Shenzhen runs out of room to grow

PUBLISHED : Wednesday, 25 August, 2004, 12:00am
UPDATED : Wednesday, 25 August, 2004, 12:00am

Shortages of land, power and water are putting off investors, says city, as foreign capital inflows plunge

Shenzhen, which once led the mainland in attracting foreign investment, is losing its appeal, members of the Shenzhen People's Congress Standing Committee have been told.

Part of the problem is power shortages which have grown into a year-round, city-wide problem, the government says. Another is water shortages. But a lack of land is the biggest issue, it says in a report to the standing committee.

The report says that, although contracted foreign investment - a rough indication of the future inflow of foreign capital - grew by 21.7 per cent year on year in the January-June period, actual foreign investment fell by 21.9 per cent year on year, amounting to only US$1.16 billion.

While the report still described Shenzhen's economy as 'healthy', it admitted the city faced four serious challenges: problems in the supply of water, electricity and transport; a fall in fixed-asset investment; contraction of foreign investment; and a decline in exports.

The report estimated that demand for electricity would reach 6.8 million megawatts this year, up 1 million mW from last year. It said demand significantly outstripped supply, but did not give details.

'Power shortages are no longer a seasonal but a year-round problem. It is no longer a local or district phenomenon but a city-wide problem,' the report said.

It said Shenzhen's shortage of land was the main reason behind the fall in foreign investment.

'The amount of international capital looking for investment opportunities has significantly shrunk in recent years. Together with increasing competition from other mainland cities and Shenzhen's land shortage, the inflow of foreign capital into Shenzhen has stagnated,' the report said.

It added that the city's water shortage also undermined its ability to compete. A bill on water conservation submitted to the standing committee says the city is one of the seven on the mainland facing the most serious water shortages.

The government's report said Shenzhen would need 1.94 billion cubic metres of water by 2010, while the maximum capacity of its supply system was only 1.25 billion cubic metres.

It is proposing a sharp increase in water charges to discourage waste. If approved by the standing committee, big users would have to pay four times more for water than at present.

A local scholar said the shortages of power, water and land seriously undermined Shenzhen's competitiveness as a manufacturing centre and could affect plans to develop heavy industries.

'The Shenzhen government has said that it wanted to develop heavy industries including car manufacturing. But the rising costs of electricity, water and land could ruin these hopes,' he said.

'The shortages would result in higher production costs. That will drive foreign investment to cheaper places in the Pearl River Delta and weaken our competitiveness.'

A number of think-tanks and scholars in Shenzhen have floated the idea of merging Shenzhen with nearby Huizhou or Dongguan to solve the city's land shortage. But their proposals have been rejected by provincial authorities.