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New Reform Frontiers

Shenzhen’s government has conducted a series of innovations over the past year which are now spreading to other cities, encouraged by the central government

By Xie Ying Updated Jan.1

Shenzhen’s Bao’an District is a core zone of the Guangdong-Hong KongMacao Greater Bay Area

The southern Chinese metropolis of Shenzhen made history on October 12 when it became the first city to issue its own offshore yuan-denominated or CNH bonds in Hong Kong, known as dim sum bonds informally on the Hong Kong Stock Exchange.  

According to Chinese media reports, Shenzhen issued 5 billion yuan (US$735m) in yuan-denominated bonds. The money raised will be used to develop public schools, urban transportation and water treatment. Analysts believe it will promote the yuan’s internationalization, increase links with financial markets in neighboring Hong Kong, and further facilitate the management of foreign currencies.  

Issuing its own offshore bonds is one of the 40 areas in which the central government authorized Shenzhen to conduct reforms after issuing an implementation plan on building Shenzhen into a pilot demonstration zone of comprehensive reforms (2020-25) in October 2020. Over the past year, Zhao Chenxin, secretary-general of China’s National Development and Reform Commission (NDRC) said at a press conference on October 14 that Shenzhen has already implemented 22 of the 40 items, and is pushing ahead with the remaining 18. 
In July, the NDRC issued a document summing up Shenzhen’s reform experience and calls on other Chinese cities to learn from the pioneering city.  

Innovation Chain 
“Shenzhen is a brand-new city created by the Communist Party of China and the Chinese people since the country’s reform and opening-up and a brilliant interpretation of how socialism with Chinese characteristics is constructed on a blank sheet of paper,” Chinese President Xi Jinping said at a ceremony to mark the 40th anniversary of the founding of Shenzhen Special Economic Zone in October 2020.  

Observers said that Shenzhen only took 40 years to achieve what it took other countries 100 years. In the past four decades, the number of permanent residents in Shenzhen grew by 42 times and GDP by 14,000 times. In 2020, Shenzhen’s gross output value of industry above the designated size hit 3.7 trillion yuan (US$544.1b), topping all other Chinese cities. Designated size indicates firms with annual revenue above 200 million yuan (US$29.4m).  

Technological and institutional innovation is behind the city’s groundbreaking achievement. The NDRC document lists 47 “learn from Shenzhen” experiences. It says that Shenzhen has established a complete innovation chain covering fundamental research, technological breakthrough, R&D results industrialization, technological finance, and talent support, backed up by open institutions and high-quality public services.  

Shenzhen has taken the lead in establishing an investment system for long-term stable fundamental research. According to newspaper Shenzhen Special Zone Daily, Shenzhen’s annual municipal input in technological fundamental research increased from 1 billion yuan (US$147.1m) in 2017 to 4.5 billion yuan (US$661.8m) in 2020. Shenzhen has legislated that the government should input no less than 30 percent of municipal funds earmarked for technological development and research into fundamental and application research.  

Meanwhile, Shenzhen set up a system for highly efficient industrialization of technological achievement, dubbed “laying eggs along the way.” It means putting technicians and enterprises together to enable fast technological innovation and engineering development.  

For example, the Shenzhen Institute of Advanced Technology, Chinese Academy of Sciences, is planning to move the institute and related enterprises together so they can share scientific instruments and equipment and the institute can provide support.  

Shenzhen is also promoting industrial clusters, especially in high-tech manufacturing, such as 5G and integrated circuits, in order to concentrate competitiveness and build key industrial chains. According to a Shenzhen government press conference on February 2, advanced manufacturing and high-tech manufacturing have become the pillar of Shenzhen’s industrial economy, taking up 72.5 percent and 66.1 percent of the gross output of enterprises above designated size.  

“We will not allow any project that conforms to Shenzhen’s direction of industrial development or is needed by Shenzhen’s high-quality development to go without a place to launch,” a Shenzhen government official said at the 2020 Shenzhen Global Investment Promotion Conference held at the end of 2020, media reported. This indicates the government will guarantee sufficient land resources for industrial development, although Shenzhen suffers from land shortages.  

Originally a fishing village, Shenzhen had to get creative when it came to finding land. For example, it initiated a new land management system that sets use rights for aboveground land and underground land and promotes secondary and tertiary industries to share the land use to ensure maximum efficiency. The city also increased cooperation with universities and medical organizations in Hong Kong to absorb more skilled professionals and cover the shortages in medical and education resources.  

On August 5, Lu Chongmao, president of the University of Hong Kong-Shenzhen Hospital, and another 36 Hong Kong physicians acquired the title of senior professional (the highest technical title on the Chinese mainland) granted by the Shenzhen government. An official from the Shenzhen human resources bureau told media that Shenzhen has set up a green channel to scientifically appraise non-mainland trained physicians. So far, 118 physicians from Hong Kong and Macao have received long-term permits to practice in Shenzhen.  

According to Shenzhen Municipal Development and Reform Commission, Shenzhen has so far approved the import of nine medications and two medical instruments from Hong Kong and Macao, under the “Gangyao Tong (Hong Kong Medicine)” plan which is being piloted at the University of Hong Kong-Shenzhen Hospital. The government is also building a special vocational education zone for the Guangdong-Hong Kong-Macao Greater Bay Area.  

‘Learn From Shenzhen’ 
Shenzhen’s hypergrowth attracted many other cities to learn from it long before the central government issued its document. Qingdao in East China’s Shandong Province proposed the logo “learn from Shenzhen and keep up with Shenzhen” at a government conference in 2019. Since then, Qingdao has sent six groups of officials to learn about Shenzhen’s “internal logic of development from different angles and aspects,” one of the officials said, and is trying to put them into practice.  

The city of Dongguan, neighboring Shenzhen, benefits from absorbing its overflow of industry and talent. Dongguan has become a key manufacturing city in the Greater Bay Area, with its 2020 GDP ranking fourth in Guangdong Province.  

Many southeastern cities like Hangzhou, capital of Zhejiang Province, and Suzhou and Nanjing in Jiangsu Province, have set an objective of “being the next Shenzhen.” Officials from Hangzhou visited Shenzhen in 2020 where they discussed industrial cooperation and the opportunities and challenges to be brought by a new technological revolution.  

Overseas countries and experts have also taken note of Shenzhen. During his 2015 visit to Shenzhen, South African President Cyril Ramaphosa said that Shenzhen’s bold innovation has won the city huge global markets and that Shenzhen’s success has helped him position his country more clearly, media reported.  

In 2017, Japan’s then State minister of Cabinet Office Takao Ochi visited Shenzhen, describing it as a “red-hot city” that he believed would one day replace Silicon Valley. The same year, The Economist published an article headlined “Shenzhen is a hothouse of innovation,” saying that Shenzhen “has done more than any place on the mainland to debunk the outdated myth of ‘copycat China,’” and that Shenzhen has become “the global hub of innovation in hardware and manufacturing” where “its entrepreneurs are coming up with entirely new industries.”  

In another article about Shenzhen from 2019, The Economist described the city as a “miracle” and an archetype for successful economic special zones worldwide.  

The NDRC document is the first time China’s top planning body has systematically summed up Shenzhen’s experience and promoted it to other cities.  

“It indicates the central government’s full acknowledgement of Shenzhen’s innovative exploration and achievements, which will drive Shenzhen to keep on pushing the boundaries,” Guo Ziping, director of Shenzhen Municipal Development and Reform Commission said in an August interview with the Shenzhen Special Zone Daily.  

Shenzhen’s Futian District has designed more than 900 public service standards after streamlining 145 fundamental public service affairs

Open and Free 
In a 2020 article writing for social media account SZeverything, Zheng Lei, chief economist at the Hong Kong-based Sun Financial Group Limited and deputy director of the Hong Kong International New Economic Research Institute who wrote the book Tides Surging on Dapeng Bay-Shenzhen in Graduates’ Eyes (2020), emphasized that Shenzhen’s fundamental key to success is being “a small government in a big society,” where the government allows the market to play as the core driver of social development. Different from many other local governments that like to directly manage and even control the market, Shenzhen’s government, according to Zheng, allows every market participant to independently develop under government supervision, and the government is also supervised by society.  

“The government serves as guardian of the market, responsible for guarding a fair and just market order, and if the market breaks down, the government makes necessary but limited interference to return it to high efficiency,” Zheng said. “This requires very high governance skills which are key for other local governments to learn and master,” he added.  

His words conform to the bulletin of the third plenary session of the 18th Central Committee of the CPC published in 2013, which said the core of economic reform is to “deal well with the relationship between the market and the government.”  

“To better play the government’s role is not to play more but to manage the affairs the market could not deal with on the premise of allowing the market to play the decisive role,” President Xi Jinping emphasized at the fifth plenum in 2015.  

“Officials from many other cities may have been accustomed to call local enterprises ‘the enterprises we manage or charge,’ while Shenzhen’s officials call the enterprises ‘those we serve,’” Zheng said.  

According to the Shenzhen government, Shenzhen uses World Bank standards to appraise the business environment and launched a series of policies that facilitate innovation and business approval. For example, the customs bureau has rolled out 29 measures to simplify the clearance process. From January to August, imports and exports in Shenzhen increased by 15.9 percent year-on-year. By the end of August, there were more than 3.7 million businesses in Shenzhen, a 7.2 percent growth year-on-year, with business density listed as first among Chinese cities. Despite the Covid-19 pandemic, the gross profit of industrial enterprises above designated size in Shenzhen grew by 10.6 percent in 2020 compared to 2019, much higher than the national average growth of 4.1 percent.  

The central government giving a high degree of autonomy to Shenzhen’s authorization powers is one reason for the city’s free innovation. The authorization list which empowered more freedom in governance covers six fields, including business environment, technological innovation and public service, and required breakthrough revisions to prevailing laws, regulations and policies.  

Shenzhen issued China’s first law on individual bankruptcy and tried the country’s first case of individual bankruptcy. The city also launched the first local regulations on data management, technological innovation and green finance. At a press conference on October 14, Liu Zhao, vice minister of China’s Ministry of Justice (MOJ) revealed the MOJ is promoting Shenzhen to expand local administrative adjudication and reform the local judicial working system concerning foreigners and foreign-invested enterprises. It also encourages Shenzhen’s judicial circle to exchange more with those in Hong Kong and Macao.  

Wang Xi, deputy governor of Guangdong Province, told reporters at the same press conference that Guangdong’s government, based on the central government’s orders, has given Shenzhen more freedom to conduct reforms and set up a green channel to quickly approve related projects. The provincial government has already appraised the effect of each reform and promoted other cities to cooperate with Shenzhen to expand the influence.  

At a sub-seminar of the 2020 China Reform forum held on December 28, 2020, in Shaoxing, Zhejiang Province, Sun Huaming, deputy director of the Shenzhen Municipal Committee’s Reform Office, said that the central government’s program to build Shenzhen into a pilot demonstration zone of comprehensive reforms indicates that the central government is trying to make the reform more systematic and hopes Shenzhen could play a demonstrative role in institutional construction.  

NDRC spokesperson Meng Wei said at a press conference on August 17 that “a general implementation program plus authorization lists” is the central government’s new trial for reform modes which so far have had preliminary effects in other parts of the country.