Shenzhen may be China's showcase for the open-door policy but, like most things in the mainland, its success has been copied. Scores of mini-Shenzhens, some on the fringes and others further along the coast, have mushroomed since 1979 and are also proving strong magnets for foreign investment.
Like Shenzhen, these special economic zones and cities are targeting electronics, manufacturing and light industry investments. Shenzhen itself has barely changed the pattern of its investments over the decade electronics dominates and is followed by garments and light industry.
For several Hong Kong factory owners, Dongguan is starting to eclipse Shenzhen. In addition to the usual array of sports hag, shoe and kitchen goods manufacturers is V-Tech, an electronics company with a US$150m factory and plans to complete a second US$200m plant some time in 2003.
V-Tech, which makes educational toys, has also taken employment in China beyond factory floor workers; impressed with the standard of graduates, it now conducts its research and development in China.
"Labour intensive industry will shift to other places like Dongguan because they are very near and their salaries are cheaper than Shenzhen. But Shenzhen is attracting more high-tech investment," says Li Qingsen of the Bureau of Foreign Investment.
Other Hong Kong companies looking further afield include New World Development, one of the biggest developers in the mainland with a committed spend of U S$3bn. The property conglomerate has undertaken projects ranging from housing in Wuhan to a liquid propane gas site in Ningbo.
Mr Henry Cheng, managing director, says the company moved away from the major cities along the coastal areas after the central government signalled its wish to funnel more investment inland. New World Development is now reviewing possibilities within the inner regions.
This 'government push is still clearly in evidence. In May, Foreign Trade Minister Shi Guangsheng noted: "China is to formulate more incentive policies for overseas investors into its central and western regions."
Nor is it only Hong Kong companies which are starting to cold-shoulder Shenzhen. China Bicycle, the Shenzhen-listed company which at its peak in 1993 churned out 18m bikes, has been going through some lean times. Its hike factories will remain in Shenzhen, where 1,500 workers are employed. This is a reflection of the company's export-oriented nature; it does not want to incur high freight costs by moving inland. However, it will later this year set up a fertiliser factory in Shantou, where costs are lower.
"Shenzhen is very good but we have got more suitable space for the fertiliser factory in Shantou. Also, the cost of labour is very high in Shenzhen compared with Shantou," says Chen Shu, deputy director of the company.
Future factories will be set up inland, where the demand for fertiliser is greater. The factory will be jointly owned with
made as smooth as possible. The bureau itself is conceived as a one-stop shop for foreign investors, including tax and customs offices, so licence processing is efficient. A company setting up in an encouraged industry, Li says, would have its licence processed in a month.
He recounts the approval of the president of Castrol, who was impressed at the speedy process on his US$30m investment, and says that Belgian glass-maker Glaverbel Vertec obtained its licence in a matter of days.
Hong Kong comparison
Much is also made of Shenzhen's complementary role with Hong Kong. Relations are said to have warmed since the handover. Hong Kong is seen as the centre of finance, information and shipment trade; Shenzhen enjoys a closer relationship with the Pearl River Delta and carries cheaper costs.
Property prices are around one-eighth of those in Hong Kong and salaries are about one-tenth. Wages outside the special economic zone average Yn340 a month; inside the SEZ the monthly rate is closer to Yn430.
"Shenzhen also enjoys well-skilled personnel," says Li. "In the past. Shenzhen and Hong Kong products were designed and developed in Hong Kong and made in Shenzhen, and this will be maintained in the future.
"Shenzhen is Hong Kong's first choice in investment and for Shenzhen's enterprises that want to export, 80 per cent of all these commodities will be shipped to other countries via Hong Kong."
However, even Li does not dispute that the going will be harder for Shenzhen this year in the face of the Asian financial crisis. For example, Chiwan Nanshan Development. which started life in 1982 with eight shareholders and U:SS13m. is starting to see weakness in its construction materials division this year.
"We see many of our foreign partners, especially from Southeast Asia. feel more restricted towards proposed investment in China. They show more restraint in their resources and their commitment,- says Dr Fu.
Work on already committed projects is slowing, he adds. "Our experience over the first four months is that investors are saying: 'Let's wait and see first, and then make a reassessment of committed investment.' We also think we should reassess some projects which we were working on."
China's slowing economic growth ?targeted at eight per cent this year, but reckoned to come in closer to 6.5 per cent by private sector economists ?is also likely to hurt foreign investment.
Physical and financial infrastructure continues to improve Alarge part of Shenzhen's attraction is its relatively sound infrastructure; Hong Kong factory owners can zip in and out in a day, y p d either by boat, train or road. The cur-rent two-year focus on roads and highways will make intra-city trips still faster; the pending subway will make travelling around more efficient again.
One of the centrepieces of the infrastructure is the new airport, the country's fifth biggest. Work on the second phase is now underway; investment in the initial stage came to US$1bn.
And, for rail links, Guangshen Railway Company, which in March 1996 raised Yn4.3bn by issuing shares in Hong Kong and New York, is investing more than Yn5bn in a new high speed railway, whose trains will travel at speeds of 200km/hour and use equipment imported from Sweden.
Companies operating in the special economic zone uniformly site its infrastructure as a key benefit, particularly for export-oriented activities which enjoy access to the ports.
China Nanshan Development (Group), which employs a total of 3,500 workers (including subcontractors) and boasts an annual industrial output of Yn7bn, has enjoyed the benefits of government spending in this area — although president Dr Fu Yuning notes that the frenzied property development of 1993 to 1994 has abated somewhat.
"The Shenzhen government investment in infrastructure is still quite strong, with a commitment to power projects and water projects," comments Dr Fu. "We have a related service business providing consultancy and supervision to infrastructure projects. Over the last two years this company has been getting more contracts than before, and more from the government."
Adds Yu Yuqun of China International Marine Containers (Group): "Infrastructure in Shenzhen can improve and it will offer some help to the company. Maybe improvements will be made in the ports in the west as well as the east of the city and in the rail construction and other transportation construction."
He reckons the recently formalised build-operate-transfer foreign financing models are a good solution to attract foreign funding for these projects. "It will speed up infrastructure projects stalled in the past. If we can use overseas money by means such as BOT, why not?"
Li Qingsen of the Bureau of Foreign Investment sets much store by the improved infra-structure as a means of enticing foreign investors. He cites the airport, railways and ports (Chiwan in the west and Yantian in the east). Huang Gang port is open 24 hours a day, making it convenient for business.
And the financial infrastructure is also improving, the city being home to one of just two stock exchanges in China. "Shenzhen has been more of an experimental frontier than the other cities in China," says Fu. "So we also start seeing those benefits earlier than others ?for example, the growing number of foreign banks starting up business in Shenzhen."
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