China’s tech megacity Shenzhen at risk of being high-income trap as GDP soars
- Avoiding the high-income trap would require restructuring Shenzhen’s economy, but that could take a hefty toll on traditional manufacturing
- Soaring labour expenses and a real estate bubble have already made the city less attractive to manufacturers planning to build new plants
While the world’s second-largest economy is battling a so-called middle-income trap, its tech megacity Shenzhen is now facing the dilemma of trying to avoid a high-income trap, as the city’s gross domestic product (GDP) has swollen almost 15,000-fold in the past 40 years, according to experts.
In 2018, the city’s GDP hit 2.42 trillion yuan (US$372 billion), overtaking Hong Kong for the first time. Before 1980, Shenzhen’s GDP was just 0.2 per cent of Hong Kong’s. Meanwhile, Shenzhen’s GDP per capita has skyrocketed from US$200 to US$30,000 in the past four decades, ranking first among mainland cities and approaching the level of South Korea, according to the World Bank.
“When per capita income and per capita costs rise, higher labour productivity or higher output is needed. In this process, not only will there be a middle-income trap, but Shenzhen is now faced with trying to avoid a high-income trap,” former Shenzhen vice-mayor Tang Jie said in a speech in November.
“To avoid the trap requires restructuring the economy, but any restructuring would lead to a decline in traditional manufacturing capacity and a decrease in tax revenue,” said Tang, who is now a professor with the School of Economics and Management at the Harbin Institute of Technology in Shenzhen.
A high-income trap seemingly reflects stagnation in economic growth, but it can also mean that there are deep-seated problems with a country or city’s growth momentum and development model.