New cooperation models have to be adopted to overcome the hurdles in cross-border economic exchanges between the Hong Kong Special Administrative Region and Shenzhen, says an economic expert.

Although many pilot economic zones in Guangdong province have introduced preferential policies to attract Hong Kong companies, these measures have yet to solve the problems that may occur when enterprises operate across the border, notes Xiao Geng, director of the Institute of Policy and Practice at the Shenzhen Finance Institute.

Various channels in the capital markets have been opened up in the past eight years, notably the stock, wealth management, bond and exchange-traded funds connect programs, despite the different systems that exist in the SAR and the Chinese mainland.

However, these platforms have yet to get into full swing, says Xiao. For instance, just 0.17 percent and 0.21 percent of the total quotas allocated for southbound and northbound trading under the Wealth Management Connect had been used, respectively, one year after its launch in September 2021.

He says investors prefer to trade in different types of financial products directly under one system so that they can make decisions quickly and more conveniently.

Xiao points out that Hong Kong companies' alignment with international systems and standards is of great value, but once registered across the border, they will become "domestic firms" and have to abide by regulations under the mainland system, such as foreign exchange restrictions.

To deal with the pressing problem, he proposes a new Shenzhen-Hong Kong cooperation model with "dual headquarters".

Under the model, he says eligible Hong Kong-registered firms could set up secondary operating headquarters at pilot zones in Shenzhen, but their operations would continue to be supervised by the Hong Kong authorities, as well as the city's mechanisms and regulations.

Likewise, eligible mainland companies should be allowed to establish secondary headquarters in a piloted zone in Hong Kong, he says.

Such a formula would break the geographical boundaries and identify administrative regions by a company's primary business type, with offshore operations under Hong Kong and onshore activities under Shenzhen.

In Xiao's view, the model could give full play to both cities' advantages and upgrade their cooperation to a partnership that is complementary to each other and able to achieve a win-win outcome.

The tax and GDP contributions of these "dual headquarter" firms could be shared between the governments on both sides, says Xiao, adding that such an arrangement would encourage both governments to deepen cooperation.

"This method would harness Hong Kong's international capital management systems, while avoiding the high costs of office space. It would also facilitate the hiring of talents in the city and allow more access to mainland clients."

He also says the proposed "reverse quarantine" being planned could be tried out under such a model. According to the plan, travelers to the mainland could complete their mandatory quarantine in Hong Kong before heading north. Hong Kong Chief Executive John Lee Ka-chiu said the quarantine standards and requirements at the chosen Hong Kong facilities would be in line with those of the mainland.

Moreover, he believes the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop, and the Northern Metropolis development in Hong Kong could be potential zones for applying the new model in the future.

Recent statements by the mainland authorities have raised the possibility of adopting such a model. The Qianhai Authority told China Daily in an earlier interview it plans to study a "new management system that moderately separates administrative regions and economic activities".

The authority is also exploring "designing policies jointly, developing them synergistically and sharing the achievements together" with Hong Kong.

Officials of the HKSAR and the Guangdong provincial government had also mentioned the strategy at a video meeting in September. They said the Qianhai and Nansha economic platforms would be used to deepen collaboration between both sides.

As a member of the expert committee on drafting the Hengqin plan, Xiao said the management model of a collaboration and communication mechanism between Guangdong and Macao could be regarded as a reference. The administration of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin was formed by officials from both regions.

Contact the writer at grace@chinadailyhk.com