Week 5 Economic Dimension (00000002)

Economic Dimension
What is Economics?
Economics is the study of the production and
distribution of goods and services, it is the
study of human efforts to satisfy unlimited
wants with limited resources
It studies how agents allocate scarce resources
amongst alternatives to meet unlimited human
wants
The Hong Kong Polytechnic University

Allocation of resources
Process occurs at many levels
Consumers
Firms
Government
Market System
Allocation decisions impact natural environment

Want decisions to be based upon incentives that reflect
true value to society
Unfortunately decision makers do not consider true value
i choices
in h i
Need for policy intervention to overcome such market
failure
Scarce resources and production
Resources are the basic categories
g of inputs
p organised
g by
y entrepreneurship
p p
(a special type of labour) to produce goods and services. Economists divide
resources into the three categories of land, labour and capital.
Land Labour Capital
Entrepreneurship
organises resources
to produce goods
and services
Reference: A. Layton, R. Robinson and I.B. Tucker, Economics for today, Thomson 2002
Contemporary Economics
Macroeconomics Aggregated analysis

John Maynard Keynes in 1936 and 1940
Choices of government
Monetary Policy - Federal Reserve
Fiscal Policy Taxes and Spending
Macroeconomic targets
Income Levels
Inflation
Employment

Contemporary Economics
Mi
Microeconomicsi Disaggregated
Di t d analysis
l i
Adam Smiths Wealth of Nations in 1776
Choices of consumers (households) and producers (firms)
Two types of Markets
Factor Markets Consumers sell inputs used in
production
d i to firmsfi
Product Markets Firms sell final output to consumers
Three types of analysis
Partial Equilibrium Focus on single factor or good
Multi-Market Interrelationships
p amongstg key y
fundamental markets
General Equilibrium Economy as a whole

Macro vs micro
micro-economics
economics
Microeconomics Macroeconomics
Examining individual trees rather Surveys the wood
than the wood Studies decision-making for the
Studies decision making by single economy as a whole
individual, household, firm or Examines economy-wide
industry variables, e.g. inflation,
Focus on behaviour of small unemployment, money supply,
economic units flows of experts/imports and
E.g. egg industry, will suppliers international financial capital
decide to supply more less or the Macroeconomic decision makings
same amount of eggs to the considers big picture policies as
market
k ini response to price
i the
h effect
ff off balancing
b l i the h ffederal
d l
changes? Will individual budget on unemployment, the
consumers decide to buy more, effect of changing the money
less or the same amount of eggsgg supply
pp y on p
prices and the effect of
at new price? strong economic growth on the
value of the currency.

Keynesian Economics
An economic theory stating that active

government intervention in the marketplace
g p
and monetary policy is the best method of
ensuring economic growth and stability.
stability
John Maynard Keynes (1883 1946)

Supply
pp y and Demand
A competitive market is a market in which there are
many buyers and sellers
of the same good or service.
The supply and demand model is a model of how a

competitive market works.
Five key elements in this model:

The demand curve
The supply curve
The set of factors that cause the demand curve to shift, and
th sett off ffactors
the t th
thatt cause th
the supply
l curve tto shift
hift
The equilibrium price
The way the equilibrium price changes when the supply and
demand curves shift
Demand Schedule
A demand
d d schedule
h d l shows
h how
h muchh off a
good or service consumers will want to buy
at different prices.
Demand Schedule for Tickets
Price Quantity
($ per ticket) demanded
(tickets)
350 5,000
300 6,000
250 8,000
200 11,000
150 15,000
100 20,000
A demand curve is the graphical representation of
the demand schedule; it shows how much of a good
or service consumers want to buy at any given price.
The quantity demanded is the actual amount
consumers want to buy at some specific price
price.
If the scalpers are

charging $250 per ticket,
8 000 tickets will be
8,000
purchased.
8,000
That is, 8,000 is the quantity demanded at a price of $250.

The law of demand says that a higher price for a
good other things equal
good, equal, leads people to demand a
smaller quantity of the good.
If the price drops to $100,
20,000 fans want to buy
tickets.
At $250, only 8,000 tickets
are demanded.
This
Note law
that of
The reflects demand
demand
thethe general
curve
points slopes
proposition
to inverse
thethat a higher
downward.
relationship
price reducesbetween
the number
price
andpeople
of the quantity
willing to buy a
demanded.
good.
Shifts of the Demand Curve
A change in the quantity demanded at any given price,
price
represented by the replacement of the original demand
curve with a new demand curve.
Michael
Jordan is
retiring!!!
The
Announcement
Thisincrease
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represented
of
demand
Gretzkys
shifts
byretirement
the
thetwo
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demand
generates
curve
schedules:
to
anthe
increase
right. in
demand,
Demand
an increase
before the
in the
announcement
quantity demanded at any given
price.
Demand after the announcement
Movement Along vs. Shift of the Demand Curve
A movement along the demand curve is a change in the
quantity demanded of a good that is the result of a change in that
goods price.
from
from
itItisisthe
point
point
theresult
AA to
toofofa
result
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fall
an in C:
B:
theincrease
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increase ofin
in the
the
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good.demanded
quantity
reflects
demanded a shift of
at any
movement
the
givendemand
price. along
curve
the demand
curve
Shifts of the Demand Curve (continued)
andecrease
A increaseinin
demand
demand,meansmeansa a
leftward
l i f h d dshift
rightward hif
shift
hifoffoffthe
h
demand
the demand curve.
curve:
At
at any given price,
consumers demand
a smaller
larger quantity
quantity
than before. (D1
(D1)D3)
D2)
What causes a demand curve to shift?
Changes in the Prices of Related Goods
Substitutes: Two goods are substitutes if a fall in the price of
one of the goods makes consumers less willing to buy the other
good. Ex.: muffins and donuts.
Complements: Two goods are complements if a fall in the
price of one good makes people more willing to buy the other
good. Ex: squash balls and squash racquets.
Ch
Changes in
i Income
I
Normal Goods: When a rise in income increases the demand
for a g
goodthe normal casewe sayy that the g good is a normal
good.
Inferior Goods: When a rise in income decreases the demand
for a g
good,, it is an inferior g
good. Ex: instant noodles.
Changes in Tastes
Changes in Expectations
Supply Schedule
A supply schedule shows how much of a good
or service would be supplied at different prices.
Supply Schedule for Tickets
Price Quantity
($ per ticket) supplied
(
(tickets)
)
350 8,800
300 8 500
8,500
250 8,000
200 7 000
7,000
150 5,000
100 2 000
2,000
A supply curve shows graphically how much of a good
or service p
people
p are willing
g to sell at anyy given
g price.
p
orhigher
Just
The as
for
g demand
that the
curvesbeing
price
matter, normally
the more
slope
offered,
of any goodthe more
they
d ll be
downwards,
people
will bl willing
will
dll be
b to
supply
willing
sell. to curves
part
with theirslope
normally hockey
upwards
tickets, :
Shifts of the Supply Curve
A shift
hift off th
the supply
l curve isi a change
h in
i the
th quantity
tit
supplied of a good at any given price.
Michael
Jordan is
retiring!!!
The decrease
Announcement
in supply
of Gretzkys shiftsgenerates
retirement the supply curve
a decrease to thea left.
in supply,
decrease in the quantity supplied at any given price.
Movement Along vs. Shift of the Supply Curve
A movement along the supply curve is a change in the
quantity supplied of a good that is the result of a change in that
goods price.
g p
from
frompoint
pointAAtotopoint
point
C:
B:the
thedecrease
decreaseinin
It
it is
is the
the result
result of
of aa
quantity
quantity supplied
supplied
fall in the
decrease
reflects
reflects in
price
aashifttheof
of the
movement the
good. the
quantity
supply
along supplied
curve supplyat
any
curve given price.
Shifts of the Supply Curve (continued)
decrease
increase in
Any principal
The in
supply
factors that shift the
means a
supply
l i fh l d
rightward
leftward curve:
dshift
hifoffoffthe
hif
shift h
supply
the supply
changescurve:
curve:
in the
price of an input
at any given price,
changes
there is a in
andecrease
increase
intechnology
the quantity
supplied.
changes (S1
in S3)S2)
expectations
p .
What causes a supply curve to shift?
Changes in Input Prices
An input is a good that is used to produce
another good.
Changes in Technology
Ch
Changes in
i Income
I
Changes in Expectations
Supply Demand
Supply, Demand, and Equilibrium
Equilibrium in a competitive market: when the
quantity demanded of a good equals the quantity
supplied of that good.
The price at which this takes place is the equilibrium

price (a.k.a market-clearing price):
Every
y buyer
y finds a seller and vice versa.
The qquantityy of the good

g bought
g and sold at that price
p
is the equilibrium quantity.
Finding the Equilibrium Price and Quantity
IIn
M thi
Market
In
Lets
equilibrium
k put
this tmarket
ilibthe
ki t th
the
equilibrium
the
equilibrium
supplyquantity
curve price
occurs
and is
$250
at
demanded
thepoint
demandE,
E where
iscurve
equal
the
toAnd
for
the
supply
quantity
the
that curve
market on
supplied
and
supplied.
the
equilibrium
the demand
sameisdiagram.
quantity 8,000
curve intersect.
tickets.
Why do all sales and purchases in a market
t k place
take l att the
th same price?
i ?
Suppose that a seller offered a potential buyer a price
noticeably above what she knew other people to be paying.
The buyer
y would clearlyy be better off walkingg awayy from this
particular seller and trying someone elseunless the seller
was prepared to offer a better deal.
Conversely, a seller would not be willing to sell for
significantly less than the amount he knew most buyers
were paying; he would be better off waiting to get a more
reasonable customer.
Thus in any well-established,
well-established ongoing market,
market all sellers
receive and all buyers pay approximately the same price.
This is what we call the market price.
Why does the market price fall if it is above
th equilibrium
the ilib i price?
i ?
Lets
L say the
h market
k
price of $350 is above
the equilibrium
q price
p of
$250
This creates a surplus
This surplus will push
the price down until it
reaches
eaches the eq
equilibrium
ilib i m
price of $250.
There is a surplus of a good when the quantity supplied exceeds

the quantity demanded. Surpluses occur when the price is above
its equilibrium level.
Why does the market price rise if it is
b l
below the
th equilibrium
ilib i price?
i ?
Lets
L t say th
the market
k t
price of $150 is below
the equilibrium price of
$250.
$250
This creates a
shortage.
shortage
This shortage will push
the price up until it
reaches the equilibrium
price of $250.
There is a shortage of a good when the quantity demanded

exceeds the quantity supplied. Shortages occur when the price is
below its equilibrium level.
PPRD
HK can bridge PPRD, Asean
Chief Executive Donald Tsang says Hong Kong possesses
unparalleled strengths and unique features in bridging the
Pan-Pearl River Delta and the Association of Southeast
Asian Nations.
Speaking with Asean business officials in Changsha,
Hunan on June10, 2007, Mr Tsang said Hong Kong's
extensive trade connections with the Mainland provinces
and Asean countries have facilitated import and export
trade between the two regions.
As an international financial centre,, Hong
g Kong
g provides
p
Asean and PPRD enterprises with a diversified and
effective market for raising funds, he added.

PPRD
Noting the city has extensive global connections
and can facilitate trade between Asean and
PPRD Mr Tsang said PPRD and Asean
PPRD,
enterprises can effectively network with
overseas enterprises by setting up offices in
Hong Kong.

CEPA
The Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA) is the first free trade
agreement ever concluded by the Mainland of China and
Hong Kong. The main text of CEPA was signed on 29
June 2003.
CEPA opens up huge markets for Hong Kong goods and
services, greatly enhancing the already close economic
cooperation and integration between the Mainland and
Hong Kong.

CEPA
For Hong Kong, CEPA provides a window of opportunity
for Hong Kong businesses to gain greater access to the
Mainland market
market. CEPA also benefits the Mainland as
Hong Kong serves as a perfect "springboard" for
Mainland enterprises
p to reach out to the g
global market
and accelerating the Mainland's full integration with the
world economy. Foreign investors are also welcome to
establish
bli h b
businesses
i iin H
Hong K
Kong to leverage
l on the
h
CEPA benefits and join hands in tapping the vast
opportunities of the Mainland market
market.

CEPA Implementation
CEPA covers 3 broad areas:
Trade in goods - All goods of Hong Kong origin importing into
the Mainland enjoy tariff free treatment, upon applications by
local manufacturers and upon the CEPA rules of origin
(ROOs) being agreed and met.
Trade in services - Hong Kong service suppliers enjoy
preferential treatment in entering into the Mainland market in
various service areas. Professional bodies of Hong Kong and
the regulatory authorities in the Mainland have also signed a
number of agreements or arrangements on mutual recognition
of professional qualification.
Trade and investment facilitation - Both sides agreed to
enhance co-operation in various trade and investment
facilitation areas to improve the overall business environment
environment.
CEPA Update
O
On the
th whole,
h l th
the new measures can h help
l enhance
h
HKSS' competitiveness in the Mainland.
Such measures will not only help enterprises overcome the
current financial crisis,
but will also promote the long-term economic development of
both sides.
Details on CEPA including the newly agreed
liberalisation and co
co-operation
operation measures will be
uploaded to the Trade and Industry Department's CEPA
website: www.tid.gov.hk/english/cepa/index.html

CEPA - EASIER ACCESS TO CHINA THROUGH HONG KONG
Cepa' is China's free trade agreement with Hong Kong. It grants easier access to China
markets for Hong Kong-made products, and Hong Kong-based service companies.
1. Duty-free export to China for Hong Kong-made products
1087 categories of 'Made in Hong Kong' products will be exempt from tariffs when
exported to the Chinese mainland. More information.
2. Easier market entry for Hong Kong-based service providers
Cepa covers 26 service sectors and reduces, or removes geographical, financial and
ownership restraints. Any nationality company can apply if it:
Is incorporated in Hong Kong

Has operated for 3 to 5 years (depending on the sector)
Is liable to pay Hong Kong profits tax
Employs 50% of its staff locally
More information.
Cepa Update Summary by Susan Lavender, Associate, Dibb Lupton

Alsop (European-based law firm in Hong Kong)
BENEFITS FOR NON-HONG KONG COMPANIES
Overseas companies, not based in Hong Kong, can take advantage of Cepa by
outsourcing to, or partnering with a Cepa-qualified manufacturer or service provider in
Hong Kong.
Overseas manufacturers, you do not need an office in Hong Kong to benefit from Cepa.
For your goods to qualify as 'Made in Hong Kong', you need only satisfy simple Rules of
Origin. In essence, your products must be "substantially transformed" in Hong
Kong. More information.
If you are a service-provider, you can partner with, or invest in, a Cepa-qualified
company to benefit from easier access to the Chinese mainland. More information.
SECTOR-SPECIFIC REPORTS
Manufacturing
Services
CEPA FEATURES
- Italian firm qualifies as Hong Kong service supplier
- More business opportunities for overseas firms under Cepa II
- Global logistics provider taps Cepa opportunities
- 'Big four' gear up for post-Cepa rush
- World banks localise for first-mover advantage in China
- HK & EU business leaders hail Cepa opportunities
- Luxury goods group sees Cepa as business generator
CEPA and Opportunities for Hong Kong
Introduction
Following the signing of the main parts of the Closer Economic Partnership
Arrangement (CEPA) on 29th June 2003, Hong Kong and the Mainland signed the six
Annexes to the main text of the Arrangement on 29th September 2003, setting out the
implementation details. To be implemented from 1st January 2004, the Arrangement is to
ensure Hong Kong will be "economically interlocked" with the Mainland and that
smaller Hong Kong companies will benefit from the opening-up and liberalisation on the
Mainland beyond China's commitments in its WTO accession. With CEPA, 90% of Hong
Kong domestic exports to the Mainland can enjoy zero tariffs. Also, CEPA opens up 18
service industries to Hong Kong companies. More important, CEPA provides long-term
opportunities for Hong Kong people to establish business or work on the Mainland.
CEPA - A Special Arrangement Abiding by International Practices
CEPA is the first bilateral Free Trade Agreement (FTA) for both the Chinese Mainland
and Hong Kong. It abides fully by the WTO's requirements on FTAs. While the
Agreement eliminates substantial trade and investment barriers between Hong Kong and
the Chinese Mainland, it does not raise any obstacles for other economies' access to the
two markets. Consistent with the provision of the General Agreement of Trade in
Services (GATS), companies in Hong Kong with substantive activity are qualified as
Hong Kong companies for the entitlement of the benefits under CEPA.
Opportunities in Trade in Goods
Starting from 1st January 2004, 273 types of products made in Hong Kong can be
exported to the Mainland free of tariff. This, together with China's commitments upon
accession to the WTO, will allow about 90% of Hong Kong domestic exports to the
Mainland to enjoy zero tariffs. The annual savings in tariffs are estimated to be HK$750
million. Moreover, zero tariffs will also be applied latest by January 2006 upon
applications by manufacturers in Hong Kong to other products made in Hong Kong for
accessing the Mainland market.
A product is qualified as "made in Hong Kong" if it fulfills the rules of origin under
CEPA. For 70% of the 273 types of products covered in the initial phase for tariff-free
importation, Hong Kong's existing origin rules using the "specific manufacturing
process" criterion will be adopted as the CEPA origin rules. For the rest, either the
"change in tariff heading" approach or the "30% value-added" requirement will be used.
The 30% value-added rule compares favourably with other free trade areas' thresholds,
which range from 40% to 60%.
Apart from zero tariffs enjoyed by products made in Hong Kong, products made by Hong
Kong and/or traded by Hong Kong will also benefit from CEPA in other ways. Upon
China's WTO accession, many Hong Kong manufacturers with production on the
Mainland would like to develop China as their domestic market. However, their market
penetration efforts have been somewhat hindered by the underdeveloped distribution
system on the Mainland. Many hazards in developing the China market such as payment
problems and intellectual property rights protection now facing Hong Kong
manufacturers can hopefully be alleviated as more Hong Kong players will be allowed to
engage in distribution business on the Mainland under CEPA.
The immediate benefit of the trade in goods is the saving in tariffs, thus increasing the
price competitiveness of Hong Kong's domestic exports of consumer products into the
Mainland. Industries that are more likely to be benefited include fashion, jewellery and
high-end watches.
A longer-term effect of the zero-tariff agreement is the potential for attracting more high
value-added manufacturing activities to be located in Hong Kong, and promoting
development of brand products made in Hong Kong to emerging middle-class consumers
on the Mainland.
Capitalising on the advantage of Hong Kong in intellectual property rights protection,

free trade and investment environment, and reputation in cosmopolitan design, Hong
Kong is in a good position to develop high intellectual property (IP) value industries that
target the Mainland market.
For high-end products such as designers' clothing and fashion accessories, and industries
that involve proprietary technology (since the IP input accounts for a much larger share
than labour and other inputs in the total cost structure), production in Hong Kong may
still be justifiable. However, since the high IP value industries are knowledge-based and
would not be massive in scale, the effect of job creation in Hong Kong, especially for
unskilled workers, would only be moderate.
Opportunities in Trade in Services
CEPA provisions on market access cover a total of 18 service industries. These include:
management consulting, convention and exhibition, advertising, accounting, construction
and real estate, medical and dental, distribution, logistics, freight forwarding, storage and
warehousing, transport, tourism, audio-visual, legal, banking, securities, insurance, and
value-added telecommunications services.
To be entitled to the benefits of CEPA, a service company, regardless of the nationality
of its investors or shareholders, must have substantive business activity in Hong Kong by
fulfilling the following criteria:
(1) the company must be incorporated under the laws of Hong Kong;
(2) the company must be liable to pay profits tax in Hong Kong;
(3) the company must employ in Hong Kong 50% or more of its total staff.
In addition, companies in different service industries have to meet different extra criteria
to ensure that they have been engaging in substantive business operations in such an
industry for a minimum period (usually three to five years) in Hong Kong. Although the
exact requirements for a company to be qualified vary by industries, the assessment will
be on a non-discriminatory and objective basis. Foreign companies can be regarded as a
"Hong Kong company" one year after acquiring majority shares in a Hong Kong
company through merger or acquisition.
Although the liberalisation measures vary from industry to industry, China has taken into
account the special niche of Hong Kong as CEPA commitments go beyond the country's
WTO accession protocol, for example, the opening-up of exhibition business to Hong
Kong companies.
Besides the exhibition industry, Hong Kong's niche in the audio-visual industry is well
recognised. With the quota free access to the Mainland of Chinese language films
produced in Hong Kong and the relaxation on the co-production requirements, CEPA
paves the way for the recovery of Hong Kong's film industry by creating great potential
in the Mainland market. More important, it provides a very good avenue for Hong Kong
to post itself as a modern and dynamic metropolis before Mainland's consumers.
The framework of CEPA is intentionally designed to help smaller companies, whether

they be indigenous or foreign-owned, in Hong Kong. Under China's WTO protocol, the
thresholds of entry to the Mainland's service sector are too high for Hong Kong
companies in most service industries. CEPA lowers the thresholds for Hong Kong
companies, allowing them an "effective" market access to the Mainland's service sector.
Lowering the thresholds for Hong Kong banks to expand on the Mainland and allowing
Hong Kong law firms to share offices with their Mainland counterparts are significant
measures to increase the feasibility of Hong Kong service providers to do business on the
Mainland.
Not only Hong Kong products or Hong Kong companies but also Hong Kong
professionals and residents will benefit from CEPA. Hong Kong professionals in the
securities and insurance industries can apply to practise on the Mainland and Hong Kong
permanent residents with Chinese citizenship are permitted to sit the legal qualifying
examination on the Mainland. Moreover, Hong Kong permanent residents with Chinese
citizenship are formally permitted to engage in retail activity in Guangdong. All this
suggests that in future more Hong Kong people are likely to seek employment and
business opportunities on the Mainland.
Hong Kong as a Financial Centre and Its Special Relations with the Pearl River
Delta
CEPA will strengthen Hong Kong's role as an international financial centre for China and
the region. Under CEPA, the Mainland supports Chinese banks in re-locating their
international treasury and foreign exchange trading centres to Hong Kong. They are also
encouraged to expand their banking business in Hong Kong through acquisition. In the
process of financial reform on the Mainland, the financial intermediaries in Hong Kong
will be fully utilised.
Given the proximity of Hong Kong to the Pearl River Delta (PRD), CEPA has a special
meaning to the closer co-operation of the two places. With CEPA, the PRD will continue
to grow from strength to strength as the world's manufacturing centre, fully supported by
the business services provided by Hong Kong companies. Waiving Hong Kong lawyers'
residency requirements for operating in the PRD is just an example of the special
convenience provided by CEPA to enhance the partnership of the Greater PRD.
Overall Impact on Hong Kong
CEPA will leverage on the institutional strengths of Hong Kong and the huge market
potential on the Mainland under the "one country, two systems" principle for revitalising
the Hong Kong economy and modernisation of the Chinese Mainland. Given the eased
market access to the Mainland and the stringent protection of intellectual property rights
in Hong Kong, the city will be the first choice to supply products and services with "high
content of intellectual property" for the Mainland market. Creativity will be the key
determinant for Hong Kong people and companies to succeed on the Mainland while
developing into a "knowledge-intensive" service hub is the future of this territory.
CEPA indeed creates the "environment" for Hong Kong products, Hong Kong companies
(particularly medium-sized companies), Hong Kong professionals and residents to have
an "effective" access to the Mainland. It does not provide them with "privileges" to enjoy
exclusive rights in the Mainland market. They have to face intensifying competition in
this large market from both local suppliers as well as multinational players. As China will
continue to open up on schedule in accordance with its WTO commitments, the window
of first mover advantage for Hong Kong players is brief.
The impact of CEPA on the service sector is likely to be greater than that on the
manufacturing sector. This is particularly true when services, accounting for only 34% of
China's GDP, have become a constraint on the country's economic development.
Contributing 87% to the domestic economy, services are well developed in Hong Kong
and will be able to contribute more to the modernisation of the Mainland under CEPA.
Although the immediate benefit of CEPA for industrial employment in Hong Kong may
only be moderate, much more future employment opportunities in the service sector will
be created across the boundary. The overall effect on total employment could be
significant.
Immediate trade and employment creation is, of course, important to Hong Kong, but the
long term effect of CEPA is much more substantial. Indeed, the pace of Hong Kong's
economic restructuring will accelerate under CEPA. While the impact will evolve over
time, it is likely to be reflected more in Hong Kong's GNP than in its GDP. The
opportunities arising from CEPA are not limited to activities within the HKSAR but go
much farther into the Mainland
Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)
Further Liberalization in 2015
http://www.tid.gov.hk/english/cepa/further_liberal.html
BACKGROUND
The Mainland and Hong Kong signed the CEPA in 2003. Thereafter, pursuant to Article 3 of
CEPA, the two sides broadened and enriched the content of CEPA and signed ten Supplements
between 2004 and 2013, expanding market liberalization and further facilitating trade and
investment. In December 2014, the Agreement between the Mainland and Hong Kong on
Achieving Basic Liberalization of Trade in Services in Guangdong (the Guangdong Agreement)
was signed under the framework of CEPA, enabling early realization of basic liberalization of
trade in services with Hong Kong in Guangdong.
On the basis of the Guangdong Agreement, this year the two sides continued with discussion and
on 27th of this month, signed the Agreement on Trade in Services (the Agreement), extending the
geographical coverage to the whole Mainland for basic liberalization of trade in services. The
legal text of the Agreement is available at the Trade and Industry Department's (TID) website
concerned.
Framework of the Agreement
The Agreement made reference to the framework of the Guangdong Agreement. In addition to
including new liberalization measures introduced this year, by covering and consolidating
commitments relating to liberalization of trade in services provided in CEPA and its Supplements
and also the Guangdong Agreement, the Agreement becomes a stand-alone, subsidiary agreement
relating to trade in services under the framework of CEPA.
The main text of the Agreement sets out provisions for, among others, national treatment, most-
favored treatment, safeguard measures, exceptions, and investment facilitation; the three annexes
of the Agreement set out respectively the specific commitments of the Mainland and Hong Kong
in liberalization of trade in services, and the definition of "Service Supplier" and related
requirements.
Generally speaking, trade in services can be classified into four modes1 With respect to the mode
of "commercial presence", the Agreement sets out, in the form of a negative list, the restrictive
measures reserved by the Mainland on Hong Kong that are inconsistent with the obligation of
national treatment under the 134 services trade sectors2 Except for those reserved restrictive
measures as well as the horizontal management measures, the Mainland does not impose any
particular restrictions for eligible Hong Kong service suppliers, i.e. national treatment applies. As
for the mode of cross-border supply, consumption abroad, movement of natural persons
(collectively known as "cross-border services"), as well as sectors of telecommunications and
cultural services, the Mainland's liberalization measures for Hong Kong remain positively listed.
Mainland's Liberalization Measures
Key contents of the Agreement are summarized as follows:
Overall speaking, there are 153 sectors which the Mainland has fully or partially opened up
to Hong Kong services industry, accounting for 95.6% of all the 160 services trade sectors. In
respect of the mode of "commercial presence", national treatment will be applied to Hong
Kong in 62 sectors.
In respect of the mode of "commercial presence", the negative list covers 134 services trade
sectors, reserving 120 restrictive measures as inconsistent with the obligation of national
treatment.
The positive lists covering cross-border services as well as the sectors of telecommunications
and cultural services3 have newly-added 28 liberalization measures.
The Agreement has liberalization measures in a number of important sectors. Specific
examples are set out in the Annex.
With regard to investment facilitation, for Hong Kong service suppliers in majority of services
trade sectors, filing administration is adopted in lieu of prior approval of contracts and articles
of association for establishment and change of enterprises.
Hong Kong's Liberalization Measures
Following past practice, Hong Kong will not impose any new discriminatory measures on
Mainland services and service suppliers in the areas of services covered by the Agreement.
The Agreement shall come into effect on the day of signing and be implemented as from 1 June
2016.
Conclusion
The Central Government announced in 2011 to basically achieve liberalization of trade in services
in the Mainland for Hong Kong by the end of the National 12th Five-Year Plan period. The
Guangdong Agreement signed last year achieved this goal in advance in Guangdong in the form
of early and pilot implementation and it was the first free trade agreement drawn up by the
Mainland with pre-establishment national treatment and in the form of negative list. On the basis
of the Guangdong Agreement, the Agreement signed this year further enhances the liberalization
in both breadth and depth, including extending the implementation of the majority of Guangdong
pilot liberalization measures to the whole Mainland; reducing the restrictive measures in the
negative list; and adding 28 liberalization measures in the positive lists for cross-border services
as well as cultural and telecommunications services. The Agreement will basically achieve
liberalization of trade in services between the Mainland and Hong Kong, enabling both sides to
reach a new milestone after the continuous liberalization of trade in services through CEPA over
the years. Hong Kong's favorable position to enjoy the most preferential liberalization measures
of the Mainland is assured by the "Most-Favored Treatment" provision of the Agreement which
specifies that any preferential treatment the Mainland accorded to other countries or regions, if
more preferential than those under CEPA, will be extended to Hong Kong.
Latest Developments of the Greater
Pearl River Delta, 2010-2012
The Greater Pearl River Delta region comprises
nine major cities in Guangdong, namely Guangzhou,
Foshan,, Zhaoqing,
q g, Shenzhen,, Dongguan,
gg , Huizhou,,
Zhuhai, Zhongshan and Jiangmen, as well as two
special administrative regions, namely, Hong Kong
and Macao.
The region,
g , a manufacturingg hub of national
importance, contributed 79% to total GDP of
Guangdong in year 2010. Meanwhile, the region also
accounted for a 72.4% share of total retail sales of
consumer goods of Guangdong in 2010.
As the blueprint p of the developmentp of
Guangdong in the next five years, the 12th Five-Year
Plan (2011-2015) of Guangdong sets out a number of
development goals. By 2015, GDP of Guangdong
will increase from RMB 4.5 trillion in 2010 to RMB
6 7 trillion,
6.7 t illi growing
i att an annuall rate
t off 8%.
8%
Per capita GDP will increase from RMB 47,000 to
RMB 66,000 with an annual growth rate of 7%.
Besides, Guangdongs total retail sales of consumer
goods will reach RMB 3.5
3 trillion and total imports
and exports will exceed USD 1 trillion in 2015.
In 2010, Guangdong registered a GDP of RMB 4.5 trillion with a
year-on-year growth h off 15.2%.
15 2% It
I is
i forecasted
f d that
h the
h totall GDP will
ill
reach RMB 6.7 trillion by 2015, with an annual growth rate of 8%.
The GDP per capita of Guangdong has increased from RMB 370
i 1978 to RMB 47,000
in 47 000 in
i 2010,
2010 representing
i an annuall growth
h off
14.2%. It is expected that the GDP per capita will increase to RMB
66,000 by 2015, with an annual growth rate of 7%.
Total imports and exports of Guangdong were USD 784.9 billion
i 2010.
in 2010 The
Th imports
i were USD 331.7
331 7 billion
billi and
d totall exports were
USD 453.2 billion (a total trade surplus of USD 121.5 billion). In 2010,
Guangdong accounted for 26.3% of the total national imports and
29.6% of the total national exports. By 2015, the total imports and
exports will exceed USD 1 trillion.
Since the opening up of China in late 1970s,1970s
Guangdong has been serving as a testing field for
exploring a new direction for the economic
development of China and also as a role model
showcasingg the benefits of the opening
p g up
pppolicy.
y
The Qianhai area in Shenzhen and Nansha in
Guangzhou have been chosen as the major
cooperation zones between Guangdong and Hong
Kong for seeking breakthroughs in innovative
domains.
The Outline of the 12th Five-Year Plan for
National Economic and Social Development of the
Peoples Republic of China (the 12th Five-Year
Plan) was officially promulgated on 16 March 2011.
For the first time, an individual chapter entitled
M i t i i
Maintaining th Long-term
the L t P
Prosperity
it and
d Stability
St bilit
of Hong Kong and Macao was dedicated to Hong
Kong and Macao.
Macao
The dedicated chapter clearly set out the Central
A th iti supportt for
Authorities f H
Hong K
Kong t deepen
to d
economic cooperation with the Mainland and
continue to implement CEPA.
CEPA
It also confirmed the significant functions and
positioning of Hong Kongs cooperation with
Guangdong under the Framework
Framework Agreement on
Hong Kong/Guangdong Cooperation, including the
establishment of a financial cooperation
p zone and a
world class metropolitan cluster with Hong Kongs
financial system taking the lead, and the support for
Guangdong to open up its service industries for
Hong Kong on a pilot basis and extending the pilot
scheme
h t other
to th regions
i gradually.
d ll

Latest Developments of the Greater Pearl River Delta
This chapter is divided into 6 parts. Part I, II and III will give the
general economic overview of Guangdong as well as the Greater
Pearl River Delta region. Key development goals for Guangdong
and latest updates of the cooperation zones between Hong

Kong and Guangdong will be covered in Part IV and Part V. Part
VI will introduce the major government initiatives and recent
infrastructure projects in the Greater Pearl River Delta region.
I. I. Economic Overview of Guangdong
2011 Guangdong is the most populous province in China.

Encompassing a total land area of 179 812.7 sq. km, the province
1.044
had a 104.4 million permanent population by the end of 2010,
179 812.7 according to the Guangdong Statistical Yearbook 2011.
21 Located on the southern coast of China, Guangdong is composed

of 21 cities at prefecture level. Of which, Guangzhou, Foshan,
Zhaoqing, Shenzhen, Dongguan, Huizhou, Zhuhai, Zhongshan

and Jiangmen are the 9 major cities forming a region commonly
known as the Pearl River Delta. The Pearl River Delta region, a
manufacturing hub of national importance, contributed 79% to
2010
total GDP of Guangdong in year 2010. Meanwhile, the region also
79% accounted for a 72.4% share of total retail sales of consumer
72.4% goods of Guangdong in 2010.
23
1. 1. GDP of Guangdong
201045,472.8 In 2010, Guangdong registered a GDP of RMB 4.5 trillion with a

year-on-year growth of 15.2%. It is forecasted that the total GDP
15.2%2015
will reach RMB 6.7 trillion by 2015, with an annual growth rate of
66,800 8%.
8%
80,000

GDP of Guangdong (1978-2015*)
70,000 66,800.0
60,000
RMB 100m
50,000 45,472.8
39,482.6
40,000 35,696.5
31,084.4
30,000 22,366.5
20,000
10,741.3
10,000 5,933.1 GDP
185.9 1,559.0
0 Year
1978 1990 1995 2000 2005 2007 2008 2009 2010 2015*
2011 Source: Guangdong Statistical Yearbook 2011
* 2015 * The figure of 2015 is projection
2. 2. GDP Per Capita
Since China adopted the economic reform and opening-up policy,

the GDP per capita of Guangdong has increased from RMB 370
1978370
in 1978 to RMB 47,000 in 2010, representing an annual growth
201047,000 of 14.2%. It is expected that the GDP per capita will increase to
14.2%201566,000 RMB 66,000 by 2015, with an annual growth rate of 7%.
7%
80,000

GDP per capita of Guangdong (1978-2015*)
70,000 66,000.0
60,000
47,000.0
50,000
RMB
41,166.0
37,589.0
40,000 33,151.0
30,000 24,438.0

20,000
12,736.0 GDP per capita of
8,129.0 Guangdong
10,000 2,484.0
370.0
0 Year
1978 1990 1995 2000 2005 2007 2008 2009 2010 2015*
24
3. 3. Retail Sales of Consumer Goods
In line with the income growth, the amount of retail sales of

consumer goods has increased from RMB 8.0 billion in 1978
197879.9 2010
to RMB 1.7 trillion in 2010 with an annual growth of 16.9%. By
17,414.7 estimation, the figure will reach RMB 3.5 trillion by 2015.
16.9%201535,000

40,000

Retail sales of consumer goods (1978-2015*) 35,000.0
35,000
30,000
RMB 100m
25,000
20,000 17,414.7
14,891.8
15,000 12,772.2
10,598.1
10,000 7,882.6
Total retail sales of
4,379.8
consumer goods
5,000 2,478.4
79.9 667.4
0 Year
1978 1990 1995 2000 2005 2007 2008 2009 2010 2015*
4. 4. Total Exports and Imports
20107,849.0 Total imports and exports of Guangdong were USD 784.9 billion
in 2010. Of which, total imports were USD 331.7 billion and total
3,317.1
exports were USD 453.2 billion, representing a total trade surplus
4,531.91,214.8 of USD 121.5 billion. In 2010, Guangdong accounted for 26.3% of
2010 the total national imports and 29.6% of the total national exports.
26.3%29.6%2015 By 2015, the total imports and exports will exceed USD 1 trillion.
9,000

International trade (1990-2010) 7,849.0
8,000
6,834.9
7,000 6,340.4 6,111.2
USD 100m
6,000
Total exports and
5,000 4,280.0 imports
4,000

3,000 Imports
1,701.1
2,000
1,039.7
1,000 419.0 Exports
0 Year
1990 1995 2000 2005 2007 2008 2009 2010
25
II. * II. Major Economic Indicators of the Pearl
(2009-2010) River Delta* (2009-2010)
2009 2010
Nine cities in PRD Percentage to the Year-on-year growth Percentage to the
Guangdong province (%) rate (%) Guangdong province (%)
Basic information

54 733.0 30.4 54 733.0 / 30.4
Land Area (sq.km)

Permanent Population at the Year-end 5 361.7 52.9 5 616.4 4.8 53.8
(10 000 persons)

4 336.6 67.5 4 646.0 7.1 67.2
Urban Population (10 000 persons)

Employed Persons at the Year-end 3 261.0 57.7 3 377.4 3.6 58.7
(10 000 persons)
Production data

32,147.0 79.4 37,673.3 17.2 79.0
Regional GDP (RMB 100 million)

723.6 35.7 809.8 11.9 35.1
Primary Industry

15,427.5 80.0 18,313.5 18.7 79.3
Secondary Industry

15,995.9 83.4 18,550.0 16.0 83.2
Tertiary Industry

Ratio of Industries to the Gross Domestic
Product (%)

2.3 / 2.1 -0.2 /
Primary Industry

48.0 / 48.6 0.6 /
Secondary Industry

49.8 / 49.2 -0.6 /
Tertiary Industry

61,231.0 / 68,633.3 12.1 /
GDP per capita (RMB)
Domestic Economy

Total Investment in Fixed Assets 9,603.6 71.9 11,355.8 18.2 70.5
(RMB 100 million)

Total Amount of Retail Sales of Consumer 10,834.7 72.8 12,613.2 16.4 72.4
Goods (RMB 100 million)
External Economy

3,417.8 95.2 4,318.0 26.3 95.3
Total Exports (USD 100 million)

2,430.5 96.4 3,195.0 31.5 96.3
Total Imports (USD 100 million)

Realised Foreign Direct Investment 175.1 89.6 183.5 4.8 90.5
(USD 100 million)

* * Includes Guangzhou, Foshan, Zhaoqing, Shenzhen, Dongguan, Huizhou, Zhuhai, Zhongshan
26 and Jiangmen
III. III. Basic Facts and Figures of the Greater
(2010) Pearl River Delta, 2010
The Greater Pearl River Delta comprises nine major cities in

Guangdong, namely Guangzhou, Foshan, Zhaoqing, Shenzhen,
Dongguan, Huizhou, Zhuhai, Zhongshan and Jiangmen, as well

as two special administrative regions, namely, Hong Kong and
Macao. The exhibit below shows the basic facts and figures of the
respective cities.
1) 664.3 ( 10 000 persons)

2) 9,879.4 ( RMB 100 million)
1) 370.9 ( 10 000 persons) 3) 4,242.6 ( RMB 100 million)
2) 5,651.5 ( RMB 100 million) 4) 30,658.0 ( RMB)
1) 53.7 ( 10 000 persons) 3) 1,687.1 ( RMB 100 million) 5) 25,012.0 ( RMB)
2) 384.5 ( RMB 100 million) 4) 27,245.0 ( RMB)
3) 26.0 ( RMB 100 million) 5) 21,995.0 ( RMB) 1) 181.8 ( 10 000 persons)
4) 16,832.0 ( RMB)

Guangzhou 2) 4,246.5 ( RMB 100 million)
5) 12,164.0 ( RMB) Zhaoqing 3) 1,108.1 ( RMB 100 million)
Foshan 4) 35,690.0 ( RMB)

5) 25,733.0 ( RMB)
Dongguan
1) 149.2 ( 10 000 persons) 1) 133.9 ( 10 000 persons)
2) 1,850.6 ( RMB 100 million) Huizhou 2) 1,130.5 ( RMB 100 million)
3) 648.1 ( RMB 100 million) 3) 355.8 ( RMB 100 million)

4) 25,357.0 ( RMB) Zhongshan 4) 23,565.0 ( RMB)
5) 18,833.0 ( RMB) 5) 19,741.0 ( RMB)
Shenzhen
Jiangmen
1) 138.2 ( 10 000 persons) 1) 259.9 ( 10 000 persons)
2) 883.8 ( RMB 100 million) 2) 9,581.5 ( RMB 100 million)
3) 282.6 ( RMB 100 million) 3) 3,000.8 ( RMB 100 million)
4) 32,381.0 ( RMB)
4) 21,153.0 ( RMB) Zhuhai Hong Kong
5) 15,561.0 ( RMB) 5) 22,807.0 ( RMB)
Macao
1) 710 ( 10 000 persons)
6) 17,438.6 ( HKD 100 million)
1) 55.2 ( 10 000 persons) 7) 246,733.0 ( HKD)
1) 104.7 ( 10 000 persons) 2) 2,173.2 ( MOP 100 million) 8) 3,249.7 ( HKD 100 million)
2) 1,208.6 ( RMB 100 million) 7) 398,071.0 ( MOP)
3) 486.0 ( RMB 100 million) 8) 298.5 ( MOP 100 million)
4) 25,382.0 ( RMB)
5) 20,370.0 ( RMB)
city
1) 1) Population with residence registration
2) 2) GDP
3) 3) Retail sales of consumer goods
4) 4) Per capita disposable income
5) 5) Per capita consumption expenditure
6) 6) GDP at current price
()
7) 7) GDP per capita
8) 8) Retail sales

Census and Statistics Department of Hong Kong
Statistics and Census Service of Macao
27
IV. IV. Key Development Goals of the Three
Economic Circles in Guangdong
2009
In response to the Outline of the Plan for the Reform and
Development of the Pearl River Delta (2008 to 2020) released
20082020
by the National Development and Reform Commission in early
2009 2009 and the Guiding Opinions on Expediting the Economic
Integration in the Pearl River Delta Region promulgated by
the Government of Guangdong province in mid 2009, the nine
cities of Pearl River Delta had one after another entered into a

cooperation framework agreement on regional integration. The
aim was to integrate resources and strengthen collaboration with a
view to further urban integration, a process which has given rise to
the formation of three economic circles, namely the Guangzhou-
Foshan-Zhaoqing Economic Circle with Guangzhou as its core
()
city; the Shenzhen-Dongguan-Huizhou Economic Circle, which
()( encompasses the eastern Pearl River Delta region with Shenzhen
) as its core city; and the Zhuhai-Zhongshan-Jiangmen Economic
Circle comprising the western Pearl River Delta region with Zhuhai
as its core city.

Key development goals of the three economic circles set out by
the Guangdong Government are listed in the exhibit below.
(20112012)
Key Development Goals of the Pearl River Delta Region in 2011 and 2012

City Year Urbanisation () ()
() Service rate (%) Urban household Rural net income per
GDP per industry as disposable income capita (RMB)
capita (RMB) a share of GDP (%) per capita (RMB)
2011 113,129 56 100.0 34,100 -

Shenzhen 2012 121,048 58 100.0 36,800 -
Shenzhen-
2011 72,000 47 87.2 37,476 15,238
Dongguan-
Dongguan 2012 80,000 48 87.5 39,537 16,457
Huizhou Economic
Circle 2011 44,182 37 62.2 25,200 8,682
Huizhou 2012 50,000 38 62.5 27,500 9,200
2011 97,900 63 83.0 32,800 13,148
Guangzhou 2012 103,700 65 83.2 35,800 14,332
Guangzhou-
2011 92,000 38 93.5 28,900 12,480
Foshan-
Foshan 2012 102,000 40 94.4 31,800 13,478
Zhaoqing Economic
Circle 2011 25,500 44 48.5 17,733 7,235
Zhaoqing 2012 30,000 45 50.0 19,152 7,799
2011 81,000 48.7 85.7 26,900 9,818
Zhuhai 2012 85,200 51 86.1 29,600 10,505
Zhuhai-
2011 74,000 41 87.5 25,810 14,034
Zhongshan-
Zhongshan 2012 80,000 43 88.0 27,230 15,000
Jiangmen Economic
Circle 2011 37,700 38 50.6 22,474 8,786
Jiangmen 2012 40,500 40 50.9 24,609 9,488
Source: Guangdong Government
28
V. V. Major Cooperation Zones between Hong
Kong and Guangdong
Since the opening up of China in late 1970s, Guangdong has

been serving as a testing field for exploring a new direction for
the economic development of China and also as a role model

showcasing the benefits of the opening up policy. Three decades
on, Guangdong is once again endowed with an opportunity to
test-run the concepts of Early and Pilot Implementation. It is
noteworthy that the Qianhai area in Shenzhen and Nansha in
Guangzhou have been chosen as the major cooperation zones

between Guangdong and Hong Kong for seeking breakthroughs
in innovative domains.

Cooperation zones Area Major industries Development goals Major development plans
between Hong Kong
and Guangdong
15 2020
Qianhai, 15 sq.km
Shenzhen Focusing on the Overall Development Plan of
development of modern To become a prominent producer Qianhai for the Cooperation
service industries such service centre in the Asia-Pacific between Shenzhen and Hong
as finance, logistics and region and a world-class trading Kong in Modern Service
information technology service base by 2020 Industry
803
Nansha,
Guangzhou 570 Comprehensive Proposal for
the Overall Conceptual Plan
803 sq.km Promoting the development Four functions: a new platform of Nansha, Guangzhou
with land area of intellectual industries such for comprehensive cooperation
of 570 sq.km as the internet of things, and between Guangdong, Hong
exploring the development Kong and Macao, a new world-
of a bulk commodity trading class logistics hub in the Pearl
centre and a major logistics River Delta region, a new engine
base in South China in the of scientific development in
vicinity of Nansha Bonded South China, a new base for the
Port Area implementation of the national
maritime strategy
Source: Development Plans for Qianhai and Nansha
29
VI. VI. Major Policy Initiatives and Infrastructure
Constructions

Major Policy Initiatives
1.
1. The 12th Five-Year Plan

2011316 The Outline of the 12th Five-Year Plan for National Economic
and Social Development of the Peoples Republic of China (the
12th Five-Year Plan) was officially promulgated on 16 March 2011.
For the first time, an individual chapter entitled Maintaining the
Long-term Prosperity and Stability of Hong Kong and Macao
was dedicated to Hong Kong and Macao. The significant

functions and positioning of the Hong Kong Special Administrative
CEPA Region in the national development strategy were elaborated.
The dedicated chapter clearly set out the Central Authorities
support for Hong Kong to deepen economic cooperation with the
Mainland and continue to implement CEPA. It also confirmed the
significant functions and positioning of Hong Kongs cooperation
with Guangdong under the Framework Agreement on Hong
Kong/Guangdong Cooperation, including the establishment
of a financial cooperation zone and a world-class metropolitan
cluster with Hong Kongs financial system taking the lead, and the
support for Guangdong to open up its service industries for Hong
Kong on a pilot basis and extending the pilot scheme to other
regions gradually.
30
2. 2. 12th Five-Year Plan of Guangdong
As the blueprint of the development of Guangdong in the next

five years, the 12th Five-Year Plan (2011-2015) of Guangdong
set out the following goals including steady and fast economic
growth, optimised and upgraded industrial structure, improvement
of innovation capability, reduction of regional development
disparity, accelerated growth of urban and rural residents
income, comprehensive development of social undertakings
and significant improvement of ecological environment. After

three decades of astonishing double-digit economic growth,
20112015 Guangdong proposed to lower its targets of annual GDP growth
and per capita GDP growth to 8% and 7% during the 12th Five-
Year Plan period (2011-2015); instead, the province placed

8%7% huge emphasis on the quality of growth in order to achieve real
happiness (well-being) for its people.
Key Development Goals of Guangdong by 2015

Indicators () Urbanisation rate
GDP () Contribution of () ()
(RMB 100 million) GDP per capita service industry to Urban household Rural net income
(RMB) GDP disposable income per capita (RMB)
per capita (RMB)
2010 45,473 47,000 44.6% 64% 23,898 7,890
2015 66,800 66,000 48% 68% 35,100 11,600

8 7
Annual growth - - 8 8
8 or above 7 or above
rate (%)
Source: 12th Five-Year Plan of Guangdong
31
3. 3. The Outline of the Plan for the Reform and
(2008-2020) Development of the Pearl River Delta (2008-2020)
2009 In early 2009, the State Council approved after examination the
Outline of the Plan for the Reform and Development of the Pearl
River Delta (2008 to 2020) (Outline) compiled by the National
20082020( Development and Reform Commission. The Outline elevated
) the Pearl River Delta development to the level of national strategy,
confirming Guangdong-Hong Kong-Macao cooperation as an
important part of the strategy for overall national development.

The Outline put forward a target for the GDP per capita of the
2012 Pearl River Delta to reach RMB 80,000 and its services industries
80,000 to account for 53% of the regional GDP by 2012. And by 2020,
the GDP per capita of the Pearl River Delta was targeted to reach
53% RMB 135,000 and its services industries to account for 60% of
2020GDP the regional GDP.
135,000
The Outline also mentioned the direction for the Pearl River
60%
Delta to forge closer cooperation with Hong Kong and Macao.
Relevant measures included major infrastructure projects that
aimed to achieve connection among the rail transport and
information networks of the three places; support for Hong Kong
and Macao processing trade enterprises operating in the Pearl
River Delta to extend their industrial chain by transforming and
upgrading themselves into enterprises of modern services and
advanced manufacturing industries; support for labour-intensive
enterprises to achieve smooth transition in their restructuring

and for Hong Kong enterprises to access the Mainland domestic
market; more in-depth measures for CEPA implementation and
preparation for implementing the early and pilot implementation
CEPA arrangements for Hong Kong and Macao; and co-building a
quality living area, encouraging the Pearl River Delta, Hong Kong
and Macao to work together in the areas of education, healthcare,
social security, emergency management and intellectual property
protection with a view to providing convenience to people of Hong
Kong and Macao working and living in the Mainland.

32
20122020
Development Goals of the Pearl River Delta Region by 2012 and 2020

Development goals
2012 80,000
By 2012 GDP per capita to reach RMB 80,000
53%
Service industries to account for 53% of the GDP
80%
Urbanisation level to exceed 80%
2020
By 2020 A sound system of socialist market economy will be established

The Pearl River Delta to become one of the worlds mega metropolitan regions
2012
The income levels for the urban and rural residents to double compared with the levels of 2012
135,000
GDP per capita to reach RMB 135,000
60%
Service industries to account for 60% of the GDP
85%
Urbanisation level to exceed 85%
(2008-2020) Source: The Outline of the Plan for the Reform and Development of the Pearl River Delta
(2008-2020)
33
4. 4. Five Integration Plans
2010 In 2010, the Guangdong Provincial Government initiated five

integration plans, namely the Integration Plan for Public Services

of the Pearl River Delta, the Integration Plan for the Industrial
Layout of the Pearl River Delta, the Planning for Urban-Rural
Integration of the Pearl River Delta, the Integration Plan for
Environmental Protection of the Pearl River Delta and the
Integration Plan for Infrastructure Construction of the Pearl

River Delta. The aim was to integrate resources, strengthen
cooperation and coordination, and enhance economic strength
with a vision to forming three economic circles, namely the
Guangzhou-Foshan-Zhaoqing Economic Circle with Guangzhou

as its core city; the Shenzhen-Dongguan-Huizhou Economic
Circle, which encompasses the eastern Pearl River Delta region
with Shenzhen as its core city; and the Zhuhai-Zhongshan-
Jiangmen Economic Circle comprising the western Pearl River
Delta region with Zhuhai as its core city, and materialise a one-

hour inter-city circle by three circular and eight outbound routes
which connect all the Pearl River Delta cities above county level
via inter-city rail network.

Guangzhou-Foshan-
Zhaoqing Economic Circle

Shenzhen-Dongguan-
Huizhou
Economic Circle

Zhuhai-
Zhongshan-
Jiangmen
Economic
Circle
34
5. 5. Tapping the Mainlands Domestic Market
To facilitate processing factories to explore the domestic market,

Guangdong issued a Decision Relating to Implementation
20107
Strategies to Stimulate Domestic Consumption in July 2010
with a plan to build more than 8 sales centres to help Guangdong
factories to sell products nationwide. It was also stated in the
Opinions Relating to Expediting the Change of Economic
Development Mode of Guangdong to step up efforts on
promoting domestic sales. Measures included the promotion

of selling Guangdong products nationwide and online sales
of Guangdong products, and building sales platforms such as
Guangdong Business and Trading Centre and Guangdong
Merchandise Direct Sales Centre.
Besides, the Mainland Government introduced a Notice on

Implementing Pilot Works on Upgrade and Transformation of
Processing Trade in November 2010, choosing Dongguan
and Suzhou as the pilot cities to restructure and upgrade their
industrial structure in the coming years.
201011
6. 6. Regional Cooperation Plan on Building a Quality

Living Area
20126
Hong Kong, Guangdong and Macao jointly announced the
publication of the Regional Cooperation Plan on Building a
Quality Living Area in June 2012. This is the first regional plan
jointly compiled by Hong Kong, Guangdong and Macao. The
Plan covers long-term cooperation in five major areas, namely
environment and ecology, low-carbon development, culture
and social living, spatial planning, and green transportation
systems. The three governments will make full use of institutional
mechanisms already in place, including the Hong Kong/
Guangdong Cooperation Joint Conference and the Guangdong/
Macao Cooperation Joint Conference, to take forward the various
initiatives in the Plan. Specific cooperation proposals will also

be taken up and discussed by relevant expert groups, and there
will be coordinated implementation. Established mechanisms
and procedures for programme approval and consultation will be
observed.
35
7. 7. CEPA 9
() Supplement IX to the Mainland and Hong Kong Closer Economic
Partnership Arrangement (CEPA 9) was signed on 29 June 2012.
CEPA 9 provides for a total of 43 services liberalisation and trade
()(CEPA 9)2012
and investment facilitation measures, including 37 liberalisation
629CEPA 943 measures in 22 service sectors. It also strengthens cooperation in
22 areas of finance and trade and investment facilitation, and further
promotes the mutual recognition of professional qualifications of
37
the two places. Deepening implementation of CEPA will further
promote the development of service and other industries in the
two places.
CEPA

Infrastructure Constructions
1. 1. Hong Kong-Zhuhai-Macao Bridge
200910 In October 2009, the State Council approved the feasibility study
report of the Hong Kong-Zhuhai-Macao Bridge (HZMB) Project.

The Governments of Hong Kong, Guangdong and Macao have
2009 commenced the construction of the HZMB Main Bridge in late
2016 2009 for completion by 2016. When completed, western Pearl
River Delta will fall within a reachable three-hour commuting
36
radius of Hong Kong, thereby enhancing the connection between
Hong Kong and western Pearl River Delta. The local works within
Hong Kong waters commenced in late 2011 and will dovetail with
2011
the works of the Main Bridge to complete in 2016.
2016
2. The Hong Kong Section of the Guangzhou-
2. () Shenzhen-Hong Kong Express Rail Link
() The Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL)

is an express rail link connecting Hong Kong, Shenzhen and
140 Guangzhou. The XRL will span about 140 kilometres with the
Hong Kong terminus at West Kowloon. With the XRL, the journey
100 time between Hong Kong and Guangzhou will be reduced from
about 100 minutes as at present to 48 minutes. The construction
48()2010
of the Hong Kong section of the XRL was commenced in January
2015 2010 for completion in 2015. Upon completion, XRL will provide
direct access to the Shibi terminus in Guangzhou via Futian,
Longhua and Humen, materialising a one-hour living circle
covering Hong Kong and major Pearl River Delta cities.
37
3. 3. Beijing-Guangzhou High-Speed Line
201212 The Beijing-Guangzhou High-Speed Line was officially

commissioned in December 2012. It is a high-speed passenger

line connecting the northern, central and southern parts of China.
2 298 Measuring 2 298 kilometres in length, it spans over six major
cities and provinces, namely Beijing, Hebei, Henan, Hubei, Hunan
3.8 and Guangdong, covering a total population of more than 380
million. The journey time between Beijing and Guangzhou by this

high-speed line is eight hours only, cutting nearly 13 hours from
132015 the former rail ride. Soon Beijing will be just less than nine hours
away from Hong Kong by train when the Guangzhou-Shenzhen-
Hong Kong Express Rail Link also comes into operation in 2015.

38
4. 4. Three Circular and Eight Outbound Routes
In December 2009, the National Development and Reform

Commission approved the Inter-city Rail Transport Plan for Urban
200912
Integration of Pearl River Delta. According to Guangdongs
2020 transport planning, an inter-city rail transport network featuring
three circular and eight outbound routes will be built by 2020.
The network will connect all Pearl River Delta cities above county
level and thus materialise a one-hour inter-city circle.
Circular Route One is the Guangzhou-Foshan route, which will

enlarge the accessible area from major passenger nodes like the
Guangzhou Baiyun International Airport and New Guangzhou

Station and connect closely with the rail network radiating from
Guangzhou. Circular Route Two combines three inter-city rail
lines (Guangzhou-Dongguan-Shenzhen line, Zhongshan-Nansha-
--
Humen line and Guangzhou-Foshan-Zhuhai line) into a mid-level
circular route that travels along the Pearl River Estuary. Circular
- Route Three is the major circular route that encircles the Pearl
River Estuary by combining the Guangzhou-Dongguan-Shenzhen
line, the Shenzhen-Zhuhai line and the Guangzhou-Foshan-
-
Zhuhai line. The eight outbound routes include the Guangzhou-
---- Foshan-Zhaoqing, Guangzhou-Qingyuan, Guangzhou-Huizhou,
-- Dongguan-Huizhou, Shenzhen-Huizhou, Zhuhai-Doushan,
Jiangmen-Enping and Zhaoqing-Gaoming routes.
39
The Greater
Pearl River Delta
A report commissioned by
Invest Hong Kong
7th Edition
http://www.investhk.gov.hk/zh-hk/files/2014/05/InvestHK_GPRD-
Book_Eng_Apr2014.pdf
Section 3 Economic Trends in the Pearl River Delta Region Section 3 Economic Trends in the Pearl River Delta Region
68 69
Economic The first two developments are largely confined within the Pearl River
Delta region with the Chinese authorities as driving forces. The rapid
T
growth of market potential has been induced by regional economic
rends in the development and the improvement in residents income and, since
2009, has been accelerated by the effectiveness of the consumption
stimulus policy. Both Hong Kong and Macao are also instrumental
Pearl River Delta Region in the region due to their increasing investments, complementing
themselves to Pearl River Delta development strategies and, gradually,
changing policy orientation to respond to new opportunities and
address new challenges.
3.1 From Manufacturing to Technology

In the last 10 years, the most distinctive feature of Guangdong Province
manufacturing strategies has been the drive in the Pearl River Delta
from processing trade-oriented manufacturing clusters into a high-
technology-oriented exporting region, which calls for supportive
industrial and technological policies.
3.1.1. The Development of High-Technology Industries
As early as the late 1980s, the Guangdong Provincial

The economic
Government had recognised the importance of high-
development of
technology industries. Among all the Pearl River Delta
the Greater Pearl
cities, Shenzhen stood out as the first to apply itself
River Delta region since
to the development of high-technology industries,
2000 can be seen from three
and gave the highest priority to technological
perspectives: 1) the technology-
development in the early 1990s. Shenzhen
driven upgrade of the export sector;
launched numerous measures
2) the shift in economic orientation from
to encourage
the manufacturing sector to the service sector,
driven by the Guangdong Provincial Government, and
3) the emergence of the Greater Pearl River Delta market,
driven by the growing consumption power of the regions residents.
70 71
technological development including: providing tax concessions, Figure 3-1: O

utputs and Exports of High-Technology Products in Guangdong Province
(2000-2011)
increasing research and development expenditure, introducing a Percentage
45
government reward system, attracting talent, and allowing flexible 40 37.7
39.4 39.2
37.6
35.6 35.8 35.3 35.4
capital arrangements in relation to know-how contribution. From 35 32.3
34.4
1992 to 1999, the output of Shenzhens high-technology industries grew 30 27.0
30.5 30.4 30.9 30.0 31.2
23.4 28.7
at an annual rate of 55 percent and amounted to 41 percent of total 25 19.4 24.8
23.5 Proportion of High-tech Products Export in
20
industrial output. 19.1
21.6
Provincial Industrial Manufactured Exports (%)
15 17.2
Proportion of High-tech Products Output in
Provincial Total Industrial Output(%)
Witnessing the tremendous 10
0
achievement of Shenzhen, 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
the Guangdong Provincial Source: G uangdong Provincial Department of Science and Technology.
Available at: http://www.sts.gd.cn/show.asp?ArticleID=762.
Government set the
development objective Guangdong Provinces success was not only limited to within the
in its 10th Provincial Five- Pearl River Delta region. It induced a spillover effect to Hong Kong via
Year Plan (2001 to 2005) of processing trade. The total value of high-technology products increased
becoming one of Mainland from US$113 billion (HK$884 billion) in 2002 to US$442 billion (HK$3,430
Chinas most important new, billion) in 2012, while its share in total merchandise trade surged from
high-technology industrial 27.8 percent in 2002 to 46.7 percent in 2012. 12
research, production and
Figure 3-2 : I mports and Exports of High-Technology Products in Total Value of Overall
export bases; and strived
Merchandise Trade in Hong Kong
US $billion Percentage
to establish a vibrant, open, innovative market-oriented system based 500
46.7
50
44.6 44.9
on the technological contribution of private enterprises, universities 39.8
43.4
39.0
400 40
and scientific research institutions. Of all research and development 32.8
34.8
36.6
30.4 209.4
players, Guangdong Province particularly valued the efforts of private 300 27.8 195.3 30
174.5
enterprises and often offered tax concessions and subsidies to high- 143.3
200 129.9 137.0 20
technology companies. 95.6
109.9
80.9 232.9
100 65.1 214.2 10
52.4 192.7
Guangdongs technological initiatives gained it huge success. Within 109.1 128.5 147.8 155.8 151.8
73.4 92.9
60.9
a decade, in terms of provincial industrial totals, the output of high- 0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
technology products had increased from 17.2 percent in 2000 to Value of Total Exports of High-Technology Products Percentage of Value of Imports and Exports of High-
Technology Products in the Total Value of Overall
34.4 percent in 2011. Meanwhile, the export sector was also better Value of Imports of High-Technology Products Merchandise Trade
performing, with export sales of high-technology products up from 19.4 Source: Census and Statistics Department of HKSAR Government, Hong Kong as a Knowledge-based
Economy A Statistical Perspective, 2013, p.59.
percent in 2000 to 37.6 percent in 2011.
12
ome imported high-technology products, manufactured in Mainland China and developed countries, are
S
retained in Hong Kong for domestic consumption, or for retail selling to the Mainland visitors (such as electronic
devices). The growth of export sales is a better indicator to demonstrate the spillover effect of the technological
upgrading of the PRD manufacturing sector to the Hong Kong trading sector.
72
development and sales.

and Guangdong Province
increased from 9.5 in 2000 to 39.1 in 2011.

Section 3 Economic Trends in the Pearl River Delta Region
3.1.2. Research and Development in the Pearl River Delta Region
patents-in-force, and came second in R&D expenditure on new product

export revenue of new products, total personnel in R&D institutions, and
activities in the Pearl River Delta region and Guangdong Province.
Meanwhile, the province topped the expenditure on R&D project,

an exceptional performance in enterprise-related R&D indicators.
Mainland coastal provinces the same year, Guangdong delivered
Comparing Guangdongs 2011 R&D performance with that of other
personnel engaged in R&D per 10,000 persons (full-time equivalent)
GDP increased from one percent in 2000 to 1.96 percent in 2011, while
Research and development expenditure as a percentage of provincial
The development of high-technology industries accelerated R&D
Table 3-1: R&D Indicators of Industrial Enterprises above Designated Size for Selected Coastal China Regions in 2011
Overall Performance New Products
(000 Expenditure (US$

Expenditure Total Patent (thousand)
person) on New Sales Revenue billion)
on R&D Personnel
Products of New
Project (US$ in R&D Doctor and
Application In Force Development Products Export
billion) Institutions Master (US$ billion)
National Total 78.2 1,816.5 228.9 386.1 201.1 106.0 1,557.3 313.1
Guangdong Province 12.5 319.6 61.1 72.5 66.5 16.5 222.6 88.0
Yangtze Shanghai 4.5 69.9 12.9 19.4 12.5 6.9 120.3 16.0
River
Jiangsu 12.0 241.6 24.7 72.8 26.7 18.3 229.8 68.0
Delta
Zhejiang 7.0 237.1 15.8 52.2 18.1 9.3 155.6 39.3
Bohai Beijing 2.0 50.5 12.5 13.0 7.3 3.3 53.9 10.0
Rim
Tianjin 2.5 35.3 4.0 11.9 5.2 2.9 59.3 11.6
Hebei 2.1 45.2 5.0 5.8 2.6 2.3 29.4 3.5
Of National Share
Guangdong Province 16.0% 17.6% 26.7% 18.8% 33.0% 15.6% 14.3% 28.1%
Yangtze Shanghai 5.8% 3.9% 5.6% 5.0% 6.2% 6.5% 7.7% 5.1%
River
Jiangsu 15.3% 13.3% 10.8% 18.8% 13.3% 17.3% 14.8% 21.7%
Delta
Zhejiang 8.9% 13.1% 6.9% 13.5% 9.0% 8.8% 10.0% 12.5%
Bohai Beijing 2.5% 2.8% 5.5% 3.4% 3.7% 3.1% 3.5% 3.2%
Rim
Tianjin 3.2% 1.9% 1.8% 3.1% 2.6% 2.7% 3.8% 3.7%
73
Hebei 2.7% 2.5% 2.2% 1.5% 1.3% 2.2% 1.9% 1.1%

Section 3 Economic Trends in the Pearl River Delta Region
Source: China Statistical Yearbook on Science and Technology 2012.

74 75
Figure 3-3: R&D Personnel in Coastal China Regions (2011) Table 3-2 : High-Technology Industry and Patents Granted in Guangdong Province and Pearl
Full-time Equivalent of R&D Personnel ( 000 Man-Year)
River Delta Region
450
Value Added of High-Tech Industry
411 Patents Granted (2011)
400 (2012)
Region
343 Amount Percentage of Percentage of
350 Case
(US$ billion) Provincial Total Provincial Total
300
Provincial Total 86.79 100.0% 128,413 100.0%
254
250 Pearl River Delta 82.56 95.1% 116,233 90.5%
217
200 Shenzhen 46.72 53.8% 39,363 30.7%
149 Dongguan 9.75 11.2% 19,352 15.1%
150
Guangzhou 8.15 9.4% 18,346 14.3%

100
74 73
Huizhou 7.14 8.2% 2,917 2.3%
50
Foshan 3.45 4.0% 16,340 12.7%
0
Guangdong Shanghai Jiangsu Zhejiang Beijing Tianjin Hebei Zhongshan 2.84 3.3% 10,027 7.8%
Zhuhai 2.74 3.2% 3,690 2.9%
Source: China Statistical Yearbook on Science and Technology 2012.
Zhaoqing 1.09 1.3% 889 0.7%
Shenzhens first-mover advantage, and its persistence in developing high- Jiangmen 0.69 0.8% 5,309 4.1%
technology industries, has won it the undisputed lead in Guangdong Source: G uangdong Provincial Department of Science and Technology, and Guangdong Statistical
Yearbook 2013.
Province and Mainland China. In 2012, the city represented 53.8 percent
of the value-added provincial high-technology industry, and 30.7 percent Figure 3-4 : H igh-Technology Industry and Patents Granted in Guangdong Province and
of the total provincial patent granted. Dongguan came second, due to its Pearl River Delta Region
processing trade development, and it being a home to Hong Kong, Taiwan, Hunan
and foreign manufacturers. Meanwhile, Guangzhou ranked third, thanks Shaoguan Fujian
to its position as the provincial capital and housing various prestigious Guangxi
Qingyuan
universities and research Meizhou
Heyuan
institutions. The Pearl River Chaozhou
Delta region constituted 95.1 Zhaoqing

Jieyang Shantou
Guangzhou
percent and 90.1 percent of the Foshan Dongguan
Huizhou
Shanwei
Yunfu
Guangdong provincial value Shenzhen
Zhongshan
added of the high-technology Jiangmen Value Added of
Patents Granted
High-Tech Industry
(2011, Case)
industry and patents granted. Maoming
Yangjiang Zhuhai (2012, US$ billion)
46.7 Shenzhen 39,363
9.8 Dongguan 19,352
8.2 Guangzhou 18,346
Zhanjiang
7.1 Huizhou 2,917
3.4 Foshan 16,340
2.8 Zhongshan 10,027
2.7 Zhuhai 3,690
1.1 Zhaoqing 889
0.7 Jiangmen 5,309
Source: G uangdong Provincial Department of Science and Technology, and Guangdong Statistical
Yearbook 2013.
76 77
Due to its push for R&D and manufacturing-based development, the The new national trade policy on managing a reasonable trade surplus,
intensity of R&D activities in Guangdong Province surpassed that of as decreed by the Central Government in the 11th National Five-Year
Hong Kong in the same period. To keep pace with Guangdong Province, Plan, exerted huge pressure on the export-led manufacturing clusters.
the Hong Kong Government revised its technology policy in 2000, Reacting to the shift in national strategy, the Pearl River Delta regional
and has since increased R&D in the territory. Through joint efforts, the governments enforced the new policies of the Central Government but
Greater Pearl River Delta region has progressively transformed from also devised a series of industrial upgrading programmes to strengthen
a labour-intensive manufacturing region into an innovation-driven traditional industries, including: offering tax benefits to procure
manufacturing region. modern equipment, providing training courses to the workforce, and
enhancing R&D competencies to preserve the diversity of the industrial
Table 3-3: R&D Activities in Guangdong Province and Hong Kong, 2000-2011
configuration of the Pearl River Delta region.
Personnel Engaged in R&D per 10,000
R&D Expenditure as Percentage of GDP
Persons (full-time equivalent)
Guangdong Hong Kong Guangdong Hong Kong
2000 1.00% 0.46% 9.5 13.8
2005 1.12% 0.77% 15.5 25.1
2010 1.76% 0.75% 33.0 31.6
2011 1.96% 0.72% 39.1 33.4
Source: Guangdong Provincial Department of Science and Technology, Census and Statistics
Department of HKSAR Government.
3.2. From Manufacturing to Services
3.2.1. Transformation and Upgrading

The Guangdong governments selected certain specialised towns as
Specialised Towns and Export-Led Traditional Industries pilot and demonstration zones for industrial upgrading, and gave them
fiscal resources to promote their innovation activities. Meanwhile, the
After 20 years of rapid development, numerous industrial clusters in
governments encouraged export-oriented manufacturers to enter the
the form of specialised towns have emerged in the Pearl River Delta
domestic market by rewarding their brand-building activities. They also
region. These towns provide scale advantages, network benefits, and
attempted to control pollution either through transferring the offending
synergy effects to the Pearl River Delta region, which have transformed
manufacturers into specially-designed industrial buildings or parks
the region into a leading exporting region, and earned a huge amount of
with centralised treatment facilities, or ensuring that they complied to
trade surplus for Mainland China. However, many of these specialised
stringent environmental standards.
towns are engaging in labour-intensive manufacturing activities, and
some are polluted.
78 79
By implementing the above measures, the Pearl River Delta regional During the period of the 11th Five-Year Plan (2006 2010), the Guangdong
governments aim to improve the value-added performance of traditional Provincial Government promoted industrial relocation under the
industries, empower manufacturers to face the challenges of increasing slogan of Emptying the Cage for New Birds. The most notable policy
labour costs, and eventually upgrade and transform the manufacturing initiative was the Dual transfer of industries and labour force from
configuration of the region. the Pearl River Delta region to other parts of Guangdong Province. In
May 2008, the Guangdong Government put into force the Decision on
Figure 3-5: Pilot Zone of Industrial Clusters for Upgrading in Guangdong Province
Promoting Relocation of Industries
Hunan Shilong - Electronics and Labour Force, known as the
Huadu - Automobile Dalang - Knitted wear (wool)
Guangxi Leather products Humen - Garment
Rongcheng - Shoes
Double Relocation strategy. In the
Fujian
Changan - Metal
Chancheng - Ceramics
Shaoguan Chaozhou -
strategy, labour-intensive and high
Dalingshan - Furniture
Shunde - Electrical Appliances Ceramics
Xiqiao - Textiles Meizhou Chaoan - Food energy-consumption industries were

Dali - Aluminum Materials
Qingyuan
Heyuan
encouraged to relocate to other
Danzao - Metal
Chaozhou
Shishan - Electrical Appliances Jieyang regions of Guangdong Province,
Stone Zhaoqing Guangzhou
Huizhou
Shantou while advanced manufacturing
Stainless Steel Shanwei
Yunfu
Foshan Dongguan industries were retained in the Pearl
Yangdong - Shenzhen
Metal and Cutlery Jiangmen
Zhongshan
Haifeng - Garment River Delta. To facilitate this, the
Zhuhai Hong Kong Toy and Souvenir
Electrical Appliances
Macao
Huidong - Shoes
Arts Craft and
Guangdong Provincial Government
Jewellery Knitted Wear
Maoming
Yangjiang Xiaolan - Metal Products
(wool) allocated about US$8 billion (RMB50
Guzhen - Lights
Motorcycle
Nantou - Electrical Appliances
billion) between 2008 and 2012.
Zhanjiang Kaiping - Sanitary Ware
Shaxi - Garment
Xinhui - Metal
Enping - Audio Equipment
Huangpu - Food
Pilot Zone of Industrial
However, despite this, the massive
Torch - Food and Medicines
Clusters for Upgrading
Dongfeng - Electrical Appliances out-transfer went unnoticed due to
the outbreak of the global financial
Source: Based on Land-Use Planning of Guangdong (2006-2010).
crisis though the Double Relocation
Double Relocation did assist nearby regions with

building industrial competence,
After 20 years of development, a majority of Pearl River Delta land
readying them for take-off in the
resources had been used for industrial development, and much were
longer term. In essence, the policy
occupied by Hong Kong and Taiwan-invested manufacturers engaging
initiative was a most important
in labour-intensive, yet low value-added processing trade. As a result,
vehicle for the Pearl River Delta region, enlarging its economic hinterland
industrial relocation surfaced on Guangdong Provinces policy agenda,
beyond its administrative boundary, and representing a new mode of
with an emphasis on the outward relocation of traditional industries,
inter-regional cooperation.
and inward high-technology manufacturers.
80 81
Figure 3-6: Industrial Relocation from PRD Region to Other Parts of Guangdong Province Table 3-4: Value Added by Tertiary Industry in Guangdong Province (US$ billion)
Hunan Lechang Annual Growth

2005 2010 2012
Shixing (2005-12) #
Fujian
Zhenjiang
Guangxi
Gross Domestic Product 273.04 679.71 904.05 14.3%
Xingning
Meizhou
Tertiary Industry 117.17 305.96 420.12 15.6%
Heyuan/Heping
Qingyuan Chaozhou
Wholesale and Retail Trade 27.13 68.66 100.34 16.1%
Huaiji
Deqing Haifeng Real Estate 17.77 41.57 57.73 14.0%

Guangzhou
Dongguan Huidong Finance 8.23 39.28 50.25 24.8%
Foshan
Yunfu / Yucheng Shenzhen
Transport, Storage
12.10 26.96 37.50 13.3%
Xinyi
Zhongshan and Postal Services
Leasing and Business Services 9.44 23.09 33.77 15.6%

Lianjiang Dianbai
Yangjiang / Yangxi / Information Transmission, Computer

Yangdong / Yangchun 8.40 20.27 25.63 13.0%
Wuchuan Services and Software
Industrial Relocation Park
Public Administration and
Original Location of Industries 7.72 20.15 25.92 14.6%
Longmen Social Organisations
Education 6.43 15.69 21.91 14.8%

Source: B
ased on Fung Business Intelligence Centre (formerly known as Li and Fung Research Centre),
Chinas industry relocation and upgrading trends: implications for sourcing business, China Accommodation and
6.36 15.88 20.72 14.1%
Distribution and Trading - Issue 56, December 2008. Catering Services
Services to Households and

4.21 10.77 14.19 14.6%
3.2.2 The Development of Modern Service Sectors Other Services
Healthcare, Social Security and

3.56 9.45 13.53 16.6%
Social Welfare
Developmental Initiatives
Scientific Research, Technical
Since 2006, Guangdong Province has been keen to develop tertiary Services and Geological Prospecting
2.55 7.15 9.47 16.2%
industries. In its 12th Provincial Five-Year Plan (2011-2015), it elaborated

Culture, Sports and Recreation 1.81 4.18 5.23 12.1%
on the concept of the Modern Services Sector. The province has
Management of Water Conservancy,
categorised the sector into financial, logistic, information, exhibition, Environment and Public Facilities
1.48 2.87 3.93 10.8%
cultural and creative, and healthcare services. #

Growth rates are based on the nominal renminbi values of tertiary outputs.
In the last five years, the growth rate of Guangdong Provinces tertiary Source: Guangdong Statistical Yearbook 2006, 2010, 2013.
industry has surpassed overall GDP growth, with finance, healthcare,

and wholesale and retail trade services as the outperformers.
82 83
Table 3-5: Value-added by Tertiary Industry in the Pearl River Delta Region (US$ billion) Development Aims
Average Annual
2000 2005 2010 2012
Growth (2000-12) #
1. Q ianhai New District, Shenzhen: To develop Qianhai into an
Pearl River Delta 47.71 103.28 274.02 391.45 16.5% important production service centre in Asia Pacific by 2020,
Guangzhou 16.67 36.38 96.91 136.55 16.5% and a Hong Kong/Guangdong Province Modern service industry
Shenzhen 13.17 28.08 74.60 114.22 17.1% innovation and cooperation exemplary zone.
Dongguan 4.11 11.35 30.58 41.50 13.9%
2. Nansha New District, Guangzhou: To develop Nansha into a
Foshan 5.32 10.74 29.54 37.54 15.2%
business service centre, an innovation and technology centre,
Zhongshan 1.69 3.91 10.78 16.32 17.8%
and an education training centre serving the Mainland and
Huizhou 1.45 3.30 9.01 13.78 18.4%
Jiangmen 2.42 3.66 8.57 12.20 18.0%

linked with Hong Kong and Macao; and to build a Port-related
Zhaoqing 1.21 2.44 6.50 8.71 11.9%
industries support services cooperation zone.
Zhuhai 1.81 3.30 7.53 10.93 14.9%
3. H engqin New District, Zhuhai: To progressively develop the
#
Growth rates are based on the nominal renminbi values of tertiary outputs. area into an exemplary zone for a new mode of cooperation
Source: Guangdong Statistical Yearbook 2006, 2010, 2013.
between Guangdong Province, Hong Kong and Macao, a pilot
Guangzhou and Shenzhen are the two major service providers contributing zone for deepening reform and technology innovation, and a
60 to 65 percent of regional tertiary outputs. As such, the Guangdong new platform for upgrading industries in the western region of
Provincal Government and the Municipal governments of Guangzhou and the Pearl River estuary.
Shenzhen attach strategic importance to the tertiary sectors, and allocate
financial and land resources to drive their development. Massive infrastructural projects have been carried out in three districts,
with most of the key projects kick-started in Qianhai. The hardware of
Qianhais development, such as the reclamation of the development
Three Special Zones
zone, railway networks, and the first phase of commercial premises are
Among the seven major cooperation projects across Guangdong expected to be completed around 2015. Meanwhile, on the soft-skill
Province, Hong Kong and Macao as listed in the 12th National Five- side Qianhai is conducting a number of pilot reforms on investment
Year Plan, the development districts of Qianhai (Shenzhen), Nansha regulation, corporate governance, international dispute settlement, and
(Guangzhou), and Hengqin (Zhuhai) have been lifted to national project- attracting talent.
level. It is Guangdong Provincial Governments utmost aim to build these
districts into development platforms for modern service sectors. Hong
Improvements to the Investment Environment
Kong and Macao consider these districts to be gateways for further
market access, particularly to facilitate service cooperation between As of 2012, the Guangdong Provincial Government was the first Mainland
themselves and Guangdong Province. The governments of the three province to launch a pilot reform to simplify business registration
jurisdictions jointly seek support from the Central Government to procedures, with the aim of encouraging local investment and generally
launch pilot reforms, provide preferential measures to encourage local improving the Pearl River Delta regions business environment.
investment and attract foreign investment.
84 85
Since 1 March 2013, registration procedures and requirements for very high per capita consumption expenditure of urban households
commercial entities in both Shenzhen and Zhuhai have been simplified (183 percent of the national average). In 2012, the total retail sales of
substantially. Under this pilot scheme, investors may decide, at their consumer goods of Guangzhou and Shenzhen stood at US$94.7 billion
sole discretion, to register a capital amount with the local offices of the (RMB598 billion) and US$63.5 billion (RMB401 billion), respectively
State Administration for Industry and Commerce. A Capital Contribution even greater than Hong Kongs total retail sales which stood at US$57.4
Verification Report is no longer required, exempting the company billion (HK$454 billion).
from injecting capital before obtaining its business license, and the
Table 3-6: Retail Sales, Residential Income, and Expenditure in 2012 13
requirements on domicile and business locations have also been relaxed.
This reform provides flexibility, cost efficiency, and procedural reduction Total Retail Total Urban Per Capita of Urban Per Capita of Rural
Sales of and Rural Households (US$) Residents (US$)
to investors. In addition, a company is able to obtain its business license Consumer Resident
Goods Income Disposable Consumption Net Living
within several working days rather than the weeks of waiting under the (US$ billion) (US$ billion) Income Expenditure Income Expenditure
former system. The Guangzhou Municipal Government designated the National 3,331.6 - 3,891 2,641 1,254 936
Nansha district to conduct the pilot reform as of 1 September 2013. Total GPRD 330.2 -
Guangzhou 94.7 70.9 6,028 4,830 2,659 1,737

The Guangdong Provincial Government intends to extend the new
Shenzhen 63.5 68.1 6,454 4,234
scheme to other Pearl River Delta cities and the entire province within
Foshan 32.0 38.7 5,478 4,145 2,485 1,815
two years. Upon completion of the reform, Guangdongs business Dongguan 21.4 53.7 6,803 4,969 3,952 2,565
environment will be additionally uplifted and liberalised to serve the Zhongshan 12.8 14.8 4,931 3,531 3,065 1,793
south China market. Jiangmen 12.8 15.1 4,280 2,922 1,797 1,324
Huizhou 11.9 17.5 4,747 3,529 1,967 1,313
Zhuhai 10.1 7.7 5,224 3,815 2,123 1,600

3.3. T
he Emergence of an Integrated Market in the Zhaoqing 6.8 9.6 3,446 2,492 1,642 1,019
Greater Pearl River Delta Region

Hong Kong 57.4
Macao 6.6
3.3.1. A Rapidly Developing Market
Source: China Statistical Yearbook 2013, Guangdong Statistical Yearbook 2013.
Thanks to its profound economic performance, residents of the Pearl
River Delta region enjoy higher income and expenditure levels than the The higher retail sales of Guangzhou and Shenzhen are partially to do
national average, which guarantees robust retail sales in the region. In with their large population sizes and automobile-related consumption,
2012, the Pearl River Delta region represented 7.9 percent of total retail but, more importantly perhaps, the residents of their nearby cities who
sales in the Mainland. are making use of their improved connectivity to do their weekend
shopping in Guangzhou and Shenzhen. This is clear from Guangzhous
Among nine Pearl River Delta cities, Guangzhou tops retail sales. This total retail sales of consumer goods, which is larger by US$23.8 billion
is due to its huge resident population (12.84 million persons), and (representing 33.6 percent of Guangzhous total resident income) than
13
Exchange rate (for 2012): US$1 = RMB 6.3125; HK$7.756; MOP7.9899.
86 87
its total resident income. Meanwhile, Guangzhous rich neighbouring Guangdong Provinces e-commerce is closely related to its development
cities, Donguan and Foshan, have retail sales of just 22.6 percent and 33.8 of mobile telecommunication and postal services. In 2012, the number
percent of that of Guangzhou, despite their total resident income being of Guangdong mobile telephone users and internet subscribers stood at
75.7 percent and 54.6 percent of Guangzhous total. It is anticipated that 125 million and 20 million respectively, with an annual growth rate for
with an expanded intercity railway network operating within five to 10 the past 12 years of 20 percent. The duration of internet use grew at 62.6
years, Guangzhous retail sector will undergo the fastest development of percent during the same period, and reached three trillion minutes in
the region. 2012. E-shoppers can retrieve product information and place e-orders
easily, and in Mainland China, the merchandise delivery of online orders
3.3.2. E-Retailing in Guangdong Province is often done via door-to-door express mail services. Largely because of
online shopping, express mail services jumped from 591 million pieces
In recent years, Guangdong Province has seen a boom in e-commerce
to 1.33 billion pieces within two years, giving an unprecedented thrust to
and online shopping. In 2012, the province recorded the highest number
the development of logistic services.
of online shoppers, 12.2 percent of the national total followed by Jiangsu,
Shangdong, and Zhejiang provinces. The development of Guangdong Table 3-7: The Development of Telecommunication and Postal Services in Guangdong
Provinces e-commerce activities is not only driven by the increasing income Province
of Guangdong residents, but also by the increasing quantity of Guangdong Annual

Province enterprises and individuals active in the e-supply chain. The 2000 2005 2010 2011 2012 Growth
(2000-2012)
diversity of manufacturing clusters in the Pearl River Delta region, coupled
Number of Subscribers of
with a far-reaching logistic network and experienced service providers,
Local Telephones (million 14 34 32 32 31 6.9%
greatly helps Guangdong Province to top Chinas e-commerce sector, and subscribers)
assist the economic entities of the province which are capitalising on Number of Mobile Telephone
Mainland Chinas fastest growing consumer market segment. Subscribers (million 14 64 97 108 125 20.3%
subscribers)
Figure 3-7: Geographic Distribution of Online Shoppers in China (2012) Number of Internet
Percentage Subscribers (million 2 10 15 17 20 20.2%
14% subscribers)
12.2%
12% Duration of Internet Use by
9 319 1,987 2,510 3,084 62.6%
Subscribers (billion minutes)
10%
Pieces of Express Mail
13 33 591 864 1,338 46.9%
8% 7.3% Services (million pcs)
6.7% 6.2%
6%
5.1% 5.0% Popularisation
Rate of Mobile China 6.7 30.3 64.4 73.6 82.5
4.2% 4.2% 4.1% 4.0%
4% Telephones
(subscribers/
2% Guangdong 17.6 69.7 93.1 102.7 117.7
100 persons)
0%
Guangdong Jiangsu Shangdong Zhejiang Hebei Henan Fujian Sichuan Hubei Liaoning Source: China Statistical Yearbook 2013 and Guangdong Statistical Yearbook 2013.
Source: F
ung Business Intelligence Centre, Online Retailing in China, June 2013. Re-quoted from
iResearch.
88 89
The rapid growth of eretailing has the potential to create a leapfrog Table 3-8: Shopping Expenditure of Mainland China Visitors in Hong Kong
effect in Chinese retail, transforming it into a more digitalised and Overnight Visitors from Same-day In-town Share of Shopping
efficient industry even faster than traditional chain stores. Such China Visitors from China 14 Expenditure of
a scenario could have profound effects on Chinas consumption, Shopping Shopping Mainland Visitors in
Annual Annual Hong Kongs Total
Expenditure Expenditure
productivity, logistics, and even urban development. By providing a Growth Growth Retail Sales
(US$ billion) (US$ billion)
powerful launch pad for entrepreneurs and merchants of all sizes to sell
2005 3.1 3.6% 0.6 20.5% 14.0%
directly to consumers, eretailing is also fast becoming an area in which
2006 3.4 12.0% 0.9 45.8% 15.3%
Mainland China could lead the world in innovation rather than relying
on its labour cost advantage. 2007 4.4 27.9% 1.3 53.3% 18.1%
2008 4.9 11.0% 1.9 38.7% 19.2%

In addition, the emerging integration of all networks (TV and broadcasting,
2009 6.3 28.3% 2.3 23.7% 24.3%
computer/internet and telecommunication) creates a seamless global
2010 8.2 31.2% 3.1 34.1% 27.1%
platform for the digital transformation of all producer and consumer
2011 10.1 23.1% 4.1 33.8% 27.3%
services (P2P, B2C, B2B, social media and financial services) and
e-shopping via mobile phone is expected to be the next shopping hit in 2012 11.8 16.3% 5.9 41.8% 30.7%
China. Global Chinese firms based in Shenzhen such as Huawei, ZTE, and Source: Based on data from Census and Statistics Department of HKSAR Government and Hong Kong
Tencent (Wechat), as well as many firms which are innovating in mobile Tourism Board, Statistical Review of Hong Kong Tourism, various years.
services, applications, and local brands, parts, and components in the

Pearl River Delta region visitors represent about 70 percent of total
Pearl River Delta, are readying themselves for the smart phone-driven
Mainland visitor arrivals. Given the proximity of the Pearl River Delta
digital revolution. It is anticipated that Guangdong Province will be able
region to Hong Kong, a vast majority of same-day in-town Mainland
to ride on this consumption wave, given the extreme popularity of the
visitors are from the PRD region, visiting Hong Kong for leisure and
mobile telephone there 117.7 subscribers per 100 persons.
shopping purposes. One striking feature when comparing the spending
pattern of same-day in-town visitors from Mainland China with other
3.3.3. An Integrated Market with Hong Kong short-haul markets (excluding Mainland China) is that seven percent of
Since July 2003, the residents of 49 major Chinese cities have been the expenditure of Chinese visitors concerns daily items (for personal
permitted to visit Hong Kong under the Individual Visit Scheme. care, including shampoo and diapers) rather than the 0.7 percent
Between 2003 and 2013, 101 million Mainland China visitor arrivals out expenditure of other short haul markets. This demonstrates a very
of a total of 181 million came to the territory on the scheme. It is estimated important trend: that an integrated Greater Pearl River Delta market is
that the shopping expenditure of Mainland visitors accounted for 30.7 underway via improved resident mobility and transport connectivity.
percent of Hong Kongs total retail sales in 2012, up from 14 percent in
2005.
14
T
he shopping expenditures of same-day in-town Mainland China visitor of the year of 2005 and 2006 are
estimated figures.
90 91
Table 3-9: Same-Day In-Town Visitor Spending by Main Shopping Category (2012)
Short Haul Markets (excluding

Mainland China
Mainland China)
Main Shopping Items
Spending Spending
Share Share
(US$ million) (US$ million)
Cosmetics and
887 15.2% 21.4 9.3%
Skin Care/Perfume
Electrical /
855 14.6% 23.1 10.0%
Photographic Goods
Food, Alcohol,
1,039 17.8% 46.4 20.1%
and Tobacco
Garments/Fabrics 754 12.9% 67.4 29.2%
Jewellery and
1,016 17.4% 13.5 5.9%
Watches
Leather/Synthetic
489 8.4% 30.2 13.1%
Goods
Personal Care
412 7.0% 1.5 0.7%
(Shampoo, diapers, etc)
Other Items 399 6.8% 27.6 11.9%
Total: 5,851 100.0% 231.2 100.0%
Source: Based on data from Hong Kong Tourism Board, Statistical Review of Hong Kong Tourism 2012.
In the context of an integrated Greater Pearl River Delta market, it is

observed that many Pearl River Delta residents, especially those from
middle to high income groups, often prefer to purchase luxury and
top quality items from Hong Kong, mid-range and durable items from
Conclusion
The transformation in economic development models and the
Guangzhou and Shenzhen, and daily items from residing city and
emergence of consumption in the Pearl River Delta region provide
neighbourhood outlets.
Hong Kong with various advantages. The Pearl River Delta may
These consumption trends allow Hong Kong to capitalise on the emerging no longer be competitive as a source of cheap labour, but the
market potential of the Greater Pearl River Delta region and, more evolution of its consumer market presents new opportunities for
importantly, the high-end and high value-added luxury markets that are international investors. At a time when the world is suffering from
the expert domain of prestigious international brand names and lifestyle excess production capacities, it is of great importance for every
innovators. By establishing a retail outlet in Hong Kong, the international enterprise in the world to realise that new customer bases are
investor is able to reach more than 40 million Mainland visitor arrivals being developed. Exploring the Mainland China market via Hong
annually, and, more excitingly, these visitors belong to the middle to high Kong is a viable marketing option for international investors.
income classes, including young enthusiasts of western lifestyles.
Section 4 Hong Kongs Contribution to the Development of the Pearl River Delta Region Section 4 Hong Kongs Contribution to the Development of the Pearl River Delta Region
92 93
Hong Kongs requiring soft skills, the Pearl River Delta contributed on the hardware
Contribution to the
side, providing manufacturing premises, infrastructural support, cheap
labour supply and land. For the past two decades, both parties worked
closely via the unilateral investment ties extended from Hong Kong to
the Pearl River Delta region. They jointly created the miracle of economic
Development of the Pearl River Delta Region development in the Greater Pearl River Delta region.
Figure 4-1: Front Shop and Back Factory Cooperation between Hong Kong and the Pearl
River Delta Region
Front Shop
Hong Kong
R&D, Financial Logistic

Marketing Procurement
Design Management Coordination
Management and Services Components from

International Suppliers
Headquarters in Hong Kong Re-export to

International Market
Investment and Capital Flow Parts and Assembled

Equipment Products Producer Services by Hong Kong
Boundary
Limited Direct Export to

Factory in the PRD Region
Domestic Sales International Market
Manufacturing and Assembling
Prior to Chinas
Infrastructure Support
accession to the Labour Process Local Transportation
by the PRD Region
Management Procurement & Warehouse
World Trade Organization
(WTO) in 2001, the Front Shop Back Factory
Pearl River Delta
and Back Factory mode had been
the major type of cooperation between
Hong Kong and the Pearl River Delta region,
with Hong Kong acting as the headquarters and the
Pearl River Delta region as the manufacturing base. While
Hong Kong offered producer services such as marketing support,
financial measures, logistic handling, professional services, and services
94 95
Mainland Chinas accession to the WTO enabled the Pearl River Delta information services, and the maintenance of Hong Kongs status as an
region to go global directly and subsequently, the Front Shop and Back international hub on financial services, trade and shipping. By doing so,
Factory mode of cooperation began to dissolve. Hong Kong was required the Central Government not only re-stated its recognition of Hong Kongs
to seek a new regional role in the post-WTO era. contribution, but indicated, for the first time, what it considered to be
Hong Kongs role in national development strategy.
4.1. H
ong Kongs Collaboration with the Pearl River Delta The National and Guangdong provincial-level 11th FYP covered a
number of strategic policies and initiatives that related to the Hong
Region
Kong economy. These included: speeding up financial system reform,
developing logistic, business, information, and tourism services, as well
During the 10th National FYP Period (2000-2005)
as facilitating coordinated regional development. Guangdong Provinces
Prior to 2000, Hong Kong had always served as the headquarters, Five-Year Plan included: upgrading regional development, enhancing
and acted as Mainland China manufacturers springboard to the cooperation between Guangdong, Hong Kong and Macao, and promoting
international market. Benefiting from the market liberalisation granted Pan-Pearl River Delta cooperation.
by Mainland Chinas accession to the WTO, the Pearl River Delta region
was able to proceed overseas, on its own. In 2003, the outbreak of Severe Numerous strategies in Guangdong Provinces 11th FYP were
acute respiratory syndrome (SARS), and the subsequent economic subsequently incorporated into The Outline of the Plan for the Reform
downturn was a harsh wake up call for Hong Kong, and concerns about and Development of the Pearl River Delta (2008-2020), and the Framework
being marginalised from Pearl River Delta region development became Agreement on Hong Kong/Guangdong Co-operation.
a hot topic in Hong Kong. The signing of the Mainland Hong Kong Closer
Economic Partnership Arrangement (CEPA) in 2003 was Hong Kongs During the 12th National FYP Period (2011-2015)
first step in re-establishing and re-strengthening its economic ties with Encouraged by the achievements during the period of the 11th Five-Year
Mainland China and the Pearl River Delta region. Plan, Hong Kong actively pursued inclusion in the 12th National FYP, and
hence a chapter was dedicated to it and Macaos development.
During the 11th National FYP Period (2006-2010)
In terms of economic development and sectoral cooperation, the Central
Hong Kong proactively sought incorporation into Mainland Chinas
Government gave its support for consolidating and enhancing Hong
national development plan to tap into Chinas emerging market. The 11th
Kongs status as an international centre for financial services, trade and
National Five-Year Plan (2006-2010) was the first Five-Year Plan (FYP) that
shipping. It also facilitated Hong Kongs development into an offshore
Hong Kong strived to take part in.
Renminbi business centre and international asset management centre.
In 2006, when the Central Government released its 11th National Five-
In terms of institutional support, the Central Government reiterated it
Year Plan, Hong Kong was able to secure its place in it. In the plan, the
would continue to implement the CEPA and expand its coverage. Other
Central Government declared that it would: support Hong Kongs
policies facilitating the Guangdong-Hong Kong cooperation include
development on fronts such as financial services, logistics, tourism and
96 97
the establishment of a financial cooperation zone and a world-class To foster Hong Kong-Guangdong cooperation, CEPAs Guangdong Early
metropolitan cluster with Hong Kongs financial system taking the lead, and Pilot Implementation Scheme was first introduced into the CEPA
the opening up of Guangdongs service industries for Hong Kong on mechanism in May 2008, along with the signing of Supplement V to CEPA.
a pilot basis, and extending the pilot scheme to other regions. In short, With an additional five supplements signed in each of the subsequent
service cooperation under the early pilot scheme of CEPA in the Pearl years from 2008, as of end August 2013, a total of 79 Guangdong pilot
River Delta region was crucial, with financial cooperation as the highlight. measures had been launched which spanned a large variety of sectors
including retail, banking, professional services and rail transportation.
Of seven major cooperation projects among Guangdong Province, Hong
Kong, and Macao, four related to Hong Kong, including three cross- There are some critics of the effectiveness of CEPA who described it
boundary infrastructure projects , and one boundary link . Three of the
15 16
as the big doors are open, but the small doors are not yet open. This
projects related to connectivity with Shenzhen, the others to Macao and is because Hong Kong service providers are not entitled to pre-entry
Zhuhai. Upon completion of the four projects, the connectivity between national treatment. During his visit to Hong Kong in August 2011, Li
Hong Kong and the Pearl River Delta region will be greatly improved and Keqiang, the Vice Premier of the State Council, undertook to enhance
the spatial relationship between the places will be redefined. CEPA implementation and basically achieve liberalisation of trade in
services for Hong Kong by the end of the 12th Five-Year Plan period (2011-
2015). Measures include: simplifying the necessary approval procedures,
4.2. A New Regulatory Framework between Hong Kong implementing various preferential measures, enhancing investment
and the Mainland facilitation measures, and pushing forward the implementation of early
and pilot measures in Guangdong and other provinces (municipalities).
CEPA is one of the most important institutional frameworks regulating
the economic relationship between Mainland China and Hong Kong. Subsequently, the Guangdong Provincial Government announced its
The framework agreement was signed in June 2003 and came into effect intention to promote early basic achievement of liberalisation of trade
on 1 January 2004. By the end of 2013, 10 additional supplements were in services between Hong Kong and Guangdong in 2014. This being so,
added to the CEPA framework. A total of 403 liberalisation measures service cooperation between Guangdong Province and Hong Kong may
concerning preferential market access were offered to Hong Kong experience some breakthroughs in the near future.
companies. All manufactured goods that met the Hong Kong rule of origin
Meanwhile, in October 2013, the Central Government established the
and CEPA application requirements were allowed into the Mainland
Shanghai Free Trade Zone (SHFTZ) using a negative list approach
market under the zero-tariff, effective 1 January 2006.17
to regulate the entry of foreign investment. Some commented that
this approach was likely to challenge the positive list-based CEPA
15
Hong Kong-Zhuhai-Macao Bridge, Guangzhou-Shenzhen-Hong Kong Express Rail Link, Hong Kong-Shenzhen
Western Express Line. framework. However, when looking into the SHFTZs liberalisation
16
Liantang/ Heung Yuen Wai Boundary Control Point.
measures and comparing them with those of CEPA, and, particularly,
17
To qualify as a Hong Kong company under CEPA, a company must be incorporated under the laws of Hong Kong,
be liable to pay profits tax in Hong Kong, have more than 50 percent of its Hong Kong staff who are Hong Kong the Guangdong Pilot Measures, many CEPA measures actually enjoy
residents with no limit on stay, and have had substantive business operations in Hong Kong for a specific period of
better market access than those of the SHFTZ. Although Shanghai is
time dependent on industry, with most industries covered by CEPA requiring a three to five-year minimum period
of operation in Hong Kong before qualifying.
98 99
changing its current approval-based foreign investment regulatory As early as 2004, Hong Kong became the first offshore location in
mechanism into a registration-based mechanism, which offers the the world to offer renminbi banking services. These services mainly
advantage of transparency and time-efficiency to new foreign investors, concerned personal banking business. Banks in Hong Kong were
Guangdong Provinces ongoing reform to simplify business registration allowed to offer deposit-taking, currency exchange, remittance, and
may compensate to a certain degree for the loss of time-efficiency. card services. Since then, Hong Kong has progressively expanded its
More importantly, the SHFTZ investment-related policy paper clearly renminbi business scope from traditional renminbi banking services.
states that if any CEPA measures provide better treatment to the foreign It has engaged in the issuance of renminbi bonds (2007) and renminbi
investor than its SHFTZ equivalents, then the preferential measures of sovereign bonds (2009); established a renminbi settlement system
CEPA will prevail. In short, Hong Kong service providers are now party to (2007) and trade settlement services (2009); and introduced the
both CEPA and SHFTZ benefits, granting them the privilege of enjoying Renminbi Qualified Foreign Institutional Investors (RQFII) (2011). Due
most preferential access to the Mainland China market. to its full range of renminbi services, which include deposit-taking,
currency exchange, remittance, trade finance, and wealth management,
Hong Kong is currently the most influential offshore renminbi centre.
4.3. Renminbi Internationalisation and Financial
Cooperation Figure 4-2: Key Milestones in Development of Offshore Renminbi Business in Hong Kong
Personal/ Corporate Renminbi Bond Renminbi Trade Renminbi

The internationalisation of renminbi and Guangdong-Hong Kong Renminbi Services Market Settlement Investment
Personal renminbi services

financial cooperation are two priority initiatives that the Guangdong 2004
for Hong Kong residents
and Hong Kong governments have put forward, which also have the 1st renminbi bond by
support of the Central Government. 2007 Mainland financial

institution
Pilot scheme launched

4.3.1. Hong Kong in Renminbi Internationalisation 2009
1st renminbi in Hong Kong, Macao,
sovereign bond ASEAN countries and five
Mainland cities
Hong Kongs Renminbi Activities Corporate customers Expanded to 20
1st renminbi bond by
2010 allowed to open renminbi provinces and cities in
As of September 2013, the renminbi was the 12th most-used payment deposit accounts
overseas corporate
Mainland China
currency in the world with a 0.86 percent share of all global payments. Renminbi ODI and
Renminbi FDI
In recent years, particularly since the global financial crisis, Mainland 1st renminbi bond
Further expanded to
2011 by Mainland non- RQFII scheme with
authorities have actively promoted renminbi internationalisation: financial institution
whole Mainland China
initial quota of
facilitating international trade and investments denominated and Rmb20 billion
settled in renminbi, and developing offshore renminbi-denominated Personal renminbi services Pilot scheme formalised RQFII quota
2012 for non-Hong Kong to cover all companies in expanded by
financial products. Hong Kong proactively participates in renminbi residents Mainland China Rmb250 billion
internationalisation, and has taken up an instrumental role in the 1st renminbi

2013 sovereign bond with
undertaking. a 30-year tenor
Source: T he Research Office of the Legislative Council Secretariat (Hong Kong), Offshore Renminbi
Centre, Research Brief: RB02/13-14, 12 December 2013.
100 101
Indeed, Hong Kong has the largest pool of renminbi liquidity outside Figure 4-4: Renminbi Trade Settlement Handled by Banks in Hong Kong
Mainland China. According to the Hong Kong Monetary Authority,

renminbi customer deposits and certificates of deposit in Hong Kong
2009
1.9
amounted to RMB1,053 billion (US$173 billion18) at the end of 2013. Initially, (Jul-Dec)
the growth was driven by retail deposits on the expectation of renminbi

2010 369
appreciation, and later boosted by the increase in renminbi receipts by
corporate customers through cross-border trade settlement transactions. 2011 1915
Figure 4-3: Renminbi Deposits and Certificates of Deposit in Hong Kong

2012 2633
RMB billion
1200
1053 2013 3841
1000
0 500 1000 1500 2000 2500 3000 3500 4000

RMB billion
800
720
662 Source: Hong Kong Monetary Authority
600
The Pearl River Delta region is one of Hong Kongs key partners in the
renminbi trade settlement business. In July 2009, when the pilot scheme
400
322
for using renminbi for cross-border trade settlements was first launched,
200
enterprises in the four Pearl River Delta cities, Guangzhou, Shenzhen,
56 63 Zhuhai, and Dongguan, and enterprises in Shanghai, Hong Kong,
33
0 Macao, and ASEAN (Association of Southeast Asian Nations) countries,

2007 2008 2009 2010 2011 2012 2013
were permitted to use renminbi for trade settlements. In June 2010,
Source: Hong Kong Monetary Authority
the Peoples Bank of China further expanded the coverage of the pilot
scheme from the four Pearl River Delta cities to Guangdong Province as
Renminbi Trade Settlement and Hong Kong-Pearl River Delta/Guangdong
a whole. The amount of renminbi trade settlement handled by banks in
Cooperation
Hong Kong amounted to RMB369 billion in 2010 about 30 percent of
In 2009, Hong Kong launched the pilot scheme of the renminbi cross- which came from Guangdong Province alone.
border trade settlement to assist trading companies in China to minimise
Cross-border renminbi business between Guangdong Province and
foreign exchange costs and control exchange rate risks, and in 2011, the
Hong Kong has continued to develop. In 2013, renminbi trade settlement
scheme was extended nationwide. According to the Society for Worldwide
handled by banks in Hong Kong reached RMB3,841 billion (US$620
Interbank Financial Telecommunication (SWIFT), Hong Kong handled
billion), of which over 20 percent was for transactions between Hong
about 70 - 80 percent of worldwide renminbi SWIFT payments in 2013.
Kong and Guangdong Province.
18
US$1 = RMB6.0969 (As at 31st December of 2013)
102 103
under the new measure, Hong Kong-funded banks are able to set up a
cross-location sub-branch within Guangdong Province by investing only
RMB10 million (US$1.6 million), and obtaining the approval of the banking
regulatory commission at provincial level. In early 2013, the Guangdong
Bureau of the China Banking Regulatory Commission allowed Hong
Kong-funded banks to apply for the establishment of multiple sub-
branches in one application. This is further expediting the expansion of
Hong Kong-funded banks into the marketplace of Guangdong Province.
As of September 2013, six Hong Kong-funded banks including HSBC,

Hang Seng Bank, and Bank of East Asia, had been granted permission to
set up a total of about 50 sub-branches in Guangdong Province. Most of
these were in cities in the Pearl River Delta region.
Hong Kongs Other Financial Activities in Guangdong Province
Securities Sector: Supplement VII of CEPA (2009) provided preferential

measures at an opportune time for the development of new financial
4.3.2. Hong Kong-Guangdong Financial Cooperation
products, and the introduction of ETFs (Exchange-traded funds) on Hong
Kong stocks in the Mainland. Thanks to this provision, various Hong
The Cross-Location Sub-Branches Measure under CEPA
Kong-Guangdong financial investment projects have been permitted to
Banking cooperation between Guangdong and Hong Kong is largely launch:
facilitated by CEPA, and mostly through the Guangdong Early and
August 2012: Hang Seng Securities Ltd and Guangzhou Securities Ltd
Pilot implementation scheme. Under Supplement VI of CEPA, Hong
set up the first joint-venture securities investment advisory company
Kong banking institutions are permitted to set up sub-branches across
to operate in Guangdong Province;
different cities in Guangdong Province.
September 2012: The Hong Kong Exchanges and Clearing Ltd
This measure is best known for its advantages including: reduction
(HKEx), Shenzhen Stock Exchange, and Shanghai Stock Exchange
in entry capital requirements and substantial shortening of approval
established a joint venture (China Exchanges Services Company
procedures. Prior to this, banks in Hong Kong were required to set up a
Ltd) in Hong Kong to develop cross-border indices based on products
branch office before they could establish any sub-branch/branch outlets
traded on the three markets, linking the China financial markets with
in the same municipality. The capital requirement of a new branch
the world, and contributing to the further internationalisation of
is RMB100 million (US$16 million), and approval is granted from the
Chinas capital markets;
banking regulatory commission at Central Government level. However,
104 105
O
ctober 2012: The first exchange- in Shenzhen appears to be the most proactive in driving financial
traded fund for Hong Kong-listed development thanks largely to the determination of the Shenzhen
stocks was formally listed on the Government, and Shenzhens proximity to Hong Kong. Three prominent
Shenzhen Stock Exchange. Hong Kong banking institutions, Hang Seng Bank (China), Bank of East
Asia, and HSBC have established branches in Qianhai.
Insurance Sector: Supplement VIII
of CEPA (2011) allowed Hong Kong Under the provisional rules announced at the end of 2012, regarding
insurance brokerages to set up wholly- the management of cross-border renminbi loans, companies which are
owned insurance agencies on a pilot registered in Qianhai and have substantial operations in the area are
basis in Guangdong Province. eligible to borrow renminbi from banks in Hong Kong. This initiative
further enhances cross-border utilisation and the circulation of
Guangdong Provinces Financial renminbi funds between the Mainland and Hong Kong. As of August
Investments in Hong Kong 2013, cross-border renminbi loans registered in Qianhai totalled RMB7
billion (US$1.1 billion).
As at the end of 2012, a total of 136
Guangdong enterprises had been listed
in Hong Kong. By the end of August Future Financial Cooperation between Hong Kong and Guangdong
Province
2013, the Hong Kong subsidiaries of
seven securities companies, eight There are four priority areas on the cooperation agenda between Hong
fund management companies, and Kong and Guangdong Province for the near future:
two futures trading companies from
C
ross-border renminbi handling: To further expand cross-border
Guangdong had obtained licenses to carry out regulated activities in
renminbi lending to the entirety of Guangdong Province, including
Hong Kong. In addition, a Hong Kong subsidiary of a Shenzhen-based
Nansha and Hengqin;
fund management company launched an RQFII A-share ETF product,
which is listed on the Hong Kong Stock Exchange, and trades under the Securities sector: To lower the entry requirement for Hong Kong
Dual Counter model (in other words, renminbi and Hong Kong dollar securities companies into the Mainland market, expand their scope of
trading counters). services, and increase the upper limit of their shareholding percentage;
I nsurance sector: To lower the entry requirement for Hong Kong

Financial Cooperation in Qianhai, Shenzhen
property insurance companies into Guangdong Province, and
Building on the 12th National Five-Year Plan, the Guangdong Provincial encourage Guangdong enterprises to establish their insurers in Hong
Government is very keen to promote financial cooperation between Kong for overseas investments and businesses;
Hong Kong and three Guangdong pilot and experimental zones:
Qianhai, Nansha, and Hengqin. Among the three zones, Qianhai T
he development of the QDII initiative: To facilitate Guangdong
106 107
Conclusion
Hong Kongs interaction with the Pearl River Delta region is
a dynamic trajectory tied to the policy shifts of the Central
Government, and changes in the global economic environment.
The 1997 reunification of Hong Kong with Mainland China
enabled Hong Kong to take up strategic assignments from the
Central Government, for example, financial development and
renminbi internationalisation. This has strengthened Hong Kongs
business partnership with Mainland China so that it goes beyond
merchandise trading, so often confined within the Pearl River
Delta region, to penetrate a wider scope of service cooperation.
CEPA is the most important framework regulating service

cooperation between the Mainland and Hong Kong. By nature,
Province investors participation in the Hong Kong investment market. CEPA is a preferential trading agreement between two customs
territories, and, in reality, a very important institutional platform
for Mainland China to provide unilateral preferential market
4.4. Helping Enterprises to Explore the Mainland Market
access to Hong Kong-based investors. CEPA, and its Guangdong
Recognising the rapidly growing domestic market in Mainland China, the Early and Pilot Implementation scheme is not a static agreement
Hong Kong Government encourages Hong Kong enterprises to develop but a dynamic process, liberalising the Greater Pearl River Delta
their business in China through developing their brands, and upgrading region market to international investors. Now, and in the future,
and restructuring their operations. Hong Kongs contribution to the Greater Pearl River Delta region is
to link global economies to Mainland China, and vice versa.
The relevant policy bureaux and departments, public institutions,
and industrial chambers will regularly relay information to Hong Kong
enterprises to enhance their understanding of the Mainlands latest
policies, regulations, and market trends. In mid-2012, the Hong Kong
Government set up a Dedicated Fund on Branding, Upgrading and
Domestic Sales (the BUD Fund) of HK$1 billion (US$125 million) to assist
Hong Kong enterprises to promote their development in the Mainland.
Such support can extend to foreign companies which have registered
and carried out substantive commercial operations in Hong Kong, which,
Section 5 Hong Kongs Role in the Greater Pearl River Delta Region Section 5 Hong Kongs Role in the Greater Pearl River Delta Region
108 109
Hong Kongs Role pillar industries of financial services, trading and logistics, tourism and
G
professional services. The government announcement pointed at two
reater
things. First, it clarified Hong Kongs strategic intention to embrace new
in the business opportunities in a knowledge-based economy, and, second, it
showed that Hong Kong had reappraised its role within the Greater Pearl
Pearl River Delta Region River Delta region.
5.1. Regional Economic Roles of Hong Kong in the

Greater Pearl River Delta Region
5.1.1. Investment-Led Service Hub
In the earlier days, merchandise trade drove the notion of Front Shop and
Back Factory cooperation, which was backed up by the Mainlands
abundant labour resources with Hong Kongs investment as a
crucial driving force serving international customers.
By the mid-1990s, after Hong Kong-based manufacturers had

completed their transfer of industrial competencies and
manufacturing facilities to the Pearl River Delta region,
Hong Kong once again began to feel pressure to sustain the
Since 2001, the scale of its manufacturing investment in the Pearl River
Pearl River Delta Delta region. According to statistical figures reported by
region has been moving the Central Government, Hong Kong has always been
into a new development the largest source of foreign direct investment into
phase, while the global financial Mainland China. That said, a considerable portion of
crisis of 2008 has also seen Hong Kong Hong Kongs manufacturing investment in the Pearl
enter a new stage. Symbolic of this was the River Delta comes from international and Taiwanese
announcement by the Hong Kong Government of enterprises which utilise Hong Kong as a
its intention to develop priority industries in which the gateway into the region.
city would enjoy clear advantages. These include innovation
and technology, testing and certification services, cultural and
creative industries and environmental industries, in addition to the
110 111
Chinas accession to the World Trade Organization has opened up The initiative of trade and investment facilitation under CEPA perfectly
Chinas services market, allowing foreign service providers to establish reflects the emergence of a new set of trading rules in the 21st century,
their commercial presence in China through investing. Likewise, and denotes a shift in international trade patterns from the merchandise-
the Chinese investor enjoys a higher degree of freedom to conduct led trade in goods to a new development model of investment-led trade
international investments rather than the former approach of Chinese in services.
firms which was to list on foreign stock markets, for fund raising and
joining forces with international strategic partners. Since 2000, the 5.1.2. An Enhanced Two-Way Investment Platform
Hong Kong stock market has been the first and preferred listing place
In recent years, Hong Kong has seen itself evolve from being a source of
of Mainland state-owned enterprises. Indeed, in the Global Fortune-500
unilateral investment, to a two-way investment platform linking Pearl
and China Fortune-500 lists, the firms in the Hong Kong category are
River Delta region investors to the global market, and global investors to
mainly Mainland China-based state-owned enterprises such as China
Pearl River Delta region and China markets.
Mobile Communications, China Telecom, Peoples Insurance Co. of
China, and China National Offshore Oil. As at December 2013, some 797
Mainland companies were listed on the Hong Kong Stock Exchange. Pearl River Delta Region Investors in Hong Kong for the
Global Market
In 2013, 127 China Fortune-500 firms with a total revenue of US$778 billion
and a profit of US$74 billion listed Hong Kong as their headquarters.
Financial-Led Investment
Table 5-1: Composition of Chinas Fortune-500 Companies (2013) Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Ltd is the largest
Share
manufacturer and exporter of longitudinal welded steel pipes in China,
Number of
Revenue Profit and is headquartered in Guangzhou. The company has been listed on the
firms listed Firms listed
(US$ (US$
as China
billion) billion) as China Revenue Profit main board of the Hong Kong Stock Exchange since February 2010.
Fortune-500 Fortune-500
By investing and listing in Hong Kong, Chu Kong is able to access a wider
China
Fortune 500 4,147 347 100.0% 100.0% 100.0% portfolio of financial products at competitive prices for overseas business.
500 Its improved corporate image through listing in Hong Kong gives Chu Kong
Beijing 77 1,904 192 15.4% 45.9% 55.3% an added advantage of winning bids from recognised global players and
major construction projects. Strengthened by its Hong Kong investment
Hong Kong 127 778 74 25.4% 18.8% 21.3%
background, Chu Kong has been able to take part in Hong Kong projects
Shanghai 42 382 26 8.4% 9.2% 7.5%
including the Hong Kong-Zhuhai-Macao Bridge, and the Hong Kong section
Shenzhen 27 191 18 5.4% 4.6% 5.1% of the national gas pipeline, West-East Gas Pipeline Phase II. This not only
Guangzhou 10 44 3 2.0% 1.1% 0.8% gives the company business revenue, but also provides accessibility to
state-of-the-art projects that will induce new product development.
Source: B ased on Fortune China, available at: http://www.fortunechina.com/fortune500/c/2013-
07/16/2013C500.htm.
112 113
Science-Led Investment Global Investors in Hong Kong for China and the Pearl River
Delta Market
Shenzhen Huawei is Chinas most renowned manufacturer of
telecommunication equipment headquartered in Shenzhen. The
companys internationalisation began in 1996 when it earned its first Marketing-Led Investment
international order for fixed-line network products from Hong Kongs
Established in New York City in 1941, Coach Asia is a maker and marketer
Hutchison Whampoa. Drawing on its experiences on the Hutchison deal,
of fine accessories, leather goods and gifts for women and men. In early
Huawei pushed its international market expansion.
2000, Coach started with a sourcing office in Hong Kong. Between 2008 and
The companys Hong Kong journey has not just been limited to market 2009, the company decided to step up its commitment to Asia and began
cooperation but also to technological collaboration. In 2012, it set up the taking back its retail operations under the management of its Hong Kong
Noahs Ark Lab in the Hong Kong Science Park, despite the parks proximity regional office. Despite fierce competition in Hong Kongs retail market,
to its Shenzhen Central R&D Laboratory. Huawei aims to use its Hong Kong Coach opened four new stores in 2012, and operates 18 retail stores with 350
operation as a base to attract international talent, and to collaborate with employees in Hong Kong and Macao.
academic institutions in Hong Kong. The Noahs Ark Lab plans to increase its
Andre Cohen, President and Chief Executive Officer Coach Asia, sees
Hong Kong staff number to about 90 in 2014.
Hong Kong as a strategic location for its retail brand in Asia. Its a vibrant
Artop Group is an innovative Shenzhen-based industrial design firm in the city with a well-informed, demanding and sophisticated consumer, who
top 10 of Mainland industrial design companies. Artop mainly focuses on influences fashion trends across the rest of Asia. So, being successful in
industrial design, development integration and high-end manufacturing. Hong Kong has really helped us to build up our awareness and credibility
In 2013, it set up a research centre in the Hong Kong Science Park. Thanks in the region, he said.
to Hong Kongs reputation regarding the protection of intellectual property

The brands experience in Hong Kong has helped facilitate its entry into
rights, the group earned its first major international order from an
the worlds largest market. Building on its presence in cities such as Beijing,
international technological company also situated in the park. Artop plans
Shanghai and Shenzhen, it has penetrated into 40 cities in the Mainland
to gradually shift its headquarters functions to Hong Kong, and leverage
and will continue to extend its reach to the second and third-tier cities.
Hong Kongs advantages in intellectual property rights, to enable extensive
Were using our experience of our mens business in Hong Kong, which
technological collaboration with international customers.
has been a very fast-growing sector, to help develop our business across
Smart China (Holdings) Ltd a leading, integrated solutions provider for the rest of Asia. Hong Kong provides this kind of invaluable opportunity
Smart City development is headquartered in Shenzhen. The company for market research, Cohen concluded.
focuses on integrating smart, green, sustainable technologies to facilitate

city-wide management, on a one-stop basis. By pooling its research and Science and Market-Led Investment
development talent from home and overseas, Smart China could set up
Jolla Ltd established in 2011 and is headquartered in Helsinki, Finland. The
a research centre in the Hong Kong Science Park. The company uses this
company develops mobile devices and an operating system called Sailfish.
platform to develop technologies in which international collaboration and
In November 2012, due to its interest in the Mainland China market, Jolla
Hong Kongs protection of intellectual property rights are essential.
opened its first office outside Finland in Hong Kong Cyberport. Initially,
the company rented a three-seat unit in Cyberport Smart-Space 1, but it has
114 115
recently moved to a 12 seat unit in Smart-Space 2 to accommodate more Indeed, Chinese visitors are keen to shop for luxury products in Hong
employees for its expansion. Jolla remarks that Hong Kong Cyberport is Kong due to price differences and their confidence in the quality of Hong
well-organised, offers flexible leasing terms and business support, as well as Kongs retail sector. Many Chinese customers believe that all products
good networking opportunities and an entrepreneurial start-up culture. available on the Hong Kong retail market hold a level of quality assurance
iFormBuilder mobile platform was created and owned by Zerion Software that complies with international standards, and is recognised by global
Inc. The company has 12 years of experience in software development, and customers. Despite its relatively small population and market potential,
is headquartered in Virginia, US. To break into the Greater China and Asia- many prestigious consumer brands indicate an aim to establish at least
Pacific markets, iFormBuilder opened its first branch office outside the US in one outlet in the territory to demonstrate a global image to Mainland
Hong Kong Cyberport in July 2013. As a member of Cyberport, iFormBuilder customers.
is entitled to use Cyberport facilities in Shanghai, enabling the companys
Table 5-2: P rice Comparison of Selected Luxury Products Sold in Hong Kong and
discussions with Mainland clients.
Shenzhen
Price in Hong Price in Price difference

Brand Product
Kong (RMB) Shenzhen (RMB) (percentage)
5.1.3. A Shopping Paradise and Marketing Arena 100% cashmere

Burberry scarf, size 30cm 3,205 4,500 40.4%
x 168cm
Total retail sales in Hong Kong recorded annual growth at 11.8 percent
from 2005 to 2012, thanks, largely, to the shopping activities of Mainland Lady Dior
Dior handbag, 24,439 29,000 18.7%
Chinese visitors. medium size
Lady Dior
Figure 5-1: Total Retail Sales in Hong Kong Dior 27,243 32,500 19.3%
handbag, large
US$ Billion
80
100% silk scarf,
Hermes 3,045 3,750 23.2%
90cm x 90cm
70 Tank watch,
63.8 Cartier 26,763 36,400 36.0%
medium size
60 57.4
Cartier Love bracelet 34,855 47,300 35.7%
52.1
50 Wallet, Sarah
Louis Vuitton 4,127 4,850 17.5%
41.8 Monogram
40 35.1 35.4 Wallet,
31.7
Louis Vuitton Alexandra 4,808 5,350 11.3%
26.3 28.2
30 Monogram
Handbag, Maxi
20 Bottega Veneta 20,392 25,480 24.9%
Veneta Hobo
10 Handbag,
Chanel classic, medium 32,211 41,000 27.3%
0 size
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Fung Business Intelligence Centre, Luxury market in China, April 2013.
Source: The Census and Statistics Department of the HKSAR Government
116 117
5.1.4. A Key Investor and Service Supporter of Macao western bank via the Hong Kong-Zhuhai-Macao Bridge, which will be
completed in 2016.
Although Macao is the smallest economy in the Greater Pearl River
Delta region, it actually enjoys the highest per capita GDP not just in Plans for the expansion of the Hong Kong International Airport are
the region but across Asia. Macao is the only location in China which underway, with completion of the expansion hoped for by 2023. Indeed,
permits gaming, overtaking the Las Vegas Strip in 2008 to become the with the expected operation of all of the above infrastructure projects
worlds largest gaming market. Hong Kongs cooperation with Macao within 10 years, it will be easy to travel from Hong Kong to the Greater
is extensive. STDM, Galaxy, and Melco, three of the six companies with Pearl River Delta region and to cover the southern China region via the
gaming licenses in Macao, have strong ties to Hong Kong, and four of express railway network as well.
the six are listed on the Hong Kong Stock Exchange. Meanwhile, much
of the construction expertise used in the recent development of Macao Science and Research-Based Infrastructure
has come from Hong Kong. In addition, Hong Kongs airport and two ferry
In 1999, the Hong Kong Government accepted the findings of the late
companies run routes between the two places, providing transportation
Professor Tien Chang-lins report on technology development in Hong
access for visitors. Meanwhile, Hong Kong is the second largest source
Kong, and in the years since, there have been a number of major science
of visitors spurring Macaos tourism development. In 2012, there were
and research-based infrastructure projects and several publicly-funded
7.01 million visitor arrivals from Hong Kong 23.7 percent of total visitor
research institutions founded.
arrivals in Macao that year.
Of all the projects, the Hong Kong Science Park is the most iconic,
providing world-class infrastructure for research-based companies, and
5.2. N
ew and Projected Advantages of Hong Kong to the
their business visitors. Situated on the 22-hectare waterfront site in the
Greater Pearl River Delta Region Tai Po District of the New Territories, the park consists of 26 state-of-
the-art buildings in its first and second phases, with the development
5.2.1. World-Class Infrastructure of Phase 3 buildings scheduled between 2014 and 2016. Another key
science-related infrastructure is the Hong Kong Cyberport, located in the
Multi-Dimensional Transportation between Hong Kong and the Greater
Southern District of Hong Kong Island. Cyberport consists of four Grade-A
Pearl River Delta Region
intelligent office buildings, a five-star hotel, and a retail entertainment
Hong Kong has greatly improved its connectivity to the Pearl River Delta complex, which were all operational in different phases between
region through highway projects such as the Hong Kong-Shenzhen 2002 and 2008. Both the Hong Kong Science Park and Cyberport are
Western Corridor completed in 2007, and the railway network, for designated by the Hong Kong SAR Government as homes to grow
example, the Lok Ma Chau Spur Line that began operations in 2007, as technology enterprises, and as key zones to provide incubation services
well as upcoming projects: the forthcoming Guangzhou-Shenzhen-Hong to strengthen and diversify Hong Kongs economy beyond the realms of
Kong Express Rail Link which will be completed in 2015, and the first traditional service and trading industries.
cross-boundary project linking the eastern bank of the Pearl River to the
118 119
5.2.2. Jurisdiction for Knowledge Economy Centre, and the Secretariat of the International Chamber of Commerce
International Court of Arbitration (Asia Office), Hong Kong is strongly
Thanks to the One Country, Two Systems policy, Hong Kong has been
placed to meet the demand for high-end arbitration services, particularly
able to retain its rule of law practices underpinned by an independent
those related to China development.19
judiciary after its handover to the Mainland. These practices are based
on the common law legal system, which maintains Hong Kongs strong
Protector of Intellectual Property Rights
links with international societies.
Hong Kong is recognised as the frontrunner Chinese city with respect
Indeed, Hong Kongs connection with foreign legal practitioners has not
to intellectual property (IP) rights. Indeed, its historical and legal
diminished since its reunification with the Mainland. In fact, there have
foundation can be traced back to July 1990 when the Intellectual
even been signs of growth in the last five years a reflection of Hong
Property Department was established. Hong Kong further expanded its
Kongs determination to enhance the global standard of its corporate
efforts to protect IP rights into Guangdong Province. In August 2003, the
governance. As of 31 December 2012, there were 7,483 solicitors holding
Guangdong/Hong Kong Expert Group on the Protection of Intellectual
valid certificates to practice law in Hong Kong. Among them, 922 foreign
Property Rights was set up. The group aims to enhance exchange and
lawyers were employed in the territorys law firms, while 322 foreign
cooperation on various aspects of IP protection, including education,
lawyers were in 70 foreign law firms in Hong Kong. Clearly, when an
training, enforcement, research, and providing information. As of August
international firm decides to invest in Hong Kong, it is likely that they
2013, 12 meetings have been held between the two destinations, and law
will be able to find a foreign lawyer who speaks their own language,
enforcement authorities in Guangdong Province and Hong Kong have
and understands the regulatory differences between their own country
worked closely to improve the co-ordination mechanism for handling
and Hong Kong. This may not be possible in the Pearl River Delta region,
IP-related cases, for example, to combat cross-boundary IP rights
where the Central Government has placed certain restrictions on foreign
infringements on the internet.20
legal practitioners.
According to the findings of The Annual Survey of Companies in Hong
Emerging Arbitration Servicer Kong Representing Parent Companies Located outside Hong Kong, foreign
or Mainland companies that set up regional headquarters or offices in
In 2001, the Hong Kong Government proposed developing Hong Kong as
Hong Kong, give weight to the citys protector of intellectual property
an international arbitration centre, and promoting the territory as a legal
rights reputation. In 2013, 52 percent of surveyed companies ranked
services centre for the negotiation and documentation of China-related
Hong Kongs protection of intellectual property rights as a favourable
contracts, and a dispute resolution centre for these contracts. There have
aspect compared to 29 percent in 2001.
been vigorous efforts to achieve this since then, and in June 2011, the new
Arbitration Ordinance came into effect, which was a major milestone
in enhancing Hong Kongs arbitration regime. In September 2012, the 19
S
ource: Speech by SJ at inauguration ceremony of CIETAC Hong Kong Arbitration Centre, 24 September 2012.
China International Economic and Trade Arbitration Commission Available at: http://www.info.gov.hk/gia/general/201209/24/P201209240452.htm.
established an arbitration centre in Hong Kong. Coupled with its existing 20

ource: The Intellectual Property Department, Twelfth Meeting of Guangdong/Hong Kong Expert Group on
S
Protection of Intellectual Property Rights, 6 August 2013. Available at: http://www.ipd.gov.hk/eng/pub_press/press_
arbitral institutions, including the Hong Kong International Arbitration releases/2013/report_12th_meeting_e.pdf
120 121
Table 5-3: I mportance and Favourability of Factors Affecting Hong Kong as a Location for 5.2.3. Human Capital and Talent Mobility
Regional Representation
Hong Kong is known as an ideal place for international talent due to its
Ranking of
Favourable Neutral Unfavourable No comment
importance cosmopolitan lifestyle. In the last 10 years, Hong Kong has opened itself
2001 2013 2001 2013 2001 2013 2001 2013 2001 2013 to a new mode of talent exchange by way of its higher education system,
Rule of and its offer of visa-free arrangements to a majority of countries around
law and
6 4 52% 60% 38% 27% 4% 2% 6% 11% the world.
independent
judiciary
Level
10 9 47% 53% 43% 34% 4% 3% 6% 11%
The Educational Role of Hong Kong
playing field
Proficiency Over the last decade, the Pearl River Delta region has aggressively
12 11 34% 54% 50% 31% 10% 4% 6% 11%
in English upgraded its manufacturing sector and has shifted towards modern
Protection of
service sectors, creating vast employment opportunities in knowledge-
intellectual
16 12 29% 52% 52% 35% 12% 2% 6% 11%
property intensive positions. The average educational attainments of the working
rights
populations of both Guangdong Province and the Pearl River Delta are
Source: Census and Statistics Department of HKSAR Government, Annual Survey of Companies in improving, and are higher than the national average. However, there
Hong Kong Representing Parent Companies Located outside Hong Kong, 2001, 2013.
remains much room for improvement.
By consolidating recent developments in the arbitration sector and
Table 5-4: The Average Educational Attainment of Working Population in the Pearl River
increasing awareness about the protection of IP rights, Hong Kong is
Delta region (Year)
building up its institutional framework to embrace the development of
2000 2010
a knowledge economy.
National Average 8.00 9.10
Guangdong Average 8.81 9.79
PRD Region Average 9.35 10.28
Source: G uangdong Statistical Info Net. Available at: http://www.gdstats.gov.cn/tjzl../tjfx/201306/

t20130618_122622.html.
Meanwhile, the educational attainment of Hong Kongs population is

the highest in the Greater Pearl River Delta region. About 80 percent of
the Hong Kong population (aged 15 and over) has attained secondary
school education or above a ratio that increased from 72.2 percent
in 2002 to 79.5 percent in 2012. The category of degree holders has
grown the fastest, increasing from 11.1 percent in 2002 to 16.2 percent in
2012. Following reunification, the Hong Kong Government put forward
an education policy of bi-literacy and tri-lingualism. This policy is
122 123
advantageous to young Hong Kongers, enabling them to acquire Kong an important place in the Greater China region. The benefits do
language competencies to better handle liaisons between Mainland not only concern higher education (educators, students, and facilities)
China and the western world. but also Hong Kongs long term development through enrichment of its
talent pool. The territory often retains its student talent after completion
Figure 5-2: Population aged 15 and over by educational attainment of Hong Kong, 2002 -
2012
of their studies.
Percentage
Table 5-5: QS World University Rankings 2013/14
100
Rank University Location

90
26 The University of Hong Kong Hong Kong

80
34 The Hong Kong University of Science and Technology Hong Kong
70 39 The Chinese University of Hong Kong Hong Kong
60
46 Peking University Beijing
48 Tsinghua University Beijing

50
88 Fudan University Shanghai
40
104 City University of Hong Kong Hong Kong
30 123 Shanghai Jiao Tong University Shanghai
20 161 The Hong Kong Polytechnic University Hong Kong
10
Attracting Young Mainland Talent to Hong Kong
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Each year, thousands of young students
Post-secondary - postgraduate Post-secondary - non-degree Primary enroll in the undergraduate and postgraduate
Post-secondary - degree Secondary No schooling / Pre-primary programmes of Hong Kongs universities,
and the top students are offered attractive
Source: G
eneral Household Survey Section(3), Census and Statistics Department, the HKSAR scholarships. This diversifies the university
Government
portfolio, and strengthens the competence
In addition, universities in Hong Kong enjoy higher university rankings of Hong Kong graduates. Importantly, many
than the majority of Mainland China universities. According to the QS young Mainlanders prefer to work in Hong
World University Rankings 2013/14, a total of five Hong Kong-based Kong after they graduate. As a result, the
universities are ranked in the Top 200 list. Among them, three Hong Kong territory benefits from a talent thrust, and
universities earn higher rankings than the most prestigious Mainland new prospects for Mainland China-Hong Kong
Chinese universities (Peking University and Tsinghua University). The cooperation arise.
strong academic performance of people in Hong Kong makes Hong
124 125
Hong Kongs Visa-free The Individual Visit Scheme Mobility of Mainland Talent
Arrangement Scheme Mobility
The Individual Visit Scheme (IVS) of the Closer Economic Partnership
of International Talent
Arrangement, permits residents of Guangdong Province to travel to Hong
Among all citizens in the Kong conveniently. The IVS removes the institutional obstacle restricting
Greater Pearl River Delta region, talent exchange and business travel, and promotes the weekend
Hong Kong citizens have the shopping activities of Pearl River Delta residents. This makes a reality of
highest degree of international the one-hour life circle concept.
mobility due to the visa-free
arrangement of the Hong Kong
Government. As of January 5.3. Additional Roles of Hong Kong in the New Era
2014, HKSAR passport holders
Hong Kong is advantageous as a location which multinational firms
have been granted visa-free
can use to access the Pearl River Delta, Mainland China, and the Asia-
access or visa-on-arrival access
Pacific region. Hong Kong remains the preferred location for overseas
to 149 countries and territories,
and Mainland companies to manage their Asia operations, mainly due
compared to Mainland Chinese
to its simple and low tax regime, free flows of information and capital,
residents who are eligible for visa-
and its geographical location. According to an annual survey, the total
free access or visa-on-arrival
number of companies with parent companies overseas and in Mainland
access to about 30 countries and
China reached 7,449 in 2013, with 3,835 of them setting up their regional
territories. In addition, frequent
headquarters or regional offices in Hong Kong. Hong Kong continues to
flight schedules from Hong Kong
advance, and ready itself to embrace the emerging opportunities of the
International Airport mean that
knowledge economy, and widespread mobile technology.
the Hong Kong professional is
ready to depart for international An enhanced two-way platform is gaining development momentum in
services within hours or a day. Likewise, most foreign visitors, especially Hong Kong. Rather than the earlier unilateral investment of international
those from developed countries, are able to visit Hong Kong on the visa- investors into Mainland China, there is now a growing number of
free scheme. outbound investments from China, through Hong Kongs investment
window. Indeed, the development of bilateral investments is turning
Given Hong Kongs close relationship with Mainland China, foreign
Hong Kong into a meeting point for key decision makers to start a dialogue,
visitors can easily apply for a China visa, and with the support of a Hong
to develop new forms of collaboration, and to conclude business deals.
Kong-based Mainland travel agency, application time can be as short as
Apart from the traditional financial strength and professional services
just one working day. This makes Hong Kong an ideal place for foreign
rendered by its service providers, Hong Kong has three additional roles
citizens to stop off before they enter the Mainland.
in the context of Greater Pearl River Delta development.
126 127
5.3.1. Marketing A Place to Build 5.3.2. I nvestment A Place to Facilitate and Protect Investor
Image Benefits
Brand Imaging for Foreign Enterprises Foreign Enterprises Go China
According to some multinational Limited by Mainland Chinas commitments in its World Trade
premium brand owners, although Organization accession, foreign enterprises must follow the measures
they are targeting the Mainland China in the Catalogue of Industries for Guiding Foreign Investment. To
market, it is of great importance that they enjoy preferential treatment, foreign enterprises need to make use of
establish a commercial presence in Hong preferential trade agreements (PTAs) signed between Mainland China
Kong, even if this means just one outlet, and external countries or territories. Among all PTAs that Mainland China
to demonstrate their international image has engaged in, the Closer Economic Partnership Arrangement (CEPA)
and convince Mainland consumers of between the Mainland and Hong Kong is by far the most preferential in
their global brand image. In sales terms, openness and scope.
Hong Kong is also an ideal location to
Despite recent developments in the Shanghai Free Zone, where foreign
serve Pearl River Delta region consumers
investment is scheduled in a negative list, a programme of competitive
and VIP visitors from Southeast Asian
liberalisation is implied, which is the minimum commitment of Mainland
countries, and Taiwan.
China to the world. Meanwhile, the CEPA mechanism is regulated to the
positive list approach, which shows the progressive liberalisation of
Corporate Imaging for Mainland Enterprises
Mainland China and Hong Kong reserves the right to ask for further
Mainland investors with a Hong Kong presence, including companies preferential measures when Mainland China deems further liberalisation
listed on the Hong Kong Stock Market, indicate that they can earn to be suitable. By investing in Hong Kong, foreign entities are able to enjoy
better and more respected business exposure by positioning or both positive list and negative list approaches, and choose whichever
linking themselves with Hong Kong. This is due to the better corporate suits them best.
governance mechanisms enforced in Hong Kong, which lead to an
improved corporate image for them. Hong Kong provides Mainland Mainland Enterprises Go Global
investors with a skilled workforce capable of handling corporate
Over the past five years, the Central Government has strongly driven go-
communications and understanding the cultural differences between
global initiatives for Mainland companies, and Hong Kong has become
the east and west. Before promoting their brand image, Mainland
an ideal gateway for Mainland enterprises to go global and expand
investors should get rid of the earlier image as a low-cost supplier, and
their business overseas. Traditionally, it was believed that the low and
build a well-respected corporate image to meet the development of a
simple tax system of Hong Kong offered Mainland enterprises cost
knowledge economy. An improved corporate image is crucial for the
incentives, while the financial sector provided them with improved
Mainland investors to establish and enhance their brand image.
128 129
lending terms and flexibility. However, better citizen mobility between of their innovation in the
China and Hong Kong now permits Mainland Chinese management to Mainland China market can
easily visit Hong Kong, while the strong international mobility of Hong be equally difficult. Generally,
Kong staff can help an enterprise to address international service foreign innovators dedicate
requirements at very short notice. More importantly, business practices most of their corporate focus
adopted in Hong Kong are in line with international trends which will and resources to innovation
enable Mainland enterprises to adhere to and respect international best activities. However, this subjects
practices and manage their global business in a regulated way, which them to operational hurdles,
eventually enhances their corporate image. given the rapidly changing
regulatory requirements of
Safeguarder of Investor Benefits Mainland authorities. The
marketing, commercial, and
Hong Kong has not only successfully preserved its rule of law tradition
incubation support that the
and business-friendly environment, but provides additional protection
Hong Kong Science Park and
for new investors. The territory is a favourite place for foreign legal
Cyberport offer can be an
practitioners to provide consulting and professional services, and
ideal solution. Aided by the
safeguard investors economic interests. In addition, the Hong Kong
investment facilitation services
Government is determined to protect investors benefits. As at the end
of Invest Hong Kong and the exhibition support of the network of the Hong
of 2013, Hong Kong had engaged 17 economies (16 economies are
Kong Trade Development Council, the commercialisation of innovative
in force) in the Investment Promotion and Protection Agreement. It
ideas and cutting-edge technology via the Hong Kong platform may have
has also signed Comprehensive Double Taxation Agreements (CDTAs)
a better chance of succeeding.
with major trading partners to promote Hong Kongs favourable tax
status and enhance its tax transparency internationally. Including
Mainland Innovators to the Global Market
the one with Mainland China, Hong Kong has signed CDTAs with 29
jurisdictions as at mid-January 2014 and negotiations with 14 more are The situation regarding intellectual property rights in China affects
in progress. Mainland innovators, especially when they seek international
technological collaboration and to conduct research in highly
5.3.3. Knowledge and Talent A Place to Innovate knowledge-sensitive areas. Hong Kongs edge in the protection of
intellectual property rights can offer higher levels of confidence to
Foreign Innovators to the Mainland Market international partners, and help Mainland partners to collaborate. In
addition, Hong Kong is a better place to recruit international talent as a
It may not be easy for foreign innovators to go directly to Mainland
result of its cosmopolitan environment and more flexible working visa
China. The issue of intellectual property rights is often a challenge to
arrangements. R&D activities often involve a large amount of equipment
knowledge-intensive international investors, and the commercialisation
130 131
Conclusion
The global financial crisis of 2008 posed huge challenges to
the Hong Kong economy, and unleashed a new chapter in the
economic and regional development of Hong Kong.
Since then, a number of sizeable infrastructure projects have

been carried out in Hong Kong, greatly improving its connectivity
to the worlds commercial sector and community of innovators.
On the software side, Hong Kong has maintained its rule of
law regime, and has added knowledge-related aspects to its
regulatory portfolio. Hong Kongs well-known higher education
system has enriched its talent pool, and is lending momentum to
the development of knowledge economies.
investment, and Hong Kongs zero tariff and preferential tax measures
towards R&D investment make these activities in Hong Kong more cost Apart from its traditional role as the regional hub of producer
competitive. services and logistic handling, Hong Kong is now playing
additional roles. It has evolved from being a source of unilateral
A Meeting Place for East/West Innovators investment into a two-way investment platform, now linking Pearl
River Delta region investors to the global market. The improved
Hong Kong is a vibrant, cosmopolitan city where east meets west, and
mobility of Mainland visitors into Hong Kong, coupled with their
the same can be said for innovation. Regardless of whether international
shopping patterns while visiting Hong Kong, are turning it into a
innovators come to Hong Kong with ideas, technology, or venture capital,
marketing arena for prestigious consumer brands.
or eastern innovators join hands with Hong Kong for its manufacturing
competence, Hong Kong is able to serve each innovator. It does this via The enhanced two-way platform of Hong Kong is transforming
its sound and well-established regulatory framework, and by providing it into a meeting point for key decision makers commercially
world-class-infrastructure and industrial parks that facilitate R&D and innovation-wise to start dialogues, develop collaboration,
activities, remunerate know-how, and safeguard innovation outputs. conclude business deals, and make their innovations a reality.

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Economic Dimension

The Hong Kong Polytechnic University

Allocation decisions impact natural environment

Land Labour Capital

Macroeconomics Aggregated analysis

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

An economic theory stating that active

John Maynard Keynes (1883 1946)

The supply and demand model is a model of how a

Five key elements in this model:

If the scalpers are

That is, 8,000 is the quantity demanded at a price of $250.

The price at which this takes place is the equilibrium

The qquantityy of the good

There is a surplus of a good when the quantity supplied exceeds

There is a shortage of a good when the quantity demanded

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

The Hong Kong Polytechnic University

1. Duty-free export to China for Hong Kong-made products

2. Easier market entry for Hong Kong-based service providers

Is incorporated in Hong Kong

Cepa Update Summary by Susan Lavender, Associate, Dibb Lupton

BENEFITS FOR NON-HONG KONG COMPANIES

CEPA and Opportunities for Hong Kong

CEPA - A Special Arrangement Abiding by International Practices

Opportunities in Trade in Goods

Capitalising on the advantage of Hong Kong in intellectual property rights protection,

Opportunities in Trade in Services

The framework of CEPA is intentionally designed to help smaller companies, whether

Overall Impact on Hong Kong

Further Liberalization in 2015

Framework of the Agreement

Key contents of the Agreement are summarized as follows:

Hong Kong's Liberalization Measures

and latest updates of the cooperation zones between Hong

I. I. Economic Overview of Guangdong

2011 Guangdong is the most populous province in China.

21 Located on the southern coast of China, Guangdong is composed

Zhaoqing, Shenzhen, Dongguan, Huizhou, Zhuhai, Zhongshan

201045,472.8 In 2010, Guangdong registered a GDP of RMB 4.5 trillion with a

2. 2. GDP Per Capita

Since China adopted the economic reform and opening-up policy,

In line with the income growth, the amount of retail sales of

4. 4. Total Exports and Imports

2011 Source: Guangdong Statistical Yearbook 2011

The Greater Pearl River Delta comprises nine major cities in

Dongguan, Huizhou, Zhuhai, Zhongshan and Jiangmen, as well

1) 664.3 ( 10 000 persons)

2011 Source: Guangdong Statistical Yearbook 2011

2011 113,129 56 100.0 34,100 -

Since the opening up of China in late 1970s, Guangdong has

the economic development of China and also as a role model

Guangzhou have been chosen as the major cooperation zones

Source: Development Plans for Qianhai and Nansha

As the blueprint of the development of Guangdong in the next

and significant improvement of ecological environment. After

Year Plan period (2011-2015); instead, the province placed

Key Development Goals of Guangdong by 2015

2010 45,473 47,000 44.6% 64% 23,898 7,890

3.1.2. Research and Development in the Pearl River Delta Region