Why China is looking to Shenzhen – and not Hong Kong – to reinvent its economic future

Josephine Ma

When a commission chaired by Chinese President Xi Jinping endorsed a document last week to give Shenzhen special status to carry out bolder reforms as a model for other cities, the move attracted little attention outside mainland China.

The guidelines were endorsed by the Central Committee for Deepening Overall Reform – the top body overseeing economic and administrative reforms – and designed to promote Shenzhen as a “pilot demonstration area of socialism with Chinese characteristics”.

A report by state news agency Xinhua about the meeting gave only a broad description, saying the special status was given to Shenzhen to further boost its “innovation-focused development strategy” so that the city could achieve high-quality growth and become a model for other mainland cities.

While there were few details about the plan, analysts said the document did signal Shenzhen’s rising status in the Greater Bay Area and pointed to a policy shift in Beijing away from Hong Kong and towards mainland cities to drive the region’s development.

They said the new status meant Shenzhen would receive support from Beijing for bolder economic and administrative reforms.

Zhang Yansheng, chief research fellow with the China Centre for International Economic Exchanges, said Beijing wanted Shenzhen to experiment with blending innovation and socialism.

“The past 40 years [in China’s opening up and reform] was about making socialism and the market economy compatible. [Now] the Shenzhen pilot demonstration zone aims to make socialism compatible with technology and innovation development,” Zhang said, adding that the city would be at the forefront of a new phase of opening up.

“In the past 40 years, Shenzhen has been very successful … In the next 40 years, can Shenzhen become a trailblazer in terms of regulations and modernisation so that it will become a model for the whole country?”

Opinion: Greater Bay Area diversity to drive property market growth

Li Xiaobing, an associate law professor at Nankai University in Tianjin, said China needed new ways to boost its economy, particularly with its rivalry with the United States.

Li said Shenzhen had proved itself over the past 40 years and China now wanted it to come up with new policy ideas that could be replicated elsewhere.

“Shenzhen has to come up with its own innovations and experiments. The central government is willing to give it room [to devise new policies] and wants it will take on the role [of a model city]. As long as you can become a trailblazer, the central government will certainly give you support and endorsement,” he said.

Peng Peng, a researcher with the Guangzhou Academy of Social Sciences, said that with the new status, Shenzhen would have Beijing’s blessing to take its industrial innovation to a higher level.

“It should become an innovation metropolis with global influence,” the Southern Metropolis News quoted Peng as saying.

But Li said Shenzhen’s role would go beyond industry to also test changes to the legal process.

“The guidelines also mentions legal institutions. The advantage of Hong Kong is its rule of law and we don’t want Shenzhen just to be a successful commercial area … We would want its legal institutions to become compatible with its size and influence,” Li said.

Shenzhen was the first test bed for market reforms when late paramount leader Deng Xiaoping introduced them 40 years ago.

Huawei hometown Shenzhen to fight trade war with tax breaks for top talent

With China now locked in a trade war with the US, Beijing is banking on the hi-tech sector to spur development and cut reliance on imports of key technologies. Amid threats to stop selling microchips to Chinese companies such as ZTE and impose sanctions on Chinese telecom giant Huawei, Xi has repeatedly called for industry to innovate and become more self-reliant.

In February, Beijing unveiled the ambitious Greater Area Bay blueprint aimed at transforming Hong Kong and 10 Guangdong cities into a combined economic powerhouse, with Hong Kong, Macau, Shenzhen and Guangzhou identified as the four “pillars” of development.

The blueprint highlighted the advantages of each of the four pillars and reassured Hong Kong that it would continue its role as the leading financial centre.

Greater Bay Area entrepreneurs fear fallout from tech sanctions

Li said Hong Kong still had an edge but the central government would not wait if the city’s turmoil continued.

“Hong Kong has its advantage. With the plan for the Greater Bay Area, we want to see its advantages fully developed and enhanced. However, if Hong Kong is stuck in internal turmoil and if social order cannot be restored, then such a goal will not be achieved,” Li said, referring to protests triggered by a now-shelved extradition bill that would have allowed the extradition of suspects to the mainland.

“The competition [in the world market] is cruel and China-US rivalry is still continuing. We need new measures for development … Shenzhen has been running for 40 years and you cannot ask it to hold back. It has to go further and be transformed now.”

Tian Feilong, an associate law professor at Beihang University in Beijing, said Beijing had struggled to implement its policies in Hong Kong and so had a strong incentive to shift the focus of the Greater Bay Area to the mainland.

“In the future, the reform and opening up of the Greater Bay Area will focus on the mainland instead of Hong Kong,” he said. “The traditional advantages of Hong Kong are fading and it is getting more difficult for central government’s policies to be implemented there.”

Zhang Dinghuai, a Hong Kong policy researcher at Shenzhen University, said the central government hoped that Shenzhen could drive the economic development of the Pearl River Delta.

Guangdong to keep opening up economy to counter impact of trade war

Zhong Wei, an economics professor at Beijing Normal University, told a forum over the weekend that the Greater Bay Area would be the most promising economic region in China and mainland cities would take the lead.

“Please don’t think too much about Hong Kong or Macau – Guangdong will lead the future,” Zhong said, according to a transcript published online.

Zhong said Hong Kong was only a “quasi first-tier city” in China while Shenzhen and Guangzhou were now in the top rank.

In 2018, Shenzhen’s economy surpassed Hong Kong’s for the first time. While economic growth in Hong Kong rose by just 3 per cent to HK$2.85 trillion (US$363 billion) last year, Shenzhen’s gross domestic product last year grew by 7.6 per cent to 2.42 trillion yuan, or HK$2.87 trillion based on the 2018 official exchange rate.

Additional reporting by Zhou Xin

More from South China Morning Post:

This article Why China is looking to Shenzhen – and not Hong Kong – to reinvent its economic future first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2019.