The SCMP has an article out today decrying the slowdown apparently being experienced in Shenzhen. Although it tries to find other sources besides real-estate brokers to explain why commercial property vacancies are an indicator of tough times that appear set to continue for the near term, it largely fails to do so. Instead, the article quotes sources from yacht salesmen – yes, yachts, that bellwether of domestic consumer demand – and randomly chosen tech entrepreneurs providing personal anecdotes of struggles with high costs in the mainland’s most expensive city. Then it goes back to real-estate brokers who acknowledge that a recent crackdown on P2P lenders has had a big chilling effect on high-end office supply. And then, as if to silence all further debate, it throws out the nearly 60% vacancy rate in Qianhai, a special economic zone that is still essentially a work in progress.
Perhaps more interesting as a scientific study of what is going on in Shenzhen is a local media report looking at the growth of small and micro enterprises in the city. According to the China Business Research Institute, no fewer than 192 large-scale industrial enterprises have moved out of Shenzhen over the past three years. The report concludes that this is worrying, because these enterprises may (or may not) be dragging a whole supply chain with them.
However, this number is actually a drop in the bucket. For all the hand-wringing by journalists on either side of the Shenzhen-Hong Kong border, the bigger picture is one of resilience amid a challenging external environment. Last year, Shenzhen added 485,000 commercial entities to its company register, bringing the total to 3.19 million. Meanwhile, the city’s total R&D investment exceeded RMB100 billion last year, while 3,185 new State-Level High-Tech enterprises were established, bringing the total to more than 14,000, of which SMEs accounted for more than 80%. SMEs contributed RMB1.1 trillion to Shenzhen’s GDP last year, accounting for 47.8% of the total.
There are undoubtedly pressures facing Shenzhen as it seeks to climb further up the global value chain. Chief of these are its high housing prices. Others include what one might expect from a rich city that is looking to move up: environmental regulations are tightening, pushing labor-intensive and polluting industries inland.
As you may have guessed by now, dear reader, we can be counted among the bulls when it comes to the outlook for Shenzhen. Although companies across a wide range of industries are moving out of the city, and will continue to do so for the foreseeable future, they are part of a bigger story of industrial upgrading and economic restructuring. They will be replaced by higher-technology, service-oriented startups.
The idea that Shenzhen is running out of runway is preposterous. The city still has a long way to go to catch up to Hong Kong in a number of indicators: per-capita GDP and Michelin-starred restaurants being only two of the most important. It has already surpassed Hong Kong in international hi-tech patents awarded, despite having no internationally ranked universities. What it has, most importantly, is grit, imagination, and a leadership that is focused on the longer term. Watch this story unfold with us.
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