Finding Greatness in China’s Greater Bay Area (GBA), part II: Implications for IFDI and OFDI
China’s Greater Bay Area (GBA), detailed in my last blog, appears an obvious magnet for inward foreign direct investment (FDI) and catalyst for outward FDI (OFDI). Beijing’s backing, infrastructure improvements, supportive government science and technology (S&T) policies, the GBA’s surfeit of supply networks, and the GBA’s scale and diversity should attract inward FDI (IFDI). The GBA’s role as a financial center and the relaxation of barriers to outward capital flows promise greater OFDI. Some question the GBA’s ability to realize its lofty aims given myriad barriers to internal flows, the vagueness of government plans, and dearth of true technology leaders.
While real, these challenges may be less daunting than assumed. Looking at IFDI, three other issues need consideration. First, integration schemes, regulatory improvements, and S&T initiatives are pervasive elsewhere in China and many other regions like Shanghai also are “large.” Second, Hong Kong’s primacy as a financial hub and role as a door into China are diminishing for economic and political reasons. Third, Hong Kong is hardly the only gateway to Southeast Asia (SEA) and, in many cases, companies can enter SEA countries directly. In short, the GBA’s superiority as an IFDI destination is far from assured. Besides, no research shows land mass, population, or the number of contractors decisively determine China’s IFDI flows. Turning to OFDI, a huge percentage of the GBA’s OFDI actually enters mainland China (and may be from mainland China!). Moreover, given the GBAs lack of major OFDI players (aside from Tencent) and hindrances to OFDI by others like Huawei it is unclear which firms will be the vanguard of major overseas FDI increases. In sum, the GBA is unlikely to catalyze major increases in IFDI or OFDI. In my final blog on the GBA, I will consider its potential to become a new Silicon Valley.