“China12” Cities: Hong Kong’s Competitors or Collaborators?

There is plenty Hong Kong can learn about innovation from its northern neighbors, but the best way forward may lie in partnerships.

May 22, 2018

China is now entering a new era of innovation and global influence, and its 12 leading mainland cities are emerging at the heart of new city clusters that are home to a new breed of tech-savvy businesses. While Hong Kong still ranks as one of our 'Big Seven' Established World Cities globally, it faces fast-rising regional competition from the 'China12'.

The 'Belt and Road' and other initiatives have provided a springboard to propel the mainland Chinese economy forward. No longer simply subservient to government directives or international capital flows, the China12 cities have become "hotbeds of innovation, global interaction, and influence in their own right," says Jeremy Kelly, our Director of Global Research, and an author of our latest Cities research, China12: China's Cities Go Global. 

Beijing, Shanghai and Shenzhen dominate China's innovation ecosystem. Despite their differing strengths—from Beijing's leading universities and research institutions, to Shanghai's strong all-round offerings, and Shenzhen's concentration of dynamic private firms—these cities have evolved to become major exporters of innovative ideas and business models, thanks to high R&D spending, large numbers of patent applications, and their attractiveness to domestic talent. 

Hangzhou, though behind the top three cities according to our innovation metrics, stands out as the birthplace of China's e-commerce revolution. Firms such as Alibaba have reshaped the retail landscape with new formats and distribution techniques. 

We now believe Shanghai and Beijing will join our list of "Big 10" most globalized cities by 2022. So how does Hong Kong stack up against these contenders?

"Hong Kong is a global super-connector, with a critical mass of business functions," says Kelly. "Its attractive business operating environment will continue to secure Hong Kong's position among the top group."

Hong Kong remains one of the most globally connected cities in the world, enjoying concentrations of international capital and talent that no mainland city can yet rival. Mainland Chinese firms have huge appetites for real estate in Hong Kong, and continue to come to the city to raise capital overseas.

Hong Kong's transparent and accessible business operating conditions and its high quality of life also give it an advantage over its mainland peers.

But there is concern that Hong Kong is gradually losing some of its edge. "Hong Kong sits behind Beijing and Shanghai in the innovation economy," says Kelly. "Shenzhen has already moved ahead of Hong Kong on this score, and Guangzhou is hard on its heels."

Sky-high prices for both residential and commercial space don't help: finding affordable office and living space is an issue for businesses looking to operate in Hong Kong. Even though the government has plans to vastly increase land supply for development, geographical constraints mean this challenge to the city's competitiveness won't be going away.

But the growth of the China12 doesn't only mean competition for Hong Kong. There are plenty of opportunities for collaboration too.

Increasing integration and connectivity within the Greater Bay Area (GBA), for example, should allow Hong Kong, Macau, and cities within China's Guangdong province to develop their own strengths and share these with one another. In this way, Hong Kong could leverage its position as a key provider of financial and professional services, while Shenzhen can focus on innovation, and investment in logistics could shift to cities such as Dongguan—to the greater benefit of all.

"Hong Kong could explore building joint technology and innovation centers with Shenzhen," observes Kelly. "This model works across many sectors including the finance and services industries that are the backbone of Hong Kong's economy."

One thing is certain: The combination of Hong Kong's global connectivity and the China12's cutting edge technologies have the potential to change the way we live and work in cities.