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The Greater Bay Area: Solving the productivity puzzle

The Greater Bay Area (GBA) is often styled as “China’s Silicon Valley” but to truly merit the comparison, it must narrow the productivity gap to its Californian counterpart. If successful, it could redraw the economic map of the world.

World Built Environment Forum
15 November 2019

The Greater Bay Area has long been the driving force of China's innovation economy. First designated as a special economic zone in 1979, the cluster now contributes 12% of China's overall GDP, and boasts more international patent applications – and billionaires – than any other Chinese region. It is, then, little wonder that commentators and politicians alike have sought to draw comparisons with the world's most renowned high-tech hub, Silicon Valley. Such comparisons, while far from groundless, are inexact.

Rosanna Tang, Head of Research (Hong Kong SAR and Southern China) at Colliers International, explains: "The Greater Bay Area's current GDP composition is improving, going from primary to secondary and tertiary production, but the proportion of secondary production is still a lot higher than if we were to compare to counterparts in the USA." The result is a GDP value per-capita roughly one-fifth the size of San Francisco's.

Ms Tang recently co-authored a report on the GBA's economic outlook to 2030 with Sean Ellison, Senior Economist (Asia Pacific) at RICS, who continues: "The next rung up the value chain for the GBA would be to move from manufacturing to innovation – we are seeing that to some extent, though currently we can only point to isolated examples."

Any successful transition beyond isolated examples to a truly world-class innovation-led economy would profoundly reshape the global economic order: should per-capita GDP in the Greater Bay Area ever equal that of San Francisco, its economy would outmatch all others in the world, save for China and the USA. While that outcome might fairly be considered unlikely, the incentive to narrow the gap as far as possible is self-evident.

Greater Bay Area
The Greater Bay Area has long been touted as China's answer to Silicon Valley - although more needs to be done to empower the innovative nature of the region to continue its progression

Home to three of the world's largest ports and processing an annual volume of air freight higher than Tokyo and New York combined, the GBA is already a key link in the global supply chain. The joint RICS-Colliers report highlights the development of a logistics belt running through Dongguan, Guangzhou, Foshan, Zhongshan and Zuhai, designed to facilitate the high-value add industries that underpin the GBA vision.

Crucial to this development has been the construction of four major bridges since 1997 – the most notable of which, the Hong Kong-Zuhai-Macao bridge, is the world's longest sea crossing. A fifth, linking Shenzhen and Zhongshan, is due for completion in 2024. Indeed, integrated road and rail projects have been key to the advancement of the GBA project, reducing journey times between the cluster's eleven cities and allowing for the easier circulation of talent, as well as goods.

In short, the necessary infrastructure is largely in place: "The emphasis of the planning process has been on infrastructure outlays.", says Ellison. "In terms of whether those outlays have been productivity enhancing, the answer is probably that they have."

60,000 5G base stations will be installed across Guangdong by the end of 2020 as part of a roll-out process expected to create 8 million jobs. In a perfect synthesis of traditional and modern ideas of connectivity, the Guangzhou-Shenzhen-Hong Kong Express Rail Link will be the first in China to have full 5G coverage along its entire route. The key challenge now is to populate the region's talent pipeline.

"The emphasis of the GBA planning process has been on infrastructure outlays. In terms of whether those outlays have been productivity enhancing, the answer is probably that they have."

Sean Ellison
Senior Economist, RICS Asia Pacific

Back in 2012, award-winning American author and journalist Ken Auletta wrote: "If the Ivy League was the breeding ground for the élites of the American Century, Stanford is the farm system for Silicon Valley." In truth, that farm system extends far beyond Stanford's sprawling campus. Times Higher Education lists nine Californian schools, with a total student population in excess of 250,000, among its top 100 engineering and technology universities in the world.

The GBA has five of its own in the same list, with a comparatively small combined student population of 78,000. Crucially, all are in Hong Kong. "Higher education is catching up in mainland China, but it definitely takes time to get the right batch of talents up to speed with market needs," warns Ms Tang.

The skills challenge is further complicated by the fact that the tech sector creates jobs in a range of associated professional and support sectors. Some experts estimate the multiplier effect to be fivefold: every new tech job necessitates the creation of a further five additional service roles. The prospects of any tech sector are undermined by a lack of supportive sectors: the legal, financial, construction and real estate professions chief among them.

The link between an educated working population, average salary and productivity is well-established. The Greater Bay Area can not realise its ambition to compete with the world's most renowned tech clusters without access to a sufficiently deep pool of great minds, armed with the necessary academic training.

"UNESCO statistics indicate that while China currently spends 2% of national GDP on research and development, the city of Shenzhen spends 4%. In order to unlock the GBA's full potential, such trends will need to continue."

The existence of the productivity gap has not escaped the architects of the GBA plan. UNESCO statistics indicate that while China currently spends 2% of national GDP on research and development, the city of Shenzhen spends 4%. In order to unlock the region's full potential, such trends will need to continue.

Sean Ellison strikes a cautiously optimistic tone when he notes: "Having a bit of room to run is actually a positive thing for the GBA. The productivity gap can be closed by good policy, but as you get closer to the productivity frontier, every additional unit of growth becomes very difficult – a lot more difficult than the last."

Hong kong aerial
In order to unlock the GBA's full potential, there needs to be a continued upward trend of national GPD spend on research and development

The roadmap is clearly drawn. Forty years ago, the Pearl River Delta was a predominantly agricultural region with modest ambitions to provide "overspill" capacity for Hong Kong's thriving business community. That many take seriously its ambition to overhaul Silicon Valley as the world's pre-eminent high-tech cluster is testament to four decades of startling progress. Only by further empowering the region's most innovative minds can China fully harness the spirit of invention, adventure and industry that has brought it this far.

The full RICS-Colliers International joint report Greater Bay Area: A 2030 Outlook can be found here.

Colliers International are sponsors of the World Built Environment Forum. Find out more about them here