After last year’s protests, the Chinese Communist Party no longer wishes to highlight Hong Kong’s economic prowess. Rather, it plans on implementing ambitious reforms in the city of Shenzhen.
In a nutshell
- President Xi wants China to become a high-income country
- Shenzhen will serve as a model of economic success
- Reforms could lead to political integration with Hong Kong
The fifth plenary session of the 19th Central Committee of the Chinese Communist Party (CCP), which ended on October 29, 2020, discussed the 14th Five-Year Plan. The latter focused on solving a series of problems arising from the current extraordinary circumstances. The next five years will be crucial for Chinese leaders, because it will have become clear by then whether or not they have realized their “Chinese Dream” strategy. In President Xi Jinping’s economic policy, two new concepts are outlined: global and domestic circulation. The former is very much hindered, mainly by the trade conflict with the United States, while the latter (meaning domestic consumption and production) is meant to become the mainstay of the Chinese economy.
The central government has placed high expectations on the Guangdong-Hong Kong-Macao Greater Bay Area, because it should play a major role in breaking the political gridlock around Hong Kong. This intention became abundantly clear during President Xi Jinping’s recent trip to Shenzhen. Some pundits see the Guangdong-Hong Kong-Macao strategy as a step toward economic integration without political integration. Economics matters, but the reality is that Beijing is also striving for greater political unification with Hong Kong – a strategy officially described as “the full and accurate implementation of One Country, Two Systems.” This means that Hong Kong would no longer be considered a poster child of economic success from which China should learn. Instead, it should be incorporated into the prosperous and, most importantly, politically orthodox mainland.
President Xi Jinping did not single out Shenzhen without a reason.
President Xi Jinping visited Shenzhen this October, when the city was celebrating the 40th anniversary of its status as a Special Economic Zone (SEZ). Mr. Xi took this opportunity to announce the implementation of a set of pilot reforms in Shenzhen. For the first time under his leadership, the CCP has tailored a seemingly comprehensive reform program for a single city. The idea dates back to 2019, when the Central Comprehensively Deepening Reforms Commission of the CCP issued a document called “Opinions on Supporting Shenzhen to Build a Pilot Demonstration Zone of Socialism with Chinese Characteristics.” According to this document, Shenzhen should become a “global benchmark city” by 2035.
President Xi Jinping did not single out Shenzhen without a reason. There are several political and historical factors at play. In the 1980s, Deng Xiaoping proposed the establishment of special economic zones, which ultimately led to the overall transformation of China. Shenzhen is undoubtedly the most successful zone. After the Tiananmen Square protests in 1989, the West imposed sanctions against Beijing and the Chinese economy risked stagnation or even recession. In 1992, Deng Xiaoping toured the south of the country, including Shenzhen, encouraging local governments to carry out reforms and embrace the trial-and-error spirit of the special economic zones. His successors Jiang Zemin and Hu Jintao both visited Shenzhen on the 20th and 30th anniversary of the SEZ as a sign of continuity. The city became a symbol of reform.
With his recent visit, President Xi also wanted to demonstrate that he has inherited Deng Xiaoping’s mantle. Deng had authority over the entire CCP, and President Xi aspires to the same type of leadership. This is necessary precisely because he departs from Mr. Deng’s thinking in terms of foreign policy and ideology, which has caused stark dissatisfaction within the party.
China does need to undertake reforms for further economic development. In October 2020, the central government released a document entitled “A Concept for the Implementation of Reforms in Shenzhen as A Pilot Zone with Chinese Characteristics of Socialism (2020-2025).” According to the paper, Shenzhen will be given more autonomy in four aspects: greater authority to make decisions on land management, reform of the household registration system, and the opening up of certain industries (like finance and shipping) to domestic and foreign capital. Beijing also released a list of 40 reform items. Of these, 14 concern market-based allocation of factors of production, seven are related to improving the business environment, six have to do with technological innovation, seven are to open up markets, three relate to public service systems, and three revolve around urban planning and ecology. Obviously, none of the items concern political reform.
The second reason why the CCP is prioritizing reforms in Shenzhen is the strength that the city has gained through its proximity to Hong Kong and decades of hard work. Four decades ago, Shenzhen was a little-known fishing village. Now, its gross domestic product has surpassed that of Hong Kong, the highest ranking among all Chinese cities. It is now ahead of Hong Kong in terms of industrial layout and technological innovation, and it is home to more companies that are among the world’s top 500 most successful. In 2019, the All-China Federation of Industry and Commerce conducted a survey that showed that Shenzhen was considered to be the number one city for business in China.
Many well-known high-tech companies, including Huawei, Tencent and DJI, are headquartered in Shenzhen, which is sometimes called China’s Silicon Valley. But the Chinese technology industry is facing difficulties in acquiring key technologies. The time for “appropriating or buying foreign cutting-edge technology” is over, and Beijing wants to focus on technological self-reliance as a driving force of “domestic circulation.”
During the next five years, the government will invest $1.4 trillion in the research and development of third-generation semiconductors to create an independent chip supply chain. The core goal of the 14th Five-Year Plan is to achieve a major breakthrough in the high-tech industries that have been disrupted by increasingly restrictive policies on technology transfer in the West. The higher-ups hope that Shenzhen will spearhead this innovation. Furthermore, Beijing’s intention is to establish a large national science center in the Greater Bay Area so that a world-class scientific facility cluster can develop.
Farewell to the enclave
Xi Jinping is the first party leader to comprehensively amend Deng Xiaoping’s One Country, Two Systems doctrine. The official rhetoric is that Beijing will now “fully and accurately implement One Country, Two Systems,” which implies that the previous implementation was incomplete or incorrect.
In the eyes of Deng Xiaoping, Hong Kong was a model for China. In 1988, he said: “Now there is one Hong Kong, and we will build several Hong Kongs in the mainland.” His statement underlines the enclave’s economic and institutional strength. He is also known to have said that “Hong Kong will remain unchanged for 50 years,” emphasizing the region’s positive role and autonomy.
In the eyes of mainland China, Hong Kong has lost its status as a role model.
The introduction of the Hong Kong National Security Law this year means that the promised 50 years of capitalism are being rolled back. Hong Kong is no longer an enclave; instead it will be integrated into the Greater Bay Area Project. However, last year’s protests have shifted Beijing’s position on the matter.
Before the demonstrations, the central government’s expectations for Hong Kong exceeded those it had for Shenzhen. At the time, learning from Hong Kong still seemed acceptable. However, since June last year, the CCP has clearly been dissatisfied with the enclave government. Thus, in the eyes of mainland Chinese leadership, Hong Kong has lost its status as a role model in politics, economy, technology and finance.
President Xi will use Shenzhen to show Europe that China is making efforts to meet EU requirements.
The signal from Beijing to the Hong Kong government is very clear. There will be no sticking to the “50 years of capitalism” promise. Instead, the island city should fully integrate the Greater Bay Area as soon as possible. The State Council has issued a document to pilot the “Guangdong-Hong Kong-Macao Greater Bay Area Lawyer Practicing Examination” that will be implemented for a period of three years. Qualified Hong Kong and Macao legal practitioners can now obtain mainland practice qualifications as long as they pass the Guangdong-Hong Kong-Macao Greater Bay Area examinations, which will allow them to handle certain legal matters, mostly civil and commercial. This is obviously accelerating Hong Kong’s integration into China’s legal framework.
At the moment, the United States and China are growing further apart. Meanwhile, Xi Jinping is urgently looking forward to the conclusion of the EU-China investment agreement negotiations this year. The European Commission put forward 10 action plans in this regard and stated its expectations for China’s economic adjustment and reform. The EU insists that China should further open its markets to Europe and promote open and fair competition.
It is very likely that President Xi will use Shenzhen to show Europe that China is making efforts to meet EU requirements. If so, any outcome will depend on whether or not Brussels buys into this narrative. If the European Commission lowers the bar, the China-EU investment agreement will be concluded this year.
In Shenzhen, Xi Jinping is trying to show that he is Deng Xiaoping’s successor, compensating for his image problems at home. However, when it comes to Hong Kong, foreign policy and ideology, Deng’s wisdom is being forgotten.