By Adina-Laura Achim
Last year, China unveiled a development strategy for the Guangdong-Macao In-Depth Cooperation Zone in Hengqin, which is forecasted to bring new business and developments to the island of Hengqin. According to China Briefing, the 106-square-kilometer island was incorporated into the Zhuhai Special Economic Zone in 2009. And since then, China has focused on accelerating the development of crucial industries on the island. In order to spur economic development and attract crucial businesses and talents working in key industries, the local government has inaugurated the Qingmao Port, introduced tax incentives, and 72-hour visa-free transit for international travelers.
China projects that the sharp reduction in corporate income tax, from the standard rate of 25 percent to 15 percent, will boost investments and entrepreneurship in the region. Beijing also hopes that the reduction in individual income tax for residents working in the Hengqin Cooperation Zone will entice Macao residents and highly skilled domestic and international workers to relocate to the region. As such, the Hengqin Macau New Neighbourhood Project is expected to house 12,000 to 15,000 new residents once it is completed in the second half of 2023.
The media has focused extensively on the development of important industry clusters in Hengqin, such as semiconductor manufacturing while neglecting China’s drive to boost the local tourism sector. Just recently, it was announced that China will exempt international and domestic enterprises from tax income generated from future direct overseas investments in tourism and high-tech industries. This means that global hotel chains can inaugurate hotels in Hengqin and boost tourism development.
Artyzen Hospitality Group has already announced plans to open its first Hengqin hotel project in 2023. And MGM China is also developing a non-gaming project on Hengqin Island. Moreover, the Chimelong International Ocean Tourist resort developed by the Lai Sun Group is transforming the island into a major domestic tourism attraction.
Naturally, the development of the island into a tourist hotspot has attracted comparisons with Hainan, which in a short period has become China’s preferred tourist hotspot. But it’s not only the juxtaposition of Hainan and Hengqin that attracts interest. In fact, Hengqin Island is also contrasted to Macao and Hong Kong. Although Macao is identified as a major gambling destination, Hong Kong is a global financial center, and Hainan has become a duty free paradise that attracts domestic consumers, China has envisioned an independent identity for Hengqin. Thus far, it seems as the government is focusing on different fronts: building a strong manufacturing sector, securing prime tourism investment and finance, and attracting duty-free and travel retailers. Just recently, Zhuhai Duty Free Group and Lai Sun Group have signed a deal to cooperate in Hengqin. In accordance with the agreement, Zhuhai Duty Free Group will open duty-free outlets in Novotown.
While economic diversification can create a thriving local economy, it would be interesting to see whether China plans to replicate the Hong Kong, Macao or Hainan model for the island. There’s no doubt that the initial response to integrating Hengqin in the Greater Bay Area has been seen favorably by the local business community. Not only that, but Global Times reports that in 2021, A-share companies with operations in Hengqin experienced growth during the morning trading session after China announced plans to establish a cooperation zone there. Nevertheless since then, things have calmed down and most investors want to understand the long-term strategy for the island. Does Beijing want to build a new Hainan, Shenzhen or Hong Kong?
Teo Rojas, General Manager at Brandon Brand Services Co., Ltd told The World Financial Review that because of “new policies and incentive plans, Hengqin Island will be significantly important for the development” of the region. However, Rojas emphasizes that because of the existing financial structures in the former British colony, Hengqin won’t replace Kong Kong soon.
To be fair, it’s difficult to imagine that Beijing even intends to replicate the Hong Kong model given that China is aware of the city’s distinct market advantages, which include a strong financial regulatory environment and the presence of the Hong Kong stock exchange. Just recently, the South China Morning Post reported that Hong Kong is exploring the possibility of creating a Nasdaq-style board or relaxing existing Main Board listing requirements in order to attract major tech companies. With this development model out of the picture, the next best alternative would be to invest in the service sector and transform Hengqin into a major tourist destination and free trade hub, like Hainan. Ultimately, China’s emphasis on economic diversification will ensure that Hengqin won’t follow into Macao’s footsteps and become a sector-dependent economy, but that doesn’t guarantee that all efforts to build resilience will succeed.