Shenzhen’s Big Bet

Shenzhen, which was the pioneer of China’s reform and opening up in the past thirty years, is planning to return to the spotlight with the start of a comprehensive reform.

On May 26, Shenzhen government officially published the General Program for the Comprehensive Reform of Shenzhen (hereafter the Program) which was previously approved by the State Council. The Program endowed Shenzhen with the rights of taking the first step in the important moves of reform and opening up and the other three aspects. Shenzhen government will take measures to consummate the self-innovation system in the fields of administration, economy and society. Some more measures will be adopted to form a new opening innovation system, to consolidate the cooperation between Shenzhen and Hong Kong and to build up an energy-saving and environment-friendly system. The main target of the reform is to collaborate with Hong Kong to build an international center for logistics, trade, innovation and international cultural originality.

The Program started a new period for Shenzhen’s reform, which has shifted from focusing on the single economic field to covering both social and economic fields. The reform will not only provide an opportunity for Shenzhen to rise again, but also give China a test sample for the future reforms. Its significance is as profound as the establishment of the Shenzhen Special Economic Zone 30 years ago.

This is also an important turning point for Shenzhen, which has been gradually “falling from the grace”. This city has got the opportunity to return to the center of China’s economic development.

Special Zone Is “Not Special”

Before becoming the pilot area of the national comprehensive reform, Shenzhen, as one of the first special economic zones in China, played a leading role in the reform and opening up. However, in these ten years, Shenzhen is gradually falling from the grace. On January 1, 2008, the unification of the income tax of the foreign-funded enterprises was officially implemented. In 2007, Li Youwei, former Party Secretary of Shenzhen said with a saddened face: “The last favorable condition was gone.”

Shenzhen is one of the first cities which applied to be the pilot areas of the comprehensive reform. However, in 2005 Pudong New District, Shanghai became the first pilot area. Shenzhen was not given the chance because it is the special economic zone. Then, from 2005 to 2007, Tianjin’s Binhai New District, Chongqing, Chengdu and some other cities or areas became the pilot areas. Shenzhen still failed in getting this title.

Setting up pilot areas is an important step to spread the comprehensive reform which is advocated by President Hu Jintao and Premier Wen Jiabao. Those pilot areas are different from the special economic zones established at the beginning of reform and opening up. In the special economic zones the reform to the economic system plays the main role and the economic development prevails over the other aspects. The comprehensive reform is deeper and wider than pure economic reform. It has a more profound meaning and contains the policy privilege which many local governments compete to acquire. The leaders of the pilot areas will not be blamed if the reform is not successful. No wonder Shenzhen was so eager to become the pilot area.

People once attributed Shenzhen’s several failures to the lowering status of Shenzhen in the reform and opening up of China. Actually, it is true that the Shenzhen Special Economic Zone is not special any more.

In November 1998, the People’s Bank of China (PBOC), the central bank of China, underwent a major restructuring. All provincial and local branches were abolished, and the PBOC opened nine regional branches, whose boundaries did not correspond to local administrative boundaries. Shenzhen was not one of the cities where the nine regional branches are located. The Shenzhen branch became a sub-branch of the Guangzhou Branch.

In 2000, Shenzhen’s financial industry suffered a serious blow. In that October, the Shenzhen Stock Exchange suspended the initial public offering activity and focused on the establishment of the second board, which was laid aside later. A lot of capital flowed to the Shanghai Stock Exchange, resulting in the loss of financial institutions and talents. As of 2002, people began to talk about whether Shenzhen was abandoned or not.

From 1994 to 2001, no systematic administration reforms happened to Shenzhen. The only one reform to the Party and administration organizations was conducted by the central government. In 2003, Shenzhen government declared in a high profile that a reform of “Trisection in Administration System” would be implemented. However, this reform also failed without any known reasons.

Presently, Shenzhen’s development is facing serious challenges. The globalization of economy and the integration of regional economy confront Shenzhen with the competition from the developed countries; meanwhile, it has to deal with the impact of global financial crisis. Inside China, Shenzhen has to compete with the other cities and provinces.

Shenzhen itself should also be blamed for its trouble. Its development, which used to be quite fast in the past, is restricted by the land, space, population and resources. The financial crisis has exposed the defect that its economic development depends on the foreign market too much. Its industry needs upgrading; it is overpowered by Hong Kong, Singapore and Seoul in public administration, urban management, public services and legalization. The progress of the integration of Shenzhen and Hong Kong is also quite slow.

A Political Game

Political factors should not be excluded in explaining the long and thorny way of becoming the pilot area of comprehensive reform.

It lasted less than half a year from the beginning of this year, when Shenzhen issued it’s the Program, to May 2009, when the State Council made out the official approval. However, it lasted more than one year for the same applications and programs of Pudong New District, Shanghai and Binhai New District, Tianjin to be approved.

Compared with a few years ago when Shenzhen encountered several failures in becoming the pilot area, the success at this time can be said to be unexpectedly easy to win. An expert attributed the easy success to the following factors: firstly, the financial crisis forces the Chinese government to build up an efficient administration structure which is suitable for the status quo of China’s economy. Therefore, the comprehensive reform is necessary and Shenzhen is one of the cities that are likely to make it successful. Secondly, during the fight against the financial crisis, the Shenzhen pattern which focuses on self-innovation regains the attention from the central government. Premier Wen Jiabao once said: “We must attach great importance to the industrial upgrading and self-innovation.” Thirdly, Wang Yang, Party Secretary of Guangdong has given Shenzhen a strong backing force. He tries his best to protect the benefits of Shenzhen and is always seeking balance between Shenzhen and Guangzhou. Fourthly, the financial crisis has seriously hit Hong Kong, forcing the central government to support the development of Shenzhen in order keep Hong Kong stable and prosperous.

Certainly, there may be some more complicated reasons. The expert said that the matter will be more complicated if it is related Hong Kong. Though today’s Shenzhen is not in the same level with Shanghai in economy and politics, it is still the special economic zone that Deng Xiaoping, former Chinese top leader, chose as the pilot area for China’s reform and opening up. Shenzhen also lies next to Hong Kong, which is an important financial center of the world. Hong Kong’s economic performance is always cared by the westerners who never miss any opportunities of criticizing China’s economic and social systems.

The saying of “collaborating with Hong Kong to build up the international financial center” didn’t appear in the Program. And the press release about the Program was held by Shenzhen government. When Shanghai issued the program of the same kind, the press release was held by the Information Office of the State Council.

The Third Industrial Transformation

The Program confirmed that the high-tech industry, financial industry, logistics industry and culture industry are the main pillars of Shenzhen’s economy.

Shenzhen also needs to deepen the reform to its economic system, as well as to consummate the market system of element allocation and the systems of taxation, financing and land. It also needs to promote the reform to the enterprises and form more efficient market regulatory system.

Previously, Shenzhen went through two successful industrial transformations. In 1986, Shenzhen began its first industrial transformation with the industry as the core point. The infrastructures, financial institutions and logistics system were also built to support the development of industry. The Shenzhen Stock Exchange is also established at that time. Inspired by the favorable conditions, many labor-intensive enterprises entered Shenzhen. In less than 10 years, Shenzhen quickly became an important industrial base and economic center of Mainland China. In 1994, Shenzhen’s GDP was ranked at No.4 in China.

In 1994, Shenzhen shifted its focus to the high-tech industry, forcing some labor-intensive enterprises to move to the suburban areas or the neighboring city Dongguan. In that year Shenzhen’s industry saw a decrease in its growth rate. Some pessimistic opinions arose in China. After the return of Hong Kong, Shenzhen’s political position was lowered, making people less confident in Shenzhen’s future. However, in 1995 Shenzhen put forward the idea of “the second innovation” and issued many policies to encourage the development of high-tech industry. From 2000 to 2001, the world underwent a drastic increase of the high-tech stocks. Stimulated by this, Shenzhen’s second industrial transformation went on quite smoothly. From then on, the high-tech industry became the most important pillar of Shenzhen’s economy. It also encouraged the fast development of financial and logistics industry.

In 2005, Shenzhen began its third industrial transformation, trying to change the main engine for the economic development from industry to service. It can be said to the sequel of the second industrial transformation. The main measures it adopted were still to upgrade the traditional manufacturing industry, develop the high-tech industry and stabilize the financial and logistics industry. The status quo showed that Shenzhen is in the late period of industrialization.

It is believed that the third industrial transformation can slowly increase the proportion of service industry in Shenzhen’s economy to a certain level. In 2008, the proportion of Shenzhen’s service industry for the first time exceeded 50%, showing the twilight for the success of the third industrial transformation.

To become the pilot area of comprehensive reform is undoubtedly good for promoting this transformation.

Disputes in “Political Reform”

The administration reform is listed as the top task in the Program, which is out of many people’s expectation. The main aim of administration is to build up an efficient administration system which is under the rule of laws and can provide public services. This also reflects the determination and confidence of the Chinese central government to promote the deeper political reform.

Shenzhen government is divided into three main departments respectively in charge of decision-making, execution and supervision. The three departments function independently. Meanwhile, the departments or organizations which have the same or similar functions are integrated as one unit. The government of each district will be gradually replaced by the detached offices of the municipal government.

Actually, the trial administration reform mentioned above has been put forward in 2003. However, the plan was abolished without having gained any fruiting.

The restart of the reform, though supported by the central government, still faces many difficulties. It is said that Shenzhen government will give the three main departments the same right in order to make this reform go on fluently.

But some experts think it impossible to realize the real “trisection in administration”, because the mayor and Party secretary have the dominate power. Meanwhile, this reform reduces the power of the National People’s Congress, which should play the leading role in supervising the government. Therefore, whether the administration reform can get expected result is still a problem.