As the global race to gain the lead in next generation tech heats up, China is stepping up its efforts, recently announcing a long-awaited plan to link up its southern Pearl River Delta into a massive hub of technology, research finance and innovation.

The possibilities and challenges of the project are both equally challenging and promising, analysts say.

Some describe the plan as an attempt to create a mega-city to rival Silicon Valley, the U.S. technology powerhouse that is home to companies such as Google, Facebook, and Apple.

But while Silicon Valley has a population of 3.1 million and covers an area 121.4 square kilometers, the Greater Bay Area will link up nine cities together with Hong Kong and Macau and cover an area of 56,000 square kilometers. The area will have a population of about 70 million and the economic heft, state media argues, to drive the Chinese economy, let alone the world.

According to the plan, which was announced recently and is expected to be a prominent topic during high-level political meetings this month in Beijing, each city will focus on an area of strength. For example, Hong Kong will focus on finance, Macau tourism, Shenzhen, innovation and technology, Guangzhou will be a gateway and logistic hub and so on.

The plan is not necessarily new. China’s opening up to the world more than four decades ago began in the south and the Pearl River Delta has long been home to some of the country’s leading companies from telecommunications – such as Huawei to Internet giant Tencent and host of other technology and manufacturing enterprises.

“It’s (the plan) a natural evolution of economic growth and the growth engine,” said Adam Xu, partner at OC&C Strategy Consultants. “If you really look at history in China, a lot of top down plans always have some bottom up support. A lot of economic activity has already happened there, then you have a grand plan to first officially recognize, then to promote and to further accelerate.”

Xu said that as labor costs rise in China, the country is looking to move up the industrial value chain and the program seeks to do just that to push the region on to the next wave, be it the manufacturing of electric cars, financial services or telecommunications.

It also aims to drive investment to the area at a time when foreign funds flowing into the country are sagging.

Challenges

One key challenge, Xu adds, will be execution. The plan will tie together three different legal jurisdictions and that makes the plan unique compared to the two other major mega-city projects in China – the Beijing, Hebei, Tianjin merger and the Yangtze River Delta integration plan near Shanghai.

“We don’t know how effective the top down grand plan will (be in) guiding the many independent growing forces at the city level to coordinate and be successful,” Xu said. “This part will be quite an important challenge.”

China has long had deep pockets when it comes to making investments that push forward technological advances. In many cases, however, that has led to overlaps in development and spending on technology and in turn oversupply.

“Looking at the grand scheme each city doesn’t have anything new,” said C.Y. Huang, partner of FCC Partners. “The biggest challenge and the biggest beauty – if they can pull it off – will be linking all of these together. 

One way the plan could do that is not just by lifting physical barriers, but the flow of people, information and money.

China has already taken major strides to overcome some of the physical obstacles such as linking Hong Kong with Guangzhou and Shenzhou by high-speed rail and its recent opening of the 55-kilometer Hong Kong-Zhuhai-Macau bridge. 

But other barriers may prove to be a bigger challenge.

“I think it is really the barriers in systems that is the challenge. If they can really pull that off that will be a tremendous benefit and synergy in the long term,” Huang said.

At the same time, he added, we shouldn’t underestimate the social and political aspect of the challenges because we are talking about people.

“One is a communist country, and the other is a free society. Although they talk about one country two systems, still it is different,” Huang said.
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