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Hi-Tech in Shenzhen

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Hi-Tech in Shenzhen

Shenzhen beats 2016 growth target but fears mount over business exodus

PUBLISHED : Saturday, 14 January, 2017, 7:03am
UPDATED : Saturday, 14 January, 2017, 7:02am

Shenzhen surpassed its economic growth target last year, largely thanks to investment in information technology and other hi-tech industries.

But city leaders and industry insiders are growing concerned about a business exodus, with ­officials warning that rising costs may be driving favoured enterprises elsewhere.

The city’s economy grew 9 per cent to 1.93 trillion yuan (HK$2.16 trillion) last year compared with 2015, mayor Xu Qin said in his work report at the start of the annual session of the city’s people’s congress on Friday. Xu set a growth target of about 8 per cent for last year. The goal for this year is 8.5 per cent.

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Shenzhen’s six strategic industries – biotechnology, IT, new energy, new materials, telecommunications, and the cultural and creative industry – grew 10.5 per cent to 780 billion yuan in 2016, accounting for 40 per cent of the city’s economy.

The city invested more than 80 billion yuan in research and development, accounting for about 4.1 per cent of local GDP, the highest ratio among mainland cities. Since 2013, Shenzhen has invested more than 4 per cent of its GDP annually in R&D, putting it on a par with South Korea and Israel.

Mainland media reported last year that Shenzhen’s economy was projected to be bigger than Hong Kong’s in 2016. But the weakening yuan delayed that milestone.

The city has also vowed to speed up development of the Qianhai-Shenzhen-Hong Kong ­cooperation zone and Lok Ma Chau Loop.

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Municipal officials cheered Shenzhen’s fast growth but expressed concerns about businesses leaving the city.

In his report to the congress, Wang Hongbing, director of the Shenzhen Development and

Reform Commission, said the government’s priority this year was to revive the real economy and manufacturing, highlighting the need to prevent hollowing out among factories and enterprises key to stable industry chains.

That risk was underscored when Huawei moved its device manufacturing and research headquarters from Shenzhen to Dongguan after spending more than 10 billion yuan on a 127-hectare block in the neighbouring city.

Other Shenzhen hi-tech giants moving their R&D offices to Dongguan include DJI, the world’s biggest consumer drone maker, motion controller producer Googol Technology and emerging tech conglomerate Kuangchi.

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Shenzhen congress deputy Wang Hailong, who founded a telecommunications product maker, said more traditional manufacturing as well as hi-tech firms were expected to leave the city in search of cheaper labour as economic conditions worsened at home and abroad.

“We will keep seeing a negative impact on exports in the coming years,” Wang said. He said high wages and production costs meant profits for some IT companies were “razor thin”.

Shenzhen has the highest labour costs among mainland cities and home prices have more than doubled since 2014 to more than 50,000 yuan per square metre on average for new flats – the fastest growth in residential property prices worldwide.

Guo Wanda, vice-president of the Shenzhen-based China Development Institute, that compared with other mainland cities, Shenzhen had done a good job developing its economy but costs were forcing some businesses out.

“Earnings in the real economy are being eaten up as property and land costs soar,” Guo said.

“But the good news is that industrial chains in manufacturing industries are still complete in the Pearl River Delta, which can keep benefiting Shenzhen’s enterprises,” he said.