Chinese authorities boost Shenzhen as financial center

Aug 22, 2019
Investment opportunities in the city consequently have potential to rocket

Investment opportunities in Shenzhen have the potential to rocket after Chinese authorities set out plans for Shenzhen to become a ‘model city’ meeting international standards as well as boost connectivity between Chinese and overseas financial markets.

China’s State Council issued an official announcement that Shenzhen will form what it describes as a ‘pilot model area of socialism with Chinese characteristics’ aiming to make Shenzhen one of the world’s top global financial centers in terms of competitiveness, innovation capacity and influence.

International organizations and major companies will be encouraged to set up branches or headquarters in the city, and Shenzhen would be allowed to ‘make flexible changes to laws, regulations and local ordinances according to authorization and based on Shenzhen’s need for reform and innovation.’

This in turn is expected to enhance the connectivity between mainland Chinese and Hong Kong financial markets and promote the mutual recognition of funds between the two areas and internationally, as well as explore new practices of cross-border supervision.

After the announcement over the weekend, the value of more than 60 Shenzhen-themed stocks increased to their daily trading limit.

This could be seen in the context of Shenzhen being very much at the forefront of the China-US trade war, with many Chinese technology companies targeted by the US tariff crackdown, including telecom enterprises Huawei Technologies and ZTE Corporation and drone manufacturer DJI, based in the city.

But Huo Jianguo, a vice chairman of the China Society for World Trade Organization Studies, says this narrative should not be overplayed. ‘While it is unlikely to be a direct response to the trade war, it has everything to do with what we fight for in the war: China’s own development,’ he says in a statement. ‘The most important thing is that we don’t change our focus on development just because of the trade war. The plan is proof that we are on the right track.’

The push to develop Shenzhen as a center in this way has led to some commentators concluding that Chinese authorities are looking to focus on the city at the expense of Hong Kong.

But at a news conference on Tuesday, Hong Kong chief executive Carrie Lam challenged such a perspective, saying the Shenzhen plan brings opportunities rather than competition to Hong Kong. Lam said given the close co-operation between the two cities, Shenzhen becoming a model city means ‘there will definitely be some benefits for Hong Kong.’

Shenzhen’s economy has the potential to further expand with the Chinese government accelerating the opening up of market rules to foreign investment. The city’s economy has already showed a lot of progress in the last few years. In 2018 its GDP of HK$2.87 tn ($362 bn)) surpassed Hong Kong’s HK$2.85 tn for the first time, according to data from Hong Kong’s Census and Statistics Department.

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