After a year of worldwide economic devastation, with countries like the US and all members of the EU facing worrying recessions (at times in double digits), one country emerges from this fray: not unscathed, but showing signs of growth.
This is of course the People’s Republic of China and more specifically, the city of Shenzhen, which in these trying times has shown that even though it is not coronavirus proof, it is certainly coronavirus resistant.
As of January 2021, the projected 2020 GDP for Shenzhen is US$4.33 trillion — around US$15.5 billion more than it was in 2019. Data from the International Monetary Fund (IMF) from the end of last year showed that the momentum of growth that China has known in the past 40 years will indeed continue with Shenzhen as one of its crowning jewels.
Of course, all this had to start somewhere. With the seeds of foreign openness and trade being planted by Henry Kissinger in the early 1970s, it was only through Deng Xiaoping’s open-door policy in 1978 that foreign investment was officially welcomed into China.
At the forefront of this policy was the launch of the first special economic zone (SEZ) — these regions were granted free-marketed oriented policies and flexible government measures to attract foreign investment.
And so, they did. With the establishment of Shenzhen as the first SEZ in May 1980; the development of the city, which we now are witnessing and will still in the coming years, had been launched. Fast forward to the present, data from China Daily showed that more than 90,000 foreign invested companies were set up in Shenzhen during the pandemic last year — one of the worst years in recent memory.
The reason for this extraordinary feat of economic resilience is due to the momentum of growth for the city, which started all the way back in 1980 and was further consolidated by implementation of policies, subsidies, and infrastructure that has now made Shenzhen one of the most attractive cities in China for foreign direct investment and have poised it to become the leading urban center within the Greater Bay Area (GBA).
The Chinese Government is set on developing Shenzhen and the GBA, by progressively implementing policies that make it easier and attractive to invest in the region, something that was made clear during President Xi’s visit to Shenzhen in October 2020, during which he urged the city to create “another miracle in the next five years”.
The government recently announced its intention to double the city’s GDP and GDP per capita in 15 years, according to a proposal on the city’s 14th Five-Year Plan to guide its economic and social development over the coming five years and the blueprint for a long-term strategy that outlines its vision for 2035.
In the immediate future, Shenzhen aims to have its GDP reach RMB 4 trillion (US$618 billion) by 2025, become a benchmark smart city in the world, and a model city of digital China, according to a document published recently by the Shenzhen city government.
This sustained development will leverage the city’s seven strategic emerging industries, such as new-generation information technology, digital economy, high-end equipment manufacturing, biomedicine, new materials, green, low carbon technology, and marine economy.
In fact, the number of newly registered companies in these emerging fields reached 2,683 in October 2020, witnessing a year-on-year growth of 11.3 percent, according to the Shenzhen Municipal Enterprise Registration Bureau.
In addition to this, other plans are in store for the city’s infrastructure; the local government will form more than three industrial clusters in niche sectors of digital industries whose business revenues will each reach more than RMB 100 billion (US$15.44 billion) by the end of 2023.
These sectors are high-end software, big date, cloud computing, information security, internet, smart city, fintech, e-business, and digital creativity.
The city and its officials appear focused on retaining the unofficial title of China’s Silicon Valley and even though no concrete measures have been announced yet, the appetite for these mentioned industries will most certainly be supported by the government with further subsidies, tax exemptions, and attractive policies for investment.
As the flux of foreign investment is increasingly being directed towards Shenzhen, should you decide to incorporate a business in the city and especially in the Qinhai-Shekou Free Trade Zone, the local government may deem you eligible to the following aids and subsidies:
Up to RMB 10 million (US$1.5 million) for international R&D teams setting up independent entities in emerging industries or technological transfer as well as up to RMB 5 million (US$750,000) for setting up R&D facilities for new products and technologies in internet, biomedicine, emerging, or advanced manufacturing industries.
This could reach RMB 1 million (US$154,000), provided certain conditions are met. Companies set up in Qianhai Venture park for more than six months will get a one-off fund equal to RMB 50,000 (US$7,700).
For the establishment of headquarters of companies (subject to the requirements of The Implementations Measures for Encouraging the Development of Headquarters in Shenzhen), subsidies granted may be up to RMB 20 million (US$3 million).
For financial enterprises headquarters, subsidies may be up to RMB 10 million (US$1.5 million) and 50 percent of support for relocation costs. In the case of establishments of logistics companies, these aids may be in the amount of RMB 10 million (US$1.5 million), depending on the amount of registered capital of the company in question.
Finally, in the case of companies providing professional services (that is, law firms, HR companies, CPAs, etc.) subsidies may be up to RMB 2 million (US$308,000).
For talented individuals, the subsidies in place may reach RMB 6 million (US$926,000). The local Qianhai-Shekou Free trade zone provides rent support for foreigners who qualify as talented individuals, as well as scholarships and grants for companies hiring and/or providing internship and contract positions to foreigners (with a priority given to Hong Kong and Macao residents).
Moreover, to attract foreign talent, a 15 percent exemption of personal income tax is granted to overseas high-end talents located in Qianhai and who meet the needs of the region and its development.
The above does not constitute an exhaustive description of all the subsidies awarded by the authorities and the process of applying for these subsidies, as well as its range and amount, shall be updated on a regular basis. It is therefore worth taking a look at the local government websites to be updated on the requirements, as these tend to change.
In addition to the above, despite the rising living costs, the operational costs of incorporating and maintaining a company in the city remains quite low. Virtual offices are oftentimes allowed as the legal registered address, even when a requirement of a physical office is imposed.
As of Q3 2020, the rental cost of office leasing was US$32 per square meter, down 0.5 percent quarter-on-quarter. As the city develops more office buildings and the cost of rent continues to be low, the office spaces have an overall vacancy rate of 18.4 percent.
Corporate tax rates remain attractive too. Rather than the normal 25 percent rate adopted nationally, the law allows for a reduced rate of 15 percent.
Tax holidays are also available for companies engaging in preferred sectors, such as technologically advanced service enterprises (information technology outsourcing, technical business, knowledge process outsourcing, computer and information services, research and development and technical services, cultural and technical services, and Chinese medicine medical services) and certain integrated circuits production companies.
Granted that this is a policy applied nationwide, in Shenzhen – there is the added advantage of the infrastructure set in place and the top quality business environment, as Shenzhen takes first place in the business environment of major Chinese cities, shown in a report jointly released by the Academy of Guangdong-Hong Kong-Macao Greater Bay Area Studies and the 21st Economic Research Institute.
As exciting as the present is for Shenzhen, the future looks even more promising.
Foreign-funded enterprises account for only two percent of business entities in Shenzhen. However, they generate about one-fifth of the city’s GDP, 40 percent of its import and export volume, and nearly 30 percent of its tax revenue every year, as data from the municipal bureau of commerce showed. Information like this is testament to the fact that foreign companies have and can succeed in the region.
Taking into account the recently announced EU – China Comprehensive Agreement on Investments, which, among other things, will further ease European companies’ ability to easily invest in China, added by the efforts of the local and national Chinese government to make Shenzhen more attractive for investors, the short- and long-term future seems ideal for foreign businesses in Shenzhen, the GBA, and in China as a whole.
About Us 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. We also maintain offices assisting foreign investors in Vietnam, Indonesia, Singapore, The Philippines, Malaysia, Thailand, United States, and Italy, in addition to our practices in India and Russia and our trade research facilities along the Belt & Road Initiative.
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