HONG KONG -- China's southern city of Shenzhen came under the spotlight this past week as it celebrated its 40th anniversary as the first of four special economic zones in the country, an occasion that was marked with an address by President Xi Jinping.
Shenzhen's economic success is certainly impressive, but it also raises a question regarding the other special economic zones: Zhuhai, Shantou and Xiamen. Given the preferential status granted to Shenzhen, which borders Hong Kong, the gap between it and the other three could continue to widen in the coming years.
"This is a miracle in the history of global development, created by the Chinese people," Xi said of Shenzhen's development from a fishing village to a world-class tech hub in his speech on Wednesday.
The numbers underscore the city's achievements. In 1979, the year before the four cities, all located in southeast China, were designated special economic zones, Shenzhen's gross domestic product stood at 196.38 million yuan, or $85.4 million at the exchange rate then. That was the lowest among the zones -- about a fifth that of Shantou and a third of Xiamen.
But over the next 40 years, up to 2019, Shenzhen's economy has grown 13,711 times and ranks only behind Shanghai and Beijing among mainland cities. It far outpaces the other three zones, especially Shantou, whose economy is now just a tenth of Shenzhen's.
As Xi expounded during his roughly 50-minute-long address, one of the essential elements to Shenzhen's success has been investment from abroad. This was especially important during the early years of its transformation, when China lacked sufficient capital due to a series of self-inflicted political and economic wounds since the Chinese Communist Party took control in 1949.
Shenzhen has received nearly $300 billion in foreign direct investment and more than 90,000 foreign enterprises have been established since the reform period started in the late 1970s, according to data released by local authorities in September and reported by state-owned Xinhua News Agency. Those foreign companies represent only about 2% of all companies in the city, but they contribute roughly 20% of its GDP, are responsible for 40% of imports and exports, and pay almost 30% of the city's taxes.
The majority of investment from outside of mainland China comes from Hong Kong. A government report in August showed that 56% of all registered foreign enterprises in Shenzhen at the end of 2018 -- the most recent figures available -- were from Hong Kong.
That is what paramount leader Deng Xiaoping intended four decades ago: to create a new zone immediately north of the then-British colony to attract investment from foreigners and overseas Chinese.
"When doing our [economic] construction now, we need to add another path, allowing money and technology from foreigners, while also allowing overseas Chinese to come home to open factories," Deng said in January 1979, a month after the reform and opening policy was adopted.
For Hong Kong, which had been thriving as a manufacturing hub, it was a newly opened frontier and a place to relocate factories to take advantage of lower labor costs and benefit from other policy incentives. A similar reason served as a motive for opening a stock exchange in Shenzhen: foreign-currency denominated B-shares in the city are quoted in Hong Kong dollars.
By tapping a variety of resources from Hong Kong over the years, Shenzhen has been able to accumulate sufficient capital and expertise for its local businesses. A number of prominent mainland companies, including Tencent Holdings, Huawei Technologies, BYD and Ping An Insurance Group, started out in Shenzhen and now serve as powerful engines for the city's growth.
Conversely, the other three special economic zones do not have a global financial hub like Hong Kong as a neighbor. Zhuhai borders Macao, the casino-reliant former Portuguese colony. And while Xiamen sits on the Taiwan Strait opposite the self-ruled island, its mainland investments are more geographically diversified.
Shantou, which lacks an adjacent international gateway, has relied on overseas Chinese with roots in the region for support, which is one of three reasons why the city in Guangdong province was recommended as a special economic zone, according to Wu Nansheng, a former secretary of the Guangdong Province Communist Party, who died in 2018 at the age of 95.
According to official records, when speaking at a conference in Guangzhou in March 1980, Wu said Shantou and the adjacent region of Chaozhou had "the largest number of overseas Chinese, about one-third of the total, and a lot of them are influential people there, and we could mobilize them to come back and invest."
Shantou at that time had roughly $100 million in annual income in hard currency through foreign trade, which Wu cited as another reason to suggest the city as a special economic zone. Shantou is an international port, which opened to the world in the 1860s under forced treaties with Western countries.
Some overseas Chinese with connections to Shantou did indeed invest, including Dhanin Chearavanont, the senior chairman of Thailand's Charoen Pokphand Group, the food-to-retail conglomerate. CP, which operates as Chia Tai in China, was the first foreign company to establish a joint venture -- with Continental Grain of the U.S. -- in Shenzhen, which was registered in 1981 and holds the corporate certificate serial number "0001."
Dhanin, a Thai citizen who spent part of his childhood in Shantou, his ancestral home, was also the first foreign investor in Shantou, where he built a carpet factory. The joint venture with Continental Grain also branched out to Shantou later.
"The situation was bleak, but while others might have been discouraged from making a foray into the area, I saw it as an opportunity," he wrote for Nikkei in 2016 of his decision to enter China in the early stages of its reforms.
Given that Dhanin did not see much room for his business in developed economies, such as the U.S. and Japan, China -- having been devastated by the Cultural Revolution -- represented an opportunity. "There was nothing there, so you could develop something from the ground up," he wrote. "I immediately made the decision to invest."
But now that Chia Tai has operations covering most of China, with more than 600 companies, Shantou is just a part of its corporate empire, while its headquarters are in Beijing.
Li Ka-shing is another example of a businessperson with a local connection to Shantou. The Hong Kong tycoon has invested heavily in education, namely in establishing Shantou University in 1981. The school is under the control of the Chinese Education Ministry and the Guangdong provincial government, but the Li Ka Shing Foundation, set up in 1980, has supported the university with accumulated contributions exceeding 10 billion Hong Kong dollars ($1.29 billion). The foundation has spent roughly half of its total investment on the university.
"Thirty-eight years ago, where we are now was once a swamp, many mocked me that this is but a fool's dream," Li Ka-shing told the graduating class in 2018 -- the last commencement ceremony he attended as the university's honorary chairman. "I believe then, as I believe now, that only through education can we fulfill the promise we hope for the future."
But neither Li nor his eldest son, Victor Li, who inherited the chairmanship of his father's flagship conglomerates -- CK Hutchison Holdings and CK Asset Holdings -- and his father's position at the university, have made any notable business investments in Shantou.
Shantou could further lag Shenzhen given that it is not part of the Greater Bay Area, a project to integrate Hong Kong and Macao with Shenzhen and eight other cities in Guangdong to develop a mega-metropolis with economic might to rival Silicon Valley. Zhuhai is part of that grand design, but Shantou is not.
Xi again endorsed the Greater Bay Area initiative on Wednesday, declaring the plan as the "essential national development strategy" in which Shenzhen serves as an "important engine."
The business community has heard the call. For example, Standard Chartered recently appointed Anthony Lin, a former CEO of its Taiwan operations, to assume the newly created role of CEO for the Guangdong-Hong Kong-Macao Greater Bay Area.
To further support the initiative, Beijing announced this past week a series of measures for Shenzhen to lead additional reforms. Those include experimental policies on agricultural land, state-owned enterprises, digital currency and the issuance of depository receipts to entice foreign companies to list on its stock exchange.
"The series of policies to encourage technology innovation, attract foreign and domestic talents, and accelerate financial openness will also help build Shenzhen not only as a global technology center but also an international financial center, amid the risk of U.S.-China technology and financial decoupling," Liu Ligang, chief China economist at Citigroup, wrote in a report on Monday.
Shantou, of course, has also been a success -- its GDP has grown by 285 times over the past 40 years -- but it pales in comparison with Shenzhen. On his trip to the southern region this past week, Xi made Shantou his first stop -- a sign of its importance. But it is still not as significant as Shenzhen, where he wound up his trip.
That serves as a reminder of Wu's third reason for recommending Shantou as a special economic zone: "Shantou is in eastern Guangdong, in the corner," he said. "If by any chance it does not work out well, or even fails, the impact would not be that big."