Building a Hong Kong-Shenzhen Metropolis Research Report August 2007 1 CONTENTS Introduction..............................................................................................6 I. The Current Relationship between Hong Kong and Shenzhen ...................6 II. Study Objective: Promote the relatively free flow of key resources as the first step to building a Hong Kong-Shenzhen Metropolis........................10 Chapter 1: Background and Evolution of the Hong Kong-Shenzhen Metropolis Concept...................................................13 I. Various Proposals on the Relationship between Hong Kong and Shenzhen..............................................................................................................13 1. Various Descriptions of the Relationship between Hong Kong and Shenzhen: Cooperation, Interface and Integration 13 2. Further Study on the Relationship between Hong Kong and Shenzhen: “One Metropolis, Two Regions”, “Twin Cities”, “Economic Union” 16 3. Vision for the Hong Kong-Shenzhen Relationship: from “Shenzhen-Hong Kong Bay Area” to Hong Kong-Shenzhen Metropolis 18 II. Substance and Characteristics of the Hong Kong-Shenzhen Metropolis............................................................................................................21 1. Theories and Practices of Metropolises 21 2. Characteristics and Substance of the Hong Kong-Shenzhen Metropolis 23 III. The Necessity and Strategic Significance of the Building of a Hong Kong-Shenzhen Metropolis ...............................................................................26 1. A Hong Kong-Shenzhen Metropolis is a Matter of Fact 26 2. A Hong Kong-Shenzhen Metropolis is Mutually Necessary 28 3. A Hong Kong-Shenzhen Metropolis would be the Engine for Regional Development 30 2 4. Building a Hong Kong-Shenzhen Metropolis as a National Strategy 31 Chapter 2: Evolution of “Building a Hong Kong-Shenzhen Metropolis”.............................................................................................35 I. Phase One (1980 – 1997): Market-driven Cooperation ..............................36 II. Phase Two (1997 – 2003): Adjustment and Cooperation...........................39 III. Phase Three (2003- ): Market and Government Driven Cooperation ...45 IV. Major Conclusions........................................................................................51 Chapter 3: The Effect and Influence of a Hong Kong-Shenzhen Metropolis on the Economic Development of China and the World.............................................................................54 I. Comparison of Hong Kong-Shenzhen Metropolis with Guangzhou-Foshan, Shanghai and Beijing-Tianjin Metropolises.................55 1. Hong Kong-Shenzhen Metropolis Versus China’sThree Major Metropolises 55 2. Comparative Analysis of the Three Major Metropolitan Circles (Relied on By the Four Central Cities) 58 3. Major Conclusions 61 II. Comparison of Hong Kong-Shenzhen Metropolis with New York, London and Tokyo..............................................................................................62 1. Comparative Analysis of Fundamental Economic Strengths 62 2. Comparative Analysis of Key Economic Functions 65 3. Major Conclusions 69 III. The Economic Power and Proper Role of a Hong Kong-Shenzhen Metropolis............................................................................................................70 Chapter 4: Assessment of the Economic Impact of a Hong 3 Kong-Shenzhen Metropolis ..................................................................73 I. Analysis Method and Econometric Model....................................................73 1. Methods and Models for the Analysis of the Economic Impact of a Hong Kong-Shenzhen Metropolis 73 2. Selection of Variables for the Econometric Model 76 II. The Economic Impact of a Hong Kong-Shenzhen Metropolis on Hong Kong and Shenzhen Individually and As a Whole................................78 1. The Economic Impact of a Hong Kong-Shenzhen Metropolis on Hong Kong 78 2. The Economic Impact of a Hong Kong-Shenzhen Metropolis on Shenzhen 81 3. The Economic Impact of a Hong Kong-Shenzhen Metropolis on Hong Kong and Shenzhen As a Whole 84 III. GDP Comparison between a Hong Kong-Shenzhen Metropolis and the Three Major World Cities ...........................................................................85 Chapter 5: Promoting the Relatively Free Flow of............................88 Key Resources is Fundamental to Building a Hong Kong-Shenzhen Metropolis ..................................................................88 I. Current Status of the Flow of Key Resources between Hong Kong and Shenzhen ......................................................................................................89 1. Current Status of the Flow of People 90 2. Current Status of the Flow of Capital 97 3. Current Status of the Flow of Goods 104 4. Current Status of the Flow of Information and Services 105 II. Achieving Relatively Satisfactory State for the Flow of Key Resources in a Hong Kong-Shenzhen Metropolis .........................................117 1. Overall Description of the Current Status of the Flow of Key Resources 117 2. Gap in the Flow of Resources and the Reasons 119 4 3. Achieving a Relatively Satisfactory State for the Flow of Key Resources 120 Chapter 6: Policy Recommendations for Building a Hong Kong-Shenzhen Metropolis ................................................................133 1. Strengthen infrastructure links to create a “Hong Kong-Shenzhen One-hour Metropolitan Life Circle” 134 2. Study rail connection between airports to jointly establish a Hong Kong- Shenzhen super air hub 140 3. Conduct planning for Hong Kong’sfrontier closed area with the Hong Kong-Shenzhen Metropolis concept 144 4. Establish a “Hetao Development Management Authority” to actively promote development of the Hetao area 146 5. Build China’sfirst top international metropolis through national level planning for Hong Kong and Shenzhen 149 6. Create a Hong Kong-Shenzhen Metropolis brand name to increase its attractiveness as a base for regional headquarters and branch companies of multinational and domestic enterprises 154 7. Deepen financial cooperation and strengthen Hong Kong’srole as an international financial centre 156 8. Promote effective cooperation on “Shenzhen/Hong Kong Innovation Circle” through implementation of concrete projects 159 9. Strengthen education and cultural cooperation by commencing with the “Hong Kong-Shenzhen talent nurturing programme” 162 10. Focus on sustainable development by jointly addressing environmental protection issues 5 Introduction Hong Kong and Shenzhen are closely linked and dependent on each other. As the first special economic zone of the Mainland, Shenzhen started up with the support of Hong Kong and has now become the No. 4 Mainland city in terms of gross domestic product (“GDP”). With an effective population of over 12,000,000 and a GDP of over RMB560 billion in 2006, it is already a mega city with relatively developed manufacturing and service industries. Around the world, however it is rare to find two cities like Hong Kong and Shenzhen, which lie in such close proximity to each other but differ so much in terms of economic development and social systems. Hence, the relationship between Hong Kong and Shenzhen has been a topical issue of concern for all walks of life in the two societies. Indeed, cooperation between Hong Kong and Shenzhen has all along been more than an issue for the two cities themselves, it is also relevant to the Pearl River Delta, the Pan-Pearl River Delta, Guangdong Province and the central government. Under the “One Country, Two Systems” arrangement, further cooperation between Hong Kong and Shenzhen at the institutional level is the first step towards full speed acceleration of the cooperation between Hong Kong and Shenzhen, and a critical move to promote regional cooperation in the Pearl River Delta and the Pan-Pearl River Delta, which should be considered as part and parcel of the regional economic development strategy of the State. I. The Current Relationship between Hong Kong and Shenzhen After 2004, as economic cooperation deepened and governmental exchanges became more frequent between Hong Kong and Shenzhen, there was increasing concern about how the two cities could take their cooperation to the next level in an effective manner. At the Shenzhen government level, concepts such as the “Shenzhen-Hong Kong Cooperation Circle”, the “Shenzhen-Hong Kong Metropolitan Circle” and the “Shenzhen/Hong Kong Innovation Circle” started to emerge. In January 2005, the Shenzhen municipal government issued the “Implementation Measures for the Integration of Shenzhen into the Pan-Pearl River Delta”, in which it was proposed that the “Shenzhen-Hong Kong Cooperation Circle” be established as the first tier, as well as a critical foundation, of Shenzhen’s integration into the Pan-Pearl River 6 Delta. The Shenzhen-Hong Kong Cooperation Circle, if established, can enable the two cities to complement each other in terms of city function and industry functions. The purpose is to maximise the benefit Shenzhen can receive from Hong Kong’s radiant driving force and to effectively leverage the service platforms of Hong Kong as an international financial, logistics, trading and information centre so as to create an international financial, trading and logistics centre in Shenzhen and Hong Kong as a metropolitan circle. Integration into the Pan-Pearl River Delta will allow Shenzhen to