Exhibiting a rotting tofu hut alongside a dragon made of underpants, Shenzhen's third biennale of architecture glories in the dizzying excess of China's urban growth

At the top of Shenzhen's Lotus Hill, a statue of Deng Xiaoping is frozen in purposeful mid-stride. From here he gazes down on this southern Chinese boom city, teeming with 14 million inhabitants, separated from Hong Kong only by a river and a border. Follow the path down the hill, through manicured gardens and past young families (the average age in Shenzhen is 30, the age of the city itself), and you reach the megastructure of the Shenzhen Civic Centre. Its overwhelmingly massive, blue undulating canopy evokes classical Chinese architecture, but is rendered in bold, postmodern, friendly style. It shelters Shenzhen's governmental buildings, and a vast complex of indoor and outdoor public spaces. This un-forbidden city is currently playing host to the extremely ambitious, yet awkwardly titled, Shenzhen and Hong Kong Bi-city Biennale of Urbanism/Architecture, which attempts to document the pace of change in this unwieldy new metropolis.

When Deng declared Shenzhen China's first liberalised Special Economic Zone in 1980, the city – at that point a mere fishing village of 20,000 – became a sort of economic laboratory for the nation as a whole. Where Shenzhen went, the nation followed: into a fervent embrace of capitalism and urbanisation. One of the city's many entrepreneurs is Barack Obama's half-brother, Mark Okoth Obama Ndesandjo, who moved here in 2002 and opened a chain of restaurants called Cabin BBQ (strange, considering he's a vegetarian). Ndesandjo just self-published a semi-autobiographical novel, From Nairobi to Shenzhen, and last week was named the city's official "image ambassador". Shenzhen's patriarch, however, will always be Deng, whose image dominates billboards, and whose waxwork figure enjoys tea with Margaret Thatcher in a bizarre diorama at the top of the city's tallest skyscraper.

The biennale, now in its third edition, is a government-sponsored attempt to establish one thing Shenzhen lacks: a cultural scene. The theme is city mobilisation, which chief curator Ou Ning – who lived here throughout the 1990s, when growth was so fast that the phrase "Shenzhen speed" was born – says is an experiment to unite citizens "in a time that lacks centralised force, spiritual solidarity and practical organisation". While most architecture biennales are unappealing cocktails of dodgy architectural art and dense technical presentations, this one has a more popular touch. More than 60 installations by artists and architects occupy an underground hall at the civic centre, the massive public plaza above it, and various spots around the city.

Most of them are interactive and easy to understand. You're greeted in the main exhibition space by a Chinese dragon composed of 12,000 American Apparel vest tops and underpants, made in California and specially imported, hanging from the ceiling in undulating, colour-coordinated patterns. The piece, by LA-based art duo Ball Nogues, attempts a temporary reversal of the world's normal movement of goods, which usually flows from Guangdong province – known as the workshop of the world – into the US.

Other pieces in the biennale similarly reflect on China and Shenzhen's rampant growth, but without delivering polemics or concrete proposals. This isn't only because of the threat of censorship, but because the role of architecture in a modern city is relatively tiny. Some exhibits merely enrich your thinking about Shenzhen: a video by Danish artist Bjarke Ingels of parkour free runners leaping miraculously around the city's treacherous building sites; a small hut made out of tofu by artist group Polit-Sheer-Form, which is gradually collapsing, rotting, and stinking out the hall; and seemingly ancient images of a sleepy, smalltown Shenzhen, from the 1960s to the early 80s, by local photographer He Huangyou. One photo shows an almost empty Shennan Avenue in 1980. It's reminiscent of the photographs of Sheikh Zayed road in Dubai circa 1990 – another city that's just 30 years old – except here, instead of desert, the road is bordered by rice paddies and the last vestiges of jungle.

The biennale has a provisional feel to it: installations are constantly being rearranged and repaired, and video projections function only sporadically. But the main virtue of the exhibition is that it propels you out into the city with fresh eyes. Liu Xiaoliang's obsessively detailed metal sculptures, Demolition Relocation (2009), model the gradually disappearing "urban villages" of Shenzhen. These haphazard neighbourhoods of densely packed "shakehand" buildings (so close together that residents can reach out of their windows and greet their neighbours) have been constructed in the absence of planning regulations, many of them by former farmers now unable to work. A timeline by the Hong Kong-based architects IDU tells the story of Shenzhen's urban village of Caiwuwei, which had a population of 27,000 before it was demolished to make way for a new business district in 2005. IDU emphasise that this isn't an eviction sob story; the farmers set up the Caiwuwei Village Company to ensure they profited from the development of their land.

Even though Caiwuwei is now mostly gone, Shenzhen still has around 20 other urban villages, which accommodate unregistered migrant workers from all over China (Shenzhen has more than 6 million of them). But what do these villages actually look like? Curious to find out, I asked a biennale volunteer to write down the name of one in Chinese and hopped in a taxi, which eventually dropped me off outside a huge, luxurious mall called Holiday Plaza. I assumed that the taxi driver had misinterpreted the directions, or that this urban village had also recently bitten the dust. But, just a block away, opposite a surreal amusement park called Window of the World – complete with a replica Eiffel Tower bedecked in neon Chinese characters – I discovered the dark, intricate warren of the Baishizhou urban village. It's an outdoor shopping mall, with tiny storefronts and ramshackle stalls selling an unimaginable array of stuff, from knock-off DVDs to vegetables and vitamins. There's no division between indoors and outdoors: family life spills on to the streets and all business activity, such as shoe mending, sewing, wood-cutting, hair-cutting, internet surfing, pool-playing, and most of all, cooking, is done out in the alleyways and in the main square – which also has a hospital in it.

Urban villages might be Shenzhen's equivalent of the hundreds-of-years-old hutongs in Beijing. It would be a travesty if they too were demolished to make way for gated apartment complexes and sterile shopping centres. Might Shenzhen's urban planners learn from these unplanned but apparently highly functional neighbourhoods? In November, a 47-year-old woman named Tang Fuzhen in Sichuan province set fire to herself and died rather than be evicted from her home, which stood in the way of developers. Last week, the government resolved to defend residents' property rights against such illegal eviction and demolition. So perhaps there is hope for Shenzhen's exceptionally energetic, if dirty and often derided, urban villages. Alternatively, as IDU pointed out at the biennale, the farmers themselves may choose to cash in on their increasingly valuable property.

Back at the biennale, late at night, the sound of screeching and creaking cranes echoes wistfully across the plaza. It's merely a sound installation by the architects DnA. But I heard exactly the same noises from building sites everywhere in Shenzhen. And up on the civic centre plinth, overlooking the plaza and the city beyond, Bureau des Mésarchitectures have constructed a pair of swings, called Double Happiness (2009), raised on a 10-foot-tall platform. It's the biennale's most popular piece, and it sends you lurching out towards the luminous horizon of skyscrapers, as if propelling you into the future. You're made to feel both nauseous and exhilarated.