Since Hong Kong’s return to China 26 years ago, it has faced various challenges such as the 1997 Asian Financial Crisis, the 2003 SARS epidemic, the 2008 Global Financial Crisis, and the COVID-19 pandemic. However, with strong supports from the central government, Hong Kong’s economy has remained prosperous, consistently listing high in international competitiveness rankings. As the impact of the pandemic subsides, it is expected that Hong Kong’s international competitiveness ranking will rebound in the coming years. All sectors of Hong Kong society should work together and collaborate to promote the development of science and technology infrastructure, collectively improving Hong Kong’s business efficiency. Early measures should also be taken to address issues such as high living cost and population aging, continually enhancing Hong Kong’s international competitiveness.

1. Hong Kong’s Overall Ranking

International competitiveness refers to the ability of a country or region to sustainably increase its value-added and national wealth. Specifically, international competitiveness focuses on the economic post-facto outcomes and future development potential of a particular region. It encompasses various objective factors, such as those determining economic operations, as well as subjective factors like systems, management, policies, and values. It represents a systematic and comprehensive reflection and evaluation of the overall competitive capability of the economic development in that region.

Since its return to China, Hong Kong has achieved significant accomplishments and honors in the field of economic development. Compared to global development during the same period, Hong Kong’s per capita GDP growth rate is notably higher than the global average. According to the World Bank’s constant 2015 US dollar price system, Hong Kong’s per capita GDP in 2021 was $44,481, representing a 74% increase compared to 1996 before the handover. This growth rate surpasses the global average increase of 53% during the same period. Considering in the past 30 years, where developing economies generally outpaced developed economies in terms of growth rates, Hong Kong’s performance of achieving a faster per capita GDP growth rate than the global average suggests its high international competitiveness.

Currently, the most famous global competitiveness rankings are the Global Competitiveness Report published by the World Economic Forum and the World Competitiveness Booklet published by the IMD World Competitiveness Center. The former has been assessing the competitiveness of countries and regions since 1979 and is one of the most renowned institutions globally for competitiveness evaluation. Since 2004, the World Economic Forum starts to evaluate 141 selected countries and regions based on four dimensions (Environment, Markets, Human Capital, and Innovation Ecosystem) and 12 sub-dimensions, using equal weights to provide a comprehensive assessment and rankings. In the Global Competitiveness Reports, Hong Kong’s ranking rose steadily from 14th in 2005 to 3rd in 2019. However, starting from 2020, the publication of rankings was suspended because of the COVID-19 pandemic, which resulted in several data gaps.

The IMD World Competitiveness Center, based in Switzerland, has been publishing the World Competitiveness Booklet since 1989. It is a widely recognized and highly regarded competitiveness ranking system internationally. The report comprehensively evaluates in four dimensions: Economic Performance, Government Efficiency, Business Efficiency, and Infrastructure. It comprises 20 sub-dimensions and ranks a total of 64 countries and regions. The underlying indicators consist of objective data, survey evaluations, and background information, making up a total of more than 300 indicators. The IMD World Competitiveness Booklet assigns higher weightage to objective data, with objective data and subjective evaluations accounting for 2/3 and 1/3 of the overall score, respectively. Since returning to China, Hong Kong performs well in this ranking. However, Hong Kong’s overall ranking has been slightly affected by the COVID-19 pandemic in recent years. In the latest 2023 Global Competitiveness Booklet, Hong Kong is ranked 7th.

As the global competitiveness evaluation systems published by the World Economic Forum and the IMD World Competitiveness Center are very similar, and the World Economic Forum does not update reports

in recent years, we will focus on analyzing Hong Kong’s ranking in the Global Competitiveness Booklet published by IMD to explore Hong Kong’s future directions for improvement.

2. Strengths and Weaknesses

In June 2023, the IMD World Competitiveness Center released the “IMD World Competitiveness Booklet 2023,” ranking the performance of 64 selected economies in 2022. Hong Kong was ranked 7th in the report, experiencing a slight decrease from its 5th position in 2022. Overall, Hong Kong maintains significant advantages in areas such as Business Legislation, Tax Policy, International Investment and Trade. However, there exists considerable room for improvement in terms of Prices and Domestic Economy. Specifically:

Hong Kong is ranked 36th in Economic Performance, mainly dragging down by the pandemic. In early 2022, a new wave of COVID-19 pandemic severely affected economic activities and sentiment in Hong Kong, hitting the recovering economy. Combined with global geopolitical tensions and major central banks tightening monetary policies, Hong Kong’s GDP recorded a decline of 3.5% for the year. In the sub-item of Domestic Economy, it ranked 56th, significantly dragging Hong Kong’s overall ranking down. The new wave of the pandemic at the beginning of 2022 also disrupted job market recovery process. Contact-intensive industries had to resort to layoffs due to strict social distancing measures, and the unemployment rate reached 5.4% in April. With the subsequent control of the pandemic, the unemployment rate gradually declined to 3.5% by the end of the year, but it still remained higher than the pre-pandemic rate of around 3%. In the subitem of Employment, Hong Kong’s ranking was only 45th. Besides, Hong Kong faces challenges due to its scarce land resources, high population density, and high degree of urbanization, making which one of the most expensive places to live globally. In the sub-item of Prices, Hong Kong ranked 64th. However, Hong Kong remains highly competitive in International Trade and International Investment, ranking 5th and 3rd, respectively. Under the “One Country, Two Systems” framework, the Basic Law grants Hong Kong the status of a separate customs territory and allows it to participate as a separate member in international organizations such as the World Trade Organization and the Asia-Pacific Economic Cooperation. According to the data from World Trade Organization, in 2021, Hong Kong was the 6th largest commodity trading economy and the 20th largest commercial services economy globally. Hong Kong has signed 22 investment agreements with 31 overseas economies.

In terms of Government Efficiency, Hong Kong maintains a high level of competitiveness, ranking 2nd globally. Hong Kong’s legal system is highly regarded, with clear policies and regulations. Hong Kong values integrity and the rule of law, with a legal regulatory framework aligned with international standards. In the 2023 Booklet, Hong Kong continues to hold the 1st position globally in terms of Business Legislation. Hong Kong has a low and competitive tax regime with a simple structure. Its tax system is characterized by three direct taxes: profits tax, salaries tax, and property tax. Hong Kong has one of the lowest corporate tax rates in the world. Both corporate and individual clients enjoy a transparent and straightforward tax system with a low tax burden. In the subitem of Tax Policy, Hong Kong ranks the 3rd. In terms of Public Finance, Hong Kong recorded a deficit of HK$139.8 billion for the 2022-2023 fiscal year, the second-highest level in history. This dropped its ranking to 8th. However, Hong Kong’s fiscal reserve still exceeds HK$800 billion currently, indicating a sound reserve level. Furthermore, Hong Kong operates under the “One Country, Two Systems” framework, allowing for a high degree of autonomy. It exercises administrative, legislative, independent judicial, and final appellate powers. In the subitem of Institutional Framework, Hong Kong ranks 11th, remains relatively stable. Due to factors such as history, culture, and politics, Hong Kong has developed a complex and diverse society. In the ranking of Societal Framework, Hong Kong has experienced a stable upward trend in recent years, ranking 28th in 2023.

Hong Kong’s ranking in Business Efficiency has declined due to the pandemic, placing 11th with decreases in various subitems. The outbreak of the pandemic in early 2022 led to strict preventive measures in Hong Kong, including restrictions on international travels, severely affects the free flow of production factors. As a result, the ranking for Productivity & Efficiency dropped from 6th in 2022 to 12th in 2023. Hong Kong is renowned as a global financial center, excelling in banking, insurance, asset management, foreign exchange trading, professional services, and financial regulation. Since the outbreak of the COVID-19 pandemic, Hong Kong’s financial regulatory authorities and industry actively coordinated and implemented a series of support measures, ensuring the smooth functioning of the financial system. However, the stock market was significantly impacted, with an increasing volatility in 2022. The Hang Seng Index experienced repeated declines and dropped to 14,597 points in October. The IPO market also suffered from this, contributing to a ranking decline in the subitem of Finance to 13th. Hong Kong’s labor market is highly competitive and encompasses a wide range of industries, making it a vibrant and diverse marketplace. However, challenges such as population aging have had an impact on the competitiveness of Hong Kong’s labor market, resulting in a slight decline in the ranking of the Labor Market from 20th in 2022 to 24th in 2023. From a business efficiency perspective, Hong Kong’s management is widely recognized as efficient, flexible, and transparent. This is reflected in simplified business registration and transaction processes, as well as a fair and transparent legal system. The Management Practices ranking remains strong, placing 6th in 2023. Additionally, Hong Kong has seen an improvement in the ranking of Attitudes & Values, rising from 16th in 2022 to 11th in 2023.

In terms of Infrastructure, Hong Kong maintains a relatively stable ranking of 13th globally. Hong Kong has advantages in traditional infrastructure, its international airport being recognized as one of the best and busiest airports in the world, as well as one of the largest air cargo hubs globally. Additionally, Hong Kong is one of the world’s largest trading ports, and Hong Kong’s public transportation network is accurate and reliable, with buses, ferries, taxis, subway systems, and trams connecting the city seamlessly. Due to the impact of the COVID-19 pandemic, Hong Kong faced challenges in external connectivity, and some infrastructure projects were postponed. Therefore, Hong Kong’s ranking in Basic Infrastructure remained at 11th, maintaining the same position as in 2022, while experiencing a decline compared to its position at 3rd five years ago. In the sub-item of Technological Infrastructure, Hong Kong’s ranking is improving steadily, reaching 5th in 2023, a significant rise from its position at 18th in 2019. This improvement is primarily attributed to Hong Kong’s increasing emphasis on technology and making it a focal point of its economic transformation. Over the past several years, the government has invested billions of dollars in supporting the development of innovation and technology. Local research and development expenditure have also seen a rapid growth, while the ecosystem for startups has flourished. The demand for research and workspace in Science Park and Cyberport has exceeded the supply. Hong Kong’s ranking in Scientific Infrastructure is around 23-24, and its ranking for Health & Environment has improved from 20th in 2019 to 18th in 2022, further rising to 16th this year. Besides, Hong Kong’s ranking in Education has shown an upward trend, rising from 16th in 2019 to 9th this year. Hong Kong’s universities achieved remarkable success in global university rankings in recent years, with 5 universities ranking among the top 100 in the 2024 QS World University Rankings.

3. Trends and Recommendations

Since 2023, the impact of the COVID-19 pandemic on Hong Kong has significantly diminished. Hong Kong had achieved reopening to the outside early in the year, and the economy is recovering steadily. It is expected that Hong Kong’s international competitiveness ranking will gradually improve in the coming years. All sectors should collaborate and work together to promote the development of science and technology  infrastructure, collectively enhancing Hong Kong’s business efficiency. Additionally, early measures should also be taken to address issues such as high living cost and population aging, continually enhancing Hong Kong’s international competitiveness.

Hong Kong’s economy starts to recover in 2023, which is beneficial to its international competitiveness rankings. Local economic performance is the most important indicator in international competitiveness ranking, as it encompasses the most indicators and carries the highest weightage. Since the outbreak of the COVID-19 pandemic, Hong Kong’s economy suffered significant setbacks, which is the primary reason for its decline in international competitiveness ranking in recent years. However, the impact of the pandemic on Hong Kong is weakening this year, and Hong Kong had achieved reopening to the world since the beginning of the year. In the Q1 of 2023, the GDP growth rate rose by 2.7% YoY, marking the first increase after four consecutive quarters of negative growth. The consumption and investment recorded significant growth rates, while the unemployment rate declines. These results benefit the ranking of subitems such as Domestic Economy, International Trade, International Investment, Employment, Productivity & Efficiency, Public Finance, Labor Market, and Finance. Looking ahead, Hong Kong is expected to formally join the Regional Comprehensive Economic Partnership (RCEP) in the near future and further integrate into the national economic development. These favorable factors indicate Hong Kong’s new development in the post-pandemic era. It is expected that Hong Kong’s international competitiveness ranking will gradually improve in the coming years.

All sectors are recommended to collaborate to enhance Hong Kong’s business efficiency. Over the past three years, Hong Kong’s business efficiency has been affected by physical constraints due to the pandemic. Currently, efforts are being made to fully recover from those challenges. However, improving Hong Kong’s business efficiency is not solely the responsibility of the government. It requires the collective cooperation of all sectors. The Hong Kong government is advised to further streamline administrative procedures for business registration and operations, reduce approval time, strengthen the legal and regulatory framework, ensure transparency and predictability, and attract more investment and entrepreneurial activities. It is suggested to promote digital transformation at various levels, providing more online services and digital platforms to facilitate business transactions for companies and individuals, thereby improving efficiency and convenience. More investment is encouraged to improve infrastructure, including transportation, communication, and energy sectors, providing businesses with efficient operational conditions. It is suggested to encourage public-private partnerships and established effective cooperation mechanisms among the government, businesses, and all sectors of society, improving the business environment collectively. Only through concerted efforts from various aspects can Hong Kong’s business efficiency be rapidly enhanced, thereby increasing its core competitiveness.

It is recommended to promote the construction of innovation infrastructure and focus on the goal of building an international innovation and technology hub. The “14th Five-Year Plan” of China explicitly states the support for Hong Kong to build an international innovation and technology center while encouraging it to maintain its strengths. Hong Kong possesses top-notch scientific research capabilities and ranks among the top in the Asia-Pacific region in terms of original innovation capacity. Its 5 leading universities are included in the world’s top 100 universities. Additionally, Hong Kong has significant advantages in areas such as intellectual property protection, attracting global scientific research talents, and providing excellent financial support services, which constitute soft infrastructure. However, there are still significant shortcomings in terms of “hard infrastructure” in the field of science and technology. Innovative technology is a vital engine for promoting high-quality economic development in Hong Kong. It is recommended to steadily implement the industry blueprint proposed in the 2022 Policy Address, with a focus on prioritizing transportation infrastructure and supporting startups. This should be accompanied by increased efforts in science and technology infrastructure construction, encouraging Hong Kong to stay connected with the world’s cutting edge technologies, and promoting rapid development of the innovative technology industry in Hong Kong. It is suggested to expedite the planning and construction of the Northern Metropolis within the framework of the Guangdong-Hong Kong-Macao Greater Bay Area integration. This would facilitate the development of Hong Kong as a hub for science and technology innovation, livable spaces, and high-level educational platforms, providing continuous technological and talent support for innovation development in Hong Kong and the country as a whole.

Early measures should be taken to address issues such as high living costs and the aging population. High loving costs in Hong Kong are primarily rooted in high property prices. Hong Kong government should prioritize “supply-side reform” as a policy focus, taking multiple approaches to significantly increase housing supply. This can be achieved by streamlining processes and expediting housing construction to meet the growing demand for housing. Besides, moderately separating commercial private real estate from public welfare housing can also reduce housing prices, meanwhile the impact of significant price fluctuations can be avoided. In terms of an aging population, the proportion of individuals aged 65 and above in Hong Kong has reached 21.4% currently, making it one of the most severe aging population regions globally. According to the “Hong Kong Population Projections 2020-2069” released by the Hong Kong Census and Statistics Department, the proportion of elderly individuals aged 65 and above will rise to 38% by 2069. This poses a significant challenge to Hong Kong’s labor market. It is recommended that the government take early measures to address this issue. This could involve formulating more proactive talent absorption policies, encouraging childbirth, and expanding policy options such as piloting retirement options for Hong Kong residents in the Greater Bay Area.

Chen Jianghui, Economist, Bank of China (Hong Kong).

It has been more than four years since “Outline Development Plan for the GuangdongHong Kong-Macao Greater Bay Area” was announced in February 2019. During this period, the Greater Bay Area (GBA) has experienced shocks from the COVID-19 pandemic, the rapid interest rate rise of the US dollar and the increasing geopolitical risks. GBA as a whole has shown a momentum of steady development and strong economic resilience. In the face of fierce competition from other regions in the world, GBA needs to explore a development model that suits its actual conditions in the future, especially a collaborative model among core cities. Hong Kong (HK) and Shenzhen (SZ), as the two most important core cities inside and outside mainland China, are geographically adjacent, culturally connected and have integrated interests. Great expectations are placed on Hong Kong and Shenzhen. Therefore, this paper mainly analyzes the role positioning and cooperation history of Hong Kong and Shenzhen in GBA, explores their cooperation modes in key areas, including finance, technology, people’s livelihood and advanced manufacturing, and proposes roles and new opportunities of financial sector in the collaboration development of Hong Kong and Shenzhen.

I. Role and Orientation of Hong Kong and Shenzhen

Hong Kong and Shenzhen are the two most representative cities in the GuangdongHong Kong-Macao Greater Bay Area. One is a famous global financial center outside mainland China, and the other is the most dynamic and open model city in mainland China. From the perspective of the overall planning of GBA, the two cities play the role of financial engine and technological engine respectively. They are the locomotives for the long-term and healthy development of the overall economy of GBA.

1. Hong Kong takes on the role of financial engine

Hong Kong has long been one of the top four financial centers in the world. With its strong financial services industry, Hong Kong is a financial engine driving the development of GBA and the Mainland. Hong Kong is home to 78 of the world’s top 100 banks, and leads Asia in fund management, according to public data. The stock market is the seventh largest in the world and fourth largest in Asia by market capitalization (end of March 2023), the insurance business is the most concentrated location in Asia, the bond market is the regional center for Asian institutions to issue international debt, and the private equity market is the second largest in Asia. At the same time, as a sinowestern communication window, Hong Kong is the preferred pilot city for the opening up of the Mainland’s capital market. It has always been a “super connector” between the Mainland and overseas markets, becoming the first stop for mainland enterprises to go overseas, and a bridgehead for overseas enterprises to enter the mainland market.

Specifically, Hong Kong’s role as a financial engine is mainly reflected in five aspects: First, it is the preferred platform for mainland enterprises to raise funds overseas. At present, the number of mainland companies listed in Hong Kong accounts for more than half, and the market capitalization accounts for about 80%. Second, it is the test ground for opening policies of the Mainland’s financial market. Connectivity products, including Stock Connect, Bond Connect, Wealth Management Connect, Private Equity Connect and Swap Connect, were all first piloted in Hong Kong. Third, it is a pioneer in the internationalization of RMB. For a long time, the offshore RMB clearing volume in Hong Kong accounted for over 70% of the global total. Fourth, it is a booster for green and sustainable development in the Mainland. Hong Kong is capable of becoming an important contributor to green financing, green standard alignment and carbon market development in the Mainland. Fifth, it is an important part of the Mainland’s financial security system. Hong Kong has gradually become the Mainland’s financial firewall against global upheavals, playing an important role in monitoring and responding to financial risks.

2. Shenzhen takes the role of technological engine

Known as “China’s Silicon Valley” by the market, Shenzhen has ranked the first in the Mainland’s Innovative City Innovation Capability Assessment released by the Mainland’s Ministry of Science and Technology and Institute of Scientific and Technological Information of China for four consecutive years, and has essentially become the technological engine for the development of GBA. According to official data, in 2022, the value added by Shenzhen’s strategic emerging industries reached 1.33 trillion-yuan, accounting for 41.1% of the city’s GDP. Both the total industrial output value and industrial added value ranked the first among cities in China. The number of high-tech enterprises reached 23,000, ranking the second in China.

Specifically, Shenzhen’s role as a technological engine is mainly reflected in four aspects: First, it is an important platform for the industrialization of scientific innovation achievements in GBA. In the past, Shenzhen has successfully cultivated several large technology enterprises, such as Huawei, Tencent and Da Jiang Innovations, effectively promoting technological innovation and talent pooling. In addition, according to the statistics of the Shenzhen government, Hong Kong universities and colleges have set up 88 industry-related research institutes in Shenzhen, and incubated 265 technology enterprises. Second, it is the leading goose in the development of GBA technology industry. A large number of leading technology enterprises in Shenzhen play a leading role in enabling the upstream and downstream supporting enterprises of the industrial chain, driving the common development of surrounding cities and jointly building the science and technology industry ecology. Third, it is the main driver of Hong Kong-Shenzhen cooperation in scientific and technological innovation. The Hong Kong and Shenzhen Governments are jointly promoting the development of “Shenzhen-Hong Kong Cooperation Zone for Technology and Innovation” at Lok Ma Chau, the only science and innovation themed platform in GBA under the model of “one district and two parks”. The target is to focus on the development of six areas, including medical technology, big data and artificial intelligence, robots, new materials, microelectronics and financial technology. Fourth, it is a sponsor of scientific and technological innovation activities in Hong Kong and Macao. According to data from the Shenzhen government, since 2019, Shenzhen has funded more than 200 million yuan in Hong Kong-Shenzhen-Macao science and technology projects, of which 97.3 million yuan has been invested in cross-border scientific research activities.

II. History of Hong Kong-Shenzhen Cooperation

The cooperation between Hong Kong and Shenzhen began with the Mainland’s reform and opening-up, with Hong Kong companies using Shenzhen as a bridgehead to enter the Mainland market. The cooperation has gradually expanded from manufacturing to areas including people’s livelihood, finance, science and technology, etc. The cooperation mode has gone through three stages: one-way export, two-way exchange, and comprehensive & coordinated development.

1. One-way output mode of Phase I

In the early stage of the reform and opening up in the Mainland, Hong Kong exported capital, equipment, technology, talents and management experience to Shenzhen in one direction, which resulted in the cooperation mode of “front shop and back factory” between the two sides, and also greatly promoted the formation of the division of labor between Shenzhen manufacturing industry and Hong Kong service industry. In the process, Hong Kong plays the role of “shop” by virtue of its strong capital and technology, strong external service capability and other functions, such as taking overseas orders, marketing, new product design, etc. Shenzhen, with its advantages of low operating costs and abundant resources, undertakes manufacturing, processing, assembly, storage and other functions, playing the role of “factory”. According to market disclosure data, Hong Kong has invested more than US $7 billion in Shenzhen in the past 20 years since the reform and opening up, successfully helping Shenzhen’s economy to soar.

2. Two-way communication mode of Phase II

Before and after the return of Hong Kong, with the continuous development and expansion of Shenzhen’s economic strength, more and more enterprises or institutions began to expand overseas business, and Hong Kong was the first port of call, marking the first upgrade of the cooperation between Hong Kong and Shenzhen, from one-way export to two-way exchange. In the process, overseas funds and technologies continue to flow to Shenzhen and other mainland cities, taking Hong Kong as the main transit point, to participate in local economic construction. At the same time, mainland funds and technical solutions, represented by Shenzhen, began to invest in Hong Kong, actively participate in social construction in Hong Kong, and use Hong Kong as the regional or global headquarters to further expand overseas business. According to public market information, Shenzhen has set up more than 6,000 enterprises and institutions in Hong Kong, with a cumulative agreed investment of more than US $40 billion.

3. Comprehensive and coordinated development mode of Phase III

In 2019, “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area” was promulgated. In the following years, the Mainland governments at all levels have issued about 30 policy support documents, covering areas including people’s livelihood, finance, science and technology, and cross-boundary issues, with the aim of furthering the development of GBA, achieving win-win cooperation, and building it into a world-class bay area. At the same time, in recent years, there has been a growing call from the community for the transformation and development of Hong Kong. The initiative of “integrating into GBA, and serving the overall development of the country” has gradually become the consensus of all sectors of the Hong Kong society. Shenzhen and other cities in GBA have also proposed to link up rules and mechanisms with Hong Kong, marking the second upgrade of the Hong Kong-Shenzhen cooperative relations, to further upgrade from two-way exchanges to comprehensive and coordinated development.

III. Hong Kong-Shenzhen Cooperation Enters Deep Water Zone

As the two core cities of GBA, Hong Kong and Shenzhen have great potential for future development. If the main economic indicators of the two cities are added together (see Exhibit), the GDP of 2022 will be among the top 20 economies in the world, while the other scale indicators (such as population, area, deposit and loan balances of financial institutions, stock market capitalization, sea and airport throughput, etc.) significantly throws away Singapore, its Asian neighbor. Therefore, in the post-COVID-19 era, Hong Kong and Shenzhen should tap the potential of cooperation, strive to make progress in the four key areas, including finance, science and technology, people’s livelihood and advanced manufacturing, explore innovation cooperation mode, draw on each other’s strengths, and drive the high-quality development of neighboring cities.

Exhibit: Basic Information Comparison between Hong Kong (HK)-Shenzhen (SZ) and Singapore 

Note:  The data cut-off date of stock market value is the end of March 2023. Shenzhen’s population ends in December 2021, and Singapore’s ends in June 2022. The rest is the end of 2022

Sources: IMF, the offi cial website of Shenzhen government, CEIC, etc., Hong Kong Financial Research Institute of Bank of China

1. Build science and innovation cooperation mode featuring coordinated development of industry, university and research

At present, Hong Kong-Shenzhen cooperation in the field of scientific and technological innovation is still at a relatively loose stage. According to official statistics, the core strength of Shenzhen’s science and innovation is the enterprise side. More than 90% of the research institutions, funds, personnel and invention patents are from local technology enterprises. Science and innovation activities also focus on the industrialization of scientific and technological achievements. Shenzhen’s innovative talents mainly come from all over the country, and local universities and scientific research institutions have yet to become major contributors to innovative activities due to their late layout. The strength of Hong Kong’s science and innovation comes mainly from its universities. Four to five local universities have long ranked among the top 100 in the world rankings. Hong Kong’s science and innovation activities are mainly based on basic research. Due to the hollowing out of Hong Kong industry, there is a lack of application scenarios for the transformation of scientific and technological innovation achievements. To sum up, due to the different historical development paths of Hong Kong and Shenzhen, although “Shenzhen-Hong Kong Cooperation Zone for Technology and Innovation” at the Lok Ma Chau and “Northern Metropolitan Area of Hong Kong” are advancing their cooperation development, they are still in the preliminary stage of planning and construction, and the scientific innovation resources of the two places have not yet formed a synergy.

In the future, Hong Kong and Shenzhen should strive to develop an integrated mode of scientific and technological innovation cooperation. First, the two governments may cooperate to introduce world-renowned large science and technology enterprises to enter Hong Kong-Shenzhen science and technology parks, which will drive the rapid development of related industrial chains and play an exemplary role. Second, continue to encourage well-known universities of the two places to set up branch schools in each other’s areas to strengthen cooperation in fundamental research and learn from each other’s strengths. Set up a special government fund to encourage college students to innovate and start businesses, and set up a number of 0-1 scientific and technological innovation enterprises. Third, further increase the convenience of the flow of scientific research factors, such as building a cross-border sharing platform of scientific research data between the two places, intelligent research personnel cross-border work identity verification, attracting overseas high-end skilled immigration, simplifying the entry procedures of scientific research equipment, etc. Fourth, explore the establishment of a “Science and Innovation Special Zone” in the northern metropolitan area of Hong Kong, which will be jointly planned, invested and built by the Hong Kong and Shenzhen governments. The goal is to attract overseas science and innovation enterprises to settle in Hong Kong and share the fruits of science and innovation between the two places.

2. Build financial cooperation mode in which rules and systems are fully aligned

At present, the financial cooperation between Hong Kong and Shenzhen is mainly through some specific channels. According to the 33rd Edition of the Global Financial Centers Index (GFCI) released by the British think tank Z/Yen Group and the Shenzhen General Development Institute in April 2023, Hong Kong and Shenzhen ranked 4th and 12th respectively among the world’s financial centers. As a world-renowned financial center, Hong Kong outperformed Shenzhen in five overall indicators: business environment, financial system, infrastructure, human capital, reputation and comprehensive factors. Shenzhen’s advantage in the financial sector is mainly reflected in the fintech subdivision index, ranking the 4th in the world, significantly higher than Hong Kong’s 14th. In the past, Shenzhen has been the main pilot site for linking the rules and mechanisms of Hong Kong’s financial market. From mutual recognition of funds in 2015, to the Hong Kong-Shenzhen Stock Connect, Bond Connect and Wealth Management Connect later, to the ETF Connect and Swap Connect in 2022, Shenzhen has provided increasingly rich channels for overseas investors from Hong Kong to invest in the Mainland, and the Mainland ones to invest in overseas markets. It has also accumulated a lot of valuable experience for the high-quality opening up of the Mainland’s financial market.

In the future, Hong Kong and Shenzhen should strive to develop a financial cooperation mode with fully integrated rules and systems. First, further expand the range of connectivity products between the two places. In terms of breadth, it is possible to further expand the categories of stocks, funds, bonds and other products covered by the financial market connectivity. In terms of depth, gradually bring insurance, spot commodities, options and green asset trading into the scope of connectivity. Second, promote the cross-border use of RMB in a coordinated manner. To explore expanding the range of RMB-denominated products in Hong Kong, enrich RMB financial instruments, and encourage the Mainland governments and enterprises at all levels to issue RMB-denominated bonds in Hong Kong; Third, propose to set up a Hong Kong-Shenzhen or GBA financial regulatory coordination body. To meet regularly or irregularly for consultation, and promote effective cooperation between Hong Kong and Shenzhen under different legal, tax, monetary and financial systems in an orderly manner from the regulatory level.

3. Transform cooperation mode on people’s livelihood from “hard connectivity” to “soft connectivity” & “heart connectivity”

At present, the “hard connectivity” between Hong Kong and Shenzhen in the area of people’s livelihood has achieved initial results. People’s livelihood is a key area of bilateral cooperation, and great progress has been made in infrastructure construction. In terms of transportation, Hong Kong and Shenzhen have seven land ports, two railway routes, and two water terminals in Shenzhen that are accessible to Hong Kong. In terms of medical care, the University of Hong Kong Shenzhen Hospital was constructed in 2012. Hong Kong residents living and working in Shenzhen can choose to seek medical treatment here, and 13 kinds of drugs and 9 kinds of devices from overseas have been approved through the pilot program of “Hong Kong and Macao Drug and Equipment Connect”. In terms of education, schools for Hong Kong children were established in Shenzhen in 2001 and recognized by the Hong Kong Education Bureau. Their graduates are eligible to for the Hong Kong secondary school places allocation. In terms of daily life, electronic payment tools commonly used by Hong Kong people (such as Alipay Hong Kong, Wechat Pay Hong Kong, etc.) can be used in some scenes in Shenzhen.

In the future, Hong Kong and Shenzhen should strive to develop a mode of livelihood cooperation featuring “soft connectivity” and “heart connectivity”. First, migrant workers in Hong Kong and Shenzhen should be treated equally. Eliminate discriminatory or obstructive measures against non-local workers and achieve equal treatment in terms of working conditions and social benefits. The right of family members of workers to reside freely in another city and the right of their children to receive education in another city on the same basis as that of local residents. Second, reasonably balance the level of tax and subsidy for cross-border workers in GBA. Many Mainland cities in GBA, such as Shenzhen, have encouraged Hong Kong and Macao residents to work on the Mainland, and started to have the local governments subsidize the difference over the Hong Kong and Macao individual income tax. However, Mainland residents who reside in the Mainland but work in Hong Kong and Macao are considered mainland taxpayers and are required to pay the tax difference. Propose to consider an amendment to enable mainlanders to pay tax according to Hong Kong tax standards while working in Hong Kong. Third, explore the “one trial” approach in some professional fields. Collaborate with Hong Kong and Shenzhen professional institutions to explore the appropriate addition of some Mainland examination content in the Hong Kong professional certification examination, so that candidates can obtain the qualification in both places after passing the examination.

4. Transform advanced manufacturing cooperation mode from financial service provider to strategic partner

At present, the main mode of cooperation between Hong Kong and Shenzhen in the field of advanced manufacturing is that Hong Kong provides financial services to related industries in Shenzhen. Shenzhen has established a sound and highly competitive industrial ecosystem, of which four industrial clusters (new-generation information and communications, advanced battery materials, high-end medical instruments and intelligent equipment) have entered the list of national advanced manufacturing clusters. By the end of 2022, Shenzhen has over 23,000 national hightech enterprises, ranking second in total and first in density in China. The number of PCT international patent applications has ranked first in China for 18 consecutive years, and the number of domestic and foreign listed enterprises has exceeded 500. As an important bridge for overseas investment in China, Hong Kong’s financial sector has also taken an active part in the development of Shenzhen’s advanced manufacturing industry, providing financial services in the form of loans, cash management, IPO and bond issuance.

In the future, Hong Kong and Shenzhen should strive to develop a cooperation mode of “industry plus finance” strategic partnership. First, make full use of the advantages of the two places to explore overseas market together. Financial institutions in Hong Kong and industrial enterprises in Shenzhen have concluded strategic alliances to jointly develop markets in Southeast Asia and other countries along the Belt and Road, and participate in the construction and restructuring of the global industrial chain. Second, focus on supporting key industrial parks in Shenzhen. Encourage quality enterprises to list and issue bonds in Hong Kong, explore the gradual expansion of the QFLP pilot program, and guide Hong Kong investors to conduct equity, private equity and venture capital businesses in Shenzhen. Third, jointly promote the green development of Shenzhen’s industries. To leverage Hong Kong’s advantages in green finance and support the sustainable transformation and development of relevant enterprises in Shenzhen based on the double carbon targets.

IV. Role and Opportunity of Financial Sector in Collaborative Development of Hong Kong and Shenzhen

To sum up, future cooperation between Hong Kong and Shenzhen requires breakthroughs in the four fields of science and technology, finance, people’s livelihood and advanced manufacturing, to cope with competition from other regions. As the foundation of social development, the financial sector should also play its role, seize new opportunities in cross-border business, and help promote the development of synergy between Hong Kong and Shenzhen.

1. Seize financial opportunities for people’s livelihood, and promote the facilitation of services for people’s livelihood in Hong Kong and Shenzhen

Hong Kong and Shenzhen enjoy coordinated development and frequent exchanges between their residents. The financial sector should actively promote the development of financial services to facilitate people’s livelihood. First, it is insurance. The Hong Kong insurance industry, with its comparative advantages of low premium rates, high returns and comprehensive insurance coverage, has attracted more residents from Shenzhen and other cities in Guangdong Province to buy insurance in Hong Kong, and promoted the increase of cross-border living and working personnel from Hong Kong to buy local insurance. Second, it is cross-border financial services. Cross-border Wealth Management Connect has opened a huge market of mainland wealth management customers. In the future, the Hong Kong banking industry should put forward opinions on cross-border sales, expand the scope of pilot projects and increase product categories, strive for policy breakthroughs, and further deepen the scope of services. Third, it is cross-border e-payment services. In the postCOVID-19 era, the demand for digital financial services is further increasing. The financial sector of Hong Kong should give full play to the advantages of its good local customer base, actively expand more local and cross-border service scenarios, and increase the right to speak when the e-payment standards of the two places are unified. Fourth, it is cross-border mortgage business. With the deepening integration of Hong Kong and Shenzhen, Hong Kong people are in great demand for mortgage business. The Hong Kong banking industry should further expand the coverage of real estate in the Mainland, take advantage of the advantages of the group in both places, simplify customer identity authentication, asset authentication and other aspects of the business, and optimize customer experience.

2. Seize financial opportunities in science and technology, and promote the complementary development of Hong Kong and Shenzhen in science and innovation

The level of science and technology determines the future driving force of local economic development. The governments of Hong Kong and Shenzhen have placed scientific and technological innovation as the priority of their administration. Shenzhen enjoys a good momentum of development in science and technology. It has cultivated several world-renowned technology companies such as Huawei, Tencent and DJI. In 2021, the city’s R&D investment accounted for 5.5% of its GDP. The Hong Kong SAR government also put forward the development plan of the northern metropolitan area in October 2021, with science and innovation as the main industry, which has received positive responses from Shenzhen and other mainland governments at all levels. Large financial institutions should also actively participate in the discussion and construction of cooperation programs between the two places, and provide corresponding suggestions on supporting financial services. In addition, given the construction of the “Shenzhen-Hong Kong Innovation and Technology Park” in Lok Ma Chau, the financial sector can play a role in linking Hong Kong’s strengths in fundamental research with the well-developed manufacturing, marketing and service industrial chains in GBA, such as Shenzhen, so as to achieve the integration of scientific research and product application, promote the synergic development of scientific innovation industries in both places, and seize the opportunities of technological financial services.

3. Seize the opportunities of RMB internationalization, and promote the development of the offshore market

In March 2023, the use of RMB in cross-border trade on the Mainland surpassed the US dollar for the first time. As more and more countries seek to reduce their dependence on the US dollar, the internationalization of RMB has ushered in a new round of development opportunities. As the world’s largest offshore RMB center, Hong Kong can cooperate with Shenzhen in cross-border trade, cross-border bond issuance, cross-border investment and other areas, to continuously improve the use of RMB and serve the various needs of Shenzhen enterprises in “going global”. On the other hand, Hong Kong can leverage the advantages of abundant capital in the local market, continue to improve the RMB-denominated product system, and serve the financing and fund management needs of Shenzhen enterprises. In addition, the financial sector of Hong Kong can also make use of Shenzhen’s experience in the field of digital RMB, to jointly study the cross border issuance, payment, settlement and other scenarios of digital RMB, so as to get involved in the scenario design in advance and strive for business opportunities.

4. Seize the opportunities of green finance, and promote the integration of Hong Kong and Shenzhen into the overall development of global ESGs

Shenzhen is one of the first low-carbon pilot cities, carbon trading pilot cities and sustainable agenda innovation demonstration zone. It has made a series of achievements in green and sustainable development, and is in a leading position in China. However, due to the relatively late start of green finance in the Mainland, there are still some problems, such as the lack of internationally recognized green standards, the low level of carbon market development, and the lack of effective connection between domestic and foreign green capital. Therefore, the Hong Kong financial sector can take advantage of its leading advantages in the field of green finance, seize relevant opportunities, and join hands with Shenzhen and other mainland governments to actively serve relevant needs. First, Hong Kong and Shenzhen will be encouraged to take the lead in introducing and implementing the China-Europe Common Ground Taxonomy of Sustainable Finance, to open up the Hong Kong-Shenzhen green financial service channel. Second, strengthen cross-border cooperation among green finance rating agencies, provide third-party certification for green finance in Shenzhen, and improve market credit. Third, encourage the Shenzhen government and enterprises to issue green bonds in Hong Kong and introduce green QFLP funds, to invest in green projects in GBA and other areas through Qianhai Free Trade Zone.

5. Seize opportunities presented by the implementation of the RCEP, and promote Hong Kong and Shenzhen’s joint efforts to develop Southeast Asian market

Hong Kong has been acting as a bridge for investment and trade between the Mainland and ASEAN. In terms of investment, by the end of 2019, ASEAN’s investment in the Mainland via Hong Kong accounted for about 20 percent, while mainland investment in ASEAN via Hong Kong accounted for about 42 percent. In terms of trade, the cumulative rules of origin among member states have been implemented, since the RCEP took full effect in January 2022. Economic and trade relations between the Mainland and ASEAN have remained close, with the two sides being each other’s largest trading partner in goods for more than three years. As a bridge of bilateral trade, Hong Kong and ASEAN remain among the top 5 in terms of trade volume. Therefore, in the future, Hong Kong can leverage its advantages in professional services, such as finance, law, accounting and risk management, as well as its advantages in history, culture and legal system similarity with ASEAN, and Shenzhen can leverage its advantages in real industries and scientific and technological innovation. The financial sectors of the two places should make full use of the benefits of the two systems, and explore the building of cross-border cooperation platforms. Encourage enterprises and institutions of the two places to use Hong Kong as a base to explore markets in Southeast Asia and other countries along the Belt and Road, and seize opportunities brought about by the restructuring of the global industrial chain.

Han Zhu , Head of Hong Kong Financial Research Institute of Bank of China

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