18 February 2019
High-rises dazzle in Shenzhen's night sky. Shenzhen's GDP is set to surpass that of Hong Kong.  Photo: Bloomberg
High-rises dazzle in Shenzhen's night sky. Shenzhen's GDP is set to surpass that of Hong Kong. Photo: Bloomberg

Here’s why the Shenzhen growth story has a weak underbelly

Chief executive Leung Chun-ying was recently asked by Guangdong-based Southern Metropolis Daily what he thought of reports that mainland cities such as Guangzhou and Shenzhen will soon overtake Hong Kong in gross domestic product.

The question seemed out of place in a back-and-forth that was mainly about politics.

But it highlighted a topic that is often overlooked.

Since last year, authorities in Shenzhen have been touting an 8.9 percent GDP expansion in our next door neighbor.

That means its economy grew to 1.75 trillion yuan (US$269 billion) in 2015, with per capita GDP hitting US$24,000 for the first time.

And that is the basis of forecasts that Shenzhen will outstrip Hong Kong  whose GDP rose by 2.4 percent year on year to HK$2.4 trillion (US$309.4 billion) – in a year or two.

Since 2014, Shenzhen has been ranked China’s most competitive city by the Chinese Academy of Social Sciences thanks to its phenomenal growth in the past decade.

What’s more interesting is that Shenzhen’s debt is just 15.9 billion yuan, compared with the combined debt of China’s local governments which runs into the trillions.

Shenzhen’s 2015 fiscal revenue of 723.8 billion yuan dwarfs its total debt obligations, an incredibly solid financial standing that gives its administrators some bragging rights.

By comparison, Guangzhou owed its creditors — mostly state banks and financial institutions — 300 billion yuan as of last year.

Shanghai was 600 billion yuan in the hole and Beijing 700 billion yuan, according to various estimates.

Local governments raise debt mainly to fund infrastructure projects and other government programs such as education, social services, healthcare and environmental protection.

Shenzhen’s overall investment in these programs came to 450.9 billion yuan from 2004 to 2013, about 285.7 billion less than that of Guangzhou.

These figures came from a social media post critical of the Shenzhen government’s underspending. The post had gone viral before it was taken down by censors.

It said Shenzhen spent 2.5 billion yuan on education and healthcare infrastructure and facilities in 2013, less than half of Guangzhou’s investment.

Both cities have largely similar populations — 10.78 million for Shenzhen versus 13.08 million for Guangzhou.

The result is fewer school places or hospital beds in Shenzhen (Guangzhou has 69,000 hospital beds to Shenzhen’s 28,000).

On average, 30 pupils compete for one public elementary school place in Shenzhen’s urban Luohu (羅湖) district. In Baoan (寶安), the ratio is as high as 50 pupils to one slot.

Shenzhen spent 33 billion yuan on education in 2014, whereas Hong Kong’s corresponding expenditure was HK$73.7 billion lion yuan during financial year 2014-15.

Note that the total number of students in Hong Kong, from kindergartens to post-secondary, was 1.2 million during 2014-15. Shenzhen had 1.43 million students as early as 2012.  

There’s more.

Shenzhen had 5.78 trillion yuan in domestic and foreign currency deposits in its banking system in 2015, about 2 trillion yuan more than a year earlier.

Combined new loans, however, rose mildly by 450 billion to 3.24 trillion last year. Apparently, much of the liquidity did not translate to loans that would grease the wheels of the economy.

One possible explanation for this is an uptick in money passing through unregulated channels — underground banks or remittance agents — to overseas accounts.

Intermediaries receive money in renminbi and pay their clients overseas in US dollar.

In the past six months, we have witnessed the kind of craze not seen before in Shenzhen’s home market — 8.31 million square meters of homes were sold in 2015.

That is up 56 percent from a year earlier, pushing average prices to 34,000 yuan per square meter at the peak of the market.

Shenzhen’s red-hot banking and realty sectors come in stark contrast to the tepid real economy.

Overall exports dropped 6 percent in 2015 — the third year of contraction — and growth in consumer retail volume was a feeble 2 percent, lower than the nominal annual inflation rate of 2.2 percent.

Overall bank deposits grew by just 140 billion yuan in the first two months, according to the Shenzhen Municipal Bureau of Statistics, but only after Beijing moved to stem capital outflow.

– Contact us at [email protected]


Read more:

HK-Guangzhou: What the GDP figures don’t tell

Shenzhen’s overall investment in infrastructure and other government programs came to 450.9 billion from 2004 to 2013, about 285.7 billion less than that of Guangzhou. Photo: Bloomberg

Traffic moves through Louhu district. Luoho has some of the toughest competitions for school places. Photo: Bloomberg

EJ Insight writer

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