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This weekend marks the 10th anniversary of a landmark southern tour made by the late paramount leader Deng Xiaoping to Shenzhen, Shanghai and other key cities.

The tour proved pivotal to the progress of economic reforms and contributed to Shenzhen's prosperity over the past decade.

In Shenzhen, the event is likely to be remembered with mixed feelings as the city looks for inspiration to reposition itself in the mainland economy after Beijing's World Trade Organisation entry.

The Shenzhen Special Economic Zone will no longer be special, losing preferential policies under WTO rules.

According to Shenzhen's WTO Information Centre, it will no longer enjoy privileges in funding, finance and taxation.

Shenzhen's enterprises now pay only 15 per cent corporate income tax, while companies elsewhere on the mainland pay 33 per cent.

Deputy secretary-general of Shenzhen's municipal government, Liu Yingli, said the tax benefit would end when Beijing completed its national tax restructuring.

'If Beijing decides to phase out the 15 per cent tax rate for Shenzhen, we will have to comply,' he said.

Without the special status and favourable policies that contributed to its wealth and economic boom in the past two decades, Shenzhen risks becoming just another Chinese city - a fact Shenzhen finds hard to accept.

Shenzhen's economy grew 13 per cent last year, a sharp decline from the 30 per cent it used to enjoy in the golden days of the past decade.

Although the growth is still higher than the national average and other major cities, the gap is diminishing. Hardly a day goes by without city leaders urging cadres to find new momentum for the city.

'We must find a new driving force to sustain the growth of Shenzhen,' new party secretary Huang Liman said last month.

Shenzhen has mapped out an ambitious five-year plan to achieve an annual average growth rate of 12 per cent over the next five years. But that looks as if it will be difficult to achieve amid a global economic slowdown.

'The current international economic environment has posed more challenges for us than in the Asian financial crisis [in 1997],' Ms Huang said, adding that the city's economy was expected to grow about 11 per cent this year.

Shenzhen is aiming to make hi-tech industry the new driving force for the economy.

But the former party secretary of Shenzhen, Zhang Gaoli, said the city had many disadvantages in developing its hi-tech industry: 'The industrial foundation of Shenzhen is weak. Shenzhen's hi-tech park is only 11.5 square km, much smaller than the 127-square-km hi-tech park in Beijing and the 130 square km in Xian.'

Shenzhen's ambition to become the country's finance centre also faces challenges, mostly from Shanghai, where more and more multi-nationals have set up their China head offices.

Some analysts remain positive that Shenzhen will not lose out to its competitors.

According to Ng Mee Kam at the Centre of Urban Planning and Environmental Management of the University of Hong Kong, human resources are a major strength.

'Shenzhen has a tradition of attracting talented people from all over the country,' she said. Shenzhen also was ahead of other cities in developing its market-oriented economy.

'It has two decades' more experience of having outside investment and a market economy. It has seen how things are done in Hong Kong,' Ms Ng said. 'These are the things that Shenzhen should capitalise on despite greater difficulties.'

The chief economist of Credit Suisse First Boston in Hong Kong, Tao Dong, believes that Shenzhen and the rest of Guangdong have the most developed infrastructure. 'Most importantly, it is next to Hong Kong, which has a lot of capital,' he said.

Ms Ng said there was a rich supply of capital in the Pearl River Delta area that Shenzhen stood to benefit from, as it was home to one of the country's two stock exchanges.

An economist with the Shenzhen Development Research Institute, Feng Subao, believes the real opportunity for Shenzhen lies in the formation of a free-trade zone with Hong Kong, an idea he thinks no less valuable than that of the special economic zone 20 years ago.

According to Shenzhen Mayor Yu Youjun, Beijing has 'agreed in principle' to the idea of setting up a free-trade zone between Hong Kong and Shenzhen.

According to Mr Yu, there is good synergy for the co-operation. Hong Kong has the capital and Shenzhen has the backdrop of China's market, talents and lower costs.



Shenzhen eyes options as economic concessions fade with mainland's entry to trade body