The Greater Bay Area: welcome to the California of the 21st century!

— This column was previously published in L’Opinion on 8th march 2019 —

Beijing intends to build the equivalent of a new Germany within a decade. A project of capital importance for Xi Jinping.

The Chinese government has just published the roadmap for the “Greater Bay Area“, a new geographical unit in southern China. By attaching Hong Kong and Macao to the Guangdong province, it intends to build the equivalent of a new Germany within a decade: 80 million people generating a per capita GNP of $50,000 over the next ten years. Against the background of the trade war with Donald Trump’s USA, the aim is clear: to create a “21st century California” by bringing together hardware and software so as to ensure Chinese supremacy in the field of connected objects.

Copyright Financial Times / Ben Bland (https://www.ft.com/content/fe5976d8-ab81-11e8-94bd-cba20d67390c)

This aim has been declared openly, and behind it lie two necessities. Firstly, the essential need for China to reverse the decline in its annual productivity growth, which has fallen to a mere 2% over the last decade. The Greater Bay Area will be a showroom for a reorganization of labor that will enable salaries to rise again and, ultimately, to rebalance the economy by means of increased domestic consumption. Like all successful restructuring reforms, the project is founded on a simple concept, that of a new form of connectivity brought about by reshaping the infrastructure: fast intercity connections, fluid connectivity within cities thanks to the smart city and, lastly, new links between humans and machines.

The second necessity concerns improving capital productivity, which has been wiped out by a decade of forcible monetary easing (it has added 100 points of debt to the GNP, mainly to the benefit of non-competitive state-owned businesses). At a time when there is open war with the USA, the convertibility of the RMB — the Chinese currency — is an absolute priority if China is to escape being blackmailed by the dollar. The Great Bay Area will therefore have to reintroduce into China the notion of capital cost. By merging the onshore and offshore RMB markets of Hong Kong and mainland China — as an experiment –, China will attract more foreign capital.

This ambition is made indispensable by the total reversal of the Chinese balance of payments situation. Its traditional surplus in capital flow over the past twenty years will be seriously eaten away in the future because of Donald Trump’s trade war which weighs heavy on the balance of trade and also on the massive outflow of capital due to the huge rise in the number of Chinese taking their vacations abroad. Only the prospect of good returns on capital in the Great Bay Area will be able to attract investment and have money flow into the Chinese capital markets.

It is obvious why this project is of such capital importance in the eyes of Xi Jinping: it can take China into a new ten-year cycle, following on from past reforms like the ones launched by Deng Xiaoping in 1992 in Shenzhen and Pudong.

Last summer, when the chemical company BASF announced the largest direct investment ever made in China — the colossal amount of 10 billion euros –, it demonstrated that our German neighbors had already realized the importance of the issues at stake and was ready to take up the challenge. It is high time that French companies showed that they, in turn, have the same vision.