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He Huifeng

Welcome to Shenzhen, where the pains of a city's economic transformation efforts are becoming increasingly evident, according to industry insiders and analysts.
The city got some bad news last week in the form of a scorecard for the first two months of the year that showed rare falls in exports and the profits and sales of industrial enterprises.
While exports plunged 6 per cent from the same period last year, imports grew by just 0.3 per cent. And profits of major industrial enterprises took a 3 per cent dive.
Worries about poorly performing sectors have spread throughout the city, especially among exporters and manufacturers. 
But there is a bright side, and it is coming in the hi-tech and new-energy industries, which say they are developing well.
However, official figures appear to indicate that Shenzhen's economic transformation is still far from providing stability to the manufacturing sector, let alone spurring another boom in the city.
'The official figures just summarise our current suffering,' said Liang Liqi , who runs a public relations consultancy in Shenzhen. 'Actually, my clients - entrepreneurs in various industries such as catering, manufacturing, services and logistics - already felt that this year would be the toughest for their businesses.
'In 2010 and last year, I held parties every week for my clients to celebrate and promote themselves, like to launch new projects, open new branches and even for IPOs. But I had just one order this month - for a small celebration for a new-energy company to open their Shenzhen branch. Business has been poor since the Lunar New Year.
'At least four of the companies which had hired us to run their anniversary parties for years have shut down. The rest all said their budgets this year were tight and that they would have to cut spending.'
Willie Fung Wai-yiu, chairman of Top Form International - a leading international lingerie manufacturer - explained that as rent and labour and raw materials costs skyrocketed in Shenzhen, manufacturers' profits were dwindling
'You see, in Shenzhen, a migrant worker costs more than 3,000 yuan (HK$3,680) a month, twice what they cost two or three years ago. But the price of a bra, a skirt and other clothing that is to be exported overseas has remained almost the same in the past 20 years,' said Fung, who is also chairman of the Hong Kong Garment Manufacturers Association. 'I think we will only see more factories close in Shenzhen and move.' 
Top Form has already moved more of its manufacturing to Thailand and Cambodia due to lower costs - a move that has proved fruitful, as evidenced by the group's bottom line. Its factory in Thailand, which employs about 6,000 workers, accounted for half of the group's production output by March last year.
Manufacturers say the poor figures are no surprise. 
A source close to Taiwanese manufacturer Foxconn said that large, labour-intensive manufacturers had been pulling out of Shenzhen amid falling profits.
According to mainland media, Foxconn employed 450,000 workers at its Shenzhen factories in early 2010, and its operations there contributed more than US$48 billion to the city's exports that year. 
'Now Foxconn keeps about 350,000 workers in Shenzhen. We will keep moving workers and orders to our new plants in hinterland provinces. Our labour force at the Shenzhen factories will drop to 200,000 workers in the next three or five years,' the source said.
But the situation is different in other businesses. 
Zhang Yuanyuan, a senior employee of a Shenzhen biopharmaceutical company, said business was booming in her industry.
'My company is focusing on helping domestic hospitals upgrade their information and technology systems,' she said. 'In the first two months of this year, we had new orders from hospitals in Beijing, Xian and Changsha . Next month, we will sign agreements with more hospitals. Each order is valued at more than 10 million yuan.'
She said she had heard that many businesses had been doing poorly in Shenzhen, but she had not seen it herself, as hi-tech and new-energy companies around her prospered. 'People talk about IPOs and billion-yuan projects in the canteen.' 
Wang Aizhu, a spokeswoman for Shenzhen-based biotech company BGI, also said the company had not been affected by the slowdown, as its income grew by 33 per cent in the first quarter of the year. But the biotech sector is so small that it contributed only 17.5 billion yuan to Shenzhen's economy last year, or 1.5 per cent of its gross domestic product.
Shanghai-based economic columnist Ye Tan said: 'To be honest, the hi-tech, biotech or new- energy companies - representatives of the so-called successful economic transformation - are not able to be a troika driving economic growth. The impact of industries, especially labour-intensive and export-production manufacturing ones, on Shenzhen's GDP is still high.'
The prosperous years of high foreign demand were gone, Ye said. 'And now the domestic market and consumer demand is getting weak under high inflation.'
Zeng Xiaohua , deputy director of the Shenzhen Association of Exporters and Importers, said Shenzhen authorities last month set targets to keep hi-tech goods contributing 53 per cent of the city's exports by October 2013, with low-end manufacturing products falling to about 30 per cent.
'But the fact is that traditional labour-intensive manufacturers now account for more than 70 per cent of Shenzhen's exports, and many of them still rely on overseas orders while lacking the will and ability to upgrade their technologies and adapt,' Zeng said. 'This year will be an extremely tough one.' 
In the 1980s, Shenzhen became a fertile region for factories from Hong Kong, Taiwan and overseas that were looking to take advantage of the mainland's low wages. It developed as an export-driven hub, right up until export orders plummeted when the global economic crisis hit in late 2008 - after which there was pressure to upgrade the Guangdong model. 
Wang Yang , Guangdong party head, said two years ago that the 2008 economic downturn provided an opportunity to revolutionise Guangdong's manufacturing, and that officials should 'empty the bird cage so new birds can settle down'. 
He ordered tough reforms that included encouraging enterprises to move labour-intensive manufacturing out of the Pearl River Delta and make way for service- and technology-driven industries.
But the current sorry state of Shenzhen's economy shows there is still a long way to go before the one-time boomtown and pioneer of economic reform can stand out on the national stage again. 
Additional reporting by Fiona Tam



Shenzhen failing to reinvent itself