Shenzhen overtakes Guangzhou as biggest economy in southern China’s Guangdong province

Shenzhen had the largest economy in southern China’s Guangdong province last year after a new method of calculating gross domestic product saw it overtake local rival and provincial capital Guangzhou.

The provincial statistics bureau said on Tuesday that it had revised up Shenzhen’s GDP figure for 2016 to more than 2 trillion yuan (US$302 billion) from 1.95 trillion yuan in its initial report. The revision meant that the city’s economy grew 9.1 per cent year on year.

Guangzhou’s GDP figure was also revised up, to 1.98 trillion yuan from 1.95 trillion yuan, but the increase was not enough for it to hold on to the top spot.

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The changes meant that the province’s total economic output also rose – to 8 trillion yuan from 7.4 trillion yuan – but no figure was given for the rate of growth.

The bureau said the changes reflected the province’s decision to categorise research and development spending as fixed investment rather than an operating expense.

Guo Wanda, vice-president of the Shenzhen-based think tank China Development Institute, said: “It’s positive news for Shenzhen but not a surprise because Shenzhen has been leading Chinese cities in R&D spending.”

Shenzhen’s new ranking means it can challenge for the leading role in the “Greater Bay Area” scheme, the central government’s plan to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub. The authorities in each of the cities are competing fiercely for the lead role and the official policy breaks in land, talent and capital that would go with it.

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Shenzhen’s economy, however, is still smaller than Hong Kong’s, which came in at US$320.91 billion last year. Chinese media forecast earlier this year that Shenzhen would overtake Hong Kong in 2016, but a weak yuan put paid to that ambition. Shenzhen has set an economic growth target of about 8.5 per cent for this year.

Last year, the city invested more than 80 billion yuan in research and development, accounting for about 4.1 per cent of its GDP, the highest ratio among mainland cities, according to official data.

Since 2013, Shenzhen has allocated more than 4 per cent of its annual GDP to R&D, putting it on a par with South Korea and Israel. By contrast, Hong Kong spends about 1 per cent of its GDP on R&D each year.

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“It’s very possible to see Shenzhen’s economic size surpassing [that of] Hong Kong and Guangzhou as the Greater Bay Area shifts from a manufacturing economy to a knowledge economy more dependent on the often abstract products of innovation,” Guo said.

Ahead of Guangzhou’s Fortune forum that is expected to bring a host of global business leaders to the city from Wednesday, security checks at subway stations have been stepped up, walls repainted and even paving stones dug up and replaced.

The guests will include Ford Motor’s executive chairman Bill Ford, HSBC CEO Stuart Gulliver and leading tech entrepreneurs, including Tencent chairman Pony Ma and Alibaba founder Jack Ma. E-commerce giant Alibaba Group owns the South China Morning Post.

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Local authorities hope the line-up of big-name executives will help put Guangzhou on the radar of global investors, especially Fortune 500 companies, at a time when China is struggling to attract foreign direct investment.

Lin Jiang, a professor at Lingnan College, part of Sun Yat-sen University, said local authorities were keen to make Guangzhou a base for emerging industries and were exploring ways to encourage giant global enterprises to invest. The aim, he said, was to make the city a hub for international shipping, aviation, and scientific and technological innovation.

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Fixed direct investment in Guangdong in the first half of 2017 rose 6.6 per cent year on year to US$12.31 billion, according to official figures. The number of foreign-invested enterprises granted approval to set up operations in the province in the same period rose 46.4 per cent from the first half of last year to 5,239.

In Guangzhou alone, foreign investment in the first nine months of this year rose by about 13 per cent from the equivalent period of 2016 to US$5.63 billion.

“Guangzhou hopes to encourage FDI in modern manufacturing and emerging industries, but it’s facing fierce competition from nearby cities,” Lin said.