This article was originally written by FirstShotz Business Development Lead, Christine Tan. She has also shared it in her Medium.

Shenzhen is located just across the border of Hong Kong in southern China’s Guangdong province. It is often referred to as the Silicon Valley of Hardware, the Silicon Valley of China, the Hardware Capital of the world, etc. but what these names imply is that Shenzhen is a technological hub and there are an abundance of opportunities here.

China is unofficially split up by tiers, helping economists, businesses, and governments understand the very complex environment here. Shenzhen is among Beijing and Shanghai in the first tier as one of China’s four wealthiest cities but it was not always among the elite in its city status. Less than 40 years ago, this:

Shenzhen Today, Photo Source: Hardware Massive

Was a fisherman’s village with no high-rises, innovation, and barely any people.

Shenzhen 1970

What the Hell Happened?

After communist rule of Mao Zedong, China fell under the leadership of Chairman Deng Xiaoping who is often referred to as the “Father of Modern China”.

Shenzhen, the village of 30,000 people became a model for growth and planning. In less than 40 years, the fisherman’s village transformed into a city of over 10 million people today. According to official reports in 2010, the city hosted just over 10 million people however the estimated population with migrant workers living in Shenzhen, is about 18 million.

The Chinese have a phrase: 改革开放 pronounced gai ge kai fang, meaning open up doors and reform, which refers to the actions of Chairman Deng after decades of a closed China that was unwelcoming to foreigners and their investment.

Under this new leadership, Shenzhen was chosen as one of the first economic zones in China where the government would focus its resources to experiment policies resulting in a population growth of 30% over the next few years, GDP per capita of $10,000 (Shenzhen was the first city in China to achieve this), and is now named one of the greenest cities of China.

This growth has occurred in various places around the world but what makes Shenzhen so special is the speed of development. Shenzhen’s speed, has never been seen in history before.

The economic development and favouritism from the government attracted Chinese people from second, third, fourth tier cities, foreigners and investment from everywhere, to Shenzhen, making it a breeding ground for start-ups. Some notable names are Makeblock, River, Palette, and Petcube. Bigger names include Tencent (most recognized for the super-app WeChat), Lenovo, TCL, DJI, ZTE…

Innovation in Shenzhen

In 2015, Wired released a 1-hour documentary on Shenzhen, garnering millions of views. It went viral and brought much-needed media attention to this amazing city. It highlighted the technological culture in the city and part of that culture includes 山寨 pronounced shan zhai, referring to the copycat nature of Chinese businesses.

In western culture, the motto is “fail fast and fail often”, and as a result, the most innovative technologies, largest and most powerful tech companies like Google and Facebook are arising out of America. In China, however, the education system has created a culture that actively avoids this behaviour.

China’s Education System Creating a Culture That Avoids Risk

In China, students go to school and immediately start learning Mandarin, one of the most difficult languages in the world. Albeit, you begin with the romanized pinyin pronounciation system, Chinese characters are still the primary communication tool in books, signs, karaoke and the like. So each person here, from a very young age, memorizes thousands of characters until over 5,000 of them are engrained in their memory along with their respective grammar points. However, it doesn’t stop at the language, this method of rote memorization is brought into the day-to-day learning system in preparation for the infamous 高考, pronounced gao kao.

This is the most important exam of each Chinese child’s life if they are to stay in China and complete a bachelor degree and it is impossible to cheat. It tests everything from science to history to math to poetry and more, the number that the test returns to you is essentially who you are to Chinese universities, who are not allowed to consider anything else when deciding who will be accepted into schools.

There is a stupid amount of content that students must memorize for this exam and there isn’t enough time or value in learning everything. Why focus on learning, participating in extracurricular activities, or asking questions out of curiosity when the most efficient way to get a high grade on the gao kao is to simply practice rote memorization? And why focus on anything else outside of gao kao preparation, when you won’t be rewarded for it?

Although this educational system has received its fair share of criticism, the gao kao is the only solution to create an almost even playing field in the country. China’s population is quickly rising above the current 1.3 billion, and there is plenty of room for corruption.

How does an educational institution avoid corruption if it must consider subjective essays and extracurricular activities? Without the gao kao, the system faces vulnerabilities. It is very likely that without the objective valuation of the gao kao’s grades, China would see its wealthy elite bribing the admission offices of the top schools in China to favour their children.

This is not something that China’s western counterparts are unfamiliar with. Every day there are scandals of powerful CEOs establishing scholarship funds, or donating large sums of money, in exchange for “special” consideration of their children’s university application at the Ivey Leagues in the United States.

When taking this upbringing into consideration, it makes sense why China has resulted in a copycat culture over the disruption that we see from the Elon Musks and Mark Zuckerbergs.

Importance of Economic Growth

Once students graduate from school if they are placed into jobs that pay them just enough, then why risk it? Just fall back onto the similar behaviour of safety that brought you your grade on the gao kao. It got you this far didn’t it? But China is a magical place that businesses want access to because of the sheer number of consumers and access to neighbouring fast growing economies, primarily India and South East Asia.

People swarmed Shenzhen by the millions searching for opportunities after the announcement and implementation of the Special Economic Zone because here, they could find opportunities that paid more than enough. So, venture capitalists, angel investors, and even the government are pumping billions of dollars into this new Silicon Valley. Why aren’t they putting their billions up for grabs in lower tier cities? Because the success rate is lower.

How are investors going to find your next unicorn in a slow-growing economy that isn’t attracting a large pool of talent? Now western companies who have raised millions on crowdfunding platforms like Kickstarter and Indiegogo, are looking at Shenzhen and are coming here for its speed in manufacturing. And new start-ups are applying to accelerators like HAX, based in Shenzhen.

However, the inaccessibility of the country due to language, internet accessibility (even in Shenzhen who borders China, I am struggling to load anything), and a nation brand where people often still associate the China with the widely-feared word… communism, prevent China from becoming a nation that is the first choice for immigrants.

Instead, they turn to America who has an amazing nation brand that continues to spread internationally, through Hollywood attracting everyone to the United States, therefore, the US’s talent pool is the rest of the world where China’s is limited to the 1.3 billion already here. Without that foreign influence, China faces the challenge of overcoming this phenomenon of “Iterative Innovation”, itself.

Iterative Innovation

In China, entrepreneurs and businesses are more likely to arise as copycat companies who achieve success through fast iteration: copy something that has worked in the past, see your competitor improve, and do the same thing, but just a little better. Xiaomi for example, is a cheaper fully functional phone but its design, operating system, and technology are not new. We’ve seen this before.

The Exceptions to the Rule

Mobike, the first dockless bike-sharing company, hit the streets of China in November of 2016, and just a few weeks later, they faced an array of competitors. The company was forced to innovate to stay at the forefront of bike sharing with lighter bikes, baskets that your phone can’t fall out of, red pocket competitions, etc.

Mobike Parked in an Abandoned Factory in Shenzhen

How does it work? Unlock the bike by scanning the QR code just above the back wheel with the mobile app, ride it wherever you want and just slide the lock on the back wheel when you’re done. Drop it off where ever is most convenient for you.

Companies in the United States are copying the model making this the first time that a completely new innovative technology has come out of China: it means that China is changing.

We can also look at WeChat who was originally just another WhatsApp essentially but it has evolved to become so much more. Its one-click mobile payments function along with Alipay’s, put the mobile payments industry in China, decades ahead of everyone else. Where we still use cards in the USA and Canada, everyone in China can leave the house with just their phone and keys. Leave your wallet because you don’t need it.

China is changing. So pay attention, learn the language, because soon you won’t be looking to California’s Silicon Valley for the best environment for your new start-up.