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By David Kirton
SHENZHEN, China (Reuters) – David Fong arrived in southern boomtown Shenzhen in 1997 as a young man from a poor village in central China. Over the next 25 years he worked for a number of overseas manufacturers before building his own multi-million dollar business making everything from school bags to toothbrushes.
The now 47-year-old plans to branch out internationally by building internet-connected consumer devices. But after two years of lockdowns that have pushed up shipping costs and shaken consumer confidence, he’s worried his business will survive at all.
“I hope we make it through the year,” said Fong, surrounded by talking bears, machine parts and his company’s catalogs in his top-floor office overlooking gleaming towers in an area of Shenzhen once characterized by sprawling factories. “It’s a difficult moment for a company.”
Fong’s rags-to-riches story, now threatened by a broader slowdown exacerbated by the coronavirus, mirrors that of his adopted hometown.
Founded in 1979 in the first wave of China’s economic reforms, which allowed private companies to play a role in the state-controlled system, Shenzhen transformed from a cluster of agricultural villages into a major world port, home to some of China’s leading technology, finance , real estate and manufacturing companies.
Over the past four decades, the city has experienced annual economic growth of at least 20%. As recently as October, the forecasting company Oxford Economics predicted that Shenzhen would be the fastest growing city in the world between 2020 and 2022.
But it has since lost that crown to San Jose in California’s Silicon Valley. Shenzhen posted overall economic growth of just 2% in the first quarter of this year, the lowest for the city on record, barring the first quarter of 2020, when the first wave of coronavirus infections stalled the country.
Shenzhen remains China’s biggest exporter of goods, but its overseas shipments fell nearly 14% in March, hampered by a COVID lockdown that caused bottlenecks at its port.
The city has long been recognized as one of the best and most dynamic places to do business in China and a triumph of the country’s economic reforms. President Xi Jinping dubbed it the “Miracle City” during his 2019 visit.
When Shenzhen is in trouble, it’s a red flag for the world’s second largest economy. The city is “the canary in the mine shaft,” said Richard Holt, global cities research director at Oxford Economics, adding that his team is keeping a close eye on Shenzhen.
Fong, which mainly sells its goods to domestic customers, said sales fell about 40% from 20 million yuan ($3 million) in 2020, helped by the recent two-month lockdown in Shanghai and an overall drop in consumer confidence was affected. China’s strict travel regulations mean he has not been able to visit Europe to try to expand there.
LOSE ATTRACTIVENESS
Shenzhen, now a city of about 18 million people, has been hit by a series of blows from home and abroad.
Shenzhen-based telecom equipment makers Huawei Technologies and ZTE Corp have been blacklisted over alleged security concerns and illegally shipping US technology to Iran, respectively. Huawei denies wrongdoing, while ZTE ended probation in March, five years after its guilty plea.
Another of the city’s major companies, top-grossing real estate developer China Evergrande, stoked fears of a collapse last year over its high debt, which would have wreaked havoc on China’s financial system. Later, Ping An Insurance Group Co, China’s largest insurer, suffered huge losses in real estate-related investments.
Smaller companies have also suffered. Amazon.com Inc. cracked down on the way sellers do business on the platform over the past year, impacting more than 50,000 e-commerce retailers, many of whom are based in the city, the Shenzhen said Cross-border E-Commerce Association.
In addition, Shenzhen went into lockdown for a week in March to prevent the spread of the coronavirus. This lockdown and those in other Chinese cities depressed domestic demand for goods made in Shenzhen. The city’s 2% growth in the first quarter was less than half of China’s overall growth rate of 4.8%.
Business registrations also fell by almost a third during this period. Municipal authorities are sticking to their 6% growth target for this year set in April, but the slowdown has raised alarms in China’s establishment.
“Shenzhen’s economy is faltering, lagging and sluggish, while some doubt Shenzhen has enough momentum,” wrote Song Ding, director of the state-affiliated think tank China Development Institute, in a May essay.
The Shenzhen government did not respond to a request for comment on this story.
City officials privately admit that keeping Shenzhen’s “miracle” alive is becoming increasingly difficult.
“There are a lot of people with a stake in Shenzhen who remain predictable unlike before. You can no longer just experiment freely and see what sticks,” a city official told Reuters on condition of anonymity.
On June 6, state-run Xinhua News Agency reported that Shenzhen plans to build 20 advanced industrial parks for telecommunications and high-tech companies, covering an area of 300 square kilometers (115 sq mi). It did not provide any further details.
‘TIME TO GO’
The cancellation of most international flights to China, a port crushed by lockdowns and a once-teeming border with Hong Kong that is now all but closed have made Shenzhen a difficult place to do business. China’s plans for a Greater Bay Area – which would merge Shenzhen with Hong Kong, Macau and several mainland cities – appear to have stalled.
“It’s losing its appeal and they (authorities) need to recognize that,” said Klaus Zenkel, chairman of the European Chamber of Commerce in Southern China. “We always say that they need to balance the restrictions and economic growth to find a way to spend more money on the Greater Bay Area and these free trade zones.”
In September, the Chinese government announced it would expand the so-called Qianhai Economic Zone, a special area within the borders of Shenzhen, from 15 square kilometers to 121 square kilometers. British banks Standard Chartered and HSBC have set up offices there, but border closures mean the area is struggling to attract foreign business, said Zenkel and five diplomats in the region.
Foreign entrepreneurs who flocked to Shenzhen to have their designs turned into products no longer regularly visit the factories and the world’s largest electronics market in Huaqiangbei, forcing dozens of expat bars and restaurants to close or cater to local tastes to adjust.
International business chambers have warned the Chinese government of an exodus of foreign talent. A diplomat from a major European consulate told Reuters that the number of its nationals in southern China has dropped to 750 from 3,000 before the pandemic.
The slowdown has made it harder for graduates to find jobs in China’s newest metropolis, where the average resident is 34. The lush, subtropical city that has fused manufacturing, technology and finance into an entrepreneurial hotbed sometimes known as China’s Silicon Valley has been a magnet for ambitious and talented graduates from across the country.
“I’ve done internships at companies where classmates a year or two older got jobs, but it’s a lot harder to get a job than it was for them,” said Jade Yang, 22, of the graduated in advertising in May and moved 1,400 kilometers from central Chongqing to find work at a tech company in Shenzhen. She said she originally hoped for a salary of up to 10,000 yuan a month, but now thinks 6,000 yuan is more realistic.
In a dense residential area near High Tech Park, one of the city’s clusters of tech companies, real estate agents would normally be inundated with graduates looking for homes in May. An agent, who gave his name only as Zhao, told Reuters last month that business was down 50% from a year earlier.
“This place should be full of people, I shouldn’t have a moment’s rest,” he said, lounging on his e-scooter in front of a building with 30 one-bedroom apartments where the rent is 2,000 yuan a month. He said several had been vacant since November.
Shops in Shenzhen have traditionally opened and closed with high turnover, but “For Rent” signs are becoming more common in once-busy malls, particularly those near border crossings with Hong Kong, which have been closed since early 2020.
The situation is grim for Shenzhen’s low-income migrant workers, who struggle with rising living costs and are barred from homeowning by some of the country’s highest real estate prices.
Masseuse Xue Juan, 44, said her friend recently returned to her small hometown in Chengdu Province and opened a hotpot restaurant, and she is considering joining her.
“Even food and drink are becoming too expensive, the work is hard, and living standards have improved so much in the rest of China,” Xue said. “Maybe it’s time to go.”
(Reporting by David Kirton in Shenzhen, China; Editing by John Geddie and Bill Rigby)
