Last year, Thomas Wong FCPA (practising), Partner at CW CPA, found himself sourcing a shipping container for one of his clients based in Latin America. The client conducted business in the Greater Bay Area (GBA) but was unable to travel there due to border closures. It is one example of how he has pivoted his firm to increase the services he offers to clients in the GBA, transforming CW CPA from a traditional accounting firm to a business partner and consultancy.
The development of the GBA offers significant opportunities to Hong Kong-based companies and accounting firms, even while the border remains closed. Petrina Tam CPA, Convenor of the GBA Working Group, at the Hong Kong General Chamber of Commerce (HKGCC), points out that with a population of 86 million and combined gross domestic product of US$1.7 trillion, the GBA represents a huge market for Hong Kong businesses. She adds that with a total area 50 times that of Hong Kong, local businesses can also utilize a larger pool of resources, such as land and labour, two areas in which the city faces bottlenecks. “Amid the current atmosphere of international protectionism and trade uncertainty, the GBA plan could serve as a timely haven for Hong Kong businesses to diversify their markets,” she says.
In the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, published in 2019, the Constitutional and Mainland Affairs Bureau identifies 12 key sectors, including innovation and technology, financial services, and professional services, that will benefit from the region’s ongoing development.
Maggie Lee CPA (practising), Head of Capital Markets Development, KPMG China, thinks these sectors offer the biggest opportunities to Hong Kong companies. She points out that in a regular survey conducted by KPMG, in cooperation with HKGCC and HSBC, respondents consistently expect the innovation and technology, financial services, and trade and logistics sectors to see the strongest growth in the GBA.
She adds that the restructuring of the industrial chain, and enhancing of Mainland China’s competitiveness in innovation and smart manufacturing are also a key areas of opportunity in the GBA.
In view of the pandemic, Tam thinks sectors that require minimal face-to-face interaction will continue to outperform in 2022. She considers the outlook to be particularly strong for the financial services sector following the launch of the southbound leg of Bond Connect between Mainland China and Hong Kong, the start of the Wealth Management Connect Scheme and the announcement of the expansion of the Qianhai Economic Cooperation Zone in Shenzhen. Hong Kong is also well-placed to serve as a hub for family offices, she adds.
In addition, she expects technology companies, such as those involved in 5G, the metaverse, artificial intelligence and blockchain to have significant opportunities going forward.
Edward Au FCPA (practising), Vice-President of the Hong Kong Institute of CPAs, and Southern Region Managing Partner at Deloitte China, has identified four key areas for opportunities in 2022, namely financial services, professional services, technology and e-commerce. For professional services firms he thinks opportunities will be created by the growing number of successful entrepreneurs in the GBA looking to do initial public offerings (IPOs) or raise funds, as well as an increased need for regulatory advisory services.
Agnes Chan FCPA, Managing Partner, Hong Kong & Macau, EY, thinks sectors such as finance, technology, health and infrastructure will benefit most from the GBA development. She also expects accounting firms to be well positioned, pointing out: “Hong Kong’s world-class accounting profession has a competitive edge to cope with the rapid development of the GBA. Many high-quality technology start-ups have started expanding in the GBA, presenting a huge demand for financing, IPO services and related accounting services.” She thinks the expansion of the Qianhai Economic Cooperation Zone and the development of the Guangdong-Macao Intensive Cooperation Zone in Hengqin will also increase demand for the services provided by CPAs, adding that they can also support the development strategy of the GBA in terms of implementation, interconnection and integration.
Rebecca Wong CPA, PwC China Tax and Business Advisory Partner, agrees that the recent announcement of the expansion of the Qianhai Economic Cooperation Zone creates new opportunities for Hong Kong-based businesses. She adds that environmental, social and governance (ESG) is also a hot topic in Mainland China following the introduction of the 2060 net zero carbon target, creating opportunities for accounting firms to not only guide companies on ESG reporting, but also help to evaluate ESG investments and green finance.
She points out that with Shenzhen hoping to pilot a digital currency in Mainland China, and Guangzhou promoting the digital economy, there will be opportunities for legal and accounting firms to provide new services in this area.
Thomas Wong says firms, particularly small and medium practices (SMPs), have a significant opportunity to position themselves as partners and consultants for overseas companies that want to expand into the GBA. “We have helped a lot of people set up a holding company in Hong Kong for their Mainland China company, as well as doing year-end audits for the Hong Kong company and the Mainland China company. We offer a one-stop service.”
He adds that the pandemic has also created a lot of opportunities for accounting firms to offer consultancy services and be more involved in their clients’ business operations. “There are still a lot of foreign companies that are either looking at Mainland China as a consumer market or are sourcing from there, but because of the pandemic, they cannot travel to China to visit factories or undertake negotiations. Integrity, honesty and creditability are the hallmark of accountants, so we are branching out into new services in this area to help them,” he says.
Thomas Wong explains that 40 of the 95 staff at CW CPA are based in the GBA, helping overseas companies enter the market or expand there. “I have seen a continuous growth in inquiries from overseas, including from the United States, United Kingdom, Europe and South America. The GBA has been my growth area in the past two years,” he says.
He adds that overseas companies like working with SMPs because partners at the firms can make themselves more available. He adds that his firm has also developed a niche catering to companies from Spanish and Portuguese speaking countries, even publishing a regular newsletter in these languages.
Impact of border closures
Unsurprisingly, the current travel restrictions have impacted many companies’ plans to expand in the GBA. “For many companies, successful implementation of their plans requires high levels of labour mobility within the region where senior staff are able to travel and work conveniently across the various GBA cities,” Tam explains.
Although technology has helped to reduce some of the geographic barriers, it cannot replace visits. Au notes that while planning or preparation work can be done virtually, “travel is necessary to drive execution and growth at the later stage.”
Lee points out that video conferencing is also no substitute for the face-to-face contact needed to build connections with other companies, clients, regulators and government bodies. “Conducting on-site visits to different GBA cities is always important to have for the personal experience and to understand the environment, development, local market and people. It allows you to formulate the right strategy in the GBA,” she says.
As a result, she suggests companies wanting to enter the GBA should plan to visit the nine Mainland cities as soon as the border reopens. “You cannot underestimate the importance of site visits when managing an operation over a different jurisdiction, particularly with the increasing focus on corporate governance. Big corporations need to take a look at the existing operations and make changes where necessary,” she says.
Rebecca Wong agrees: “Many people have not experienced the latest business environment in the GBA, such as the new buildings, industry parks and incubators. People still need to have face-to-face meeting and shake hands for big deals. For some industries, it is important to meet government officials to discuss matters, and people need to travel to meet, network with, and understand their team and business partners.”
But for Thomas Wong, the lack of travel has actually created more opportunities for his firm. “Even though the border is closed, business still needs to continue. We have seen a lot of restructuring projects, expansions, and relocations. This sort of business activity continues to go on and we can help with that,” he says.
“You cannot underestimate the importance of site visits when managing an operation over a different jurisdiction, particularly with the increasing focus on corporate governance.”
Alongside the challenges created by the travel restrictions, companies expanding in the GBA also face other issues, offering further opportunities for firms. Chan says when EY asked businesses at its Synergize GBA Forum 2021 what they considered to be the most challenging aspects of GBA expansion, 39 percent cited capturing business opportunities, while 25 percent said securing government support and 20 percent said understanding GBA policies.
Rebecca Wong thinks one of the biggest challenges is understanding the three different legal, tax and regulatory systems in use in the GBA. “If companies have no experience in the Mainland, they should take professional advice on how to design their investment structure, prepare their business model, manage cross-border fund flows and evaluate the options available.”
She says in the past two to three years, she has seen an increase in the number of enquiries from both Hong Kong and overseas clients asking PwC to conduct a set up study on the corporate structures, and to evaluate potential locations and opportunities available in the GBA.
Lee from KPMG says a significant challenge for companies is keeping up to date with changes to the tax and regulatory environment. “There are new announcements almost every day. It is quite challenging for corporates to digest, which is why professionals always play a role.”
Au adds: “One of the biggest challenges we see at Deloitte is for companies to transform their organization and talent structure in order to capture the available opportunities. To overcome these challenges, companies need to fully understand the opportunities available and how best to capture them.”
Going forward, he would like to see further policy measures to make it quicker to launch businesses or products in the GBA, such as simplifying or streamlining administrative processes, and expediting the rollout of remote account openings within the GBA. “Policies that facilitate the sharing of data and information between Hong Kong and other cities in the GBA to ease the controls on logistics or customs, and the expansion of cross-border businesses would also be beneficial,” he says.
Tam would like to see increased mobility of foreign talent within the GBA. She explains that the HKGCC has proposed the introduction of a GBA Card, a visa system modelled on the APEC Business Travel Card Scheme, to enable business travellers to move between the GBA cities more easily.
Meanwhile, Rebecca Wong would like to see the introduction of simplified customs procedures to facilitate the import of materials or prototype from one side of the border to the other, and to make it more efficient for technology companies to exchange technology and perform product testing.
Tam points out that with strong growth anticipated in the GBA in the years ahead, it is vital that companies position themselves correctly to take full advantage of the opportunities. “Strategies are likely to involve focusing on the value they can bring to the region and having a deeper understanding of the GBA as a market,” she says.
Tam adds that companies should start by drawing up a detailed investment plan, analysing their motivation for investing in the region and identifying which GBA policies most align with their core business interests. She adds that accounting firms should focus on evolving trends, such as ESG, as well as IT initiatives including digital products, digital transformation, and cybersecurity.
Au suggests both companies and accounting firms need to have a clear understanding of whether they consider the GBA as a market, or a platform for entering Mainland China, or both. He adds that they should also have an innovative mindset with adequate technology resources, whether in-house or through being part of a wider ecosystem, while corporates should have a good understanding of the core competencies and the competitive edge of the key industries in the GBA cities.
He also suggests they should pay attention to their organizational structure, to ensure they have adequate coverage for the opportunities they have identified, as well as access to the talent they need. “Accounting firms should form an alliance or strategic partnership with local professionals in the GBA to provide integrated advisory services to help clients’ investment and expansion plans in China,” he adds.
Chan says EY already has nearly 6,000 staff in the GBA, with offices in Hong Kong, Guangzhou, Macau and Shenzhen and it will shortly be opening a Qianhai office, which will focus on digital technology. She explains that its positioning in the GBA has four key themes. Firstly, it aims to act as a bridge bringing its professional services and strong international connectivity to the GBA. Secondly, it acts as a catalyst supporting the GBA’s development, such as through assisting with cross-boundary investments, family offices and fintech applications. In addition, it has helped more than 200 GBA companies to go global. “We will tap into the advantages of each location and help clients expand their business global footprints,” Chan says. The third focus is digitization, with EY assisting clients with digital transformation and putting in place digital tools and services that enable collaboration and enhance their efficiency. Last but not least, it focuses on employees: “EY leaders continue to leverage our cross-disciplinary networks, integrating our growing talent pool among GBA cities and facilitating talent flow,” she says.
“Accounting firms should form an alliance or strategic partnership with local professionals in the GBA to provide integrated advisory services to help clients’ investment and expansion plans in China.”
Rebecca Wong thinks Hong Kong companies and accounting firms should leverage on Hong Kong’s role as a super-connector between Mainland China and the world. “Companies and firms in Hong Kong are very good at understanding the international market, as well as Chinese culture.”
She adds that Hong Kong companies should also position themselves to benefit from Mainland China’s Dual Circulation policy, which embraces changes in the global market and in technology, and strengthens the growth of domestic consumption, particularly when consumers are expecting more in quality and personalization in the areas of lifestyle products and services. “Hong Kong companies can bring their international expertise and creativity to the market, observe unique customer needs and offer niche solutions.”
She also stresses the importance of choosing the right location for enterprises and talent to be based within the GBA, and suggests companies should do a location study looking at both the business opportunities available, as well as the incentives offered and the specific industry focus of each of the nine GBA cities in Mainland China.
Lee thinks companies should think in terms of cross-sector collaboration when positioning themselves in the GBA, with a particular focus on technology. She gives the example of retail companies using technology to find new business opportunities, and to improve operational and supply chain efficiency. “Technology will play a key role in years to come,” she says.
Lee adds that firms that do not have offices there should consider forming alliances with counterparts in the GBA for knowledge sharing and exchange, and also gaining an employment base.
While Tam cautions that companies should take a long-term view on the opportunities, she adds: “The GBA is potentially the most significant development to impact Hong Kong’s business environment for decades to come.”
Chan agrees: “The more active the GBA market is, the more demand for accounting and professional services from local and foreign businesses.”
In the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, published in 2019, the Constitutional and Mainland Affairs Bureau identifies 12 key sectors that will benefit from the region’s ongoing development, including innovation and technology, financial services, and professional services.