Bay Area opportunities, challenges: An entrepreneur group's view

August 17, 2018 15:13
With the Hong Kong-Zhuhai-Macao Bridge opening soon, Phoenix Wan, founder chairman of an entrepreneurial organization for startups, believes the Greater Bay Area will add to its appeal. Photos: HKEJ, Reuters

To encourage offshore entrepreneurs to come and work in mainland China, the Chinese government recently announced that it is issuing new residence permits to residents from Hong Kong, Macau and Taiwan starting September 1. The permits will allow better access to public services, employment rights, and social insurance, among new benefits in the mainland.

Amid this initiative, a Hong Kong-based entrepreneur organization, which goes by the name Youth Entrepreneur Warrior, is seeking to assist Hong Kong startups in expanding to the mainland. As part of the effort, the group has been organizing various activities across the country.

Phoenix Wan Hok-man, the organization's founder chairman, recently sat down with the Hong Kong Economic Journal to outline his views on issues related to cross-border entrepreneurship and the opportunities and challenges arising from the Guangdong-Hong Kong-Macao Greater Bay Area plan.

Excerpts from the interview:

HKEJ: We know that Youth Entrepreneur Warrior is an entrepreneurial organization connecting Hong Kong startups with the mainland China market. What do you think entrepreneurs need to consider before entering the Greater Bay Area?

Wan: The Hong Kong-Zhuhai-Macao Bridge and Hong Kong's high-speed rail link will begin operations soon. In the future, Hongkongers can quickly travel to and from the Greater Bay Area. I believe entrepreneurs will carefully consider the examples and experience of their predecessors, and have a look at the policy packages in the Greater Bay Area, such as the incubation bases in the area, venture funds, tax rates, etc. Entrepreneurs will measure and evaluate the potential business returns for entering the area, and other factors such as whether and how they can engage with mainland investors.

Q: Regarding the "9+2" cities” in the Greater Bay Area, what do you see as their characteristics?

A: The Greater Bay Area encompasses 9 mainland cities - Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing, and the two Special Administrative Regions – Hong Kong and Macau. It is necessary for startups planning to enter the area to know the area’s industrial layout characteristics. For example, Guangzhou is leading in the petrochemical industry, automobile, electronics manufacturing and heavy industry; Zhaoqing specializes in metal, forestry processing industry, and tourism; while Foshan is a popular site for home appliance manufacturers.

Mastering the information of each city’s characteristics and industrial strengths, entrepreneurs will be able to make use of each cities advantages and even avoid competition from peers in the area. Take Foshan, the “capital for home appliances” as an example. Startups can think about developing peripheral businesses around the home appliance sector, such as the home appliance machinery and smartphone accessories.

In Hong Kong, we have an advantage as an international market. We can have quicker access for foreign high-tech products. We can also provide consulting services for companies in mainland cities, sharing new business ideas and guiding them to overseas markets.

Q: What is the biggest incentive for Hong Kong startups to enter the Greater Bay Area? Will the high tax rate in the area be a deterrent?

A: As we know, the population of Greater Bay Area reaches over 67 million, which is about 10 times that of Hong Kong. For startups, especially in IT, internet technology and other tech areas, the business model must rely on a huge market, and the Greater Bay Area market is absolutely appealing.

Secondly, Hong Kong has big issues with regard to land and space. In contrast, the total area of the Greater Bay Area is about 56,000 square kilometers, which can alleviate the pressure of Hong Kong’s land shortage.

Also, the cost of manpower salary in the mainland is relatively low, which greatly reduces operating costs for startups. However, if you want to settle in the Greater Bay Area for a long period of time, such as in continuous residence for over six months a year, you should be concerned about the "personal income tax" in the mainland, where the progressive tax rate can be as high as 45 percent. I believe that is a factor that holds many Hong Kong people back.

Q: We know that there are Hong Kong startups setting up bases in Qianhai, Shenzhen. What policies are in place there to support Hong Kong entrepreneurs?

A: For Hong Kong people to expand their business in the mainland, they have to deal with complicated procedures at the early stage. Take the example of setting up a company in the mainland. First, there must be registered capital reserved for the company, with a minimum of 400,000 to 500,000 yuan (about HK$450,000 to HK$570,000), which should be deposited in cash in full.

With the introduction of preferential policies of Qianhai, a special department has been set up for Hong Kong people applying to set up companies in Qianhai. The verification procedure on registered capital is waived, and the registration procedure became simpler. Qianhai also has an independent court. And its business laws are close to those of Hong Kong, something that will build confidence among Hong Kong investors and entrepreneurs to enter the market.

Q: For Hong Kong entrepreneurs expanding their business in the Greater Bay, what do they need to pay attention to?

A: I would say the cultural difference, which is huge. In terms of marketing and promotion, Hong Kong-based businesses are used to deploying foreign social networks. As they enter the mainland, they have to start the marketing efforts from scratch and switch to Chinese social media platforms like WeChat and Weibo.

There are many rapid-growing venture capital funds in mainland China, which startups can work with. But it is necessary to pay attention to the role of "guanxi", the personal connections and relationships, in the Chinese business world. Besides that, the booze-style business drinking culture was dominant in business dinners in China. Not today, though. The culture has been gradually changed, and is now less prevalent in cities like Shenzhen and Guangzhou.

This article appeared in the Hong Kong Economic Journal on Aug 17

Translation by Ben Ng

[Chinese version 中文版]

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