President Xi Jinping’s grand plan to bind Hong Kong and Macau with the southern tip of China using the world’s longest bridge and a cross-border bullet train faces some large roadblocks.
The “Greater Bay Area” is an attempt to create an economic cluster rivalling those in San Francisco and Tokyo, by deepening links between China’s former European colonies and nine cities in neighbouring Guangdong province.
The project has plenty going for it from an economic standpoint. Hong Kong offers capital-markets expertise, the technology hub of Shenzhen is bursting with cash-hungry start-ups, and Macau is a major tourist attraction. While Hong Kong boasts the world’s most unaffordable real estate, mainland cities have cheaper labour and property prices. Mix all that together and you have a recipe for booming growth.
Combined, the region accounts for just 5 per cent of China’s 1.4 billion people but generates more than 12 per cent of its gross domestic product, CLSA notes.
But the hurdles are also considerable. Under the “one country, two systems” formula that saw Hong Kong and Macau return to Chinese sovereignty in the 1990s, the cities maintain vastly different political and economic structures.
These include having their own, freely convertible currencies, separate passport and customs controls, and legal systems. It will take more than a 55km bridge or a high-speed train, which starts operating from Hong Kong this month, to close that divide.
China’s capital account is still partially closed, with full liberalisation of the yuan perhaps decades away. While there’s a shared Chinese culture, the differences between Hong Kong and Macau - with their capitalist history - and the cities of communist China are deeper than those between members of the European Union.
Beyond controls on capital, cross-border movements of people are also restricted. Seamless travel and residency rights are arguably a prerequisite for the Greater Bay Area to meld into a unified economic entity akin to Silicon Valley - yet relaxing such limits is a sensitive issue, as the Brexit vote in the UK has shown.
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While China has moved to make it easier for people from Hong Kong and Macau to live and work in the mainland, challenges remain. Personal income-tax rates are as high as 45 per cent for those in the upper bracket of 85,000 yuan per month (Dh45,539), versus a maximum of 17 per cent in Hong Kong. That reduces the attractions of moving to escape Hong Kong’s sky-high property prices.
Meanwhile, the steady flow of mainland citizens into Hong Kong has stirred resentment among the local population. There were 82,531 Hong Kong residents working in China in 2016. In the other direction, close to 950,000 mainland migrants have moved to Hong Kong under a programme that allows as many as 150 people a day to join their families in the former British colony, the South China Morning Post reported last month.
Some of these logistical headaches are likely to be ironed out over time, such as the need for multiple government permits to drive across the Hong Kong-Zhuhai-Macau bridge. Others will persist.
These include issues such as health care and food safety, not to mention giving up Hong Kong’s more robust political freedoms. Hong Kong residents moving across the border lose access to the city’s high-quality public hospitals, while a vaccine scandal this summer was a reminder of weaknesses in the Chinese system.
Far from moving to the mainland, many Hong Kong residents are deserting the city for other parts of the world. Emigration reached a three-year high last year, with destinations including even Iceland. Meanwhile, international companies value Hong Kong’s rule of law and intellectual property protections. Firms seeking to transfer staff frequently say that it’s easier to persuade people to move to Hong Kong or Macau than mainland China.
At some point, integration will happen. After all, Hong Kong’s one country, two systems agreement is scheduled to expire in 2047. If the city’s autonomy suffers further erosion, that process may happen more quickly.
Until then, the Greater Bay Area will remain more of an idea than a reality.
Bloomberg
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, Leon.
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
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