In this installment of the NexChange Interview Series, NexChange’s Olga Yaroshevsky sits down with Fintech Association of Hong Kong General Manager Musheer Ahmed. Musheer has an extensive background in financial services and technology, having been a global markets trader for a decade and a strategy consultant following his MBA. He also has a keen interest in technologies impacting or disrupting investment banking such as blockchain, artificial intelligence, data analytics.

The two talk about the Greater Bay Area, with Musheer drilling down the nuances of each city, from their historical propensity to innovate, through their distinct yet overlapping policies, to how these all come together to drive fintech in the region.

Olga Yaroshevsky: Let’s first talk about that major report that you recently published, which covers the situation in the Fintech space in Greater Bay Area – great job, I have to say, we all have a lot to learn from that report. Can you maybe highlight the most fresh and interesting parts of it?

Musheer Ahmed: Thank you very much, I’m glad to know you’ve had a chance to look at it. The report was output of Fintech Association of Greater Bay Area Committee – we have four different committees and four different teams, like for payments, AI, blockchain etc. This one is focused on building collaboration between Hong Kong and China, and GBA.

The GBA is effectively called Guangdong area’s 9 cities, and Hong Kong and Macau – so in total 11 cities are part of this ecosystem. It’s the Blueprint that was released by the Central Government in Mainland China. The idea is to assimilate and bring in more collaboration between Macau and Hong Kong special administrative regions with mainland Chinese ecosystem. So far, just by the legal system, Hong Kong and Macau function within the «one country, two systems» process, both are administrative regions of the People’s Republic of China.

However, in terms of legal system and administration they follow their own policies. If you look at the legal system in Hong Kong, it’s different to the legal system in Mainland China, but there are overlaps. So, the GBA covers an area, size of big European countries. Some cities’ population is comparable to the big European cities. Also, the GDP of those 11 cities is close to 1.7 trillion US dollars. Which is more or less equal to what we see in Australia and South Korea. Soon we expect the GDP to get close to 3 trillion US dollars, which will make it one of the biggest areas in the world. Currently Tokyo, San Francisco and New York are the largest ones.

When we look at why the GBA has so much focus on it, we need to keep in context that in Mainland China there are three major zones of activity, especially around the Eastern coastline, starting from Beijing. The Beijing cluster is quite a big economy on its own, 2 trillion dollars. We have the Shanghai cluster, which is led by Shanghai, Guangzhou and a few other cities, again, closer to 3 trillion dollars. And then you come down to Guangdong province, which has about 1.3 trillion dollars GDP. All these areas are focused on different teams. Guangdong Province is the southern port of China, and along with Hong Kong and Macau is, in a way, the access to China for the rest of the world.

Hong Kong has traditionally been the gateway to Mainland China. When it comes to innovation, as well as trade, Guangzhou has been the major trade centre for centuries. Shenzhen is the Silicon Valley of the East. That’s why the GBA as a combination is quite strong. Because of the fact that Hong Kong and Shenzhen share a border, as part of the Guangdong province, and Macau and Shenzhen share a border as well. Therefore there’s a lot more collaboration and focus on integrating the area first. First, from a business perspective, secondly, in terms of exchange of talent and people. Now, if you look at 4 major centres of Hong Kong – Guangdong – Macau area, the number one would be Guangzhou city, capital of the Guangdong province, GDP around 350 billion dollars, majorly focused on trade, import exchange trade, and manufacturing to certain extent. Then comes Shenzhen, the world’s capital when it comes to manufacturing, from a technology perspective – both hardware and software. A lot of technology giants, like Tencent, are headquartered in Shenzhen. Shenzhen is an IT and technology hub. Then comes Hong Kong, the financial centre, which also compliments very well to Guangzhou when it comes to trade. Hong Kong is the major hub between the East and the West, and a lot of trade is connected through Hong Kong companies. Number four is Macau, which for the last few decades has been known as the place for gambling, as well as gaming. Now we can see them transform into more of an entertainment hub. Other cities have other focuses, fintech not necessarily being one. These focuses are not significantly large as compared to these 4 cities. The GDP is 300+ billion dollars.

OY: So these are the locomotives of the area, right?

MA: Yes, these are the major clusters. When you look at the policy, number one is how businesses can do more cross-border collaboration, and be able also to offer products cross-border. For example, currently Hong Kong has a connection and policy that allow to connect Hong Kong stock exchange to Shenzhen stock exchange, and Shanghai stock exchange. There is a select number of Hong Kong exchange stocks that can be traded via the Shenzhen and Shanghai stock connect. And that’s vice versa. That’s called Northbound, and you can have Mainland Chinese and westerns trading on Hong Kong exchange through their exchange. So that provides a two-way access. Going forward, we also expect and anticipate that insurance products, as well as wealth management products might also be recognised in this area, and access would be granted for businesses and companies to offer it to a broader customer base.

Hong Kong alone has a population of 7.2 million people, whereas the whole GBA in total is roughly 10 times that, 75 million people. It provides a big market from a retail perspective. 70 million is larger than the UK, and quite a few European countries. It gives a huge market based in Hong Kong and Macau, and secondly it also provides a way for larger companies coming from overseas to connect to Mainland China, not just through Hong Kong, but as the whole Guangdong province. And on the reverse side, major mainland Chinese companies aren’t necessarily looking at Guangdong as an opportunity – they already have that, they are already there. For them it is more about access to Hong Kong and Macau. Hong Kong in particular, when they’re going overseas and connecting to the overseas markets. Hong Kong is the largest IPO market in the world. Once the GBA is formalised in terms of policies and regulations, it’ll then give them access to Hong Kong listed companies. I’ll take an example: Alibaba and Tencent. So, Tencent is a Hong Kong listed company. But WeChat Pay and AliPay were not offered Hong Kong residence till about 2-2.5 years ago, when they got the license. Prior to that, they were offered only to mainland Chinese customers, who were visiting Hong Kong, which is the case from most of the AliPay and WeChat Pay globally. I think WeChat is only available on 7 markets for local markets, otherwise it’s available in dozens countries for Chinese travellers. There’s a difference in regulation. So we hope that there will be more Chinese companies coming to Hong Kong to test their product, and eventually then launch internationally.