Innovation in Shenzhen

Innovation in Shenzhen

Introduction

Shenzhen is considered as a major innovation hub of the People's Republic of China (PRC). Over the years it has become one of the most important research and development (R&D) and manufacturing centers in the country. In 2004, it was ranked by the Chinese Academy of Sciences (CAS) as the second most competitive city of China behind Shanghai only. It is also widely known as China's Silicon Valley and hosts several technology giants including DJI, Tencent and Huawei. In the period from 2009 to 2014, private firms' share in Shenzhen's R&D was over 90% and Shenzhen's R&D budget as percentage of Gross Domestic Product (GDP) was 4.2% which was more than double the country's average and much above the 2.5% figure recognized as a threshold number for the innovative economies of the world. Located in the south of Guangdong province, forty years ago, Shenzhen was an impoverished, backward and deprived fishing village of China. Since 1980, when Deng Xiaoping made it the first Special Economic Zone of PRC, Shenzhen has, however, grown in a mind boggling manner. Its GDP in 2017 was ranked fourth in China, just behind Shanghai, Beijing and Guangzhou.. The economic transformation of the city is attributed to the bold economic experiment of Deng Xiaoping. However, once the city broke the shackles of poverty and came out of its destitution, it was the extensive usage of science, technology and innovation that kept it moving on a steep trajectory of sustainable social and economic progress. Shenzhen Science and Technology Development Plan in this regard was issued in the 1980s. Through the years Shenzhen has also remained at the heart of the Shanzhai culture which has successfully copied and improved existing products and clearly depicts the entrepreneurial and industrious minds of its people. Shenzhen has a complete policy and legal system supportive to high-tech development. There are several factors responsible for the development of Shenzhen as a highly successful innovation ecosystem in China.

Key Success Factors

Immigration

Shenzhen is regarded as the largest immigrant city of China. Over the years, the city has witnessed a high influx of skilled manpower which has enhanced its innovative capacity. Several policies attracting talented people like establishment of labour and personnel services companies, raising a human intelligent market and holding "talent meetings" were enforced. As a result, talent from China and various parts of the world especially high-tech talent moved to Shenzhen. Skilled migrants such as software development personnel with university degrees, professional people with mid to senior level positions and inventors of important inventions along with their families were permitted to settle down as registered residents in Shenzhen and were exempted from the infrastructure expansion fee of the city. A reward system to recognize the contributions of the outstanding talent was also put in place. Shenzhen, therefore, became an attractive place for talents in engineering, science and technology who made conscious efforts to settle and work there. Many of these settlers with entrepreneurial spirit in them were responsible for setting up start-up companies in the city.

Foreign Firms and Investments

Shenzhen has positioned itself as the entry point for foreign science and technology firms intending to initiate their businesses in China. In the initial years after Deng's reforms, Multinational Companies (MNCs) established their manufacturing facilities there to leverage upon ample pool of relatively unskilled and inexpensive labour. Later, preferential policies were put in place for encouraging foreign companies to invest in Shenzhen such as half the rate of corporate taxes in comparison to the domestic Chinese firms. Foreign companies were also exempted from the 3% income tax. As a result of preferential policies, Shenzhen became a successful center for assembly manufacturing for export. As Shenzhen experienced economic growth, the costs of labour and infrastructure went up its municipal government, therefore, recognized that it could no longer enjoy the advantage of a low-cost assembly center and started working for developing an innovation system for the city.

Academic and Research Institutes

In 1979, just before the economic reforms, Shenzhen had no indigenous universities and research institutes. The government recognized the importance of higher education and research for industrialization of the city and established Shenzhen University in 1983 and Shenzhen Polytechnic in 1993. Subsequently, Peking University (PKU), (CAS), Chinese Academy of Engineering (CAE) and Hong Kong University of Science and Technology (HKUST) also established research centers in Shenzhen. Besides this, Beijing University, Tsinghua University (THU) and Central China University of Science and Technology also established research institutes or branches in Shenzhen. The roots of Shenzhen’s movement to climb up in the value chain can be traced back to 1985, when its municipal government and CAS established Shenzhen Science and Technology Industrial Park. Later in 1996, Shenzhen High-tech Industrial Park was established. To further incentivize the research institutes and universities, the municipal government of Shenzhen also came up with the virtual campus concept in 2000 and offered free office space, infrastructure, computers, telephones and computer networks for the first two years of the projects. These steps brought the desired results and Shenzhen developed its own Regional Innovation System (RIS).