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Despite the crash, the next Silicon Valley is in China

A spectre is haunting Silicon Valley - the spectre of a Silicon Dragon. These may be tough times for the Chinese economy, the tech city of Shenzhen is playing its fiddle as Rome burns to the ground.

2015-10-23 10:44:24

Dubbed "Black Monday", August 24th ended with Chinese equities down 8.5%, wiping out hundreds of billions of dollars in market capitalisation. The Shenzhen market, often compared to America’s Nasdaq index, is down 41% since June 12th. These are dizzying figures, writes Amol Sarva for the Huffington Post Blog.

Only a few weeks ago, analysts discussed how the technical hub had threatened to dethrone Silicon Valley from its comfortable perch as global tech-Mecca. Forecasts are now less optimistic.
Yet, the Communist Party’s response to the consequent month-long crisis has been swift and forceful. On top of spending almost $235 billion to buy shares and shore up prices, the Party imposed a range of impromptu restrictions on the sale of stocks. Amidst stock meltdown, Shenzhen has remained sanguine, backed by this strong government response. Should the Valley worry?

The Shenzhen Phenomenon

Once an innocuous fishing village, Shenzhen was selected by Deng Xiaoping, then Chairman of the Communist Party, to be the first of the special economic zones (SEZ) in China, an experiment in market capitalism within Deng’s self-professed "socialism with Chinese characteristics." It was formally established in May, 1980 due to its proximity to Hong Kong, then part of the United Kingdom.
Since then, Shenzhen has grown exponentially to become China’s sixth richest city on a per capita basis at USD $17,096 (2011). Last year, Shenzhen saw more than 64 billion yuan (USD $10 billion) invested in research and development, accounting for 4 per cent of GDP - a figure matched only by South Korea and Israel.

Shenzhen’s roaring financial success, however, hasn’t hinged upon an attempt to imitate Silicon Valley. Instead, where Silicon Valley is to the digital revolution what Manchester was to the industrial revolution, Shenzhen is fast becoming the epitome of a production revolution.

A New Kind of Production Philosophy

"In the old days, if you wanted to be innovative (or) have the latest technology, you would go to Silicon Valley for electronics ... But today it’s Shenzhen," says David Li, the co-founder of China’s first makerspace, XinCheJian.

Gone are the days of low-cost and low-skill labor that rocketed the ‘Made in China’ slogan to global dominance (check out Knote’s article on the evolving working conditions in Chinese factories). Instead, Shenzhen’s success heralds the era of ‘Made by China’.

Global hardware innovators are beating a track to Shenzhen’s unique manufacturing ecosystem for one simple reason: its capacity to produce. "Ordering electronics here is now like service in a restaurant." says Eric Pan, founder and CEO of Seeed Studio, a Shenzhen-based hardware innovation platform.

The city has become a global powerhouse of hi-tech design and production by housing supply chain, design, and manufacturing processes under one single roof - often in the form of a symbiotic ‘makerspace’ - thereby streamlining at a fraction of the cost the roll-out of prototypes and products.
The Middle Kingdom’s ‘Makerspaces’

A lot of the rhetoric around Shenzhen pivots upon these ‘makerspaces’. Typically seen as a solution to a dearth of homegrown entrepreneurs, makerspaces are essentially community centers where tools and knowledge around ‘making’ are shared. The goal of a makerspace is straightforward: to empower creation.

Many ‘makers’, weaned on anecdotes of fresh ideas turning into vast riches, are seduced by the city’s gargantuan malls, incubators, and workshops, such as the Seg market in the Futian district or the Huaqiangbei Commercial Street which have just about anything a start-up could need - from circuit boards to drones, LEDs to liquid injection molding.

"If you’re an engineer with an idea and you’re waiting five days or two weeks to test it, that’s no way of being creative," says Will Canine, co-founder of OpenTrons, a company constructing open-source liquid-handling robots in Shenzhen. "When you’re creative you want to try an idea and move on to the next idea and then the next idea. That’s the kind of dynamic flow that’s possible in hardware in Shenzhen that’s not possible in the United States."

Start-Ups, Start-Ups Everywhere

Coaxed by the unrivalled access to parts and manufacturers and the unique makerspace-philosophy, start-ups are thronging to Shenzhen. While intellectual property theft has been a tenacious thorn in the side of many Chinese manufacturers (look no further than the iPhone), Shenzhen-based start-ups are perfectly placed to apply the wisdoms of shanzhai (counterfeit) culture to legitimate business, synthesizing Silicon Valley’s entrepreneurialism with makerspace manufacturing.
Crucially for start-ups, Shenzhen’s inexpensive system allows start-ups engage production runs of just a few thousand units, rather than requiring more cost-effective orders in the hundreds of thousands or millions. Some of the world’s largest electronics giants such as Foxconn, Huawei, and ZTE work in parallel to a vibrant grassroots manufacturing ecosystem.

Take DJI, whose high-end drones have from humble beginnings found a following around the world. Or OnePlus, whose recently released smartphone offers, according to TechRadar, Samsung Galaxy S5 performance for half the price.

"It is easy to approach a manufacturer in Shenzhen," Silvia Lindtner, assistant professor at the University of Michigan and researcher into the maker movement on the mainland explains to South China Morning Post. "Even if you’re a small startup, many of them will take an interest because it’s like, ‘That could be a business opportunity’."

A Silicon Dragon Future?

Donald Trump responded to Far East’s recent market chaos by arguing that America ought now ‘decouple’ from China. Trump’s hyperbole is, not for the first time, a little wide of the mark. Cities like Shenzhen are now irrevocably woven into the fabric of the global economy, its workers and innovators integral cogs in the supply chain machine of countless companies. As most of the mainland’s bourses are slumping, China needs to look to its cities like Shenzhen: the start-up petri-dishes that turn a sleepy fishing villages of 30,000 townspeople into a ‘Maker’s Dream City’ of 12 million people within three blazing decades.

A confluence of money, entrepreneurship and makerspace philosophy places within Shenzhen’s reach the Silicon Valley mantle. If the city can weather China’s bursting bubble and ensure its makerspace-philosophy continues upon its trajectory, the "Silicon Valley" title may even be outstripped by the more relevant "Silicon Dragon"

Amol is a co-founder of companies including Virgin Mobile, Peek, Halo andKnotable, built a building in New York called East of East, and studied cognitive science for his Ph.D.


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