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.

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.

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

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

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'

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

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?

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".