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The Nansha new zone: emerging opportunities in the services industry

Nansha, Guangzhou, is keen to develop into a new state-level zone that fosters closer Guangdong-Hong Kong-Macau cooperation ties on all fronts and drives industrial transformation and development in the Pearl River Delta (PRD) region.1 Meanwhile, Guangdong and Hong Kong are stepping up cooperation in propelling Nansha’s further development. In doing so, it is hoped that liberalisation of trade in services between the two sides can be speeded up and that it can lend support to the further expansion of Hong Kong’s services industries into the Guangdong market.

Recently, Nansha has submitted 19 policy proposals on financial innovation to the State Council for approval. As China is comprehensively deepening reform, further opening-up and devising innovative ways of development, Nansha hopes to focus on the development of specialised financial services such as international finance, shipping finance and offshore finance. It also attempts to establish a pilot zone for the internationalisation of the Renminbi, and hopes that the innovative policies granted will be on par with those granted to Qianhai in Shenzhen or to the Shanghai Free Trade Zone2. In the event that such Nansha policies are put into effect, Hong Kong’s services industries can expect more business opportunities to emerge.

Solid industry foundation 

Photo: Nansha New Area, Guangzhou
Nansha New Area, Guangzhou (Image courtesy of Guangzhou Nansha Development Zone Economic and Trade Bureau)

According to the development plan of Nansha New Area, priority will be given to modern sectors, consisting mainly of producer services. These include (1) building a technology innovation platform to foster cultural and creative industries, as well as industrial design service sector; (2) developing commercial services, exhibition and convention services and specialised financial services and, by leveraging Hong Kong’s status as an international financial and shipping centre, promote financial cooperation among Guangdong, Hong Kong and Macau to develop financial services, including those related to the shipping sector; (3) establishing an education/training base and engaging in personnel training in cooperation with Hong Kong and Macau; and (4) developing into an advanced manufacturing base for cars, ships, high-end equipment and new-generation IT. In addition, Nansha is planning to become a regional transportation hub and a shipping logistics hub. Through upgrading its comprehensive port service capability and enhancing shipping and international logistics services, Nansha intends to complement Hong Kong and Macau and step up the pace of building a shipping services cluster.

It is worth noting that in the financial policies under planning, financial institutions from Hong Kong and Macau are invited to set up offices and business operations in Nansha New Area in accordance with the preferential measures and related regulations as laid out in CEPA. Furthermore, organisations and individuals in related professional services from Hong Kong and Macau are encouraged to go to Nansha New Area to work. Specifically, professionals from these two cities are allowed to engage in related businesses according to CEPA provisions. 

But before the State Council approved the development plan of Nansha New Area in 2012, Nansha had already attained a considerable degree of economic development. In fact, by actively wooing investors and increasing infrastructure construction for more than a decade, Nansha has successfully attracted a number of domestic and foreign enterprises and has gradually turned itself into a sizeable modern industry district3. Currently, Nansha’s main industries include car manufacturing, advanced equipment manufacturing, modern services and high-tech industries. On the whole, the secondary sector consisting mainly of manufacturing industries accounts for 74% of Nansha’s economy, while services (the tertiary sector) account for roughly 21%4.  

Chart: Major industries in Nansha
 

Zooming in on modern services industries 

Photo: Guangzhou Nansha Ferry Terminal
Guangzhou Nansha Ferry Terminal (Image courtesy of Guangzhou Nansha Development Zone Economic and Trade Bureau)

After years of construction and the bringing in of more than 300 investment projects, Nansha has now developed a system of modern sectors. According to Nansha’s statistics, among the world’s top 500 corporations, 26 have already invested in 48 projects in Nansha. Well-known multinationals that have already had a presence include Toyota Motor, Mitsubishi Heavy Industries and Denso of Japan; BASF Polyurethane of Germany; UL Verification Services and Sartomer Chemicals of the US; Lonza Biologics of Switzerland and SABIC Innovative Plastics of US/Europe. 

Hong Kong companies have invested in Nansha too. At present, some 600 Hong Kong and Macau companies have invested in Nansha New Area and their investments amount to a total sum of around US$7.7 billion. In 2013, these investments generated an industrial output value of US$10.8 billion or approximately 28% of the output value of enterprises above a designated scale in Nansha in that year5.

Well-known Hong Kong investments include Kingboard Chemical Holdings that produces and distributes chemical products such as epoxy resins and tetrabromobisphenol A in Nansha. Guangzhou Panyu Nansha Freight Industry Co Ltd is an investment arm of the Henry Fok Ying Tung Group engaging in comprehensive logistics services including terminal operations, bonded goods supervision, insurance agency services and logistics solutions advisory services. At the end of 2011, the new teaching and research building of the HKUST Fok Ying Tung Graduate School in Nansha was topped out and completed. Joint recruitment of graduate students was then carried out with South China University of Technology. The objective is to develop a platform of cooperation in technology innovation and education between Guangdong and Hong Kong.

Previously, by virtue of its status as an economic and technological development zone, Nansha was able to offer preferential treatment such as reduction or exemption of land-use fees or tax to attract investments. But such incentives have been gradually phased out in recent years, particularly those targeted at traditional manufacturing projects. Furthermore, for enterprises which have been in Nansha for many years, the relevant preferential treatment in taxes and fees has already expired.

With the gradual implementation of the Nansha New Area planning, the focus is now switched to the development of modern services industries, so supports are now targeted at services industries that provide backing for manufacturing activities. The emphasis is now to encourage technology innovation and the bringing in of middle- to senior-level personnel related to the development of priority sectors in Nansha. Adding the new goal of forming a model high-quality green living area with the joint efforts of Guangdong, Hong Kong and Macau, environmental requirements for new investment projects in Nansha New Area are higher than those laid down previously.

Photo: Nansha New Area from the air (a)
Nansha New Area from the air (a)
(Image courtesy of Guangzhou Nansha Development Zone Economic and Trade Bureau)
Photo: Nansha New Area from another angle (b)
Nansha New Area from another angle (b)
(Image courtesy of Guangzhou Nansha Development Zone Economic and Trade Bureau)

Logistics and shipping: growing steadily

Despite the changing focus in promoting investment, for both existing companies and new investors, one of Nansha’s key advantages is convenient transportation and logistics links. In the planning of Nansha New Area, shipping, logistics and related financial services remain the key industries for future development.

In fact, with the continued expansion of port facilities and transportation networks in Nansha, shipping and logistics services are getting increasingly better. For example, 10 or so 50,000-to 100,000-tonne class deep-water berths meeting international standards are now available; 48 domestic and international shipping routes (including European and North American destinations) are in operation; and China’s largest automotive Ro-Ro terminal and PRD’s largest petrochemicals terminal have been built. Furthermore, with its land transportation network now linked to trunk roads in the PRD and to the Beijing-Zhuhai expressway, Nansha is gradually becoming a PRD transportation hub. Also, with the growth in industrial activities within Nansha, a huge demand for logistics and shipping services has been generated, resulting in steady increases in port and shipping activities in Nansha in recent years. For example, in the period between 2008 and 2013, the throughput volume of containers handled by Nansha has increased from 6.48 million TEUs to 10.32 million TEUs, representing an average annual growth of 10%. 

Chart: Cargo throughput of Nansha port
 

Recently the HKTDC visited several enterprises in Nansha. It was found that some of them have graduated from the preferential treatment in taxes and fees and they are also facing shortages in personnel and labour like elsewhere in the PRD. Yet Nansha’s transportation advantage and its proximity to other manufacturing bases in the PRD and to Hong Kong remain favourable factors that help raise overall operational efficiency and lower production costs for these enterprises.

Logistics advantages of Nansha enterprises

Santis Substrates Limited, a company in Nansha engaging in PCB manufacturing, told HKTDC that Nansha’s transportation and shipping convenience and the efficient logistics services in the district helps the company respond quickly to the different requirements of clients despite the continuing compression of production lead times. As a result, the company has been able to deliver goods to local and foreign enterprises in the PRD and in Hong Kong to support their electronics production activities. On the other hand, Santis’ PCB production is a capital- and technology-intensive business involving fully automated, around-the-clock production that requires the supply of various production materials from upstream suppliers in the PRD. For this, efficient logistics is indispensable in ensuring such supplies and in supporting production activities. Santis believes that Nansha’s logistics advantage helps raise its overall competitiveness.

Another Hong Kong company, Jing Mei Industrial Limited (JMI), also recognises Nansha’s logistics advantages. JMI first set up factories in Nansha in the 1990s to engage in the automated production of plastic parts, electroplated parts and finished products of home appliances, kitchen/sanitary ware and car parts and components. Though the tax holiday it used to enjoy has already expired and, along with the implementation of the development plan of Nansha New Area, Nansha’s incentive policy for investments is gradually skewing towards modern services industries, JMI says that such changes have only minimal impacts on enterprises engaged in manufacturing in Nansha. Rather, the further development of Nansha’s logistics services sector in future may help the company in raising operational efficiency. For sure, Nansha’s plan to build a showcase area for green high-quality living means that existing and new investors in the district will have to invest additionally in green production before they can meet increasingly stringent environmental requirements.

Opportunities for further development

In recent years, in a bid to speed up development, Nansha has been actively forging closer cooperation with Hong Kong through the Guangdong-Hong Kong cooperation channel. On the basis of a letter of intent on the cooperation between Guangzhou and Hong Kong for promoting the development of Nansha New Area signed during a Hong Kong/Guangdong Cooperation Joint Conference in 2011, Nansha and Hong Kong agree to cooperate to raise the planning and construction standards of Nansha. Specifically, the contents of cooperation cover: support and encourage investment and business start-ups in Nansha by Hong Kong companies; study and implement specific CEPA policies and measures on a pilot basis; foster closer cooperation in innovative ways among higher education institutions from Guangdong and Hong Kong in Nansha’s cooperation demonstration area; support and encourage the independent provision of medical care in Nansha’s demonstration zone by Hong Kong service providers under CEPA; explore the possibility of granting resident status in public service entitlements such as education and medical care to Hong Kong residents investing, starting up business, living or working in Nansha.

Last year, Guangdong and Hong Kong agreed to jointly provide full impetus for the establishment of an information services industrial park in Nansha and will jointly seek policy support from the relevant state authorities7. In March 2014, Guangdong and Hong Kong reached a consensus to speed up the liberalisation of trade in services between Hong Kong and Guangdong. In respect to Nansha, the two sides will step up cooperation in financial and accounting services, including permitting enterprises and financial institutions in Guangzhou to issue Renminbi bonds in Hong Kong to support the development of Nansha; and allowing Hong Kong accounting professionals to become partners of accounting firms in Nansha New Area8.

With the gradual carrying out of the Nansha New Area plan and the strengthening of cooperation between Guangdong and Hong Kong in promoting Nansha development, industry players of related Hong Kong services should see more opportunities in tapping into the Guangdong market through Nansha. Also, should more innovative financial policies be put into effect in Nansha, more channels will be available to Hong Kong companies, so much so that, besides investing in Nansha, they can use Nansha as a springboard to develop the Guangdong services market in greater depths. In the long run, this would in turn create more business opportunities for Hong Kong services providers. 


1

Development Plan for Nansha New Area in Guangzhou was approved by the State Council in September 2012

2Source: website of People’s Government of Guangdong Province (accessed on 28 January 2014)
3In 1993, the State Council approved the setting up of Guangzhou Nansha Economic & Technological Development Zone. In 2005, Nansha District became a separate administrative district of Guangzhou.
42013 figures
5Source: Nansha District Government, Guangzhou; Guangzhou Nansha Development Zone Economic and Trade Bureau
6For details, please refer to Letter of Intent on the Cooperation between Guangzhou and Hong Kong for Promoting the Development of Nansha New Area signed between The People’s Government of Guangzhou Municipality and the Government of the Hong Kong Special Administrative Region, August 2011.
7For details, please refer to the Hong Kong/Guangdong Agreement on Information Framework Co-operation, September 2013.
8For details, please refer to the 2014 Work Plan of the Framework Agreement on Hong Kong/Guangdong Co-operation, March 2014.

Content provided by Picture: Wing Chu
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