Insight - Shenzhen: China’s technology and innovation hub

By Anna Lin, Trade Commissioner and Consul (Commercial), Austrade Guangzhou

Shenzhen is one of China’s most dynamic and exciting cities, with a strong reputation for innovation and technology, thanks to its fast prototyping industry, extensive partner networks and supportive government.

A small fishing village with a population of 30,000 three decades ago, it is now a vibrant metropolis of 12 million.

Shenzhen was one of the first cities to benefit from its status as a special administrative region conferred by Chinese leader Deng Xiaoping.

The city’s innovation community attracts large numbers of startups, and many have achieved global success. Tencent, owner of WeChat and social networking platform QQ, one of the world’s largest internet companies, was founded in the city.

The city’s districts house many successful high-tech companies including BGI (China’s largest genome company), BYD (electric cars and batteries), telecommunications conglomerates ZTE and Huawei, and Shunfeng (e-commerce and logistics).

China Merchants Group and the world’s largest insurer Ping An also call Shenzhen home.

Shenzhen’s GDP hits approximately US$280 billion, almost that of Singapore and more than the economies of Portugal or Ireland.

Its per capita GDP is around A$33,000, on par with many OECD countries.

And, for the last 11 years, Shenzhen has maintained its top spot as China’s patent filing capital with almost 20,000 PCT applications filed in 2017, accounting for around half of China’s total patent applications.

Famous ‘maker’ scene and culture of hardware

One of Shenzhen’s major advantages is its many quick-prototyping workshops that enable firms to test the market before mass production.

This gives entrepreneurs a leg-up in terms of time to launch their products on the open market.

Take a walk along Shenzhen’s famous hardware precinct, Huaqiang Bay, and you’ll find all sorts of gadgets; from drones and portable music devices to mobile vacuum cleaners, robots (Artificial Intelligence is everywhere) and funky retro-style speakers.

There are dedicated buildings in Huaqiang Bay where startups can source electronic chips, games accessories, mobile phone components, sensors, motors and more.

It’s a dizzying display of localised creativity and innovation where makers imitate, alter and remix features of successful products.

An Aussie entrepreneur commented to me that he needed to source a hardware supplier for a potential 3D scanner component that could result in a major disruption to the industry.

After an exhaustive search, he located a component manufacturer in Shenzhen that charged one-tenth of the cost of components sourced elsewhere.

One plane ticket and after several days of meetings, his firm was well on the way to success.

Extensive partner networks

Critical also to startup success is access to business networks, customers and an educated and skilled local workforce.

Youth and millennials dominate the scene (the average age in Shenzhen is around 33 years), establishing a vibrant and creative innovation ecosystem with an estimated 10,000 startups and emerging enterprises, 100 incubators and around 200 maker spaces across the city.

A US-China venture called Hax Accelerator, with locations in San Francisco and Shenzhen, specialises in hardware startups and uses Kickstarter to build buzz and find markets for new products.

Also in the game is Seeed Studio, a hardware innovation platform that helps makers productise one to 1,000 pieces using in-house engineering and supply chain manufacturing.

Seeed teams up with local incubators, tech ecosystems, investors and distribution channels to ‘democratise’ products to Chinese consumers.

Shenzhen also has a strong financial market supported by a myriad of angel and VC investors who are an integral part of the city’s ecosystem.

Shenzhen Stock Exchange includes 2,089 listed companies with a total market capitalisation of 23.58 trillion yuan (US$3.6 trillion).

Startups that spend time in Shenzhen quickly become aware of China’s hyper-competitive market and their local and overseas competitors.

Shenzhen’s strong government support and incentives

The Chinese proverb ‘tian gao, huangdi yuan’—‘heaven is high and the emperor is far away’—has a special meaning for Shenzhen.

Shenzhen’s distance from Beijing, its early status as a special economic zone and more liberal market-orientated economic policies helped attract the best talent from China and around the world.

Euclideon, a gaming and 3D visualisation design company, is one Aussie company that has set up shop in Shenzhen and a recent participant in the Shanghai Landing Pad.

China CEO Daniel Zhang was initially undecided on the location of his business in China but as he said, “the Shenzhen Government has a can-do attitude.”

Invest Shenzhen, the government’s investment arm, offers a raft of financial incentives to assist opening operations in Shenzhen’s Longgang district, a major technology precinct and home to tech giant Huawei.

Shenzhen’s Luohu and Longgang districts provide general funds to support companies to establish local businesses or seek local employment.

Incentives include waiving tax contributions of RMB2 million (almost A$400,000) and subsidised office rent (up to 25 per cent) for companies that settle in nominated technology parks.

Each year the Shenzhen Government runs the China (Shenzhen) Innovation and Entrepreneurship International Competition to find the most promising startups for Chinese investment.

Nine divisional competitions will be held in Sydney, Toronto, Berlin, Tel Aviv, Tokyo, Stockholm, Silicon Valley, Boston and London.

To encourage more entrepreneurs to participate in 2018, the total cash prize pool has risen from RMB9.112 million (US$1.4 million) in 2017 to RMB10.91 million (US$1.7 million).

In addition to the big cash prizes, the competition provides talent incentives, industry awards, science and technology finance and project incubation for entrepreneurs and their projects in Shenzhen.

Don’t think of China as an end game

Like any good business, don’t put all your eggs in one basket.

Think of China as a testing ground for your product, and a future launch pad to other regions and markets.

The perception of China as a low-cost ‘factory to the world’ is now outdated.

A more accurate description should be ‘innovate with China’, as Chinese organisations can prototype fast and then deliver quality goods in numbers.

So next time you are planning a visit to China, remember Shenzhen. It’s a not-to-be-missed stop on your entrepreneurial journey. The maker in you won’t regret it.

Learn more about startups to China.

Anna Lin is Trade Commissioner and Consul (Commercial) based in Guangzhou.