Shenzhen’s economy under strain: blame the trade war? | Hacker News Reader

Shenzhen’s economy under strain: blame the trade war?

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102 pointsbaybal2137 comments

6.6% is incredibly low and this number has been discussed a lot in Chinese forums.

as a Shenzhen guy,

I'd like to say the most important reason may be the price of the land has been increased quite a lot in the last years.

Many manufacturing companies, even Huawei moved out of Shenzhen this year, some go to Dongguan, Huizhou, which are other cities of Guandong, and some go to Vietnam, Thailand.

The reason is quite simple, they cannot afford the price of land to build the factory, and the salary cost is higher since the housing rent price also goes higher. Some factory owners work hard for a year, while the incoming is even less than the value increased of lands he owns.

So the business all goes to the lands, housing, malls. People don't know where is the top, but people believe is far more yet. Because Hong Kong, the city next to Shenzhen, has a higher land price.

For the future, the great bay area may solve this issue. Shenzhen will focus on the development of high-tech technology as a research center and enterprise center. The manufactory will move to Dongguan, Huizhou. While HongKong serves as a business/finance center. Guangdong will be the transaction center.

It is possible with the highly developed traffic net. The high-speed railway connected every city of the great bay area. People and things can move fast. Taking trains has become easier and more convenient than taking buses now.

Why did they name it Greater Bay Area when we already have a place called the Bay Area?

Because it is an even greater bay area, greater than the original one, and that's the point. Subtlety is not a thing here.

It’s either a coincidence then or a really petty/inferiority complex based name.

I'd guess it was intentional.

Lots of places have bays.

Does this one?

https://en.wikipedia.org/wiki/Guangdong-Hong_Kong-Macau_Grea...

What an american-centric view of the world.

I’m not American?

When I last spoke with cadres, I'd say I scared them quite a bit when I said that they can't really hope to attract new industry now, and there is no imagined "higher value" manufacturers around who will come to supplant leaving ones.

And when they began to talk "what about trying retaining existing ones?" I said that they need not to look after SMEs as they are set to leave to cheaper countries invariably, but after the few remaining "giants" like Huawei, Allwinner, DJI, and likes of them.

They didn't believe me that Huawei will dare to leave in its sane mind, but it did. Now I can't get enough of pocket space for business cards from them, and can't attend a single industry event in peace...

Interesting points... question - What is the difference between the Business/Finance sector vs. the Transaction center - and why do they need to be different?

Business/Finance center I mean is related to financial activities. such as listing, financing, investment. No real product sold/purchased here, people only play number games. like HKEx

Transaction center is only for selling and buying. no number magic, but trades. like Canton Fair

> Growth in the first three quarters of 6.6% was substantially down on the same period last year, and a lot slower than the first six months of this year.

Is it really that hard to include the growth rate for the previous period? Without that, it's impossible to put the "strain" into any kind of context.

> Indeed, the implication is that the economy barely grew at all between July and September.

How about a graph showing monthly growth rates?

> News that Shenzhen is losing steam has seemed more ominous because it is home to some of the country’s most dynamic companies and newest industries. ...

I'm not inclined to trust the anecdotes in the rest of the piece given that the author hasn't done basic numerical and visualization legwork.

I found it surprising that 6.6% is "slow" or "strained." Those are numbers akin to a massive boom in the US.

Are you surprised that growth is higher in China than in the US?

I don’t think the article is taking about the whole of China, just Schenzhen.

I believe the point of the parent is that the “slow” growth referenced in the article doesn’t really seem slow by other standards.

I find this surprising. It seems obvious to me that areas in countries that are much less wealthy grow much faster than wealthy countries (if they're improving). They are essentially catching up by implementing many of the same techniques wealthy countries already figured out.

No, but I am surprised that 6.6% growth is a cause of concern, even if it is lower than whatever the previous number may have been.

The last time we saw growth rates above 5% in the US was during the .com boom and even in the midst of it that was considered unsustainable long term.

Any difference in between growth and expected growth can be a problem. If investments were made and money was lent assuming 12% growth, then 6% is going to hurt.

You can't compare US and Chinese growth rates. It's easier to grow when you still have a lot of growing to do.

Also when your non-farms workforce participation is increasing, instead of flat or decreasing.

Most of GDP growth comes from 1) population growth, 2) inflation, and 3) non-farms workforce participation.

I believe the issue is that China has tens of millions of people migrating to cities from the country side so it is critical the economy grows to absorb and create jobs for them.

So for example, if the population of a city grows at 9% and the economy grows at 6% your unemployment rate could grow by 3% and that’s not good (being simplistic here). Also inflationary issues could start to kick in as the price of goods may rise at a faster rate.

Its the slowest rate in 30+ years.

First quarter was 6.4%

Second quarter was 6.2%

Third quarter was 6%

This is because the “quality” of China’s growth is, to use a technical term, kinda lousy. The way China measures growth and sets GDP targets encourages investment in projects that will never be profitable enough to cover initial costs. Short-term GDP growth trumps long-term GDP growth.

The Chinese government has long defied this economic logic. Since many of its investments aren’t profitable, the money to fund new economic activity comes instead via credit from state-run banks and, in the past, through shadow finance (loans made off bank balance sheets). It achieves this in part by controlling banks, though also through setting GDP targets that tell local government officials how much they must invest to earn promotions. (The 2019 target, by the way, is 6-6.5%, so it just barely made it last quarter.)

In short their economic numbers tend to be a lot of smoke and mirrors.

https://qz.com/1730848/good-news-chinas-gdp-growth-has-hit-a...

Short-term demand seems to be shifting to Vietnam. This seems to have enabled a 'wait and see' approach re: China + tariffs. However, I'd question if Vietnam has enough long-term manufacturing capacity [1] [2] [3] to sustain the short-term advantage it seems to be currently enjoying.

Today, China has 16 of the world's 50 busiest ports, including Shenzhen at #3 (all as measured by 2018 TEU volume). [4] However, this is less indicative of capacity than it is of current demand / throughput.

Both countries could benefit from building more deep-water ports. China currently has two Panamax ports, with a third on the way. Vietnam has none and is building its first. The U.S., by comparison, has 42 by my count. [5]

Separately, there's a great Wired documentary on Shenzhen: https://www.youtube.com/watch?v=SGJ5cZnoodY.

[1] https://www.latimes.com/world/la-fg-vietnam-trade-war-201907...

[2] www.scmp.com/economy/china-economy/article/3018403/chinese-manufacturers-returning-home-inefficient-vietnam

[3] https://www.wsj.com/articles/for-manufacturers-in-china-brea...

[4] http://www.worldshipping.org/about-the-industry/global-trade...

[5] https://en.wikipedia.org/wiki/List_of_Panamax_ports

Panamax is simply a much less important standard for China than for the USA because of proximity to the Panama Canal. Generally they can (and do) support larger ships but often with lower draft. Much of their shipping infrastructure is better for modern larger capesize vessels than the US. There's a reason they have something like 7-8 of the top 10 world porta in basically every category and it's not because they are worried about the Panamax standard

This is an excellent point. Certainly, China seems to be managing fine without many Panamax ports

Vietnam's entire industrial capacity is like that of a single district in Dongguan, and they are very US centric.

One man told me recently that Samsung's factory makes 50% of Vietnam's export value.

Quality and craftsmanship is also a huge differentiation between Vietnamese and Chinese capabilities.

In which direction?

Let's just say that Vietnam has a lot of catching up to do.

Doesn't that just mean that Vietnam is becoming the new China? China started their improvements in somewhat similar circumstances.

Indeed... but it will take some time for it to develop.

28%... http://www.businesskorea.co.kr/news/articleView.html?idxno=2...

28% of GDP is different from 28% of export value...

Thank you, for some reason I had them combined in my head.

Spot on. Sihanoukville is China's Panamax port in the southern region, which gives them access to Jakarta and then west onto Africa. Google about how China has taken over the city as well as the roads/rails they are building through Laos/Cambodia. It is epic destruction.

It is quite easy to move between Vietnam / Laos / Cambodia... I know it because I've personally driven on a motorbike many of the trucker back roads literally cut through the borders.

Vietnam will take a dozen more years to catch up. Hai Phong in the north is a very wealthy city due to all the shipping with China and Samsung, but politics and culture will get in the way for quite some time to come.

> China currently has two Panamax ports, with a third on the way. Vietnam has none and is building its first. The U.S., by comparison, has 42 by my count. [5]

I'm curious how Panamax or New Panamax berths make ports more economically viable? And whether US ports are more heavily import focused (and thus want a Neopanamax berth available should the need arise) vs. Chinese or Vietnamese ports? The reason I ask is because I spend too much time looking at ports on Google Maps, and to my eye no single N.A. port compares to most Chinese ports in terms of land area (and apparent capacity). [1] Do goods just sit idle in yards at Chinese ports?

Also, it looks like a single user has added ~30 ports to that list for China. [2] I'm not sure what to think of that.

[1] With the exception of Long Beach. Also this is only for container capacity, so I'm not thinking about roll-on/off, bulk and tanker ports.

[2] https://en.wikipedia.org/w/index.php?title=List_of_Panamax_p...

A Chinamax ship is larger than a Panamax port. Surely if the standard is named after your country you have many ports large enough to handle them. I imagine the list was(is?) inaccurate.

I know the dry dock list on Wikipedia isn't accurate because it doesn't even include my shipyard!

This is perhaps the first time I had heard of China's "Greater Bay Area" (according to wikipedia a "megalopolis" consisting of 11 cities besides Shenzhen) and, particularly in the context of this article on Shenzhen's SF-like woes, I can't help but be struck by this masterstroke of English-language branding on China's part.

I think it would be more normal to refer to the "Pearl River Delta".

"masterstroke"? I am not so sure. It doesn't take a genius to come up with similar names.

China loves playing these cunning, deeply callous, and reprehensible games, for e.g. CE mark: https://www.ybw.com/vhf-marine-radio-guide/warning-dont-get-...

China has a branding problem like no other nation. The Chinese businesses keep sacrificing long term goodwill and image over short term benefits by employing shallow tactics.

This was India's moment to shine. But as usual, it looks like this opportunity will also be squandered.

GDP estimated to grow at 5% in 2019-20, much lower than 6.8% recorded in 2018-19

https://timesofindia.indiatimes.com/business/india-business/...

If you take out government spendings form this, the GDP is around 3.8%

> But a downturn in its economy in the third quarter has been equally accelerated, casting doubt on its reputation as a pacesetter for the nation.

It's probably still a pacesetter, because the economy of the rest of China is under strain as well, especially other formerly rapidly growing cities.

Could the loss of e-packet subsidies be having an effect? Or is that too small-potatoes?

> Analysts have highlighted the steep plunge in private sector investment, for instance, which barely grew in the January to September period compared to a year ago, versus 12.3% growth over the first half of this year.

My understanding is that China's meteoric rise in places like Shenzhen has caused local wages to increase and the city to become more expensive to live and do business in, thus giving manufacturing an incentive to seek less expensive areas, like Vietnam, in which the sector is rapidly growing.

At least a part of the saga of rising salaries without rising productivity is due to China being very lax on interest rates and Xi's government genuinely believing in that being a recipe for growth.

Xi himself is said to be very emboldened by what he sees as success of his previous attempts of running the economy by throwing money on SOEs, and he uses that to parry any attempt of central committee to reason with him.

There is a well known video going around of the plenum session opening, where Xi basically says "bigger, better resourced state enterprises," and Li says "smaller, and nimbler ones" right after him.

Xi ignores that China saw its fastest growth at the time of Chinese rates being rather high.

Low rates demoralise the entrepreneurial community.

Too many business owners exit because they can go to higher rate countries for rentier lifestyle.

Too many business owners think it makes no sense to compete with people who can get billions at 1% interest and throw that to bruteforce their market position.

More so, this makes it really appealing for gambling minded, and well connected individuals to take state money, and gamble them on speculations, becoming instant billionaires.

This sums up china’s problem quite nicely. A good correction/recession would be very useful to being things back down to reality, but the party might be too brittle to weather it very well, especially since the cab has been kicked down the road for so long.

The USA and by extension the rest of the world is playing a similarly dangerous game with low interest rates, though in this case connections aren’t as required. The next downturn could make 2008 look mild when it all unravels.

I think China's next move should be to turn all their citizens into programmers. They have all the factories, the fabrication equipment, and the general know-how.

And by doing so, then they get all the network effect benefits. They become programmers, researchers, programming language designers, QA engineers, systems analysts, etc., and eventually technical managers and business leaders. And they also get all the benefits of having a very technical and highly educated workforce. It's interesting that a recent survey of their school children, said that 56% wanted to become Astronauts.

The next phase of their national development should probably be to move into design, research, development, and ultimately indigenous intellectual property.

The past 10 years of smartphones have changed the country, that their children are exposed to all the software and technology at a young age. This should make it easier for them to become engineers, programmers, scientists, and mathematicians, as they enter college.

Their current generation of engineers has proven that they have the technical capabilities to achieve that. They appear to be very good at building massive infrastructure. So they can plan, design, architect, and build out massive things (high speed rail, rockets, military planes). But let's see if they can build out small things, like software systems (OS, compilers, AI, etc.)

It will be interesting if Huawei takes the lead, and their new Harmony OS becomes a viable contender in the mobile space in China. Or if it even displaces Windows and Linux as the primary desktop or server operating system within China. Maybe Microsoft would eventually port over Word and Excel to the Harmony OS?

And I'm still waiting for them to come up with their own programming language. Although this might be a tall order, as C is quite popular there. However, the guy who created Vue.js is of Chinese descent, but it seems America snatched him away. Now I could be wrong, but the current perception appears as if the Trump administration is hell bent on alienating everyone of Chinese descent from working in America.

If they can succeed at all this, then a slowdown in the Shenzhen manufacturing economy for export, is irrelevant. They would have evolved to the next level. They would build out their own software systems for internal consumption, and eventual export.

Double whammy as its probably a spillover from an anathema to visiting/doing business in Hong Kong as well

It is a spillover from Hong Kong, but in the sense that mainland capital that would have entered HK is now investing in Shenzhen and is hence making the city too expensive for manufacturing.

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