Trinity College Trinity College Digital Repository

Faculty Scholarship

1-2017

China’s Emerging Silicon Valley: How and Why Has Become a Global Innovation Centre

Xiangming Chen Trinity College, [email protected]

Taylor Lynch Ogan Trinity College, Hartford Connecticut

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Innovation another eight million short-term resi- dents in Shenzhen today, bringing the ’s Emerging Silicon Valley: total to around 18 million.2 This qualifies Shenzhen as China’s largest immigrant How and Why Has Shenzhen city. The inflow of human resources Become a Global Innovation Centre through the large influx of immigrants has contributed to Shenzhen’s innovative By Xiangming Chen and Taylor Lynch Ogan capacity (see later). The rapid growth of Shenzhen’s economy has both paralleled and facil- itated its structural shift favouring Shenzhen is China’s very own to examine the key factors that make innovation. After averaging about Silicon Valley. Find out how it has Shenzhen an innovative ecosystem in 35% annually for its GDP growth become innovative by tracing its which companies have thrived. through 1995, Shenzhen kept its rapid growth and strategic transi- annual growth at around 14% through tion; what are the four of its most Rapid Growth and Quality Transition 2014. As a result of this slowed but innovative companies, and what Few companies can perform well if their sustained high growth, Shenzhen’s are the key factors that make it home city does not create and sustain GDP per capita in 2014 reached an innovative ecosystem in which healthy demographic and economic around $25,000, the highest of all companies have thrived. growth. This has not been a problem Chinese cities. At this pace, Shenzhen’s for Shenzhen, which has been one of GDP per capita is expected to hit any informed people would the fastest growing cities in China and $36,000 in 2020, equaling the 2012 have heard about Shenzhen, the world for the last 35 years. In fact, figure for Hong Kong.3 Driving the Mwhich has grown, at a break- no other city anywhere in the world has more recent and future growth is the neck pace, from a small village and gained more population than Shenzhen accelerated development of services China’s first special economic zone since 1980 (see Figure 1 below). Unlike and the relative contraction of manu- to a prosperous megacity and an any other large city in China, Shenzhen facturing (see Figure 2 on next page). emerging centre of innovation over has maintained a small proportion of The still substantial share of GDP in three decades. Yet how many people, its population (only about 30%) as offi- manufacturing is no longer produced even in the global corporate commu- cially registered with . Besides the by the labour-intensive and low-tech nity, have heard about BYD, which approximately 70% or eight million long- assembling industries that domi- happens to have risen from Shenzhen term residents included in Shenzhen’s nated the earlier phase of Shenzhen’s to the world’s manufacturing leader total population, there are as many as economic development. Instead in rechargeable batteries and electric vehicles in 20 years? Probably not many. Besides the tale of Shenzhen FIGURE 1. Shenzhen’s Population Growth, 1979-2014 as a “miracle city”, there is a story to 1200 be told about how and why Shenzhen has also become a global hub for inno- 1000 vative companies like BYD. While 800 our previous article in this maga- Year-end permanent 600 population zine focused on the rise of BYD Registered with Shenzhen,1 this article has two 400 population Non-registered purposes. The first is to look at how (10,000) Population 200 population Shenzhen has become innovative by tracing its rapid growth and strategic 0

transition as a favourable backdrop 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 and then profiling four of its most Year innovative companies. The second is Source: Graphed from various Shenzhen Statistical Yearbooks

www.europeanfinancialreview.com 55 In-Depth

BYD also pioneered a solar also accounted for 46.9% of all Patent after BYD purchased Xi'an Tsinchuan tracking system, where the Cooperation Treaty (PCT) applications Auto Co., Ltd., a defunct Chinese auto- from China in 2015. By then Shenzhen mobile manufacturer, in 2003, BYD panels can follow the path of led all large Chinese cities in the released the world’s first plug-in hybrid the sun across the sky, thus number of patents applied and grant electric car, the F3DM. This attracted stabilising power generation for 12 years in a row. Through June interest from investors, including and matching peak loading time. 2016, Shenzhen accounted for 51.8% Warren Buffett who bought 10% of of all applied patents in China.5 BYD Co. Ltd. in 2008 for $230 million, and Wang became China’s richest man Shenzhen’s manufacturing has become A Quartet of Innovative Companies and has since been one of the wealth- increasingly high-tech, new-tech, and Since firms dominate R&D in iest individuals. clean-tech favouring such industries as Shenzhen, they logically form a wide BYD has grown to over 200,000 new information technology, biotech- and deep pool of technological inno- employees, the largest rechargeable nology, new energy, new materials, vation. But do they? What firms lead battery manufacturer with over a 25% numerical control tools, and robotics. and in what key industry sectors reflect global market share, and the largest With this shift, the value added of and represent Shenzhen’s growing iden- electric vehicle manufacturer in the these new industries as a share of tity and strength as a global innovation world. Wang also stresses the other side GDP rose from 28.8% in 2010, to centre? Here we profile four of these of the coin, where there must be cleaner 35.6% in 2014. firms, all started by entrepreneurs. alternatives for generating energy, espe- Shenzhen’s industrial upgrading has cially now that his company’s products been accompanied and fostered by the BYD demand so much electricity. continued growth of human capital. BYD was founded in Shenzhen in BYD soon entered the solar power As Figure 3 on the next page shows, as 1995 by a young, ambitious battery industry, which Wang stressed was a the number of college graduates rose, chemist, Wang Chuangfu, who aptly new energy total solution, one that was the highly educated base of the popu- named his company BYD Co. Ltd., not only about grid parity, but also grid lation became stronger. In Shenzhen his acronym for “build your dreams”. quality. BYD’s photovoltaic system was today, college educated talents relative The 29-year-old Wang began making multilayered and the first of its kind to its permanent population stand at rechargeable batteries for cell phones in in the industry, which is now being 37.1%, higher than 28.6% in Beijing, his first factory in Shenzhen. Just five emulated by companies like Tesla/Solar and 23.4% in the New Pudong district years later, BYD was the world’s largest City. BYD’s double-glass solar panel of Shanghai. Shenzhen’s expanded cell phone battery manufacturer. The is highly energy efficient, long-lasting, human capital has translated into a inevitable transition for BYD was to and requires less precious metals in greater and more effective capacity of put their battery into a car. Five years order to be cost competitive. BYD R&D at both the firm and aggregate levels. From 2009 to 2014, the firms’ share of Shenzhen’s R&D stayed over FIGURE 2. Shenzhen’s GDP by Agriculture, Manufacturing and Service, 1979-2014 90%, and Shenzhen’s R&D budget as a share of GDP stood at 4.2%, 70.00% doubling the national average of 2% 60.00% and far exceeding the 2.5%, which is 50.00% regarded as the international norm for 40.00% Agriculture/GDP innovative economies. High levels of 30.00% Manufacturing/GDP investment in R&D have paid off in 20.00% Service/GDP the number of patents Shenzhen has Percentage applied for and been granted. In 2014, 10.00% Shenzhen applied for 82,254 patents, 0.00%

up from 42,279 in 2009, and was 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 granted 53,687 patents, up from 25,894 Year in 2009.4 Shenzhen-based companies Source: Graphed from various Shenzhen Statistical Yearbooks

56 The European Financial Review December - January 2017 also pioneered a solar tracking system, DJI DJI has been called the “Apple of where the panels can follow the path of Shenzhen is also home to the world’s drones”, and Frank Wang “China’s Steve the sun across the sky, thus stabilising largest consumer drone manufac- Jobs”, especially for his unique manage- power generation and matching peak turer, SZ DJI Technology Co., known ment practices, even admitting himself loading time. Most importantly, the to most as DJI. The privately held to Forbes that he can be an “abrasive solar tracking system increases the effi- robotics company’s growth is strik- perfectionist”. When Forbes asked ciency of the panels by 29%. ingly analogous with that of Shenzhen. what he thought of being compared BYD also stresses having an inverter Founder and CEO Frank Wang started to Steve Jobs, he said he appreciates it, in their photovoltaic system, which the company in 2006, and in 2011 his philosophy being, “All you need to further increases efficiency and relia- DJI was still a startup. Frank Wang’s do is to be smarter than others.”7 The bility. Arguably the most important part story is cliché Silicon Valley-startup. 35-year-old entrepreneur is now worth of any photovoltaic system is energy Growing up, Frank Wang struggled over $3.6 billion, lives in Shenzhen, and storage, a focus of BYD’s from the as a student, and at 16 years old, drives a four-year-old electric car. beginning. The Energy Storage System he finally received his long-coveted Now DJI has essentially created a (ESS) is essentially a big battery that remote-controlled helicopter, which he market for consumer unmanned aerial stores the energy produced by the solar reversed engineered. He studied elec- vehicles (UAVs) where they currently panels during the day, which is also the tronic engineering at the Hong Kong control over 70% of the global market peak loading time for energy usage. By University of Science & Technology, for consumer drones. DJI is already storing the excess energy, the ESS can and in his senior year he moved with valued as high as $10 billion. Their then feed the grid with its stored energy two of his classmates across the Phantom series of drones, which rolled when demand is high. BYD’s newest border to Shenzhen where he began out in early 2013, finally brought an slogan is aptly “The official sponsor of selling drones to hobbyists out of his affordable entry-level drone to the Mother Nature”. three-bedroom apartment.6 market for $679. Though they barely broke even on the drone, they priced it so low to essentially create a market for UAVs and to prevent a price war from competitors.8 DJI’s product line extends further than just entry-level drones, however. Their highest level drones are used by nearly every produc- tion company in Hollywood, and are even replacing news helicopters. DJI prides itself on engineering and designing every part of their drones, such as the blades, controller, gimbal, radar sensors, software, and even the camera. It is impressive such a new company is able to manufacture their own camera that shoots 4k video given the complexity of a camera the size of a golf ball. All of their main competitors, except GoPro, an DRIVERLESS VEHICLES: BYD joined the crowded field of Google, Tesla, GM, Ford, Mercedes, action camera company, outsource at BMW, etc. in the autonomous-driving industry when they recently partnered with Baidu, known least the camera component of their to many as “China’s Google” with their new project called the Baidu AutoBrain System. Baidu, drones. DJI’s gimbal, a mechanism whose headquarters is in Beijing, recently moved their International Operations Headquarters to Shenzhen as well as built a new R&D centre where much of the AutoBrain System is created. that allows the camera to move on a Dozens of retrofitted BYD cars are being tested with the AutoBrain System throughout fixed axis to create a stabilised image, Shenzhen. The shift from the engine to artificial intelligence in a car is one that China can is also incredibly advanced, so much actually tackle. Photo courtesy: Qilai Shen/Bloomberg so that DJI even has a product line

www.europeanfinancialreview.com 57 In-Depth

for professional camera grips. Their and placing emphasis on service and in developing 5G, an enabler of disrup- gimbals and cameras have even been customisability, the company gained tion. Being one of the newest megacities spotted mounted to the top of BYD market share and made its way into the in the world, Shenzhen is an ideal city police cars in Shenzhen, likely testing mainstream market. to test 5G networks that connect the facial recognition software.9 Domestic success spurred Internet of Things to smart buildings, to go global. In 1999, Huawei set up devices, appliances, and vehicles. While Huawei its first R&D centre in Bangalore, the technology is still being developed Huawei is a leading global informa- India. From 1996 to 2000, Huawei and tested by the world’s top telecom- tion and communications technology made a concerted effort to promote munications companies, when released, (ICT) solutions provider. It overtook itself at many international expos. It 5G will connect 100 billion devices, and Ericsson as the world’s largest telecom- engaged IBM, at a substantial cost, to will be 66 times faster than 4G. 5G is munications equipment manufacturer be its technology-training provider. expected to spark the materialisation in 2012. Huawei was founded in 1987 In 2003, the company entered into of wholly new ideas and applications by Ren Zhengfei, a former engineer in a five-year contract with IBM. In such as virtual reality-based immersive the People's Liberation Army. At the 2005, Huawei’s international contract entertainment, remote surgery, and time of its establishment, the company orders exceeded its domestic sales for driverless vehicles. Huawei has been reportedly had only RMB21,000 the first time. In late 2010, Huawei conducting much of their 5G testing in ($3,300 in today’s US dollar) in regis- was planning to invest around $500 Shenzhen, and are likely working with tered capital. Its employees, both million to set up a telecom equipment other Shenzhen-based companies, such managers and employees, worked in a manufacturing facility in Tamil Nadu, as BYD.10 small office that also served as a kitchen India and $100 million to expand its and dormitory. Huawei focused on R&D centre in Bangalore. manufacturing phone switches, but has In 2015, Huawei's revenue reached Tencent is a leading provider of Internet since expanded its business to include: RMB395 billion ($60.8 billion based on value added services in China and is one building telecommunications networks; the year-end exchange rate), an increase of the largest Internet companies in the providing operational and consulting of 37% year-on-year. Huawei’s 4G world. Its many services include social services, and equipment to enterprises equipment is widely deployed around network, web portals, e-commerce, and inside and outside of China; and manu- the world and is now being used in multiplayer online games. In 1998, Ma facturing communications devices for the capital cities of over 140 countries. Huateng, with four other classmates, the consumer market. Globally, Huawei is setting the pace for co-founded Tencent, after making During its first few years, Huawei’s IT systems based on cloud architecture. money playing the stock market. In business model consisted mainly of Following a path towards a super-con- 1999, inspired by ICQ, the world’s first reselling private branch exchange nected world, Huawei is already a leader Internet instant messaging service, (PBX) switches imported from Hong Kong. Meanwhile, it was reverse-engi- neering imported switches and investing FIGURE 3. College Graduates and Graduates per 10,000 Population, 1987-2014 heavily in research and development to manufacture its own technologies. 25000 25.00 By 1990 the company had approxi- 20000 20.00 mately 500 R&D staff, and began its Graduates by own independent commercialisation 15000 institutions of 15.00 higher education of PBX switches targeting hotels and 10000 10.00 Graduates per small enterprises. The company's first 10,000 Year-end permanent major breakthrough came in 1993, 5000 5.00

population (person) population when it launched its C&C08 program controlled telephone switch. It was (person Graduates College 0 0.00 Graduates per 10,000 permanent Graduates

by far the most powerful switch avail- 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 able in China at the time. By initially Year deploying in small cities and rural areas Source: Graphed from various Shenzhen Statistical Yearbooks

58 The European Financial Review December - January 2017 developed by an Israeli company, Ma were 899 million while its peak concur- An Ecosystem of Innovation and his team launched a similar soft- rent user accounts reached 247 million. The four profiled companies exem- ware, with a Chinese interface and a WeChat has over a billion created plify a large number and heavy density slightly different name – OICQ. In accounts, 700 million active users, with of successful firms, mostly privately December 2000, Ma changed the name more than 70 million outside of China. owned, based in Shenzhen. What of the software to QQ, which became With this huge market, Tencent has explains this clustering in this particular widely popular in China. passed telecoms giant China Mobile city? We address this question by seeing In the early 2000s, Ma Huateng to become the nation’s most valuable these companies as embedded and expanded Tencent’s business port- publicly-traded company. Tencent’s thriving inside a favourable ecosystem, folio. In 2003, Tencent released its own new crown as Asia’s most valuable nurtured mainly by four factors (see portal (QQ.com) and made forays into company reflects its dominant posi- Figure 4 below). While the four compa- the online gaming market. By 2004, tion, which could pose an eventual nies represent different industries, they Tencent became the largest Chinese challenge to global social networking share an underlying emphasis on inno- instant messaging service (holding 74% leader Facebook.11 vation through strong R&D. BYD relies of the market). Later in 2004, Tencent Tencent’s newest foray into online on its 16,000 R&D engineers and state- launched an online gaming platform and payments has also paid off. One of its of-the-art manufacturing techniques. In began selling virtual goods to support moves was to invest in Didi Chuxing, a 2010, BusinessWeek ranked BYD the 8th the games published on their platform ride-sharing service almost identical to most innovative company in the world, (virtual weapons, gaming power), as Uber. Didi’s seamless integration with ahead of Ford, Volkswagen, and BMW. well as emoticons and ringtones. In WeChat allows WeChat users to order About 40% of DJI staff work in R&D, 2005, Tencent launched the C2C plat- a ride from within the WeChat app, as and they have opened an R&D centre in form Paipai.com, a direct competitor to well as pay or split the fare using WeChat Palo Alto, California. As of September e-commerce giant Alibaba. In January Wallet. This also allows WeChat users to 2015, Huawei had over 170,000 2011, Tencent released WeChat, a pay for goods and services at numerous employees, around 76,000 of whom cross-platform instant messaging shops and eateries, large or small. Very were in R&D. It has 21 R&D institutes service, which quickly became one of quickly, Tencent has built one of the in China, the US, the UK, Germany, the largest standalone messaging apps world’s largest payments systems, with Sweden, Columbia, India, and Turkey. by monthly active users. transactions that could exceed $556 More than 50% of Tencent employees Fast forward to June 31, 2016, the billion in 2016, almost doubling the are in R&D. In 2007, Tencent invested monthly active user accounts of QQ $280 billion that PayPal banks per year. more than RMB100 million (about $15 million) in setting up the Tencent FIGURE 4. Shenzhen’s Ecosystem of Innovation Research Institute, China's first Internet research institute, with campuses in Beijing, Shanghai, and Shenzhen. Small and Rechargable batteries *Immigrant City A small and purposeful local govern- Purposeful Government & Electric Vehicles *Entrepreneurial ment is the first key to Shenzhen’s successful ecosystem for breeding and sustaining innovative companies (the upper left box of Figure 4). This was Four baked into Shenzhen as a special zone- Drones Leading Internet turned-new city over three decades ago. Firms Untainted with strong state control and economic planning, Shenzhen charted a new course for developing innovative governance and created a municipal *“Buzz” government with a more limited struc- *Bordering Telecommunications Higher Education Hong Kong ture and purposeful role, not as a comprehensive administrator, but as Source: Conceived and drawn by the authors a catalyst for targeted development

www.europeanfinancialreview.com 59 In-Depth

of innovation is immigration (the upper right box of Figure 4). Shenzhen is the largest city of immigrants in China, especially so if including the tempo- rary migrant population not captured in Figure 1. Interacting with other factors, immigration is an important source of entrepreneurial spirit and drive. Research shows that a high percentage of start-ups in Silicon Valley have been launched by immigrants, largely from China and India.15 A popular saying in Shenzhen goes, “You are a Shenzhener once you come here.” The expression embodies the optimism of the new generation of entrepreneurs, high-tech experts, craftsmen, and others who Wang Chuanfu, CEO of BYD, with President Xi Jinping and the Duke and Duchess of Cambridge and see Shenzhen as a land of opportu- a BYD Bus in London. nity like no other city in China. “It's a true paradise if you want to create initiatives.12 In guiding Shenzhen’s tran- and Reform Commission (SDRC), the your own business,” said James Wang, sition from a low-tech factory town to most important department under the a 39-year-old Internet entrepreneur a global innovation hub, the municipal municipal government and supervised in a local science park.16 The young government has adopted a number of by a Deputy Mayor, oversees urban migrant entrepreneurs today, like their measures to foster creative industries construction to mitigate climate change predecessors such as Ren Zhengfei of and firms. The local government is and implement clean development poli- Huawei and Wang Chuanfu of BYD spending RMB21.5 billion ($3 billion) cies. Already with the largest fleet of who migrated to Shenzhen in the 1980s on emerging industries such as new electric vehicles in the world, Shenzhen and 1990s, prove that a lesser govern- energy represented by BYD. Shenzhen has recently added 2,000 more – 1,300 ment and open immigration since the has taken a clustering approach to the buses and 700 taxis – all bought from beginning of Shenzhen has maintained cultural and creative industry by creating local EV manufacturer BYD through a an open and attractive environment for model bases for creative design, cultural subsidy-type program. Major support some entrepreneurs to succeed. software, animation and games, new by a small and purposeful government As China’s first special economic media, and so forth. It subsidises up for a leading firm like BYD illustrates zone bordering Hong Kong, Shenzhen to 70% of rent for “creative” start-ups. both the relative status of and close has developed a “buzz” that does not The local government also launched interaction between state and market exist elsewhere in China (the lower the 1st Innovation Competition of in China, especially in Shenzhen. It is left corner of Figure 4). Besides being International Talents held from reported that in Chinese cities, govern- linked to economic opportunities, this November, 2015 to April, 2016, which ment officials walk in front of CEOs of “buzz” manifests itself in a lifestyle is open to all IT talents around the local companies when they meet, while that appeals to young entrepreneurial world, to win a total of $880,000 bonus in Shenzhen, CEOs like Wang Chuanfu people. The average age of residents plus an additional $200 million govern- of BYD walk ahead of government in Shenzhen is 28.7 years old, and ment subsidies and venture capital.13 officials.14 Wang walked side by side people aged 20 to 29 make up 35.8% Going beyond citywide policies, the with President Xi Jinping of China of the city’s population. In compar- Shenzhen government has targeted during the latter’s official visit to the UK ison, the average age of Shanghai’s specific leading industries and firms. in October, 2015 when London bought population is over 40, and people over Climate change, energy conservation, more zero-emission electric busses 60 are 27% of the city’s registered and emission reduction has been a from BYD (see the photo above). population. Around Shenzhen, young high priority. Shenzhen Development The second factor in the ecosystem people are everywhere and a feeling of

60 The European Financial Review December - January 2017 a sense of excitement and dynamist is and the ability to think independently in 2000 and by Peking University in in the air. This lifestyle for the young and creatively. A recent university study 2001, China’s top two universities. was a critical cultural ingredient in reported that there is a widespread This rapid expansion of higher educa- the formation of Silicon Valley from feeling in Hong Kong that the city has tion (Figure 3) has both accompanied its beginning.17 Half a century later, lost its can-do spirit. A more pessimistic and fueled Shenzhen’s rise as an inno- Shenzhen has reproduced the mutual local designer commented, “Innovation vation centre. It is only fitting that reinforcement between youth, lifestyle, wise, Hong Kong is doomed”.18 Is the the Shenzhen government is planning and immigration in producing an inno- erosion of Hong Kong’s innovation to increase the number of colleges vative ecosystem. expected or inevitable as the much newer and universities to 20 by 2025 when The demographic and cultural and younger city of Shenzhen across the enrolled college students will rise to aspects of this system are hardened border has become so innovative? This 250,000, with 200,000 of whom being by the physical location of Shenzhen is not the place to figure out why Hong full-time. If this ambitious plan mate- across the border from Hong Kong. Kong has become less innovative than rialises, Shenzhen will be able to draw Shenzhen’s earlier development and Shenzhen. The reversed positions of a lot more on home-grown human dominance of low-end manufacturing the two cities on the same border only talents to sustain its innovation. (toys, garments) would not be possible further highlight Shenzhen’s ascent as an without these factories crossing the innovation centre. A Bright Future border from Hong Kong. Shenzhen’s We round up the four corners of If Shenzhen is China’s emerging Silicon strategic shift to the industries repre- the ecosystem (the lower right box Valley, is it also on the way to become sented by the four firms above has also of Figure 4) by returning to the rapid the world’s new Silicon Valley?19 In one benefited from the location proximity growth of higher education as demon- respect, the four companies profiled are and relative weakening of Hong Kong. strated in Figure 3. It is no doubt that global leaders in their respective indus- Frank Wang started DJI with his class- the presence of top universities such tries or industry segments. In another, mates from the Hong Kong University as Stanford in Silicon Valley, MIT they are already as, if not more, inno- of Science and Technology. In in Boston’s Route 128, and Duke vative as their best competitors. For September 2016, DJI opened a flagship University in the Research Triangle example, Huawei submitted 3,442 store in Hong Kong that will not only Park in North Carolina have been applications for international patents, serve as a retail outlet, but also provide critical to the success of these innova- compared to 2,409 by Qualcomm, a prominent space for the worldwide tion regions. As a “factory city” built in 2014. The respective figures for community to share its experience of off a special zone in its earlier years, Tencent and Microsoft were 1,086 flight and explore the latest drones and Shenzhen was a barren land for higher and 1,460. Besides these leading inno- aerial cameras. Given its more devel- education. While vators, another telecommunications oped institution of higher learning was established in 1983, it did not equipment company based in Shenzhen and well-established global financial grow to scale and produce more grad- – ZTE – filed 2,179 patent applications and marking capabilities, Hong Kong uates until later. The initial level of compared to 1,539 by Intel.20 There serves as a convenient and suitable college educated were immigrants like is much evidence that Shenzhen has neighbour that initiates and sustains Wang Chuanfu of BYD, although the accumulated a critical mass of inno- fast and dense cross-border flows of base of college education, in both vative companies that are beginning human talents, innovative ideas, and absolute and relative terms, remained to resemble and even rival the original business activities. low during Shenzhen’s era of tradi- Silicon Valley, at least relative to much Hong Kong however has lost luster tional manufacturing through the of the latter’s existence. in innovation as Shenzhen’s star has early 2000s (Figure 3). Then higher Unlike Silicon Valley and most risen. Some companies in Hong Kong education took off, spurred by the other innovative cities and regions in have a hard time finding local program- new graduate schools in Shenzhen advanced economies, Shenzhen’s rise to mers with both technical skills in coding established by Tsinghua University an innovation centre has been driven by

Hong Kong serves as a convenient and suitable neighbour that initiates and sustains fast and dense cross-border flows of human talents, innovative ideas, and business activities.

www.europeanfinancialreview.com 61 In-Depth

As Hong Kong has lost Luce Foundation for an institutional grant to 5. “Shanghai vs. Shenzhen: A most heated war Trinity College that supported Taylor Ogan’s between the two cities”, 11 November, 2016; ac- some innovative capacity, it cessed from http://mp.weixin.qq.com/s?__biz- summer research project on BYD in summer =MzAxMTE0NDMyNA==&mid=2649509754&id has enhanced Shenzhen’s 2015 and summer 2016. We also thank x=1&sn=b8a3bdb93d98b2ff5b15650704e3f8af&c already powerful position as a Professors Zhao Dengfeng and Chen Yong hksm=835d7291b42afb87ef601ca7cec1358f105c 0fd9c1639e3b77a8c9bd28b90de4eafb6286726 contiguous innovation centre. of the School of Economics at Shenzhen 7&mpshare=1&scene=5&srcid=1112SHAbyxneaHa University for allowing us to refer to their jY11bodod#rd. a limited and purposeful local govern- materials and remarks from the Global Cities 6. Accessed from http://www.australiannationalreview. com/frank-wang-worlds-drone-billionaire/. ment. This distinctive strength has Forum, Shanghai Jiao Tong University, 30 7. “Forbes global game changers: The full list”, Steve also fostered a faster concentration of October, 2016. Assistance by Xinyi (Ellen) Schaefer, 10 May, 2016; accessed from http://www. innovative technology companies in Liu of Trinity College in producing Figures forbes.com/sites/steveschaefer/2016/04/13/ forbes-global-game-changers-the-full- Shenzhen. Similar to other innovative 1-3 is gratefully acknowledged. list/5/#6523b8d1509e. places, heavy in-migration has created 8. Accessed from http://www.forbes.com/sites/ an open and diverse environment Xiangming Chen is the Dean and Director of the ryanmac/2015/05/06/dji-drones-frank-wang- china-billionaire/#50b658b6210c. conducive to the birth and growth Center for Urban and Global Studies and Paul 9. This profile of DJI drew from Wikipedia. of innovative companies. A buzzing E. Raether Distinguished Professor of Global 10. This profile of Huawei drew from Wikipedia and lifestyle has attracted even more entre- Urban Studies and Sociology at Trinity College, Huawei’s 2015 Annual Report. 11. “Tencent Takes China's Corporate Crown On preneurially minded young people to Connecticut, and a distinguished guest professor Facebook-Sky Hopes”, Doug Young, blogs.Forbes. Shenzhen. Bordering Hong Kong has at Fudan University, Shanghai. He has published com, 6 September, 2016; accessed from http:// facilitated Shenzhen’s innovation in two extensively on urbanisation and globalisation with www.forbes.com/sites/dougyoung/2016/09/06/ tencent-takes-chinas-corporate-crown-on- ways. It accelerates and densifies flows a focus on China and Asia. His most recent book facebook-sky-hopes/#77e40aa982ee. The profile of creative ideas and practices. As Hong Global Cities, Local Streets: Everyday Diversity of Tencent also draws from Wikipedia. Kong has lost some innovative capacity, from New York to Shanghai (with Sharon Zukin 12. Chen, Xiangming and Tomás de’Medici, “The ‘Instant City’ Coming of Age: The Production of it has enhanced Shenzhen’s already and Philip Kasinitz) was published by Routledge Spaces in China’s Shenzhen Special Economic powerful position as a contiguous inno- in 2015 (Chinese edition, Tongji University Press, Zone.” Urban Geography (31, 8, 2010): 1141-1147. vation centre. Despite an earlier lack 2016). He was instrumental in launching the China 13. “Shenzhen offers awards, funds to attract IT talent”, Chen Hong, on ChinaDaily.com.cn, of higher education in Shenzhen, the & the World series at The European Financial 5 February, 2016: accessed from http://www. subsequent rapid expansion has caught Review and has been the main author of a dozen chinadaily.com.cn/china/2016-02/05/ up in providing needed human resource China-related articles since 2012. content_23409928.htm. 14. Mentioned by Professor Chen Yong at the for sustaining Shenzhen’s innova- Taylor Lynch Ogan is currently a junior at Trinity Global Cities Forum, Shanghai Jiao Tong University, tion. The relative strengths of these College, Connecticut, majoring in Urban Studies. Shanghai, 30 October, 2016. four factors have created a favourable His focus is on the implementation and investment 15. Saxenian, AnnaLee, The Regional Advantage: Culture and Competition in Silicon Valley and Route ecosystem that distinguishes Shenzhen of sustainable energy and electric vehicles, specif- 128 (Cambridge, MA: Harvard University Press, from other Chinese cities in industrial ically in China. He has done research in Shenzhen, 1996); The New Argonauts: Regional Advantage innovation. This ecosystem also char- China in the summers of 2015 and 2016 supported in a Global Economy (Cambridge, MA: Harvard University Press, 2007). acterises Shenzhen as a new global by the Henry Luce Foundation, as well as in New 16. “Shenzhen set to steal Hong Kong's thunder”, innovation centre. York City, Chicago, and Los Angeles. on ChinaDaily.com.cn, 13 May, 2015; accessed from http://www.chinadaily.com.cn/business/2015-05/ 13/content_20700251.htm. *Parts of this article on BYD and other References 1. Ogan, Taylor Lynch and Xiangming Chen, “The 17. Rogers, Everett M. and Judith K. Larsen, Silicon companies were presented by Taylor Ogan at Rise of Shenzhen and BYD—How a Chinese Valley Fever: Growth of High-Technology Fever the conference on Asia/Environment, Bard Corporate Pioneer is Leading Greener and (New York, Basic Books, 1984). 18. “What Hong Kong can learn from Shenzhen's College, Annandale-on-Hudson, New York, More Sustainable Transportation and Urban Development.” The European Financial Review buzzing startup scene”, Johan Nylander, 2 May, 14-15 April, 2016; and at the Center for (Feb/March, 2016): 32-39. 2016; accessed from http://www.forbes.com/ Urban and Global Studies at Trinity College, 2. The 18 million figure was given by a scholar at the sites/jnylander/2016/05/02/what-hong-kong- can-learn-from-shenzhens-buzzing-startup- Hartford, 20 September, 2016. Helpful Graduate School branch of Tsinghua University in Shenzhen, June 2016. scene/#6aa4b5be2d8d. comments from these audiences were acknowl- 3. These figures were drawn from the PowerPoint 19. See Lüthje, Boy, Stefanie Hürtgen, Peter edged, but we are responsible for any errors presentation given by Professor Zhao Dengfeng Pawlicki, and Martina Sproll, From Silicon Valley to of Shenzhen University at Shanghai Jiao Tong Shenzhen: Global Production and Work in the IT in facts and interpretations that might be University, Shanghai, 30 October, 2016. Industry (Lanham, MD: Rowman & Littlefield, 2013). in this article. We are grateful to the Henry 4. Same as Note 3. 20. Same as Note 3.

62 The European Financial Review December - January 2017