SHENZHEN, China (Reuters) – Tony Xiong is among the latest arrivals to the glitzy office towers in the newest part of Shenzhen, built to highlight China’s economic miracle. He will not spend any personal time in the area.
On most lunch breaks, he drives 20 to 30 minutes to more established areas in Shenzhen to eat beef noodles at his family-owned restaurants before returning to work.
“In Qianhai, the mall can be reached by a 10-minute walk under the sun or bad cafeteria food,” said the 30-year-old, a financial worker at a state-owned real estate company. “I don’t like being there.”
Office workers are not the only ones bemoaning the unattractiveness of Qianhai, a special economic zone where Chinese dreams of global financial power and economic prosperity that once seemed inevitable are now dimmed by skyscrapers and nearly empty shopping malls, as well as barely used highways.
The Shenzhen Business Annex opened more than a decade ago after an initial investment of $45 billion, with state media describing it as China’s Hong Kong: an international technology and finance hub of the future; It serves as a test of market liberalization and access to information.
But Reuters interviews with ten executives and investors, as well as real estate experts, diplomats, economists and ten workers in the region during six visits between September and November, paint a picture of a largely abandoned region that has abandoned its reform ambitions. Meanwhile, these people said, Qianhai is struggling to stand out among 2,500 other special zones across China that offer various subsidies to reluctant companies.
Five economists and three diplomats told Reuters that Qianhai’s troubles reflect the limits of China’s old “build it and they will come” growth model that worked wonders a generation ago in Shenzhen more broadly, which is among the country’s first and most successful special economic zones.
The office vacancy rate was 28.9% in the third quarter, near a three-year high, versus 23.2% in Shenzhen overall, and 15.1% to 17.1% in Beijing and Shanghai, according to Knight Frank, despite lower rental prices in Qianhai. .
This is before the construction of the tallest skyscraper in China, which is more than 1,000 meters high, and a group of other towers are completed. Three real estate executives told Reuters, on the condition of anonymity due to the sensitivity of the issue, that the continuous supply has led to a rise in job vacancies, but it is difficult to find newcomers other than state-linked companies.
As China enters a new era of slow growth, Qianhai may never achieve the international status it aspires to.
Analysts say Qianhai and China need to resume market reforms that Beijing has been intending to try in the private sphere for more than a decade, while the economy as a whole needs to rely more on household consumption to resume high growth.
“When a country reaches the state of development that China has reached today, one cannot grow from special areas,” said Antonio Fatas, professor of economics at INSEAD International Business School. “Growth is much more complex and requires comprehensive reforms.”
The Qianhai Authority and the Information Office of China’s State Council did not respond to Reuters’ requests for comment on local and macro economic challenges.
Unfulfilled promises
In the past four decades, Shenzhen has developed from a cluster of villages into a megalopolis with a population of 18 million and home to some of China’s largest companies.
It became the runaway success story of former Chinese leader Deng Xiaoping’s “reform and opening-up” policies, with business camaraderie that has since been replicated in other cities, especially along the Pearl River Delta, along with the construction of unparalleled infrastructure.
In 2010, Beijing approved the Qianhai project as a political laboratory to start a new growth phase in China.
The plans included the establishment of an independent anti-corruption body modeled after Hong Kong, and a pioneering initiative in the gradual opening of the country’s capital account and the internationalization of the yuan. And complete Internet freedom throughout the region.
When President Xi Jinping visited Qianhai on his first trip as Communist Party general secretary in 2012, predicting it would be “more private than a special zone,” those changes seemed just the beginning of a more open China.
But the plans were canceled one by one over the following years.
By the time Xi returned to mark the 40th anniversary of Deng’s changes in 2019, the mood had deteriorated, with state supervision of markets tightening, the capital account largely closed after an outflow scare in 2015, and oversight and surveillance intensifying.
“The past 10 years have not been about real reforms and open doors,” said Xiuwu Chen, a professor of finance at the University of Hong Kong. “Instead, it was the rollback of previous reforms that decided matters,” he said, adding that this stifled Qianhai’s progress.
“In the old days, officials in Qianhai were encouraged and incentivized to try creative policy innovations. In the current political environment, officials have given a much higher priority to risk reduction.”
Low taxes and subsidies
Without the promised changes, Qianhai’s remaining selling points are its 15% income tax, versus 25% in most of China, its proximity to Hong Kong, and some of the country’s most modern office and commercial facilities, which comes with a one-time $30 million bonus. RMB ($4.1 million) to support purchases and up to RMB5 million annually for rentals.
The Qianhai Authority, which runs the area, says more than 100,000 companies have set up shop in the area, including HSBC, UBS and Standard Chartered.
Whitman Hong, a delegate to China’s parliament and the authority’s former chief liaison officer in Hong Kong, said the territory had attracted family offices, venture capital and private equity funds.
But real estate agents, executives and investors say many companies registered in Qianhai never actually moved there.
“We don’t have any people there, and I’ve never been to the address,” said Brian Miller, who owns a warehouse company elsewhere in Shenzhen but registered in Qianhai on the advice of his accountant.
A technology executive, who spoke on the condition of anonymity due to the sensitivity of the topic, said his company rents out rentals in Qianhai for tax reasons and to maintain good government relations. He was planning to expand his operations there but changed his mind as the economy slowed. He now maintains a skeleton crew.
“It’s not a Qianhai problem, it’s a macroeconomic problem,” he said.
Designed for outside
Another drawback is that Qianhai’s incentives are similar to what other special zones offer, including nearby ones such as Nansha near Guangzhou and Hengqin next to Macau. But rents in Qianhai are double those in Hengqin and six times those in Nansha, agents say.
“Before, each region had a little specialty to follow, but now any place can do everything, it’s very confusing,” said Klaus Zenkel, who heads the European Chamber of Commerce in South China, adding that there are no new European companies moving there. .
“The infrastructure is there, but how do you convince companies to come?”
A chamber survey of 75 companies in June found that only 44% were optimistic about the Greater Bay Area, another name for a group of cities in southern China, down from 68% in 2022.
Bill Deng, CEO of cross-border finance company XTransfer, says he will not move to Qianhai.
Hong Kong “has a free world system, they have the talent, they have the experience,” he said, adding that the mainland had been “very cautious” about financial openness.
On the streets of Qianhai, some people enjoy the quiet. The driving instructor finds the area ideal for first lessons. The store assistant reaches a higher level in the smartphone game.
At a cafe near a rock inscribed with Deng’s Qianhai calligraphy, a waiter who gives only his surname, Zhang, spends most of his time chatting with other employees.
“There are not many customers and I don’t think many people visit the rock. Sometimes I get bored, but the quiet is good,” he said.
($1 = 7.2780 Chinese yuan)
(Reporting by James Pomfret) Editing by Marius Zaharia and David Crawshaw
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