Latest East & Partners News
Jun 16, 2021
Corporates in Asia are eyeing China’s powerhouse southern region for future trade and supply chain growth, broadening the opportunities for financial institutions in the region. The Greater Bay Area (GBA), comprising major cities such as Guangzhou, Shenzhen and semi-autonomous Hong Kong, is home to around 73 million people and a long-established manufacturing sector. Two in five of the top 1,000 corporates in Asia are considering shifting part of their supply chains into the region, according to banking research firm East & Partners. Companies are also attracted by the growing importance of Shenzhen, a city of almost 13 million people, for technology manufacturing. A similar number of Asian corporates are also planning to do more cross-border trade involving the region during the next five years, according to East & Partners. Growing corporate presence and cross-border trade in the region is expected to attract increasing attention from banks to service them. “As China opens up its financial markets further with supportive regulatory momentum and heightened interest in wealth management, we expect to see more aggressive plans from regional and international banks to expand in the region,” it said in a May 27 research note. Just over half of the corporates surveyed by the firm said they had no plans for the GBA at all. The firm spoke to 944 of the top 100 multinational and domestic corporations by turnover from China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand in April and May this year. The concept of the GBA was only formally introduced in 2016, as part of the Chinese government’s 13th Five-Year Plan. The strategy includes melding Hong Kong and Macau closer to the surrounding Guangdong province. In July last year China’s central bank and other financial regulators put forward a series of policies to boost economic growth in the GBA. The top ambition of the move is to facilitate trade, investment and financing in the area. Interest in the region dropped briefly as investors became spooked by then-roiling trade hostilities between China and the US under the presidency of Donald Trump and concern over growing labour costs, says Kelvin Lau, Standard Chartered’s senior economist for greater China. But investor appetite has returned as China’s economy rockets out of a relatively brief coronavirus-induced slump and expectations of calmer trade ties with Washington under new President Joe Biden. The GBA “used to be attractive to companies that are looking for cheap labour to produce goods like toys and clothes”, Lau tells GTR. “But over the past 10 to 15 years, we’re talking about semiconductor companies, high-end manufacturing and technology.” “Even though more and more companies face higher wages, at the same time they also see the merits of high productivity,” in comparison to cheaper manufacturing hubs like Bangladesh, Indonesia and Vietnam, he says. “In terms of its infrastructure, efficiency and labour productivity, those are still head and shoulders above other regional competitors.” Hong Kong banks that do not have separate Chinese regulatory permissions are only permitted to provide a limited range of retail products in the broader Greater Bay Area. But international financial institutions with a focus on China, such as Standard Chartered and HSBC, have been investing heavily in the area. In July last year London-headquartered Standard Chartered tipped US$40mn into a Greater Bay Area Centre in Guangzhou, which the bank says will house some 1,600 employees by 2023. Chief executive Bill Winters said at the time that the area “is experiencing a significant increase in demand for banking services”. Singapore’s DBS also spent US$813mn on a 13% stake in the Shenzhen Rural Commercial Bank in April, making DBS the lender’s largest shareholder. Piyush Gupta, DBS chief executive, said at the time that the deal “will allow us to double down on the GBA and leverage on [Shenzhen Rural Commercial Bank]’s local network and know-how to deepen DBS’ GBA strategy”. The role of Hong Kong within the region may also change as the GBA megacities, such as Shenzhen, grow in importance, East & Partners suggests. “While providing trade and supply chain financing as well as management to connect businesses in the region with international markets has been Hong Kong’s core competitive advantage, future demand is likely to focus on having seamless onboarding, account management and payments experiences, among other things, across the various jurisdictions within GBA.” Alongside the much-touted growth prospects, the region is still subject to the same challenges facing the rest of China, such as difficulties getting money in and out of the country. In the April 2021 issue of Standard Chartered’s quarterly Greater Bay Area Index of 1,000 businesses in the region, most respondents said there had been no change when asked if it was becoming easier to move money across China’s borders, and more said it was becoming trickier than those who said it was getting easier. The region is also not immune to the strain being felt by supply chains globally. More than 60% of businesses surveyed in the index said they were worried or very worried by rises in the price of raw materials, surging shipping costs and goods shortages. In a sign of the sharper threat the manufacturing hub is facing from lower-cost regional rivals, the top concern of businesses for 2021 was the cost of labour and shortages of talent.