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Breakingviews – Rival Hong Kong is vulnerable from behind




A giant screen shows news footage of Chinese President Xi Jinping speaking at an event marking the 40th anniversary of the establishment of the Shenzhen Special Economic Zone, outside a shopping mall in Beijing, in China, October 14, 2020. REUTERS / Carlos Garcia Rawlins – RC2CIJ9NBR91

HONG KONG (Reuters Breakingviews) – Hong Kong’s rival sister city Shenzhen is vulnerable at the rear. During a visit this week, President Xi Jinping said he would give the tech center more autonomy. Relaxing capital controls and other political preferences will help it meet Xi’s goals of technological self-sufficiency. But even as its financial markets liberalize, its distorted housing bubble is jeopardizing its innovation advantage, allowing other cities on the continent to poach talent and investment.

The site of the country’s first special economic zone in 1980, Shenzhen, located across the economic border with Hong Kong, helped open the People’s Republic to foreign investment and trade. It has since grown from a facilitator of manufacturing exports to a tech hub with a $ 4.9 trillion purse, home to global champions such as drone maker DJI, telecommunications equipment maker Huawei and fintech-cum-gaming star Tencent. As Beijing tries to break free from its dependence on American hardware and software, Shenzhen has a key role to play.

In a speech marking the 40th anniversary of the Shenzhen SEZs, Xi reiterated the government’s promises to give the city more leeway to innovate in key areas such as stock market liberalization, cross-border capital flows and protection of intellectual property. It comes after foreign direct investment growth in Shenzhen fell to 0.2% in 2019 in dollars, from nearly 11% in 2018, according to official data.

Yet even as Beijing puts its weight behind the tech hub, real estate speculators are chasing young entrepreneurs and startups who have made the city a champion of innovation. With prices now around $ 10,000 per square meter, the average home now consumes 46 years of annual income, according to data provider Numbeo. This makes Shenzhen less affordable than Hong Kong in terms of salary. As a result, some companies are moving to cheaper coastal cities like Suzhou, which have their own technology hubs. A quarter of the city’s offices were empty in June, according to Cushman & Wakefield.

The government appears to be aware of the problem. Part of the new policy package includes a clause allowing Shenzhen to convert more neighboring farmland into housing. But the conundrum is that the more special privileges Shenzhen enjoys, the more attractive it is to own real estate.


Reuters Breakingviews is the world’s leading source for financial agenda-setting information. As the Reuters brand for financial commentary, we dissect big business and economic stories as they circulate the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide real-time expert analysis.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and to All opinions expressed are those of the authors.

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