The Backstory of Shenzhen's Hi-tech Boom

The rise of high-tech industry in Shenzhen is the result of Deng’s reform and opening-up policy and the continued market reform in the city. Against this backdrop, Shenzhen has taken bold steps in resetting the government-market relations and the private-SOEs relations, encouraging innovation and opening up. Series of institutional innovations took place, driving the boom of the tech industry.

Zhang Siping, founder of the Shenzhen Innovation and Development Institute attributes the success of Shenzhen’s hi-tech industry to the innovations in property rights system and ownership structure, featuring private economy as the main body while state-owned enterprise as the guarantee. Zhang believes that private economy outperforms SOEs in hi-tech industry because

-private enterprises have clearer property rights system, rights and responsibilities

-private entrepreneurs are more incentivized for innovation and capital

-private enterprises have better risk-bearing system

-the decision-making power is concentrated in private enterprises, with efficient and effective decision-making procedures

As the vice prime minister Liu He recently commented, SOEs and private enterprises have completed the industrial chain, in which, SOEs mostly concentrate in upstream industries such as infrastructure, while private firms in downstream industries such as manufacturing. Private and state economies have developed a highly complementary, cooperative and supportive relationship, adds Liu. However, Zhang points out that this is not the case in Shenzhen. Rather, private economy takes the predominant part in the industrial chain and the modern industrial system in Shenzhen, while the state economy provides the safety net.

In addition, Zhang put forward the principle of survival of the fittest and the spirit of fair competition of market economy, that fuel the blossom of hi-tech industry in Shenzhen. The local government introduced a series of preferential policies to nurture the development of hi-tech industry. Nevertheless, neither the most prominent private firms nor the most popular and innovative hi-tech products come from administrative measures. Rather, it is the innovativeness embedded in each firm and the spirit of market economy that give birth to the numerous creative firms such as DJI, Huawei, Tencent, just to name a few.

This is not to say that the government is completely absent from the scene. The local government has gradually established a system to provide high quality public services, clearing the fields for vibrant creative and innovative activities. In particular, Shenzhen

-established and improved a financial service system that can serve the needs of different hi-tech firms, varying from start-ups to multinationals

-initiated various talent programs to diversify and enrich the talent pool for the development of hi-tech industry

-initiated hi-tech fair and series of hi-tech exchange platforms

-fashioned multiple hi-tech parks to provide targeted services, and generate the agglomeration effects

-nurtured the emergence and development of the support product market for hi-tech industry

Moreover, Zhang argues that the success story of Shenzhen’s hi-tech industry derives from the export-oriented economy which is situated and interacts with the international market. In particular, Zhang points out that

-foreign-owned and joint-venture enterprises are an integral part of Shenzhen’s hi-tech industry

-Shenzhen’s hi-tech industry has access to the international market

-the opening-up policy has offered Shenzhen the special opportunity to

   -welcome talents from around the globe

   -import cutting-edge technologies and skills from around the globe

2018 is the 40th anniversary of China’s launch of the reform and opening-up policy. This year has been full of opportunities and challenges. Shenzhen’s hi-tech industry is of no exception. Chinese economy is shifting gears from a high-growth period to a medium to high growth period while operation costs mounting and business environment changing for private enterprises. Many mid-size and small-size private hi-tech firms are struggling to survive. Many of them are moving part of or their whole firms from Shenzhen. Moreover, the external environment for Shenzhen’s hi-tech industry is not accommodating. US-China trade war, zero-tariff agreements reached among developed countries and shifts in the international economic order pose threat to the healthy development of hi-tech industry. Therefore, Zhang suggests that Shenzhen should

-continue to leave private economy to play the major role while the state economy serving as the guarantee

-carry on with mixed-ownership reform in SOEs

-adhere to the spirits of market economy that features market economy and the survival of the fittest

-continue to give the market the decisive role in resources distribution

-further separate enterprises from the government

-adhere with the reform and opening-up policy