Government policy, access to finance and talent supply are the three key elements to the development of the Greater Bay Area (GBA) into an international innovation and technology (I&T) hub of global significance, according to the joint ACCA and EY study.
This report analyses the industry’s views based on a comprehensive survey from over 500 finance professionals, supplemented by deep insights collected from a wide range of interviews across multiple industries.
The GBA is stepping up in the I&T development with outstanding capability of research and development (R&D) in different cities. Shenzhen, Guangzhou, Hong Kong and Macao are core cities in the technology and innovation corridor as specified in the Outline Development Plan, and have a pivotal role as creation centre, gateway city, international hub and tourism centre of the GBA respectively.
The study confirms the positive impact the GBA’s transformation into an I&T hub would have on businesses including new market and revenue, accelerated development of R&D projects that will produce innovative goods and services, and greater access to high-calibre R&D talents. Several key technology areas also come into focus from interviews with industry leaders and stakeholders, such as artificial intelligence, big data and analytics, and smart cities.
Developing the GBA into an international I&T hub would create tremendous opportunities for the businesses in the region. To realize the potential, the GBA must focus on a number of specific areas.
Among all, government policies outscore all other factors as the most critical priority in shaping the I&T development of the GBA. This requires supportive regulations such as tax incentives and IP protection which are essential to create a business-enabling environment.
Funding is key to I&T particularly in the tech startup world. From the survey, PE, VC funds and angel investors are the highest-ranked sources of finance of new businesses. Having a legal framework that can facilitate various financing options would be highly favorable to the I&T development in the GBA.
Increasing talent supply is of utmost priority to the I&T development. This needs to be achieved by offering favorable employment terms to attract world talent. On this, cities should adopt an open mindset, embrace diversity and recognize international talent. The survey also suggests a need to harmonize policies to facilitate freer flow of talent. Relaxing border controls and extending exemption of work permit to Hong Kong and Macao residents can be considered.
Finance professionals have an important role to play in the development of the region. To this end, we recommend finance professionals to develop entrepreneurial mindsets; develop a familiarity with game-changing technologies; help facilitate fundraising; and provide assurance to investors to seize the opportunities that the GBA could bring.
Research findings at a glance
Three steps to cultivate I&T growth
The TMT segment is excited to be a part of the GBA’s development into an international I&T hub. Market participants hope to see a boost in their outputs and will allow the financial markets to flourish.
While developing the I&T hub in the GBA is still in the early days, government facilitation should provide a good motivation to succeed with achievable goals. Facilitating the efficient and orderly flow of people, capital, goods, services and information across the GBA are vital in this sense.
Concurring with our observation, the results of the survey reveal a number of specific areas that the GBA must focus on its journey to develop as an international I&T hub. These areas are government policies, finance and talent.
1. The Role of Government
Tax and IP protection are top concerns
The market expects more government measures to stimulate I&T development in the GBA. These measures include tax concessions and more stringent IP protection, coupled with a number of initiatives to attract talent and encourage mobility, in effect leveling the playing field across the GBA. Of these, concessions on tax and customs rank the highest (73%), followed by IP protection (64%) and talent mobility (60%). Other priorities for respondents are cash subsidies from government (52%) and dedicated infrastructure (51%).
To attract global I&T talent to work in the GBA, we welcome the recent tax equalization policies introduced by the Mainland government in March 2019. Hong Kong and overseas talent working in the I&T sector would get tax subsidies for any amount of tax paid in excess of 15% of their salaries. The list of professionals and jobs entitled to such subsidies is yet to be confirmed. While we trust the Mainland government would include a very comprehensive list to make this initiative attractive to the global talent, we are of the view that talent should not be limited to the I&T field. The GBA needs all kinds of talent to make it a success. We recommend the internationally recognized professionals, such as ACCA certified finance professional, should be entitled to such tax subsidies.
Currently, China’s High and New-Technology Enterprise (HNTE) Program provides a reduced tax rate of 15% against the standard 25% tax rate for innovative companies that meet specific qualification criteria. To drive innovation in the GBA, the mainland China government can consider granting a tax incentive of 15% Corporate Income Tax (CIT) rate to qualified R&D institutes situated in the GBA as well.
The mainland Chinese government can consider granting exemption for import taxes or duties on equipment to all R&D institutes and advanced manufacturing companies (e.g., biotech) situated in the GBA.
The mainland China government can also consider expanding the preferential customs measures on the flow of goods currently applied in Qianhai and Hengqin to other cities in the GBA.
Hong Kong can position itself as an international IP hub. Many multinational companies already house their headquarters here so having Hong Kong as the IP hub for Asia Pacific aligns with their operations. The IPs do not necessarily need to be created in Hong Kong and can be acquired or licensed. Instead Hong Kong can integrate the different technologies that it acquires from other countries and cooperate with experts in the Mainland and the rest of the world to be the IP hub. As Hong Kong is the only city in the GBA adopting common law, it can play the role of an IP registration centre and establish a strong regulatory framework for Hong Kong.
2. Access to finance
PEs/VCs are primary sources of finance in I&T
Funding is key to business growth and innovation. In the tech startup world where capital is used to fuel the hyper growth necessary to disrupt the establishment, venture capitalists and private equities play the kingmakers. These funds are supplemented by those established VC funds from the large telecom and technology firms that specialize in growth capital and late-stage start-up investments. From our survey, PE, VC funds and angel investors are the highest-ranked sources of finance by respondents (76%), followed by bank financing (70%).
Encourage more funds setup in the GBA. The choice of domicile for a private equity and venture fund is driven more than ever by an investor’s need for tax-efficient and transparent structures, concurrently balanced with strong governance, reputation and access to top talent. The availability of funds will hugely facilitate the fundraising activities that are critical for I&T start-ups. To attract global funds into the GBA, therefore, the governments should focus on incentives to encourage these investors to set up in the GBA, such as by granting financial subsidies to Renminbi funds and QFLP funds for investments made in encouraged projects in the GBA and specifying that the financial subsidies are exempted from CIT.
Encourage multinational corporations to set up centralized management and financial functions in the GBA. Currently, the Mainland China government offers various financial subsidies to Chinese holding companies (CHC) that act as centralized hubs for Mainland investment by foreign investors. The government could encourage more PE and VC funds to invest in the GBA by considering increasing the financial subsidies for CHCs and specifying that the financial subsidies are exempted from CIT which would increase the flow of fund and promote re-investment by corporations.
Encourage more investors to set up regional headquarters in Hong Kong. To strengthen the role of Hong Kong as the regional headquarter and lure more China and foreign investors to set up their regional headquarters in Hong Kong in serving their investments in Asia, ACCA Hong Kong also recommended to the HKSAR government to consider offering concessionary tax rates (e.g., half rate) for regional headquarters’ activities which are of a substantial scale and are of the nature of investment, general management, financial management, and marketing with broad geographical coverage.
Improve access for RMB funds. At the moment, there is no shortage of investors interested in setting up RMB-denominated funds to invest in the Mainland. In order to incentivize experienced investors to set up these funds and invest in key industries in the GBA, authorities could consider subsidizing the tax payable by the general partners.
3. Talent development
Increasing talent supply is of utmost priority
The results from the survey suggest most respondents (77%) believe that efforts to “offer favorable employment terms to attract world talent” is the most important means to develop talent for companies and organizations within the GBA.
The second most-frequently cited arrangement would be to “harmonize policies to facilitate freer flow of talent” (70%). These obviously are quick fix to the talent shortage problem. Governments in the cities of the GBA can work together further to remove hurdles of talent mobility. Enabling these talents to work seamlessly and effectively across the GBA region not only improve the talent supply in the GBA significantly, but is also critical to maximize the R&D productivities and efficiencies.
Focus on workforce mobility. Governments can introduce policies to facilitate a free flow of talent throughout the GBA. They may consider relaxing border controls and extending exemption of work permits (currently implemented in Qianhai) for Hong Kong and Macao residents. Capitalizing on the electronic identification for residents in the GBA could also be a good step.
As it evolves into an I&T hub, the GBA needs talent from a variety of streams. Cities should adopt an open mindset, embrace diversity and recognize international talent, which would not only increase the supply of talent but also help develop local talent. Lower individual income taxes, easier-to-access entry permits, removing hurdles to talent mobility and improving support facilities would also help. While salary levels are a commercial decision, I&T businesses should pay more attention to incorporate a more inclusive and diverse business culture, embrace open thinking, accommodate different opinion and encourage transparent conversation.
Provide more IT and different kinds of trainings to upskill labor. To better develop and expand the talent bank and reduce the reliance of technical training on the private sector, semi-government organizations, education institutions, and professional bodies can take the lead in providing different types of training, including but not limited to longer-term science and technology training, to upskill the workforce in the GBA. We believe that the GBA requires talent of different streams and should not be just restricted to the I&T sector. To facilitate this, the relevant governments can consider implementing policies that simplify the set-up requirements of training schools and encourage life-long learning.
Encourage I&T talent and international recognized talent from the rest of the world to work in the GBA. To attract global expatriates specializing in innovative industries to work in GBA cities, a welcoming measure is seen recently with the announcement of a favorable tax policy for overseas high-end talent and professionals in short supply that work in the nine GBA cities, where they will get subsidies from municipal governments to offset the individual income tax differentials between mainland China and Hong Kong. We recommend the list of professional and jobs that entitled to such subsidies should cover all encouraged industries in the GBA and internationally recognized professionals such as ACCA certified finance professionals.
Recommendations to finance professionals
Finance professionals with a stake in the future development of this unique group see plenty of synergies at play among the cities that make up the GBA. Finance professionals are key to drive the development of the GBA but have to take an active hand to understand technology and drive business growth in its path to become an I&T hub.
Results from the survey and interviews suggest a number of key recommendations for finance professionals:
Entrepreneurial mindsets that work and grow together with businesses
In the GBA, finance professionals are needed across multinational corporations to launch IPOs, provide financing, facilitate M&A, drive investment, ensure legal compliance, manage risk, improve corporate governance and drive globalization efforts. Small to medium enterprises also have demand for compliance and accounting work. There are ample career and business opportunities for the development of finance professional. To help finance professional capitalizing these benefits, ACCA identified that there are seven quotients that finance professionals need to acquire to become successful in rapidly changing business environment. ACCA offers numerous technical trainings and market updates to equip our members with necessary knowledge and skills to help business strive.
Technology is a game-changer for business
Finance professionals need to upskill themselves and understand technology developments. Being the subject matter for FinTech and blockchain, they can facilitate the cultivation of corporate culture to embrace technology, facilitate mindset transformation, and corporate change management. Only when equipped with the understanding of the latest developments of technology can financial professionals identify risks and opportunities when leveraging I&T to drive business success in other industries. ACCA also collaborates with technology companies to provide technology trainings and workshops to groom them to become tech-savvy finance professionals.
Finance professionals driving the fund-raising exercise
Funding is vital to turn research ideas into commercial products. However, startups and innovative entrepreneurs may lack the finance knowledge and, most importantly, investor pitching skills. Finance professionals should bridge this gap by helping business monetize their innovative ideas and present them in well-articulated business plans and budgets. Finance professional are recommended to take proactive roles in providing financing expertise to business leaders, startups and large corporations, and help ‘selling’ their innovative businesses to PE/VC in getting the necessary investments.
Providing assurance to investment projects
Investors and business leaders often need to evaluate different investment projects. Besides analytical work, finance professionals can provide assurance on the appraisal of various projects. ACCA’s trained finance professionals are not only equipped with technical knowledge, but also ethical mindsets. They have the ability and credibility to deliver assurance work that help business leaders and investors to screen projects and make optimal business decisions.