International Affairs Analyst
Credit: Wikimedia Commons
Can the European Union thrive in a new landscape?
Since the early 2020s, the COVID-19 outbreak, and increasingly aggressive US-China economic competition, Member States of the European Union have attempted to diversify their investments and to break away from great powers' rivalries. However, China’s supply chain and EU-China trade remain of utmost importance for Member States at this stage. Pushing for fair and open competition, the European Commission proposed an investment deal called the Comprehensive Agreement on Investment (CAI) in 2013, concluded in principle in 2020 but not yet ratified by member states.
The CAI aims to open China’s domestic market to EU companies and eliminate a wide range of Chinese restrictions imposed upon European investors whilst also pressing for further economic freedom and transparency in China. If some notable Heads of State, such as German Chancellor Olaf Scholz, advocated for the CAI ratification by present-day hostile to China’s European Parliament, a growing number of businessmen and businesswomen fear the deal might never come into force. Against this background, multiple European business councils focus on strengthening economic cooperation with Chinese provinces without resorting to the Beijing Central government.
One of South China’s regions attracting the interest of European Investors is the Pearl River Delta, otherwise known since 2017 as the Greater Bay Area (GBA). The GBA is a megalopolis that comprises nine metropolises, including Shenzhen and Guangzhou on the Mainland (Guangdong Province), and two Special Administrative Regions (SAR) – Hong Kong & Macao.
The GBA has three jurisdictions, currencies, and customs borders. Moreover, it hosts a wide range of international communities, has a more liberal economic stance than the Central Government, and well-established infrastructure. The GBA is already a major recipient of Foreign Direct Investment (FDI), but remains, nonetheless, difficult to navigate for European investors.
Metropolises of the Greater Bay Area in South China. Source: China-Britain Business Focus, 2019.
The Greater Bay Area advantage and its relevance for European Investors
The GBA is one of China’s economic powerhouses, accounting for more than 12.5% of China’s gross GDP, and tipped to eventually become the country's economic center in years to come (N. Guignard, L. Di Stefano, ‘The Greater Bay Area’, European Guanxi, 2022). The GBA’s GDP amounted to USD$1.943 billion in 2022 - almost as big as Italy’s GDP and equivalent to a top 10 world economy. Moreover, the GBA’s GDP per capita is USD$22,500, one of the highest in China and Asia.
As the GBA domestic market continues to expand, European investors see room for deeper economic integration. Guangdong, for instance, generates approximately 10 per cent of China’s gross domestic product - similar in size to Spain’s entire economy, according to Marco Föster for Eurobiz.
The GBA is also a hub for innovation and is often seen as both China and Asia’s answer to Silicon Valley (The Guardian, 2019). Shenzhen and other cities are home to major companies such as Huawei, Tencent (WeChat), ZTE, and more, with the GBA rapidly evolving into a research and development cluster. A growing number of international researchers, universities, and companies look to the GBA for further high-end technological cooperation.
In 2014 for instance, UC Berkeley established a joint institute with Tsinghua University, and several outstanding Chinese Universities opened satellite schools in the region. Research is also driven by universities in Hong Kong, where English, as the language of study, helps to foster interactions between Chinese and foreign researchers. As noted by European analysts, this region is thus characterized by a strategic focus on research and developments – per Föster, ‘the PRD (Pearl Delta River) is generating nearly half the mainland’s high-quality international patent filings’.
Another key component of the GBA is the existence of pre-established and efficient transport infrastructure. The GBA has one of the largest air freights in the world, comparable with the US’ very best international airports, and includes some of the ten top container ports in the world. Life is also becoming ever more convenient in the region as regional governments are actively building new infrastructures, such as subways, long bridges (sometimes reaching dozens of kilometres in length), a new airport, and new railways. The GBA’s long-term plan is to allow any inhabitants of the region to travel from one city to any other city within an hour, by train, ferry, or subway.
Similarly, the GBA has long championed financial freedom and economic liberalization. In contrast with the more economically conservative regions of China, the GBA has constantly promoted economic liberalization and integration to attract foreign investors. Countless policy memos and strategic outlines, such as the ‘Opinions Concerning Financial Support for the Establishment of the Guangdong-Hong Kong-Macao Greater Bay Area’, a 26 detailed measures policy plan published on May 14 of 2020, advocate for improved cross-border transactions and capital flows, data privacy and openness to foreign businesses.
GBA Rail Transit Network map. Source: Government Information Bureau of the Macao SAR, 2022.
In a 2017 special report, The Economist, very much in favour of economic liberalism, called the GBA ‘A China that works’, noting that it was actively promoting economic freedom and entrepreneurship, in contrast with China’s State-owned and driven economy. In this sense, the GBA is consistent with the European commitment to smart innovation, smart energy, digitalization, and ESG. The Bay is also at the forefront of biotech R&D, linked with a gigantic domestic healthcare industry. As for Green technology & Green finance, the GBA has been developing cutting-edge Green investment funds for over a decade.
A window of opportunities—and challenges—for European member states
As a growing number of European Member States are looking to access Asian domestic markets to export their goods and products, the GBA, which combines great infrastructure, a rapidly evolving large domestic market, and efficient economic policies, seems to be the perfect El Dorado for European companies. European Member States, for instance, have a colossal trade deficit with China.
However, most of the GBA cities are intensively looking to attract foreign investments and import a growing number of goods from Europe to boost the region’s consumer market or use European technologies for R&D. Macao, for instance, imported 3,234 million worth of goods from France and 1,897 million from Italy in 2022 (IMF, Direction of Trade Statistics. Macao has no industrial output and is, in the meantime, very fond of French and Italian cuisine, wine and arts. The GBA is furthermore a very diverse area and, as ‘China’s next big thing’ (South China Morning Post), will develop into one of Asia’s largest tourism and leisure ecosystems - an important economic component often overlooked by European countries.
There are, however, a myriad of challenges lying ahead for European Investors and companies. The GBA is heavily dependent on Beijing for most of the policy drafting process, and ‘Policy or regulatory ambiguity, uncertainty and unfamiliarity continues to be the most significant risk companies think could impact their existing, proposed or future business plan for the GBA’ as noted in a multi-author survey from KMPG, HSBC and HKGCC in January 2020.
Other much-needed initiatives and potential risks are the lack of well-established standards for bank transactions, ageing construction, disparate tax regulations, and lack of overall coordination. Further, the gaps in subsidies and external funding between the GBA’s thousands of research clusters and between its more than one hundred universities are widening. Prestigious universities, such as the University of Hong Kong, attract top professors and researchers, whilst the Southern University of Science and Technology (‘SUSTech') has developed comprehensive partnerships with the Massachusetts Institute of Technology. The problem is that many educational institutions lag behind.
“One country with two systems: The characteristics and development of higher education in the Guangdong–Hong Kong–Macau Greater Bay Area” describes this as:
‘[T]he three systems (the 2 SAR and the Mainland) mean the GBA is similar to the European Union format, working across different governance structures. The EU uses the carrot of research money to encourage alliances; for example, project teams bidding for grants in specific schemes have to have members from three or more EU countries […]
Although HE [Higher Education] in the EU is government-sponsored rather than government-led as in the GBA, in both, governments provide strategic frameworks and resources. Therefore, the GBA can learn from EU experiences to improve the development of HE’
Similarly, a lack of coordination endangers the harmonious development of the GBA. The eleven metropolises, having different characteristics, find it increasingly difficult to bridge the development gap, and counter skyrocketing housing prices. Harsh competition between each city, rather than coherent and concurrent economic policymaking, has resulted in a plunge in optimism from European businesses last year. The GBA's well-organized development represents not only a challenge for European Investors but also for Chinese lawmakers and policymakers alike.
Perhaps a silver lining in EU-China relations, serving as a bridge to straddle the murky side against rising political tensions, the GBA offers many opportunities and difficulties for European companies. Already at the centre of geoeconomic and international economic relations, the GBA is certainly about to become one of the world's geopolitical focal points in years to come. One of the GBA's greatest advantages is decisively the insignificance of the existing ideological yardstick, as the region favours pragmatic policies.
Being thousands of miles away from Beijing, the GBA appears to follow the famous Chinese saying of thriving on its own while maintaining little direct but essential connection with the Capital City. ‘Heaven is High and the Emperor is far away’ (天高皇帝远), and this may prove to be the boon for the GBA that Europe is clearly looking for.
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