Potential transformation in south China led by the Guangdong Free Trade Zone

April 2, 2015 / By  

The China (Guangdong) Pilot Free Trade Zone (GFTZ) in Guangdong Province is an innovative trial ground for economic and social reforms, approved by China’s State Council on 28 December 2014, along with Tianjin and Fujian Province. The GFTZ covers an area of 116.2 sq km and comprises three economic zones within Guangdong Province, close to Hong Kong – Guangzhou (Nansha), Shenzhen (Qianhai and Shekou) and Zhuhai (Hengqin).

Source: JLL, Wikipedia

These new zones will introduce new experiments based on their local characteristics. Apart from being a testing ground for a cross-border capital market and collaboration with Hong Kong and Macau, which will focus on attracting foreign investment, it is envisaged that further transformation in south China will be fuelled by the GFTZ:

  • “Shenzhen – A new Silicon Valley in China”. As a result of the renewed energy on the back of the technology sector, Shenzhen ranked fourth among 120 major established and emerging business hubs across the globe in JLL’s latest City Momentum Index, behind only London, San Jose and Beijing. Rather than increasing innovation investment, the local government intends to harness the synergy between the high-tech segment and the cross-border capital market in GFTZ to accelerate the development of this flourishing sector in China.
  • Encouraging overseas investment for local financial firms. Non-financial firms, particularly government-led foreign investment in the field of electronic product exports, infrastructure development and the natural resources segment, have historically dominated China’s overseas investment However, the GFTZ also places emphasis on fostering cross-border investment by simplifying the approval procedures for local financial institutions to pursue mergers and acquisitions abroad. We foresee that the GFTZ will stimulate more local venture capital and private equity firms to expand abroad.
  • Transforming export-oriented industrialisation into a global trade service centre. The GFTZ is an area where the legal system and economic regulations vary from the normal provisions of the country. This advantage will be a positive for trade finance and other high-value services in relation to global trade and will help south China move up the value-chain.

Perhaps such a transformation led by the GFTZ is not a long-term story; indeed, we observe that the local finance and IT segments are emerging as the next engine of office demand growth in Guangzhou and Shenzhen. Enquiries about sizeable R&D centres from international top-tier technology firms are gravitating towards Shenzhen, requesting a minimum of 10,000 sqm of office space for some cases. In Guangzhou, there is increased new demand for office space from domestic financial firms and for R&D centres from IT-related companies; such operations are taking up considerable Grade A office space. In tandem with financial and economic reforms, structural changes in office demand are expected in Guangzhou and Shenzhen, spurring office demand growth and a higher presence of high-value financial and business services and the IT industry in the Grade A office market.

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