Concerns about Huawei leaving Shenzhen show need to keep costs under control

By Hu Weijia Source:Global Times Published: 2016-5-24 0:08:01

A media report saying that Chinese telecom giant Huawei is likely to move out of Shenzhen in South China's Guangdong Province has been widely circulated on social networks in recent days, triggering concerns among investors about Shenzhen's competitiveness and the attractiveness of the country's coastal areas as a destination for investment.

As the city has always had a special identity as an entrepreneurial manufacturing hub, a possible exodus by a Chinese manufacturing giant inevitably kindled discussion about whether Shenzhen's attractiveness as an investment destination might be waning. Even though Huawei has denied it was considering moving its headquarters out of Shenzhen, media reports said Monday that the telecom giant had begun to diversify the locations of its operations.

According to a report released by the Chinese Academy of Social Sciences (CASS) last year, Shenzhen was the most competitive city in China in 2014. Some people have wondered what the current problems faced by the city might mean for China. Does it just mean Shenzhen no longer deserves the title of being the most competitive city in China, or does it signal a decrease in the overall competitiveness of Chinese cities, especially coastal cities?

Several factors could explain why Huawei might be thinking of moving some of its businesses away from Shenzhen, primarily the red-hot local real estate market. Home prices in Shenzhen shot up earlier this year and are still high at the moment. Ren Zhengfei, the founder and CEO of Huawei, said in a recent interview with Xinhua News Agency that Shenzhen has too many real estate development projects so the city lacks large-scale industrial land, which is a prerequisite for development of the manufacturing sector. He said any enterprise would struggle if production costs become too high, and that it would be natural for companies to seek lower costs elsewhere.

It seems the overheated real estate market has already had a spillover effect on the development of China's manufacturing sector, a situation that deserves attention. Besides, factors like unreasonable population structure, traffic congestion and the water shortage in Shenzhen have also hindered the city's development. The reported exodus of Huawei has rung an alarm bell for Shenzhen. Now it is time for the city to make greater efforts to solve the problems, especially its over-reliance on the real estate sector.

The solution to Shenzhen's problem seems to be reducing operating costs for businesses. At a time when a number of enterprises are moving their manufacturing businesses out of Chinese coastal cities, local authorities elsewhere in China should also learn a lesson from Shenzhen and improve their investment environment.

The author is a reporter with the Global Times.

Posted in: It's Your Business, Eye on The Economy

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