Financial Services across the Greater Bay Area continue to develop, despite COVID – PwC report

Multiple new initiatives prepare the ground for rapid development of the GBA.

PwC China has issued a new report: Financial Services in the Greater Bay Area: The GBA takes shape.

Based on in-depth interviews with PwC clients across the full range of financial services, as well as insights from regulators, trade bodies and academics, the report assesses progress towards the GBA vision. Interviewees report that business activity has held up well, despite the pandemic, and that a number of new initiatives underline the potential of the GBA. That said, there are several challenges – including the race for talent and the need to establish a brand presence in the minds of GBA consumers.

The issues raised by the interviewees are arranged under the following six headings:

• Living circles – rather than being a test-bed for China-wide reforms, our interviewees see the future of the GBA as greater and deeper integration;
• Accelerated digitalisation – remote working and online interaction mean business has held up well during COVID. It has also highlighted the need for market players to invest adequately in their digital services;
• Differentiation in the marketplace – new digital services may is progressing. New entrants in the GBA will also need smart marketing strategies to stand out from incumbents;
• Wealth Management Connect and future reforms – there is much anticipation and speculation around Phase Two of WMC;
• Talent – competition for talent has never been fiercer. Both traditional and new skills are in high demand;
• The "Greener Bay Area” – there is scope for more investor awareness on ESG issues. This may be one way for new entrants to differentiate themselves and build brand awareness.

“For all our interviewees, the GBA is now a reality,” says James Chang, Regional Economic Cluster and Financial Services Leader, PwC China. “It is taking physical shape in places such as Qianhai and Hengqin, but it also being defined by a broad range of policy initiatives – from Wealth Management Connect to mutual recognition of qualifications. The GBA presents a series of new opportunities, as well as challenges, for market participants.”

Wealth Management Connect (WMC), which was launched late last year, has been one of the most tangible indicators of how financial services could develop in the GBA. Unlike the existing Stock Connect schemes, it is bank-to-bank (rather than exchange-to-exchange). It is also GBA-specific, defining how one qualifies as a GBA investor. The market participants interviewed in the report believe this sets the scene for the development of the GBA’s financial markets going forward.

“The start of WMC trading may be slower in the beginning. However, all the participants see the launch of WMC as a key milestone, and great future potential in future development of the Scheme,” says Josephine Kwan, Asset & Wealth Management partner, PwC Hong Kong. “They hope to see larger quotas and the inclusion of more sophisticated products in a potential WMC Phase Two. This will create momentum for a more sophisticated investment environment, leading to further developments in financial services, such as a potential Insurance Connect.”

“Hong Kong and Macau-based institutions are clearly interested in moving into a market that is more than ten times larger,” says Benson Cheng, Financial Services partner, PwC Hong Kong. “But they will need the right marketing strategy to distinguish themselves from well-established incumbents. Innovative investor education could be one way to achieve differentiation.”

Interviewees cited a number of other developments, such as the Hong Kong Monetary Authority’s Commercial Data Interchange (CDI) project, which leverages alternative data to facilitate lending to SMEs. This has the potential to significantly boost business activity in the GBA. “Along with CDI, we are seeing some game-changing initiatives in retail and wholesale digital currencies,” says Gary Ng, Risk Assurance partner, PwC Hong Kong. “These will greatly benefit cross-border transactions, and therefore the economy of the GBA.”

The greater use of online services during COVID has underlined the extent to which market participants need to invest in their digital platforms. Mainland GBA customers have high expectations in this area, noted one interviewee, making this “an unavoidable investment” for Hong Kong and Macau institutions.

“Financial institutions also need the right people and skills in order to develop these digital services,” says Chris ST Chan, Financial Services Markets Leader, GBA Services, PwC Mainland China and Hong Kong. “Greater mobility of talent, as well as wider mutual recognition of qualifications, can help to meet this challenge. This underlines the multi-faceted nature of the GBA – market participants will need sophisticated strategies to succeed.”

Download the report: https://www.pwccn.com/en/industries/financial-services/publications/gba-takes-shape-feb2022.html