The HK-PRD Agglomeration Illusion

11 January 2016 – A bridge to Zhuhai, a busy border crossing, a wealth of cross-border trade and investment – evidence of Hong Kong’s integration with the Pearl River Delta (PRD) is all around us, so we’re told.

Indeed, few would argue that some degree of “economic integration” is not underway. This term may suggest little more than the outcome of coordinated trade, fiscal and monetary policies.

But, for Hong Kong and mainland officials, “economic integration” is a euphemism for grander plans. The mainland’s Outline Plan for the Reform and Development of the Pearl River Delta (2008-2020) is as much a blueprint for a “high-quality living community” as it is for economic policy coordination.

The jointly developed Regional Cooperation Plan on Building a Quality Living Area adds flesh to this community-building aim by calling for the transformation of “the Greater PRD region into an exemplar city cluster of green and quality living” where technological and productivity enhancement serve as “the main driving forces for economic development”.

This satisfying language glosses over a gnawing truth. Cluster development depends on laborers who vote with their feet, not officials who plan with their pens.

In a February 2014 working paper, Alain Bertaud, a senior research scholar of the NYU Stern Urbanization Project and the World Bank’s former principal urban planner, states that labor market fragmentation can prevent cities from enjoying the knowledge spillovers that increase productivity and innovation. “Without a functioning labor market,” he asserts, “there is no city.” His solution is greater labor market mobility that yields face-to-face contact.

Hong Kong and PRD officials understand that transport infrastructure construction and the elimination of regulatory barriers to cross-border work may decrease fragmentation and increase mobility. But they do not adequately gauge the labor force’s reaction, thereby putting their own cluster development plans at risk.

Statistical Shortcomings

Despite the importance of cross-border labor force mobility, official statistics inadequately track the issue. Guangdong makes no effort to collect the relevant data, while Hong Kong’s existing measures are either inconsistent or not tailored to Hong Kong and its PRD neighbors specifically. Officials may have no idea of the degree to which laborers, whether as commuters or relocating workers, have bought into their plans.
螢幕快照 2015-12-26 上午10.34.13From 1995 to 2010, the Census and Statistics Department kept estimates of the number of Hongkongers working on the broader mainland, if not the PRD. These numbers suggest that the high point for cross-border labor force mobility may have been 2004, when 7.2 percent of the Hong Kong labor force worked somewhere north of the border. The percentage fell in each subsequent year to 2010’s 4.9 percent (171,000 people), 90 percent of whom were estimated to work in Guangdong.

The size of the PRD labor force in Hong Kong is also unclear. The best indications may come from Hong Kong census data, which does not distinguish PRD laborers from mainland laborers. The total number of mainland non-permanent residents in the Hong Kong labor force fell from 76,568 in 2001, to 70,255 in 2006, then edged up slightly to 71,596 in 2011. The total number of non-permanent mainland residents, including minors and other non-laborers, fell consistently to 2011’s 171,322.

Statistics on work-related cross-border travel are little better. Cross-boundary Travel Surveys from 2011 and 2013 reveal that, in those years, “work” was cited as the purpose for 6.3 percent and 7.1 percent of northbound Hongkongers’ travel. Equivalent information for southbound travelers is not provided. However, statistics on some existing visa schemes do provide some indications of annual changes in visas granted to mainlanders, if not PRD residents.

Hovering between 6,000 and 9,000, the annual number of visas provided under the quota-free Admission Scheme for Mainland Talent and Professionals (ASMTP) does not appear to follow any recognizable trend and includes no breakdown for PRD professionals.

While not an employment scheme, the One-Way Permit system does bring in spouses, children and other potential and future laborers subject to a daily quota. Immigration department statisticssuggest that, in recent years, applications have repeatedly fallen short of the annual maximum by at least 10,000 places per year. Under 24,000 Guangdong residents were admitted in 2014 – less than 60 percent of the total. Once again, no statistical breakdown for PRD residents is provided.

Conclusions are even harder to draw based on other schemes. Hong Kong’s Secretary for Securityhas previously stated that 80 percent of admissions under the Quality Migrant Admission Scheme are mainlanders. But his claim of a total quota allocation of 2,646 between 2006 and 2013 suggests only a small annual influx of mainland professionals, let alone those from the PRD specifically.

Other schemes are reserved either for those whose primary purpose for entering the market was not originally to work, or who are bound to a quick departure by the scheme’s conditions. This makes it difficult to draw meaningful conclusions from their fluctuations.

Serious Thought Needed

Hong Kong’s border divides regulatory and legal systems that reflect radically different value systems. In addition to weighing legal restrictions, workers may assess welfare costs of cross-border migration as a function of both measurable economic factors and hard-to-measure factors of personal and cultural value.

Some survey data is suggestive. A recent Bauhinia Foundation-commissionedsurvey reveals that two-thirds of young Hongkongers are unwilling to work on the mainland. Their two greatest concerns are a lack of confidence in mainland rule of law and quality of life, and perceived difficulties at adapting to mainland life.

Likewise, a Hong Kong Ideas Centre-commissioned study has discovered that three-quarters of surveyed mainland workers that arrive in Hong Kong have no plans to stay. And, as a local immigration consultant has pointed out, many mainland arrivals may see Hong Kong merely as a springboard for jobs in China’s north rather than a promising labor destination in its own right. This bodes ill for cross-border city cluster development.

Laborers’ intentions have never prevented Hong Kong and its counterpart cities in the PRD from cooperating in many ways. As Bertaud’s paper suggests, separate cities may form complementary relationships that increase each other’s productivity without physically exchanging workers. Hong Kong’s long history with offshoring is the proof.

However, if officials are serious about integrating Hong Kong into a PRD city cluster, they will need to stop glossing over the labor force issue.

First, they will need to begin collecting better data on cross-border labor force mobility. Any data needs to reflect movements between Hong Kong and the PRD specifically. This is all the more important because the statistics on hand do not immediately suggest a trend toward a unified labor market.

Second, officials will need to gain a better understanding of workers’ demand for jobs across the border. A good starting point would be the implementation of regular opinion polling on perceptions of cross-border work opportunities.

Finally, leaders may have to make some unpalatable choices. If Hong Kong’s existing schemes for the acceptance of mainland laborers are found to be overly restrictive, they may need to be relaxed at the risk of inflaming tensions among a skeptical population and a divided legislature.

As for the mainland, leaders may need to seriously address a host of issues that they have been slow to confront, such as the dissuasive power of Internet and media restrictions and the need for a truly independent judiciary.

For leaders on both sides of the border the political costs of truly integrating Hong Kong into a PRD city cluster may ultimately outweigh the economic advantages. Until officials address these costs, their optimistic cross-border cluster-development agenda may amount to little more than the hot air that sustains a mirage.

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