Huawei's headquarters in Shenzhen File photo: IC

The mayor of Shenzhen in South China's Guangdong Province on Sunday denied media reports suggesting telecommunications giants Huawei Technologies Inc and ZTE Corp are leaving the city due to rising costs.

Shenzhen has long been known as one of China's main high-tech hubs, but thousands of companies are reportedly planning to move their factories out of the city because of rising property and labor costs.

"Huawei and ZTE will not leave Shenzhen," Mayor Xu Qin told a press conference on Sunday in Guangzhou, capital of Guangdong, adding that recent rumors about the two companies' relocation plans are not true.

Huawei has submitted its development plan to the city government and has "no plans" to withdraw from Shenzhen, Xu said. "And ZTE will always be in Shenzhen."

Xu pointed out that Huawei and ZTE are a part of Shenzhen's counterpart assistance program for the eastern area of Guangdong.

But he admitted that ZTE is moving its phone production and assembly business to Heyuan in east Guangdong.

ZTE will start to move its phone production base from Shenzhen to Heyuan in July, and production at the new base is expected to start in October, the Southern Daily reported on Sunday, citing Li Yannan, Party chief of Heyuan High-Tech Zone. 

The output value at the new base is expected to reach 10 billion yuan ($1.5 billion) in 2017 and 30 billion yuan in 2018, rising to 100 billion yuan over the next five years, the Southern Daily report said.

According to the company's investment contract, the new base will take advantage of the abundant land resources and competitive labor costs in Heyuan, domestic news portal ifeng.com reported on Sunday.

"Obviously, it's a mutually beneficial deal both for ZTE and the Heyuan government," Song Ding, a Shenzhen-based market analyst at the China Development Institute, told the Global Times on Sunday.

"While ZTE enjoys the benefits of Heyuan government policies, the company also brings in a stream of tax revenues for the government," Song explained. 

Losing its edge

Shenzhen is the birthplace of many top domestic high-tech firms but it seems to be losing its edge in resources and costs.

Companies facing rising costs are looking for space in other cities and want to move some of their business operations out of Shenzhen, said Li, the Party chief of Heyuan High-Tech Zone.

Although both the Shenzhen government and Huawei denied earlier reports saying Huawei would move its headquarters out of Shenzhen, the news came amid a trend of company relocations.

The mayor of Shenzhen admitted on Sunday that about 15,000 companies have moved out of Shenzhen recently.

"It's quite normal for these enterprises to move out of Shenzhen," Song said.

"The city has developed to a stage at which costs, including labor and property rental costs, are much higher than a few years ago," Song noted.

Housing prices in Shenzhen soared 50 percent year-on-year in 2015, the biggest increase in housing prices globally, media reports said, citing global real estate firm Knight Frank.

To cut costs, companies in Shenzhen have no choice but to move out some middle and low-end business chains and departments, like manufacturing and customer services, while keeping their core business lines in the city, Song said. 

In addition to the cost factor, the opportunities brought by splitting operations among several smaller units may also have contributed to the recent company relocation trend, said Liu Dingding, a Beijing-based independent Internet industry analyst, adding that different units can function effectively and develop independently.

However, despite the relocations, Shenzhen is still attractive to many companies because of the government's support for innovation, Liu told the Global Times Sunday.

"The reason why those companies [in Shenzhen] have excelled is not only because they are hard-working - policy support for innovative businesses from the local government and stable public services have also played a key role," Liu said.

"It's fair to say that the support for innovation in Shenzhen gave birth to those enterprises and helped them grow their business," Liu noted.