City government

In the “miracle” city of Shenzhen, fears for China’s economic future

SHENZHEN, China, June 13 (Reuters) – David Fong moved from a poor village in central China to the booming city of Shenzhen in 1997. Over the next 25 years, he worked for a succession of manufacturers strangers before building his own multimillion-dollar company making everything from schoolbags to toothbrushes.

Now 47, he plans to expand internationally by creating consumer devices connected to the Internet. But after two years of coronavirus shutdowns that have driven up the price of shipping and shaken consumer confidence, he worries about the survival of his business.

“I hope we get through the year,” Fong said, surrounded by talking bears, machinery parts and his company’s catalogs in his top-floor office overlooking the gleaming towers of a once-daily Shenzhen neighborhood. filled with sprawling factories. “It’s a tough time for a business.”

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Fong’s rags-to-riches story, now threatened by a wider downturn made worse by the coronavirus, mirrors that of his adopted hometown.

Established in 1979 during the first wave of Chinese economic reforms, which allowed private enterprise to play a role in the state-controlled system, Shenzhen has transformed from a collection of farming villages into a major port home to some of China’s advanced technologies. , financial, real estate and manufacturing companies.

Over the past four decades, the city has shown annual economic growth of at least 20%. As recently as October, forecasting firm Oxford Economics projected that Shenzhen would be the fastest growing city in the world between 2020 and 2022.

But it has since lost that crown to San Jose in California’s Silicon Valley. Shenzhen posted overall economic growth of just 2% in the first quarter of this year, the lowest figure ever for the city except for the first quarter of 2020, when the first wave of coronavirus infections crippled the country.

Shenzhen remains China’s biggest exporter of goods, but its overseas shipments fell nearly 14% in March, hampered by a COVID lockdown that caused bottlenecks at its port.

The city has long been considered one of the best and fastest growing places for business in China and a triumph of the country’s economic reforms. President Xi Jinping called it a “miracle” city during his visit in 2019.

If Shenzhen is in trouble, it is a wake-up call for the world’s second-largest economy. The city is “the canary in the mine shaft”, said Richard Holt, director of global cities research at Oxford Economics, adding that his team was watching Shenzhen closely.

Fong, which sells its products mainly to domestic customers, said sales were down about 40% from 20 million yuan ($3 million) in 2020, impacted by the recent two-month lockdown in Shanghai. and a general decline in consumer confidence. China’s strict travel rules mean he was unable to travel to Europe to try to expand there.

LOSS OF ATTRACTIVENESS

Shenzhen, now a city of some 18 million people, was hit by a succession of blows from inside and outside the country.

Shenzhen-based telecoms equipment makers Huawei Technologies and ZTE Corp (000063.SZ) have been placed on US trade blacklists for alleged security concerns and illegal shipment of US technology to Iran, respectively. Huawei denies wrongdoing, while ZTE left probation in March five years after pleading guilty.

Another of the city’s big companies, top-selling property developer China Evergrande, sparked fears of a meltdown last year due to its heavy debts that are believed to have wreaked havoc on China’s financial system. Later, Ping An Insurance Group Co, China’s largest insurer, suffered heavy losses on property-related investments.

Even the smallest businesses have suffered. Amazon.com Inc (AMZN.O) cracked down on the way sellers do business on the platform last year, affecting more than 50,000 e-commerce merchants, many of them based in the city, the agency said. Shenzhen Cross-border E-commerce Association.

On top of that, Shenzhen was shut down for a week in March to prevent the spread of the coronavirus. This lockdown, and those in other Chinese cities, has lowered domestic demand for products made in Shenzhen. The city’s 2% growth in the first quarter was less than half of China’s overall growth rate of 4.8%.

Business registrations also fell by almost a third during this period. City authorities are sticking to their 6% growth target for this year, set in April, but the slowdown has sparked alarm in the Chinese establishment.

“Shenzhen’s economy is shaky, leaning back and slow, while some doubt that Shenzhen has enough momentum,” Song Ding, director of state-linked think tank China Development Institute, wrote in an essay. of May.

The Shenzhen government did not respond to a request for comment for this story.

City officials privately admit that it is increasingly difficult to keep Shenzhen’s “miracle” alive.

“There are a lot of people who have an interest in Shenzhen that remains predictable, unlike before. You can’t just freely experiment and see what sticks anymore,” a city official told Reuters, speaking on condition of anonymity. .

On June 6, state news agency Xinhua reported that Shenzhen plans to build 20 advanced manufacturing industrial parks for telecommunications and high-tech companies that will cover 300 square kilometers (115 square miles). He did not provide further details.

‘IT’S TIME TO GO’

The cancellation of most international flights to China, a port plagued by closures and a once-bustling border with Hong Kong that is now nearly closed have made Shenzhen a difficult place to do business. China’s plans for a Greater Bay Area – merging Shenzhen with Hong Kong, Macau and several mainland cities – appear to have stalled.

“It’s losing its appeal, and they (authorities) need to realize that,” said Klaus Zenkel, president of the European Chamber of Commerce in South China. “We always say they have to balance restrictions and economic growth, to find a way to spend more money in the Greater Bay Area and these free trade zones.”

In September, the Chinese government announced it would expand the so-called Qianhai Economic Zone, a special zone within Shenzhen’s borders, to 121 square kilometers from 15 square kilometers. British banks Standard Chartered and HSBC have set up offices there, but closed borders mean the region is struggling to attract foreign businesses, said Zenkel and five diplomats from the region.

Foreign entrepreneurs who have flocked to Shenzhen to turn their creations into products no longer regularly visit its factories and the world’s largest electronics market in Huaqiangbei, forcing dozens of expat bars and restaurants to close or adapt. to local tastes.

International chambers of commerce have warned the Chinese government of an exodus of foreign talent. A diplomat from a major European consulate told Reuters he estimated the number of its nationals in southern China had fallen to 750 from 3,000 before the pandemic.

The slowdown has made it harder for graduates to find jobs in what has long been China’s youngest metropolis, where the average resident is 34 years old. The lush subtropical city that merged manufacturing, technology, and finance into an entrepreneurial hotbed sometimes referred to as China’s Silicon Valley, was a magnet for ambitious and talented graduates from across the country.

“I’ve done internships at companies where classmates a year or two older have found jobs, but it’s a lot harder to land a job than it was for them,” said Jade Yang, 22, who graduated with a degree in advertising in May and walked 1,400 kilometers. from central Chongqing to find work at a technology company in Shenzhen. She said she initially hoped for a salary of up to 10,000 yuan a month, but now thinks 6,000 yuan is more realistic.

In an apartment-dense area near High Tech Park, one of the city’s tech business hubs, real estate agents would normally be inundated with graduates looking to find accommodation in May. An agent, who only gave his name as Zhao, told Reuters last month that business was down 50% from a year ago.

“This place should be full of people, I shouldn’t have a moment’s rest,” he said, lying on his e-scooter in front of a 30-studio apartment building where the rent is 2,000 yuan a month. He said several had been empty since November.

Businesses in Shenzhen have always opened and closed with high turnover, but “for rent” signs are increasingly common in once-bustling malls, especially those near border crossings with Hong Kong, which are closed since early 2020.

The situation is grim for low-income migrant workers in Shenzhen, who are struggling to cope with the rising cost of living and who are excluded from home ownership by some of the property prices. the highest in the country.

Masseuse Xue Juan, 44, said her friend had recently returned to her small hometown in Chengdu province and opened a hotpot restaurant, and was considering joining her.

“Even food and drink are getting overpriced, the work is hard, and the standard of living has improved so much in the rest of China,” Xue said. “Maybe it’s time to go.”

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Reporting by David Kirton in Shenzhen, China Editing by John Geddie and Bill Rigby

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