China Goes Global

Silicon Shenzhen

For a few years now, technology and business journalists have been boasting about Shenzhen, proclaiming the erstwhile sleepy fishing village to be the Silicon Valley of the Orient. This bombastic designation, however, overlooks the nuances that define these two distinct centers of technological and commercial innovation. In order to appreciate the very individual natures of Shenzhen and the Valley, it’s crucial to appreciate their disparate yet similar histories.

Image of Shenzhen

Like Shenzhen, much of the early expansion of Silicon Valley was directly financed by government capital. Where Shenzhen’s first big boost came from the government’s declaration of a Special Economic Zone, Silicon Valley was the beneficiary of generous funding provided by the American Department of Defense. That funding paid for the development of the microcomputer, microprocessor, ARPANET (the Internet’s predecessor), and the silicon-based integrated circuit after which the Valley is named. These technologies have made the modern digital revolution possible, but would have developed far more slowly—if at all—without this nearly guaranteed source of financing.

However federal funding only provided the starting seed, and in both locations real growth in the technology industry was made possible through the proliferation and evolution of venture capital: investment in new, unproven businesses fraught with unknown risks. While in the Valley, venture capital firms have always been private companies distinguished by their small size and pioneering character, the biggest player in Shenzhen is the government-owned Shenzhen Capital Group. The West, particularly U.S. observers, are skeptical of a government enterprise’s ability to innovate but, after being declared China’s #1 venture capital firm from 2011-13, the naysayers today are markedly quieter.

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Money, though, isn’t the only variable in the equation that has made Silicon Valley so distinct; idiosyncrasies in California law favors entrepreneurs, often at the expense of more established businesses. More importantly, there’s a legal infrastructure in place to assure the fast formation, funding, and expansion of high technology companies. With a notoriously vague legal system, evidently ever-fluid laws, and an average 33-day wait to obtain a business license, compared to the U.S.’s 5 days, it may be impossible for Shenzhen to replicate Silicon Valley’s speedy evolution from idea to enterprise.

Join us next week as we continue to compare the two metropolises head-to-head. We will examine each area’s contribution to the world and what Shenzhen still needs to do to complete the transformation of “China-con Valley.”

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