Many investors are worried about growth in China right now, with markets being extremely volatile in the first few weeks of the year. My team and I recently toured several cities in China and have found many thriving industries and companies with vibrant prospects, which reinforced my views on the case for investing there. Here, I share my report on Shenzhen. China’s Shenzhen is a city on the move. It is a place where young Chinese movers and shakers want to be not only because of the many booming technology companies located there (including those involved with the Internet, drones, robotics, etc.) but also because its environment is seen as more favorable than many other major Chinese cities. Although Shenzhen is not the capital of the province in which it is situated (Guangdong), it overshadows the capital city of Guangzhou in a number of aspects. In 1980, Shenzhen was given the status of a Special Economic Zone (SEZ), the first of five such zones. When the reformer Deng Xiaoping made a visit in 1992 he said: “You [the Shenzhen local government] should be bolder in carrying out reform and opening up to the outside and have the courage to experiment.” Giving the zone the stamp of approval from Beijing helped accelerate reform, and things really began to happen there. Shenzhen became an experiment in market capitalism controlled with ideals, or “socialism with Chinese characteristics.” That set off a frenzy of local and foreign investment, making Shenzhen a global manufacturing hub and one of the fastest-growing cities not only in China but in the world during the 1990s and 2000s. Total economic output of Shenzhen is now larger than some entire countries, including Ireland, Portugal and Vietnam.1 Good salaries in Shenzhen have attracted migrants from all over China, creating a large population of non-local migrant workers. Shenzhen also has a young population, with an average age of less than 30 years old.2 With more people and investments flowing into Shenzhen, property prices have been on the rise; various reports indicate that prices in Shenzhen rose faster than any other city in China in 2015. In addition to foreign firms establishing factories in Shenzhen, China’s largest manufacturer of telecommunications equipment established its international headquarters in the city, along with many other types of domestic companies that have decided to situate themselves in the zone. Shenzhen is known as one of China’s “Silicon Valleys” due to its high concentration of high-tech companies, of keen interest to Chinese graduates of technical universities and young people who want to be involved in Internet businesses. Shenzhen and Hong Kong are separated politically, but border restrictions have been continually loosening and highways and trains offer connections between them. There are now six land crossing points between the two cities and a rail connection linking the Shenzhen metro line and Hong Kong’s Mass Transit Railway subway system. Each day, it is estimated that more than a quarter of a million people travel between Hong Kong and Shenzhen. The Shenzhen Metro system, opened in 2004, now has five lines, 118 stations and 177 kilometers (110 miles) of tracks. Eventually a high-speed train service is expected to connect Beijing, Guangzhou, Shenzhen and Hong Kong. Supplementing Hong Kong’s bustling airport, Shenzhen’s international airport is the headquarters of Shenzhen Airlines as well as the hub for other passenger and cargo lines. With rail and road links to Hong Kong now being extended to Macau and Zhuhai, across from Macau a new megacity is being created in the Pearl River Delta, which boasts a population of 42 million people, making it the world’s largest urban area.3 Flying into Chek Lap Kok Airport in Hong Kong, I could see concrete piles reaching out into the ocean as a series of bridges and tunnels to Macau is being built. I think it will be a wonderful option to skip the boats we now use to reach Macau and drive all the way across and under the ocean to Macau, Zhuhai, Shenzhen and other parts of China. In addition to manufacturing, Shenzhen is quickly becoming a financial center with two of China’s largest banks headquartered there. The Shenzhen Stock Exchange (SZSE), like the Shanghai Stock Exchange, is a national exchange with more than 1,700 listed companies on SZSE, including those listed on Growth Enterprise Market (GEM) Board.4 The SZSE Composite Index consists of 500 listed stocks with market capitalization of more than US$300 billion.5 The Shenzhen-Hong Kong stock connect, which would facilitate cross-border trading, is expected to launch sometime this year and could open up more opportunities for investors. The government is currently promoting Shenzhen as a financial center to equal Hong Kong by designating Qianhai, a district of Shenzhen, as a financial center with special rights and privileges. The purpose is to position the zone for innovation and development of modern services, in addition to fostering closer cooperation between Hong Kong and mainland China. Most significantly, Qianhai is being given special freedoms in regards to the internationalization of China’s currency, the renminbi (RMB), by loosening capital account restrictions so Hong Kong banks will be allowed to extend commercial RMB loans to Qianhai-based onshore mainland entities. Urban Transformation Driving through Shenzhen, I could see how it has transformed since the first time I visited about 20 years ago. Where there were once rice fields, office and apartment buildings have sprung up—some of which are now among the tallest in China. Currently under construction is the 600-meter Ping An Finance Centre, which would be the second-tallest building in China and the fourth-tallest building in the world upon its scheduled completion in 2016.6 As urbanization continues in China and more and more people move into high-rise apartments, not only is transportation infrastructure needed but also cultural and entertainment facilities, which the government has encouraged. One company we visited was typical of a trend combining housing projects with entertainment and tourism projects, including theme parks, hotels, cinemas, etc. The firm has real estate and tourism businesses in Shenzhen and also in other parts...
Investment Adventures in Emerging Markets - Notes from Mark Mobius
Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."
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