Facts and figures: China's Shenzhen vs. U.S. Silicon Valley

Shenzhen is viewed as China’s Silicon Valley and a milestone on the way to further economic prosperity.

Looking at Shenzhen’s investments in research and development (R&D), it is apparent why Shenzhen plays a leading role among Chinese cities.

Last year, enterprises, universities and institutes in the city spent more than 90 billion yuan, or about 14 billion US dollars on R&D, accounting for 4.1 percent of Shenzhen’s total GDP, while the nation’s average rate is around 2.1 percent.

According to the World Intellectual Property Organization, in 2017, China filed around 49,000 applications for international patents, nearly half of which came from Shenzhen, surpassing Germany in patent applications – and ranking fourth in the world.

“Unlike Beijing and Shanghai, most of the tech investment in Shenzhen is market-driven. Enterprises contributed more than 90 percent of the city’s research investment, and more than 90 percent of the new patent filings.”

Shenzhen has become a global hub for hardware innovation. Huawei is the world’s largest telecom equipment provider and the world’s third largest smartphone producer behind Apple and Samsung. Another Shenzhen telecom, Tencent – China’s largest social media and gaming platform – became the most valuable company in Asia last year and is now among the world’s top 10 companies in market capitalization.

Policies behind Shenzhen’s growth

A major driver has certainly been policies supporting growth.

In October 1980, China was just emerging from the Cultural Revolution and was still a planned economy when Deng Xiaoping created the Shenzhen Special Economic Zone. Shenzhen was an experiment. The city officials were given the task of spearheading reforms envisioned by then-paramount leader Deng Xiaoping.

Deng Xiaoping Portrait Square in Shenzhen.

Beijing granted many preferential policies to Shenzhen. Local officials adopted many business practices from neighboring Hong Kong.

Back in those days, making money was still politically incorrect in China. Shenzhen became the first city to advertise its reformist ways – putting the slogan “Time Is Money, Efficiency Is Life” on a big billboard in the city.

• In 1982, foreign banks opened their first mainland branches in Shenzhen.

• In 1987, China’s first joint-stock bank launched in Shenzhen, breaking a monopoly of state-run banks.

• In 1990, China’s first securities company opened in Shenzhen.

• In 1992, the Shenzhen Stock Exchange opened. It’s one of China’s two mainland stock exchanges.

Those incentives prepared the ground for Shenzhen’s amazing growth. Hailed as China’s Silicon Valley, Shenzhen is launching more measures to upgrade its role in the global value chain.

For example, in Shenzhen, if you’re a high-tech company developing software, circuits, or computer chips, it’s possible that you won’t pay corporate taxes in the first two years. At the employee level, if you’re considered high-end talent, the government will give you extra incentives in housing and income tax.

So basically, in Shenzhen’s free trade zone, enterprises and individuals can enjoy some of the lowest tax rates and the most flexible regulations.

Can Shenzhen surpass the Silicon Valley?

The answer is no, at least in the short term.

Unlike the Silicon Valley, where a mature venture capital industry dominated business startup investments, venture capital firms in China are relatively still at a startup stage. Most of Shenzhen business starters rely only on local government support (800,000 yuan for innovation prize winners as of 2015), or small amounts of bank loans or investments from venture capital firms.

Shenzhen is indeed quickly becoming a hotbed for global venture capital investment. Despite the fact that the city government launched a 1.5-billion-dollar venture capital fund last year, much should be done to catch up with Silicon Valley, which attracted more than 15 billion dollars from VCs in 2016 (already Silicon Valley’s worst year in attracting VC investments since 2013).

Facebook founder Mark Zuckerberg's "dorm room to the global behemoth" story (at least in Alaskan senator Dan Sullivan’s narrative) may also be true for DJI founder Wang Tao, but Wang is almost the virtually only person in Shenzhen to have achieved this far starting from a university dorm, while similar stories have happened to many other US IT moguls, who kicked off in garages or dorms.

Another of Shenzhen’s weakness is its lack of higher education institutions. Some of the best universities in the world like Stanford and CalTech are just located in or in the surrounding region of the Silicon Valley.

But the 38-year-old Shenzhen was never a stronghold in China’s higher education. Although some renowned Chinese universities like Peking University and Tsinghua University have set up graduate schools here, the courses were more related to the financial sector than scientific research.

The good news for Shenzhen's hi-tech industry so far might be that prominent universities in adjacent Hong Kong also supplied Shenzhen a considerable number of talents, as in the case of DJI founder Wang Tao, who graduated from Hong Kong Polytechnic.

One of Shenzhen’s telecommunications equipment giants, ZTE, is now being critically affected by a recent US import ban. ZTE’s frangibility in the face of the ban due to its reliance on American imports, further testifies that to one day surpass the Silicon Valley, Shenzhen should strive to be a comprehensive conglomerate of both high-tech marketing and core technology.

(CGTN)