Property speculation darkens Shenzhen’s tech ambitions

September 15, 2016 16:37
Shenzhen’s output of high-tech products amounted to 1.7 trillion yuan in 2015. Photo: Reuters

Several cities aspire to be the "Silicon Valley" of China.

Shenzhen has one of the strongest claims: it is home to many global internet and telecom companies and a pioneer high-tech industrial park.

Its 13th Five-Year Plan calls for the city to have more than 10,000 high-tech firms by 2020, with a combined output of three trillion yuan (US$449.6 billion) in such sectors as integrated circuits, new-model displays, high-end medical imaging, new-energy vehicles and high-end materials.

“Shenzhen is to support companies taking part in large national science and technology projects and encourage them to set up laboratories in priority sectors, such as engineering and company technology centers,” the plan says.

But two factors cast a giant shadow over these ambitions – soaring property prices and intense competition from other cities.

According to the National Bureau of Statistics, Shenzhen property prices in June rose 46 percent from a year earlier, the fastest increase in China.

In July, the average price of a new housing unit in the city was 56,720 yuan per square meter, one of the most expensive in the country.

In addition, all large cities in the Pearl River Delta have high-tech zones that offer tax and other incentives for start-ups.

The industrial sections of their Five-Year Plans (2016-2020) are remarkably similar, offering incubators and targeting the same sectors that Shenzhen is focusing on.

First, let us consider the strengths of the city.

It is home to successful high-tech domestic firms, such as BYD, Dingoo, G’Five International, Hasee, Huawei, JXD, Konka, Netac, Skyworth, Tencent and ZTE.

It has Huaqiangbei, one of the largest markets for electronic goods in China and the world.

The city is one of the world’s biggest producers of mobile phones, 370.3 million units in 2015, down 4.9 percent from the previous year.

It is one of China’s main centers of high-technology. According to the city government website, output of high-tech products in 2015 was 1.7 trillion yuan, up 11.16 percent from 2014, with expenditure on research and development accounting for 4.05 percent of the city’s GDP.

Set up in 1996, its High-Technology Industrial Park hosts domestic companies like Great Wall, Huawei, Zhongxing, Kexing and Kangtai and foreign ones like IBM, Epson and Olympus.

At the end of 2015, it had 985 high-tech firms, of which 84 were listed and 444 had an annual output value of more than 100 million yuan.

It is investing heavily in education and has 10 universities. They include a campus of Chinese University of Hong Kong, graduate schools of Beijing University, Tsinghua University and Harbin Institute of Technology, and the Southern University of Science and Technology.

In late 2018, a 34-hectare campus of Moscow State University and Beijing Polytechnic University will open in Shenzhen. It will be the first Sino-Russian joint university in China, teaching in Chinese, English and Russian.

All this is positive for Shenzhen’s future. But, as in Hong Kong, a giant shadow is growing over its economy – property speculation.

According to official figures, investment in the city’s property market last year was 133.1 billion yuan, up 24.5 percent over 2014.

Prices rose faster than anywhere in China. In March 2016, 409 units of a high-end development in Shenzhen, called Peninsula Phase Three, sold for an average price per unit of 10 million yuan, or 100,000 yuan per square meter, a tenfold increase from 10,000 yuan in 2006.

Units in a nearby luxury project, Shuangxi Garden, sold at an average of 125,000 yuan per square meter.

Both developments are near the Qianhai-Shekou zone.

This is because Shenzhen is one of the "brand" cities of China, along with Beijing, Shanghai and Guangzhou.

Buyers there include not only local residents but investors from other cities in China and overseas looking for long-term capital appreciation.

In addition, thousands of Hong Kong people buy properties there, to use either as their primary residence or as weekend and holiday homes.

Low interest rates and an erratic domestic stock market make property the most attractive investment in the mainland.

High land and rent prices have long driven out of Shenzhen makers of cheap, labor-intensive goods like toys, shoes and garments to inland provinces or cheaper countries like Vietnam, Indonesia and Bangladesh.

Now they are hitting high-tech companies. Huawei, the telecommunication equipment giant, has relocated some of its mobile business to Dongguan. ZTE is building a production base in Heyuan, a much cheaper city in Guangdong.

Another challenge for Shenzhen is that other cities in the Pearl River Delta are going after the very same industries. 

This is part of Guangzhou’s 13th Five-Year Plan. One of its objective is to "strengthen development driven by innovation"."

According to the plan, by 2020, high-technology products will account for 49 percent of large-scale industrial output, research and development investment will account for 3 percent of GDP, and there will be 25 invention patents for every 10,000 people.

It also envisions six major innovation districts, including Guangzhou High-Technology Zone for precision chemistry, new materials and knowledge-intensive services.

There will also be Sino-Singapore Guangzhou Knowledge City, Guangzhou International Innovation City, Guangzhou International Biotechnology Island, Nansha Mingzhu Science and Technology City and other major innovation platforms.

But the question remains: Can Shenzhen balance its ambition to be Silicon Valley with its voracious property market?

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A Hong Kong-based writer, teacher and speaker.