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Tess Vigeland: China hammered another nail into the coffin of the decoupling theory today -- you know, the idea that just because the U.S. sneezes, it doesn't mean China will catch a cold. Well, Beijing announced yet another interest rate cut today, just like the Red did last week. The signs of the global economic crisis are showing up all over China -- factories are shutting, the unemployment rate is skyrocketing. China's experiment with the free market system began some thirty years ago in Shenzhen; back then it was an unknown fishing village, today, it's another world. Marketplace's Scott Tong reports.

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Scott Tong: Three decades ago, Shenzhen was a rural backwater. Just across the border, Hong Kong offered fancy British hotels and cream soda; all Shenzhen had was 30,000 farmers and fishermen.

Michael Morris: Shenzhen was what then a one horse town.

That's Michael Morris, one the first foreign businessmen allowed in.

Morris: There was a main street, there was a bit of stuff to the left, there was a bit of stuff to the right, and that was it.

Morris worked for Pepsi in the late 70s. That's when Chinese leader Deng Xiaoping opened up Shenzhen -- as a test tube to foreign investors. Morris built a soda canning plant. His first challenge: motivating workers.

Morris: The state didn't actually pay you very much, pretended to pay you. And in return, labor pretended to work.

In the early days, Morris says half his workers would simply disappear at lunchtime. Sometimes, they took company vehicles with them.

Morris: And you'd say to these guys, what happened to the trucks? Oh, well we had some coal to ship.

Clearly, there was no guarantee this free-market stuff would fly. In fact, that's one reason China picked Shenzhen for this trial. It was insignificant, so if reform flopped -- if a tree fell in Shenzhen, no one would hear it.

Bill McCahill served in the U.S. embassy in China in the 1970s.

Bill McCahill: There's an intrinsic Chinese fear of chaos; it goes from order to chaos often in a split second, and people feared that that's what would happen.

But Deng Xiaoping stayed committed to the Shenzhen experiment.

[Song plays]

This song commemorates one of his high-profile visits there. It's called "The Story of Spring," the idea that China's economy would blossom as it opened to the West. And eventually big investors came: Pepsi was joined by the likes of McDonalds and Volkswagen. Bill McCahill:

McCahill: The more the policy demonstrated it was working, and it was there to stay, foreign investors became much more positive about making larger scale investments.

So China replicated the model elsewhere; other cities got Shenzhen-ified. Jiang Bo was an early official in the city.

Jiang Bo: If we were back in the Cultural Revolution in the 60s, and people called me a capitalist traitor, I would deny it, resolutely. If they called me that today, I would admit it, resolutely.

Today, Shenzhen is China's richest city. The average person makes $10,000 U.S. a year; thirty years ago, he made $100 dollars.

Liam Casey runs the supply chain consultancy PCH.

Liam Casey: You have a very skilled labor force, you also have probably the best logistics system in the world. So I think there are still a lot of opportunities here.

Shenzhen's old fishing village is gone; the city paved paradise, and put up train station. Migrant workers come and go, the station's a Tower of Babel of Chinese dialects. And on the subway wall, an ad for Self Magazine reads, in Chinese "Eight ways to tone up your calves."

What's next for Shenzhen? Big challenges. Pollution's off the charts, as are labor costs. And since Shenzhen's an international city it's particularly exposed to the global slowdown. Economist Cheng Jiansan is with the Chinese Academy for Social Sciences.

Cheng Jianson: When our economy developed, it was trial and error, we didn't have much experience. And so we don't have much experience with downturns, either.

Optimists think Shenzhen, and China in general, is flexible enough to handle whatever the free-market brings. Thirty years on, this test-tube baby is not going back in the bottle.

In Shenzhen southern China I'm Scott Tong for Marketplace.