The return of neighbouring Hong Kong to Chinese sovereignty in July and the possible reduction of special economic zone investment incentives are threatening Shenzhen's continuing importance to the national economy. Press reports these days are often unkind to Shenzhen, highlighting the rocketing costs of labour and property. Even reports of foreign ventures relocating away from Shenzhen are not uncommon. The coastal development strategy of the 1980s initiated by the former general secretary of the Communist Party, Zhao Ziyang, has long since been replaced by increasingly persistent calls from government circles for foreigners to invest in China's hinterland.
But what these reports often overlook is the way that Shenzhen continues to act as a magnet for talented young people from. all over China. Ms Han Tingting, a graduate in urban architecture design, is one of them. "Shenzhen has attracted hundreds of thousands of talented people over the years," she says. "Compared with an old industrial city like Suzhou, it is full of vitality and youth. It is a city for the young and aspiring." Han, who left Suzhou in Jiangsu province for Shenzhen three years ago, is now in charge of marketing for a major real estate developer in the city.
She believes that it would have been unthinkable for her to rise up the corporate ladder so quickly in her home town. "I was thrown into the real world straight away and learned on the job. There are also capable colleagues around me who I can learn from quickly. I like the challenge and the opportunity here."
Devising new incentives
But the opportunities available to Chinese in the city do bring their own problems for employers, particularly in the area of staff retention. "High pay is one of the popular incentives everywhere in the world to keep people," says Mr Yi Aiguo company secretary of Hong Kong-listed Guangshen Railway. "At least this is how Shenzhen started to appeal to the young in the first place." Yi, who holds a master's degree in rail system management, claims to be an "old immigrant" who settled down in the city after arriving from Hubei province over a decade ago.
But merely offering high pay is now becoming an outmoded strategy he believes. "We must think the unthinkable and devise other new incentives," he says, noting that share-offer shemes at the management level are becoming increasingly popular. Even employee profit share arrangements are now a realistic strategy, he adds.
But employers need to strike a difficult balance between retaining key employees and keeping basic production labour costs under control. Shenzhen Chiwan Wharf Holdings, a locally listed B-share company, has designed a scheme where over 2,000 workers who handle the loading and unloading of goods in the port are hired from a rural village on a five-year contract, so that labour costs are predictable and controllable.
Contrary to the impression given by some of the gloomier reports, foreign investment continues to pour into the city with a sharp increase recorded in the first half of 1996. The local government approved 506 foreign-funded projects during these six months with contracted foreign funds worth US$1.01bn. This represented a 19 per cent increase on the same period in 1995. Actual utilisation of foreign funds totalled US$901m, a rise of nearly 40 per cent.
Like early America
Mr John Lee, overseas development director of an American electric appliance manufacturer, has just finished his annual tour around China's major cities. "Shenzhen still holds its attraction to manufacturers like us," he says. "It is like America in the early years, a new city of young and enterprising immigrants. So companies do not have to shoulder so much responsibility for the old as in old cities like Shanghai and Tianjin. Many overseas companies with investment in China have based their China headquarters in Hong Kong. But with the handover very much in sight, I don't see why we shouldn't be based in Shenzhen."
His company has been selling to the Chinese market through a network of local agents and it is now in the process of setting up 4oint ventures to produce locally. He is particularly impressed by the way the city uses its favourable treatment to its best advantage. The creation of nationally renowned theme parks has caught his eye. These include the Window on the World which features replicas of landmark buildings and sites from around the world, and the China Folk Culture Village, which highlights the life of the Chinese ethnic minorities. The parks have been built with overseas funds in Shenzhen Overseas Chinese Town, previously a deserted beach area. Such developments created a Shenzhen tourism industry from scratch in what only 16 years ago was a mere fishing village.
"This is the spirit of immigrants, creating opportunities for yourself," says Lee who is confident that this 'spirit' will sustain the development of the city for a long time to come. He believes that Shenzhen is content with and will thrive on its future role as a compliment to Hong Kong. "We all know it is no comparison with Shanghai. But nobody can take away the fact that it is the closest neighbour of Hong Kong," he says.
Poised for the second leap
The past two years have witnessed a heated debate among the municipal government leaders and the business community on how the two cities under two different political systems can eventually forge a closer link and benefit China as a whole. "A closer connection [between Shenzhen and Hong Kong] is of great significance in both boosting Shenzhen's economy and keeping Hong Kong's future prosperous and stable after 1997," said Li Zibin, the mayor of Shenzhen, recently.
At a seminar on Shenzhen-Hong Kong economic cooperation, Li revealed that the city was planning a feasibility study for a joint development programme on the basis of the 'one country, two systems' principle. He said that Shenzhen would fully develop its basic infrastructure and improve its sea, air, rail and road links with Hong Kong. He saw as a key element of this, the Beijing-Kowloon railway ? a service which started operation at the end of August and runs through Shenzhen.
Apart from infrastructure, the mayor pointed to areas such as finance, trade, information and travel, sectors in which Shenzhen could focus its development on, and exploit the advantage of, its proximity to Hong Kong. He said that the partnership with Hong Kong could also be of special value in securing power and water supply, environmental protection and flood and drought prevention. This would help to change the get-rich-quick-at-any-cost image of the city and set in train a more considered strategy for future growth:
"Hong Kong's transition provides us with a rare opportunity to initiate Shenzhen's second leap. It must not be missed," Li declared.