Transcript
Speaker: The number that's being quoted is around $3 trillion sort of investment. um But of course... $3 trillion Hong Kong dollars. Hong Kong dollars. $3 trillion. That's a lot of money.
Speaker: Welcome to Under the Banyan Tree. I'm your host, Harold Winlinde, Head of Asian Equity Strategy here in Hong Kong. And it's a very Hong Kong-focused podcast this week because I'm joined by my colleague, Michelle Kwok, to talk about a little something called the Northern Metropolis. Well, actually, it's not a little at all. It's absolutely huge.
Speaker: If you don't know, this is Hong Kong's enormous new home job and innovation cluster on the border with mainland China. And although it's many years from completion, the scale and ambition of the project is bringing definitely a lot of attention.
Speaker: It's a story of development, integration, but also demographics, innovation, and a very large amount of money. So let's get the conversation started right here under the banyan tree.
Speaker: Let's start with some facts around the northern metropolis because there are many and some of them are pretty eye-popping. This development is happening in the north of Hong Kong's new territories on the border with Shenzhen in mainland China. It's a massive development which is going to be home to corporations, research and development centers, data centers, universities and much more.
Speaker: Plus, it's designed to house up to two and a half million people. in an area five times the size of Manhattan. Just to repeat this, five times the size of Manhattan. So this is an ambitious project.
Speaker: The time frame for completion is a little unclear, as you very often with these things, but most people say it could take around, say, 20 years, a committed cost of around three trillion Hong Kong dollars. That's close to about 400 billion US dollars.
Speaker: So enormous plans in the works. But right now, this place is basically large, underdeveloped area. On that note, let's bring in Michelle Kwok, our head of Asia Real Estate and Hong Kong Equity Research. So Michelle, welcome to the podcast.
Speaker: Thank you, Harold. Now, we're going to talk about the northern metropolis. And that's, of course, in the northern part of Hong Kong, bordering the river there. And then you have Shenzhen on the other side of the river. That's where China, mainland China, that's right really starts. um na ah We both live in Hong Kong. I've i've been in this place all year. Drive around. It's basically, just to paint a little bit of a picture there, it's rolling hills, paddy fields, forestry, Forest and wood, banana trees, couple of ducks in small villages, and that's about it. And then across the border, then suddenly, bang, you see the big buildings of Shenzhen there, right? So i have the impression that the northern metropolis is basically still a bunch of paddy fields. Have you been there? That's right, Harold. So we were just there a few days ago. So we were able to see very clearly the skyline of Shenzhen. You know, depending on which part of the northern metropolis you're looking, part of it is greenfield, part of it is just pure farmland. um And then you can see a lab. A lab? Like ah a laboratory? Like a university laboratory or something like that? Like um a building with a lot of tech companies, wet lab. And then can see some dormitory. um You've got shuttle buses up and running already. It's a huge place. So depending on where you end up, you know, within the northern the metropolis, you're bound to see very different things. Yeah, we we already mentioned it's like five times the size of Manhattan, That's right, five times the size of Manhattan, yeah. So in 20 years' time, will there be five Manhattans on the border there? Is is that how I need to envisage that? it going to be one big, massive city? How it it going to look like in 20 years' time? So effectively, you should think about it as ah as an integrated project. A cross-border project is huge.
Speaker: um The number that's being quoted is around $3 trillion sort of investment. You can think about it as being five times um the figure that was quoted in last year's budget in Hong Kong. wow um And if you were to think about just think about people, right, it's 2.5 million people potentially that this place, the northern metropolis can house 2.5 million people. But you've got to be careful about that. This is not just about an infrastructure project. It's effectively a demographic project. um You know, already living in the north, you've got around more or less 1 million people. ah Where do you find the additional 1.5 or 1 million people?
Speaker: Well, I'd like because, as you know, demographics is something I'm really interested in. So I'd like to talk to about the the demographics in it for a second. But just a quick question. So in 20 years' time, we'll envision a decent-sized city will be there. And I can imagine that that can take place because i was in the early 90s in Shenzhen and Shenzhen wasn't too much. And now you go there and it's a city's been built. So it's not that China has not done this before.
Speaker: But can we really get there? I mean, this is ah how ah would we measure that this is actually happening? Well, first, you have to accept that um the northern metropolis is not something that we're imagining at the moment. It's already happening.
Speaker: Investments are already made. We've got MTR stations opening up next year. they're already building the MTR there. That's right. And you've got developers already launching projects there. And there are recent tenders. That attracts people.
Speaker: um And you've already got a data center breaking ground, um completing in around three years' time. So all of this is already very clearly in the pipeline. So we're not imagining something. Of course, a project of this scale and complexity, um it's very difficult to execute. Mm-hmm. And so the market seemed to be a little bit skeptical about it. But at the same time, we need to think about this from a practicality standpoint. How do we think about attracting private capital along with government funds? So that part of that will be financed by the government.
Speaker: They will, I presume, build the sort of the infrastructure, the MTR and these sort of things. And then the rest is the private sector. Is that how I can i imagine? So you must entice the private sector to to take part in a project of this scale. But at the same time, clearly, at a time when interest rate trajectory is something that everyone is thinking about, you know, where U.S. rates are headed. So it's expensive. You have to entice private market participants take part in a project like that. isn't exactly the easiest task at the moment. And so what you tend to see is that, for instance, in the first tender that we saw, you see developers forming a consortium so as to share the risk of investment. Okay, so this is how that is going to to happen. Now, if if we want to simplify this, what is the single most important driver for this to really happen? Is it just money or is it political will? Or what do you think is what what will make this happen? Money is a must, so funding is something that you know we must consider as a prerequisite. But if you're able to attract people, attract talent, um that is almost the single most important driver. Where there are people, the simplest way to think about it is there is going to be demand for goods and services. So if you're able to attract talent and you're able to attract companies to really invest in the northern metropolis and and establish presence in the northern metropolis,
Speaker: then you know you will be able to form a very good cluster and community in order to integrate and accelerate, say, the high-level Greater Bay Area plan um and make all of this work in phases. Yeah, that's very often, I think, the case with these sort of projects. because Governments around the world sometimes have a tendency to say we want to do this or that. But if people don't want to live there, then it becomes a bit of a problem, right?
Speaker: That's right. Yeah. So um the the question then is, how do you entice and encourage and what incentives are you giving mainland Chinese to move to Hong Kong? Yeah. are businesses there, right?
Speaker: Yeah. Just to go, I'd like to go into that. What what is the connection with Shenzhen and what is it interesting here? But just to think about the demographic implications here. Hong Kong is an aging society. It's actually aging relatively fast.
Speaker: In a sense, if we can attract these people to come to Hong Kong and live there and work there, yeah, they're going to pay taxes. They're going to be part of the healthcare system. So they're going to contribute and it will alter the overall demographic sort of profile of Hong Kong. It will be a younger place. That's right. Effectively, you can look at this as a way to unlock capacity um and to think about how we we can enhance productivity by bringing in younger workers in Hong Kong.
Speaker: I'd like to take a break here, but then maybe it's good to think about this northern metropolis. What is its relationship with Shenzhen and why does mainland China really want this?
Speaker: So we're back here to talk about the Northern Metropolis, a very ambitious project in the northern part of Hong Kong, bordering mainland China. So, Michelle, why do we need this? Yeah, so actually the interesting thing about the Northern Metropolis is it actually spans different themes, um along with the fact that it has direct implications to multiple sectors. So I think um if you were to think about going back to talent, right? Shenzhen has around 2 million tech talent.
Speaker: Mm-hmm. Hong Kong has around 500,000 tech talent. And so if you were to think about how you can blend in and use the Northern Metropolis as an in innovation hub, then there's a lot that Shenzhen and Hong Kong can do um in order to make it a success. So the Greater Bay Area integration, accelerating that theme, and then how we can ensure that this works is by attracting talent in Shenzhen to live in Hong Kong, the two million in Shenzhen that we have versus the 500,000 that we have in Hong Kong. and That's why I think there's also a university center in in the northern metropolitan. University center. And Hong Kong U has already started raising funds to expand the campus.
Speaker: Okay, they're building there already. oh That's right. Okay, good. and And why does mainland China want this? I mean, you have Hong Kong already. You're tying it up with Shenzhen. I think it's all part of the larger Greater Bay Area, right? And from a Beijing point of view, the Greater Bay Area and the around the Pearl River Basin is basically a sort of industrial, large industrial hub that they're developing. Is that the case? And this is a small part in in that puzzle. is there So there's great policy alignment, Harold, the 15 five-year plan for mainland China, the five-year plan in Hong Kong. Hong Kong is tasked to contribute um to making this happen. And Hong Kong stands out as an international um you know financial center. And so Hong Kong has a very unique role to play. um from a capital market perspective, fundraising, a lot of these tech companies can come here, establish presence, and ultimately when they want to raise funds, then Hong Kong has a very unique role to play. Exactly, and this would all be in Hong Kong, so this is a US dollar area. And of course, if you're in Shenzhen, you're in a renminbi area. So funding-wise, these things are different in Hong Kong than in mainland China. that There's benefits to be in Hong Kong and do business out of Hong Kong, right? That's right, yeah. no that's So it's going to be a really ambitious project.
Speaker: It's easy to be, to be honest, very s skeptical. We know of other governments around the world who've done similar large projects with private sector participation and not always has it worked out. But on the other hand, as I said, I was in Shenzhen in 1990 and Shenzhen now and in 1990 is vastly different. So a lot of these projects have worked out. As long as the political will is there, the capital is there. And you're right, actually, and as long as they can attract people to live there.
Speaker: And getting 2.5 million mainland Chinese living in the northern part of Hong Kong seems to be... I've got to be correcting you and be careful here. Not necessarily 2.5 million people. It's not a new addition concept. You've already got a million living in the north. This is something that I think a lot of people are going to misunderstand. You don't necessarily have to attract 2.5 million.
Speaker: All in. Maybe just a million. You know, attract a million and then you may have some actually already living in different parts of Hong Kong relocating to the north for different reasons. Yeah, yeah that's right. Okay. Well, fantastic. I've learned a lot about these new, fascinating, important projects in the northern part of Hong Kong. And I suspect that over the next...
Speaker: 15, 20 years, because this is a 20-year project, right? We'll do multiple podcasts about this so Northern Metropolis and its progress. Hopefully, the next time I come on, I can tell you more progress and more tangible progress that we can share with everyone. Let's do that. Thanks a lot for coming on to the Thank you, Harold.
Speaker: Cheers.
Speaker: Well, that's a wrap for this episode of Under the Banyan Tree. Great to have you with us. Under the Banyan Tree is an HSBC Global Investment Research production produced by Graham Mackay.
Speaker: From all of us here in Hong Kong, take care and talk to you again very soon.
