Shenzhen’s Special Economic Zone turns 30 this week and has been declared a miracle by the Chinese leadership. But without Hong Kong’s massive investment, the zone would have been a non-starter.
Back in the late 1970s, Shenzhen was little more than a sleepy fishing village with water buffalo wandering through paddy fields and not much going on in terms of business.
Then from the north came Chinese paramount leader Deng Xiaoping with his reforms and his “socialism with Chinese characteristics”. Deng decided Shenzhen’s proximity to Hong Kong made it an ideal situation for the country’s first Special Economic Zone.
Thirty years on, the Shenzhen Special Economic Zone is home to a population approaching 10 million people, it has a GDP of over US$120 billion and the world’s third busiest container port.
During the 30-year celebrations this week, President Hu Jintao hailed the zone as a “miracle” that became the blueprint for China’s economic growth.
It may not be so much of a miracle as it was a shrewd move by Deng all those years ago and it inextricably tied together the futures of Hong Kong and Shenzen.
By the 1970s, manufacturing in Hong Kong was big business. More than 40 percent of the workforce was employed by the city’s 16,500 factories.
Electronics, toys, watches, textiles – anyone older than 40 will remember the Made in Hong Kong stamp on just about everything back in the 1970s, especially toys. Hong Kong actually replaced Japan as the world’s largest exporter of toys in 1972.
But by the end of the decade, the end of Hong Kong manufacturing had begun. Rents were rising steeply and labour was costing more, threatening the low-cost manufacturing model that had proved so successful.
Deng realised that with a limitless supply of land and cheap labour, and with no pesky environmental issues to worry about, opening up the mainland to foreign investors would enable Hong Kong manufacturers to relocate their factories to the new Special Economic Zone.
Never slow to miss an opportunity – the average daily wage in Hong Kong in 1980 was HK$65; in Guangdong it was just HK$2 – Hong Kong’s factory owners immediately jumped over the fence.
Made in Hong Kong became Made by Hong Kong, in which the goods are manufactured in China but exported to Hong Kong for re-exporting to the world. Hong Kong re-exporters attach a label and slap on a 25 percent mark-up on the goods and “hey presto!”, Hong Kong has exports.
Investment in the ports on both sides of the Shenzhen River grew rapidly as predominantly Hong Kong-based port operators added capacity. Hutchison Port Holdings boss Li Ka-shing played a huge part and Shenzhen saw throughput surge as the operators and their mainland partners added capacity at Chiwan and Shekou in western Shenzhen and Li built Yantian port in the eastern part of the zone. Dachan Bay and its terminals were added in the west and now Shenzhen has overtaken its neighbour to sit in third place in the busiest ports race behind Singapore and Shanghai at the top.
But if the first 30 years of Shenzhen Special Economic Zone have been miraculous, the next three decades will be no less interesting. For one thing, Shenzhen will entrench its position as second business port at the direct expense of Hong Kong. In 30 years there may not even be a Hong Kong port.
Beijing is also working hard at getting manufacturing in the Pearl River Delta to climb up the value chain. New labour laws, minimum wage rulings and rising raw materials prices are all adding to the costs of manufacturers in the PRD. Those making low value products that have a severe impact on the environment are being encouraged to go west and pollute the interior instead.
So by the time the 60-year celebration of the Shenzhen Special Economic Zone rolls around in 2040, the PRD will be a very different place. It will be just seven years until the end of the “one country two systems” under which Hong Kong has operated since the 1997 handover.
What will happen then is anyone’s guess.