Sunday, October 26, 2008

Shenzhen's Greater Plan: No Manufacturing, No Problem.

There has been a recent plethora of news regarding the effects of the global recession on the Chinese export industry, especially in Shenzhen. Many articles have been devoted to bigger factories that used to produce toys, furniture, other consumer products while employing thousands and thousands of workers closing down. One even says it will cost the Pearl River Delta area "millions of jobs".

In reality, this situation has been going on for a while now. The downturn in the US economy many months ago changed the dynamics of manufacturing. With changes in regulations and demands, rising RMB vs. the Dollar exchange rate and other factors, previous factories that employed 100-200 workers couldnt maintain cash flow and pay for their workers.

While talking to managers at plants, some said that it was better for them to go idle than to manufacture something because the things they made was almost always at a loss. Other factories didnt even have the convenience of deciding to manufacturer or not. Once booming factories couldn't get any new orders from their clients in Europe and the US. No orders = no work = no jobs = plants closing down. Fast forward to the present and we see factories with 2000 workers collapse. That's intense. I've seen recent stats that more than 50% of all toy companies in Shenzhen have closed down.

The thing is, as much as this economic downturn in the globalized economy has hurt a lot of export-driven businesses, and its workers in Shenzhen, it's really helping Shenzhen transform itself to what it wants to become. For the past 2 years since I've been living here, there has been a constant trend and push by local officials to develop Shenzhen as a city dominated by high-tech research rather than lower value-added manufacturing. It wants to go from labor intensive, basic and easy things like the toy industry to industries higher on the totem pole of innovation.

As much as Shenzhen was able to get its start from being that factory town "across the border" for Hong Kong businessmen, its goal is to move away from that persona into an international city of something other than toys, eye glass frames and furniture. It wants to be a city on the same scale as Beijing and Shanghai, or better than Singapore.

So while Shenzhen has slowly tried to shed its own manufacturing persona (these are well documented and that I wont go through), it has done many things to promote innovation, whether its opening a office in NYC or being ranked a leader of innovation in Asia in a recent study. Other things include:
  • Establishing favorable policies for high tech industries - this includes lower taxes and cheaper office buildings (among others)
  • Attracting more and more Chinese people back from overseas, whether its recent graduates or seasoned professionals and intellectuals.
  • Maintaining a high education work force. Supposedly more workers in Shenzhen have advanced degrees than any other city in China. I'm sure most of these are in fields of engineering, mathematics, ect.
  • Increasing its financial clout. Shenzhen has developed the Nasdaq-style exchange for SMEs (adding to its current Shenzhen Stock Exchange) while more and more investment banks and financial companies are established here.
  • Promoting greater cooperation with Hong Kong (which is definitely an international city). This work might culminate into a "mega city" metropolis of 20 million people that combines both cities.
  • Investing in an amazing, state of the art Terminal C at Shenzhen Airport.
  • There has been recent emphasis on art, music and culture in the predominantly money-hungry and business rich environment.
  • Focusing on the legal industry. Peking University recently opened a regional campus in Shenzhen as the 1st American-type law school in China. They even invited Justice Anthony Kennedy from the US Supreme court to give the Keynote at the dedication ceremony.
Shenzhen already can be considered one of the most expensive Chinese cities and its development for the future looks bright. Even with the global economic downturn, UPS has just started construction on its new Intra-Asian hub in Shenzhen and it has been ranked 10th on the list of "most powerful emerging cities in the world."

I don’t think anything will stop the development of Shenzhen into the international power city it wants to become. As long as there are no unforeseen problems with the unskilled laborers who have been getting laid off at factories. If you want to get in on the Shenzhen story, better buy a house now before the prices start going up again.


miles said...

Excellent commentary! You can definitely have a career in academic journalism someday. On the one hand, your post can easily become a 30+ page exposition on industrial upgrading in the Pearl River Delta, and in fact I can sense an entire outline laid out already. On the other hand, you have the rare gift of being able to distill these macro ideas into short narratives without watering down a thing. Props to you, man. You should consider penning a piece like this for Asia Times Online ^_^

shenzhen said...

I think Shenzhen is in for some rough times. I see a lot of empty office space in Futian and I can't think of who is going to fill it without Hong Kong there to prop things up. Most of the decision makers for budgeting are in Shanghai so if you are setting up a new company in China and are also looking at the domestic market you are far away from the action in Shenzhen.


Mike said...

yo Brent,

I think just about everywhere in the world is going to have to go through a rough patch. Isn't it that China needs to maintain a 8% increase in GDP every year just to make sure its new college graduates and people entering the work force has jobs?

With your other point, i really think it depends on what type of company you want to do. Shenzhen people love spending money - as much or more than any other city in CHina.

Mike said...

thanks miles. i appreciate it, although I dont think I have the ability to write a 30+ page thesis on the PRD, maybe there could be newspapers/mags in the future for me.... only as long as their editors are really good at handling my bad grammar.

dvdd8n said...

Nice article and a great blog. Keep it up! How about lunch some time--we can argue about when each of us will be right!

David Dayton/Silk Road Int'l.

Anonymous said...

China Briefing also commented on factories going bankrupt in Shenzhen and local Government having to pay workers salaries:

Chris Carr said...

Nice post. Very helpful info.

Chris Carr said...

Nice post. Very helpful info.