Michael, B yane
A icle
The ole o inno a ion-led p o i s in he de elopmen o an
in e na ional inancial cen e
Jou nal o Inno a ion and En ep eneu ship
P o ided in Coope a ion wi h:
Sp inge Na u e
Sugges ed Ci a ion: Michael, B yane (2024) : The ole o inno a ion-led p o i s in he de elopmen
o an in e na ional inancial cen e, Jou nal o Inno a ion and En ep eneu ship, ISSN 2192-5372,
Sp inge , Heidelbe g, Vol. 13, Iss. 1, pp. 1-22,
h ps://doi.o g/10.1186/s13731-023-00338-4
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RESEARCH
Michael
Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
h ps://doi.o g/10.1186/s13731-023-00338-4
Jou nal o Inno a ion and
En ep eneu ship
The ole o inno a ion-led p o i s
in hede elopmen o anin e na ional inancial
cen e
B yane Michael1,2*
Abs ac
Qianhai—an inno a ion pa k in Shenzhen—has he possibili y o boos ing inno a ion
in Hong Kong, Shenzhen and in he wide egion. This pape e iews he exis ing e i-
dence abou which policies ha e p omo ed p o i able inno a ion in he Qianhai egion
(Hong Kong and Shenzhen) in he pas . We also poin o he impo ance o p o i able
inno a ion— a he han jus inno a ion o i s own sake. P o i s a ac and keep i ms
in an in e na ional inancial cen e. Ye , un il we know exac ly how much p o i abil-
i y hese inno a i e i ms equi e and how o p omo e such p o i abili y, he ad ice
gi en in he li e a u e o Qianhai’s and o he policymake s will emain woe ully
inadequa e.
Keywo ds: Qianhai, C oss-bo de economic zones, Inno a ion, Special economic
zones
JEL Classi ica ion: P48, R12, R58
In oduc ion
Qianhai ep esen s he i s o i s kind— he a emp by wo special economic zones o
c ea e ano he (common) economic zone. Behind he public decla a ions s and a ision
o use he p ojec o suppo R&D, inno a i e new companies in selec ed sec o s, such
as high- ech and logis ics, and o a ac capi al as a way o bols e bo h ci ies’ posi ion
as na ional/in e na ional inancial cen es.1 How Qianhai a ec s he de elopmen o
inno a i e i ms in he egion will de e mine he success o —wha is e ec i ely—a ee
ade/economic zone. Ye , Wha ole can egula o y e o m play in maximising Qian-
hai’s impac on inno a ion-led p o i s in he ‘Qianhai egion’ (co e ing p incipally Hong
Kong and Shenzhen)?2
We a gue ha he li e a u e ails o discuss he p o i abili y o inno a ion—mak-
ing hese s udies unsui able o de e mining he likely u u e o i ms in places, such as
*Co espondence:
b [email protected] g
1 Asian Ins i u e o In e na ional
Financial Law, Facul y o Law
Uni e si y o Hong Kong, Cheng
Yu Towe Pok ulam Road, Hong
Kong, Hong Kong
2 Depa men o Geog aph,
Uni e si y o Ox o d, Ox o d OX1
3QY, UK
1 Qianhai also ep esen s an a emp o libe alise Mainland capi al ma ke s, in eg a e hem wi h Hong Kong’s and
encou age he epa ia ion o RMB. We do no discuss he capi al ma ke aspec s o Qianhai, in o de o ocus on ou
main opic o suppo ing p oduc /se ice ma ke inno a ion.
2 Ambi iously, he go e nmen o Hong Kong, as o 2020, migh no only include Zhuhai and Macao ( he ob ious
nea by a eas), bu a away a eas such as Foshan, Zhaoqing, and Huizhou! See G ea e Bay A ea, The Ci ies, a ailable a
h ps:// www. baya ea. go . hk/ en/ home/ index. h ml.
Page 2 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
Qianhai. We add ess his lacuna in ou b anches o he inance-o -inno a ion and in e -
na ional inancial cen e li e a u e. In he i s sec ion, we look a he special economic
zone s udies—no ing how au ho s hope ha inc eased p oximi y will mi aculously lead
o inno a ion (pu ing he ca be o e he ho se). The second sec ion looks a he inno-
a ion sys em li e a u e. Again, hese au ho s assume ha wi h he igh ‘ins i u ional
con igu a ion’, inno a ion will jus appea —again wi hou looking a he p o i abili y o
such inno a ion. The hi d sec ion looks a he way hese in e na ional inancial cen es
inance inno a ion. Au ho s w i ing in his ein s ess a ac ing in es men . They a ely
(i e e ) discuss he subsequen e u n on ha in es men ha d aws in his in es men
in he i s place. The ou h sec ion looks a he way in es men in inno a ion ‘ lows’
o e in e na ional inancial cen es—like some wa e ha hese cen es y o a ac wi h
a ange o policies. Inc easing he p o i abili y o inno a ion–in es men ne e ea u es
as one o hese policies.
The inal sec ion concludes, by se ing up he s age o u u e s udies looking explici ly
a he p o i abili y o inno a ion in in e na ional inancial cen es.
We do no a gue o ouch/upon a numbe o hings. Fi s , ou ‘Qianhai egion’ only
co e s Hong Kong and Shenzhen, conspicuously omi ing Guangzhou (and o a lesse
ex en ) Zhuhai. We do so gi en he physical p oximi y o Qianhai o he wo megaci-
ies, as well as hei complemen a i y (which we discuss in he a icle). Second, we do
no compa e Hong Kong and Shenzhen wi h o he ju isdic ions. This will disappoin
eade s who wan o know how he op imal design could d aw on “lessons” om o he
ju isdic ions. We y o e e ence some o his compa a i e li e a u e o in e es ed ead-
e s in ou li e a u e e iew.3 Second, we do no e iew he p o i abili y o inno a ion in
gene al. As we ocus on Qianhai’s p omise, we wan o assess he way an in e na ional
inancial cen e’s policies (and i s explici , in en ional c ea ion) a ec s such p o i abili y.
We do no deny ha —and hus ha e no need o e iew—once inno a ion becomes p o -
i able, inno a ion- ocused companies in an in e na ional inancial cen e will engage in
in es ing in such p o i able inno a ion. Thi d, we ea p o i abili y as an all-o -no hing
p oposi ion. Ei he i ms in an in e na ional inancial cen e a e p o i able—o no . Na -
u ally, a ange o ou comes, o di e en i ms and a di e en imes, may exis .
Wha dowe know abou inance andinno a ion in heQianhai egion?
Many o he so-called s udies om he p i a e sec o pain Qianhai in glowing colou s.
Figu e1 shows a way o hinking abou he alue o inno a ion in Qianhai, while Table1
p o ides he main conclusions eached by a numbe o example s udies which looked
a he likely e ec s o Qianhai on Hong Kong and Shenzhen. Mos s udies no e ha he
success ul de elopmen o Qianhai would ease Hong Kong’s eal es a e cons ain s, help
a ac unds (pa icula ly in he o m o o -sho e RMB ha Chinese seek o epa i-
a e) and a ac a c i ical mass o inance, IT, and logis ics companies needed o c ea e
a sel -sus aining business sys em. Mos also aise he moo ques ion o whe he Qian-
hai will se e o accen ua e complemen a i ies be ween Shenzhen and Hong Kong o
3 A as li e a u e—exis s showing eade s how o supposedly impo lessons om o he ju isdic ions. Block and Kel-
le (2011) show how go e nmen agencies in he US helped os e echnological inno a ion. Kle kx and Leeuwis (2009)
desc ibe he challenges o go e nmen agencies o encou age p i a e ag icul u al en e p ises o adop inno a i e p ac-
ices in he Ne he lands.
Page 3 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
exace ba e compe i ion?4 These sel -in e es ed publica ions d aw on he same implici
o mula. Expanding he numbe and size o companies wo king in he Hong Kong and
Shenzhen egion (which we call he “Qianhai egion” o easons o con enience) will
au oma ically inc ease inno a ion and p o i s. Wi hou any e e ence o p e ious s ud-
ies o any con incing s o y, hese s udies jus assume ha expanding he a ailabili y o
eal es a e, p o iding incen i es o in o ma ion echnology (IT) companies and money
(bo h publicly and p i a ely gi en), inno a ion and p o i s will ine i ably a ise. None o
he exis ing s udies alk abou he co e ole o p o i s.
The da a alsely appea o con i m he common sense in ui ion ha Shenzhen would
supply he p ope y igh s ( he b ains) and Hong Kong would supply unding (o he
inancial b awn) o a join Qianhai unde aking. Figu e2 shows he sco es om he
Wha ad an ages would he c ea ion o Qianhai gene a e o Hong Kong and Shenzhen? Would p o i -
led inno a ion exceed he des uc i e in luence o inancial ma ke and indus ial compe i ion? Mos o
he analyses boil down o he simple o mula shown below. Qianhai could se e as no hing mo e han a
glo i ied eal es a e de elopmen . Ye , wi h ull pa icipa ion by he Hong Kong and Shenzhen
go e nmen s, Qianhai could ep esen he i s special economic zone c ea ed by/ om wo special
economic zones – wi h eal win ci ies’ bene i s. Ye , hese s udies do no alk abou Qianhai’s eal
aison d’e e – how he egion will p omo e p o i able inno a ion.
Value o inancial easing + ech company a ac ion + access o big ma ke
Qianhai inno a ion - cos s om inancial ma ke and indus ial compe i ion
Fig. 1 Implici amewo k o Qianhai’s p omo e s. Sou ce: Au ho s
Table 1 Sel -in e es ed pa ies w i ing abou a glo ious Qianhai and hei o mulae o success
Sou ce: See indi idual sou ces o mo e in o ma ion
Au ho (and link) Majo heses
Collie s (h p:// www.
colli e s. com)Qianhai will p omo e inno a ion by elaxing space ( eal es a e) cons ain s and easing he
low o money (RMB) o companies
C edi Suisse (h ps://
esea ch- and- analy
ics. cs b. com/ docVi
ew? docid= Yx09eI)
Qianhai ep esen s a pla o m o in e na ionalising he RMB and Hong Hong’s high- ech
se ice o e ings in o he Mainland
Daiwa (h p:// asia
esea ch. daiwa cm.
com/ eg/ cgi- bin/
iles/ Speci al_ Repo
__ Qianh ai_ De el
opmen -_ 130422.
pd )
Logis ics plus inance and incen i es o b ing inancial, echnological, logis ics and el-
ecoms make o a unique geog aphical place o p o i
Cushman Wake ield
(h p:// www. cushm
anwak e ield. com/
~/ media/ epo
s/ china/ Shenz
hen% 20Qia nhai%
20Zone% 20Cus
hman% 20Wak
e ield% 20EN. pd )
Qianhai ep esen s a land ex ension o Hong Kong (as li le geog aphical oom o g ow)
4 While he non-academic communi y con inues o use he he o ical de ice o Hong Kong e sus Shenzhen as a way o
a ac ing a en ion o hei publica ions, academics ha e al eady shown ha inancial and o he se ices in he egion
end o specialise—like any sec o in a eely aded economy. Aene e al. (2014) p o ide he da a and academic e e -
ences o such specialisa ion.
Page 4 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
Global Inno a ion Index o 2015 o Shenzhen (which we calcula ed using eg ession
analysis by using na ional China-le el sco es) and o Hong Kong.5 As shown in Fig.3,
Shenzhen sco es much highe in mos o he “knowledge and echnology ou pu s” (pa
6) componen s o he da ase (Reynoso & Li ne , 2015). Hong Kong appea s o di use—
a he han c ea e—knowledge as well as p o ide a ec o o collec ing licensing and
oyal y ees and o sending money ou o he China egion. Gi en Hong Kong’s ank—o
29 h place anking ou o 56 coun ies on he ecen Global Inno a ion Index—Hong
New business
Docs H-Index
Comm, IT, logis ics
Knowledge di usion
FDI ou lows
High ech expo s
High/medium ech ou pu
GDP g ow h
Knowledge impac
New businesses
So wa e spending
Royal ies/licence ees
Knowledge c ea ion
ISO9001
Publica ions
Docs H-Index
Hong Kong
side o he
igu e
Shenzhen
side o he
igu e
-60-40 -20
020406080100 120
Inno a ion Index Sco e (100 means Shenzhen bes and -100 means Hong Kong is bes )
Fig. 2 Showing ha Shenzhen p o ides he b ains and Hong Kong he Financial B awn. The igu e shows he
Global Inno a ion Index o Shenzhen and Hong Kong in 2015. We use China’s da a as a base o calcula ing
Shenzhen’s Inno a ion sub-indices. We adjus Mainland inno a ion sco es, as he dependen a iable, om
a eg ession which eg esses Shenzhen’s GDP pe capi a and i s p opo ion o GDP in indus y wi h he
inno a ion sco es held by o he coun ies wi h simila le els o hese GDP pe capi als and indus ialisa ion.
In p ac ice, we only needed o modi y wo a iables (knowledge c ea ion and know ledge impac ) Sou ce:
Escalona and Li ne (2015)
0102030405060708090100
Business sophis ica ion
Human capi al and esea ch
In as uc u e
C ea i e ou pu s
Ma ke sophis ica ion
Ins i u ions
Inno a ion Index Sco es
(highe a e be e )
Hong Kong
(in ed)
Shenzhen
(in black)
Fig. 3 Ye Hong Kong bea s Shenzhen in he ac o s ha make o p o i able comme ce’. The igu e shows
he Global Inno a ion Sco es o China (as a p oxy o Shenzhen) and Hong Kong. We do no adjus China’s
sco es o ake in o accoun Shenzhen’s pa icula i ies—as don’ wan o con use he eade by p esen ing
da a which ha e been highly modi ied. We also migh a gue ha na ional policy de e mines mos o hese
ac o s— hus Shenzhen migh show li le meaning ul di e ence wi h he b oade Mainland. Hong Kong
can clea ly p o ide he ma ke o ien ed ins i u ions, ma ke sophis ica ion, in as uc u e, human capi al and
business sophis ica ion needed o make Qianhai a success Sou ce: based on da a om Escalona and Li ne
(2015)
5 As explained in he igu e, we ea ed Shenzhen as a sepa a e ju isdic ion, looking a co ela ions be ween simila ju is-
dic ions and Shenzhen. Wi h hese di e ences in mind, we could adjus he China-le el na ional sco es up o down o
e lec ou eg ession ou comes. In p ac ice, such a complica ed echnique u ned ou useless—as Shenzhen’s sco es di -
e ed in only a ew a eas.
Page 5 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
Kong needs o coope a e wi h Shenzhen on Qianhai o compe e wi h o he ju isdic ions
like he US o Finland.6
Ye , behind he sel -se ing analysis o companies looking o cash in on Qianhai, wha
do we al eady know om he academic li e a u e abou he way a Qianhai-s yle de el-
opmen migh p omo e inno a ion-led p o i s?7 Table2 shows he clus e s o esea ch
which di ec ly o indi ec ly answe he ques ion—wha e ec would Qianhai ha e on
Hong Kong’s inno a ion-led p o i s? The i s g oup o s udies looks a he Close Eco-
nomic Pa ne ship Ag eemen (CEPA) and o he ela ed ag eemen s co e ing he
egion—igno ing ecen ini ia i es like he G ea e Bay A ea ini ia i e (gi en hei num-
be and seeming unimpo ance).8 Unsu p isingly, academics conside he la ges posi-
i e bene i s s emming om he usual gains om ade. Schola s ha e no speci ically
add essed he ex en o which elaxing capi al cons ain s and indus ial policies (spe-
ci ically choosing sec o s a he han ha ing ma ke o ces decide hem) has con ibu ed
o his g ow h.9 In addi ion, hey ce ainly ha e no conside ed he ole o p o i abili y
on g ow h in he egion.
The special/bo de economic zone li e a u e
Se e al s udies om his i s g oup o s udies claim o show how close union be ween
Hong Kong, Shenzhen (and he Guangdong egion in gene al) helps p omo e a leas
g ow h—i no inno a ion. Figu e4 shows ha he Close Economic Pa ne ship Ag ee-
men (CEPA) supposedly has helped keep Hong Kong’s GDP up du ing—wha would
o he wise be—majo slowdowns in GDP g ow h. Acco ding o his s udy, he CEPA con-
ibu ed a ound 3–4% in GDP g ow h o e he pe iod he au ho s looked a . The igu e
also shows he pu po ed e ec o egional in eg a ion on gene alized p oduc i i y (wha
economis s call “ o al ac o p oduc i i y”). The CEPA supposedly has inc eased such
p oduc i i y. Na u ally, inc eases in p oduc i i y necessa ily equen ly imply change
in indus ial inno a ion—as inno a ion makes p oduc ion be e , cheape and so o h.
Thus, he au ho s’ esul s o p oduc i i y migh se e as a p oxy o CEPA’s e ec on
inno a ion.10 Figu e5, o i s pa , shows simila esul s—wi h he au ho s hypo hesizing
ha Hong Kong could bene i om a “Guangdong e ec ”—which helps p omo e ade,
inno a ion and p oduc i i y (Zhang e al., 2009). As Hong Kong’s manu ac u ing sec-
o sh inks, Hong Kong’s manu ac u e s educe duplica ion/ compe i ion wi h Shenzhen
6 The Index uses he usual quan i a i e indica o s o inno a ion policy—like pa en s, jou nal ci a ions, spending pe cap-
i a on R&D and so o h. Ezell (2016) p o ides mo e on hese indica o s.
7 We e e o he ph ase “inno a ion-led p o i s” equen ly in he ex — o e e o p o i s ha mo e and bigge com-
panies could make om inno a ions which would no occu wi hou agglome a ing Hong Kong and Shenzhen. Any
economic app oach o inno a ion mus accep o measu e inno a ion as he p obabili y-adjus ed (weigh ed) long- e m
expec ed p o i om companies engaged in c ea ing new ech- ela ed goods and se ices.
8 Fo example, he G ea e Bay A ea F amewo k Ag eemen ep esen s ano he example o ag eemen s o lowe a -
i s and inc ease ade/in es men . A li any o ag eemen s, such as hose unde pinning he Guangdong Pilo F ee
T ade Zone exis al eady. See F amewo k Ag eemen on Deepening Guangdong-Hong Kong-Macao Coope a ion in
he De elopmen o he G ea e Bay A ea, a ailable a h ps:// www. baya ea. go . hk/ en/ abou / ag ee men . h ml.
9 Chen and Un e obe doe s e (2008) p o ide one o he mos ele an s udies o ou pu poses. They ha e mapped he
economic clus e s de eloping in and a ound he Hong Kong/Shenzen a ea. Shen (2014) looks impe ec low o goods
and in o ma ion ac oss he bo de , while Shen and Luo (2013) look a he way Hong Kong has opened up o egional
in eg a ion in he Pea l Del a Region.
10 Xu and Yu (2012) ind, using a comple ely di e en me hodology ha Shenzhen’s o al ac o p oduc i i y g ew by
a ound 5% pe yea .
Page 6 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
and Guangzhou. Such sh inkage also helps esou ces mo e o mo e p oduc i e sec o s.
Ye , mos s udies o egional in eg a ion a e so badly done ha hey p o ide a limsy base
om which o d aw conclusions abou Qianhai.
We eally do no know wha e ec egional in eg a ion had on inno a ion in he Qian-
hai egion (Hong Kong and Shenzhen).11 The Hsiao e al. s udy c ea ed a model based on
nume ous o he economies, o simula e wha bene i s migh ha e acc ued o he egion.
Based on hese indings, hey an simula ions—known as Mon e Ca lo simula ions—
o see wha he bene i s migh ha e been, i we compa ed ou eali y wi h hund eds o
o he eali ies. The Zhang e al. (2009) s udy makes i m p edic ions abou in eg a ion in
he Pea l Ri e Del a egion by aking he esul s o a simple eg ession o GDP g ow h
and o al ac o p oduc i i y on le els o in eg a ion ( ade). Thei speci ica ion su e s
om p oblems wi h wha economis s know as “endogenei y bias”, “omi ed a iable bias”
Table 2 Li e a u e o ele ance o he Qianhai Design Ques ion Sou ce: See ci ed au ho s o mo e
in o ma ion on hese sou ces
a O cou se, alking abou “Qianhai law” makes li le sense (as he egion has li le i any adminis a i e au onomy). We use
his ph ase as sho -hand o alk abou he ele an legal p o isions a ec ing Qianhai’s ope a ion
Summa y and majo au ho s Desc ip ion and Resul s
CEPA (and special/bo de economic zone li e a u e
mo e gene ally)
Chen and Un e obe -doe s e (2008), Shen (2014),
Shen and Luo (2013), Hsiao (2012)
Ques ion: Based on p e ious expe ience wi h economic
in eg a ion in he Guangdong egion, would Qianhai
ac ually gene a e bene i s abo e/beyond he s a us
quo?
Resul : Se e al poo ly done s udies show ha egional
in eg a ion has gene a ed bene i s so a . Ye , Hong
Kong’s ins i u ions and ule o law explain any p o i -
gene a ing inno a ion be e han simple economic
in eg a ion. Thus, i Qianhai can sha e some o Hong
Kong’s ins i u ions, he p ojec would be much mo e
success ul
Inno a ion Sys ems li e a u e
Baa k and Sha i (2006), Xu e al. (2010), Fu (2011), Fu
and Li (2011), Li e al. (2006)
Ques ion: Wha does i ake o make an inno a i e
a ea (clus e )? Wha pa s o a Qianhai-law would lead
o inno a ion-led p o i s (and hus demand o Hong
Kong’s inancial se ices)?a
Resul : Ins i u ions ep esen a key cons i uen o
g ow h. Gi en he ension be ween Hong Kong’s
Anglo-Saxon “ a ie y o capi alism” and Shenzhen’s
“Con inen al a ie y o capi alism,” any Qianhai-law holds
li le p omise o wo king in he medium- e m. Mo eo e ,
o ced g ow h ( a he han o ganic g ow h) makes i ms
loca ing in Qianhai less likely o su i e/ h i e
Finance o Inno a ion li e a u e
Cheung e al. (2015), Sha i and Huang (2010), Baa k
e al. (2011)
Ques ion: Will mo e go -led inance in Hong Kong and
Shenzhen ac ually esul in inno a ion-led p o i s a in
excess o he s a us quo?
Resul : Schola s can no ag ee. Bu complemen a i ies
be ween he wo ju isdic ions likely lead o con lic
a he han coope a ion
In es men low li e a u e
Gi ma e al. (2009), Wang and Wang (2011), Zhang
(2010)
Ques ion: How o encou age in es o s in he Qianhai
egion and ou side o in es in Qianhai-based compa-
nies?
Resul : Such a push p obably mis-guided. Capi al needs
o go o highes p oduc i e use. Encou aging capi al
o go o Qianhai wi hou exis ing g ea ideas dis o s
capi al, labou and goods/se ices ma ke s
11 The in e ne and jou nals a e looded wi h badly done quan i a i e s udies looking a he e ec o inno a ion on Chi-
nese i m p o i abili y. We do no ha e oom o p o ide a ull lis , bu e e he eade o au ho s like Zhu and Huang
(2012).
Page 7 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
and o he misspeci ica ion e o .12 As a mo e subs an i e c i ique, au ho s like Shen and
Luo (2013) ha e ound ha poli ical gains, mo e han economic gains, d o e much o
Hong Kong’s inc eased co-ope a ion on in eg a ion wi h Shenzhen.
The es ablishmen o special economic zones in he Qianhai egion migh accoun
o hese esul s a mo e han any gains om egional in eg a ion. Figu e6 shows he
es ima ed e ec o c ea ing a high- ech indus ial zone—like he p oposed Qianhai
zone—based on pas expe ience (Alde e al., 2015). Acco dingly, he es ablishmen o
Shenzhen- egion high ech zones (mo e han economic and ade in eg a ion wi h Hong
Kong) explain g ow h in he egion. O he au ho s such as Jin e al. (2013) ha e shown
how such zones—and especially he anspo links ha ie hese zones oge he — esul
in p oduc i i y g ow h. These zones bene i ed, because hey we e al eady indus ialized
a eas.13 I Jin and co-au ho s’ indings e lec Qianhai’s u u e, c ea ing a special eco-
nomic zone ex nihilo will ha e e y limi ed impac s on inno a ion. Ye , au ho s such
as Sawye e al. (2015) migh a gue ha hese gains came mos ly om he esou ce
accumula ion due o he cen al go e nmen ’s o de s—and no om he na u al a ac-
ion o esou ces acco ding o Shenzhen’s compa a i e ad an age. Because we canno
sepa a e he inno a ion–c ea ion e ec s om he inno a ion–di e sion e ec s in hese
Fig. 4 A Casino s udy says ha Hong Kong’s egional in eg a ion migh ha e added an ex a 4% o GDP
g ow h
-8
-6
-4
-2
0
2
4
6
Mainland Fac o T ade wi h
Guangdong
Manu ac u ing
Sha e
Pe cen o a iance
he model explains
change in GDP pe
capi a and
o e all economic
p oduc i i y o a
10% change in...
73%72%
GDP pe capi a
P oduc i i y (TFP)
g ow h
Fig. 5 A e y misspeci ied econome ic s udy inds e idence o a “Guangdong e ec ”. The igu e shows
he coe icien s o eg essions ying o explain Hong Kong’s GDP pe capi a g ow h a e and gene al
p oduc i i y (wha economis s call " o al ac o p oduc i i y" o TFP). The igu e show s ade wi h he
Mainland, ade wi h Guangdong, and manu ac u ing’s sha e o Hong Kong’s GDP as explana o y a iables.
We also show he misleading pe cen o a ia ion he model explains (know n o economis s as he model’s
R-squa ed). The model’s esul s a e useless, as he au ho s ailed o con ol o o he ac o s which a ec GDP
g ow h (like labou used), hey don’ ake in o accoun ha GDP g ow h a ec s ade as much as ade a ec s
GDP g ow h (called "endogenei y bias") and o he p oblems Sou ce: Zhang e al. (2009)
12 We do no ha e space o explain wha hese e ms mean. Fo non- echnical eade s, hey/you only need o know ha
he p oblems wi h he s udy mean ha he esul s ell us no hing abou in eg a ion in he egion.
13 Ba bie i and Pollio (2015) ind—in an analysis o Guangdong special economic “encla es”— ha highly indus ialised
a eas bene i he mos om hese zones.
Page 8 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
s udies, we can know he ex en o which Qianhai would c ea e inno a ion una ailable
o he wise.14
As in o he pa s o economics, nume ous au ho s such as Yang e al. (2011) a e inding
ha ins i u ions play a la ge ole in inno a ion han simple ade c ea ion/expansion. A
ecen Asian De elopmen Bank s udy ocused on c oss-bo de economic zones (like he
p oposed Qianhai scheme). The au ho s ound ha hese c oss-bo de s zones need hei
own special, unique policies o a ac companies and ela ed in es men in he zone.
Using ela i e simple s a is ical me hods, hese au ho s ind ha —con a y o he case in
Shenzhen–Hong Kong egion— hese c oss-bo de zones aison d’e e e ol es a ound
impo ing esou ces and lowe ing p oduc ion cos s.15 Qianhai would hus nei he help
impo esou ces no lowe p oduc ion cos s signi ican ly. Thus, go e nmen s on bo h
sides o Qianhai’s c oss-bo de economic zone should ha monize in as uc u e, labou
policies, and o he ma ke ins i u ions so as no o c ea e a di ided ci y/ egion.
Inno a ion sys ems li e a u e
The second b anch o he li e a u e (which we summa ised abo e in Table2) ocuses on
he way ha “inno a ion sys ems” ha e de eloped in he Qianhai egion—and how hey
migh in e ac . Such inno a ion sys em s udies look a he way coope a ion and compe-
i ion be ween manu ac u ing/IT and se ice i ms leads o p o i able inno a ion.16Fig-
u e7 shows he cons ella ion o inno a ion ela ionships a ound he Shenzhen egion.17
Acco dingly, Shenzhen’s inno a ion sys em e ol es a ound uni e si y–company col-
labo a ion—wi h a wide ange o one- o-one (called dyadic) connec ions. Thus, we do
no know abou he p o i abili y o inno a ion. Howe e , we do know ha uni e si ies
should se e as cen al ac o s in p omo ing inno a ion in he Qianhai egion.
Wha a ec s he a e a which hese ne wo k ela ionships gene a e inno a ions?
Fig.8 ep esen s one example o a s udy seeking o answe ha ques ion. Inno a i e
Fig. 6 C ea ing a Chinese new high- ech de elopmen zone has ques ionable impac s on GDP
15 One migh iew inno a i e ideas o e en e an RMB as a ype o esou ce. Ye , he s udy mos speci ically ocused
on ma e ials and aw ma e ials.
16 Se e al schola s like Baa k and Sha i (2006) ha e s udied Hong Kong’s inno a ion sys em—and such sys ems in he
egion o e all. Baa k and Sha i p o ide he his o ical backg ound o Hong Kong’s inno a ion sys em. Boeing and Sand-
ne (2011) desc ibe he inno a ion sys em om he China side.
17 We ocus on hese ela ionships in Shenzhen as he Qianhai p ojec physically si s in Shenzhen.
14 Zheng e al. (2015) use geog aphical da a o he loca ion o a ious indus ial pa ks o look a which ac o s con ib-
u e o p oduc i i y g ow h in hese pa ks. Fo he gene al sample—we can no sepa a e ou Shenzhen’s e ec s— hey ind
ha om p oduc i i y g ow h (o o al ac o p oduc i i y) comes dense ou pu and inpu linkages, skill spillo e s, and
access o ail a el. Ye , b oade indus y change also plays a ole.
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Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
inno a ion does indeed lead o g ow h. Ye , hey also ind ha such inno a ion agilizes
he banking sec o —making c isis mo e likely. Chang (2010) shows ha inancial inno-
a ion leads o i m inno a ion. The da a—as shown in Fig.16—seem o sugges ha
o eign capi al and o eign ma ke s seem o encou age Chinese inno a ion. Local in es -
men , acco ding o his s udy, does li le o os e p o i -o ien ed inno a ion. Figu e17,
in con as , shows ha s a e-owned en e p ises (SOEs) would ha e s ong incen i es o
loca e in Qianhai—despi e he ac ha such a loca ion does no inc ease p o i s o nec-
essa ily lowe cos s. To he ex en ha Qianhai migh be conside ed as an ‘o e seas lis -
ing’— hese SOEs which lis he e would do wo se han p i a e i ms. Qianhai is hus
likely o a ac he leas desi able companies o c ea ing and sus aining new inno a-
ion—namely, s a e-owned en e p ises (SOEs). Howe e , o poli ical easons and loop-
hole jumping easons, a he han o p o i s.
Mo e e idence seems o poin owa d he u ili y o he p esen Qianhai design. The
wo igu es below unde mine Qianhai’s claims o p omo e inno a ion. Figu e18 shows
he e ec s o Chinese R&D, aining, o eign capi al, inancial posi ion, and subsidies on
inno a ion le els. Figu e19 shows access o inance o Chinese inno a o s as a esul
o he same a iables. As shown, in e nal inancial posi ion ( e ained ea nings), o eign
capi al and subsidies play an ex emely ma ginal ole in bo h omen ing inno a ion and
a ac ing money. In e es ingly, as Hanley e al. (2011) show, e en hough inance does
no help indi idual i ms inno a e, he o e all le el o inance (c edi ) does co espond
wi h highe a es o inno a ion ou side o he Qianhai egion! Zhao (2016), o his pa ,
inds ha deepe c edi ma ke s ( o cen al and wes e n egions) and equi y ma ke s
( o coas al p o inces) incen i ize inno a ion a he p o incial le el. Hu e al. (2005)
also ind ha o eign in es men ails o p omo e he adop ion o o eign inno a ions.
Thus, he p eponde ance o he e idence sugges s ha inance only p omo es inno a ion
indi ec ly— h ough a s ill undisco e ed causal mechanism. Wu e al. (2012)—as men-
ioned p e iously) u he inds ha companies wi h Hong Kong-based in es o s ha e
less inno a ion han o he ypes o in es o s. I ue, Qianhai’s ax incen i es and RMB
epa ia ion mechanisms will ha e ma ginal, indi ec e ec s on p omo ing inno a ion in
he Hong Kong/Shenzhen egion—and p obably no e ec a all.
Fig. 16 In SOEs a leas , o eign in es men good and domes ic in es men bad (unless he SOEs engages in
o eign-o ien ed ac i i y) The igu e shows he e ec o he a iables abo e on Chinese inno a ion. As shown,
o eign di ec in es men , expo o ien a ion and R&D play pi o al oles in p omo ing inno a ion. See o iginal
s udy (Table 4) o a iable de ini ions and econome ic me hods used. Sou ce: Gi ma (2009)
Page 16 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
Wha abou p i a e equi y and en u e capi al? One migh imagine ha he ules o
en u e capi al di e om o he ypes o capi al. Qianhai’s ocus on IT, inance, and
logis ics sugges s ha compe encies can de elop in hese specialis a eas. Ye , Liu e al.
(2010) ind ha en u e capi alis s in he Qianhai a ea do no specialise by indus y o
in any o he way. Using econome ic analysis, hey ind no e idence ha en u e capi-
al- unded i ms unde -p ice hei IPO sha e o e ing no do hey only choose he bes
-10
-5
0
5
10
eg ession/logi
coe icien s
change in sales
media exposu epoli ical p omo ion
change e u n on asse s
change ma ke -
adjus ed e u ns
poli ical p omo ion
Fig. 17 Poli ically Connec ed Would Choose Qianhai—e en i companies do wo se. The igu e shows
he eg ession coe icien s o each o he a iables shown (abo e and below each ba ) as he dependen
a iable. These coe icien s e e o he e ec ha poli ical connec ions play in deciding o lis o e seas.
O e seas lis ing (i Qianhai would be conside ed like Hong Kong as "o e seas") would help p omo ion
p ospec s e en i he o eign lis ing co ela es wi h wo se inancial pe o mance (lowe sales, e u n on asse s
and cumula i e adjus ed e u ns o he company’s sha es). The oip coe icien s e e o logi coe icien s and
he bo om o ins umen al a iables es ima es. See econome ics ex book o mo e on hese p ocedu es.
Sou ce: Hung e al. (2012)
0
0.5
1
1.5
2
2.5
3
R&DT ainingExpo in ensi yFo eign KFinance Subsidies
eg ession
coe icien
SOEs P i a e
Fig. 18 Is Access o Chinese Domes ic Capi al and Subsidies Useless o Inno a ion? The igu e shows he
esul s o econome ic analysis looking a he de e minan s o INNOVATION in Chinese companies. To he
ex en ha Shenzhen’s companies e lec he wide Chinese si ua ion, hen Qianhai would no help p omo e
inno a ion by pu ing mo e inance and subsidies on o e . See sou ce o empi ical me hods and a iable
de ini ions
0
0.5
1
1.5
2
2.5
3
3.5
R&DT ainingExpo in ensi yFo eign capi alFinancial posi ion Subsidies
eg ession
coe icien
SOEp i a e
Fig. 19 Access o Chinese Capi al Doesn’ Depend on Fo eign In es men o Subsidies? The igu e shows he
esul s o econome ic analysis looking a he de e minan s o FINANCE (speci ically bank loans) o Chinese
companies. To he ex en ha Shenzhen’s companies e lec he wide Chinese si ua ion, hen Qianhai
would no help p omo e inno a ion by making pu ing mo e inance and subsidies on o e . See sou ce o
empi ical me hods and a iable de ini ions. Sou ce Gi ma e al. (2008)
Page 17 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
(mos po en ially p o i able) companies o wo k wi h.26 Wang and Wang (2011) ind ha
senio managemen (CEO) expe ience in he indus y in which he en u e capi al i m
is in es ing emains c i ical o he in es men ’s p o i abili y. Figu e20 shows he way
a ious ac o s a ec he p obabili y ha a VC in es men goes IPO. As shown, o com-
panies wi h a o me indus y inside CEO- u ned- en u e-capi alis , he in es ee has
abou a 60% g ea e likelihood o going IPO. In a mo e ecen pape , hey also ind la ge
pos -IPO sha e p ice inc eases o i ms wi h o eign en u e capi alis s (He e al., 2015).
In he Qianhai con ex , one migh in e p e hese indings in such as a way as o a gue
-300% -200% -100%0%100% 200% 300%
R2
Syndica e size
IPO Condi ions
M&A condi ions
VC a ilia ijon*
Founde S ays
VC Indus y De elopmen
Founde Lea es
Founde Lea es
Special CEO Expe ience
VC Indus y De elopmen
VC A ilia ion*
M&A Condi ions
Syndica e Siz
e
Po olio Company Quali
y
IPO Condi ions
Fo eign VC Human Capi
a
Founde S ays
Domes ic CEO Expe ience
R2
s a is ically signi ican
ac o s
insigni ican
ac o s
Fig. 20 Chinese Indus ial Magna es, Ra he han VC Specialis s Make o he Bes . The igu e shows he
ex en o which he ac o s shown a ec a Chinese company’s p ospec s o going IPO. We ha e changed he
scale o his logi eg ession— o make mo e clea ha an e ec o 100% o mo e means ha he p obabili y
o going IPO changes by one s anda d de ia ion o mo e. Sou ce: Wang and Wang (2011)
These people claim ha Hong Kong’s inno a ion anks poo ly. Ye , o he de elopmen o he
sou ce →
sink
↓
Beijing Shanghai Shenzhen Hong Kong O e seas
Beijing 3595 49029240 749
Shanghai 3923248 123205973
Shenzhen72 159229 30185
Hong Kong 26 16 060 0
O he 8501323334 327226
Fig. 21 Would Qianhai simply di e money going o and coming om China? The igu e shows he pa hs
o co-in es men unding among China’s and o eign en u e capi alis s and he amoun o en u e capi al
unding in 2008. Sou ce: Zhang (2010)
26 These esul s do no necessa ily hold o he en i e Chinese equi y ma ke . Wu e al. (2012), o example, ind e idence
o en u e capi alis unde -p icing du ing hei in es ee companies’ IPO—and delimi i e condi ions which a ec he
ex en o such unde -p icing.
Page 18 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
ha Hong Kong en u e capi al can help add alue o Shenzhen-based companies plan-
ning on lis ing (and o he s). Ye , p o i s emain conspicuously absen in all hese s o ies.
Will Qianhai add o he s ock o inno a ion o simply displace inno a ion om o he
pa s o China? Fig.21 shows he lows o en u e capi al unds des ined o China.
Au ho s like Fan and Wan (2006) a gue ha Shenzhen (and Hong Kong) can p oduce
inno a ion wi hou go e nmen suppo o high- ech pa ks—and such suppo esul s
in unnecessa y “inequali y in inno a ion capaci y.” In o he wo ds, go e nmen pol-
icy shi s R&D geog aphically, a he han inc easing inno a ion in he China egion.
Shenzhen has access o money and ideas—many o which may se e Shenzhen-based
i ms wi h loca ions ou side o Guangdong.27 E en i Shenzhen does manage o ill ou
(wi h high ech i ms), se e al au ho s like Zhao and A ani is (2010) ha e ques ioned
whe he non s a e-owned en e p ises could inno a e in a policy en i onmen hos ile o
hem. S ong cen i ugal o ces end o push inance (and hus po en ially inno a ion) o
Beijing and Shanghai.28 I we knew he a es o p o i abili y in hese a eas, we would no
ha e o alk abou cen i ugal o ces.
These people claim ha Hong Kong’s inno a ion anks poo ly. Ye , o he de elop-
men o he inancial cen e, Hong Kong does no need o ank highly. Ins ead, he com-
panies i unds should ank highly. As such, looking a Hong Kong is e oneous.
Thus, he li e a u e poin s o h ee obus conclusions. Fi s , money spen on inno-
a ion by local go e nmen s will likely be was ed. Any design o Qianhai should
encou age o eign in es men —p e e ably using Hong Kong and a condui o o eign
in es men a he han as a sou ce o in es men i sel . Second, join esea ch p ojec s,
pla o ms, and uni e si y join en u es will de e mine he way o p omo ing inno a-
ion in he egion. Thi d, he cu en s uc u e o Qianhai will likely ha e no e ec s on
inno a ion in he egion. Policymake s mus pu sue ano he design— ocused on ha mo-
nizing ins i u ions— a he han in es men egimes—ac oss he Shenzhen/Hong Kong
bo de .
Ye , we can no us any o hese conclusions wi hou knowing he e ec o policy
on p o i s. No amoun o local go e nmen suppo o uni e si y incuba ion will keep
unp o i able i ms in Qianhai. Qianhai i ms mus no only ea n p o i s, bu ea n p o i s
highe han hose a ailable in Hong Kong, Shenzhen—as well as in all he o he inancial
cen es (as pe oppo uni y cos ). Un il we know how p o i s a ac inno a i e i ms o
a inancial cen e—we will no be able o say i Qianhai will succeed o ail. Ne e has a
u u e esea ch agenda been so clea .
Conclusions
Does Qianhai—a glamo ized eal es a e de elopmen p ojec so a —hold he po en ial
o adically eshape inno a ion policy and inance in Hong Kong and Shenzhen? To da e,
policymake s and analys s alike misguidedly ocused on in es men and inno a ion—
igno ing he i al ole o p o i . Companies will mo e o Qianhai—jus as Qianhai will
‘mo e’ in o Hong Kong and Shenzhen—in sea ch o highe p o i s. Go e nmen s and
companies will pa icipa e in he Qianhai p ojec i hey can make mo e p o i s doing so
27 See Bichle and Schmidkonz (2012) o mo e on he Chinese Inno a ion Sys em, and Shenzhen’s place in i .
28 E en hough he Zhao e al. (2004) s udy appea ed in he ea ly 2000s.
Page 19 o 22
Michael Jou nal o Inno a ion and En ep eneu ship (2024) 13:14
han hey do now. Ye , he li e a u e comple ely igno es he p o i mo i e in desc ibing/
p edic ing likely in es men in inno a i e Qianhai-based i ms.
Ou pape unabashedly se s he s age o u u e econome ic wo k looking inno a-
i e i ms’ p o i abili y in de e mining whe he an in e na ional inancial cen e, like
Qianhai, succeeds o ails. We show he esul s o p e ious econome ic s udies ind-
ing se ious aul wi h inno a ion policies in he Hong Kong—Shenzhen a ea (an a ea we
op imis ically e e o as he Qianhai egion in his pape ). Ye , hese misguided s udies
assume ha inno a i e i ms will come and s ay o e e y eason excep he one ha
ma e s mos —p o i abili y.
Will Qianhai’s egula ions and o he design ea u es (like loca ion, access o capi al and
so o h) allow o he su icien ly high p o i s needed o imp o e Hong Kong’s and Shen-
zhen’s compe i i eness as in e na ional inancial cen es? Will Qianhai e en de elop as
an in e na ional inancial cen e in i s own igh ? Fu he econome ic s udy will ell.
Abb e ia ions
CEO Chie Execu i e O ice
CEPA Close Economic Pa ne ship Ag eemen
GDP G oss domes ic p oduc
IPO Ini ial Public O e ing
IT In o ma ion echnology
R&D Resea ch and de elopmen
RMB Renminbi (Chinese cu ency)
SOEs S a e-Owned En e p ises
VC Ven u e capi al
Acknowledgemen s
Hong Kong Resea ch G an s Council RGC Theme-based Resea ch Scheme (TRS) Financial Technology, S abili y, and Inclu-
sion T35-710/20-R.
Au ho con ibu ions
I con ibu ed e e y hing o his pape .
Funding
We would like o hank he Resea ch Impac Fund Balancing he Oppo uni ies and Risks o Financial Technology: FinTech
Regula ion and Policy (G an numbe R7054-18) o hei inancial con ibu ions. All e o s emain ou own.
A ailabili y o da a and ma e ials
All da a come om easily ob ainable public sou ces.
Decla a ions
Compe ing in e es s
I ha e no con lic ing in e es s in his esea ch
Recei ed: 5 May 2022 Accep ed: 25 Sep embe 2023
Re e ences
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Publishe ’s No e
Sp inge Na u e emains neu al wi h ega d o ju isdic ional claims in published maps and ins i u ional a ilia ions.
B yane Michael has ad ised on inno a ion policy o o e 20 yea s. His pas s in s includes wo k a he
Wo ld Bank, OECD, UN, EU, Mo gan S anley. He comple ed his g adua e le el economics educa ion a Ha -
a d and Ox o d, and his legal deg ee a King’s College London.
