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SCMP Reporter

AS THE first Special Economic Zone, Shenzhen was always the top choice for foreigners interested in investing in China.

  When it was set up in 1979, it was the only SEZ open to the outside world. The average annual wage was a low 36 yuan and land was cheap. Anybody was allowed to turn their hand to business, and everything was negotiable.

  But these days the zone is expensive. Production costs there have mushroomed by more than 20 times. The average monthly wage for an unskilled worker is as high as 800 yuan (HK$1,075)and property values have shot through the roof.

  Following the rapid economic growth of the last 14 years, Shenzhen SEZ is no longer the choice of foreign manufacturers.

  It is estimated that more than 100 factories moved out of the zone to neighbouring towns such as Dongguan and Foshan last year. Even Shenzhen-based companies are establishing their operations outside.

  ''Shenzhen is facing a transformation from an industrial base to a service centre,'' said Mr Thomas Chan Man-hung, reader and co-ordinator of the China Business Centre, Hongkong Polytechnic.

  Shenzhen started out as an experiment in economic reforms and was granted extensive privileges from Beijing.

  Its biggest achievement was the setting up of one of China's two stock markets in 1991. The securities operation has not only enhanced Shenzhen's status but also boosted its economic growth.

  The city is seen as being full of opportunities, so much so that it has attracted hundreds of thousands of migrants from all over the country.

  According to government statistics, the population has increased from 30,000 in 1979 to 2.5 million - but unofficial estimates put it closer to four million.

  But success has brought criticism. Most notably, it came under attack for last August's share fiasco, which resulted in violent scenes outside the share distribution centre and allegations of corruption.

  ''We don't care what is said about us; we can only do our best,'' said Mr Li Zingsen, director of the newly established Shenzhen Municipal Foreign Investment Office.

  But its may take more than that to solve Shenzhen's problems, which include a lack of public facilities, increasing crime, and soaring production costs.

  The Shenzhen authorities seem to have realised they must act. Over the past two years, they have indicated they plan to eliminate low-end manufacturing and develop the high technology and service industries.

  ''We know our labour costs have increased enormously. But we are not interested in labour-intensive industries. We're going to put all our efforts into developing hi-tech industries,'' said Mr Li.

  But Hongkong businessmen think this is easier said than done.

  ''Shenzhen is not yet sophisticated enough to promote its own high-tech industries,'' said Mr Liu Sing-cheong, managing director of Hang Cheong Surveyors. He suggested the city should act as a service centre for southern China because its telecommunications system was quite well developed.

  In order to establish a favourable environment for tapping more foreign investment, the city government has taken steps to simplify foreign investment approval procedures.

  Since February, investments of less than US$30 million in 18 priority industrial sectors have not been required to have government approval. It is only necessary that the venture is registered with the Shenzhen Industrial and Commercial Bureau.

  Those 18 sectors are: infrastructure; electrical engineering; electronic and telecommunications facilities; transport; petro-chemical products; textiles; food; medicine; construction material; metallurgy; high technology; retail; tourism; exhibition; communication; warehousing, finance; and agriculture.

  Three types of industries are excluded: electrical appliances; polluting industries; and labour-intensive operations.

  ''It's the first time for us to have such a policy, so we'll be reviewing it in July. We may grant a greater degree of autonomy at that time,'' said Mr Li, who disagreed that Shenzhen had lost its attraction.

  ''We are next to Hongkong; and that fact will never change,'' he said.

  Hongkong has very close ties with Shenzhen; the territory accounts for 65 per cent of the SEZ's foreign investment.

  Although Shenzhen has seen the same amount of growth in foreign investment as other Chinese cities, it is still the focus for foreign investors.

  ''Shenzhen has the most foreign investment per capita in China,'' said Mr Li.

  As of 1992, Shenzhen attracted 10,233 projects with a total investment value of HK$156 billion. Contracted foreign funds amounted to $76.44 billion, of which $35.1 billion have been realised.

  Following the call for the speeding up of reforms by Mr Deng Xiaoping, Shenzhen attracted a record amount of foreign investment last year: the SEZ approved 1,561 projects with contracted foreign funds of $19.33 billion, realising $54.9 billion of that.

  Water and power shortages in Shenzhen could affect growth, but the city government is investing heavily to solve the problem. At present, daily water supply capacity is 630,000 cubic metres but should reach 1,632,000 cu m after the completion of the third phase of East River diversion and extension project.

  Industry pays 0.4 yuan per cubic metre of water within the quota limit for enterprise use. If the quota is exceeded, the rate increases.

  The 1,800-megawatt nuclear power plant at Daya Bay will begin operating by the end of the year and it is expected that this will help Shenzhen meet its power requirements.

  Shenzhen is China's first Special Economic Zone, set up in 1979. Located next to Hongkong, it is one of the most successful experiments under China's economic reforms. Population: 2.38 million, including one million urban residents. (But unofficial figuresshow that the city has a population of four million, of which 1.5 million residents stay inside the zone) Gross area: 2,020 square kilometres, including 327.5 sq km of urban development. : 1992 *: % growth from 1979\ Gross Domestic Product:: 28.4: 143\ National Income:: 19.34: 120\ Industry output:: 35.7: 428\ Exports:: US$6.1 billion: 654\ * All in billion yuan   Director of Municipal Foreign Investment Office: Mr Li Zingsen. Address: 7/F, Second Government Building, 8 Shangbu Road Central, Shenzhen. Tel: 2244310; Fax: 2243760.Director of News Service of Shenzhen, Municipal People's Government: Mr Huang Xinhua. Address: Room 513, Shenzhen Government Office Building, Shennan Road Central, Shenzhen. Tel: 2223211.Secretary of the Committee of Baoan District: Mr Liang Daoxing. Address: Office Building, Xinan Town, Baoan District. Tel: 7788616.Vice-director of Shenzhen Ports and Harbour Administration Bureau: Mr Chou Weifan. Address: 6/F, Lu Dan Building, Bin He Road, Shenzhen. Tel: 2273767; Fax: 2273767.



Shenzhen discovers the high price of its success