Advanced producer services industries in Hong Kong and Shenzhen: Struggles towards integration

The path towards a closer integration in Advanced Producer Services (APS) industries between Hong Kong and Shenzhen has been difficult despite favorable locational factors. Based on the authors' long-term and extensive working experience in the APS sectors in the Pearl River Delta, combined with in-depth interviews with senior officers of companies who are APS providers in Hong Kong in 2009, this paper will examine the factors, both tangible and intangible as in institutional and non-institutional, regulatory and non-regulatory, as well as legal, governmental, social and cultural, which affect and resist APS integration between Hong Kong and Shenzhen. The findings suggest that the integration of APS between Hong Kong and Shenzhen has been greatly impeded by unfavourable institutional factors that have overwhelmed locational advantages. There are substantial inhibitions against free competition in the China marketplace including non-regulatory and intangible inhibitions, embodied by local protectionism, heavy reliance on guanxi, rampant insider games and nepotism, excessive bureaucracy, an inadequate legal system, pervasive rent seeking and so forth that block integration between the two cities. The paper will also examine the Qianhai Free Trade Service Zone, the ambitious initiative made by the Shenzhen government to promote APS cooperation between the two areas.