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In the'miracle' metropolis of Shenzhen, economic uncertainty looms

Image: Reuters Berita 24 English - As a young man in 1997, David Fong made his way from an impoverished village in central China to the sout...


Image: Reuters


Berita 24 English - As a young man in 1997, David Fong made his way from an impoverished village in central China to the southern boomtown of Shenzhen. Over the next quarter-century, he worked for a series of foreign manufacturers until establishing his own multimillion-dollar enterprise, which produced everything from schoolbags to toothbrushes.

Now 47 years old, he intends to expand internationally by constructing internet-connected consumer devices. But after two years of coronavirus lockdowns that have increased shipping costs and eroded consumer confidence, he fears about the future of his business.

"I hope we make it through the year," said Fong, surrounded by talking bears, machine parts, and his company's catalogues in his top-floor office overlooking glistening structures in a formerly industrial district of Shenzhen. It is a difficult time for businesses.

Fong's story of rags-to-riches parallels that of his chosen city, which is currently threatened by a wider economic recession exacerbated by the coronavirus.

Shenzhen evolved from a collection of agricultural villages to a major world port that is home to some of China's largest technology, financial, real estate, and industrial enterprises.

Over the past four decades, the city has had annual economic expansion of at least 20%. Oxford Economics forecasted as recently as October that Shenzhen would be the world's fastest-growing metropolis between 2020 and 2022.

Since then, though, San Jose in California's Silicon Valley has surpassed it. In the first quarter of this year, Shenzhen's economy grew by barely 2 percent, the lowest rate since the first quarter of 2020, when the country was paralysed by a coronavirus outbreak.

Shenzhen is China's largest exporter of products, but its exports decreased by roughly 14% in March due to port congestion caused by a COVID lockout.

The city has long been regarded as one of the most prosperous and vibrant corporate centres in China and a victory of the nation's economic reforms. When President Xi Jinping visited in 2019, he referred to it as the "wonder" city.

If Shenzhen is experiencing difficulties, this is a red flag for the world's second-largest economy. Richard Holt, head of global cities research at Oxford Economics, described Shenzhen as "the canary in the coal mine," adding that his team is keeping a careful eye on the city.

The recent two-month lockdown in Shanghai and a general loss in consumer confidence have had a negative impact on Fong's sales, which have decreased by approximately 40 percent from 20 million yuan ($3 million) in 2020. Due to China's stringent travel restrictions, he has been unable to visit Europe in an effort to expand there.

LOSING ATTRACTIVENESS

Shenzhen, a city of around 18 million people, has suffered a series of internal and external blows.

Huawei Technologies and ZTE Corp, both based in Shenzhen, were placed on U.S. trade blacklists due to suspected security issues and unlawfully transferring U.S. technology to Iran, respectively. Huawei denies wrongdoing, although ZTE was released from probation five years after pleading guilty in March.

Last year, China Evergrande, a top-selling real estate developer, aroused fears of a collapse due to its massive debts, which would have caused havoc on China's financial system. In the future, China's largest insurer, Ping An Insurance Group Co, sustained significant losses on property-related investments.

Even smaller enterprises have suffered. According to the Shenzhen Cross-border E-commerce Association, Amazon.com Inc. cracked down on how vendors conduct business on the platform last year, affecting more than 50,000 e-commerce merchants, the majority of whom are based in the city.

In March, Shenzhen was quarantined for a week to prevent the spread of the coronavirus. This lockdown, along with those in other Chinese cities, reduced local demand for Shenzhen-made goods. The city's first-quarter growth rate of 2 percent was less than half of China's overall growth rate of 4.8%.

During this time, business registrations decreased by about a third. The city authorities are maintaining its April growth target of 6 percent for this year, but the slowdown has alarmed the Chinese establishment.

In a May editorial, Song Ding, a director at the state-affiliated China Development Institute, stated, "Shenzhen's economy is faltering, leaning back, and lethargic, and some question if the city has sufficient momentum."

The government of Shenzhen did not respond to a request for comment on this article.

City officials privately acknowledge that it is becoming increasingly difficult to maintain Shenzhen's'miracle'

"As opposed to the past, numerous parties have an interest in Shenzhen remaining predictable. You can no longer freely experiment and see what stays "On condition of anonymity, a city official told Reuters.

Xinhua, a state-run news agency, said on June 6 that Shenzhen intends to construct 20 advanced manufacturing industrial parks for telecoms and high-tech enterprises on an area of 300 square kilometres (115 square miles). It did not disclose any other information.

'TIME TO GO'

Shenzhen is a tough place to conduct business due to the cancellation of the majority of international flights to China, a port impeded by lockdowns, and a once-bustling border with Hong Kong that is now all but closed. China's plans for a Greater Bay Area, which would unite Shenzhen, Hong Kong, Macau, and a number of cities on the mainland, appear to have stalled.

Klaus Zenkel, chairman of the European Chamber of Commerce in South China, stated, "It's losing its appeal, and the authorities need to realise that." "We consistently argue that they must strike a balance between restrictions and economic growth in order to allocate more funds to the Greater Bay Area and these free trade zones."

The Chinese government announced in September that it would extend the Qianhai economic zone, a special territory within Shenzhen's limits, from 15 square kilometres to 121 square kilometres. Standard Chartered and HSBC have opened offices there, but border controls have made it difficult for the region to attract foreign enterprises, according to Zenkel and five diplomats in the region.

Foreign entrepreneurs who once flocked to Shenzhen to have their products manufactured no longer make regular visits to its factories and the world's largest electronics market in Huaqiangbei, causing dozens of expat bars and eateries to close or adapt to local tastes.

The Chinese government has been warned by international business associations of an exodus of foreign talent. One official at a large European embassy told Reuters that the number of its citizens in south China had decreased from 3,000 prior to the outbreak to 750.

The recession has made it more difficult for recent graduates to find employment in what has traditionally 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 hotspot was a magnet for ambitious and brilliant graduates from throughout the nation.

"I've interned at firms where classmates a year or two older than me secured positions, but it's far more difficult to land a job than it was for them," said Jade Yang, 22, who graduated with a degree in advertising in May and relocated from central Chongqing to Shenzhen to work at a software company. She had hoped for a monthly pay of up to 10,000 yuan but now believes that 6,000 yuan is more reasonable.

In May, estate brokers in a busy neighbourhood of apartments near High Tech Park, one of the city's clusters of tech companies, would typically be inundated with graduates looking for housing. A representative identified only as Zhao told Reuters last month that business is down 50 percent from the same time last year.

"This place should be teeming with people, and I shouldn't have a moment's peace," he added, reclining on his e-scooter in front of a building with 30 studio apartments whose monthly rent is 2,000 yuan. He reported that several have been vacant since November.

Shenzhen has traditionally had a high rate of company openings and closings, but 'to let' signs are becoming increasingly prominent in once-bustling malls, especially those near Hong Kong border crossings that have been blocked since early 2020.

The situation is dire for Shenzhen's low-income migrant workers, who are unable to purchase a home due to some of the country's highest real estate expenses.

44-year-old masseuse Xue Juan stated that a friend of hers recently moved back to her small village in Chengdu province and built a hotpot restaurant, and she is considering following suit.

"Even food and drink are becoming too expensive, the labour is strenuous, and living conditions in the rest of China have vastly improved," added Xue. Perhaps it's time to depart.


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