Learning from Shenzhen

Shanghainese often ask foreigners to compare their city with Hong Kong. Most reply that Shanghai is catching up fast. What they should say, however, is that a more suitable role model exists about an hour's drive to the north.

Shenzhen may not have Shanghai's old buildings. It does not have its historic and cultural attractions. And it certainly lacks the Shanghainese propensity for grandiosity. But it has something else to covet: a firmer grounding in the reality of market economics.

This should surprise no one. Although Shenzhen is a much younger city - before 1982 it was but a few rice paddies - the special economic zone has had a decade longer than Shanghai to develop a market-based economy.

For the 10 years to 1992, Shenzhen was the place to get business done in China. By the time Shanghai's socialist shackles began to be slipped off that year, following the late Deng Xiaoping's southern tour, Shenzhen knew how to work this thing called capitalism with Chinese characteristics. Despite Shanghai's progress, Shenzhen has kept its lead in the to-get-rich-is-glorious stakes: it has a per-capita gross domestic product of US$6,600, about US$1,000 more than Shanghai's. It also grew five percentage points faster last year.

What is most notable about their contrasting achievements is that Shenzhen has made its own luck. It was not given handouts by Beijing, but it had one very important blessing: economic freedoms. While Shanghai was a bastion of state-run enterprise, contributing as much as one-quarter of the national tax revenue, Shenzhen was able to offer tax breaks and other incentives that attracted private investment. What it received far outstripped that which Shanghai was getting from Beijing.

History tells the results. Companies came not only from overseas, Hong Kong and Taiwan, but from all over the mainland. Even now, more of the mainland's wealthiest individuals have their companies' headquarters in Shenzhen than in Shanghai.

Yet the average Shanghainese will say that it is merely a matter of time before Shanghai eclipses Shenzhen. Their cockiness is not unjustified. The taxation playing field has been largely levelled. More foreign direct investment has been going north. The central government has, for the past decade, been firmly in the hands of the so-called 'Shanghai faction', and patronage has beamed down from Beijing. Mega-projects have been the order of the day.

This is why it must rile Shanghainese to read that their subway system's extension plans are on hold while Shenzhen's are going ahead. Moreover, an ambitious plan to link Shanghai with the island of Chongming also looks to have stalled, while work proceeds on the Western Crossing linking Shenzhen's west side with the New Territories. Rumours are swirling that the Shanghai World Financial Centre, supposedly soon to be the world's tallest building, is another victim of Beijing's belt-tightening decrees.

There may be cause to grumble that Shenzhen is lucky to have Hong Kong interests in its infrastructure development, as Beijing wants to show any aspiring protest marchers that they are indeed being thought of. But there is a real reason why Shenzhen is better-positioned to ride out the credit clampdown being imposed on the country by Beijing. It is because the city is not nearly as dependent on easy money for its funding. Premier Wen Jiabao has a strong argument to make against the Politburo's previously privileged: Shenzhen's plans for development are less likely to add billions of dollars in bad debt to the nation's banks.

You might say the people of the city on the sea have been Shanghaied. It will be interesting to see how they respond.

Anthony Lawrance is the Post's special projects editor