Go your own way

Denis Depoux, deputy head, Asia, at Roland Berger, says China can be inspired by European examples of manufacturing infrastructure success, but it must draw up its own region‑specific plan to unleash technological innovation and turn the Greater Bay Area into a world leader
IFF China 37 Denis Depoux
IFF China 2019
This article is part of The IFF China Report 2019

Integrating bay areas within their wider regions takes longer and costs more than expected. Political willing and planning are vital, but the success of integration also hinges on the distribution of labour and resources across the region. 

Competition between different areas – even between city blocs – means constructing bay areas for the best resources is pivotal. Connecting various regions is not always possible, and ensuring adequate planning and co-ordination is in place is vital. 

IFF China 37 Denis Depoux
Denis Depoux

Planning is also essential to allow companies and corporations within the region time to allocate capital to the project. Regardless of ownership, some firms may need to restructure to develop a more efficient form of product distribution. 

One of the biggest challenges with constructing the Guangdong–Hong Kong–Macao Bay Area Development was the massive restructuring and transformation of the manufacturing sector linked to both Shenzhen and Guangzhou. The sector needs to harness technological advances to ensure innovation is not suppressed within a sector that has dominated the region. 

A very interesting and successful example is the Rhine–Meuse–Scheldt Delta. Running across the Netherlands and Germany, from Rotterdam to Duisberg, the delta supports many industries, including automotive and chemical. It has become one of Germany’s greatest strengths and generates much of the country’s trade surplus. 

While co-ordination between Germany and the Netherlands was vital to the success of the project, it was down to the drive of several large flagship companies, including a German chemical giant that used the infrastructure along the river to allow it to export.

Another very successful European economic integration project is the reunification of Germany. Immediately after the fall of the Berlin Wall, the capital experienced a boom in the construction industry. Redevelopment initiatives saw Berlin turn into one of the largest construction sites in the world. 

 

A non-European experience

The Guangdong manufacturing sector needs uplift. One method to co-ordinate the economic integration across the region is to leverage transformation once it occurs. Unlike in Europe, Chinese projects of a similar scale are not subjected to the same laws. In the Dutch/German example, the European Union internal market played a key role in driving the initiative forward. This is something China could learn from. 

In summary, there are five key elements to a successful redevelopment project:

1. Political leadership and determination. The alignment of decision-making is very difficult to achieve, as integration and construction take time.

2. Complementary industrial and social efforts. This must be driven by market forces to ensure resources are allocated efficiently. 

3. Demand pool. The biggest asset of the Greater Bay Area is the immense pool of demand lying to its north; there is also the potential to export goods, despite the slump in international trade. 

4. Geographical advantages. The surrounding environment and potential way of life in the region often attracts investment. Shanghai is a prime example of development resulting in a financial hub.

5. Total factor productivity. If a region is not productive, transformation will be unsuccessful. The best way to measure the innovation of the area is to see how much investment in infrastructure is occurring. 

 

The tried and tested success of the European initiatives will not work in China, but it can learn from them. Attempting to implement the same policies and plans in China would be artificially bridging the gap. Manufacturing needs to pick up in the region; once it does, it will act as the driving force behind the project. 

 

This article is part of The IFF China Report 2019, which draws mainly on content provided by China-headquartered think tank, the International Finance Forum, and is published in association with Central Banking.

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