Shenzhen has emerged as China’s leading city for sustainability policies by phasing out polluting industries, imposing tough new environmental standards, encouraging climate-friendly industries, supporting high-tech development and regenerating urban areas.
Historically, Shenzhen has been a testing ground for new reforms, and we believe the sustainable policies applied in the city to reduce air and water pollution will also be applied nationwide in China as part of a concerted, nationwide effort to address climate change.
Shenzhen was a fishing village with less than 30,000 residents 40 years ago. Fast forward to 2019, and it is home to more than 12 million people, boasts some of China’s most innovative companies, and has an economy larger than many of the world’s most developed countries.
As China steps up its efforts to address climate change through sustainability policies and meets its lofty commitments to the Paris Agreement on Climate Change, Shenzhen is taking the lead as a testing ground for a raft of climate-friendly, sustainable development policies that will be rolled out more widely across China.
These include:
● Developing electric vehicles: Generous subsidies, large investments, and innovation by local industry leaders, like BYD, mean Shenzhen has become the center of China’s electric vehicle industry, with one unit being produced every 90 seconds at a leading manufacturer in the city. But it’s not just about building the cars; the city government has built the infrastructure too, adding 8,000 streetlight poles that also double as charging stations for electric cars in recent years.
● Establishing low-emissions electric buses and taxis: Shenzhen became the first city in the world to fully electrify its public bus fleet, running an estimated 16,000 electric buses. And almost all of the city’s taxis are fully electric. Progress with electric buses and taxis is potentially one reason why Shenzhen’s air pollution levels have slowly reduced between 2015 and 2019.
● Closing down polluting factories: Local authorities in Shenzhen mounted an aggressive initiative targeting labor- and resource-intensive industries as part of a campaign against pollution. Policy measures included raising prices for inputs like water, forcing minimum wages higher, and imposing new regulations to weed out old, polluting industries.
● Regenerating urban areas: Shenzhen has aggressively introduced urban regeneration projects to modernize old industrial spaces and abandoned residential buildings in a bid to expand the property stock in a more sustainable way. Sustained, rapid urbanization had generated record real estate prices in Shenzhen and put pressure on scarce land resources within the city.
● Supporting startups and innovative industries with tax breaks and talent policies: The Shenzhen city government is actively supporting new businesses in high-tech sectors, as well as universities and research institutes, with subsidies, investment in R&D, eased visa policies for foreign experts, and incentive schemes for overseas-educated Chinese.
Shenzhen has to forge a sustainable future because the surrounding environment has seen pollution over the years across rivers, air and land resources.
And Shenzhen has big ambitions because it is going to be right in the middle of the Guangdong-Hong Kong-Macao Greater Bay Area — a mega region comprising 69 million people — and that means creating a sustainable future for its citizens.
What’s true for Shenzhen is also true for China more generally. The challenges are the same, but the price of failure through climate deterioration, widespread pollution, impacts on public health and possibly social stability are too great.
But as China adapts to and confronts these sustainability challenges, we’ll see innovative ideas emerge, new sectors grow, and sustainable solutions present themselves, and that’s why we believe that Shenzhen and China will be a key space to watch and a likely source of innovative and investible ideas in the sustainable investing field in the future.
(The author is head of Sustainable and Impact Investing, UBS Asset Management.)