16 October 2018
Shenzhen spent 58 billion yuan (US$9.14 billion) on R&D in 2013, or 4 percent of its gross domestic product. Photo: Xinhua
Shenzhen spent 58 billion yuan (US$9.14 billion) on R&D in 2013, or 4 percent of its gross domestic product. Photo: Xinhua

How Pearl River Delta is turning into another Silicon Valley

The Pearl River Delta region has reinvented itself into a hub for advanced manufacturing, high technology and services.

It has climbed up the global value chain at the forefront of China’s economic reform.

Over the past 10 years, the region has seen the creation of a number of leading hi-tech companies.

Huawei and ZTE, both based in Shenzhen, are large telecommunications equipment makers which employ dozens of thousands.

Lenovo (00992.HK), TCL, BYD (01211.HK), Apple, IBM, Philips, Beijing Genomics Institute, Alcatel-Lucent and Olympus have manufacturing bases and research and development facilities there.

The economy of Guangdong province, the region’s economic powerhouse, has exceeded that of Indonesia.

Meanwhile, many cities in the region have become home to hi-tech industries, advanced manufacturing businesses and service companies.

For example, Shenzhen, a city of 10 million people, is recognized as a Silicon Valley for hi-tech hardware.

It is home to manufacturing companies for telecommunications equipment, information technology, computers and smartphones, bio-chemistry equipment, pharmaceuticals and aircraft parts.

A large talent pool of engineers and technicians, efficient logistics and massive investment in R&D help have helped transform ideas into products more quickly.

In 2013, Shenzhen spent 58 billion yuan (US$9.14 billion) on R&D, or 4 percent of its gross domestic product. It ranks first among mainland cities for such investment.

Shenzhen’s hi-tech sector posted 9.3 percent growth to 1.4 trillion yuan in 2013, or 50.4 percent of its industrial output.

Also, many local hi-tech heavyweights have set aside massive amounts for R&D spending.

Last year, Huawei spent 40.8 million yuan on R&D, about 14.2 percent of revenue.

The company has 76,000 research staff, half of all employees.

Shenzhen and the whole Pearl River Delta region have established an ecosystem for advanced manufacturing.

A large number of factories provide a one-stop platform for hi-tech and start-up firms.

The successful transformation has been achieved with huge government support.

China unveiled “Made in China 2025” in May to boost the information technology, numerical control tools and robotics, aerospace equipment, railway equipment and other advanced manufacturing sectors.

The ambitious plan is aimed at helping China end its long dependence on a low value-added manufacturing model.

The Guangdong government released its own development model — Guangdong Smart Manufacturing Development Plan (2015-2025).

The move is aimed at pushing innovation and developing state-of-the-art and high value-added sectors, as well as creating national and international brands.

Faced with rising labor costs, Guangdong is ramping up investment in automation and robotics.

The provincial government has announced a three-year 943 billion yuan spending program in robotic applications to replace human labor.

The automation ratio of local factories is expected to reach 80 percent by 2020.

Last year, Guangdong set aside 672 billion yuan to relocate labor-intensive industries from cities to the countryside in the next five years.

The move will make room for high-end manufacturing companies.

Hong Kong can play a key role in Guangdong’s economic restructuring, having been a window on the province over the years.

China-made products have been transported and sold worldwide through Hong Kong, with the the relationship shifting to a two-way interaction in recent years.

Training is critical as the Pearl River Delta region continues to move to hi-tech manufacturing.

That is also key to making the region a driver for the wider reform of the Chinese economy.

The region’s robust growth momentum will benefit Hong Kong and cement its role as China’s knowledge center.

In turn, the deepening relationship will be a win-win for both sides.

This article appeared in the Hong Kong Economic Journal on Oct. 9.

Translation by Julie Zhu

[Chinese version中文版]

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General Manager of HSBC Group and the CEO of The Hongkong and Shanghai Banking Corporation Limited, Asia-Pacific

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