Investment opportunities in Shenzhen are expected to surge after Chinese authorities announced plans for Shenzhen to become a "model city" that will meet international standards and boost connectivity between mainland Chinese and overseas financial markets.
China's State Council recently issued an official announcement that Shenzhen will form a “Pilot Model Area of Socialism with Chinese Characteristics” (社会主义先行示范区), with the aim of making Shenzhen one of the world’s top global model metropolises in terms of competitiveness, innovation capacity, and influence.
According to the opinions, Shenzhen will target the forming of an open economy system that is in line with international standards, developing new practices for “one country, two systems”.
This is expected to enhance the connectivity between mainland Chinese and Hong Kong/Macau financial markets, promote the mutual recognition of funds (MRF) between mainland China and Hong Kong, push forward pilot practices to reinforce RMB internationalization, and explore new practices of cross-border supervision.
Clearly, in addition to the city’s existing position in the future Greater Bay Area (GBA) as a city of innovation and creation, Shenzhen has been granted new roles in the financial sector. After the opinions were launched over the last weekend, the value of more than 60 Shenzhen-themed stocks increased to their daily trading limit.
For investors looking for an early advantage, financial sectors such as securities companies based in Shenzhen are good choices to look into given the city’s new financial roles.
Companies in fields relating to state-owned enterprises (SOEs) reforms, M&A industrial upgrading, and registration-based initial public offerings (IPOs) system are worth watching, says an analyst from a Chinese asset management company, noting that these fields are highlighted in the opinions at different levels.
In addition, companies in sectors such as infrastructure and transportation might also benefit from the policy, as the regulators will further support enhancing the connectivity among the GBA cities, according to the analyst.
Industries relating to technology and innovation, Shenzhen’s existing role in the GBA, are also themes to track. AI, 5G, cyberspace science and technology, bioinformatics, biopharmaceutics, medical and healthcare devices, cryptocurrency and mobile payment, telecommunications and marine sector are all sectors to look into, according to the analyst.
The market is expecting Shenzhen’s economy to further expand with the Chinese government’s accelerating of the opening-up to foreign investment.
The 2019 negative lists (Special Management Measures for the Market Entry of Foreign Investment and the Special Management Measures for the Market Entry of Foreign Investment in Pilot Free Trade Zones) came into effect on July 30 this year.
“It is being reported that various PRC regulatory authorities aim to revoke all other restrictive or prohibitive measures for foreign investment outside the New Negative Lists by the end of the year. With the PRC Foreign Investment Law coming into effect on January 1, 2020, the New Negative Lists will become a one-stop shop setting out all the restrictions or prohibitions on foreign investment under the PRC legal regime,” says Sun Hong and Lynn Yang, partners at Norton Rose Fulbright, a global law firm.
Shenzhen’s economy has already showed a lot of progress in the last few years. In 2018, the city’s GDP (HK$2.87 trillion) surpassed Hong Kong’s (HK$2.85 trillion) for the first time, according to data from Hong Kong’s Census and Statistics Department.
“Besides GDP, Hong Kong is experiencing a lag in building capabilities in technology and innovation. With the opinions rolling out, Shenzhen is expected to have more supportive measures to further develop its economy. Also, the chaos in Hong Kong is not helping to boost the economic growth here,” says a scholar from a think tank, expressing worries about Hong Kong losing its advantages.