China’s Tech Capital Shows Imbalance As Spending Stalls

China’s top tech hub, Shenzhen, saw retail sales grow by just 0.5 per cent year on year in the first quarter after reporting gross domestic product growth of 5.8 percent for the same period, casting a spotlight on its unbalanced development as mortgage and living costs weigh heavily on residents’ sentiment.

A policy analyst said the city, in southern China’s Guangdong province, could have already seen retail sales decline if not for the rising number of bargain-hunters from Hong Kong crossing the border for dining and entertainment.

Shenzhen’s retail sales totalled 241.7 billion yuan (US$35.4 billion) in the first three months of the year, according to official data. The 0.5 per cent growth in the first quarter contrasted strongly with the 2.3 per cent rise seen for all of last year.

Guangzhou, the provincial capital, registered retail sales growth of 6.6 per cent in the first quarter.

Shenzhen’s GDP last year – 3.87 trillion yuan – saw it ranked third among Chinese cities. But despite being one of the country’s four first-tier cities – alongside Beijing, Shanghai and Guangzhou – it ranked just sixth in first-quarter retail sales.

Zhuang Wenyue, an analyst with the South China University of Technology’s Institute of Public Policy, said an unbalanced growth pattern, heavily reliant on export manufacturing, and high mortgage and living costs were to blame for Shenzhen consumers’ increasing timidity when it came to opening their wallets.

“Shenzhen’s high GDP growth is driven by strong industrial and export development but the benefit rarely trickles down to residents, with the increased GDP created going to research and development, industrial expansion and reinvestment,” he said.Home to tech leviathans including Huawei Technologies, Tencent, BYD and DJI, Shenzhen’s exports grew 24.3 per cent year on year in the first quarter, while industrial output rose 8.7 per cent.

Zhuang said the heavier mortgage pressure in Shenzhen compared with other mainland Chinese cities crimped spending, especially when many did not expect stable income growth.

“Shenzhen residents’ monthly mortgage payments typically account for half of their income,” he said.

“Coupled with high cost of living, this significantly squeezes consumption … many buy no more than basic necessities, while migrant workers remit much of their income back to their hometowns.

There are also pessimistic expectations for income stability amid a tough job market, leading to precautionary saving.“The city needs to redouble efforts to spur demand or the economy risks sputtering once the export surge is over.” Zhuang said Shenzhen’s retail sales would have tumbled into the negative territory if not for a continuous influx of Hong Kong diners and shoppers.

During Hong Kong’s three-day Labour Day holiday, between May 1 and 3, about 800,000 people crossed the border into Shenzhen, according to data from Hong Kong’s Immigration Department.

A property agent said consumer sentiment in Shenzhen could improve as a result of a policy-induced recovery in the property market that was fuelling hopes it could be the first major city to climb out of China’s protracted property slump.

On Wednesday, Shenzhen removed some restrictions on non-locals buying property in core downtown districts, and also raised caps on home loans.

“Transactions are rising, and if expectations of home price stabilisation become widespread, homeowners will be more inclined to spend … there will be a positive pass-on effect from a bottoming out of the property market,” the Shenzhen Special Zone Daily cited the agent as saying in a report published on Sunday.