Johan Nylander is an award-winning Swedish journalist and author of Shenzhen Superstars: How China’s Smartest City is Challenging Silicon Valley. It was the No.1 best seller in Amazon’s China section after being published in 2017. We talked to Nylander about Shenzhen’s path to success and how it’s facing up to the challenges brought by the US-China trade war.
GBI: What is it about Shenzhen that you find so unique?
Nylander: In a certain respect, you can say it’s the most modern city on the planet. I go there often, but every time I cross the border this city seems to have changed, developed and modernized even more, in the kind of speed the West just can’t imagine. Forty years ago, there were rice fields and fishing villages, then it became a dirty factory town and today it’s the heart of innovation for China. The city is not slowing down, either. Shenzhen already has an economy bigger than Denmark, but it is growing four times faster. It’s a monster, and an incredible story to witness.
GBI: Since the book was published, what new changes you have seen here?
Nylander: I’m from Stockholm, which is a highly creative and tech-savvy city. But the tech community in Shenzhen is among the most energetic, creative and bustling I’ve ever come across.
I think for everybody writing about China, the painful truth is it’s likely to be outdated once published. Perhaps that’s why you see so little academic research on Shenzhen – because by the time the report is finished, it’s already too old.
For example, as I was writing up the book, I wrote about the city’s tallest building, the KK 100. But as I was finishing up, I found out it would be overtaken by the new Ping An Finance Center, which is the fourth tallest building in the world. And now there’ll be another new one to overtake the Ping An tower.
The old hotel I used to stay at doesn’t exist anymore. The whole neighborhood is gone and shopping malls are everywhere. A lot of street life has disappeared, replaced by Starbucks. Then, of course, in terms of the rolling up new technologies like AI and facial recognition, a lot of things have happened since the book was published.
GBI: You drew a lot of parallels between Shenzhen and the Silicon Valley in your book. Can you elaborate on their similarities and differences?
Nylander:A lot of people want me to say which one is better, but I don’t really see it this way. There’s a tremendous amount of cool things happening in tech development across the world. Silicon Valley is basically a software valley, rolling out companies like Uber, Facebook, and Google. Shenzhen’s strength traditionally has always been in hardware. It’s a white collar, financial, innovative city which is linked to satellite manufacturing hubs like Dongguan and Foshan.
In the US, if you want to build a prototype, you need to get it made somewhere else. There isn’t any cost-effective and quick enough way to do it. Here, you can get into a car and one hour later you’re in Dongguan. Both the prototype and the production are quick and if you’re lucky, so will be the mass production. And this is what has given the ascension to the Pearl River Delta – a truly unique advantage that is found nowhere else on the planet.
Software is getting better fast, too. Alibaba and Tencent have been around for some time, of course, but now the new software products coming out of China are way cooler. If you compare WeChat or TikTok with Facebook, Facebook looks like a dinosaur.
GBI: A lot of people say that China’s tech companies are all about business models, not so much technology. What’s your take?
Nylander:Warren Buffett once said, “When the tide goes out, you will see who’s been swimming naked.” In Shenzhen, you look at both the numbers and the mentality of people. Around 40-50% of all of China’s international patent applications come from this one city. Some say that 20% of China’s PhDs are living in Shenzhen. The companies that are leading the country’s innovation are here, like Huawei and Tencent. Even Ping An, previously a traditional insurance company, is now leading the way in fintech and artificial intelligence.
People may say that Shenzhen companies just look at western business models and tweak it. But consider the iPhone. There were smartphones or touch screens before it, but Apple was really good at combining the two and creating a kickass user experience. I think this is what the hardware guys in Shenzhen and Dongguan are really good at: To see something and then localize it and improve it. This is something people in the West tend to forget: that innovation isn’t just about consumer experience, it’s the supply chain as well, in terms of how to make it cheaper and more reliable.
GBI: What has the US-China trade war meant for Shenzhen?
Nylander:I see a much stronger fighting spirit in Shenzhen and in southern China than in Shanghai. A lot of China’s big internet companies have been thriving in a walled garden; they haven’t really gone global. But for the high-tech companies, like Huawei, DJI, BYD, Xiaomi, they are truly global. Shenzhen’s approach is to go global from day one. And I think they know that what they do is of good enough quality and is needed by the world.
The China-US trade war is like a wake-up call. It has been too easy to make money in China since the 80s. A lot of Internet companies didn’t have much innovation but still managed to gain massive growth. China is now being hit for the first time with harder competition, both internally and globally. A lot of companies may go under. But in the long run, China is going to benefit from it. China’s economy has been dependent on unskilled labor and it’s still hard to transform that export-driven economy completely. Shenzhen is an example of how this transition has worked.
GBI: What challenges do you think Shenzhen needs to overcome?
Nylander:It’s really a boring answer, but I think property prices might be a big problem. It’s getting really expensive. I think more outsourcing to other cities has to happen. If you look at Hong Kong, you see one of the reasons why people find it hard to have a startup there is because if you can’t afford your own apartment, how can you afford the office and the staff? This is really holding Hong Kong back and it’s a challenge for Shenzhen, too.
GBI: How do you compare tech companies in Shenzhen to Beijing or Shanghai?
Nylander:A survey I remember asked university students what they would be looking for in their first job after graduation. In Shenzhen, 60% said they would want to join or found a startup. In Beijing it was only 15%. So, that’s a tremendous difference in mentality: people in Shenzhen are more risk-tolerant and innovative. But still you have more unicorns in Beijing or Shanghai than Shenzhen and I think one of the reasons is foreign investors don’t really look beyond Shanghai or Beijing and at other parts of China enough.
Software, like an app, is quicker to scale. Hardware businesses, however, must take into consideration the entire supply chain and the risk is way higher, because if your first batch doesn’t work, you may not have enough capital to start over. Here in Shenzhen, it takes longer to get a business to explosive growth, which is not always a bad thing. You shouldn’t look up to unicorns too much, as they’re more about valuation than profitability. Hardware firms are more concrete. Plus has to be bigger than minus because you have costs.
GBI: What are some of the biggest trends coming out of Shenzhen?
Nylander:The biggest, I think, is the merging of software and hardware into smart products, or more specifically, microchips. This is not a new thing, but it will be what is the new mark for Shenzhen or the whole Pearl River Delta.
GBI: What strengths can the GBA offer to Shenzhen?
Nylander:The Greater Bay Area is a city cluster. If you think of Beijing or Shanghai, those are just one big city. But here you have 11 cities and you get a bit of fresh air breathing through them. You don’t have the same trace of density, because density doesn’t work.
The government is working on many major infrastructure projects, but what is more important is perhaps how to easily get from the train station to your home or your office.
I’ve spoken to an urban planner who said that if the Pearl River Delta could truly become an integrated city cluster, with a one-hour transportation ring, then you would see the greatest productivity boom the world has ever witnessed. Maybe the only thing you can compare this to is the industrial revolution, when the cities in England like Liverpool, Manchester and London sought to collaborate and it was this power that gave the country a head start. I think the city cluster model should be the model for all growing cities and the Greater Bay Area is the best example in the world.
Also, it’s important [for the GBA] to integrate with Hong Kong, because it provides special leverage. A lot of companies set up their headquarters or a legal entity in Hong Kong because the institutions work and the rule of law works. If you’re a foreign company, you have a legal entity in Hong Kong and then you have your hardware research and development in Shenzhen, manufacturing in Dongguan, software development in Europe. You leverage all these places and you separate hardware and software to make it more difficult to copy. You can keep control of it all because Hong Kong is the key.
GBI: How can Shenzhen take advantage of this GBA masterplan?
Nylander:I think it’s the other way around. I don’t think many people in Shenzhen care about [the GBA masterplan] a lot. They don’t need it because they have already built the Greater Bay. Shenzhen has an international mindset. It has been using Hong Kong for exports and finance and Dongguan for manufacturing. The city which needs to “jump on the bandwagon” is Hong Kong, because it has been falling so far behind. Also, I think the west side of the Delta can really benefit from the masterplan.
Shenzhen Superstars is available on amazon.com.