HK + SZ

The Bauhinia Foundation Research Centre (智經研究中心), a thinktank close to the HK Government, has recently released a research report recommending the closer integration of Hong Kong and Shenzhen to create a new "HK-SZ metropolitan". While the idea has received mixed review from newspapers' editorials, I am very supportive of the idea. There is no question in my mind that the integration of the two cities has started some years back and the proces is already underway. One only need to spend an hour at the various border crossing to realize this fact. Everyday, more than 400,000 people cross the border by land with Shenzhen. There are businessmen with factories in southern China, professionals with clients in China, housewives looking for a good bargain and even school children going to school in HK while living in SZ. There is just as vibrant a trade in goods and like it or not, this is the future of HK and SZ as the two are intricately tied together.

For HK, its economy is too small and structurally, it has no choice but to be external facing. Historically, this has mean serving Western clients but the trend has reversed and increasingly, the clients are in China. This is the only way that HK can continue to grow, remain vibrant and maintain its current standard of living.

For SZ, it is growing rapidly but it has a tough time competing with other Chinese cities. Taking financial services as an example, SZ does not have a large pool of experienced managers and it is facing a difficult time attracting talents away from Shanghai and Beijing. I have experienced first hand that good managers would rather stay in Shanghai despite promotion and a more attractive compensation package. HK can help as it has a larger pool of managerial talent and also present a more attractive place to live when combined with SZ.

Like it or not, I believe it is inevitable that HK and SZ will co-operate and integrate more closely over time since it is in their respective best interests. My key takeaway here is that HK+SZ has a bright future ahead. With a larger economic base, HK will continue to draw the more affluent segments of the population and expatriates. This will bode well for high-end property prices and I don't see a decline in that market over the long term. For mid-end properties, they will like retain a premium over SZ properties but I suspect it will be range bound as the movement of people become easier.

Here is the link to the report: http://www.bauhinia.org/publications/BFRC-HKSZ-ES-ENG.pdf