QIANHAI: In what now is a barren site in Shenzhen, will soon become what Chinese leaders are calling the ‘Manhattan of the Pearl River Delta’, or the up-and-coming Qianhai Special Economic Zone.
The ambitious project, which entails building a pilot financial zone from scratch, will offer freer capital movement and tax breaks for companies which operate there.
Expected to be up and running in two years’ time, the site is a two-hour drive from Hong Kong and US$45 billion in the making.
The small plot of land is set to have a big role in China’s financial market; Qianhai is slated to help China fully liberalise its currency, and develop a modern service model that the rest of the country can adopt.
The 15-square kilometre zone will accommodate 800,000 professionals, becoming a work-and-play destination that will even offer a waterfront lifestyle.
Boasting a low 15 per cent tax rate for corporations and no taxes for salaried staff, the project has proved to be a draw; Qianhai’s GDP is expected to hit 50 billion yuan (US$8 billion) by the end of 2015, and that amount is projected to triple by 2020.
“GDP is actually not very important. It just represents that they’re trying to set up a modern service industry area with the cooperation of Hong Kong. What is more important is how to set up a new system – management, administrative and system of opening up its financial markets,” said Tse Yung Hoi, chairman of BOCI-Prudential Asset Management
According to Mr Tse, who also acts as consultant on the Qianhai Advisory Committee, work this year will continue to stay focused on the international business community.
To date, 100 Fortune 500 enterprises have expressed their intentions to set up business in Qianhai; over US$14 billion has already been committed.
“Qianhai is a two-sided platform. The company in Qianhai can serve the domestic economy as well as keep relations with Hong Kong. So if Hong Kong banks, insurance companies, or financial companies set up shop in Qianhai, that means these companies can keep relations with Hong Kong and relations with domestic enterprises,” said Mr Tse.
Hong Kong banks have taken the lead, given first-mover advantage in Qianhai.
In January, 15 Hong Kong lenders were allowed to offer a total of more than US$321 million worth of yuan in loans to local companies registered in Qianhai. These baby steps will see the loan-ceiling raised, allowing offshore yuan back into China.
“It’s really starting from scratch. We all know that if you build an industrial zone from scratch, it actually makes more sense than building a services zone from scratch. So I do think we need to be careful (about) how much it can carry and achieve” said Yao Wei, Societe Generale’s China economist.
Time will also be of the essence, as China’s capital-control reforms for the rest of the country will happen at the same time.
“Money is fluid, it can go anywhere. So if the money goes to Qianhai, can they really make it stay in Qianhai or will the money flow to other parts. And if the money flows to other parts, then that clearly opens more challenge for arbitrage – institutions taking advantage of interest rates differentiations. And should the authorities encourage it or not…there are still a lot of questions to be answered,” said Ms Yao.
Chinese authorities are expected to provide more details of the pilot initiatives and other new measures for Qianhai as early as the end of this month.