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A model city: The future of Shenzhen Special Economic Zone

Shenzhen Special Economic Zone
Shenzhen - designated model city for China

China has big plans for Shenzhen. Bordering Hong Kong, the first special economic zone of the country is poised to become a model city for other cities in China by 2035.

According to guidelines issued by the Central Committee of the Communist Party of China and the State Council, Shenzhen will be transformed into “one of the leading cities in the world in terms of economic strength and quality of development” by 2025. By 2035, Shenzhen is expected to become a “national model of high-quality development” and a “top cosmopolis” worldwide.

To achieve this goal, the Chinese government will implement wide-ranging reforms in Shenzhen, across the legal, financial, medical and social sectors. Furthermore, the Chinese government is encouraging international organisations and big companies to set up branches or headquarters in Shenzhen. A “big data” centre will also be established in the city.

Shenzhen is known as a ‘miracle’ city. In just 40 years, Shenzhen has evolved from a small fishing village to a metropolis with a population of over 12 million. The Chinese government established the Shenzhen Special Economic Zone in 1980, enacting laws and regulations conducive to direct foreign investment and cross-border trade. Since then, Shenzhen has become one of the most important cities in China.

Is Shenzhen becoming the new Hong Kong?

The Shenzhen Special Economic Zone is part of the China Greater Bay Area development plan, which connects Hong Kong, Macau and eight other major cities in southern China. The plan sets long-term goals for 2035 to induce faster growth in the region. This includes turning the Greater Bay Area into a global innovation centre and financial powerhouse.

Shenzhen’s neighbour, Hong Kong, is listed as a core city in the plan. However, months-long protests there have taken their toll on the island’s economy and investment climate. As a result, Hong Kong’s government cut its growth forecast in August, 2019, and has disbursed a $2.43 billion stimulus package to support the economy. Hong Kong’s financial secretary, Paul Chan Mo-po, admitted that the risk of a recession is growing.

Shenzhen, on the other hand, is gaining tailwind. Home to several prominent Chinese tech companies, including Huawei, Tencent and ZTE, Shenzhen’s economy surpassed Hong Kong’s for the first time last year. The future model city’s GDP grew by 7.6% to 2.42 trillion yuan (or HK$2.87 trillion, based on the 2018 official exchange rate). Hong Kong’s GDP, in contrast, only grew by 3%, to HK$2.85 trillion. According to the official annual budget, Hong Kong’s economy was hurt by the effects of the U.S.-China trade war, particularly in the last quarter of 2018.

Transforming Shenzhen Special Economic Zone: Risk and opportunity

Analyst Diana Choyleva of Enodo Economics, who publishes on Smartkarma, emphasised that China’s plan to transform Shenzhen into a model city matters. It shows that China is serious about increasing integration between Guangdong province, Macau and Hong Kong. According to Choyleva, Hong Kong will have justifiable concern about being side-lined in favour of the Greater Bay Area.

However, China’s former foreign trade vice-minister, Long Yongtu, warns that the plans of making Shenzhen a model city will only succeed alongside a successful and stable Hong Kong.

“Only when Hong Kong is doing well, will Shenzhen do better. If there is a problem in Hong Kong, Shenzhen will inevitably be dragged down,” said Long recently at the Global Conference on Innovation and Entrepreneurship in mainland China.

Long added, the success rate of the Shenzhen Special Economic Zone transformation depends on whether Hong Kong can restore stability and unity as soon as possible. “Shenzhen’s fate is closely tied to that of Hong Kong’s,” he concluded.