In the latest government work report delivered to the “Two Sessions” meeting in Beijing, Premier Li Keqiang pledged to begin planning the Guangdong-Hong Kong-Macao Greater Bay Area – a cluster area including Hong Kong, Macau and nine cities in the Pearl River Delta – as an integral part of national development strategy. Guangdong Development and Reform Commission has also initiated planning for the Area.
PwC believes the Greater Bay Area could be a vital engine for regional economic development, enhancing integration between Hong Kong, Macau and Guangdong, and bringing new opportunities for Hong Kong’s re-industrialization.
Since the very beginning of the reform, the Pearl River Delta region has been developed into a global manufacturing centre, playing an important role in several sectors. After decades of development and economic take-off, wage levels and production costs in the Mainland are continuing to surge.
Coupled with the expansion of the service sector, some of the Hong Kong factories set up in the mainland have relocated or are striving to transform and upgrade. PwC suggests Hong Kong manufacturers should focus on high value-added and technology-driven business in order to seize the opportunities within the Greater Bay Area plans.
“The Greater Bay Area contributes US$1.3 trillion of GDP every year, or 13% of the country’s total,” says PwC Hong Kong Tax Partner Jeremy Choi.
“It can become China’s powerhouse for upgrading industry, as well as a centre for technology and innovation, providing support to the Belt-and-Road strategy. It can also help strengthen the region’s capital flows, logistics, technology and talent pool, which could in turn stimulate neighboring provinces and countries. Such a strategy could attract a new wave of Hong Kong entrepreneurs to the Pearl River Delta.”
Essential elements of transformation
‘Internet Plus’, the Internet of Things, Big Data, Intelligent Factories and 3D printing are essential elements of this transformation.
Backed by a huge mainland market, the Pearl River Delta region’s infrastructure is maturing. It has abundant R&D talent and resources, which are favourable for the transformation of a labour-intensive processing area into an innovation-driven manufacturing one in the Delta area.
To grasp this major opportunity, entrepreneurs need to change how they operate and increase investment in science and technology in order to enhance customer experience and service quality.
To help Hong Kong businesses in the Greater Bay Area, the SAR Government may consider providing tax support to encourage Hong Kong enterprises in the Pearl River Delta to set up their R&D operations in Hong Kong, and provide tax incentives to strategic sectors that are vital to the Hong Kong economy.
PwC suggests a 200% super deduction for R&D expenses incurred by Hong Kong taxpayers in Hong Kong.
In order to support Hong Kong as an international intellectual property center, PwC recommends a preferential tax rate for eligible profits arising from patents and other related intellectual property rights.
It also recommends providing unilateral tax credits to local enterprises and more double taxation agreements to reduce the tax burden on enterprises.
“Encouraging advanced, environmentally-friendly manufacturing and giving tax incentives for corporate investment can help transform manufacturing and promote the Smart City concept,” says PwC Hong Kong Tax Partner Agnes Wong. “These measures can also encourage young people to start up their own businesses and attract overseas companies to base themselves in Hong Kong.”