07 Sep

From Shenzhen’s Economic Miracle to Greater Bay’s Global Innovation

September 7, 2020

By Dan Steinbock

– Since the 1980s, China’s reforms and Special Economic Zones have sparked Shenzhen’s economic miracle, Guangdong’s industrial transformation and Greater Bay Area’s innovation engine.

Paced by strong economic growth, industrialization and urbanization that took almost a century in the West occurred in just a few decades in China, following more than a century of colonial intrusions.

Nothing exemplifies the success story more than Shenzhen. *

From subsistence fishing village to world-class innovation megacity

In 1979, Shenzhen was still a poor fishing village with some 20,000 inhabitants struggling at a subsistence level. It was a rural backwater, next to the modern and thriving Hong Kong.

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Yet, already half a decade ago, GDP per capita in Nanshan, a district of Shenzhen, rose to $49,000, the highest for any district in China, overtaking Hong Kong, and catching up with Singapore.

Today, Shenzhen’s urban population hovers around 14 million, while the metro area is some 10 million larger. The megacity’s GDP amounts to $390 billion, which – if it was a country – would include Shenzhen among the top-30 economies worldwide.

More importantly, Shenzhen’s GDP per capita now exceeds $30,000, even at the nominal level, which is at par with South Korea and Spain.

What accounts for such an “economic miracle”? The key to Shenzhen’s transformation involves Deng Xiaoping’s economic reforms and opening-up policies – most notably, the rise of the Special Economic Zones (SEZs).

Four decades of reforms and SEZs four major industry complexes

Shenzhen was China’s first major SEZ experiment in which special tax incentives were offered for foreign investments and greater independence from the central government in international trade. Driven by market forces, manufactured products would be mainly export-oriented.

Embracing reforms, Shenzhen developed its four-pillar sectors of advanced technology, supportive finance, efficient logistics, and entrepreneurial culture. Today, it hosts the world’s most advanced information and communication technology (ICT) giants, including Huawei, Tencent, ZTE, and the drone-maker DJI.

In addition to “China’s Silicon Valley,” it is seen among the world’s top-10 financial centers housing mighty financial institutions. In logistics and transportation, its courier giants (SF Express), shipping companies (CIMC), ports, and railway networks are some of the busiest in the world, while real estate accounts for a 10th of its economy.

Shenzhen’s GDP surpassed that of neighboring Hong Kong a couple of years ago. In the Chinese mainland it ranks third, right after Shanghai and Beijing. With growth at 6.7 percent last year, it is still expanding two to three times faster than Hong Kong and Singapore, and the stagnating metropolises in the West.

From assembly plants and imitation to global innovation leadership

If Guangdong is today the trendsetter in global innovation, Shenzhen is the very center of its technology progress.

As measured by R&D per GDP, China’s innovation expenditures have steadily climbed to about 2.2 percent. Despite huge population, that puts the Chinese mainland before Singapore and Australia, and far ahead the UK and Canada.

In relative terms, China’s R&D per GDP is already twice as high as that of Italy and France. In Guangdong with its 115 million people, the comparable R&D figure is over 2.7 percent. It is right behind Germany but ahead of the United States.

But in Shenzhen, R&D per GDP is even higher – estimated at 4.2 percent – which puts it right behind the current world leaders, the tiny Israel (4.9%) and South Korea (4.3%).

Like Western Europe and Japan in the postwar era, Chinese companies used to imitate the global technology leaders in the past. But today, Chinese giants innovate while being imitated by global competitors and cooperators.

The rise of the Greater Bay Area, China’s Silicon Valley

Until recently, industrial transformation and world-class innovation was driven by Shenzhen and supported by Guangdong and the Pearl River Delta. But the region moved to a new stage when the blueprint of the Greater Bay Area (GBA) was launched in February 2018.

The GBA is driven by multiple mega-metro areas, intercity and regional railway networks, and several world-class airports. It comprises the nine cities of Guangdong – including Guangzhou, Shenzhen, and Dongguan – and the special administrative regions of Hong Kong and Macau. It is thus interconnecting some 125 million people.

Just as San Francisco has its Silicon Valley in the Santa Clara Valley, the GBA aspires to become the sprawling economic engine in China. Last year, Silicon Valley’s GDP was $275 billion, according to the US Bureau of Economic Analysis.

As a regional giant, the GBA, which accounts for 40 percent of China’s total exports, is already nearly three times bigger. Its combined GDP is $810 billion.

Obviously, living standards remain significantly higher in Silicon Valley. Then again, the US regional engine has evolved since the postwar era, whereas GBA has barely been born.

Technology wars against regional innovation engines worldwide

And perhaps that’s one reason why the Trump White House’s trade war has expanded into high-tech. Unlike its predecessors, the current administration hopes to marginalize Chinese innovators in the US, neutralize their executives, sanction their international partners, and ultimately destabilize their broad global ecosystems.

Such a trade war against regional innovation engines in China, Europe, Japan and elsewhere violates the very rules of international trade. It reflects a desperate political re-election campaign, which has alienated most Americans. And it is undermining the role of the US as a responsible stakeholder in the multilateral, global economy.

Not so long ago, international observers projected doom in Shenzhen because the forces that once boosted Guangdong’s economic boom – industrialization, world trade, and low-cost manufacturing – were fading. But they missed the big picture.

As industrialization decelerated, Guangdong was already moving into post-industrial society while transforming into an advanced manufacturing and global innovation hub. In that scheme, Shenzhen will have a central role as the global center for high technology, innovation and venture capital, and social media.

In the short-term, the GBA will have to cope with adverse international headwinds but its time horizon is not based on quarterly results, or even four-year outlook. It is looking toward the mid-21st century.

 

*  These are some of my works on the topic (the non-proprietary ones can be found via Amazon.com): The Nokia Revolution (2001), Wireless Horizon: Strategy and Competition in the Worldwide Mobile Marketplace (2002), The Mobile Revolution (2005), Winning Across Global Markets (2010), Huawei in America (2012), Asian New Deal in Global Innovation (2014), Erosion of American Innovation (2015), The Rise of Chinese Robotics (2017), Shenzhen’s Economic Miracle and Chinese Greater Bay Area (2020).

 About the Author:

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/ 

A version of the commentary was published by China Daily on August 26, 2020

 


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