A new set of measures seek to boost Shenzhen consumption and transform the city into a regional shopping hub. The measures include monetary incentives for domestic and foreign brands to set up in the city, as well as policies for improving the consumer landscape through infrastructure development, optimized business environment, and better consumer rights. The measures represent a long-term goal for the city to leverage its rising living standards and strategic position in the wealthy Greater Bay Area, but also closely align with central government policies to boost domestic consumption in 2022 and beyond. We look at the economic and political context in which these measures have been released and provide an overview of what beneficial policies have been proposed for consumer brands to set up shop in Shenzhen.
In February 2022, Shenzhen’s municipal Ministry of Commerce (MOFCOM) released a document titled Several Measures for Accelerating the Construction of an International Consumption Hub (the “measures”), which outlines 28 policy measures for developing Shenzhen’s consumption landscape.
The measures cover a wide range of policies, from expanding consumption infrastructure, such as business districts to strengthening consumer rights protection, to expanding duty-free shopping.
They also include monetary incentives for companies and brands to set up and expand in the city, as well as mechanisms for creating a more business-friendly environment.
The measures come after China’s central leadership emphasized the importance of domestic consumption and as the country’s consumers and businesses confront headwinds from an ongoing COVID-19 outbreak and global macroeconomic pressure.
At the same time, longer-term local trends suggest that Shenzhen is perfectly situated to become a regional shopping destination if it can properly leverage its increasingly wealthy consumer base and attract world-class brands and companies.
Background: Domestic demand as a driver of economic growth
Consumption in 2021
2021 was a rollercoaster of a year for domestic consumption in China. The beginning of the year saw a huge boom in spending, partly due to the low base effect from the dip in early 2020, but also partly due to the return to economic stability and an increasingly positive outlook with regard to the COVID-19 pandemic. The latter half saw a significant slowdown in consumption due to a number of issues that progressed in rapid succession – severe flooding during the summer, sporadic COVID-19 outbreaks, and a power crunch in the fall.
Total retail sales for consumer goods – including spending by households, governments, and businesses – rose 12.5 percent year-over-year in 2021, 16.4 percentage points higher than that of 2020.
However, growth was highly uneven over the year, and had slowed to just 1.7 percent in December, weaker than November’s growth rate of 3.9 percent. The figure marked the slowest expansion since August 2020, suggesting weakening overall consumption.
The beginning of 2022 saw a rebound in consumption. Data from the National Bureau of Statistics (NBS) shows total retail sales of consumer goods grew 6.7 percent year-over-year in the combined period for January and February.
However, this data is from before the most recent outbreak of COVID-19 – the worst China has experienced since 2020 – and the outbreak of the Russia-Ukraine war, which is expected to impact supply chains and international trade and put more pressure on the global economy. The next few months are therefore expected to see a significant drop in consumption as the country tackles the rising COVID-19 case numbers.
Boosting consumption in 2022 and beyond
The government has made boosting consumption a key economic priority in 2022. The 2022 Government Work Report (GWR), the most important economic and social policy document to be released each year, called for the country to “promote consumption and expand demand”. This will be achieved partly by improving VAT exemption, credit, and refund systems, and implementing large-scale rebates on VAT in 2022.
These include RMB 1 trillion (US$157 billion) in VAT rebates for micro and small-sized enterprises over the course of 2022. The hope may be that the small companies and self-employed will invest that money back into their businesses or spend it on other goods and services.
In addition to the country’s macro-level economic goals, Shenzhen also has its own incentives to increase consumption. While the city was built largely on a boom in manufacturing – and later, technology – the last decade has seen a gradual shift toward an increasingly services-led economy. In 2021, the services sector made up almost 63 percent of GDP, up from 55.7 percent a decade earlier.
It is also one of the wealthiest cities in the country, with an estimated GDP per capita of US$27,000 in 2021. As a result, it has one of the highest minimum wages in the country – set at RMB 2,360 (US$370.5) per month or RMB 22.2 (US$3.5) per hour as of January 1, 2022. The rising costs of labor may mean the city will lose out to more competitively priced cities in China and abroad.
At the same time, rising living standards also presents a new opportunity for the city.
Disposable income per capita reached RMB 70,847 (US$11,121), the third-highest in China after Shanghai and Beijing. It is also a very well-connected city, with rapid transport links to other major – and wealthy – cities in the GBA, such as Guangzhou, Foshan, and Hong Kong. Improving its consumption landscape to leverage not only its own inhabitants but also attract consumers from surrounding areas, is a key means for Shenzhen to reshape its economy and secure its future over the next decade.
Policy measures for transforming Shenzhen into a consumption hub
The measures lay out 28 measures for transforming Shenzhen into a major international hub for consumption. The measures span a wide range of policies, from improving physical infrastructure to strengthening consumer rights to making the city more attractive at night. It also rolls out several incentive policies for brands and companies to set up or develop further in Shenzhen.
Many of the measures do not have a clear timeline and act more as general guidance for local government departments to develop more concrete policy measures and guidelines. Below we provide an overview of the measures that may be of interest to foreign investors.
Developing retail and consumption infrastructure
Developing key business districts
A major part of the plan to boost Shenzhen’s consumption landscape is to improve and develop the consumption infrastructure. This will involve further developing major business districts, as well as other commercial areas such as shopping areas, hotels, and other commercial facilities.
The aim is to create several key commercial centers in the city’s various districts. These include:
- Futian Business District
- Houhai Super Business District
- Luohu Core Business District
- Huaqiang North Pedestrian Street
- Xiangmihu International High-end Consumption Area
- Core Business District of the Shenzhen Bay Super Headquarters Base
- Qianhai Mawan Business District
- Dalang Fashion Town
- Longhua Core Business District
- Shatoujiao Shenzhen-Hong Kong International Tourism Consumption Cooperation Zone
In addition, the measures call for supporting business district construction projects to issue real estate investment trusts (REITs) to form a virtuous cycle of existing assets and new investment.
Building international commercial consumption blocks
The measures task each district government with formulating plans for commercial outlets within their jurisdiction and to increase focus on developing one to two business districts. In all, the city plans to develop at least 10 business districts with pedestrian streets and “nighttime economic demonstration blocks” in the next five years. The municipal financial bureau will give up to RMB 10 million (US$1.7 million) in grants to projects that meet certain acceptance standards, which the district financial bureau will finance at a 1:1 ratio.
Incentives to attract brands and companies
Rolling out first-store and first-release incentive policies
The measures seek to attract high-end brands to set up in commercial districts through a “first store” or “first issue” policy. This policy will support famous domestic and foreign brands to set up a first store, flagship store, concept stores, or other new forays into the city, and encourage them to debut new products in Shenzhen or concurrently in Shenzhen. Similar policies have been rolled out in other cities, such as Beijing.
The city has also rolled out several incentive grants to encourage brands to enter the Shenzhen market. These are:
- A reward of up to RMB 200,000 (US$31,394) for famous foreign and domestic brands that enter Shenzhen, with each company eligible to receive up to RMB 5 million (US$784,855) in rewards each year.
- An RMB 500,000 (US$78,486) award is also given to well-known brands that establish independent legal entities in Shenzhen.
The measures also seek to attract more international commercial companies and brand operators to set up in Shenzhen and to encourage stronger cooperation between these companies and state-owned capital.
Rolling out headquarters incentive policies
The city will also support mid-to-high-end brands of multinational companies (MNCs) to set up global headquarters, regional headquarters, or functional headquarters in Shenzhen. Well-known trade and commercial enterprises that are new to Shenzhen and commit an investment of RMB 200 million (US$31.4 million) to projects in Shenzhen can receive a reward of RMB 10 million (US$1.7 million).
Promoting auto sales and online retail
The measures call for the promotion of auto sales in the city, stating the focus should be on encouraging the purchase of new energy vehicles (NEVs) or the replacement of old vehicles for NEVs. To do this, the measures propose optimizing the mechanisms for selling or replacing second-hand cars and providing a 0.5 percent reward for second-hand car sales. Well-known domestic and foreign auto brands are also encouraged to establish headquarters in the city, as is the development of new NEV brands, although no specific incentives for this have been revealed.
At the same time, the measures pledge to increase support for local e-commerce platforms, encourage retail enterprises to expand e-commerce business, and further increase the scale of online retail.
Expanding the duty-free economy
Finally, the measures propose to expand the duty-free economy by supporting national policies and promoting the construction of duty-free stores in the city. To achieve this, the measures propose optimizing clearance measures, facilitating visa procedures, and improving support facilities, such as service centers for overseas tourists.
The city will also strive to strengthen consumer rights through means such as optimizing “departure refund” services, implementing a policy that enables immediate product returns, and piloting an “electronic tax refund” policy. Shenzhen plans to add 200 designated shops for departure tax refunds.
Cultivating new types of innovative commercial companies
The “Shenzhen Business Excellence Plan”
The “Shenzhen Business Excellence Plan” seeks to support leading businesses that attract a lot of high-end talent, and assist companies to build leading business groups through mergers and acquisitions, restructurings, and cooperation.
The plan also offers rewards for businesses in retail and hospitality:
- A reward of RMB 500,000 (US$78,486) will be given to wholesale and retail enterprises for every RMB 100 million (US$15.7 million) increase in retail sales they see.
- A reward of RMB 50,000 (US$7,849) will be given to accommodation and catering companies with an RMB 10 million (US$1.7 million) increase in turnover.
Cultivating local brands
The measures also seek to stimulate the growth of local brands through the “Brand Acceleration Plan”. The plan targets well-known local brands in industries such as consumer electronics, fashion apparel, gold jewelry, watches and glasses, new “nationally trending” products, beauty and cosmetics, and food and beverage, among others. A reward of RMB 2 million (US$313,942) will be given to selected brands that meet these criteria.
Fostering new retail
To promote the development of “new retail”, the measures propose a “digital business development project”, which will support the digitalization of consumption. Through this project, digital projects can receive a subsidy of 20 percent of the actual investment amount, capped at RMB 3 million (US$470,913).
The measures also set a target of cultivating at least five new “retail demonstration enterprises” with revenue exceeding RMB 10 billion (US$1.7 billion) by 2025.
Developing new consumption scenarios
Deploy new scenarios for trendy shopping
The measures also encourage the development of new innovative forms of shopping and promotion to enhance the consumption experience. The proposed means for doing this include deploying technology, such as augmented reality (AR), virtual reality (VR), and holograms, to create an immersive and interactive shopping experience.
The measures also promote the development of new product launches, fashion shows, technology experiences, theme parks, and other immersive consumer-focused experiences.
Create a new urban nighttime consumption scene
Another means by which the measures seek to boost consumption is by expanding the shopping opportunities into the night. The measures outline the need to develop “night tours, nighttime shopping, nighttime entertainment, night markets, and nighttime goods”, among other scenarios to encourage consumers to go out more and spend in the late evenings.
To do this, the measures advocate for local governments to improve the nighttime environment by keeping parks, squares, greenways, and other urban public service spaces open later at night and improve the city’s nighttime aesthetics.
Creating a world-renowned consumer environment
Improving the functions of international consumer services
The measures seek to make it easier for foreign visitors to enter Shenzhen and boost consumption among foreign tourists. To achieve this, the measures call for making obtaining visas easier and implementing a 144-hour visa-free transit policy for foreigners. More entry ports will also be encouraged to implement 24-hour customs clearance.
Other measures include improving the service infrastructure for tourists, including better medical services and commercial medical insurance settlement services, tourist service centers, and standardizing the translation and use of public signs in key public places and public facilities.
Improving consumer satisfaction
Another component to boosting consumption in the city is strengthening consumer rights. That will involve, according to the measures, the creation of new laws and regulations to protect consumer rights and implementing several projects to improve product quality, and outlining the responsibilities of companies.
Among the different suggestions for achieving this goal is the establishment of a consumption evaluation index system, establishing mechanisms for monitoring consumer satisfaction, strengthening supervision of companies, and holding companies that violate consumer rights accountable.
Creating local shopping events
The city also plans to create new local shopping events to boost consumption during important seasons throughout the year. These include events such as a “Shenzhen Shopping Season” and “Year-end Shopping” season.
The city will allocate special funds to support the planning and promotion of these events. These funds include:
- Up to RMB 2 million (US$313,942) for each activity by units that hold comprehensive theme activities linked to the whole city after filing.
- A subsidy of 50 percent of the investment for units that hold various sub-events after filing, capped at RMB 2 million.
Creating a fertile environment for enterprise development
The measures outline several policies for improving the business environment in the city. One such policy is making it easier for companies in various consumer industries to apply for business licenses. The proposed license policies include:
- Trial implementation of the “one city, one license” policy to enable chains to apply for a city-wide license and register multiple business addresses on the same license. This would free companies from having to file multiple business licenses for their different store locations.
- Integrating food business licenses and sanitation licenses so that catering businesses can apply for just one license.
- Enable joint submission and approval of multiple licenses at once.
In addition, the measures propose mechanisms for easing restrictions on promotional and marketing activities to encourage them in urban public places, such as blocks, squares, and parks where conditions permit. These include:
- Optimizing approval procedures for large-scale promotional activities.
- Relaxing the management of outdoor advertisements and outdoor ad placements.
- Simplifying approval procedures for setting up outdoor advertisements and company signs.
- Allowing qualified street-level shops to carry out outdoor ad placements.
A city with huge long-term growth potential
Despite the current economic situation, the case for growing a consumer brand in Shenzhen remains strong. The city has maintained positive economic growth despite the pressures of the COVID-19 pandemic and will continue to see positive growth for many years to come.
Looking beyond 2022, it makes a lot of sense for consumer brands and companies to set up in Shenzhen. Apart from the monetary rewards given out by the government, there is huge growth potential over the next decade as wages and living standards in the city continue to rise.
In addition, the measures signal that the government is ready to create an increasingly brand and business-friendly environment, with beneficial policies, such as simplified licensing arrangements, making it easier for companies to expand within the city.
Foreign companies and brands that are interested in entering the Shenzhen market can contact our local team at Shenzhen@dezshira.com for assistance.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
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