Greater Bay Area: China’s Answer to Supply Chain Diversification

As companies increasingly look to diversify their supply chains away from China to mitigate risks and avoid tarrifs, the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is emerging as a compelling alternative that could make diversification unnecessary in many cases.

The GBA, a mega-region encompassing 11 cities in southern China, including economic powerhouses like Shenzhen, Guangzhou and Hong Kong, presents an unmatched combination of advanced infrastructure, seamless connectivity, deep supply chain resources and a skilled workforce. These factors often make it the most cost-effective manufacturing and sourcing hub, despite higher labor costs compared to other regions.

For instance, businesses at the British Chamber Supply Chain Roundtable revealed that manufacturing in Southeast Asia costs 15% more than in the GBA due to lower efficiency. In Mexico, the cost is 50% higher.

In fact, the GBA’s manufacturing prices are so competitive that even if a second Trump presidency imposed 50% import tariffs, U.S. traders at the Canton Fair would still choose to source from the region, according to Bloomberg.

So, what makes the GBA such an ideal manufacturing and sourcing location?

Bridges, Roads and Trains

One of the reasons sourcing in the GBA remains cheaper is its advanced infrastructure and transportation network, which in turn supports one of the most advanced and efficient logistics networks. The region boasts some of the world’s busiest ports, airports, and high-speed rail lines, allowing for the efficient movement of goods and people.

The Hong Kong-Macau bridge (pictured) is a well-known example, but numerous new transportation projects are emerging throughout the region.

Guangzhou is opening its 22nd metro line, linking the city with Foshan and Zhaoqing. A 24-kilometer bridge will soon connect Shenzhen and Zhongshan, greatly reducing travel time. The region is also investing in airport expansions, with Hong Kong and Guangzhou’s airports undergoing major upgrades. Moreover, it’s home to two of the world’s five busiest container ports: Shenzhen and Guangzhou.

This extensive infrastructure network dramatically reduces logistics costs and lead times, making the GBA a highly competitive location for manufacturing and sourcing.

Unrivalled Supply Chain Depth

The GBA also has an unrivalled depth of supply chains across many industries. Each city in the region specializes in a different sector, forming a complementary ecosystem.

Here’s what each city is known for:

• Hong Kong: International finance, trade, and professional services.
• Shenzhen: Technology, innovation, and high-end manufacturing (electronics, telecommunications, and automotive).
• Guangzhou: Trade, commerce, and manufacturing (automotive, cosmetics, and electronics).
• Macau: Tourism and leisure.
• Dongguan: Manufacturing (electronics, textiles, and furniture).
• Foshan: Manufacturing (home appliances, ceramics, and furniture) and traditional Chinese crafts.
• Huizhou: Manufacturing (electronics and petrochemicals).
• Zhongshan: Manufacturing (lighting, furniture, and appliances) and tourism.
• Zhuhai: Port logistics and high-tech industries.
• Jiangmen: Manufacturing (textiles, paper, and food processing) and tourism.
• Zhaoqing: Agriculture and manufacturing (electronics and construction materials).

These specializations allow the cities in the GBA to complement each other. For example, companies can design new products in Shenzhen, mass-produce them in Guangzhou or Dongguan, and then efficiently export them to global markets through the GBA’s mega-ports.

This diversity allows businesses to tap into an extensive network of suppliers, manufacturers, and service providers within a relatively compact geographic area, simplifying their operations and reducing costs.

China’s rapidly growing electric vehicle (EV) sector, primarily centred in the GBA, is a great example of this, with much of the R&D, manufacturing, and distribution carried out within the region.

Few other places provide such a convenient arrangement for R&D, high-end manufacturing, and global distribution, all within one centralized location. This integration massively reduces complexity and costs for businesses.

Skilled Workforce

The GBA’s supply chain depth is further strengthened by the region’s skilled workforce and innovative capabilities.

While wages in Guangdong may be higher than in Southeast Asia, the overall cost of manufacturing is actually more economical when factoring in the savings from efficient logistics and the exceptional productivity of the highly trained local workforce – one of the most productive pools in China.

Shenzhen and Guangzhou have invested heavily in research and development, drawing top talent from across China and the world. From 2017 to 2022, patents originating from the GBA constituted over a quarter of all licensed patents across China, according to the Chinese Academy of Sciences.

One of the Clearest Examples of China’s Efficiency

In short, the GBA is one of the clearest examples of China’s efficiency and why it remains the most competitive location for manufacturing and sourcing for many industries. Its advanced infrastructure, interconnectivity, supply chain depth, skilled workforce, and supportive policies create an ecosystem that is difficult to match elsewhere.

Ultimately, the GBA demonstrates why diversification may not always be the best solution and why China remains a critical player in global manufacturing.

Kinyu has offices throughout the GBA. So, if you’re operating in the region or are interested in our services, please book a meeting with one of our team members.