Thomas Chan writes that the rapid industrial upgrading of the Pearl River Delta into a hotbed of innovation can be mirrored in HK - but only if disruptive politicization is sidelined

The concept of developing a Pearl River Delta (PRD) Bay Area has been proposed and discussed for many years. However, nothing concrete has been achieved. The main problem is the lack of enthusiasm on the part of Hong Kong and Macao.

Macao has been enjoying the boom of its casino economy, whereas Hong Kong has stagnated since the Asian financial crisis in 1998, losing all its interests in developing the economy. Its government and major corporations have focused instead on capitalizing on and profiting from its economic foundation built during the colonial era and the newfound "mainland factor" which has seen a huge inflow of capital and tourists.

In contrast to Hong Kong's lackluster performance in the past 20 years, the PRD first entered a boom of its export-oriented and foreign direct investment-driven economy, and then reemphasized local industrial upgrading and structural reorganization in more recent years after industrial processing lost steam. As a result, the major local economies of the region - Guangzhou, Shenzhen and to a lesser extent Foshan - have progressed rapidly in upgrading local industries and services. Both Guangzhou and Shenzhen have surpassed Hong Kong in maritime transport by volume. Shenzhen's labor-intensive electronics and electrical appliance industries have even transformed themselves into mighty IT industries challenging major production regions worldwide.

In the past few years, especially after the central government promulgated in 2013 the industrial policy of "Made in China 2025", the pace of industrial upgrading and the targeted shift to research and development (R&D)-based and innovation-led industries has been quickened. The R&D expenditure ratio of Shenzhen's GDP has gone beyond 4 percent - at par with top-of-league economies in the world like Israel and the Republic of Korea and above the average of 2 percent of all OECD countries. It is particularly impressive when the ratio in Hong Kong has been less than 0.8 percent for decades. Shenzhen is now hailed as the "hardware Silicon Valley". Its overall economic size is closing very rapidly the gap with Hong Kong, with GDP average annual growth rate of over 10 percent before the recent slowdown to 8-9 percent. If the renminbi stabilizes at the present level, in US dollar terms Shenzhen will have a larger economy than Hong Kong in one or two years' time. Of course, per capita GDP of the financialized Hong Kong is still higher than Shenzhen. In terms of scale and scope and innovativeness and competitiveness Hong Kong is no match for Shenzhen which is integrated into the even larger PRD with greater benefits of synergy and complementarity.

The warning sounded by Standing Committee of the National People's Congress Chairman Zhang Dejiang is not so much to belittle Hong Kong, but intended to awaken the sleeping Hong Kong society and government. In 30 years' time Shenzhen has transformed itself from a small peripheral village, with everything inferior to the already prosperous world city of Hong Kong, to a world production and innovation center, and become strong enough to compete with Hong Kong. Shenzhen's success is certainly a result and indication of the economic miracle of a reformed and opened-up China. Hong Kong also has been benefiting from the mainland's economic success, but for the 20 years after 1997, the spill-over effect has been reducing. Why?

This is perhaps what Zhang Dejiang, the State leader in charge of Hong Kong affairs, would like Hong Kong itself to find out. The central government is always willing to help and indeed has tried many ways and many times. The "mainland factor" is still available to Hong Kong, but it has to make the best use of it; it must not wait for the central government to spoon-feed it with policy concessions and fiscal support, and absolutely must not turn away from the PRD in particular and the mainland as a whole; otherwise, it would deny and negate the opportunities offered by the "mainland factor". Aside from the Chinese mainland, would other major economic powers of the world come to rescue Hong Kong from its current trap of economic stagnation and worsening structural problems? Would the old colonial master, the United Kingdom, which is facing the uncertain impact of leaving the EU? Would the US at a time of growing economic isolation and the protectionism of President Donald Trump? Or would Japan, which is losing its economic vitality from the accelerating demographic deficit? Hong Kong has risen as an open, free and liberal world city capitalizing on its geostrategic access to the mainland. One thing is certain; Hong Kong has to remain a Chinese city under Chinese sovereignty. The premier has warned against any pro-independence attempts in Hong Kong in his 2017 Government Work Report.

Politicization is the most damaging obstacle to the reengineering of Hong Kong for resuming its development dynamism. It delays the needed funding for infrastructural and socio-economic investments. Delays in legislative approval of funding have not only created immediate impacts on existing public works but also impeded the implementation of new investment projects necessary for future development. Politicization is intended to paralyze the government by hijacking the Legislative Council and the media, which in turn tends to depict an insurmountable political impasse, further weakening the credibility, legitimacy and willingness of it to work with the government. With Hong Kong suffering already from the lack of investments in both hardware and software to overcome the structural problems in the economy and society, politicization is blocking positive government actions responding to the problems. A comparison of the political situation before and after 1997 will show the damage and disruption of increasing politicization on the political order of Hong Kong. Who has caused the drastic changes? An obvious answer is the political forces that do not want to see a smooth transition and transformation of Hong Kong into a Chinese world city to create greater synergy with the resurgence of the nation. The only remedy should be what the Government Work Report says: further economic integration with the mainland and participation in the development of a well-connected bay area in the PRD. Politicization has to be stopped.

(HK Edition 03/10/2017 page1)