The Shenzhen Model City Initative

The Shenzhen Model City Initiative (“the Initiative”) received attention when on August 18, 2019, China’s State Council issued the “Opinions of the Central Committee of the Communist Party of China on Supporting Shenzhen’s Pioneering Zone for Building Socialism with Chinese Characteristics” (the Opinions,中共中央 国务院关于支持深圳建设中国特色社会主义先行示范区的意见).

An August 19 report on the Initiative was published by Xinhua, providing additional information and context. Other outlets soon followed with commentary assessing the consequences of the Initiative for Hong Kong’s development.

However, to date there is been little English language legal commentary on what the Initiative has in store for Shenzhen itself. So, what will the model city initiative mean for Shenzhen?

Shenzhen has already been afforded greater autonomy than ordinary Chinese cities since it became the country’s first special economic zone (SEZ) in 1980 (Guangdong Special Economic Zone Regulations 广东省经济特区条例, 15th Meeting of the Standing Committee of the Fifth National People’s Congress).  Shenzhen’s special status was part of Deng Xiaoping’s broader Opening of China reforms (改革开放). He personally left an inscription for Shenzhen when he visited the city in January 1984: “Shenzhen’s development and experience prove that the policy of establishing special economic zones is correct.” He later elaborated on the rationale behind SEZs: “The special economic zones are the windows of technology, management, knowledge, and foreign policy.” In these respects, development and connecting China to the rest of the world, much has remained the same for SEZs since 1980.

That was, until, the announcement of the Initiative. A nod to Shenzhen’s history as a pioneering Chinese city, the Initiative heralds a new height for Shenzhen’s level of autonomy. It includes many proposals that are in-line with the first principles guiding SEZs in the 1980s, like technological innovation, development, and deeper connection with other cities in the Greater Bay Area (GBA).

However in two respects, Democracy and the Rule of Law, it stands apart. In the Opinion, there is one provision relating to democracy (Paragraph 8, under Part III). It invites Shenzhen to “[b]e the first to create a visibly fair and just democratic rule of law environment” (率先营造彰显公平正义的民主法治环境). It continues: “Under the leadership of the party, the people’s orderly political participation will be expanded (扩大人民有序政治参与)the people’s congress system will be upheld and improved, and the socialist deliberative democracy system will be strengthened (加强社会主义协商民主制度建设)Further, “Shenzhen is allowed to make reforms and innovations in practice, and to make changes to laws, administrative regulations, and local regulations in accordance with the authorization.” (允许深圳立足改革创新实践需要,根据授权对法律、行政法规、地方性法规作变通规定).

Although no concrete details accompany the reference to democracy in the Initiative, the overarching goal of making Shenzhen “a pioneering area of socialism with Chinese characteristics” suggests that any reforms along those lines will take place in Shenzhen before any other city. To this end, it further specifies that, in a bid to “modernize social governance” (促进社会治理现代化,Part III, Paragraph 10), the State Council encourages the city to “strengthen grassroots governance (基层治理), reform and break new ground in the use of mass organizations (改革创新群团组织 — mass organizations refer to social organizations, such as the All China Federation of Trade Unions, 中华全国总工会), and the participation of social forces in the social governance model (社会力量参与社会治理模式).

One indication of where liberalizations might take place is apparent in the State Council’s support for attracting more foreign talent. In Part II, Paragraph 4, the State Council expressly emphasizes the need for a better talent immigration system and hints at greater commercial freedoms for talented foreigners:

We support Shenzhen in implementing a more open and convenient system for the entry and exit of foreign talents (支持深圳实行更加开放便利的境外人才引进和出入境管理制度), and in enabling international talents with permanent residence qualification to establish science and technology enterprises and act as corporate representatives of scientific research institutions located in (允许取得永久居留资格的国际人才在深圳创办科技型企业、担任科研机构法人代表).

There are two other provisions relating to the rule of law. The first (Part I, Paragraph 2) indicates that that the goal of affirming the rule of law in the city is to make Shenzhen into a more competitive business environment:

Exemplify civic rule of law (法治城市示范) —

Wholly raise the standard of rule of law construction, standardize government and market boundaries with the rule of law, and create a stable, fair, transparent, and predictable first-class legal business environment.

The second provision highlights that it is up to the city of Shenzhen to act on the invitations laid out in the Opinion. Specifically, if pilots or initiatives which Shenzhen wishes to bring forward involve adjustments to existing law outside its jurisdiction, the city must propose them to the National People’s Congress or its Standing Committee (Paragraph 18). If authorized, the central government will “support Shenzhen to implement the reform pilot (在中央改革顶层设计和战略部署下,支持深圳实施综合授权改革试点)” and apply for batch application authorization, particularly for market regulation, optimizing the business environment, and city planning (以清单式批量申请授权方式,在要素市场化配置、营商环境优化、城市空间统筹利用等重点领域深化改革、先行先试).

By way of example, according to China Central Television, Shenzhen will be given as yet unspecified privileges in internationalizing the Yuan. In fact since the Initiative was announced, Shenzhen’s foreign exchange authority has already streamlined the conversion and Yuan purchase process, a pilot program only applicable within the city limits. If successful, this could allow foreign investors to eventually begin pooling capital directly within Shenzhen’s limits rather than Hong Kong for their investments into the mainland. Since the Initiative was announced, Shenzhen companies like Tencent have also teamed up with state-run institutions to develop a government-backed crypto currency. Almost coinciding with the Initiative’s announcement, the People’s Bank of China’s subsidiary working on this project, the Shenzhen Financial Technology Co., announced recruitment calls for blockchain engineers and research fellows in August 2019. This is particularly remarkable considering China banned initial coin offerings and halted bitcoin-yuan trades in September 2017 (PBOC, CAC, MIIT, SAIC, CBRC, CSRC, and CIRC Announcement on Preventing Financial Risks from Initial Coin Offerings, 中国人民银行 中央网信办 工业和信息化部 工商总局 银监会 证监会 保监会关于防范代币发行融资风险的公告).

What kinds of other proposals, then, can we expect from Shenzhen city leaders? It is almost certain that eventual proposals will dovetail with existing plans for the region. For example, the Guangdong, Hong Kong and Macao Dawan District Development Plan unveiled inFebruary of 2019 (粤港澳大湾区发展规划纲要). Under this plan, the urban clusters along the Pearl River Delta are set to converge into a world-class, innovation Super-region (in lockstep with similar plans for the Yangtze River Delta, and Beijing-Tianji-Hebei) by 2035. Greater harmonization of the Shenzhen, Hong Kong, and Macau financial markets and between the Shenzhen and Hong Kong stock exchanges are other examples of what is in store for the city.

The letter of the Opinions, together with its spirit, have already captured the imagination of city leaders. “The strategic significance …  is extremely prominent,” said Song Ding (source: Xinhua), director of the Tourism and Real Estate Research Center of Shenzhen Comprehensive Development Research Institute. Qu Jian, deputy dean of the Shenzhen Comprehensive Development Research Institute, said “Shenzhen has already walked in front of the country in the first demonstration. It has already played such a role in the process of reform and opening up. Now it continues to strengthen its role so that everyone can clearly see what their country will build in the future” (ibid).

Indeed, Shenzhen, from its humble beginnings as a small fishing town before Deng Xiaoping’s inscription 35 years ago, to the bustling megalopolis rivalling Hong Kong in 2019, has become unrecognizable. Although this makes it hard to imagine how the next chapter in its development will unfold, it is now sure to remain a model for the development and planning of other ambitious Chinese cities well into the future.

The above post was written by Hannibal El-Mohtar, a Canadian lawyer who completed his first year of practice at Borden Ladner Gervais LLP’s Toronto office where he assisted BLG’s international trade practice with import-license review, expiry review, and white collar criminal law. Hannibal is currently pursuing an LL.M at Peking University.