n October 14, Chinese President Xi Jinping delivered a keynote speech in Shenzhen, South China’s Guangdong Province, to mark the 40th anniversary of the establishment of the Shenzhen Special Economic Zone (SEZ). Xi’s speech, along with his visit to the city, offered major insights into China’s policy choices amid the ongoing global pandemic and intensifying rivalry with the US.
Shenzhen, which borders Hong Kong, has been a symbol of China’s rise in the past decades, both economically and politically. Established as China’s first economic special zone in 1980, two years after China officially launched its reform and opening-up policy, Shenzhen transformed from a quiet fishing village into China’s major economic, financial and high-tech center.
Hailed by Xi as “a miracle in the history of world development,” Shenzhen’s economy has grown 10,000-fold from 270 million yuan (US$40.9m) in 1980 to 2.7 trillion yuan (US$409b) in 2019, with its population growing from 330,000 to 13 million. In the meantime, China has transformed from one of the world’s poorest countries to the world’s second-largest economy.
Besides its position as an economic powerhouse, Shenzhen also holds a symbolic significance in China’s politics. For any Chinese leader, a visit to the southern city is always interpreted through its relevance to the historic 1992 visit made by Deng Xiaoping, the late Chinese leader and architect of China’s reform and opening-up policy.
Coming at a time when China’s political conservatives strongly pushed back against Deng’s reforms and liberal economic policies following the political turmoil of 1989, Deng’s visit to Shenzhen in 1992, known as the “Southern Tour,” is credited with overcoming conservative resistance and paving the way for rapid economic rise.
Ever since, China’s top leaders make sure they visit the city to reaffirm the government’s commitment to Deng’s legacy and the political will to carry on reforms. Prior to this latest trip, Xi had already visited Shenzhen twice since he assumed leadership of the Chinese Communist Party in late 2012.
The first visit was in 2012. Back then, years of soaring housing prices and increasing income gaps led to the rise of the “New Left,” which advocated a return to the egalitarian policies of the pre-reform era. Xi’s southern tour served to manifest the new leadership’s commitment to follow the path of reform and opening-up.
Xi’s second visit to Shenzhen was in 2018 to commemorate the 40th anniversary of the reform and opening-up policy. Made during the US’s trade war against China, Xi’s visit sent a message domestically and to the international community that China would not respond to the trade war with reciprocal protectionism or interrupt its reform agenda.
Xi’s October trip came at an even more precarious time - the coronavirus pandemic. The Chinese economy’s performance in the first half of 2020 was the worst in almost half a century. In the meantime, the US had expanded its trade war against China to the technological, political and security fronts, sparking concerns over a possible new cold war between the world’s two largest economies.
In his nationally televised speech, Xi readily recognized the challenges China is facing. “The world today is undergoing great changes unprecedented in a century, and the spread of the global coronavirus pandemic has accelerated the process,” Xi said. “The dynamics of economic, technological, cultural, security and political development are going through profound changes, and the world has entered a period of turbulence and transformation.”
“But China will not be hindered by headwinds and reversal waves,” Xi said. “My trip to Guangdong is to send a message domesticallyand internationally that we will continue to follow the path of reform and opening-up.”
“President Xi has made three visits to Shenzhen in eight years,” said Zhang Xixian, a political scientist from the Chinese Academy of Governance in Beijing. “While each trip was made under different and particular circumstances, the messages conveyed in these trips are consistent, that is, China will stick to the path of reform and opening-up,” Zhang added.
Earlier in May, to address the economic slowdown caused by both the global pandemic and tightening sanctions imposed by the US on China’s tech firms, the Chinese leadership launched a “dual circulation” strategy, which prioritizes the “internal cycle” that emphasizes boosting domestic consumption with the supplementary “external cycle” of international investment and trade.
Addressing concerns that the strategy means China will adopt more inward-looking policies, Xi said that the new focus on “internal circulation” is not a closed domestic cycle. “It is open dual circulation connecting the Chinese and global markets,” Xi said.
Pointing out that “China’s reform has reached a historic crossroad with many unprecedented problems,” and that “the complexity, sensitivity and difficulties of advancing reforms are no less than 40 years ago,” Xi said that China will push forward the reform agenda to a “higher level.”
Just days ahead of Xi’s speech on October 10, China’s leadership released a five-year implementation plan (2020-2025) to establish Shenzhen as an “advanced demonstration zone for socialism with Chinese characteristics” that grants the city much greater autonomy in a wide range of areas.
This includes zoning farmland for industrial and commercial uses. Analysts believe that the move will help increase land supply, meet housing demand, curb property price appreciation and increase the city’s development potential. Based on the plan, the city will set up a land transfer system, which would set a precedent for nationwide rural land reforms.
To boost the city’s status as a financial hub, Shenzhen will launch a stock futures index and will be allowed to issue yuan-denominated offshore local governments bonds. The implementation plan further liberalizes the city’s stock market, making it easier for innovative companies to stage IPOs on the Shenzhen Stock Exchange. The measures include the launch of a CDR (Chinese depositary receipt) program that would allow foreign-funded Chinese tech firms to list in Shenzhen.
In the past months, as the geopolitical tensions between the US and China run high, there has been an exodus of Chinese tech firms from the US stock market, with several companies, including Sina and Sogou, delisting from the US exchange. It is believed that the liberalization of Shenzhen’s stock market could attract repatriated tech firms.
Given the intensified technological rivalry between the US and China, it is clear that many of these measures not only target the financial sector, but also serve to boost financial support for the city’s innovation industry. The plan includes a wide range of measures aimed at nurturing a more favorable business environment for tech firms, which includes initiatives to build a new intellectual property rights protection system and a mechanism to “capitalize on achievements of scientific and technological research.”
Other technological initiatives include a pilot program to run China’s digital currency, the construction of a big data center for the Guangdong-Hong Kong-Macao Greater Bay Area, and greater autonomy for the city to formulate legislation in artificial intelligence, autonomous driving, healthcare and information services.
To encourage private and foreign investment, restrictions on foreign investment in telecommunications will be lifted and State-owned companies in the city will be granted autonomy to make market-oriented reforms.
According to the implementation plan, Shenzhen will strive to become “a national model of high-quality development, as well as a hub of innovation, entrepreneurship and creativity with international influence by 2035.”
Dubbed “China’s Silicon Valley,” Shenzhen is also China’s innovation center and base for China tech giants such as Huawei, Tencent and ZTE, as well as drone maker DJI. About half of China’s international patent applications originate in Shenzhen. But as the US intensifies its technology war against China, Shenzhen has felt the impact of Washington’s expanding blacklist of Chinese tech companies.
In an interview with China’s State broadcaster China Central Television, Shenzhen’s Party Secretary Wang Weizhong pledged that the city government will increase its investment in scientific and technological research, accelerate the establishment of national labs to foster development in homegrown technology and reduce reliance on the US.
Xi has also emphasized cutting reliance on foreign technology after the US escalated sanctions on Chinese tech firms. One day prior to his visit to Shenzhen, Xi visited tech company Three Cycles in the neighboring city of Chaozhou, where he called on the country to take the road of “self-reliance on a higher level.”
While the new round of reforms in Shenzhen appears to be economic, Xi made clear that it goes beyond Shenzhen and economic growth. In his speech, Xi said that the city is entrusted with “new historic missions” to lead the country’s drive of socialist modernization through “major replicable institutional and governance innovations” to apply nationwide.
Shenzhen has long served as a testing ground for policy targeting complicated and sensitive issues. If successful, they will be applied nationwide. This strategy, described by late leader Deng Xiaoping as “crossing the river by feeling the stones,” allows China to develop an alternative development and governance model to the West, which is central to the Chinese leadership’s model of socialism with Chinese characteristics.
“In the past 40 years, Shenzhen has trailblazed the boundaries of China’s reform and opening-up policy,” said Dai Xianjun, a professor at the Chinese Academy of Governance (CAG). “The new reform plan indicates that Shenzhen will continue to be on the frontline to serve as the driver of China’s overall development,” Dai added.
According to Zhu Lijia, another professor at CAG, the reform plan comes at a critical juncture.
“After decades of economic development, China has entered a new era and encountered new challenges, which requires bolder approaches,” said Zhu.
Zhu said after reaching a certain level of development, economies typically stagnate, a phenomenon that economists call the middle-income trap. With the global pandemic and escalating tensions with the US, however, China faces even more daunting challenges.
To avoid the same pitfalls, Zhu added that China cannot be complacent about what it has achieved, but should continue to be proactive in its reforms. “After four decades, China’s development has entered a new phase, and [the new reform plan] could be a new starting point,” Zhu said.