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Government policy, access to finance, and talent supply are key to transforming the Greater Bay Area into an innovation and technology hub of global significance.
The Greater Bay Area (GBA) is an ambitious initiative combining the strengths of nine cities in Guangdong province and two Special Administrative Regions, Hong Kong and Macau. According to the report, Greater Bay Area – Navigating the road toward an international innovation and technology hub (the study), jointly conducted by Ernst & Young, China and the Association of Chartered Certified Accountants (ACCA), the GBA has all the elements required to develop into an international innovation and technology (I&T) hub.
The study collected the input of over 500 financial professionals across a range of industries within the GBA, who identified government policies, access to finance, and talent supply as the most important factors for driving I&T in the GBA. Additionally, the study unveiled various benefits that are emerging from the ongoing transformation of the GBA into an I&T hub, including unlocking new markets, attracting high-caliber R&D talent, and accelerating the development of innovative goods and services.
Role of government policy in enabling I&T development in the GBA
From the study research findings, government policies are viewed as the most critical for I&T development in the GBA. Tax concessions and intellectual property (IP) protection policies were ranked the highest priorities for further government measures by 73% and 64% of respondents, respectively.
Subsequent to the release of the study, the mainland Chinese government introduced tax incentives to facilitate the growth of the GBA. In March 2019, tax-equalization policies were implemented which enable Hong Kong and overseas talent working in the I&T sector to receive tax subsidies for any individual income tax paid in excess of 15% of their salary. The 2019 Catalogue of Encouraged Industries for Foreign Investment was released in June 2019, providing a reduced corporate income tax rate of 15% for foreign projects in high-tech industries.1
The governments of the GBA cities are already moving to support the area’s I&T transformation. Shenzhen’s R&D spending is more than 4% of its GDP, rivaling other top tech centers around the world.2 In 2017, Hong Kong’s R&D spending was below 1% of its GDP, but the city has since focused more funds into supporting innovation and technology. In the latest Hong Kong SAR budget speech, over HK$7 billion (US$0.9 billion) was earmarked for fostering innovation.3 These measures include expanding the Hong Kong Science Park and providing tax deductions for qualifying R&D expenditure.
To enhance IP protection in the GBA, Hong Kong is well positioned as an international IP hub. As the only city in the GBA adopting common law, Hong Kong has the potential to be the IP registration hub for the Asia-Pacific region. The IPs registered in Hong Kong do not necessarily have to be created there, they can instead be acquired or licensed in Hong Kong while working closely with international and mainland experts.
Access to finance for I&T in the GBA
Funding is critical to business growth and innovation, especially on the tech start-up scene, where capital is needed to fuel the massive growth required for a tech start-up to disrupt its industry. As such, private equity and venture capital funds are the primary sources of financing in I&T.
These primary options are supplemented by bank financing and government subsidies. Bank financing includes GBA-specific funds such as the HSBC’s GBA+ technology fund, while an example of government subsidy support is mainland China’s provision of various financial subsidies to Chinese Holding Companies (CHCs) that act as hubs for mainland investment from foreign investors.
To increase the flow of funds in the GBA, several measures have been identified. One of these is encouraging multinational corporations to set up centralized management and financial functions in the GBA by increasing the financial subsidies for CHCs. Another measure is to continue to improve access to RMB through subsidising the taxes payable by general partners.
Increasing talent supply is key
The mobility, diversity, and training of talent have been identified as areas that require further development to combat talent shortages. Of the measures that can be taken to increase talent supply, “offering favorable employment terms to attract global talent” was viewed as the most important means by 77% of respondents of the study, while “harmonizing policies to facilitate freer flow of talent” came in second at 70%.
Skilled talent is key to driving the growth of I&T in the GBA and they are not restricted to science and technology experts but also finance professionals. To expand the talent pool in the GBA, the mainland government has introduced policies to facilitate a free flow of talent throughout the area. In addition to the tax-equalization policies mentioned earlier, a provision was made so that each stay in mainland China of less than 24 hours will not be counted toward the 183-day threshold for a foreign individual to be viewed as a tax resident, allowing Hong Kong and Macau residents to work on the mainland without subjecting their non-mainland income to China’s individual income tax calculations.
Additional ongoing steps that would further increase talent mobility include providing incentives to attract talent from a variety of streams, easier-to-access entry permits, removing hurdles to talent mobility, and improving support facilities. I&T businesses could also be encouraged to incorporate a more inclusive and diverse business culture, embrace open thinking, accommodate different opinions, and encourage transparent conversation.
How finance professionals can benefit from the GBA
Finance professionals have a very important role in the development of the GBA as an international I&T hub:
- Finance professionals working in the GBA should have an entrepreneurial mindset. They are needed across multinational corporations to launch IPOs, provide financing, facilitate M&A activities to drive investment, ensure legal compliance, manage risk, improve corporate governance, and drive globalization efforts. With a demand for compliance and audit from small and medium enterprises, finance professionals are provided with plenty of opportunities in the area.
- Building an understanding of technology development is crucial for finance professionals to be able to accurately identify risks and opportunities when leveraging I&T in their industry. Cultivating a corporate culture that embraces technology and facilitates mindset transformation of decision-makers will be a game-changer.
- Funding is vital to turn research ideas into commercial products. However, start-ups and innovative entrepreneurs may lack finance knowledge and pitching skills. Finance professionals should bridge this gap by offering their expertise to innovative businesses who are looking to monetize their ideas and present them in well-articulated business plans and budgets to potential investors.
Great progress has been made in developing the GBA into an I&T hub over the past year, driven by government policies and a growing amount of GBA funds and initiatives targeting talent. By continuing to expand upon these three factors, the GBA is well on its way to becoming a vibrant I&T hub.
Summary
The Greater Bay Area (GBA) possesses all the elements required to become an international innovation and technology hub. Through further development of favorable government policies, access to financing, and expanding talent supply, the GBA will see rapid growth in I&T capabilities. Finance professionals will have a major role to play in driving such transformation.