will become the leading country for science and technology.
Fig.6 – World’s top 10 science and technology clusters. Shenzhen in particular drags the GBA into the 2nd spot of the global ranking and sets strong foundations for the GBA to snatch the top spot, a not far-fetched possibility given Shenzhen’s young age. On top of Shenzhen, also Beijing and Shanghai earned a place in this ranking. Source: World Intellectual Property Organization.
Shenzhen Is Both a Leader and a Pioneer for China’s Tech Scene
According to official statistics accessed on 28th of December 2020, a total of 28’000 companies filed 219’000 patent applications in Shenzhen in the first three quarters of 2020, a YoY increase of 17%. Moreover, about 164’000 patents were granted domestically, up 35% from 2019. Both figures rank first among big cities in China.
Shenzhen’s international applications filed via the Patent Cooperation Treaty (PCT) also kept growing, despite the crisis caused by the pandemic. The figure for the first three quarters of 2020 posted a 23% increase from 2019. Shenzhen, for the 16th consecutive year, ranks first in China for PCT filings. At the same time, the city’s trademark applications have swelled by 20% YoY.
In 2019, scientific research and development input in Shenzhen amassed USD 20 billion, accounting for about 5% of the city’s GDP, a ratio that is already higher than that reported for some developed countries.
Shenzhen is a pioneer also in the regulation for technological innovation. On 1st of November 2020, it became the first mainland city to commit annually not less than 30% of its total R&D government fund to fundamental research and applied basic research.
Shenzhen’s Unicorns Disrupt a Broad Range of Industries
Shenzhen’s technological potential is also reflected by its number of unicorns, thus showing how research translates into application and commercialization. As per the Hurun Global Unicorn Index 2020, co-released in August 2020 by the Hurun Research Institute and Suzhou New District, the GBA boasts 33 unicorns, 16% of China’s total.
Among these, 20 are headquartered in Shenzhen, while 8 in Guangzhou and 5 in Hong Kong. GBA’s unicorns add to the 4 headquartered in Chengdu, the 11 in Nanjing, the 20 in Hangzhou, the 47 in Shanghai and, most notably, the 93 in Beijing, that is the city with the largest number of unicorns worldwide.
Shenzhen’s unicorns aim to disrupt an impressively broad range of industries, all with a high growth potential. Ordered according to their representation, these industries are: fintech, new retail, e-commerce, logistics, robotics, consumer goods, artificial intelligence, health tech, media and entertainment, SaaS and biotech.
Fig.7 – The 33 unicorns headquartered in the GBA. Shenzhen’s ecosystem is the most fertile for unicorns, as it spans many industries, but also Guangzhou and Hong Kong welcome 1-billion-valued start-ups. While Hong Kong is a FinTech powerhouse, Guangzhou is strong in new retail, e-commerce and AI. Sources: CTB Research and Hurun Global Unicorn Index 2020.
The Greater Bay Area is the central government’s top-down master plan to integrate the two SARs of Macau and Hong Kong with nine cities in southern Guangdong, the richest province of China.
In this first part of the three-parts series, we introduced the majestic master plan and outlined the role of the megaregion as China’s main engine of growth and as the bay area with the world’s fastest growing economy. Then we probed Shenzhen, the impossibly poor village in Guangdong which saw its GDP surge by 1.2 million percent in just four decades, reinventing itself as a world-leading tech city with an exceptional innovation output.
Shenzhen’s 996 work culture (9am-9pm six days a week) has built the industriousness making the city flourish beyond any expectations anyone could have ever had. However, two challenges still remain.
First, the city needs to be a stronger magnet for international talent. Employers in the tech hub should keep raising wages and building a working environment which can allure more Mainland graduates from Beijing’s top universities, as well as the skilled workforce of Hong Kong and of First World’s countries.
Second, Shenzhen needs to take more initiative in improving, if not leading, the communication and coordination with its neighbours. Policymakers and regulators should boost the city’s special innovation capabilities while aligning to the measures designed by their counterparts in the other Guangdong’s cities, in Macau and, above all, in Hong Kong.
All in all, Shenzhen is on track to become the pumping heart of the Greater Bay Area.
All opinions expressed in this essay represent my personal views only.