China's financial regulators and the central bank issued a guideline on May 14 on providing financial support to the Guangdong-Hong Kong-Macao Greater Bay Area. According to a statement released by the People's Bank of China (PBC) on the same day, the move is aimed at promoting financial opening up and innovation, furthering financial cooperation of the mainland with Hong Kong and Macao special administrative regions (SARs), and building the region into an internationally competitive city cluster.

The guideline focuses on serving the real economy, enhancing the internationalization of the yuan, driving complementary development in the region and promoting market-oriented reforms of the financial market. It proposes measures including promoting cross-border trade, facilitating investment and financing in the Greater Bay Area, expanding the opening up of the financial sector, promoting the connectivity of financial markets and financial infrastructure, innovating financial services in the region and preventing cross-border financial risks.

Introduced in 2017, the concept was concretized as the government introduced a development outline for the Guangdong-Hong Kong-Macao Greater Bay Area in February 2019 to boost common development of Hong Kong, Macao and the mainland cities in the area and develop the region into a role model of opening up and high-quality development. Covering an area of 56,000 square km, it consists of Hong Kong, Macao and nine cities in Guangdong Province, south China.

As Shen Jianguang, Vice President and chief economist at JD Digits, the fin-tech arm of JD.com, wrote in an online article, the guideline signals that China will continue to widen the opening up to cope with external and internal challenges amid the global spread of the novel coronavirus epidemic and the turbulent international financial market. It will further support Hong Kong as an international financial center and promote Macao as a bridge of cooperation with Portuguese-speaking countries under the "one country, two systems" policy.

"The guideline can further the development of the Greater Bay Area, boost the A-share market and drive China's economic transformation and industrial upgrading," Yang Delong, chief economist of First Seafront Fund, told China National Radio.

Full support

According to the guideline, the government will facilitate cross-border trade, investment and financing by improving the convertibility of the yuan and developing fund pools to make currency exchange easier for multinationals. It will encourage domestic enterprises to go global by establishing overseas yuan investment and loan funds and support insurance firms in Hong Kong and Macao to become qualified foreign institutional investors and renminbi qualified foreign institutional investors.

Efforts will also be made to expand the opening up of the banking, securities and insurance sectors to further the financial cooperation of the mainland with Hong Kong and Macao and boost financial inter-connectivity in the region through improving the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect programs, it said.

Through promoting financial opening up of the Greater Bay Area, China can drive high-quality development of its economy and bring the role of the free trade zones in Guangdong into full play to develop experience that can be promoted across the country while effectively curbing risks in the trials, Liu Xiangdong, a researcher with China Center for International Economic Exchanges, told Securities Daily.

As Sun Mingchun, chief economist of Haitong International Securities Group Limited wrote in an article published online, the guideline highlights supporting Hong Kong and Macao to develop distinctive financial industries, which can diversify financial institutions in the Greater Bay Area.

The guideline stresses the need to improve financial services for technological innovation, boost the fin-tech sector and promote green finance on carbon emissions in the Greater Bay Area. The government has pledged to further support the research on new technologies such as blockchain, big data and artificial intelligence in the nine cities, expand the use of mobile payment in the region and support non-bank payment institutions in the mainland to conduct business in Hong Kong and Macao.

"The Greater Bay Area with a solid foundation of financial innovation has seen great demands for financial technology, which can help improve financial services and boost the real economy in the region," Pan Helin, acting Dean of the Digital Economy Institute at the Zhongnan University of Economics and Law in Hubei Province in central China, told Beijing Review.

To curb financial risks in cross-border trade, the Greater Bay Area needs to improve cooperation on financial supervision against money laundering and tax evasion, promote financial personnel training, develop systems to monitor and address financial risks, and build mechanisms for resolving financial disputes in line with international standards to protect consumers' rights, the guideline states.

As Sun suggested, the cities and SARs in the Greater Bay Area can accelerate financial integration, complement each other on financial supervision mechanisms and develop win-win regional cooperation, following the release of the guideline.

Steady development

The Greater Bay Area has seen steady development in recent years and shown robust growth momentum, especially in the fin-tech sector. To further the integrated development of Guangdong, Hong Kong and Macao, the Hong Kong-Zhuhai-Macao Bridge, a 55-km-long cross-sea bridge, was opened in 2018, which has reduced the travel time in the region and enhanced customs clearance efficiency.

According to a report released by online marketplace 58.com and housing information platform Anjuke.com in April, the bay area saw its total gross domestic product reach around 11.6 trillion yuan ($1.6 trillion) in 2019. The 2019 ranking of global patent applications released by the World Intellectual Property Organization in April showed that three out of the top 10 companies are located in the Greater Bay Area.

Pan Gongsheng, Deputy Governor of the PBC, said at a meeting on May 15 that some measures proposed in the guideline have already been launched in the Greater Bay Area, such as the promotion of mobile payment and facilitation of investment and financing.

In 2018, Internet giant Tencent partnered with payment service provider China UnionPay and its subsidiary UnionPay International to offer cross-border mobile payment services for Hong Kong residents, enabling them to use the Hong Kong version of WeChat Pay on the mainland more conveniently. The central bank and the State Administration of Foreign Exchange have also carried out trials of facilitating foreign exchange business in goods trade in the China (Guangdong) Pilot Free Trade Zone covering parts of Guangzhou, Shenzhen and Zhuhai in the province since 2019, according to Pan Gongsheng.

As the first special economic zone (SEZ) in China, Shenzhen in Guangdong is expected to boost its advantages with the guideline this year, the 40th anniversary of the establishment of the SEZ. According to the Shenzhen central sub-branch of the central bank, 17 measures in the recent guideline have already been launched in the city, including cross-border asset transfer trials and overseas yuan investment and loan funds. Other measures in the pipeline include allowing residents in the mainland cities as well as Hong Kong and Macao to buy wealth management products on each other's markets through bank systems.

Shenzhen has also taken the lead in developing green finance. In June 2013, it developed China's first carbon emission trading market, which became the first such market open to foreign investors in the country in 2014. It allows the investors to participate in carbon trading in the market through foreign currency or overseas RMB without any cap.

As Dong Dengxin, Director of the Finance and Securities Institute at Wuhan University of Science and Technology, told Beijing Review, Shenzhen has become a hub of hi-tech and advanced manufacturing industries over the past years. With the support of innovative policies and more flexibility in their application introduced by the guideline, it will continue to play a leading role in the development of the Greater Bay Area.

Shenzhen and Guangzhou as well as Hong Kong and Macao will become future financial centers of the Greater Bay Area, He Fei, a senior researcher at the Financial Research Center of Bank of Communications, predicted in an interview with Guangzhou-based Information Times.

Optimistic outlook

Many foreign-funded institutions, aware of the opportunities brought by the guideline, have accelerated efforts to gain a stronger presence in the Greater Bay Area. Hong Pizheng, Chief Executive Officer of Greater China & North Asia at Standard Chartered Bank, told Time Weekly magazine that the bank plans to increase investment in the region. "Financial support is important for boosting the Greater Bay Area, which can bring opportunities for financial institutions like ours," Hong said.

However, financial integration in the region still confronts hurdles. According to a branch of the central bank in Guangzhou, cross-border finance in the Greater Bay Area still faces difficulties due to different practices as well as laws and rules in the mainland cities, Hong Kong and Macao. It is necessary to develop a financial regulatory sandbox for testing new modes to eliminate the hurdles and prevent risks.

The financial opening up of the Greater Bay Area also calls for joint efforts. According to Pan Gongsheng, the central bank and the foreign exchange bureau need to cooperate with local departments to better facilitate investment and financing of enterprises.

(Print Edition Title: Boosting the Bay)

Copyedited by Madhusudan Chaubey

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