"If you want to understand China's politics," said Wang Xiaochun, Deputy Director-General of the Shenzhen Bureau of Trade and Industry, "then you must go to Beijing. If you want to know China's economy" he went on, "you must go to Shanghai.?
"But if you want to see China's future – then you must come to Shenzhen!" From his office in Shenzhen's vast sci-fi style Civic Center – its sweeping roof designed to resemble the wings of a flying bird – Wang and his colleagues are mapping out the next stages in the development of modern China's original boomtown.
The grand plan: to make Shenzhen a world-class center for high-technology research, development and manufacturing; an international logistics hub; and a regional financial center. The story of Shenzhen's stratospheric rise has become almost legendary in the chronicle of China's economic boom. Just a quarter of a century ago, the city didn't even exist.
At the time the area was little more than a collection of fishing villages and farms, strung out along the barbed wire security fence that marked the border with the then British colony of Hong Kong. "It was just a green field," said Thomas Qiu, Shenzhen representative for the China Britain Business Council (CBBC), who moved to the area 22 years ago when his parents came to work for the new city government. The big break came in 1980, a year after Shenzhen itself was founded, when it was chosen as the location for China's first Special Economic Zone (SEZ) – an area that would act as a laboratory for trying out new, market-oriented economic policies as China cautiously opened its doors to trade and foreign investment.
By locating the first of those opening doors next to Hong Kong, it created a bridge for foreign investment that quickly turned from a trickle to a torrent. Like the other SEZs that have followed along China's east coast, Shenzhen offers generous incentives for would-be investors, particularly those from overseas – the most notable being a corporate tax rate of 15% against 30% for the rest of the country.
Today Shenzhen is a bustling city of more than 7 million people; one of three lynchpins together with Hong Kong and Guangzhou in the powerhouse economy of the Pearl River Delta. From a peasant economy, in less than a generation it has become one of China's richest cities with the country's highest average annual wage. It is home to China's second stock exchange and the fourth busiest container port in the world.
Between 1980 and 2003 the city's economy grew at an average rate of 28.3% a year, making it now fourth in GDP terms among China's cities, after Shanghai, Beijing and Guangzhou. It is also China's biggest exporter, sending US$62.962 billion worth of goods overseas in 2003, almost a quarter more than Shanghai which has a population twice as large.
Shenzhen's rise to riches has also made it an important consumer market in its own right. It is one of China's top three markets for private automobiles and a fast growing retail center. And it has become a fast growing tourist destination, perhaps most notably for its ubiquitous golf courses (Shenzhen is golf obsessed), in particular the world famous Mission Hills club.
Already home to several popular theme parks, Shenzhen's status as a tourist destination is expected to grow yet further with the opening of a new Disneyland in neighboring Hong Kong, said Zhang Lei, general manager of the Four Points by Sheraton hotel.
Owes it all to Deng Xiaoping
With her hotel scheduled to open for business later this year, Zhang sees Shenzhen becoming an increasingly important market for both business and leisure. "Shenzhen is fast becoming an international city," she said. "Singapore airlines has already begun the first international flights to the city, and soon Thai Airways will start flights to Bangkok – that's an important indicator of how far it has come in a short time."
For many in Shenzhen, the city owes its fortunes to one man – former leader Deng Xiaoping, the architect of China's economic reforms and the man many see as the visionary behind the system that made Shenzhen what it is today.
"Everybody in Shenzhen has great respect for Deng," said Thomas Qiu of the CBBC. "The centenary of his birth earlier this year was marked by a string of events and celebrations here, reflecting the feeling that he really created Shenzhen from nothing."
Essentially Deng gave the city authorities an unprecedented amount of freedom in decision- making, giving them free reign to experiment with market forces and the international economy.
In 1992 it was the first city in China to gain legislative powers to promulgate its own laws. "Even today Shenzhen is seen as a laboratory," said Qiu. "The message from the central government is the same: 'your job is to test out new policies,' and the rest of the country has learnt a lot from Shenzhen's experience."
As the designated proving ground for new economic policies, another of Deng's legacies is that Shenzhen continues to lead the way for much of the rest of country.
"Our advantage was that we started out with a clean slate," said Wang Xiaochun of the Shenzhen Bureau of Trade and Industry. "After the Cultural Revolution it was an opportunity to try out new things and people came from all over the country to join in Shenzhen's growth."
It is that immigrant culture, he said, bringing together different ideas from across the country, which in turn bred the innovation and creativity that remains the key to Shenzhen's success.
The people factor, he said, was also what helped Shenzhen score the highest A+ rating from the World Bank in its 2003 report on the investment environment of 23 Mainland Chinese cities.
Indeed, almost no one who lives in Shenzhen is actually from Shenzhen itself. The average age in the city is around 28 – and the working language is Mandarin, rather than the Cantonese commonly spoken in surrounding Guangdong.
"What we have built here is a new economic culture and new values," said Wang. "For Shenzhen people, efficiency is a way of life, and time is money. People here are not as conservative as many other parts of China – they want to keep learning, they want to go further, to find out new solutions and new ways of doing business."
From a business perspective, that makes Shenzhen one of the easiest places in China to invest in, according to Alberto Vettoretti, regional partner for business consultancy Dezan Shira & Associates. "The government here is much more flexible than other cities and provinces, the legal process is very transparent and there's a real can-do attitude," he said.
"A large part of that has to do with the influence and proximity of Hong Kong – which acts as a free market model against which Shenzhen is measured – and the distance from Beijing, which gives it a lot more freedom."
Bing Bing Shi, senior attorney with law firm Lehman, Lee & Xu, agreed: "The proximity to Hong Kong has really been critical in Shenzhen's development," she said. "The information flow over the border has put pressure on the authorities here to be more efficient and transparent."
Success brings problems
Shenzhen's success has also bred its own problems. Vettoretti cites rising land costs, and spiraling wage costs for middle and senior managers. "With so many companies coming to Shenzhen, poaching has become very popular," he said. "There are plenty of well qualified people coming to Shenzhen, but for upper level management the problem is not finding staff but keeping them, which really is beginning to put pressure on wages."
Still there is plenty of upside to operating in a fast-growth economy. "For companies seeking component suppliers, for example, there is nowhere else like it in the world," Vetoretti said. "Guangdong really is the workshop of the world, and everything you could need in terms of supplies is right on your doorstep here in Shenzhen – especially so for manufacturing and high tech."
Initially much of the driving force behind Shenzhen's development was its role as a low-cost manufacturing center – an opportunity for thousands of Hong Kong and Taiwan- based producers to move their production to cheaper plants on the Mainland. For much of the 1980s an early 90s therefore, the concentration was overwhelmingly on mass production of textiles, toys, electronics and, to a lesser extent, chemicals.
Shenzhen quickly emerged as a world manufacturing center for all sorts of products – its produces more than 70% of the world's photocopiers, and 80% of the world's artificial Christmas trees. It is also a leading TV manufacturer. And it's been moving up the value chain, adding more sophistication and expertise to its workforce. The Shenzhen government aims to see high tech activity become a central pillar of the city's future development. In 2003, for example, the high tech sector contributed some 45% of Shenzhen's GDP – by 2005 the plan is to break through the 50% mark.
"What we are doing is shifting the emphasis from quantity to quality," said Wang Xiaochun of the Bureau of Trade and Industry. "In order to grow we need to focus on our strengths, and that means research and learning and applying that to new commercial opportunities." World renowned Tsinghua and Peking universities both use Shenzhen as a base for commercializing their research in electronics and computer science. For five years now, the city has hosted China's national high-tech expo – this year's event will be held in the city's swish new convention center, said to be the largest such venue in East Asia. The aim is to make Shenzhen a regional hub for the high-tech industry, a push that has already begun to attract several big name investors from the tech world. Intel and Oracle, for example, have both recently selected Shenzhen as the location for their first design centers on the Chinese mainland.
Not that there aren't some big China players. One of the SEZ's biggest success stories is privately owned telecoms equipment manufacturer Huawei Technologies. Founded and headquartered in Shenzhen, Huawei has grown from a staff of just eight in 1988 into the Asia-Pacific region's number one telecoms equipment provider.
Today, from its Shenzhen base, it oversees a worldwide operation employing 20, 000 people with a turnover in 2003 of more than US$4 billion. Located in a gleaming Silicon Valley-style campus, Huawei is the model of Shenzhen's future high tech dreams. In the company's spotless warehouse, for example, the human element has been done away with altogether. Instead robot-driven forklifts scan barcodes and automatically stock and retrieve components ready for delivery to the production line.
The company's recently opened 16,000 square meter data center is even more impressive. Here, behind doors guarded by fingerprint entry scanners, lies the center of a worldwide computer network linking more than 300 offices, coordinated from a control center resembling a James Bond-style subterranean missile launch base.
As one of the biggest investors in developing new technology, Huawei is one of the companies leading Shenzhen's drive to become an international high tech city.
To maintain its competitive edge the company has a policy of investing at least 10% of its annual revenue into research and development, said Richard Lee, Huawei's Corporate Communications Director. "Our investment in R&D is one of our company's biggest strengths," he said. "It ensures we have new growth areas for the future."
Pops US$1 billion sales mark
According to Lee, Huawei's international sales hit US$1.05 billion in 2003, an increase of 90% on the previous year. This year he expects the company will at least double that again, with international revenue accounting for about 40% of Huawei's total sales. "Our next growth stage will be based on the international market," he said. "By 2008 we expect international sales will account for 60- 70% of the company's revenue."
The key to achieving that growth, he said, will be constant innovation, producing high quality products, backed up by quality worldwide service at a highly cost competitive price. "Shenzhen is working hard to become an international city. But to stand on its own it really needs to build on its advantages and high technology is one of them."
Aside promoting high tech, the government wants to see Shenzhen grow into a world-class logistics center, an essential component for a city whose economic lifeblood is international trade. Even a casual look at the city's highways, continually jammed with container lorries heading to and from the border posts and surrounding ports, reveals just how much trade matters to Shenzhen.
Along the border with Hong Kong, at its four ports and airports, the city has six logistics parks opened or under development, and foreign companies involved in logistics and transportation are offered a long list of tax breaks and other incentives to invest.
Growth in this field is seen as a key part of the plan to make Shenzhen a bridge between the Pearl River Delta economy and the outside world. "Already the logistics handled by our office in Shenzhen is more than nine times that handled by our Hong Kong office," said a manager with a major European shipping firm that has itself doubled its presence based in the city in the space of 18 months. "Two years ago the situation was the other way round, Hong Kong was much bigger, and if anything the growth is even faster today."
From a livability perspective, Shenzhen is also changing fast. This, after all, is where Deng supposedly uttered his famous "to get rich is glorious" motto. Now that Shenzhen is rich, work has begun on making it glorious. Many of the more polluting factories that first set up shop in the early days of the SEZ have closed down or have moved elsewhere in Guangdong. The city is also promoting itself as one of the greenest in China, and now boasts what is known as a "green coverage ratio" of 45%, according to the official figures. "After two decades of rapid development the government is really beginning to appreciate the need for environmental protection," said attorney Bing Bing Shi.
"It's a very important factor in attracting new investors, especially high tech firms."
Traffic remains a major problem, but Dezan Shira's Alberto Vettoretti is betting the city's new subway system will begin to alleviate some of the worst congestion. Phase 1 opens within weeks.
Hong Kong's Mass Transit Railway Corporation helped build it. Now there is talk of integrating both Shenzhen and Hong Kong transit networks by the end of the decade – potentially a huge step towards bringing the economies and workforces of the neighboring cities closer together.
Shenzhen isn't all roses. This is, after all, Chinese free market capitalism at its harshest, and those who don't make the grade often have nothing to fall back on. As a result, Shenzhen has a noticeably high number of beggars, especially in the rather seedier area close to the Lowu border crossing with Hong Kong. Drugs and street crime, too, have also been a problem – although the city government recently toughened up policing, bringing a noticeable drop in cases.
The Luohu border area (spelled Lowu on the Hong Kong side) is getting a needed makeover, and the city is investing heavily in a gleaming new CBD further north in the Futian district.
Meanwhile, among those who have made it (and there are many), there is a tangibly optimistic feel to the city; a sense that anything is possible and fortunes are still ready to be made. Money doesn't grow on trees of course, but in Shenzhen it's possible to imagine that it might just be worth sticking a few dollars in the ground to see what happens.
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