A bridge over reclaimed land in the Pearl River Delta is vying to unite the economies of the mainland and one of its special administrative regions.
The Zhuhai-Macau Cross-Border Industrial Park, spanning Zhuhai’s Maoshengwei and Macau’s Ilha Verde, is attracting investment through promises of maximizing the two economies competitive advantages and promoting regional integration in South China.
This is good news for Zhuhai, one of the four original special economic zones (SEZs) founded under the late Chinese Prime Minister Deng Xiaoping. Since the establishment of SEZs in Shenzhen, Zhuhai, Shantou and Xiamen in the 1980s, only Shenzhen has really taken off, thanks to large-scale investments from Hong Kong and the city’s strategic location across the border.
By pulling Macau into the fray with the new park, China hopes to make Zhuhai its latest economic Cinderella story.
“One Country, Two Systems”
But the park has gotten off to a slow start. While most plots on the Macau side have already been snatched up, the mainland side has yet to open.
“It’s been very difficult to attract workers on the mainland side. The park is far from downtown Zhuhai and there’s no housing out here,” said Terrence Lee, sales manager of Macau-based garment manufacturer Lek Hac Garment.
At 400,000 square meters (290,000 in Zhuhai and 110,000 in Macau), the two parks are joined as China’s first cross-border park.
This park is unique in that China hopes to demonstrate the economic advantages and business opportunities created under their “One Country, Two Systems” policy, whereby the mainland and a special administrative region (SAR), as Macau is designated, are united under a single flag yet administered with different economic and social policies.
If the park succeeds, a series of cross-border initiatives to more closely link the economies of Zhuhai and Shenzhen with Macau and Hong Kong may be spearheaded.
The Zhuhai-Macau park received state council approval in 2003, beginning investment promotion in mid-2004. Jointly administered, the cross-border park is geared towards garment, food, drug and electronic device manufacturing.
Beginning with six Macanese entrepreneurs, the Macau side of the park officially went into operation last December, adding another 26 enterprises with a total investment cap exceeding US$100 million within the first five months of this year. Not yet at full capacity, the park is expected to create 6,400 jobs.
The opening of the park bodes well for gaming powerhouse Macau, where it will have greater access to the vast markets of the Pearl River Delta and Greater China, enabling Macau’s manufacturers to take advantage of China’s cheap labor and lower land costs.
Under “One Country, Two Systems”, Macau retains its free market economic system and separate WTO status. As a free port, it enjoys a free flow of goods and capital without customs duties and foreign exchange constraints. Macau’s status as a separate customs territory also means that it retains the right to issue certificates of origin.
Mutally beneficial
This is beneficial to the cross-border park because goods manufactured on the mainland side can be transferred to the Macau side virtually tax-free. This is especially attractive to textile manufacturers who have been battered by export quotas on Chinese goods.
Under WTO regulations, there were to be no export quotas on Chinese textiles beginning from 2005. Yet when protectionist export quotas were reintroduced by European nations, many Macau and Hong Kong garment manufacturers already producing on the mainland, like Lek Hac Garment, found themselves caught in a bind. The cross-border park could effectively enable these companies to slip the noose.
“The main advantage of the park for us is that we can do all our basic procedures on the mainland side but export the goods with a Macau certificate of origin,” Lee added. “This means that we can still basically produce in the mainland and avoid the quotas.”
Another advantage of the cross-border park is that it can speed up inter-company communication for companies like Lee’s, which has factories in both Zhuhai and Macau. “Right now, if we change a pattern, we need to send a driver to Zhuhai, which can take hours. But once the park is fully operational, they’ll only have to cross a bridge.”
Special treatment
Favorable tax policies work both ways. Under the mainland-Macau Closer Economic Partnership Agreement (CEPA) established in 2003, some 273 Macau product lines sold on the mainland are also tariff-free.
The park also provides auxiliary services like logistics, transit-trade, conference and exhibition services intended to further opened up the mainland to 13 Macau service sectors.
Due to Macau’s limited industrial land, the park is becoming prime warehouse space for investors. For example, real estate consultancy Vigers Asia Pacific Holdings is looking at the park for a client who wanted warehouse space to provision hotels and casinos.
Investment incentives on the Macau-side also provide a 6% interest subsidy on loans for construction, the purchase or rental of industrial facilities in the park, and up to 50% tax exemption for industries contributing to economic diversification, technological modernization and new market exploration.
Another projected benefit of the park is the improved access a solid Macau platform can provide mainland manufacturers to some 200 million consumers in Portuguese-speaking countries in Europe and South America.
According to the Macau Trade and Investment Promotional Institute, the park is now gearing up for its second stage of factory permit bids. But only once the construction dust settles and both sides go fully operational, will anyone know where China’s first cross-border park ranks on its now storied scorecard of economic reform.