The Pearl River Delta Bay Area: the new California

Hong Kong–Zhuhai–Macau Bridge ©Only5

Welcome to the second wave of the digital revolution! First of all. Part l: relying mainly on social networks and smart phones and focusing on the B2C segment, (mainly) to the delight of some US consumer-centric companies. Coming up, Part Il should be even more exciting: combining artificial intelligence and the Internet Of Things, finally delivering the B2B manufacturing productivity efficiencies we’ve been expecting from the technology sector for so long. While California turned out to be the big winner of the first wave, China has the Pearl River Delta Bay Area (PRD) — connecting Hong Kong and the Guangdong region — as its main contender to regain world leadership in this second round.

For most Californians, this may sound farfetched: twenty years after the Handover, Hong Kong is gradually losing its “Rule Of Law” status under increasing pressure from Beijing, while numerous underproductive manufacturing factories, like in the textile industry, continue to close down in Guangdong. So, what kind of threat to the ever-booming California could possibly emerge from the PRD ?

Tomorrow’s winners in the next phase of the digital revolution of connected devices will be the ones, like Midea, combining software, hardware and service skills, along with productivity

One positive aspect of the growing American arrogance is that it prevents them from paying attention to new developments in other parts of the world. Like, in Shenzhen, the brand-new Shekou Ferry Terminal, or the newly completed 115-storey Ping An IFC building. Heralding how the region is gearing up its infrastructure to attract the 450,000 annual Chinese overseas students electing to come back to the mainland post-graduation. Similarly, few foreign Observers have inquired about the new “Midea-Xiaomi-Bosch-Kuka” type of alliance that could well hold the winning ticket for future connected devices; a Guangdong-based leading whitegoods manufacturer (Midea) teams up with a Chinese software expert in consumer applications (Xiaomi), forges a strategic technological alliance with one of the most respected European players (Robert Bosch), while also buying the last large independent European robotics company (Kuka) to boost its productivity.

This alliance illustrates the fact that tomorrow’s winners in the next phase of the digital revolution of connected devices will be the ones, like Midea, combining software, hardware and service skills, along with productivity. Guangdong has the hardware that California will be cruelly missing going forward; Hong Kong has the service background, if mainly in banking and retailing; while Europe has the industrial software knowledge, at least as much as the US.

The game plan is therefore pretty clear. At a time of a United States Trump, the Pearl River Delta Bay Area should be the starting point of the New Digital Silk Road between Europe and China. But in order to succeed, such an unlikely alliance will require both Guangdong and Hong Kong entrepreneurs to reset their clocks.

Changing tides

First, Guangdong CEOs will need to acknowledge that they need Western help: a recent survey of Chinese manufacturing leaders by management consultancy, McKinsey & Company, highlighted that while 75% expected an increase in competitiveness thanks to ‘Industry 4.0’, only 6% had a clear execution road map, versus already more than 25% in the US and Germany. Similarly, in another mainland region, the rather muted start — even after a few years — of the Shanghai-Free-Trade-Zone designed for new services, testifies to how Such a new industry requires more than just a few subsidised local buildings to flourish.

Hong Kong will have a key role to play, rejuvenating its well-established status as the most open gate between East and West.

This is precisely where Hong Kong will have a key role to play, rejuvenating its well-established status as the most open gate between East and West. However to achieve this goal, it faces the huge challenge of reinventing itself. First, it will need to foster a new local software culture, starting with a revamp of its education system. For example, it must ensure that the Hong Kong University of Science and Technology remains not only one of the best business schools in the world but also that it goes back to its original roots of Science and Technology excellence. Second, it will need to reaffirm its ‘Rule Of Law’ for business, which will be a key competitive advantage at a time when “Rule of the Jungle” seems to dangerously penetrate other parts of the world; it should aim at expanding its competitive advantage through the establishment of “Special Legal Zones” in the PRD adopting the Rule Of Law principles. Finally, it should draw, from its heritage, the development of new services related to the future Internet of Things, which can be subsequently adopted by the mainland.

In that respect, the choices formulated by the new Hong Kong administration during its forthcoming term will shape history: either Hong Kong will continue to be marginalised within the mainland as an area representing only 1 % of its population and 3% of its GDP respectively. Or it will emerge as the brain behind one of the world’s prime economic regions, rich with close to 70 million inhabitants generating a GDP of US$ I .3 trillion. This way, Hong Kong will continue to serve as a showcase the necessary modernisation of China, and, more significantly, it will impact the way of life of the 21st century through its soft power, just as California did in the 20th Century.

This column was previously published in Hong Kong Echo, the French Chamber of Commerce in Hong Kong quarterly magazine (July 2017)

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