In July 2019, JLL and the Shenzhen City Government jointly hosted a Greater Bay Area (GBA) event in Hong Kong, we shared our latest research on key GBA topics, including growth drivers, economic ties and property investment opportunities. One key finding: Shenzhen has now become the primary growth pole of the GBA.
This finding marks the progression of our views on GBA’s growth drivers and is a reflection of the region’s ever-evolving growth dynamics and constantly-improving infrastructure. To reach this conclusion, we employed a modified gravity model to examine the changes in economic ties between all GBA cities in 2015 and 2019. The model stipulates that the economic tie between any two cities should be proportionate to the product of their GDPs while inversely proportionate to the square of travelling time between them. Though heuristic, this model is very powerful as well as intuitive in demonstrating the evolution of economic ties following the last four years of economic growth and connectivity improvement. In the two graphs below, we divided all economic ties into six levels and removed the lowest “insignificant” level from the graphs for the sake of clarity. Accordingly, it is easily visible that, by 2019, Shenzhen has emerged as the region’s epicentre.
Figure 1: Economic ties between GBA cities in 2015
Source: CEIC, JLL
Figure 2: Economic ties between GBA cities in 2019
Source: CEIC, JLL
The driving force behind the model’s result is the improvement in connectivity over recent years, which benefits Shenzhen most in comparison to other GBA cities, as well as Shenzhen’s robust economic growth driven by a strong and innovative tech industry (For details on this topic, see our white paper on the Shenzhen tech industry). The strong economic ties between Shenzhen and other cities allow Shenzhen’s fast economic growth to feed and help energise the economies of other cities. Therefore, our conclusion is that Shenzhen has become the GBA’s primary growth pole.
Coincidentally, the central government of China shares our view on this matter, having announced on 18 August its policy intentions supporting Shenzhen in becoming the primary example city for China’s future growth model. This marks the first instance since the inception of the GBA initiative that the central government has explicitly singled out Shenzhen for its leading role in the region.
The message should be clear by now. Shenzhen will be the vanguard of GBA development. Further reform, policy support and GBA synergies are all going to contribute to faster growth of the Shenzhen economy. Many overseas investors are yet to fully appreciate Shenzhen having the most growth potential among all Chinese cities. In fact, most risks of investing in Shenzhen are idiosyncratic to individual projects rather than systematic. Therefore, investors should be less concerned with factors such as large upcoming office supply; instead, they should be trying to determine the right price to enter and how to manage the asset. Arguably, now is a good time to buy office space in Shenzhen, as the weak sentiment in the leasing market has softened the stance of several property owners with regards to their asking price.
