Recognising the Opportunities to be part of a Better Future

PwC’s Interpretation and Recommendations on the “Outline Development Plan for - -Macao Greater Bay Area” Table of contents

Research and development (R&D) of an innovative and leading technology capital A powerful bay area with global competitive edge...... 2

World financial centre that plays a decisive role Leveraging Hong Kong’s advantages to promote regional development...... 4

Infrastructure connectivity One-hour living circle of the Greater Bay Area is close at hand...... 6

Citizen-centric smart city cluster System platform for information inter-flow and data sharing...... 8

Globally competitive business environment Consolidating the foundation of a world-class city cluster...... 10

Conclusion ...... 12 At the beginning of the Lunar New Year in 2019, a magnificent chapter of great efforts to develop the innovation and technology the future development of China’s economy was unveiled. The long- industries, nurture emerging industries, establish itself as the awaited Outline Development Plan for Guangdong-Hong Kong-Macao centre for international legal and dispute resolution services in Greater Bay Area was announced, marking the official start of the the -Pacific region, and develop into an international implementation of the Greater Bay Area development strategy. The metropolis with enhanced competitiveness. development plan for the Greater Bay Area is related to not only a population of 70 million people in the 9+2 cities in Guangdong, Hong 2. Macao: To develop into a world-class tourism and leisure centre Kong and Macao, but also covering an area that contributes to and a commerce and trade cooperation service platform one-tenth of the country’s economic size, and the breadth and depth of between China and Lusophone countries, promote an the new wave of China’s reform and opening-up, as well as tens of appropriate level of diversified economic development, and thousands of enterprises in multiple industries and sectors. develop into a base for exchange and cooperation where mainstream Chinese culture and diverse cultures coexist. PwC responded to the “Outline Development Plan” to provide advice and suggestions for the development of the Greater Bay Area by 3. : To fully leverage its leading function as a national gathering experts from various fields of the Greater Bay Area Working core city and an integrated gateway city, comprehensively Group to carefully study the outline and conduct a comprehensive strengthen its functions as an international commerce and business interpretation and insight analysis. We hope that being the industry centre and integrated transport hub, enhance its first analysis report of PwC after the issuance of the “Outline function as a technological, educational and cultural centre, and Development Plan”, this report can provide the business community develop into a global metropolis. with valuable references for review of the situation and for identifying and planning for business opportunities. 4. : To leverage its leading role as a special economic zone, a national economic core city and a national innovation The “Outline Development Plan”, which covers technology, finance, city, expedite its transformation into a modern and international infrastructure, smart city cluster and business environment has city, while striving to become a capital of innovation and formulated 5 strategic orientations: creativity with global influence.

1. A vibrant world-class city cluster. To develop the seven node cities, it is important to support , , , , , and in 2. An international innovation and technology hub with global fully leveraging their own strengths, deepen reform and innovation, influence. enhance the composite strengths of these cities, and form key node 3. Important support for the construction of the “Belt and Road” cities with individual characteristics, complementary positioning and initiative. strong competitiveness, to enhance coordination in development, strengthen interaction and cooperation with the four core cities, drive 4. Demonstration zone for in-depth cooperation between the the development of towns nearby with distinct characteristics, and Mainland and Hong Kong and Macao. jointly raise the development quality of the city cluster. 5. A quality living circle that is suitable for living and travel. How will the Guangdong-Hong Kong-Macao Greater Bay Area achieve the strategic positioning goal of the “Outline Development At the same time, the 9+2 cities have their own pecking order: To Plan” in the next 15 years and develop into an “international build on the four core cities of Hong Kong, Macao, Guangzhou and innovation and technology hub with global influence”? “By 2035, the Shenzhen as core engines for regional development, and to develop Greater Bay Area will form an economic system and development the key node cities of Zhuhai, Foshan, Huizhou, Dongguan, model with innovation as its main pillar. Its economic and Zhongshan, Jiangmen and Zhaoqing. technological capabilities will leapfrog to a new level, and its international competitiveness and influence will be further enhanced.” 1. Hong Kong: To consolidate and enhance Hong Kong’s status as In addition to having fast and rapid infrastructure, a globally an international financial, transportation and trade centre as well competitive business environment as an intangible asset, a world as an international aviation hub, strengthen its status as a global financial centre that plays a decisive role to provide a constant offshore (RMB) business hub and its role as an stream of demand for capital, and a citizen-centric smart city cluster, international asset and risk management centre, promote the must be supported by continuous R&D and innovation by various development of high-end and high value-added financial, social forces such as enterprises, governments and scientific commercial, trading, logistics and professional services, make research institutions.

In the “Outline Development Plan”, 5 A vibrant world-class city cluster strategic orientations were formulated 01 for the Guangdong-Hong Kong-Macao An international innovation and technology hub Greater Bay Area: 02 with global influence

Important support for the construction of the 03 “Belt and Road” initiative

Demonstration zone for in-depth cooperation 04 between the Mainland and Hong Kong and Macao

A quality living circle that is suitable for living 05 and travel

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 1 Research and development (R&D) of an innovative and leading technology capital

A powerful bay area with global competitive edge

Under the new pattern of global economic development, major Obviously, not all technology industries have advantages in the cities are exploring the path of industrial upgrading. In order to Greater Bay Area. It is extremely important to put together meet the development needs of emerging industries, municipal prevailing resources and focus on the key items. The governments are taking approaches to ride the wave of technology industries mentioned in the “Outline Development industrial upgrading such as systematic industrial Plan” include: rapidly growing new pillar industries such as transformation and repositioning to gradually bring technology new-generation information technology, biotechnology, innovation to the forefront of future development. high-end equipment manufacturing and new materials. The 9 Delta (PRD) municipalities have initially formed a Through continuous R&D and innovation, Shenzhen has seen sector structure consisting of strategic emerging industries, the emergence of the world’s leading and unicorn technology advanced manufacturing and modern service industries as the enterprises in many industries in just 30 years. These are main backbone, and will continue to promote the aggregation perfect examples of successful enterprises in the Greater Bay of innovative elements and the optimisation of sector structure Area that value R&D and innovation. Founded in Shenzhen, in the future. these companies have grown and are now active on the world stage. They are inseparable from the external environment of With strengthened interactions through the cooperation the Guangdong-Hong Kong-Macao Greater Bay Area. This mechanism in the Greater Bay Area, Hong Kong’s status in also proves that the area possesses the conditions and R&D and innovation will be further consolidated. Hong Kong foundation for developing into a global technology hub. has unique qualities for attracting and retaining talent from around the world. In addition, apart from Shenzhen being at The “Outline Development Plan” drafted by central Chinese the forefront of R&D investment intensity worldwide (as a government organisations, is more to take advantage of the percentage of GDP), Hong Kong is also committed to doubling present market trends, in order to effectively maximise the its R&D spending to HK$50 billion and actively improving its impact of the various collaborative forces in the market. R&D capabilities.

The foundation to developing the Greater Bay Area into an Industry 4.0 to promote the application of intelligent international innovation and technology hub with global technology, automation of production process, support influence is to have talent that is at the forefront of science for small orders and highly customised production, and to and technology, and to nurture science and technology promote the advanced manufacturing industry to the enterprises which are in line with national strategies and have major Greater Bay Area cities. strong market recognition. In order to build an “international innovation and technology hub with global influence” in the Attract talent locally and abroad

PwC’s point of view Greater Bay Area, apart from valuing technology companies • The Greater Bay Area has certain advantages in attracting and R&D institutions, it is essential to be able to attract and local and overseas talent. With the 9+2 cities retaining train talent from around the world. their own characteristics, the acceleration of market integration of the three legal jurisdictions and provision of Enhance the level of technology and innovation in the accommodation, work, mobility, taxation and other Greater Bay Area conveniences in areas and industries needing support • Hong Kong has some of the world’s leading universities (e.g. in the field of artificial intelligence), would help to that conduct research. The Greater Bay Area should attract local and international talent. leverage this advantage to promote key research and • Due to the rapid development of the domestic economy, breakthroughs in scientific and technological fields, there may be more business opportunities in related fields elevate the level of science and technology in the Greater such as technology and manufacturing which will propel Bay Area, strengthen IP of core technologies, and entrepreneurship or employment. On the other hand, integrate traditional and innovative industries to ensure Hong Kong’s strengths include lower personal income tax sustainability of these industries and their applications. At rates, convenient infrastructure, and excellent medical and the same time, Hong Kong also needs to work more educational resources. As such, if local or overseas talent effectively with the 9 PRD municipalities to translate (and their family members) are entitled to enjoy Hong research into practical applications. Kong’s worldclass education and medical care, and be • To promote the re-industrialisation and the development employed or start businesses in the 9 PRD municipalities, of advanced manufacturing industries, Hong Kong should the entire 9+2 city cluster may become a very competitive learn from and utilise the knowledge reserves and hub, at a national or even global level, for the gathering of expertise in the Greater Bay Area, especially in technology talent. mechanical engineering, as an opportunity to pilot

2 | PwC Coupled with the ability of Hong Kong to introduce world Intellectual property (IP) rights have always been a talent and the latest information in many ways, the city can concern point for China’s development of innovative be regarded as an important source of trendsetters and science and technology. The “Outline Development Plan” talent for the development of the Greater Bay Area. In has focused a lot of attention on IP protection, such as to addition, Guangdong, Hong Kong and Macao can consider implement IP administrative law enforcement and judicial setting up a dedicated pool of capital for joint innovation protection and law enforcement actions in key fields and projects, and supporting cooperation in major R&D sectors such as e-commerce as well as imports and projects. Building an international innovation and exports, market publicity on the regulatory regimes for IP technology hub is the top priority for the future protection and the “No Fakes Pledge” Scheme. development of the Greater Bay Area, and it will play the key role in setting the foundation. Guangdong, Hong Kong We believe that the Greater Bay Area can achieve the and Macao are expected to carry out in-depth cooperation development status proposed by the strategic positioning in the areas of business incubation, financial technology, by 2035, which will undoubtedly improve global economic commercial applications, international technology transfer, development and China’s economic transformation and and technology services. As such and in truth, the “Outline development. Development Plan” has devoted an entire chapter to describe the basic measures, including the construction of a community for innovation synergies in an open region, Hong Kong will increase R&D spending the development of quality innovation and technology from 0.73% to 1.5% in the next five years to carriers and platforms, and the enhancement of the environment for innovation in the region. HK$50 billion

Promote the transformation of IP Develop high-tech industry financing centres • Hong Kong has certain advantages in the transformation • Hong Kong can make use of its advantages and of IP in the fields of innovation, particularly in terms of experience in the financial markets to develop into a quality certification and the setting of industry standards high-tech industrial financing centre for the Greater Bay that are internationally recognised and valued. These Area, participate in the financing of innovative technology experiences should be applied to the entire Greater Bay companies in the 9 PRD municipalities, and assist local Area. We recommend that Hong Kong take advantage of innovative technology companies to list in Hong Kong. its strengths and experience in IP protection and related professional services to gather high-end IP service industries in the Greater Bay Area, and play an impactful role in promoting regional R&D innovation, continuing to develop IP markets and assisting in solving IP disputes between China and foreign countries.

Thomas Leung, PwC Mainland China and Hong Kong Deputy Markets Leader, said, “Innovative technology has a wide coverage. Not all technology sectors have their competitive edge in the Greater Bay Area. The Greater Bay Area needs to focus on building a new generation of information technology and high-end equipment manufacturing and new materials, new energy and energy saving, biomedical and technical services industries.”

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 3 World financial centre that plays a decisive role

Leveraging Hong Kong’s advantages to promote regional development

In 2018, China’s economy totalled In 2018, China’s total economic output exceeded RMB 90 trillion. The scale of economic growth in that year was equivalent to the total economic output of Australia, which was the world’s 14th largest economy, of about US$ 1.4 RMB90 trillion trillion. At the same time, China reached the rank of a world superpower in certain industries and fields. In addition, the opening up and innovation of finance became the core of the development. Can the domestic capital market cater to the financing needs of enterprises? There are a large number of technology companies in the 9 PRD municipalities that are seeking more financing channels, and companies and individuals are looking forward to the expansion of investment channels.

The “Outline Development Plan” points out the need for Hong Kong to develop an international financial hub. To leverage Hong Kong’s leading position in the financial services sector, consolidate and enhance the city’s status as an international financial centre, and establish a platform for investment and financing for the service of “One Belt, One Road” and vigorously develop the financial industry by

The “Outline Development Plan” has presented great • The flow of people in the Greater Bay Area promotes the opportunities for the entire financial industry in the Greater need for a complete system of virtual banks. Local Bay Area. The economy of Guangdong, Hong Kong and governments should work together to establish an Macao represents a huge market. If the markets of Hong integrated system that allows virtual banks to operate Kong and the Mainland are able to better connect, this can flexibly in the Greater Bay Area. provide huge opportunity for the integration of the financial industry in the Greater Bay Area. Promote investment in start-ups

PwC’s point of view • There are many start-ups in Shenzhen. Venture capital Expand cross-border investment options funds and private equity funds in the Greater Bay Area are • Liberalisation of capital markets and free capital flow well-positioned to meet their needs. within the region will promote the flow of people and • It is proposed to establish a small and medium-sized capital, while the Greater Bay Area can serve as an enterprise (SME) share transfer system and bond market example for the country. in Hong Kong to provide an opportunity for these • There are many high-net-worth individuals in the 9 PRD companies to raise funds in the city. municipalities with the need for wealth management • At the same time, Hong Kong is an international financial services and with high demand for investment centre and a global RMB business hub that can attract opportunities. foreign capital to participate in the financing of these • To promote cross-border investment, the construction of companies. a credit system is of paramount importance. The Promote synergy between regulatory systems in the Know-Your-Customer Utility (KYCU) - researched and Mainland developed by practitioners in the Hong Kong banking industry - can improve the efficiency of banks in • In view of the differences in the regulatory and approval performing customer due diligence. This will play an criteria for financial products between the Mainland and important role for accelerating the construction of the Hong Kong, the implementation of the Greater Bay Area credit system of the 9 PRD municipalities and promoting development plan is also an opportunity to better study investment opportunities. the differences and to promote the synergy between the standards of the two jurisdictions.

4 | PwC • promoting the interconnection of financial markets; the promotion of financial openness and innovation, support expanding the scale and scope of cross-border use of the building of an insurance innovation and development pilot RMB in the Greater Bay Area; zone, promote the interconnection of Shenzhen and Hong Kong financial markets and the financial cooperation between • expanding the capacity for cross-border investment Shenzhen and Macao, carry out pilot projects in science and between Hong Kong residents and institutions of the technology, and enhance the construction of financial Mainland, and steadily expanding the channels for technology carriers. Guangzhou can build a green financial residents of the two places to invest in each other’s reform and innovation pilot zone and set up an innovative financial products; futures exchange that takes carbon emission as its primary • promoting cross-border transactions of financial products trading commodity. such as funds and insurance in the Greater Bay Area, maintaining legal compliance; In terms of financing, Hong Kong institutional investors can raise RMB funds in the Greater Bay Area to invest in the Hong • enriching investment product categories and investment Kong capital market, participate in investment in domestic channels, and establishing a mechanism for private equity investment funds and venture capital funds, interoperability of funds and products; and at the same time, support Hong Kong in the development of high-end maritime services such as ship management and • developing Hong Kong into a green financial centre in the leasing, ship finance, marine insurance as well as maritime Greater Bay Area and building an internationally law and dispute resolution services, and provide such recognised green bond certification authority. services to Mainland and Macao enterprises; and to leverage Apart from Hong Kong, Guangzhou and Shenzhen also have Hong Kong’s strengths in financial and logistics services, and their respective roles. Shenzhen can develop the capital develop high value-added freight, aircraft leasing and aviation market with Shenzhen Stock Exchange as its core, accelerate financing services, etc.

• In terms of governance systems for securities brokers and Build a green financial centre in the region asset management companies, to promote the • The Hong Kong Quality Assurance Agency has developed cooperation and collaboration among relevant investment a “Green Finance Certification Scheme” based on its institutions in the Greater Bay Area to jointly contribute to experience in certification services and its understanding the construction of the regulatory systems in the region. of the Mainland market. It is believed that Hong Kong will exemplify its significance in green finance certification and Improve supporting infrastructure to build Hong Kong standard setting in the future, among other areas. into a global shipping and aviation leasing centre • At present, Hong Kong has provided profits tax Deepen financial market connectivity concessions for ships and aircraft leasing to reduce • In addition to deepening the development of Shenzhen- operating costs. In order to further improve the Hong Kong Stock Connect and -Hong Kong development of the entire leasing market, relevant laws, Stock Connect, developing Insurance Connect for talent recruitment, foreign exchange support and Mainland and Hong Kong is another viable option. A large concessions in tax conditions can be further coordinated number of insurance products in Hong Kong are more in order to attract funds and talents to build Hong Kong advanced than the ones in the Mainland. Choosing certain into a global shipping and aircraft leasing centre. safe and simple insurance products to pilot may be considered as ways to provide some platforms or solutions for consumers in the Mainland.

Peter Li, PwC Hong Kong Banking and Capital Markets Leader, said, “Regarding the differences in the regulatory and approval criteria for financial products between the Mainland and Hong Kong, the timely implementation of the Greater Bay Area development plan is an opportunity. We should study the differences and work to promote the synergy between the two standards.”

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 5 Infrastructure connectivity

One-hour living circle of the Greater Bay Area is close at hand

With the opening of the Hong Kong-Zhuhai-Macao Bridge Hong Kong, Guangzhou and Shenzhen airports are and the Hong Kong Section of the Guangzhou-Shenzhen- amongst the top 50 busiest airports in the world Hong Kong Express Rail Link, the infrastructure of the Greater Bay Area has made strides, but there is still some way to go in building a one-hour living circle through the transportation network among the 9+2 cities. According to New terminal of Guangzhou airport put the “Outline Development Plan”, the Greater Bay Area 2018 into use infrastructure network includes an integrated transportation system consisting of ports, airports, high-speed railways, express railways, intercity railways, highways and high-grade Construction of the third runway of highways, a new generation of information infrastructure and 2021 Shenzhen airport to be completed information technology facilities systems, energy security systems for supply and storage, and water security systems framing the smart city cluster:

Construction of the third runway of • To enhance the international competitiveness of the PRD 2024 Hong Kong airport to be completed port cluster. • To develop a world-class airport cluster. • To ensure the smooth flow of comprehensive external transport links. • To build a rapid transport network in the Greater Bay Area.

The multi-dimensional transportation network construction in transshipment, to realise the seamless connection of the Greater Bay Area is key for infrastructure connectivity. It railway-water, motorway-railway, air-railway and river-sea can promote the flow of people, logistics and business, thus inter-modal transport, as well as an integrated promoting the flow of funds and the efficient circulation of management of inter-modal transport, we recommend the information. The “Outline Development Plan” provides an use of a single ticket for all connecting trips, a single card ideal blueprint for the interconnectivity of urban transport for all modes of transport, and “single cargo manifest” infrastructure, and also provides macro and strategic services etc. We also recommend digitalisation of data

PwC’s point of view guidance for transport infrastructure projects in the 9+2 and information in order to improve the convenience and cities. To achieve a truly convenient international first-class efficiency of personnel and cargo transportation, in Bay Area and world-class city cluster, the following aspects Guangdong, Hong Kong and Macao. need to be carefully noted: Strengthen connections with strategic areas Build an interconnected spatial network • The Greater Bay Area infrastructure system will strengthen • The construction and upgrading of the infrastructure of the connection with major national strategic areas and the the Greater Bay Area needs to be forward-looking and “One Belt, One Road” strategic nodes. bring about breakthroughs. Through an interconnected • To strengthen the construction of outbound motorways, spatial network, the flow of economic factors across the and connect the Western Taiwan Strait city cluster, the network will be greatly promoted, leading to economies Beibu Bay city cluster, the pan-PRD region and major of scale and agglomeration of such. international land routes connecting the pan-PRD region • The connection between the east and west coasts of the and countries of the Association of Southeast Asian Greater Bay Area will be further enhanced. The Nations (ASEAN). transportation capacity of the three major pillars of Establish a differentiated competition and collaboration Guangzhou-Shenzhen, Hong Kong-Zhuhai-Macao and system Guangzhou-Zhuhai-Macao ports will be further strengthened. • The functions of critical infrastructure should be clearly defined through hierarchical integration. The infrastructure Enhance inter-modal transport construction of the cities in the Greater Bay Area should • To excel at the work of linking and connecting different have their own focus in order to take advantage of their modes of transportation to achieve zero-distance and respective strengths and avoid direct competition. seamless connection. 6 | PwC • To differentiate the positioning of international aviation • To avoid disjointed transportation interchange and • To raise the standards of passenger and cargo transport airport terminal of the Guangzhou airport was put to use in services. 2018. The third runway in Shenzhen will be completed in 2021, while the third runway of the Hong Kong airport will be • To develop a new generation of information infrastructure, completed in 2024. However these developments may still be to build smart city clusters, and to enhance the level of far from enough. The construction of a number of railways, cyber security protection. highways and transportation hubs in the pipeline, which will • To optimise the energy supply structure, and to strengthen eventually realise the hour-long access among the 9+2 cities the energy storage and transport system. in the Greater Bay Area. • To improve water infrastructure, and to improve flood prevention and mitigation systems. The Greater Bay Area is undoubtedly one of the largest port clusters in the world in terms of scale with Shenzhen ranking number 3, Hong Kong number 6, and Guangzhou number 7. As the world’s largest trading country, China’s future trade in goods still has a lot of room for growth, so the demand for port throughput will continue to grow. Hong Kong, Guangzhou and Shenzhen airports are among the 50 busiest airports in the world, and China is one of the fastest growing markets for civil aviation in the world. It can be foreseen that after a few years, airports in the Greater Bay Area will become among the 10 busiest airports in the world. The new

hubs, international hub to hub according to the respective • To increase the overall capacity of international shipping positioning and functions of different cities in the Greater services of Guangzhou and Shenzhen, enhance the Bay Area, and to promote coordinated development and competitiveness of Guangzhou and Shenzhen airport constructive interactions, as in the case of the international hubs, and further enhance the service international aviation hub of Hong Kong and the capacity of facilities including ports and fairways, form a Guangzhou-Shenzhen international integrated complementary and mutually beneficial system of ports, transportation hub. shipping, logistics and ancillary services with Hong Kong, strengthen the port cluster’s overall international Strengthen the integration of infrastructure competitiveness, and build a world-class airport cluster. • To encourage cities to strengthen cooperation to reduce To coordinate the layout and scale of energy infrastructure, competition, and intergovernmental working groups to smart city system construction standards and systems, to coordinate infrastructure planning and effective use of achieve global optimisation rather than local optimisation, existing infrastructure to promote cooperation among avoiding irrational planning, repetitive construction, governments of the 9+2 cities. discrepancies in standards resulting in a lack of integration, waste of resources, etc.

Cyrus Lu, PwC Mainland China Innovative Urban Development Integrated Services Partner, suggested: “Infrastructure is an essential element in realising the true connectivity of the Greater Bay Area. The “Outline Development Plan” has incorporated infrastructure planning in four key areas: transport, information, energy, and water resources. Building on the basis of the already sophisticated system of infrastructure in Greater Bay area, we expect to see further enhancement in the region’s operational efficiency, quality of supply, safety standards, as well as degree of intelligence automation.”

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 7 Citizen-centric smart city cluster System platform for information inter-flow and data sharing

Smart cities have been launched or are under construction in many countries around the world. However, we still do not have very clear frameworks or models, and there exist only very few smart city clusters. This is exactly one of the reasons why the Greater Bay Area can possibly lead the world. A smart city simply means using various information technologies to improve the efficiency of resource utilisation (such as clearing traffic jams), optimising city management and services (such as urban planning, operation, etc.), and improving the quality of life of citizens (such as improving the quality of medical care, libraries and parks).

In view of the implementation of “One country, two systems” in the Greater Bay Area, there are different laws, information, privacy and regulatory policies, which bring many limitations and challenges to cross-border living and business. The “Outline Development Plan” emphasises that the region will conduct comprehensive planning for the next generation network based on Internet Protocol version 6 (IPv6), and build a core network, metropolitan area network, access network and internet data centre, such that the Greater Bay Area will be capable of building a smart city cluster on a new generation of information infrastructure.

The construction of a smart Greater Bay Area city cluster Coordinated planning on policy objectives and strategies should take into account the entire framework and overall • Cities in the Greater Bay Area need to have a joint development direction of the entire region, and at the same dialogue of about eight key factors namely policy time cater to the special circumstances of individual cities. objectives and strategies, development plans, governance Therefore, cities in the Greater Bay Area can further arrangements, digital infrastructure, legal framework, strengthen the infrastructure ties among cities by adopting stakeholders cooperation, smart region pilot zones and different development strategies and deepening cooperation. continuous innovation.

PwC’s point of view This will ultimately enhance inter-regional interactions and connectivity, improve the flow of factors of production such Strengthen coordination within the region as personnel and capital in the region, promote the exchange of information and smart capital, improve urban efficiency, • Cities in the Greater Bay Area need to coordinate among improve business operations, enable residents to enjoy themselves to find smart city solutions and connections better quality of life, and attract talent and enterprises to that meet actual mutual needs. enter the market, create unlimited business opportunities and • Public sector, private sector, and academic institutions of promote economic development. the 9+2 cities need to work together to establish a good communication mechanism in all aspects of building a smart city. • Take taxation as an example. First of all, the cities could coordinate common standards and promote digital identity, and then construct the foundation for laws and regulations, establish a taxation framework to provide relevant tax incentives for individuals or enterprises and to reduce the burden of tax filing management. Regulatory authorities of the three jurisdictions should work together to reach an agreement to unify the filing process and documentation requirements.

8 | PwC The “Outline Development Plan” calls for the “promotion of new smart city pilot demonstrations as well as the development of a national big data integrated pilot zone in the PRD, strengthening cooperation among Guangdong, Hong Kong and Macao on smart cities, exploring the establishment of common standards, opening up data ports, developing interconnected public application platforms, developing information infrastructure facilities including a comprehensive intellectual sensor network with full coverage and ubiquitous internet, a smart city spatiotemporal cloud platform and a spatial information service platform, and devoting great efforts to develop smart transport, smart energy, smart municipal management and smart communities.”

Promote data openness and communication Develop artificial intelligence (AI) application • The development of smart cities and innovation and • AI brings new opportunities as well as new challenges technology applications in the Greater Bay Area relies on (such as changes in job demands and requirements). The availability of abundant open data support. The Greater Greater Bay Area needs to consider the long-term impact Bay Area may consider setting up an open database, of applying artificial intelligence and develop strategies to along with data standards and governance procedures to maximise the benefits of applying AI in smart cities while support and regulate data exchange in the region. The addressing potential challenges. The Greater Bay Area Greater Bay Area must maintain a smooth exchange of must develop into a comprehensive smart area with a information in the following ways: jointly promote people-oriented approach to maximise the value of the connections between electronic payment systems; mutual Greater Bay Area and enhance the global competitiveness recognition of electronically signed certificates and of the entire region. practical application; an innovative integrated application in the field of transport of information technology such as the Internet of Things, cloud computing and big data; wireless broadband systems in the PRD city cluster etc. However, it is necessary to pay attention to the security of data exchange, which is especially important for some major infrastructures, such as transportation networks.

Dr. Albert Wong, PwC Hong Kong Public Sector Consulting Director, said, “The Greater Bay Area provides a variety of urban application scenarios, acts as a “living laboratory” of a smart region, supports innovation and technology development, and provides a solid foundation for high-tech enterprises to enter the world market.”

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 9 Globally competitive business environment

Consolidating the foundation of a world-class city cluster

If clusters of modern sea ports, airports, landports, railways “Doing Business 2019” global report and hubs are regarded as visible and tangible physical infrastructure of the development of the Greater Bay Area, then the globally competitive business environment is definitely the intangible aspect of foundation for the #4 Hong Kong development of a world-class city cluster and an international innovation and technology hub with global influence, in addition to meeting other aspirations. Only with advanced hardware facilities and a good business environment can the development objectives be fully realised.

As such, the “Outline Development Plan” particularly mentions: “leverage the open platform of Hong Kong and Macao, support the 9 PRD municipalities in accelerating the establishment of systems and regulations that are in line with advanced international standards for investment and trade regulation, leverage the decisive role of markets in resource allocation, minimise administrative interference, strengthen integrated market regulation, and create a first-class business environment which is stable, fair, transparent and predictable.”

The 9 PRD municipalities should strengthen communication Strengthen investment and cooperation in the region with Hong Kong regarding improving the business • Allow Hong Kong investors to participate in the education environment, and strive to improve the business environment industry in the Mainland, such as kindergartens, of the city cluster in the short term. On the other hand, this universities or other types of schools. It is hoped that the will set a good precedent for other regions in the country and local governments will open up more channels and continue to lead China in deepening the scope of reform and markets for Hong Kong investors, provide land and opening-up, while maintaining and enhancing the attraction facilities and to further simplify the approval procedures.

PwC’s point of view of the Greater Bay Area to entrepreneurs, start-ups, and talents, thereby promoting economic prosperity. • Hong Kong has competitive edge in running schools and is in line with international standards. Schools in the A good business environment requires the support of talents Greater Bay Area can also employ Hong Kong education from all walks of life, and a quality living environment, talent to participate in school operations. It will also help including medical care, education and low taxation, are all to improve the quality of teaching benefiting both parties. important conditions for attracting talent. In the 9+2 cities, Hong Kong has always had international financial, accounting Expand the scope of mutual recognition of professional and legal talents to assist in the development of the Greater qualifications Bay Area. • To expand the scope of the “One Examination Multiple Certification” System, and to promote cross-border Encourage talent to develop in the Greater Bay Area practice among personnel of the Mainland, Hong Kong • In order to attract Hong Kong and Macao talent to the and Macao, to study the feasibility of professional Greater Bay Area, it is recommended to allow these accreditation so as to allow Hong Kong and Macao professionals to continue to enjoy low tax rates in their professionals to bring the application of international original SAR of domicile for long-term residence in the accounting standards to the Greater Bay Area as soon as Greater Bay Area in the form of local tax refund. possible, and ease the requirements for Hong Kong certified public accountants to practise in the Mainland. • It is suggested that Hong Kong residents, once they meet the contribution requirements of the mandatory retirement Expand the medical market protection of Hong Kong, are entitled to enjoy the same • Stimulated by market demand, and with the solid technical education, employment, medical care and other benefits level and advanced medical management of Hong Kong in China as Mainland residents. doctors, there can be more Hong Kong medical institutions in the Greater Bay Area. On the other hand, 10 | PwC According to the World Bank’s “Doing Business 2019” report, of Hong Kong and Macao under the respective Closer Hong Kong’s business environment ranked fourth in the Economic Partnership Arrangement (CEPA) with the world, and surpassed most developed economic systems. Mainland, encourage Guangdong, Hong Kong and Macao to Other cities in the 9+2 region can look to Hong Kong’s work together in establishing professional services experience and continue to optimise their business institutions, and further the development of professional environment which can play a demonstrative and leading role services such as accounting and auditing, legal and dispute nationwide. resolution services, management consultancy, testing and certification, IP, construction and related engineering works. The key points mentioned in the “Outline Development Plan” To provide quality, effective and convenient judicial services relate to optimising the business environment and making the and to create a business environment based on the rule of Greater Bay Area a livable place. It is necessary to promote law will be essential. close cooperation between quality medical and health resources, deepen the collaboration in elderly services, and promote the combination of medical and elderly services. In terms of the environment for introducing talents, it is important to leverage the open platform and exemplary role of Hong Kong and Macao to create a more attractive environment for introducing talent, to implement a more active, open and effective talent introduction policy, and to pilot for foreign innovative talent to enjoy local benefits for establishing technology enterprises. To deepen the implementation of liberalisation measures for service sectors

Hong Kong medical institutions can seek cooperation with provide advice for the planning of elderly services overseas medical resources to jointly develop the market institutions. in the Greater Bay Area. Hong Kong’s elderly services management experience can be transformed into a variety Strengthen the cooperative relationship between law of profitable or non-profit operating models through firms in Hong Kong and the Mainland professional service organisations, providing a • In terms of legal services, to strengthen the cooperative customised model for the government or enterprises relationship between law firms in Hong Kong and the catering to the needs of different regions in the Greater Mainland, and to operate as joint ventures; to promote Bay Area. The economic development stage of different exchanges of domestic and international affairs between regions in the Greater Bay Area is uneven, the markets are the two sides, in order to assist Mainland enterprises to diversified (for example, there are high-end and low-end expand their operations overseas, and to attract overseas markets), and the labor supply is uneven. Through the companies to the Mainland. quantitative analysis of such data, it is also possible to

“We recommend that the cities in the Greater Bay Area strengthen communication with Hong Kong regarding improving the business environment and strive to improve the “9+2” city cluster business environment in the short term. This will set a good precedence for other regions in the country and continue to lead China in deepening the scope of reform and opening-up. At the same time, an improved business environment will maintain and enhance the attraction of the Greater Bay Area to enterprises, entrepreneurs, and talents, and thereby promoting economic development and prosperity.” – PwC’s report from January 2019 titled ‘Talent policy defines the future success of the Guangdong-Hong Kong-Macao Greater Bay Area’.

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 11 Conclusion: Construction Investment in the Greater Bay Area Sets Sail, Enterprises Collaborate to Recognise Business Opportunities The “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area”, is a detailed regional strategy and development plan proudly introduced by the country on the 70th anniversary of the People’s Republic of China. This is an important chapter in the prospects of China’s future development and hence it is of great significance. This is also a directional guide to the continued prosperity of the economy of the 9+2 cities and the business community at large. As such, it encompasses boundless business opportunities.

Thomas Leung, PwC Mainland China and Hong Kong Deputy Markets Leader, said, “Challenges and opportunities coexist in the development of the Greater Bay Area. We should recognise this opportunity and the differences between cities as a driving force and be a part of a better future together.”

12 | PwC Contacts

Thomas Leung Elton Yeung South Markets Leader and Deputy Strategy and Innovation Leader, Markets Leader, PwC China PwC China +86 (10) 6533 2838 / +852 2289 8288 +86 (10) 6533 8008 [email protected] [email protected]

Loretta Fong Joanne Wang Partner, PwC Hong Kong Partner, PwC China +852 2289 1314 +86 (20) 3819 2219 [email protected] [email protected]

Catherine Tsang Albert Wong Partner, PwC China Director, PwC Hong Kong +86 (755) 8261 8383 +852 2289 1807 [email protected] [email protected]

Bin GB Zhao Senior Economist, PwC China +86 (755) 8261 8166 [email protected]

PwC’s Interpretation and Recommendations on the “Outline Development Plan for Guangdong-Hong Kong-Macao Greater Bay Area” | 13 The content is for general information purpose only, and should not be used as a substitute for consultation with professional advisors

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