Direct From Capitalism's Frontline, China

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SHENZHEN (ResourceInvestor.com) -- "It takes me two hours to get to work in a jam-packed bus. Normally it's about one hour," complains Yan Faqi, a 23-year old graduate with a new job in Shenzhen.

His commute has been doubled by something nearly everyone in this booming city suffers - construction. In this case it's a fly-over bridge project causing the inconvenience.

It is plain to see that the road network cannot keep pace with the new cars filling every gap, and that is despite dozens of new roads and bridges being built all over the city.

Bear in mind that there are 10 million residents, but only 700,000 cars at the moment. There are plenty more to come with an "international automobile trade park" worth 2 billion yuan being built by government and another 1.8 billion yuan auto trade park listed on the municipal development agenda.

Wags say that our national bird is the crane; construction crane. And they are not wrong. Building is going on everywhere.

Yan's company is in the 384 meter high Diwang commercial center, the tallest office building in Shenzhen where most tenants are branch offices of foreign companies such as IBM and PWC. Adjoining this is the Diwang Shenzhen metro currently under construction and due for completion in December. Opposite the Diwang tower two new high tech office buildings are competing for tenants and the status as the best address in downtown Shenzhen.

The problem for Yan and fellow employees is that property costs are soaring. The arrival of smart new office towers has squeezed residential accommodation and pushed prices up dramatically.

Yan was forced to move away from his flat near work and into the city outskirts where he shares a 16 square meter room with his girlfriend. The rent is 600 yuan per month ($63) which is just a third or quarter of what he would pay in the business district, but still a big chunk of his monthly income of 3000 yuan ($363) which is considered pretty good for his experience and age.

Yan's girl friend, also a graduate from Guangdong Business College, has yet to find work. Last month she took the national judicial examination which is a basic requirement for a government job. "So many guys take the exam! It's difficult and the competition becomes fiercer," she said rather despondently.

Shenzhen has become a magnet for graduates from thousands of colleges across China. Most of them want foreign employers to start with but then start looking for government jobs because it is a form of sheltered employment that confers good social status with great benefits.

At least four-fifths of Shenzhen's inhabitants are migrants. As a result English is widely used in business even though Mandarin and Cantonese remain the primary languages, spiced with dialects from all over China.

As a "migrant city", Shenzhen is young in many ways. It only became a city in 1979 and the average age of its citizens is just 29. Shenzhen got its start as one of the four Special Economic Zones allowed by the Communist Party under Deng Xiaoping. From virtually nothing it has ascended to be ranked the fourth biggest city in China based on economic output after Beijing, Shanghai and Guangzhou.

Shenzhen is proving to be analogous to the American Dream. For Yan and his girlfriend it is the reward for years of sedulity with a promise of houses, cars and possibly their own businesses.

One entrepreneurial legend is Ren Zhengfei, founder of Huawei Technologies. "Huawei" translates to "China's Greatness".

Ren is a Mao Tse-tung devotee who established Huawei in 1988 when he retired from the army. 16 years later sales of Huawei are expected to reach $5 billion of which only two fifths is from international sales.

Huawei's success has provided the inspiration that seems to energize Shenzhen. Whether they're attired in business or casual clothing, residents walk at a fast clip invariably with a mobile phone to their ears or in hand sending and receiving text messages. What was once an unimaginable luxury is now commonplace.

The primary topic of conversation is jobs, housing and business. There is surprisingly little attention to the rather abstract macroeconomic adjustment and control policies endlessly discussed on television and the print media. Those are reaching closer to home though as measures are put in place to tighten credit.

"This year we will squeeze credit available to real estate developers and other sectors listed by the state council. Personal auto loan and house mortgages are also restricted. The applicant must be a high quality client with the ability to provide guarantees. Loans are easily available to civil servants and to employees of "star enterprises" such as Huawei," a loan officer at China Construction Bank (CCB) told Resource Investor. He says the bank is cracking down on non-performing loans and generally tightening lending policies.

CCB is in the throes of applying for a foreign listing, either in New York or Hong Kong.

"This is our second house. We will buy it with a mortgage loan and pay the loan from rental income," Mrs Lin told Resource Investor as she and her husband stood proudly in front of their model home. With housing prices steadily increasing, many households have been reinvesting surplus equity into rental properties.

Zhang Ying, a former native peasant working in Shenzhen told your correspondent: "We common people don't concern ourselves with the big policies but the local regulations and laws impact on us deeply,"

He is referring to the Shenzhen land reform laws being promulgated this year that have stirred great controversy.

A new local regulation changed the status of Zhang and hundreds of thousands of villagers in Baoan and Longgang districts outside the Shenzhen SEZ. They get "Shenzhen Hukou" which is a certificate of residence providing equal rights with Shenzhen citizens. However, they have lost their lands in the process.

260 square kilometers of land in the Baoan and Longgang districts was transferred to the Shenzhen municipal government. At a stroke Shenzhen became the first industrial city in China without peasants.

Notably this was achieved in a federal way since in July 1992 the Shenzhen Municipal People's Congress, its Standing Committee and the Shenzhen Municipal Government, were afforded the right to draft local laws and set local regulations by the Standing Committee of the National People's Congress.

The privilege makes Shenzhen a nursery for many controversial policies and systems. Some of them will be transplanted to other areas if they prove successful.

Yantian port in east Shenzhen is an example of benefits derived from the privileges.

In 1993 Hutchison Whampoa (HWL) was invited to make a HK$13.8 billion joint venture with state-owned Yantian Port Group (YPG) for operating and managing phase I, II and III of the Yantian Port. HWL is one holding company of China's Bill Gates, Li Ka-shing, a Hong Kong tycoon. It was a breakthrough in China's economic reform.

Nowadays Yantian port is one of the largest ports in the world. In 2003 throughput of phase I and II reached 5.4 million containers. Phase III is under construction and the HWL consortium is allowed to own 65% of the project.

Shenzhen is in the vanguard of China's reforms. After a quarter century it has unshackled itself in so many ways that it has become an obvious starting place for ambitious youngsters.

"Although it has corruption and crime just like any other city, it is still the most efficient city in China. We want to stay and some day to start our own business," Yan said, his girl friend agreeing.

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