Professional Documents
Culture Documents
SECTOR BRIEFING
number
Ken HE, CFA Tsz Wang TAM, CFA Mark KONG, CFA
ken_he@dbs.com tszwangtam@dbs.com mark_kong@dbs.com
Produced by:
Asian Insights Office • DBS Group Research
go.dbs.com/research
@dbsinsights
asianinsights@dbs.com
04 Executive Summary
11 New policies to support growth
Executive Summary
Policy support to power strong growth in the
Greater Bay Area
The Greater Bay Area (GBA), which consists of Hong Kong, Macau and 9 key cities in the
Guangdong province, is a region that will become an economic powerhouse for China
over the next decade. The GBA region, covering only 0.6% of national total land area,
contributed c.12% of China’s GDP in 2017 and its economic size is greater than Canada.
The latest policy initiatives announced in February will allow GBA to grow at a rate much
faster than expected and transform into an innovation hub that is competitive to its global
peers, such as San Francisco Bay, characterized by high connectivity of labor, capital and
technology. The policy outline also clarifies the mid-term target (2022) and long-term target
(2035) for GBA.
2. Fostering stronger bonds between Hong Kong and mainland financial systems
In terms of city positioning, Hong Kong takes a central role in being a financial, trade and
service centre, and Shenzhen a technology innovative centre. Yet, what was not expected
in the policy outline was Shenzhen’s expected role as an innovative area for insurance.
Guangzhou will take a central role in developing the regional private equity (PE), property
rights and commodities market, and Hong Kong to play a central role in international
aviation and risk management. In addition, the outline has adjusted the sequence of key
development areas and put innovation at top priority and added new contents to put
ecological conservation on the agenda. While Shenzhen is well expected to lead innovation
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in the region, we also expect Guangzhou and Hong Kong to play crucial roles in R&D and
transforming the region into an innovation hub.
GBA to enjoy higher GBA is positioned to be an innovation hub, which is crucial for China Manufacturing 2025,
positioning compared especially under the backdrop of China-US trade war and US’s technology barriers. The
to other two regional key target for coordinated development of Jing-Jin-Ji (JJJ) region is to relocate non-capital
development plans in functions out of Beijing and build up a modern Xiong’an New District. Regional integration
China of Yangtze River Delta (YRD) region has just been raised to national strategy with blueprint
to be announced. We expect the key focus for YRD is to coordinate development in each
city in the region to enhance competitiveness in global trade.
GBA has great GBA is widely benchmarked to the three international bay areas, namely New York Bay
growth potential, (NY Bay), San Francisco Bay (SF Bay) and Greater Tokyo Area (Tokyo Bay). Compared to
benchmarking to international peers, GBA’s GDP per capita is lower, due to a lower proportion of GDP
international bay areas contribution from the services industry. Yet, we believe GDP per capita will catch up with
the industry upgrade. We project GBA’s GDP per capita to expand by > 5.3% CAGR during
2017-2030 (benchmarked to Guangdong Academy of Social Sciences’ projection for GDP
per capital of Guangdong province during 2017-2035), translating into a GDP per capita
of Rmb265k in 2030, double GBA’s 2017 level and similar to the current level in Tokyo Bay.
Population to grow In addition, GBA’s population density is less than half of Tokyo Bay. There is a lot of room
from 70m to over for population inflow, as we benchmark GBA to Tokyo Bay based on geographical and
100m by 2030 with cultural proximity. In fact, GBA’s population grew at a CAGR of 2.1% in the past decade,
strong talent inflow much higher than the national average of 0.5%. In addition, Shenzhen and Guangzhou
remain the top 1 and 2 cities in terms of population/talent inflow. We expect population in
the entire GBA region to expand at a CAGR of over 2.2% during 2017-2030, translating
into a population of over >100m in 2030. Therefore, GBA’s larger land area and talent base
with higher GDP growth outlook will enhance its potential to be next innovation hub with
global impact.
3. Development guidance from the state such as the GBA policy outline and China
Manufacturing 2025 blueprint
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1. Culture willing to assume longer term risks for scientific projects (which explains the
scarcity of venture capitalists)
2. Strong services economy to drive accelerated growth (though these have been addressed
in the blueprint with Guangzhou to become a regional PE hub and numerous policy
initiatives to boost the formation of a services-based economy)
Excluding Hong Kong and Macao, serviced industry only accounts for 57% of GDP in the
9 cities in Guangdong. In our view, GBA will follow its global peers’ development path
and gradually upgrade its industry cluster to become a services oriented economy. It took
around 30 years for SF Bay and Tokyo Bay to move from a manufacturing driven to a services
oriented economy, while it was only 15 years for Shanghai. We expect it will take less than
15 years for the GBA’s transformation. On our estimate, services industry’s contribution to
GDP in GBA is projected to move from 66% (57% excl. Hong Kong and Macau) to 76%
(72%) by 2030. We expect the growth in services industry’s GDP in PRD cities to be stronger
than HK and Macao with each PRD city to see the ratio go up by c.10ppts on average during
2017-2030. Shenzhen and Dongguan will see the highest growth in services sector GDP
over the next decade.
New energy vehicles We have performed an analysis to identify the potential of each GBA industry based on near-
and smart appliance term (2022) growth CAGR and long-term (2030) growth CAGR targets. Our rankings show
will post strongest higher value-added manufacturing, such as new energy vehicles (NEV), smart appliances,
growth in the mid-term environmental products, consumer IoT hardware, will lead mid-term (2018-2022) growth,
followed by online ads, healthcare, insurance, and education services. Over the longer term
(2030), several segments under financial services will climb up the list, similar to the past
experience witnessed in SF Bay and Tokyo Bay. Warehouse, logistics and office segments
will also see strong growth, as the services industry flourishes.
Infrastructure and For example, infrastructure accounted for c.20% of public expenditure in Tokyo Bay area
construction usually back in the 1960s/1970s. We expect a similar trend for GBA, especially with the mega
play an important projects in the pipeline to improve connectivity and financial support from the Public Private
role in early stage of Partnership (PPP) model. Infrastructure expenditure (fixed asset investments, FAI) is expected
developing global bay to grow at 8.6%/4.2% CAGR to Rmb1.1trn/Rmb1.3trn by 2022/2030. Major state-owned
areas construction companies stand to benefit from the infrastructure project developments,
including China Communications Construction, China Railway Construction Co, China
Railway Group, China State Construction Engineering, and China State Construction
International.
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New energy vehicle Guangdong houses two important automobile companies, GAC and BYD, with the former
continues to be a near based in Guangzhou and the latter in Shenzhen. As China aims for higher electric vehicle
term growth driver (EV) penetration, GBA can become a pilot centre for smart EVs. Combined EV production
by these two automakers is expected to grow at 44.2%/19.4% by 2022/2030. Hence, BYD
and GAC are two key beneficiaries.
Smart appliances to With rising penetration, smart appliances is likely to see CAGR of 25% in 2017-2021. GBA
lead growth in home should offer better prospects for this sector, given continuous young population inflow and
appliances sector rising personal income. Smart appliances in the GBA region should stage faster growth than
overall China, at a sales CAGR of nearly 30% by 2022 and 25-30% by 2030. Major players
such as Midea, Gree and Hisense Kelon are based in GBA area and are well positioned to ride
on rising spending power in GBA. Robotics nationwide is expected to grow by 22.7%/20%
by 2022/2030, on improving affordability, and premiumisation and consumption upgrade,
benefiting Midea with its acquisition of robot manufacturer, KUKA.
Hardware companies We project the hardware segment to post CAGR growth of 9.9%/7.9% by 2022/2030, with
to shift towards AAC Technologies as a beneficiary. Meanwhile, we expect higher growth for the software
higher value-added segment, driven by more start-up cultivation as well as synergies generated between internet
manufacturing, with companies. The CAGR growth is projected to be 11.3%/9.1% by 2022/2030. Tencent will
favourable policy continue to dominate.
support
We also expect consumer IoT (Internet of Things) hardware to achieve 19.0%/15.2% volume
CAGR by 2022/2030, as 5G roll-out could drive internet connectivity from smartphones to
other consumer products. We also expect online advertising to achieve higher growth of
21.3%/17.2% CAGR by 2022/2030, as advertisers are increasing their budgets towards
online ads due to improving internet firms’ user data analytics capabilities.
Data centres in GBA is another area to see strong growth, driven by establishment of
high-tech companies and rising economic activities, and improving network connectivity
leveraging on Hong Kong’s position as global carrier hub. Based on linear regression
between number of cabinets and GDP per capita, we project number of data centres in
GBA to grow at 7.7%/6.5% by 2022/2030 respectively. GDS (GDS US) is expected to ride
on the growth.
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K12 schools and We expect K12 schools and tutoring to grow faster than universities, as the sub segment
tutoring expected will directly benefit from population inflow as a result of talent immigration programmes.
to grow faster than Among the Hong Kong-listed companies, Wisdom Education and China Education Group
universities are the main players in GBA. In terms of business opportunities in private education in each
city in GBA, we prefer Shenzhen and Guangzhou, followed by Dongguan and Foshan, and
then Huizhou and Zhongshan.
Financial industry has played an important role in nursing global bay areas. Currently, the
financial industry in Guangdong province (a proxy to GBA) only made up 8% of GDP in 2017.
We expect this to ramp up to 18.5% in 2030, translating into a 16% CAGR growth during
2018-2022 and 13.5% CAGR during 2018-2030. The assets and loans of major listed China
banks exposed to PRD (a proxy to GBA) grew 9%/12% CAGR in 2012-2017, vs. the national
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average of 13%/14%. Still, we expect growth to further speed up supported by robust demand
for banking services arising from the regional integration and transformation into an innovation
hub. We estimate growth in bank loans/assets located in the GBA area may reach 14%/13%
CAGR by 2020 and 12%/11% CAGR by 2030F. Among major listed China banks, China
Merchant Bank, China Construction Bank and Agricultural Bank of China have the highest loan
exposure to PRD and we believe these three banks are better positioned to capture business
opportunities from the GBA.
Growth in insurance China insurers’ per capita premium growth in the Guangdong province reached 22% CAGR in
premiums per 2012-17, as compared to China’s average per capita premium growth of 20% CAGR during the
capita can’t be same period. Given growth in premiums per capita usually has an exponential relationship with
underestimated individual wealth, this suggests that once per capita income has reached a certain level, growth in
per capita premium will start to accelerate. We expect insurers’ premium to grow at 20%/16%
CAGR by 2020/2030. Ping An, China Life and China Taiping have higher regional exposure.
Peer-to-peer lending GBA’s focus on innovation should offer huge room for the P2P segment. Currently, 20% of
(P2P) segment and VC/ the operating P2P platforms are registered in Guangdong, and 5 of the top 20 platforms are
PE segment also hold from Guangdong. P2P loans are projected to grow at 5%/17% CAGR by 2020/2030. We also
good growth potential expect VC/PE to support new start-ups as growth engines shift. Currently, Guangdong province
was ranked no. 4 in terms of VC/PE investments in China in 2018, after Beijing, Zhejiang, and
Shanghai. Guangdong is looking at >3,000 PE firms with the number of technology incubators
to grow from 399 in 2015 to 800 in 2020. Guangzhou is positioned as a regional PE hub.
Office sector to directly benefit from industry upgrade and talent inflow
Driven by higher growth in tertiary sector’s GDP, Shenzhen will replace Hong Kong to
become the largest Grade-A office market. Our analysis shows strong correlation between
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services industry GDP and occupied Grade A office space in the past 12-17 years. We believe
this trend will continue. Based on the projected 2030 tertiary GDP for these mega cities, our
model shows that Shenzhen’s occupied office space by 2030 will be 18.4m sqms, up 251%
from 2017’s level, exceeding Hong Kong. In terms of rental growth, we expect Guangzhou
to register the highest CAGR of 5.0% for Grade-A office rental rate in 2017-2030, followed
by Shenzhen at 2.8%. Tertiary GDP per sqm for office space is the key ratio to drive future
rentals. CR Land and Excellence Group are the major office suppliers in Shenzhen, while
Yuexiu Property is the major players in Guangzhou.
“Taking forward ecological conservation” was newly added as a key development area
in the GBA blueprint, highlighting its importance. In fact, Shanghai has also witnessed
superior growth in environmental related industries. As environmental investments as a
percentage of GDP will ramp up from 0.5% currently to 0.7%/1.0% in 2022/2030 , we
expect the sector to grow at 18.0%/13.0% CAGR by 2022/2030. Canvest and Dongjiang
have higher exposure to Guangdong.
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Much more than PRD The well-known PRD region includes Guangzhou, Shenzhen, Zhuhai, Foshan, Dongguan,
Zhongshan, Huizhou, Jiangmen and Zhaoqing. PRD was first proposed in 1985, at the initial
period of reform and opening-up. The mission for PRD was to earn foreign exchange via
exports, bring in advanced technology, drive up economic development in inland areas via
a window demonstration effect. Over the past three decades (1991-2018), the economic
size in the PRD region has grown 65 times to RMb 8.1 trillion in 2018.
New strategic mission With an area covering 56,000 square kilometres (sq km) and a total population of 70 million
as of the end of 2017, the Greater Bay Area (GBA) is a geo-economic union of 11 cities,
including nine cities (PRD) in Guangdong province and two special administrative regions
of Hong Kong and Macao. With slightly broader geographic coverage, GBA is under “One
country, two systems”, plus three currencies and customs. While the area accounts for only
5% of China’s total, it contributed 12% of China’s GDP, and the economic size is similar to
Canada. Just Shenzhen alone, its GDP size is similar to Norway, and surpassed Hong Kong,
Demark, and Singapore. In some areas within Shenzhen, the wealthy level in terms of GDP
per capita, such as Nanshan, is similar to Singapore and higher than Hong Kong. Based
on 40 years of success since opening up, the new mission for GBA is to build academic/
R&D alliances inside the region, developing it into an international science and technology
innovation centre and expand through China Manufacturing 2025 initiatives.
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G UANG DO NG
Guangzhou
Zhaoqing Huizhou
Foshan Dongguan
Zhongshan
Jiangmen Shenzhen
Zhuhai
Hong Kong
Macau
CHI NA
Source: DBS
Higher importance In our view, the GBA development is of higher importance than any other initiative as the
than Yangtze River aim is to develop the GBA into an international innovation and technology hub, which caters
Delta Region (YRD) and to China Manufacturing 2025. Among the three regions, Yangtze River Delta Region (YRD)
Jing-Jin-Ji (JJJ) regions is larger in terms of regional area, population and GDP. In addition, economic development
with GBA’s focus on is more balanced across the cities in YRD. Yet, GBA stands out in terms of GDP per capita,
innovation due to a higher proportion from the tertiary or services industry in Hong Kong and Macao.
Regional integration of the YRD region has just been raised to national strategy level with
blueprint to be announced soon. We expect YRD’s key focus is to coordinate development
in each city in the region to enhance competitiveness in global trade. The key priority for
the coordinated development of Jing-Jin-Ji (JJJ) region is to relocate non-capital functions
out of Beijing and build up a modern Xiong’an New District. The JJJ region covers Beijing,
Tianjin and Hebei province.
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GDP components China’s Central government aims to create a mega-hub, leveraging on each city’s competitive
inferior to global peers advantages. The fast development of the region in past decades have already laid a solid
foundation for another breakthrough. The GBA region, covering only 0.6% of national
total land area, contributed c.12% of China’s GDP in 2017. The GDP per capita in the area
exceeded US$23,000 in 2017, far beyond national average of US$8,800, but the level
is still lower than the three international bay areas. The key reason is tertiary industry’s
contribution to GDP is relatively low at 66% vs. peers’ 82-89%. Excluding Hong Kong and
Macao, the ratio for the rest of the cities in GBA is only 57%.
More room for population In terms of population density, GBA’s is higher than SF Bay and NY Bay, but is less than half
density and GDP per capita of Tokyo Bay. Zhaoqing, Jiangmen, and Huizhou occupy 60% of total gross floor area (GFA)
to catch up, which implies in GBA, yet only has 20% of the total population in the area. Even for Shenzhen, population
significant growth in density was slightly below 6.0k/sq km, below Tokyo’s 6.4k/sq km. Using Tokyo Bay as a
population and benchmark based on geographic and cultural proximity, we think there is more potential
economic strength for population density in GBA to go up further, by leveraging on improving connectivity
inside the region.
Tokyo Bay witnessed rapid population growth in 1950s/1960s, with population CAGR of
4.0%/3.7%. In fact, the population growth was faster than expected during that time.
In the late-1950s, the government was looking at a population of 26.6m for Tokyo Bay
by 1975, which was raised to 33.1m in late-1960s. After the metropolitan area reached
maturity in the 1980s/1990s, population CAGR slowed down to 1.8%/1.3%.
For GBA, population CAGR in the past decade (2007-2017) was 2.1%, much higher
than national average of 0.5%. In addition, growth has been accelerating lately, as
several municipal governments within the GBA have launched various talent immigration
programmes over the past few years. Shenzhen has also initiated a favourable personal
income tax scheme (Qianhai Pilot Zone) to attract overseas talent. Also, Shenzhen and
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Guangzhou remain the top two cities in terms of population absorption, accordingly to
Baidu’s research report on city vitality in China (中國都市活力研究報告). Shenzhen’s and
Guangzhou’s municipal governments are targeting population CAGR of 2.4%/1.6% by
2030. We expect population in the whole region to grow at a CAGR of >2.2% during
2017-2030, translating into a population of around100m in 2030.
With the industry upgrade in the region, GDP per capita will also catch up with its global
peers. Guangdong Academy of Social Sciences (廣東省社科院) is expecting GDP per capita
to expand at a CAGR of 5.3% in Guangdong province up to 2035. We expect GDP per
capita in GBA to achieve at least similar CAGR growth in 2017-2030. In fact, GDP per capita
grew at a CAGR of 6.7% in the past decade (2007-2017). A similar growth rate during the
next decade will allow GDP per capita in GBA to expand to Rmb265k in 2030, which is
double 2017’s level and similar to the current level in Tokyo Bay. In fact, the growth in GBA
has accelerated over the past two years, with y-o-y growth sprinting from 5.0% in 2015
to 8.4% in 2017. Population growth and the ramp-up in GDP per capita should be able to
support a faster GDP growth trajectory.
Rank City
1 Shenzhen
2 Guangzhou
3 Beijing
4 Shanghai
5 Dongguan
6 Suzhou
7 Chengdu
8 Chongqing
9 Foshan
10 Hangzhou
Source: Baidu, DBS HK
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Zhaoqing 2018 Xijiang talent scheme ‘1+10+N’ • Budget set at 1% of previous year’s fiscal
income to attract talents
• Subsidy for start-ups
• Housing/financial supports for talents
Source: CBRE, Governments’ website, DBS HK
2. Fostering stronger bonds between Hong Kong and mainland financial systems
Key adjustments We have summarised the comparison between the outline and framework agreements in
compared to previous the table below.
framework
The key adjustments include:
1. The outline puts more emphasis on innovation and technology and has raised it as the
first development area
3. The outline has more concrete disclosures of each city’s role. The international aviation
hub and risk management centre are new roles for Hong Kong. The outline also defines
Guangzhou as a transport hub and a technological, educational and cultural centre.
Shenzhen, obviously, will take on the role of a technology innovative centre. Apart
from these, some were unexpected, for example, Shenzhen to take on the role of an
innovative centre for insurance, and Guangzhou taking a central role in regional private
equity (PE), property rights and commodities market
Forging China’s version In our view, the closest comparable to GBA is San Francisco Bay. The key contributing
of “Silicon Valley” factors to replicate the GBA as China’s version of “Silicon Valley” are: (1) abundance of
venture capital, (2) development guidance from the state, and (3) strong presence of
leading academic institutions. In short, it is a junction point for academia, private sector,
and the state. The private sector would provide the funding while universities to constantly
inject talent flow, and the state would provide development guidance from time to time.
Shenzhen is well expected to drive high-tech and R&D in the region, given its established
IT research capabilities, supply-chain and talent pool. Yet, we think Guangzhou and Hong
Kong also have high potential in R&D and innovation. Firstly, most of China’s prestigious
universities are located in Guangzhou and Hong Kong; Two out of 39 universities that are
classified into the national 985 programs are located in Guangzhou, providing a continuous
pipeline of new talent. In addition, Guangzhou’s cost of living is more reasonable compared
to Shenzhen. Improving connectivity and the huge metro construction plan in Guangzhou
will also attract talent and increase R&D activities in the city. Moreover, Guangzhou’s R&D
as a percentage of GDP was relatively low at 2.4% (2015), and the city is looking to move
this ratio up to 3.0% in 2020.
Hong Kong’s position is becoming more crucial, especially given the background of China-
US trade tensions (with the focus on intellectual property in China, especially technology).
1. The US has concerns over innovation/technology flowing into mainland China . Yet,
Hong Kong is still able to attract and connect global innovation resources, given its
special administrative region (SAR) status. Plus, English is one of the official languages
in Hong Kong. Therefore, the cross-boundary flow of innovation ideas is important for
GBA to learn from international experience
2. Hong Kong also provides an efficient capital market for the region. The Hong Kong
Stock Exchange’s recent implementation of Weighted Voting Rights allows tech
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entrepreneurs to gain easier access to the capital market, without weakening their
control over their companies. Mainland corporates would also be able to raise funds in
Hong Kong by issuing both CNY- and USD-denominated bonds
3. Hong Kong is a global carrier hub that is well connected with the rest of the world
while China has limited international Internet bandwidth
4. Hong Kong is also catching up in R&D, and expects R&D as a percentage of GDP to
double to 1.5% in 2020. This also explains why more and more China enterprises are
setting up R&D centres in Hong Kong
Province/City US$ bn
Beijing 50.7
Shanghai 27.5
Zhejiang 22.6
Guangdong 15.0
Jiangsu 10.8
Source: ChinaVenture, DBS HK
Principles • To be driven by innovation • To be guided by openness and More emphasis on innovation and
and led by reform driven by innovation put 'driven by innovation' to the
To open up and cooperate • To achieve a win-win situation first
and achieve a win-win through complementary
outcome
• To be led by the market and
• To coordinate development driven by the government
and plan holistically
• To adopt the early and pilot
• To pursue green development implementation approach and
and ecological conservation make breakthroughs in key
• To share the benefits of areas
development and improve • To prioritise ecology and
people's livelihood pursue green development"
• To adhere to 'one country,
two systems' and act in
accordance with the law
Positioning • A vibrant world-class city • A more dynamic economic Emphasis on its global influence in
cluster region innovation and technology
• A globally influential • A quality living circle for Regional participation on the Belt
international innovation and living, working and travelling and Road initiative
technology hub • A showcase for in-depth
• An important support cooperation between the
pillar for the Belt and Road Mainland and HK/Macao
Initiative • A first-class bay area and
• A showcase for in-depth world-class city cluster"
cooperation between the
Mainland and HK/Macao
• A quality living circle for
living, working and travelling
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Outline and key differences from previous frameworks or market expectation cont.
Targets • By 2022, the framework of Time table for mid-term and long-
an international first-class term targets
bay area and world-class city
More clarification on the four core
cluster
cities, especially for Guangzhou
• By 2035, an international first- and Shenzhen
class bay area fully developed,
supported by innovation, with HK's role as an international
strengthened international aviation hub and international risk
competitiveness and influence management centre
Yet, it has taken Shanghai only 15 years to transform to a service driven economy. Given
GBA’s position as a R&D hub and Central government’s support, we believe it will take
less than 15 years for GBA to become a service oriented economy. On our estimates, the
services industry in GBA will account for 76% of total GDP in 2030, a big jump from the
current 66%. The huge increase will be from cities outside of Hong Kong and Macao.
Services industry as a percentage of GDP in the PRD cities will increase from 57% to 72%
during 2017-2030, with Shenzhen and Dongguan to see the biggest improvements.
Tertiary industry output as % of local GDP for each city in GBA , 2017 and 2030
Which industrial The GBA blueprint encourages TMT downstream hardware and general industrial
sectors to see the production with lower valued added to move to east, west and north Guangdong
biggest decline? (outside GBA) or even outside Guangdong. In fact, we have seen some industries such as
shoe and toy manufacturing moving to ASEAN countries and we expect such a trend to
continue. Shanghai could also serve as a benchmark.
The move of certain manufacturing sectors out of Shanghai, such as textiles, was faster
than expected, while lower value added manufacturing had radiated to outer areas of
Shanghai. Yet, higher value-added manufacturing will still play an important role in GBA,
such as:
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1. TMT with focus on R&D and software development and upstream hardware
manufacturing
Which services Like the growth path of other bay areas, services especially professional services will
segments to see higher dominate growth, such as:
growth?
• Transportation and warehousing (logistics)
• Real estate, especially office, warehouse, data centre and senior homes
• IT services
• Financial services
• Environmental related
• Education services
This scenario will apply to GBA as well. Using Shanghai as a benchmark, growth of all services
industries will be higher than GDP growth except for wholesale/retail and hotel/catering
segments. Warehouse segment growth was slower as it had moved out of Shanghai. This might
not apply to GBA (GBA would be more similar to San Francisco Bay) given the larger footprint.
As GBA aims to improve connectivity inside the region, we believe infrastructure will benefit
most in the early stage. At the early stage (1970s) of building Tokyo Bay, nearly 20% fiscal
expenditure was invested into infrastructure. We should see a similar path in the GBA area.
SF Bay experience has also shown that transport/warehouse, education, healthcare and
information/tech services outperformed on its way to become an innovation center
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New energy vehicles We did an analysis to identify the potential of each industry based on near-term (2022)
and smart appliance growth CAGR and long-term (2030) growth CAGR. Our rankings show higher value-
will post strongest added manufacturing, such as new energy vehicles (EV), smart appliances, environmental
growth in the mid-term products, consumer IoT hardware, will lead mid-term (2018-2022) growth, followed by
online advertising, healthcare, financial industry (insurance premium) and education
services. Over the longer term (2030), several segments under financial services will climb
up the list, similar to that witnessed in SF Bay and Tokyo Bay.
Source: DBS HK
Source: DBS HK
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Shanghai industrial sectors’ CAGR growth over the past 15 years cont
Expected sectors’ CAGR growth in the mid-term and long-term in the GBA and industry leaders in each sector
Expected sectors’ CAGR growth in the mid-term and long-term in the GBA and industry leaders in each sector cont.
Expected sectors’ CAGR growth in the mid-term and long-term in the GBA and industry leaders in each sector cont.
Transport fixed Anticipate rise in 7.0% 4.0% Projected new metro CRCC (1186 HK); CRG
asset investment transportation demand line expansion and (390 HK); CSCI (3311
- Guangdong within GBA and other infrastructure HK)
government plans on investments
metro network expansion
Metro operating Development plan on 7.6% 2.5% Past metro passenger CRCC (1186 HK); CRG
length metro network expansion traffic demand (390 HK)
projections -
Guangdong
Source: DBS HK
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Automobile Sector
Automobile sector critical to Guangzhou
and Shenzhen’s development
Guangdong is one of the major automobile manufacturing clusters in China. Its automobile
sector has flourished over the years and the province is the leader in new energy vehicle
(NEV) development. The province houses two important automobile companies, Guangzhou
Automobile Co, Ltd (GAC) and BYD Co Ltd (BYD).
The auto sector is an important economic driver to Guangdong’s GDP, as it involves a huge
supplier network. The automobile gross industrial output ballooned from approximately
Rmb16bn in 1995 to Rmb406bn in 2015, at a CAGR of 19%. As a percentage of GDP,
it increased from 2.3% in 1995 to 5.6% in 2015. In fact, Guangdong’s automobile gross
industrial output is ranked second in China, only after Shanghai.
Automobile gross industrial output ranking
Source: CEIC
The fixed asset investment (FAI) into Guangdong’s automobile sector has been trending
upwards over the years, in tandem with the sector’s development and economic
performance. In 2018, the automobile FAI surged sharply to over Rmb40n, compared to
about Rmb12bn in 2014. The new investments point to automakers’ (both domestic and
foreign players) confidence in the industry’s prospects and the huge growth opportunity,
given the low automobile penetration rate in China.
In terms of disposable income per capita trend, Guangdong has performed well. In 2017,
disposal income per capita reached approximately US$6,000, almost five times higher than
in 1997. As a result, the rising disposal income lifted new motor vehicle registrations from
340,000 units in 2002 to 2.7m units by 2018, translating into a penetration rate of 24
vehicles per 100 households.
The overall motor vehicle penetration rate in Guangdong is relatively low. But in the case of
Guangzhou and Shenzhen, the two wealthiest regions within the Guangdong province, the
government had imposed automobile sales restriction back in 2012 to control the rapid rise in
vehicle population. In fact, the motor vehicle penetration per 100 households in Shenzhen is the
highest among the cities in Guangdong, and the penetration rates in Shenzhen and Guangzhou
would have been even higher if not for the automobile sales restriction policy in those cities.
Source: CEIC
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Source: Company
Source: Company
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Together with its Japanese partners, GAC is embarking on a strategy to accelerate electric
vehicle (EV) development. In fact, the Japanese partners are leveraging on GAC’s low-
cost EV technology for self-applications. Toyota and Mitsubishi have introduced some EV
models to the Chinese consumers for future mass production. This indicates that GAC’s
self-developed EV technology is being accepted by major global automakers. Besides,
GAC is investing in a Rmb4.7bn new energy vehicle hub in Guangzhou with an initial
capacity of 200,000 units. By 2020, GAC plans to achieve EV sales of 1m units, accounting
for about 20% of total sales volume.
Shenzhen has the largest EV production base in China, which is undertaken by BYD.
China is leading in the NEV field and it is now the largest NEV market in the world,
accounting for about half of the total production last year. China produced approximately
1.3m units of NEVs in 2018. Among the Chinese automakers, BYD has emerged as the
largest EV maker in the world. Last year, BYD commanded about 20% of the domestic
EV market and 10% globally.
The rapid development of high-value vehicle manufacturing activities would need the
support of a vibrant supplier network. There are many automotive parts suppliers located
in the GBA and they support a number of large automakers. The table below shows some
of the automotive parts companies in Guangdong province.
Due to the substantial production scale and economic representation of Guangzhou and
Shenzhen, we believe the automobile industry will continue to flourish under the GBA
initiative. Both Guangzhou and Shenzhen will continue to be key production centres for
high-value vehicles. They will also play a pivotal role in vehicle consumption in the cities
within GBA. Other than Guangzhou and Shenzhen which have a relatively decent vehicle
penetration rate, the other cities have very low penetration rates of about 10 vehicles per
100 households. Hence, the automobile market potential is huge in GBA.
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Source: CEIC
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Shock Absorbers, steering gear, muffler, parts and moulds Foshan Guangzhou Honda and Dongfeng
Honda, BYD, fauercia, Midea
Instrument Desk Table, Mould, Inferiors GuangZhou GAC
Seating System, Inferior System Huadu,Guang Dong BYD, Dong Feng, Greatwall, Geely, SAIC-
GM, Ford, Changan, SAIC-Volkswagen
Car carpets, car seat covers, steering wheel covers, GuangZhou GAC, FAW
Soundproofing material for Automobile GuangZhou Honda, GAC, Dongfeng Honda, GAC
Honda, Hino, GAC Hino
SuspensionSpring, Valve Spring, Horizontal GuangZhou GZ Honda Toyota, GAC, Nissan, BYD,
Stabilizer, Seat Frame Assembly, TorsionalBar- FAW, SGM, BAIC, ChangAn, SGMW,
Hinge Assembly, Support Rod and Shardped Spring Dongfeng, GAC Mitsubishi, GreatWall,
includingnap,Tension,torsional Spring FAW
Plastic Moulds Shenzhen
Wiring Harness Assembly, Connectivity System GuangZhou GM, SAIC-Volkswagen, FAW-
Volkwswagen, Chery, Ford, Toyota, Dong
Feng Nissan
Sale to China of Speaker products, Mobile Audio GuangZhou
products
Auto chemicals (stone guard coatings, bending and GuangDong Dong Feng, GAC Toyota, GAC Honda,
structure adhesives, anti-freezing auto oils, welding SAIC GM, Dong feng Nissan, Buick,
sealants for auto projects, and shock absorbing Cadiliac, (GM), Chevrolet, Lotus, Toyota
adhesives; vehicle welding adhesives, such as auto Motor, ACURA, GAC Mitsubashi, BAIC-
bottom coatings, SGC products, PU glass glues, and Hyundai
anti-corrosion waxes) ,Auto Parts , auto mats
Rubber parts , auto parts and accessories (excluding GuangZhou Honda, GAC Honda, GAC-Toyota, Nissan,
automotive engine), automotive parts design ISUZU, Mitsubashi, Dongfeng Honda,
services; vehicle engineering technology research Haima
and development; motorcycle parts and accessories
manufacturing; mold manufacturing; hardware
accessories manufacturing and processing
Camera for Automobile, reversing image system, GuangZhou BAIC-Mercedez, Ford, Toyota, Cadiliac,
microwave radar anti-collision system, 3D Volkswagen, GM
aroundview monitor system
Aluminum alloy die casings GuangDong Nissan, Honda, Chrysler, GM, Chery
Automotive rearview mirrors, door handles, interior Foshan FAW-VW; FAW; Jinbei; Citreon; BAIC; BJ-
dome lights, window lifter rails, Benz; Guangqi-Honda, DF-Honda; SAIC-
GM; Chery Auto; Hafei Auto; iianghuai;
FAW-Toyota; Guangzhou-Toyota;
Huachen; Chongqing Qingling-Isuzu;
Beiqi Foton; Great Wall Motor
Source: Companies
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Education
Guangdong’s education market is the
largest and still growing
The demand for education is mainly driven by population and economic growth. In China,
parents are willing spend on education. According to research studies done in 2016 by
iResearch and TAL on education, in Chinese families, the higher the household income, the
higher portion of income was spent on education.
With the largest population and high average disposable income of more than Rmb 33,000
in 2017, Guangdong is the largest education market among all provinces. There are five
provinces including Beijing and Shanghai with higher disposable income than Guangdong,
but their population size is much smaller, leading to a smaller potential market size. During
2011-2016, GDP from education in Guangdong expanded by 14.8% CAGR, reaching Rmb
244.2bn, while total GDP CAGR was 8.4%.
15% growth to sustain Looking into the next 3 years, we expect the market to continue growing at a similar pace
in 2018-22 i.e. 15%. GDP growth slowed to 7.5% in 2017 Assuming 7% GDP growth CAGR in 2017-
2022, the impact could be well offset by a 1-2ppt higher growth in student numbers.
Meanwhile, the supply side would be supported by higher private education penetration
and higher university enrolment quota.
Slight slowdown to In the longer term, we expect the growth in the education market to slow slightly based
14% CAGR in on the assumptions of (i) GDP CAGR to decline to 5%; partly offset by (ii) 2-3% higher
2018-2030 population growth rate supported by the recent increase in the birth rate in Guangdong.
Looking forward, we believe the strong population growth trend in these cities will continue
as there are 1) more employment opportunities in Tier 1 cities like Guangzhou and Shenzhen;
and 2) more appealing policies in Tier 2 cities like Zhuhai and Dongguan to attract talent.
The birth rate is also increasing, especially after the relaxation of the demographic policy
allowing a second child. In 2017, the birth rate reached 13.68‰ after five years’ of
consecutive growth. The number of newborns in recent years provides visible demand for
kindergartens and early education in the next few years.
The per capita GDP is projected to exceed Rmb 100,000 in 2022 and reach close to Rmb
200,000 by 2035. The per capita GDP growth is projected to be at the 5% CAGR level
between 2017 and 2035.
The robust economic growth will create more employment opportunities and attract students
at the university level. Meanwhile, disposable income will improve from GDP growth as well
as urbanisation, which would make parents more willing to spend on education services.
Schools at all stages and after-school tutoring will benefit from higher pricing power.
ndamental educa-
nue in Guangdong
As the starting point of private enterprises in China, Guangdong has the highest private
education penetration ratio by student enrolment in China. In 2015, the penetration ratio
of private fundamental education in Guangdong reached 28.7% while the national level
was 7-12% for primary to high schools.
The high private education penetration ratio in the province has supported the strong growth
in private education in the fundamental education segment. Frost & Sullivan estimates that
revenue CAGR of private fundamental education in Guangdong was 13.1% in 2012-2015,
and will continue to expand at double digit growth rate in the years to come with 11%
CAGR in 2016-2020.
The growth opportunities of private universities is mainly from the improvement in the
gross enrolment ratio (GER) of higher education. In 2017, Guangdong’s higher education
GER was c. 35%, much lower than the national average of 42.7%, indicating there is large
room for future growth.
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As laid out in Guangdong’s 13th Five-Year Plan (FYP), the government’s GER target is 50%
by the end of 2020. It is difficult for public universities to further expand their scale because
of the limitation from government fiscal spending. The higher student numbers will be
mainly supported by private universities. Predictably, there will be greater demand for
private higher education unleashed ahead.
Vocational education is also a focus for future development. In the 3-year plan of
Guangdong’s vocational education from 2019 to 2021, Guangdong’s government plans
to have 50,000 to 70,000 more vocational students in 2019, and 120,000 increase in
vocational enrolment capacity by 2021.
K12 schools and tutoring show higher growth than universities. The population policy
relaxation will first benefit the junior level of schools. According to Guangdong province’s
14th FYP, student enrolment will show the highest growth in the kindergarten to middle
school stages, while high school and higher education would show low or negative growth.
Altogether, K12 education will see 3% growth in student numbers from 2015 to 2020 and
higher education at 0.1%. With the higher pricing power of K12 institutions compared to
universities, we also expect spending on K12 education to increase more than universities.
K12 after-school tutoring institutions will also benefit from the K12 student enrolment
increase, and higher income.
Among the Hong Kong-listed companies, Wisdom Education and China Education Group
are the main players in GBA. The former is a K12 player based in Dongguan and the latter
is involved in higher education in Guangzhou.
communication between public schools which will benefit in the longer term with a high
quality talent pool. In the short term, the direct impact on private education is limited.
In Jan 2018, the GBA education co-operation forum was held in Guangzhou to promote
the GBA co-operation and communication in K12 education. During the forum, six
high schools signed a co-operation memo to further improve communication in school
management, teaching methods, student exchange and parent visits. The six participants
were (i) two of the best high schools in Guangzhou - Guangdong Experimental High School
and Guangzhou Zhixin High School, and (ii) one school each from Hong Kong and Macau.
Education officials from Guangdong, Macau, and Hong Kong believe that fundamental
education plays an important role in training talent for GBA. More of such education
co-operation initiatives may be implemented, bringing new opportunities in education
development.
Universities within the GBA are also working more closely together. In 2016, the
“Guangdong-Hong Kong-Macau Higher Education Alliance” was established. Now, it has
a total of 28 universities including the best universities in the three regions - 12 are from
Guangdong including Sun Yat-Sen University, nine are from Hong Kong, and the balance
7 from Macau.
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Guangdong
1 Sun Yat-Sen University 中山大學
2 SouthChina University of Technology 華南理工大學
3 Jinan University 暨南大學
4 South China Agricultural University 華南農業大學
5 Southern Medical University 南方醫科大學
6 Guangzhou University of Chinese Medicine 廣州中醫藥大學
7 South China Normal University 華南師範大學
8 Guangdong University of Technology 廣東工業大學
9 Guangdong University of Foreign Studies 廣東外語外貿大學
10 Shantou University 汕頭大學
11 Shenzhen University 深圳大學
12 Southern University of Science and Technology 南方科技大學
Hong Kong
1 The Chinese University of Hong Kong 香港中文大學
2 Lingnan University 嶺南大學
3 The University of Hong Kong 香港大學
4 The Open University of Hong Kong 香港公開大學
5 City University of Hong Kong 香港城市大學
6 The Hong Kong University of Science & Technology 香港科技大學
7 Hong Kong Baptist University 香港浸會大學
8 The Hong Kong Polytechnic University 香港理工大學
9 The Education University of Hong Kong 香港教育大學
Macau
Source: DBS HK
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The GBA will establish a higher education community in 2035 to support technology and
economic growth. For now, there are around 190 co-operation initiatives in the undergraduate
program in GBA. In the future, the co-operation programmes will be largely focus on resource
sharing, joint operation of schools, talent mobility, and application of scientific research.
To dig deeper into business opportunities in each city, we see that Tier 1 cities such as
Guangzhou and Shenzhen will still have the largest market and high growth. Dongguan and
Foshan also have good growth potential for education among the rest of the cities in GBA.
Based on the birth rates and population in recent years, we can roughly gauge the population
size of 3-6 year olds in 2018-2021, which would determine the demand for kindergartens
and primary schools.
Among all the nine cities in GBA, Guangzhou has the largest population base as well as
high growth. Shenzhen also has a large market with 6-7m of 3-6-year-old kids though
growth is slower than in Guangzhou. Dongguan and Foshan follow in terms of young
population and growth.
Not surprisingly, Shenzhen and Guangzhou have the largest student numbers for both
primary and secondary schools, followed by Dongguan and Foshan. Shenzhen has the
highest growth in primary school student enrolment at 5.6% CAGR in 2015-17. Foshan
and Huizhou were next with 5.3% and 5.1%.
The growth of middle and high school student numbers was lower than that of primary
school in all the nine cities during 2015-2017. Some cities like Jiangmen and Zhaoqing
recorded a declining trend. Shenzhen had again reported the highest CAGR of 5.3% in
student numbers, followed by Dongguan 4.9% and Foshan 4.6%. Zhongshan’s growth
was also decent at 3.9%, but the absolute number was much lower, making the potential
market smaller.
In general, we see a positive correlation between secondary school student growth and the
Gaokao exam performance. Cities with high growth like Shenzhen, Foshan, Dongguan and
Zhongshan also have higher Tier 1 university admission ratio. Part of the reason might be
that these cities have better education resources, e.g. higher quality schools and teachers
to attract students.
A special case is Guangzhou, which has the top schools in the province but has seen a
slight decrease in student numbers in past years. This could be because of the already-high
population base and full capacity utilisation.
Guangzhou and Shenzhen have the highest average salary levels with strong growth
momentum, followed by Zhuhai, Foshan and Zhongshan. Among all the nine cities,
Zhongshan had the highest growth in average salary in 2017 at 14.3%.
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GDP growth
In 2017, all cities in GBA except for Zhaoqing reported over 7% y-o-y growth in GDP. All the
nine cities are targeting for 7-8% y-o-y GDP growth in 2018.
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To conclude, we have ranked the cities in GBA in terms of business opportunities in private
education:
•
Tier 1: Shenzhen and Guangzhou – largest population, best economic and income
growth, largest market for fundamental education and higher education. The two cities
have the best education resources and will continuously attract students
• T ier 2: Dongguan and Foshan – decent population growth and birth rates, good teaching
quality in middle and high schools with good performance in Gaokao. More room for
smaller players in the after-school training segment which has lower competition
•
Tier 3: Huizhou and Zhongshan: Good teaching quality, increasing number of middle
school students but the total population is much smaller than Tier1/2 cities, creating
robust but smaller markets
Primary school enrolment 2017(m) 1004 965 765 544 557 297
Secondary school enrolment 2017 (m) 509 418 310 328 288 155
Source: DBS HK
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Environmental
Increasing investment in environmental
protection
Thanks to the government’s strong determination in addressing environmental issues, its
investments to combat environmental pollution in China increased from Rmb711.4bn
in 2011 to Rmb922bn in 2016. Guangdong province had also put in significant efforts
in environmental protection with a total investment of Rmb36.8bn in 2016. With strict
implementation of environmental regulations, demand for environmental services, such as
treatment for sewage, household waste, industrial solid waste, hazardous waste and soil
remediation, has been increasing.
Positive results from the huge amount of investments in environmental protection are
reflected in the rising sewage treatment rates, reduction in carbon emissions, etc. In particular,
the improvement in air quality in Guangdong province in recent years has outperformed the
national average. While emissions of industrial gas in China climbed 1.6% during 2011-15,
that in Guangdong province dropped 2.9%. The drops in emissions of sulphur dioxide and
nitrogen oxide in Guangdong province has been 4-5ppts higher than China’s overall figure.
Assuming the investment percentage gradually climbs to 0.7% of GDP in 2022, investments
in environmental protection in Guangdong province will see CAGR of 18% between 2018-
22. The CAGR between 2022-30 will slow down to 10.5% assuming 1% of GDP will be
spent on environmental protection by 2030.
well-developed ecological environment in the PRD, which is part of GBA, will be a showcase
not only for the rest of Guangdong province but also for the rest of China. Thus, the
development of GBA, particularly a series of infrastructure projects to be unfolded at the
early stage, will have to be “green and sustainable”. And it has to comply with various
targets set in the 13th Five Year Plan in environmental protection with regards to air quality,
water quality, waste treatment (both household and industrial), soil remediation, ecological
environment, etc. Some of those targets are listed in the following table:
Percentage of surface water with quality below category V 9.7 <5 8.45 7 0
Percentage of surface water with quality above category III 66 >70 77.5 81.7 84.5
County 85 >85 - 80 85
In fact, the GBA development plan even steps up the effort in ecological conservation
where environmental protection regulations in GBA would be the strictest with the highest
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requirement in terms of the levels of conservation and efficient use of resources. Emphasis
will be put on regulating the pollution in PRD and drainage facilities at river outlets, as well
as strengthening the pollution management at coastal areas. Draft guidelines that call for a
ban on new industrial capacity for a range of businesses in the PRD region was also issued.
These businesses include steel, petroleum, petrochemicals, glass, ceramic and non-ferrous
metal smelting. This will also support GBA in eliminating traditional low-end production
and shift towards high-tech industries with high added value. Thus, demand for more
environmental services for industrial sectors is anticipated, such as solid waste/hazardous
waste treatment, emission reduction, industrial wastewater treatment, pollution monitoring
services, recycling of industrial waste services, industrial water recycling systems, etc.
In particular, secondary pollution arising from solid / hazardous waste and soil contamination
could cause even more serious health problems than other kinds of pollution but attention
has not been put into these areas until recent years. In China, qualified treatment capacity
is also under-supplied but the shortage in Guangdong province is not as serious as other
provinces. Nevertheless, we expect capex will still be needed in these segments as more
industrial parks are built.
The 13th FYP states that consumption of coal in the PRD has to be contained at 85m metric
tonnes by 2020 and the construction of new coal-fired generators will be prohibited in
certain development zones. Thus, the use of renewable and clean energy sources will be
preferred in GBA, which will encourage the use of integrated energy systems, particularly in
industrial parks. This is positive to local gas distributors.
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As China aims to develop GBA as a quality place for living, working and traveling, more
environmental services will be required for urban areas. These include water purification
services, treatment for household sewage, household garbage, kitchen waste, city
sanitation, black and stinky water body, etc. Assuming each person consumes 300 liters
of water per day, we estimate that a 10% increase in the population in Guangdong
province will require additional treatment capacity of 2.7-3.0m tons per day for each of
water purification and water sewage, implying a capex of at least Rmb4.5-6.0bn and
Rmb5.5-6.5bn respectively. Investment will be even larger if upgrades and extensions to
the existing water pipeline network are taken into consideration.
While landfill used to be the major method in treating household waste, the risk
of secondary pollution and the lack of land resources have prompted Guangdong
government to shift to incineration or waste-to-energy operations. Assuming each person
produces 1kg of household waste each day, a 10% increase in the population will require
additional capacity of 10,000 tons per day for waste-to-energy operations, implying a
capex of at least Rmb5.0bn. Additional investments will be required for some auxiliary
services, such as waste sorting, logistics arrangement, city sanitation, etc.
In addition, coal to gas conversion in residential areas also plays a part in government’s
structural change in energy consumption. The penetration rate of natural gas in
Guangdong was only 26.8% in 2016, compared with the national average of 38.7%.
The difference was even larger when comparing with some Northern cities, such as
Beijing (77%) and Tianjin (68.8%). Although the use of natural gas is more popular in
the northern region (particularly for heating purposes), we expect penetration rate in
Guangdong province will continue to climb given that it is far lower than that in other
countries, such as the US, the UK and Japan, which varies from 80-90%. We expect gas
distributors in Guangdong province will continue to extend the gas pipeline to increase
connectivity. Assuming penetration rate increases by 30ppts, capex required is estimated
to be Rmb17bn.
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Source: Wind
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Financial Services
Business opportunity for Financial service
industry
The increased connectivity and integration of the 9+2 cities within Greater Bay Area (GBA)
is expected to enhance business activities and movement of goods and services, people,
capital and information flow within the region. With GBA’s key focus to transform into an
innovative and technology hub, we believe this paves the way for the financials services
industry in the region to further prosper. Taking also the advantage of Hong Kong’s position
as a major international financial center and as the largest renminbi offshore market, and
two well-established equity markets (HKSE and SZSE) within the GBA region, we believe this
will stimulate business opportunities including cross-border trade finance and settlement,
renminbi on-shore and off-shore financing, currency exchange, digital payment and
consumer financing services, and various individual financial services, which ultimately will
benefit financial intermediaries including banks, insurance companies, wealth management
companies and P2P providers.
Financial services industry accounted for 8% of Guangdong province’s (as a proxy to GBA)
GDP in 2017, up from 4% in 2007 (10 years ago) and 6% (5 years ago) in 2012 and has
grown at 16%/19%/21% CAGR for the past 5/10/15 years. Compared to Tier 1 cities such
as Beijing and Shanghai, where financial services industry accounted for 17% of GDP in
2017, we believe GBA’s level is low. Even with Shenzhen which is considered as a more
developed city among the 9 Guangdong cities within the GBA, its financial services industry
only accounted for 14% of its GDP.
On the back of the forecast that the services industry will contribute 76% to the GBA
economy (including Hong Kong and Macau) by 2030F, we expect financial services industry
to contribute at least 18% of GDP by 2030F, implying the segment’s CAGR will outpace
GBA region’s GDP CAGR by 6.9ppts during the period. This also implies the financial services
industry in the GBA may grow at 16% CAGR during 2018-2020F, and 14% CAGR during
2018-2030F.
Service and financial services industry as %GDP in GBA
Bank assets to grow by 13% and 11% CAGR by 2020F and 2030F
By using the exposure to PRD region as a proxy to GBA, assets and loans at major listed
China banks grew at 9%/12% CAGR during 2012-17. Compared to the entire China
banking system where assets/loans (Rmb) has grown at 13%/14% CAGR during the period,
the growth rates recorded by major listed China banks in the GBA in the past 5 years does
not seem to be particularly strong. We believe the main reason for the slower growth
was due to the impact from Rmb depreciation, especially since 2015, and China’s capital
controls, as a large portion of businesses in the GBA area are export-oriented industries. This
is also evidenced by the gradual decline in offshore Rmb trade settlements in Hong Kong.
Nonetheless, with GBA’s more integrated and connected economic zone accompanied by
its focus to transform into an innovative and technology hub, we believe growth for various
banking services and demand will continue to grow. Among major listed China banks,
China Merchant Bank, China Construction Bank and Agricultural Bank of China have the
highest loan exposure at 17%/15%/15% of total loans and 18%/14%/16% of pre-tax
profit to the PRD region. We thus believe CMB, CCB and ABC are better positioned to
capture business opportunities from GBA.
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On the back of the assumption that financial services industry is set to grow at 16% and 24%
CAGR by 2020F and 2030F, reaching a scale of Rmb14.1tn and Rmb37.2tn, respectively,
we estimate growth in bank loans/assets located in the GBA area may hit 14%/13% CAGR
by 2020F and 12%/11% CAGR by 2030F, respectively.
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China insurers’ per capita premium growth in Guangdong province reached 22% CAGR
during 2012-17. Compared to China’s average per capita premium growth of 20% CAGR
during the same period, Guangdong’s premium growth has outperformed the sector. We
believe this is on the back of Guangdong’s faster GDP per capita growth of 9% during
the past 5 years, compared to 8% for the whole country. More importantly, Guangdong’s
GDP per capita has reached Rmb82,278, which is at the higher-mid end compared to other
provinces (China’s GDP per capita at Rmb63,163). Given growth in premium per capita
usually has an exponential relationship with one’s wealth, this suggests that once income
per capita has attained a certain level, per capita premium growth will start to accelerate.
This can be evidenced by looking at China’s Tier 1 cities such as Beijing and Shanghai, where
GDP per capita is twice of China’s average, while premium per capita is 3-4 times higher
than the country’s average.
Guangdong’s premium per capita and GDP per capita reached Rmb 2,244 and Rmb82,278,
respectively, in 2017, which is above national average. With GDP growth from GBA
estimated to accelerate in the long term, we believe this paves the way for the life insurance
segment within the region to grow further. This may also explain why China insurers have
relatively high premium exposure in the Guangdong area.
Assuming the population growth rate in the GBA area is in line with Guangdong’s population
growth in the past 5 years, along with the increase in premium penetration and GDP per
capita, we estimate insurance premium growth may reach 20% CAGR by 2020F and 16%
CAGR by 2030F in the GBA area.
We believe GBA’s focus in transforming into an innovative and technology driven economy
hub paves the way for the P2P (peer-to-peer) segment to grow. Despite China’s P2P sector
has been impacted by stricter regulations and market consolidation is still expected within
the next 1-2 quarters, the P2Ps are well positioned itself to serve the banks’ “underserved”
consumers in China. We believe the addressable market in China’s P2P segment should
reach Rmb8tn to Rmb10tn, with some 400m-500m individuals as target customers. Once
the regulation and compliance procedures are completed by Jun-2019, we believe the
segment should return to its normal growth pattern going forward.
According to the data from WDZJ, the number of operating P2P platforms reached 1,591
as of July 2018, which is down from the peak level of 3,473 platforms in November 2015.
Of this, 20% of the platforms are registered in Guangdong, which contributes 16% of
the outstanding loans. We believe this reflects the fact that Guangdong, more precisely
Shenzhen, is considered as a cradle to innovation and technology development in China.
Total P2P loan outstanding has been on a clear upward trend in the past 4 years and reached
a peak of Rmb1.3tn in May 2018 before declining to Rmb789bn in December 2018 due
to policy headwinds. We believe loan growth is likely to reaccelerate once the compliance
procedure completes, and we believe Guangdong will serve as one of the major areas to
witness such growth (next to Beijing and Shanghai). Among the top 20 P2P platforms in
China in terms of loan origination, 5 of the platforms originated in Guangdong whereas 8
and 5 platforms are from Beijing and Shanghai. Leading platforms in Guangdong include
Tuandaiwang, Xiaoying, PPmong, Xiaoniu and Fffax, with loan origination in the Rmb10bn
to Rmb16bn range. We see these five platforms as better positioned to capture the business
opportunities from GBA.
As China’s P2P industry has been consolidating since the beginning of 2017 driven by
regulatory tightening, loans outstanding has declined to Rmb789bn in 2018, from Rmb1tn
in 2017, and we estimate loans outstanding will continue to shrink to Rmb650bn in
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From the recently released GBA Development Plan guideline, policy support to develop the
financial services industry in the GBA is in three areas: 1) to promote E-signature certification
and e-payment system in GBA, 2) to promote mutual financial market access between
Hong Kong, Macau and Shenzhen, with initiatives to allow wider Rmb usage (on/offshore),
develop cross-border Rmb interbank market, open up on-offshore Rmb bond issuance,
open up cross-border Rmb investment products, allowing qualified Hong Kong and Macau
banks and insurance companies to establish operating branches in GBA, and to develop
featured finance (i.e. aircraft leasing, financial technology and green financing), and 3)
to promote and develop cross-border innovative motor and health insurance products
and supporting China, Hong Kong, Macau insurance companies to develop cross-border
reinsurance business.
In addition to CMB, CCB and ABC already having a meaningful exposure in the GBA,
many HK banks such as BOCHK, The Bank of East Asia (BEA) and Hang Seng Bank (HSB),
are launching new initiatives including dual currency cards to facilitate on cross-border
payments, cross-border RMB cash pooling services, expansion in wealth management/
private banking business and establish integrated system to fulfil cross-border business
needs. Among which, BOCHK seems to be the most aggressive and better positioned.
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BOCHK Launched mobile payment service of BOC PAY & a dual currency card to
facilitate cross-border payment
The Greater Bay Area currently accounts for 19.6% of Private Banking’s
total AUM from the Mainland. Aims to double over the next three years.
DSB Expect for stronger funding needs from both domestic and offshore
investments in the Greater Bay Area, including the investment in Belt and
Road countries.
Initiative Details
Hong Kong Banks exposure: Regional Banks exposure: 86 branch outlets( incl. HSB and Rural bank)
Total bank staff at 2,800
34/4 branches in GD/Macau (GZ/SZ/Zhuhai 13/13/7) 1 Security JV with staff at 110
1 Life insurance with staff at 20
4/14 branches in GD/Macau
5/16 branch/sub-branch in GD (SZ/ZH/FS/GZ 1
19/1 branches in GD/Macau (GZ/SZ at 7/6) brand; SZ/ZH/GZ 8/2/5 sub-branch)
2/3 branch/sub-branch in GD (GZ/ZH 1 brand;
3(+3 sub-branch)/1 G U A N G D O N G GZ/SZ 1/2 sub-branch)
branches in GD/Macau
Guangzhou
China Banks exposure: Zhaoqing Huizhou
26 %of loans in central Foshan Dongguan
and southern China
Jiangmen Shenzhen
15 %of loans in PRD
Zhuhai
15 %of loans in PRD Hong Kong
Macau China insurance:
15 %of loans in PRD 18%/16 of life/P&C of premuium in GD
17% of loans in PRD &
West Side of Taiwan Strait 6%/12 of life/P&C of premuium in GD
14% of loans in Southern China 6%/14 of life/P&C of premuium in GD/GBA
15% of loans in PRD and West Strait
9% of life premuium in GD
19% of loans in Central and Southern China 8% of P&C premuium in GD
Note: PRD = Pearl River Delta; GD = Guangdong; SZ = Shenzhen; GZ =Guangzhou; ZH= Zhuhai; FS = Foshan;
Above indicates mainly the exposure to China and Macau portion of GBA and excludes HK exposure
Source: Company data, DBS HK
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Healthcare
Healthcare expenditure growth in
Guangdong province to accelerate
Healthcare expenditure in Guangdong expanded by 19% CAGR in 2010-16 to Rmb419bn,
and outpaced the national growth by 4ppts. Healthcare expenditure ‘s contribution to
Guangdong province’s GDP surged from 3.3% to 5.2% in 2010-16. The strong momentum
should continue. We expect CAGR to accelerate to 20% in 2018-22 and then stabilise at
15% in 2022-30, driven by 1) population growth accelerating from 0.68% in 2015 to
0.86% from 2018 onwards, due to relaxation of birth control and increasing migration into
the province resulting from expanding economic activities; 2) expanding medical facilities,
as planned by the Guangdong provincial government, for example, the number of beds
per thousand of permanent population will increase from ≤4.80 in 2018 to ≤6.0 in 2020.
We identify three areas with great potential in the Great Bay Area (GBA):
1. Surging demand for hospitals in Dongguan. The population growth in Dongguan could
be faster than other GBA cites after its metro network is connected to Shenzhen and
Guangzhou in 2020-22, thus increasing demand for hospitals. Meanwhile, medical
resources there are currently very tight as evidenced by the higher ratio of population/
doctors in medical institutes than the average for Guangdong province (2017: 463 vs
431), particularly in the areas of paediatrics, oncology and psychiatry. Thus, there is
huge opportunity from establishing hospitals that focus on these therapeutic areas
2. Increasing medical tours to Hong Kong, which has medical services of international
standards, e.g. its survival rate after lung transplant surgery is higher than the US,
Canada, and Singapore. Hong Kong hospitals can also supply medicines for treatment
of serious diseases which Mainland may not be able to supply. This may attract more
and more people from GBA to Hong Kong as transportation connectivity improves
3. Demand for clinics in GBA cities from Hong Kong retirees living there should increase
as Hong Kong government is considering to allow healthcare vouchers issued to the
elderly to be used in GBA cities. UMP and C-Mer eye care are expanding their clinic
networks to the GBA to capture the demand. We believe more Hong Kong healthcare
companies will do the same to ride on the trend
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Source: Health & Family Planning Commission of Guangdong Province
As discussed above, the population is set to increase in GBA. This would underpin the
development of hospital services, particularly in cities facing a supply shortage. Among the
GBA cities, we estimate that supply shortage of hospital services is more acute in Jiangmen,
Zhaoqing, Dongguan as the ratio of population/number of doctors in medical institutes
is higher than Guangdong province’ average (see the following table), implying medical
resources are tighter than other cities in Guangdong.
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The medical facilities in Dongguan, in particular, will be even tighter in future as its
population growth will accelerate after its metro network connects to Shenzhen and
Guangzhou by 2020 and 2022. The population of these two cities could then spill over
to Dongguan. In terms of population in 2017, Guangzhou (14.5m), Shenzhen (12.5m),
Dongguan (8.3m) are the top three populated cities within Guangdong province. In
terms of residential property prices as measured by price per square meter in Sep 2018
according to E-House, Dongguan’s prices were 68% and 16% lower than Shenzhen
and Guangzhou (Rmb17,700, Rmb54,697, Rmb21,000 per square metre respectively).
Therefore, as stated above, the expansion of the metro network could lead to migration
from Shenzhen to Guangzhou to Dongguan due to better transportation connectivity
and more affordable property prices, thus creating more demand for hospital services.
To develop the hospital business in Dongguan, focusing on services areas with supply
shortage is an easier and faster way to grow revenue. Dongguan’s government pointed
out three therapeutic areas that are facing a supply shortage:
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1. Paediatrics
Source: Chinese People’s Political Consultative Conference Dongguan Committee.
After the relaxation of birth control in 2016, the shortage should get more severe.
2. Oncology
Source: Dongguan Municipal Health & Family Planning Bureau.
3. Psychiatry
Source: “Dongguan municipal 13th Five-Year Plan for hygiene and health” issued by
Dongguan government.
As infrastructure and transportation among GBA cities improves, we believe there will be
more mainlanders travelling to Hong Kong to seek medical services and pharmaceutical
products because:
1. Hong Kong can supply crucial medicine for treatment for serious diseases which
Mainland may not be able to supply.
Example 2: PD-1 (programmed cell death protein 1) inhibitors. This is a new generation
of anti-cancer drugs based on immunotherapy. It is used to treat certain cancers in
the final stages where traditional treatment has been ineffective. The medicines were
registered in Hong Kong by Merck and Bristol-Myers Squibb (BMY US) in Dec 2015
and launched afterwards. Mainland China approved this product in June 2018. There
is time lag of over two years before the drug is sold on the Mainland.
The reason of the time lag, we believe, is due to the shorter time it takes for
imported drugs to be registered in Hong Kong. Based on our discussions with a
drugs distributor in Hong Kong, in terms of average time taken for registration, it is
c.4 years in Mainland China, Singapore c.2-3 years, and Hong Kong c.1-2years. As
long as the drug is approved to be marketed in developed countries, the time for
approval in Hong Kong can be shortened. We estimate another reason for the shorter
registration and approval time in Hong Kong (comparing to Mainland China) is that
medical institutes in Hong Kong use English as their formal communication language.
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2. There are areas of medical services where Hong Kong is better than Mainland China.
As mentioned above, Hong Kong can provide some crucial medicines for treatment
of serious diseases which Mainland China may not be able to provide. This enables
Hong Kong to provide medical services better than Mainland China in certain aspects,
for example, precision medicine (targeted to make a more accurate diagnosis).
According to some media reporting, as of Jul 2017, Hong Kong has approved 23
targeted therapy medicines in this aspect while Mainland China has only approved
10. This allows Hong Kong to provide better level of service in this aspect.
Example 1: Heart transplant surgery. The 1-year and 5-year survival rate after surgery
are standards used to judge the quality of the surgery. The survival rate after surgery
in Hong Kong is higher than certain developed countries.
Source: National Heart, Lung & Blood Institute (U.S.), The Hong Kong Society of Transplantation, Singapore Heart Foundation
Example 2: Lung transplant surgery. The survival rate after surgery in Hong Kong is higher
than certain developed countries.
Source: www.hkgolden50.org, Public Health Agency of Canada, SingHealth
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There are listed companies actively arranging medical tours for Mainlanders to travel to
Hong Kong to enjoy its advantages in imported medicine supply and medical services, like
UMH. We believe there will be more and more healthcare companies that will participate
in this business.
According to some media reporting, the Hong Kong government is considering allowing
healthcare vouchers issued to elderly aged 65 and above (annual amount: HK$2,000 per
person) to be used in GBA cities. As such, demand for healthcare services from Hong
Kong retirees living in GBA cities will increase. We estimate there are c.20,000 Hong Kong
retirees living in GBA cities currently. As infrastructure and transportation among GBA cities
improve, we believe there will be more and more from Hong Kong retiring there.
For treatment of serious diseases, we estimate those retirees will still return to Hong Kong
for that. But for treatment of less serious illnesses like colds and body checks, they may do
them in Mainland, thus boosting demand for clinic services there.
Compared to mainland clinic companies, we believe that retirees are more confident to
visit clinics operated by companies with a Hong Kong background. Therefore, Hong Kong
companies are in a better position to capture this source of demand. UMP and C-Mer eye
care are expanding their networks in Guangdong province to seize the opportunity. We
estimate more Hong Kong healthcare companies will do so.
Other than demand from Hong Kong retirees, we estimate these clinics would also attract
demand from the mainland population as medical resources in China are facing supply
shortages. According to Frost & Sullivan, a patient in China spends on average 3 hours on
an outpatient visit, in which the effective time dedicated to the patient’s diagnosis is only 8
minutes. To avoid a long waiting time and obtaining better quality medical services, we believe
some mainland patients will seek help from clinics operated by Hong Kong companies.
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In recent years, we have already come across a rising trend of premiumisation. According
to AVC (奥维云网), the proportion of sales of mid- to high-end products in key segments
in 2014-2017 has expanded, such as refrigerators (+28.9ppts to 72.7% of total), washing
machines (+18.1ppts to 73.9%), and air conditioners (+9.7ppts to 78.9%). As household
affordability in China continues to grow in the medium-term, we expect the increase in ASP
along with moderate volume growth to support expansion of the home appliance market.
Source: Euromonitor
Smart appliances In particular, smart appliances should have the highest growth potential. At this early stage
leading way of development, penetration of smart home appliances in China was only in the high-teens
in 2017 among the key product categories, and there is ample room to expand. IHS Markit
projects the average penetration rate of smart appliances for air conditioners, washing
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machines and refrigerators to reach over 35% by 2021, and sees further scope to expand
in the longer term. This could translate into an average volume CAGR of c.25% for smart
appliances in 2017-21, comprising nearly 40% CAGR for refrigerators, over 20% CAGR for
washing machines, and over 15% for air conditioners.
Unit shipment
The GBA should hold even better growth potential. As we refer to the historical development
of major economic hubs worldwide, such as the San Francisco Bay Area (SFBA), we
specifically look at the wage level of staff working in the home furnishing & appliances
stores that mainly earn commission-based salaries, and compare with the overall US market.
On average, the income level in SFBA expanded at a faster 2ppt CAGR throughout the
3 decades during1970-2000 against the overall US market based on metropolitan areas.
Accordingly, we expect the home furnishing & appliances sector in China’s GBA to enjoy a
better performance relative to the national average in the mid- to long-term.
Anticipating a faster progress on GBA development in the next 5-10 years compared to
SFBA’s progress, we project home appliance sales in the GBA to grow by about 7% CAGR
during 2018-2022, which could be c.2ppt ahead of the sector’s national growth rate during
the same period. Smart appliances in the region should also stage faster growth than China
overall, at a sales CAGR of nearly 30% based on our projections.
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Note: Home furnishing & appliance stores include retail stores selling goods used for
furnishing the home, such as furniture, domestic stoves, refrigerators, gas appliances and
other household electrical, floor coverings, draperies, glass and chinaware, etc.
Source: US Bureau of Economic Analysis
City "Industrial Gross "Manufacture of Industrial Gross Output Home Appliance Company
Output Value above Electrical Machinery Value Contribution Example & Remarks
Designated Size and Equipment from Manufacture of
(RMB 100m)" Industry Gross Output Electrical Machinery
Value and Equipment
(RMB 100m)" Industry
Notably, Midea should benefit the most among major peers based in the GBA. Aside from
strong growth prospects of smart appliances, the group’s earlier acquisition of KUKA – a
key manufacturer of industrial robots and solutions for factory automation – should also
pay off. The overall market size of machinery robots in China is projected to grow by
22.7% CAGR, from US$2.2bn in 2018 to US$5.1bn in 2022, predominantly driven by
volume growth (source: OCN). Coupled with synergies from KUKA in terms of further
automation & technical advancement for Midea’s production systems and business
operations, we should see plentiful opportunities for the group to expand market share in
both the home appliance industry as well as automation & technology sector.
Source: OCN
Source: OCN
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While Haier is headquartered in Qingdao rather than the GBA region, the group stands
tall among smart appliance leaders across China, with high demand for its products within
GBA. The group is ahead of the industry, as Haier had rolled out China’s first magnetic
central air-conditioner in 2006 for installation in the Shenzhen China Merchants Real Estate
Project and saw good results. This year, the group will launch its air-cooling heat bump
magnetic central air-conditioner in April, which also leads the industry as the only smart
energy-saving solution (for connection and inter-operation) in the PRC, reinstating Haier’s
leading position in research & development of smart appliances.
In view of the robust prospects in GBA, on Sep 30, Haier Group also unveiled plans to
build the world’s most advanced air-ecology intelligence & manufacturing centre in Nansha,
Guangzhou (GBA). Therefore, we believe Haier Group should have sufficient capacity to
enjoy strong growth in medium to longer run.
At the moment, one of the hottest global topics include whether the trade war between
China and the US would accelerate further in the near-term. While some in the market
have started to pencil in the worst-case scenario, we note that total exports of Guangdong
province to the US market was 23% in 2016, which is a much higher proportion that some
would expect. Besides, given the bulky nature of home appliances, the sector is still selling
more of its local-made products in the domestic or Asian markets relative to most other
industries (e.g. textiles, apparels). Hence, we believe the home appliance sector in China
should do well in the medium to longer run.
Note: Assume all Hong Kong re-exports to the US are directly come from Guangdong
Source: Guangdong Statistical Yearbook, Hong Kong Census and Statistics Department
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Key drivers 2018- 2022F 2018- 2030F Projection basis / Stock ideas
sales CAGR sales CAGR benchmark
Home Improving 5.0% 4.9% Euromonitor; GDP & Leading players in China
appliances household income; population growth of including Qingdao
(Nationwide) rising population China Haier (600690.CH),
Haier Electronics (1169.
HK), Midea (000333.CH),
Gree (000651.CH)
Home Improving 7.0% 6.9% Euromonitor; GDP & Operators based in
appliances household income; population growth of the Greater Bay Area,
(Greater Bay rising population Greater Bay Area; a case including Midea
Area) study of San Francisco (000333.CH), Gree
Bay Area (000651.CH), Hisense
Home Appliances (921.
HK / 000921.CH), Vatti
(002543.CH), etc.
Smart Improving c.30% 25-30% IHS Markit; penetration Players with stronger
appliances affordability; rates; GDP & population edge in R&D and
(Greater Bay consumption growth of Greater Bay premiumization,
Area) upgrade; rising Area; a case study of including Qingdao
young population San Francisco Bay Area Haier (600690.CH),
Haier Electronic (1169.
HK), Midea (000333.CH)
Robotics Improving 22.7% c.20% OCN; GDP & population Midea (000333.CH),
(Nationwide) affordability; growth who has acquired the
premiumisation robot manufacturer
and consumption KUKA (KU2.DE)
upgrade; talent
inflow
Source: Euromonitor, IHS Markit, OCN, US Bureau of Economic Analysis, GDASS, YCWB, DBS HK
Source: Euromonitor
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Source: OCN
Source: Euromonitor
* Little Swan is owned by Midea Group. Sanyo was acquired by
Panasonic in 2008 and then bought by Whirlpool in 2013.
Out of the total FAI in Guangdong, basic government infrastructure investments cover
a broad range of projects, including all aspects of transportation, amenities, and other
government public projects undertaken by SOEs.
Within the GBA, total FAI reached Rmb2.8tr in 2017. The property, manufacturing,
transportation and environmental segments accounted for the bulk of the total FAI, as
shown in the following chart:
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In the last decade, the Guangdong government had spent massive amounts on the
transportation sector. The transport FAI has increased substantially over the years, as this
is critical for economic development. From 2003-2018, transport FAI surged from around
Rmb100bn to Rmb940bn.
Guangdong’s transportation network is well connected to Hong Kong and Macau. The super
network, including mega projects such as the Zhuhai Macau Bridge and the High-Speed Railway
Link from Hong Kong, is one of the important transportation investments in recent years. The
upcoming transportation projects such as the Shenzhen Zhongshan Bridge and Humen Second
Bridge should further facilitate inter-city connectivity in Guangdong. The goal is to achieve the
“one-hour” living circle within the GBA by 2030. Given China’s expertise in construction of
mega projects, achieving this goal is not an issue.
We also see other opportunities in the public transportation sector – metro and subway systems
development. The proportion of passengers travelling on metro systems within the whole public
transportation sector has been on the rise post the global financial crisis. In 2016, metro systems
accounted for about 36% of the total passenger traffic. The Guangdong government has been
focusing on metro and subway network development in the past ten years. The total operating
length of the metro system in Guangzhou had increased from 135km in 2008 to 742.1km
in 2017. Based on existing metro projects under construction, by 2022, Guangdong’s metro
systems will operate a total of 955km, an approximate 40% increase from 2017’s level.
Source: Wind
Source: Wind
The Guangdong government has mapped out a massive transportation network that
comprises highways, bridges, railways, and metro systems, as shown in the chart below.
For instance, the travelling time from Zhongshan to Shenzhen will take merely 30 minutes
upon completion of the Shenzhen-Zhongshan Bridge in 2024. The Zhongshan-Kaiping
Expressway which is in the planning stage, could also shorten the travelling time between
Jiangmen and Shenzhen to one-and-a-half hours.
The development of mega infrastructure projects underpins the construction sector’s future
robust outlook based on planned infrastructure projects and financial support from the
PPP model. Major state-owned construction companies stand to benefit from infrastructure
project developments, including China Communications Construction, China Railway
Construction Co, China Railway Group, China State Construction Engineering, and China
State Construction International.
Source: CEIC
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Key drivers
Logistics demand is largely from e-commerce and retail sales, third party logistics, manufacturing,
and export. The former two are major growth drivers for modern logistics properties.
Guangdong’s online retail sales reached Rmb1.3trillion in 2017, higher than Alibaba’s
homebase in Zhejiang province. Despite a slowdown in the growth rate, current online
retail sales is still growing at double the speed of total retail sales growth in the region.
Guangdong’s online retail sales as a percentage of total retail sales was 35% in 2017
(vs. 16% for China). Compared with Beijing’s 48%, Shanghai’s 47% and Zhejiang’s
42%, Guangdong’s online retail sales still has plenty of room to grow.
Third party logistics sector is growing at a fast pace along with e-commerce. It is also
the main driver of demand for modern warehouse properties. Third-party logistics
companies in GBA recorded higher annual revenue and growth rates than Shanghai,
Zhejiang and Beijing.
3. Exports and manufacturing might be affected by trade war but still keeping pace with
economic restructuring progress
Logistics space per Our data shows that existing modern warehouse supply (in GFA term) in Guangdong and
capita is lower in Hong Kong amounted to 7.3m sm (or 4.5m sm in Guangdong), which translates into
Guangdong than YRD 0.11sm per capita (0.07sm per capita in Guangdong), which is significantly lower than
and much lower US’s 1.17sm per capita and YRD’s 0.16sm per capita. Even in YRD, we continue to see
than US supply shortage, evidenced by lowest vacant level and highest rental growth in the region.
Therefore, we expect warehouse per capita in Guangdong to ramp up to at least the level
in YRD, especially after improving connectivity in GBA.
We expect limited future supply in Hong Kong and the majority of supply will come
from Guangdong province. Benchmarking YRD’s current space per capita and factoring
population growth, Guangdong will need 15.5m sm of modern warehouse space in 2030,
or 3.4x the existing space. Total GFA in Guangdong and Hong Kong will likely go up to
18.3m sm in 2030, vs. YRD’s existing level of 19.9m sm.
At present, Guangzhou, Dongguan, and Foshan are the current major gateways from
Guangzhou to the provinces in central China including Hunan, Jiangxi, Hubei, etc due to
their matured transportation networks. Along with the development of infrastructure in
the region and lower land cost, we believe Zhaoqing and Zhongshan may have the highest
growth in the warehouse market in the region.
Given land supply constraints, we believe the rentals has good growth potential. Rental
growth of warehouses in the GBA was the among the highest compared to key cities at
4-5% y-o-y during 2013-2018. There is a significant price difference between East GBA and
West GBA, which may continue.
Major players in the The ability to provide nationwide or even a global warehouse network is the key competitive
warehouse sector advantage in the warehouse sector. The assets under management of the top players is
headquartered in GBA significantly larger than the second-tier players. After privatising SGX-listed Global Logistics
are Vanke, Blogis, Property (GLP), Vanke with its headquarters in Shenzhen, has been growing its warehouse
Guangzhou R&F, business at full speed. Blogis, which is under Shenzhen Chiwan, also has its headquarters
and Kerry in Shenzhen. Guangzhou R&F has sizeable warehouse land in Guangzhou to develop into
modern logistics facilities. SF Express, China’s largest 3PL company, is also headquartered
in Shenzhen.
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Export comparison
Rental CAGR growth (2013-2017): YRD tops the list, followed by GBA
G U A N Gexisting
Guangzhou, D O Nlogistics
G centre
Foshan, a satelite and gateway to Hunan, Jiangxi, and
hub providing more Hubei, future to Chongqing
warehouse spaces
Guangzhou
Zhaoqing Huizhou
Foshan Dongguan
Zhongshan
Shenzhen, high demand but
Jiangmen Shenzhen limited land supply
Zhuhai
Hong Kong
Macau
Zhaoqing, Jiangmen and Zhongshan,
emerging makets
Future gateway to Guangxi and Guizhou,
further to Yunan and Sichuan
CHI NA
Source:DBS
Major players
Warehouse companies Chinese name Code (if applicable) Headquarters GFA (m sm)
GLP 普洛斯 NYSE: GLP Shanghai 31.2
Goodman 嘉民管理咨詢 ASX: GMG Australia 2.8
Blogis 寳灣物流 N/A Shenzhen 2.5
CNLP 中國物流資產控股 HKSE: 1589 HK Shanghai 2.4
ESR (E-Shang) 上海益商倉儲服務 N/A Shanghai 2.3
Cainiao 菜鳥物流 N/A Shenzhen 2.2
Mapletree 豐樹物流信托 SGX: M44U Singapore 2.2
Prologis 安博 NYSE: PLD Shanghai (HK HQ) 1.9
Vanke 万科 HKSE: 2202 HK / SZ: 000002 CH Shenzhen 1.5
Vipshop 唯品會 NYSE: VIPS Guangzhou 1.5
Major warehouse users and owners English name Headquarters Warehouse (mn sm)
京東物流 JD Logistics Beijing 6.33
蘇寧物流 Suning Nanjing 6
安得智聯科技 Annto Foshan 5.85
青島日日順 Qingdao 4.83
廈門象嶼 XMXYG Xiamen 3.22
招商局物流 China Merchat Logistics Shenzhen 1.51
中遠海運物流倉儲 COSCO Shipping Logistics Beijing 1.5
山東蓋世國際物流 Gaishi Group Jinan 1.5
嘉里大通物流 Kerry Logistics (636 HK) Hong Kong 1.5
深圳富泰通国际物流 Shenzhen 1.33
Source: Companies, DBS HK
Office
Strong correlation between tertiary or services
industry’s GDP and occupied office space
We have run a linear regression on historical nominal GDP from the services industry against
occupied Grade A office space for Shenzhen for the past 12 years, and observed strong
correlation coefficient of 99%. We believe this trend will continue.
Linear regression between tertiary GDP and occupied Grade A office space: Shenzhen
Room for industry As discussed above, service industry’s contribution to GDP in GBA is still low when
upgrade compared to global bay areas, as manufacturing remains a key industry cluster in GBA.
This could reflect its lower GDP per capita vs. the three global bay areas. We expect key
cities in GBA (especially Guangzhou and Shenzhen) to continue to experience industry
upgrades after fast urbanisation over the past decades. Tertiary industry as a percentage
of local GDP has risen by 0.9-1.3ppts in Guangzhou and Shenzhen each year in the past
several years and we use this trend as a key assumption to forecast service industry’s local
GDP contribution in 2030.
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Factors to support industry upgrades in GBA will include government support in the three
Free Trade Zones (FTZ) in Guangdong and its plan to transform GBA into a hub similar to
Silicon Valley, together with financial innovation, tax incentives, and talent immigration
programmes.
Three FTZs in After the first free trade zone (FTZ) in Shanghai in 2013, the central government approved
Guangdong to a further three FTZs in Guangdong province in late-2014 - Nansha in Guangzhou, Qianhai/
stimulate economic Shekou in Shenzhen and Hengqin in Zhuhai. The three FTZs aim to collaborate with the two
integration and attract special administrative regions in GBA in the fields of business ties, financial innovation, talent
companies management and tax agreements. By the end of 2017 (or three years after establishment),
the number of newly-registered companies in the three FTZs has exceeded 210k, according
to Guangdong FTZ’s official website. The three FTZs have also attracted 9,639 foreign
companies, with total foreign investments of US$13bn during 2015-2017.
According to Deloitte’s report, there are 115 unicorns (privately held start-up companies
that are valued at over US$1bn) in Asia, accounting for 46% of the global total. China
was ranked second in terms of the number of unicorn companies (98), followed by India
(10), Korea (3), Singapore (2), and Indonesia (1). In China, the unicorn companies are also
concentrated in the three mega regions and tier 1 cities. We expect them to be the next
generation corporations, which will be big GDP contributors and Grade-A office occupiers.
Shenzhen is expected to be China’s tech hub, benefiting from China Manufacturing 2025
initiatives and government’s aim to enhance its global competitiveness.
According to official websites, 229 enterprises in GBA had signed for cross-border Rmb
loans, with cumulated amount of cross-border loans withdrawn at Rmb42.9bn as at end-
2017. We also expect gradual financial liberalisation, rise of Fintech, market connect (SZ-HK
stock connect and bond connect, etc.) and more financial products (upcoming C-REITs) to
continue to enable Shenzhen to become a financial hub.
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Eligible corporates and foreign talents (including those from Hong Kong, Macau, and
Taiwan) could enjoy 15% corporate income tax or personal income tax rate in Qianhai.
Several municipal governments in GBA have launched various talent programmes over the
past years. In addition, Shenzhen also initiated favourable personal income tax (15%, even
lower than that in Hong Kong) scheme to attract overseas talents (including those from
Hong Kong, Macau and Taiwan).
Expecting Shenzhen Given improving infrastructure in GBA and business ties inside the region, we expect the
to accelerate services proportion of tertiary industry to GDP to accelerate in the key cities such as Guangzhou
industry development and Shenzhen, while manufacturing will be relocated to West GBA or outside GBA. As
mentioned above, tertiary industry as a percentage of local GDP has risen by an average
of 0.9ppt and 1.3ppts p.a. in Shenzhen and Guangzhou respecitvely over the past several
years. We expect the ratio to accelerate to 1.3ppts for Shenzhen in the next decade while
we expect Guangzhou to remain its historical trend. As such, we expect teritary industry
contribution’s to local GDP to improve to 75.8% and 79.0% in Shenzhen and Guangzhou
respectively. At the same time, we expect Shenzhen and Guangzhou to outpace Hong
Kong in terms of tertiary industry’s contribution to GDP.
Solid demand from Demand for office space in core areas in Shanghai is still on the rise, driven by high-tech
industry upgrade firms, domestic financial services, and professional services companies. Total Grade-A office
stock in Shenzhen and Guangzhou stood at 6.4m sm and 5.3m sm respectively as at end
of June 2018, still lower than international hub cities. We expect both cities to enjoy more
demand for prime office areas from high-tech firms, domestic financial and professional
service firms ahead.
We have made an estimate of 2030 Grade-A office space in Guangzhou and Shenzhen
in China, based on the regression relationship between historical occupied Grade-A office
space and local tertiary GDP, as well as our forecast of 2030 tertiary GDP. For matured
markets like Hong Kong, we used occupied Grade-A office space as a proportion of tertiary
GDP in 2017 multiplied by our estimated 2030 tertiary GDP to forecast demand for 2030
office space. Based on our abovementioned regression model, we expect tertiary industries
to occupy 19.8m sm and 11.9m sm of space in Shenzhen and Guangzhou respectively in
2030 (up 278% and 147% respectively from 2017 level). New supply will primarly come
from Bao’an/Nanshan districts in Shenzhen and Pazhou/Nansha districts in Guangzhou.
Meanwhile, we also expect a certain portion of supply coming from redevelopment of old
factories or buildings in Futian/Bao’an/Longgang districts in Shenzhen and Tianhe/Haizhu/
Baiyun districts in Guangzhou.
Guangzhou to enjoy As shown from the chart above, rental rate in Guangzhou is much lower than international
higher rental rate gateway cities and its peers in China and we expect the city to catch up with peers and
growth enjoy higher rental rate growth over the next decade.
As Grade-A offices are mainly occupied by tertiary industry players, we use total office
rental costs (occupied Grade-A office space multiplied by annual rents) divided by tertiary
GDP as a proxy to gauge tertiary industry’s occupancy cost for each city. This ratio ranged
from 0.6-1.2% for Guangzhou and Shenzhen in 2018, and was 1.0% for Singapore and
5.6% in Hong Kong. Also, this ratio edged up by an average of 0.07-0.08ppt per annum
for both cities over the past decade and we have assumed that this trend will continue.
Based on this, we expect tertiary industry’s occupancy cost to go up to 1.7-1.9% for both
cities in 2030.
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Then, we derived the total Grade-A office rental costs in 2030 for each city based on our
forecast of 2030 tertiary industry’s occupancy cost ratio multiplied by forecast of 2030 tertiary
GDP. Thereafter, we used total rental costs divided by 2030 forecast occupied Grade-A office
to calculate our rental rate projection for 2030. As such, we expect Guangzhou to register
a higher CAGR of 5% for Grade-A office rental rates in 2017-2030, vs. 2.8% in Shenzhen.
Foshan and Dongguan may also benefit from spillover demand from Guangzhou and
Shenzhen, given geographical proximity. According to CBRE, the combined supply of prime
office areas in the two cities amounted to around 2m sm in 2018. A number of domestic
and foreign companies have moved their back offices or R&D departments to Foshan and
Dongguan, such as Huawei, KPMG, HSBC, and Kuehne & Nagel. We expect this trend to
continue, given much lower rents in both cities and improving connectivity between both
cities with key hub cities like Guangzhou and Shenzhen.
CR Land and Excellence Group are the major prime office developers in Shenzhen. The GFA
of completed office space and those under construction (including wholly-owned and those
for strata-title sales) is estimated to be 1.11m sm and 1.04m sm for CR Land and Excellence
Group respectively in Shenzhen. CR Land is also a key landlord in Nanshan district, where
will likely accommodate leading domestic and international enterprises. We also expect
more urban renewal potential projects for CR Land in Shenzhen. Yuexiu Property is the
major office players in Guangzhou, with GFA of completed office space and those under
construction (including wholly-owned and those for strata-title sales) at 0.85m sm.
Office should be among the key beneficiaries of development in GBA, benefiting from
industry upgrades and talent inflow into the region. Shenzhen will likely to see higher office
demand and supply over the next decade, while rents in Guangzhou is likely to have higher
growth potential. Among the listed developers, we expect CR Land and Yuexiu Property to
be the key beneficiaries in this segment.
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We expect some spill-over demand to flow to Foshan and Dongguan from hub cities in the
region, but we do not expect these two cities to be a big competitor to key hub cities in
terms of office space, as city competition under GBA plans will be minimised, given different
positioning for individual cities and strategic planning to promote synergies between cities
in the region.
Linear regression
between
occupiedGrade-A
Total GDP forecast in 2030 office space and
tertiary GDP
Tertiary industry’s
occupancy cost in 2017
The information transmission, software and information technology services segment grew
at a CAGR of 13.5% in 2006-2016. It is the fifth largest segment, and accounted for 7% of
tertiary service GDP in Guangdong in 2016. Representative technology (internet) companies
like Tencent and Kingdee are based in Shenzhen. We expect this segment to deliver 11%
CAGR over 2018-2022F, thanks to more start-up cultivation as well as synergies generated
between internet companies.
Innovation and Technology is one of the key focus areas of the GBA initiative. We expect
a rising number of technology and internet companies in GBA, supported by government
policies. GBA will also shift to focus on the services industry, which will drive up labour
cost and other operating costs in general. We expect technology companies with high
value-added products/services or profitability to stay in the region. These include leading
or upstream companies in semi-conductors, telecom, big data, artificial intelligence,
robotics, electric vehicles, medical, satellites, etc. In particular, for internet companies,
the establishment of leading internet companies will favour start-up cultivation, due to
clustering of potential business partners and talent supply.
Note that PRD accounted for 84% of Guangdong province’s GDP in 2017. Thus, the 13th
Five-Year Plan for Guangdong province provides indicators for GBA development. The plan
targets to increase: (1) knowledge-intensive service industry’s contribution to GDP from
16% in 2015 to 20% in 2020; (2) high-tech industrial production value-to-total industrial
production value ratio from 40% in 2015 to 43% in 2020 (PRD: 50%+ in 2020); (3) the
number of High and New Technology Enterprises from 11,105 in 2015 to 28,000 in 2020
(PRD: 14,000); and (4) the number of technology incubators from 399 in 2015 to 800 in
2020 (PRD: 600+).
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1. Talent pool
There are talent policies such as subsidies and housing allowances for the technology
sector in some cities in GBA. For example, in Shenzhen, the High Level Professional
Programme is offered to successful applicants (such as members of Academy of Sciences
or Engineering of China, as well as winner of the Highest Science and Technology
Awards, etc.) in the form of millions in cash awards or sufficient housing allowance.
Shenzhen Peacock Programme offers a combination of signing bonus and housing
subsidies. Other cities in GBA such as Guangzhou, Dongguan and Foshan have also
introduced similar talent introduction programmes. Other policies such as children’s
education will also attract talent. Going forward, we expect to see more high-level
talent inflow to GBA, increasing the talent pool available to companies.
We noticed that there is a high density of top global universities in the San Francisco
Bay (3) and Tokyo Bay (2), which are significant bay areas after transformation into
technology centres. In GBA, Hong Kong has five “top 100 universities” which would
provide a long-term supply of talent. For example, DJI’s founder WANG Tao is a graduate
of the Hong Kong University of Science and Technology, and Sense Time’s founder, LI
Xu, graduated from The Chinese University of Hong Kong.
Source: QS University Ranking 2018, DBS HK
As a reference, the 13th Five-Year Plan for Guangdong province that covers PRD has
a target to grow the number of High and New Technology Enterprises from 11,105 in
2015 to 28,000 in 2020 (PRD: 14,000), and research and development expenses as
percentage of GDP to rise from 2.5% to 2.8% in 2020 (PRD: 3.0% in 2020).
Private equity and venture capital are critical to cultivate technology start-up companies.
China is the second largest private equity/venture capital investment market in the
world after the US. Although Guangdong province is the fourth largest private equity/
venture capital investment market in China, the investment amount is far behind
Beijing with a growth rate lower than that of Zhejiang and Shanghai. To meet the
funding needs, the 13th Five-Year Plan for Guangdong province has a target that the
number of private equity investment institutions should be 3,000+ with assets under
management of Rmb1,500bn in 2020, and number of technology incubators to grow
from 399 in 2015 to 800 in 2020 (PRD: 600+). The plan aims for the PRD to become
one of the world’s leading start-up centres. We expect to see more investment funds
attracted by the favourable policies and fast development of GBA. Hong Kong will also
be a platform for IPO ultimately.
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Source: China Venture, DBS HK
Case study 1
San Francisco Bay – from gold rush centre to technology centre, and as a junction of
academia, enterprises and the U.S. government. In mid-1800s, San Francisco Bay had
developed rich educational resources, which laid a solid foundation for technology
institutions like University of California, Berkeley and Stanford University, and cultivated
many Nobel Prize winners and leaders of giant technology companies. Other than the Fed
policies on R&D protection, the California government launched programmes to secure
funding of start-ups and career channels for college graduates. San Francisco initiated
community benefit agreements in 2011 that 1.5% payroll tax was temporarily exempted
for all new jobs created by companies which moved into Mid-Market. Companies that took
advantage of the tax break included Twitter (TWTR US), Uber, Airbnb, etc. In the bay area,
Silicon Valley and San Francisco are the largest venture capital investment markets in the
US with 42% share in 2017. Nowadays many well-known technology companies including
Google, Facebook (FB US), Twitter, Apple (AAPL US), Microsoft (MSFT US), Oracle (ORCL
US), Uber, Airbnb and PayPal (PYPL US) are located in San Francisco Bay.
Guangdong province’s city planning serves a good reference for developments in GBA and
surrounding areas. The planning encourages technology companies with lower valued-
added to move to east, west, and north Guangdong (outside GBA , but within Guangdong
province). These regions have per capita GDP of Rmb29.4k, Rmb36.8k, and Rmb28.0k
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respectively in 2015, far lower than PRD’s Rmb100.4k. The relocated downstream
manufacturing facilities will continue to support the manufacturing industry with
geographical proximity and lower labour cost which in return backs R&D and innovation
in Greater Bay Area. We believe that technology companies and manufacturers will first
step up production efficiency through automation and process enhancement, in order to
maintain the profitability under rising operating cost. This will trigger new round of capex
cycle for machineries and systems. In case that they are “encouraged” to relocate, funding
support is required by the government or financial sector.
North Guangdong
G UANG DO NG
East Guangdong
Guangzhou
Zhaoqing Huizhou
Foshan Dongguan
Zhongshan
Jiangmen Shenzhen
Zhuhai
Hong Kong
West Guangdong
Macau
CHI NA
Source: DBS HK
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Case study 2
Tokyo Bay: from general industrial production to technology. In 1960s, Tokyo began to
relocate general industrial production to Yokohama City and Kawasaki City, and focus on
technology development. Now, Tokyo Bay comprises of 6 sub-bay areas with Chiba for
energy import, Yokohama for end-product export, Kawasaki for raw material process, etc.
University of Tokyo and Tokyo Institute of Technology also cultivate talents for technology
development. Tokyo Bay is the high-end industrial production centre in the world, with
many well-known technology companies, including Sony (6758 JT), Toshiba (6502 JT),
Renesas (6723 JT), Taiyo Yuden (6976 JT), and SoftBank (9984 JT).
In GBA, we expect higher demand for data centres mainly driven by (1) establishment
of new technology companies and rising economic activities; and (2) improving network
connectivity leveraging on Hong Kong’s position as a global carrier hub. The increasing
demand will be partly met by supply from revitalisation of manufacturing plants.
Based on our study, the demand for data centres will be mainly driven by cloud and
internet applications which are expected to grow by 50%+ and 20%+ p.a. respectively
in the next three years. In the long term, demand for data centre services will also be
driven by the Internet of Things (IoT), Artificial Intelligence (AI) and Virtual Reality (VR)
applications.
Our study also finds that data centre demand is concentrated in a few of China’s top-
tier DC cities where economic activities are robust and network resources are abundant.
It is also highly correlated to GDP per capita. As cities in GBA develop high technology
and high value-added industries, we expect economic activities to flourish and GDP per
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capita to increase. More enterprises will emerge to drive demand for data centres. We
forecast the data centre market in GBA in terms of number of cabinets to grow at a
CAGR of 7.7% for 2017-2022 and a CAGR of 6.5% for 2017-2030.
2. Hong Kong as a hub connecting GBA with the rest of the world
Hong Kong is a global carrier hub well connected with the rest of the world while China
has limited international internet bandwidth. We expect data centre demand in GBA to
further increase, driven by the improving connectivity between Hong Kong and GBA.
In China, there are four international submarine cable landing stations, located in
Qingdao, Shanghai Nanhui, Shanghai Chongming and Shantou. Fuzhou and Xiamen
also host two submarine cable landing stations connecting Taiwan. In Hong Kong, there
are a total of eight submarine cable landing stations which allow Hong Kong to be a
major connection point between China and other countries. The total international
internet bandwidth (which is supported by submarine cable connections) only reached
6.8 Tbps in China while that in Hong Kong has achieved 9.2Tbps. Hong Kong is a major
carrier hub in Asia with vast connections through submarine cable systems.
Chinese telecom operators are expanding the bandwidth connecting Hong Kong and
other GBA areas. In April 2018, China Mobile built an optical fibre cable along the Hong
Kong-Zhuhai-Macao Bridge. This was one of the initiatives to increase communication
network connectivity in GBA. China Mobile now has five Guangdong-Hong Kong data
transmission channels, namely Wenjindu, Luohu, Futian, Western Corridor and Hong
Kong-Zhuhai-Macao Bridge, of which 12Tbps of bandwidth has been opened between
Shenzhen and Hong Kong.
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Meanwhile, China Telecom also signed a contract with HGC to build a cross-border
transmission system along the Hong Kong-Zhuhai-Macao Bridge. It aims at increasing
the communication capability in the region to echo the GBA strategy. China Telecom
has connected five ports in China with 10 telecom operators in Hong Kong and
Macau, to offer cross boarder bandwidth of 17Tbps. This accounts for 60% of the total
communication volume between China and Hong Kong & Macau.
Comparison of submarine cables between China and major countries in the world
China US Japan UK Singapore
Source: China Academy for Information and Communications Technology (CAICT), DBS HK
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As for the supply side, we expect manufacturers with low value-added products/services
to move away from GBA. In Guangzhou and Shenzhen, there were c.130,000 data
centre cabinets in 2016 according to Ministry of Industry and Information Technology
(MIIT). It is also estimated that there will be a shortage of 36,000 cabinets in Guangzhou
and Shenzhen in 2018. We expect old industrial buildings to be converted into data
centres to meet rising demand, in view of the general supply shortage. The power supply
for production plants and machineries can also be redeployed for data centre operations.
GBA will be more technology-driven with the gradual demise of traditional sectors. More
private equity and venture capital inflow is expected to support the establishment and
cultivation of new technology start-ups. Hong Kong also provides a platform for IPO. On
the other hand, manufacturing companies with lower valued-added products/services will
be relocated to other parts of Guangdong (outside GBA). We see the start of an investment
cycle for machinery upgrade or relocation. Compared to San Francisco Bay and Tokyo
Bay, GBA’s larger land area and talent base with higher GDP growth rate will enhance its
potential to be the next innovation hub to make a global impact.
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Culture change and talent development are key issues to be addressed, too. It is well known
that GBA has possessed some of the successful elements to drive growth: (1) the depth of
the capital market in Hong Kong and Shenzhen, (2) strong presence of leading academic
institutions in Hong Kong and Guangzhou, (3) development guidance from the state such
as the GBA policy outline and China Manufacturing 2025 blueprint. Yet, there are also
qualities absent: (1) a culture willingly to assume longer term risks for scientific projects.
That explains the scarcity of venture capitalists , (2) an education system that promotes
innovation. The mainland educational system is regimented and there is insufficient focus
placed to promote creativity, innovation and critical thinking. While some of the issues have
been addressed in the blueprint with Guangzhou to become a regional PE hub, there is still
long way to go to promote an innovative culture.
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