Qianhai has been envisioned as “a special zone within a special zone” in the southern city of Shenzhen, a strategic hub that will foster deeper collaboration between Hong Kong and mainland China in the tertiary sector and replicate Hong Kong’s model of financial and economic management.
But as it marked its fourth anniversary as an experimental economic zone last month, Qianhai appears as far from achieving its goals as when it started.
Hong Kong investors, who are supposed to play the key role in realizing its lofty dreams, continue to sit on the fence. Who can blame them? Many of the preferential policies and sweeteners promised by Beijing when it unveiled its plans for the pilot zone in 2010 have yet to be implemented.
And while Qianhai struggles to take off, Shanghai’s pilot free trade zone, which was inaugurated less than a year ago, has already stolen its thunder with a slew of breakthroughs in financial reforms.
In June 2012, the Chinese State Council gazetted a 22-point policy package to jumpstart Qianhai’s trials in finance and modern services. But back then no one expected that the actual measures to implement these broad policy guidelines would take more than two years to formulate.
After several rounds of talks between the Shenzhen municipal government and relevant state ministries, stakeholders on both sides of the border were disappointed to find that Qianhai would not cover financial services and related service providers. That means the firms that will operate inside the zone will not be entitled to a lower corporate income tax rate of 15 percent.
As a result, many of the banks and securities firms that were earlier planning to set up branches in Qianhai decided to build their presence at the Shanghai FTZ instead.
Qianhai has stationed an investment promotion team in Admiralty to convince Hong Kong companies, including retailers, to set up branches in the zone. But so far there has been no news about any major Hong Kong company moving to the area.
As part of its experiments in financial reform, Qianhai had also tried to tap Hong Kong’s massive pool of renminbi deposits so the money could flow back to the mainland in the form of cross-boundary renminbi loans.
The first such loan was issued in January 2013. But due to a ban on investment in stocks and derivative products, market enthusiasm quickly waned.
As of July, only 36 billion yuan (US$5.86 billion) of such loans have been granted, according to Zhang Bei, director of Qianhai Administrative Committee.
Analysts told the Economic Observer that Qianhai’s fundamental issues are all related to its positioning.
Shenzhen has yet to roll out a clear blueprint on how the 15-square-kilometer zone, separated from northern New Territories by a narrow stretch of water, can spearhead economic cooperation between Hong Kong and the mainland and serve as a testing ground for China’s financial reforms.
Meanwhile, the Shanghai FTZ has acted swiftly in the areas of free trade and capital account opening.
Local officials can take some credit for boosting the area’s real estate value. Last year Qianhai raked in 61.6 billion yuan for selling about half of a square kilometer of land there, an amount that is more than two-thirds of the combined land sales in Shenzhen for the same period.
Qianhai’s remarkable performance in this area could help defray the municipality’s swelling infrastructure costs, but it could also result in over-reliance on land sales for the municipality’s revenue.
In fact, Shenzhen may find it hard to sustain its robust land sales in the experimental zone as more than a third of the land there is owned by a few state-owned enterprises such as China Merchants Group, China International Marine Containers (02039.HK, 000039.CN), Shenzhen International Holdings (00152.HK), Shahe Industrial (000014.CN) and China Union Holdings (000036.CN).
Qianhai has been holding talks with these landlords to recover the sites for rezoning from industrial use to commercial and residential purposes, but these firms want to build office towers and malls on the land rather than surrender their land banks to the local government.
It is said that Shenzhen has set a December deadline to resolve the issue but no one can guarantee a satisfactory solution by then.
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