China’s tech hub, Shenzhen, barely avoids economic contraction in first half of 2020

Stronger investment, particularly in fixed assets and infrastructure, offset sharp declines in exports and retail sales
But housing prices have surged in recent months as the city – China’s first special economic zone – approaches its 40th anniversary

China economy

Frank Tangin Beijing

Published: 5:47pm, 29 Jul 2020

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The city of Shenzhen, China’s tech capital that sits on the border with Hong Kong, barely avoided an economic contraction in the first half of this year, as a strong rise in investment offset weaker consumer spending and exports.

Transformed from a small village adjoining Hong Kong in the last four decades, the mainland city’s gross domestic product (GDP) rose only 0.1 per cent in the first half from the year-earlier period, its statistics bureau said on Tuesday. Shenzhen fared better than the nationwide contraction of 1.6 per cent in the first half.

Shenzhen also did considerably better than Hong Kong, which reported on Wednesday that its second-quarter GDP fell 9 per cent compared with a year earlier – barely better than its 9.1 per cent contraction in the first quarter, and the fourth consecutive quarter that Hong Kong’s economy has contracted, on a year-over-year basis.

Shenzhen’s statistics bureau did not provide the year-on-year growth for the second quarter alone, but the first-half figure implies a significant improvement in the April-June period from the year-on-year fall of 6.6 per cent in the first quarter.

This 0.1 per cent growth is not simple at all

Shenzhen Special Zone Daily commentary

The city’s industrial output fell 2.3 per cent in the first half while service-sector activity increased 1.7 per cent, the data showed.

“This 0.1 per cent growth is not simple at all,” according to a front-page commentary on Wednesday in the Shenzhen Special Zone Daily, the official mouthpiece of local authorities. “The quick reversal [from the fall in the first quarter] has shown the city’s strong economic resilience and also sent an active signal of high-quality development. Shenzhen must continue the momentum to uphold the banner of pioneer and pilot.”

Shenzhen is the poster child of China’s economic growth model and was chosen by Beijing as a “model socialist city” to showcase the success of China governance under the rule of the Communist Party.

Shenzhen leads the way as China turns to property investment frenzy to boost growth

Four decades after former paramount leader Deng Xiaoping designated Shenzhen the nation’s first special economic zone, the former fishing village now boasts a larger economy than neighbouring Hong Kong and has positioned itself firmly at the centre of the Greater Bay Area – the region around the Pearl River Delta comprising of Shenzhen, Hong Kong, Macau and eight other cities that Beijing hopes to develop into a technological powerhouse to rival Tokyo Bay and San Francisco Bay.

However, the city also faces growing uncertainty given the prospect of economic decoupling between China and US, since Shenzhen is deeply embedded in global value chains.

For example, the city’s exports fell 5.9 per cent in the first six months of this year from a year earlier, highlighting the ongoing implications of the coronavirus pandemic and its impact on the global economy. And retail sales, a key indicator of domestic goods purchases, were down 14.8 per cent year on year.

Shenzhen’s GDP growth, small as it was, was due largely to an increase in investment. Local fixed-asset investment increased 7.8 per cent in the first half, compared with a fall of 22.9 per cent from January-February as the coronavirus outbreak began to surge in China. Infrastructure investment also rose 3.7 per cent as the city started 155 new construction projects in the first quarter, including a third runway for the Shenzhen Airport at a cost of 12.3 billion yuan (US$1.76 billion), and launched a further 163 projects in June with a total planned investment of 135.1 billion yuan.

The city’s overall economic growth, however, was still lower than the growth posted by its major rival cities – 1.5 per cent in Hangzhou, 0.8 per cent in Suzhou and 0.6 per cent in Chengdu – in the same period. Meanwhile, runaway property prices in the lead-up to the city’s 40th anniversary on August 26 forced Shenzhen authorities to impose new purchasing and down-payment restrictions last week.

Government data shows that Shenzhen’s home prices in June rose 5.3 per cent from a year earlier. Market institutions estimated a cumulative price increase of at least 10 per cent in the year’s first half, with the city’s second-hand home prices leading mainland cities with an average price of 74,929 yuan (US$10,700) per square metre last month.

This article appeared in the South China Morning Post print edition as: stronger investment firms up Shenzhen gdp

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