China export fall presents challenge to Shenzhen

Published on December 27, 2008 by brooks

In the late 1970s, Fish Farm Village was a small settlement on the banks of the Shenzhen river, which marked the border between China’s southern Guangdong province and the then British colony of Hong Kong.

Today the rural backwater has given way to a large retail podium and nine new residential tower blocks, all a short walk to a new border crossing where Shenzhen and Hong Kong’s light rail networks meet.

The place is still known, now incongruously, as Fish Farm Village. Five of the towers were reserved for former villagers, many of whom rent their flats to Hong Kong residents who have migrated across the border in search of cheaper property.

“The slowing economy has had some effect on sales, but the developer is reluctant to lower prices because it paid a lot for the land,” Wu Dikun, a n estate agent, says as he gives the Financial Times a tour of the area.

On the 30th anniversary of China’s reform era, Shenzhen stands on the verge of another metamorphosis as exporters in low-end, labour-intensive sectors fall by the wayside.

The Chinese government announced on Wednesday that exports fell in November from a year earlier for the first time in almost seven years.

With demand in many of its main markets slowing sharply, Chinese exports declined 2.2 per cent and imports fell 17.9 per cent last month from a year earlier, according to Chinese customs figures.

The Shenzhen special economic zone has been China’s leading export area for 15 years running. It and other cities in Guangdong’s Pearl River delta manufacturing heartland account for one-third of the country’s exports, the vast majority of which are assembled by migrant labourers. Three- quarters of Shenzhen’s official population of 8.6m lack the “permanent residency” status that would entitle them to full medical and education benefits.

This month, Xu Zongheng, the city’s mayor, warned that knock-on effects from the global financial turmoil present “grimmer challenges than in the Asian financial turmoil in 1998”. Mr Xu says 682 factory closures alone have claimed 50,000 jobs this year in Shenzhen.

Local officials have established emergency funds to pay workers’ back salaries and pledged to help struggling enterprises by cutting red tape and fees. The central government has weighed in as well, raising back value added tax rebates for a range of exports that had been trimmed earlier.

But as they prepare for the worst, Shenzhen officials hope crisis might also catalyse a welcome transformation. “The financial crisis is our best chance to upgrade our industrial structure, find better business partners and encourage mergers and acquisitions – just as people who buy stocks in bad times will earn money,” Mr Xu says.

“Closures happen even without a financial crisis,” he adds. “Many of the companies closed because they had poor management.”

“The financial crisis is good for China,” adds Zhong Jian, director of the China centre for special economic zone research at Shenzhen University. “I wish the transformation had begun 10 years ago. It was delayed because low salaries allowed export-processing factories to earn profits even if they didn’t upgrade technologically.”

Guangdong’s export growth has slowed to 13 per cent over the first 10 months of this year – half the rate of boom periods – with lower value sectors suffering the most. In October alone, garment exports fell 15 per cent year-on-year, compared to an 11 per cent increase in high-tech exports.

A similar flight to quality is reflected by trade finance statistics, the most detailed of which are compiled by the Hong Kong Monetary Authority. Over the first three quarters, trade-sector lending by the territory’s licenced banks increased 33 per cent over the same period of 2007 to HK$1,909bn ($246bn, €184bn, £164bn).

“We will lend to enterprises that we believe will survive the current difficulties,” says Raymond Or, chief executive of Hang Seng Bank in Hong Kong.

“Shenzhen benefited from the reform policies, which brought talented people and foreign capital together,” says Mr Zhong. “Think about how many people are employed in this city. If only China had 10 Shenzhens.”

Mr Zhong, however, sees fixed limits on China’s chameleon city. “In the past our focus has been on economic development. In future we should have a better balance between economics, politics and culture,” he says. “But I don’t think important political reform will take place in Shenzhen. In China this type of reform flows from the central government to local governments. Besides, local officials are doing well. Why should they take risks?”

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