Finding a home for all of Qianhai’s registered enterprisesJune 21, 2019 / By
Much has been made about the Qianhai Free Trade Zone (FTZ) in Shenzhen since it was first conceived by the mainland China government back in 2010. Covering just under 15 square kilometres and capable of yielding 26 million square metres of floor area, Qianhai aims to develop as a business district that is on par with Hong Kong but on the China side of the Greater Bay Area (GBA). To entice enterprises to establish a presence in Qianhai, an array of policy measures specific to the FTZ have been introduced, covering areas such as taxation, rule of law and access to offshore capital, to name a few.
As at the end of 2018, there were 178,000 enterprises registered in Qianhai, including 356 Fortune Global 500 companies.
Despite enjoying the benefits of being registered in Qianhai, very few enterprises actually have offices in the FTZ. This is a direct result of the government allowing enterprises to register in Qianhai when it was still a construction site. However, as new office buildings are completed, the government must now find a way to bring these enterprises back to Qianhai.
The most obvious solution is to have each enterprise relocate as part of their annual registration renewal process. Whilst this sounds simple, it is difficult to implement in practice. For example, there would need to be mechanisms in place to ensure that enterprises relocated all relevant staff into the FTZ. Moreover, the amount of offices currently available for lease in Qianhai remain well below the amount required to house all registered enterprises. Demand would quickly overwhelm supply.
Rather than having to deal with this dilemma, a more straightforward approach would be to simply expand the boundaries of the FTZ to cover all of Shenzhen, if not the entire GBA. This would eliminate the need for registered enterprises to relocate to the FTZ. There are some early indications that the government is moving towards this direction. In the GBA Outline Development Plan released in February, it explicitly states that the area covered by the Qianhai FTZ will be enlarged. Yet these plans appear to be more focused on pushing the FTZ’s boundaries wider around Qianhai and thus unlikely to address the dilemma at hand.
How the government ultimately tackles this issue is important for real estate investors since part of the allure of Qianhai has been its unique positioning as a business district where enterprises are able to enjoy preferential policies that are not available elsewhere in mainland China. Without its unique qualities, investors will need to re-evaluate real estate strategies and this will have significant implications on investments in the broader GBA.
Still, with demand for office space in Shenzhen continuing to grow at a breakneck pace—the occupier market for Grade A offices grew by 840,000 square metres in 2018—and with over 40% of the 6 million square metres of new supply built in the city over the next five years being located in Qianhai, maybe investors have little to worry about since the market will likely push demand towards the FTZ, regardless.
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