Shenzhen Zen

A bird's-eye view of Shenzhen.

If the grandeur that is New York - or Hong Kong - wasn't built in a day, how about within 50 years?

No matter what the answer, South China's glittering Shenzhen in Guangdong province is already beginning to realize that grand ambition only three decades after its humble origin as an obscure fishing village.

It has become China's richest city ranked by per capita GDP and within another decade, it plans to become as modern and competitive as Singapore, Hong Kong and Seoul. And by 2030, after being integrated with its neighbor Hong Kong, Shenzhen could be contending with world big boys such as New York, London and Tokyo.

Shenzhen's growth and ambition comes at a time when China, the world's biggest transitional economy, is celebrating its 30th anniversary of opening its doors to the outside world.

It also comes after the provincial Party chief Wang Yang required the municipal leadership to reconsider Shenzhen's development vision by changing their outdated mindset.

"Shenzhen needs to orientate itself in the global spectrum," says Wang.

Despite the new high- minded goals the gap between Shenzhen current reality and the global aspirations remains wide despite city's economic miracles. Shenzhen's per capita GDP, surpassed $10,000 in 2007, just about one third of Singapore's, which ranks 21st worldwide. And it accounted for one fourth of New York, the sixth richest state in the US, with a per capita GDP of $40,272.

First steps first. In its efforts to increase Shenzhen's economy, the municipal government has repeatedly urged using all means possible to enlarge and reinforce its cooperation with Hong Kong and to enhance Shenzhen's declining institutional superiority over other growing mainland metropolises.

Hong Kong has also responded swiftly. Among a string of recent actions, the special administrative region conducted a feasibility study on the construction of the railway linking Shenzhen's and Hong Kong's airports. This blueprint, if approved by the central government, would allow Shenzhen passengers to spend just 12 minutes traveling to Hong Kong international airport aboard a cross-border railway by 2011.

In its quest to achieve a free flow of people, goods and capital between Shenzhen and Hong Kong, Shenzhen has also unrolled plans for a slew of transportation infrastructure projects, including airport facilities, ports, railways, roads and border checkpoints to improve traffic.

In addition to playing an important role in China's further reforms, Li Luoli, deputy president of the Beijing-based China Institute of Economic System Reform Research said the city should be more aggressive in developing its regional cooperation with Hong Kong and nearby Macao.

"To make the blueprint into reality, Shenzhen should be as brave, bold and innovative as it was years ago," Li tells China Business Weekly recently. "We lack that spirit now."

In the beginning

Shenzhen occupies what was once Bao'an county, before the reform and opening-up of the late 1970s. The county had a population of barely 30,000 people, many of who made a living fishing with per capita GDP of less than $100.

For years, China has applied the "crossing-river-by-feeling-the-stones" principle for its market-oriented reform.

Where was the first stone in the late 1970s and earlier 1980s when the mainland was still dominated by rigid planned economy?

In May 1980, late Chinese leader Deng Xiaoping designated four cities as "special economic zones" - the first testing grounds for the reform. Shenzhen was one of the first special economic zones (SEZs) because of its geographical proximity to Hong Kong, which could offer market-economy expertise and capital from its free port and other parts of the world.

And another important reason was that the human flow between Hong Kong and Guangdong province's Pearl River Delta happened frequently and secretly before the establishment of Shenzhen as an SEZ.

"This facilitated the first batch of Hong Kong investors to start their businesses in Shenzhen," says think-tank expert Li Luoli.

Not only Shenzhen, the entire Pearl River Delta took the lead in the reform and sought to follow the words of Deng Xiaoping, who said "to get rich is glorious".

Between 1980 and 1985, Shenzhen pioneered reforms in capital raising, pricing, finance and investment and wages and employment systems.

On July 8, 1985, the Bao'an County United Investment Corp issued the mainland's first shares of stock since 1949. That same year, the mainland's first foreign-exchange redistribution center was established in Shenzhen.

The preferential policies granted to Shenzhen by the central government eventually translated into institutional advantages over other localities on the mainland and, in turn, into resource advantages.

Eager to tap Shenzhen's low costs especially for labor and land, foreign companies rushed into the SEZ, led by factory owners from nearby Hong Kong.

But the SEZ's small space - it occupies a mere 396 sq km - later arrested its further development.

In 1992 the 14th National Congress of the Communist Party of China made it clear that the goal of China's economic reform was to build a socialist market economy.

Now that the reform has taken hold the institutional advantages enjoyed by the Shenzhen Special Economic Zone faded a bit. In response, Shenzhen started looking beyond the narrow SEZ and at the city's entire 1,952.8 sq km of land.

The result was a decades-long boom, with Shenzhen's economy expanding at an average rate of 28 percent a year from 1980 to 2004 driven largely by exports. Its exports totaled $168.2 billion last year, leading the country as it has for 15 consecutive years. Today the city is home to some of China's most important electronics manufacturers, such as telecom-equipment firm Huawei Technologies and mobile phone maker ZTE.

The rapid development of Shenzhen has also allowed Guangdong to become the richest province in China. Guangdong still leads its peers in economic output, accounting for about 12 percent of national GDP. The province's population, including migrants, is near 100 million.

Shenzhen can attribute much of its success to migrant workers. Today, it has 2.1 million "official" residents and almost 8 million "unofficial" ones, who are not granted local household registrations or "hokou".

Luckily, since August 1, the city has adopted a "residential permit" system for migrants. Replacing "temprary residential system," the new policy allows the administration to better manage the population by collecting full information on non-permanent residents and provide more employment, social security and educational services for their children.

Qin Hui, a professor with Tsinghua University, points out that while migrant workers have left their rural homes to work in big cities and have spent their "prime" literally building urban growth, they are still not legally entitled to settle permanently in the cities and enjoy the same privileges as those with hokou.

Reinventing Shenzhen

These days, Shenzhen is trying to reinvent itself as a high-tech economic powerhouse with an advanced services sector and more diversified ownership.

This is the progression that Japanese companies went through in the 1950s-70s. It' s also progression that Korean companies went through in the '70s and '80s.

Shenzhen began with garments and footwear, and then moved into consumer electronics. Now it's communications equipment, telecoms switches and routers, and automobiles. The municipal government's painstaking efforts to upgrade its industrial structure have also paid off. The service industry now accounts for 49 percent of the economy, following the manufacturing industry at 50.9 percent. Agriculture has narrowed to 0.1 percent.

But Shenzhen has been faced with many barriers such as shortages of land, power and water, population growth and a worsening environment. And it has also been challenged by global factors including the US subprime mortgage crisis and US dollar depreciation, falling global market demand, the rising prices of oil, grain and raw materials, and global inflation.

"Shenzhen is at an important strategic turning point," the city government said recently. "We should waste no time to turn Shenzhen into an innovative city."

Two major factors are helping make it possible for Shenzhen push for a change in the manufacturing landscape. A new highway network to the coast is making it possible to move factories inland, where officials are eager for the investment. Second, most of the low-wage laborers who fill the Pearl River Delta's factories are migrants from rural areas inland. These workers are mobile, quickly moving on if the basic jobs they do disappear.

Now, Shenzhen and the rest of Guangdong province look at Hunan and Sichuan as a much more cooperative hinterland.

If Shenzhen can leap from assembling basic products with low-pay, unskilled labor to nurturing lavishly paid talent, it could blaze a trail for the rest of China.

Confronted with resource and energy constraints, the entire Chinese economy is being faced with the transitional pains Shenzhen must tackle today. Shenzhen is "continuously trying to set an example for the rest of the country," says the expert Li Luoli.

Strategically Li is right: Shenzhen is on the way to realizing its Seoul, Hong Kong or Tokyo dream while China is transforming itself.

Late Chinese leader Deng Xiaoping's smiling face is on a billboard in Shenzhen. He said the opening-up policy would not change in 100 years.

(China Daily 08/04/2008 page2)