Shenzhen perfect spot for cyber-park dreams

When Frank Chen decided to build a software development park in the mainland, the Beijing-born, US-educated engineer considered only one location for the multibillion-dollar facility - the Shenzhen special economic zone. 'Shenzhen is a melting pot,' Mr Chen said. 'It attracts talent from all over China, which brings technology. There is the entrepreneurial spirit and that attracts funding.' Cyber City Shenzhen, which broke ground earlier this month, is the latest example of how the zone's high-technology industry is coming of age. From modest beginnings in the mid-1980s, hi-tech production has emerged as a key component of Shenzhen's economy, amounting last year to 65.5 billion yuan (about HK$60.9 billion), or 35.4 per cent of the city's gross domestic product. The zone's experience in building its hi-tech sector stands in sharp contrast to Hong Kong, where policy on how to develop high value-added industry continues to be hotly debated. In the past 15 years, Shenzhen has used its advantages not only to attract large information technology hardware multinationals - such as IBM, Seagate and Seiko-Epson - but also has nurtured domestic producers, such as Great Wall Computer and telecommunications-equipment manufacturer Huawei Technologies. Hi-tech also has become a catchword for government officials and domestic businessmen alike, who envision the zone fulfilling its mandate of building a gateway between the mainland and the rest of the world through the growth of a dynamic information-technology manufacturing sector. 'Development of high-technology industries is the advantage, hope and image of Shenzhen's future,' city mayor Li Zibin said earlier this year. Shenzhen has little choice but to pursue hi-tech growth, said Tang Shaokai, general manager of Shenzhen Science & Industry Park, one of the mainland's oldest and most successful hi-tech zones. 'It would be unsuitable for a city like Shenzhen to develop traditional industries such as automobiles, iron and steel, or petrochemicals, since they require land,' Mr Tang said. The Shenzhen Science Park, which hosts about 80 mostly hi-tech firms, reported production last year of 19.3 billion yuan, more than three times the output of two years ago. 'Shenzhen is small, land is expensive and salaries are high, so [the city] must exploit its natural advantages.' Among these is Shenzhen's ability to attract young, college-educated workers from across the country. For example, at Huawei Technologies, 85 per cent of the company's 10,000 employees hold a college degree. Huawei official Fu Jun attributed the Shenzhen zone's drawing power to its can-do image and competitive salaries. College graduates start at 4,000 yuan per month; post graduates earn 5,000 yuan or more. Huawei, which produced about 30 per cent of the mainland's telephone switches and more than 60 per cent of its access network equipment last year, is expanding production to include wireless and data communications hardware, a move made possible by access to the mainland's deep talent pool. 'We are interviewing between 70 and 80 people every day,' Mr Fu said. Migration of educated workers is also being facilitated by the Shenzhen government, which promotes a standing policy of allowing any college-degree holder employed in the city for more than two years to obtain much-coveted residency. Other progressive government policy extends from personnel to taxation issues. Hi-tech companies in Shenzhen benefit from a two-year corporate income tax holiday, followed by a three-year 50 per cent reduction on the zone's 15 per cent tax, as compared with the 33 per cent income tax rate generally paid by mainland firms. Moreover, Shenzhen is the only municipality in the mainland that does not tax sales of hi-tech equipment produced and sold in its jurisdiction. Further tax breaks are available for companies that export more than 70 per cent of their production. Such support has encouraged many of the city's export-driven producers to expand their operations in the zone. US-based Seagate Technology, for example, is preparing to increase investment at its Shenzhen US$20 million hard-disk manufacturing joint venture by US$122 million over the next five years. 'The investment will make the plant more self-sufficient and increase our ability to respond to the demands of the market,' said Barry Kao, plant manager at Seagate. A mixture of human resources and capital go a long way towards creating the infrastructure that allows for Silicon Valley-style innovation and entrepreneurial spirit, according to Anne Saxenian, a professor at University of California, Berkeley, who has studied growth of hi-tech industry in the United States and elsewhere. 'There is a self-reinforcing process in both the labour markets and industrial infrastructure which makes a more attractive location for others,' Ms Saxenian said. The growth of synergies was already underway in Shenzhen's software industry, said Fritz Chiu, manager at the Hong Kong Productivity Council's Software Industry Information Centre. Mr Chiu said increasing numbers of Hong Kong software producers were choosing the special economic zone to take advantage of lower operating costs, talent and large markets across the border. One recent software producer who has chosen to move to Shenzhen is Timeless Software, one of Hong Kong's largest designers of telecommunications, Internet and intranet, and multimedia software. 'We are placing our research and development across the border so our manpower in Hong Kong can focus on higher value-added consulting services,' explained Timeless Software's executive director Danny Cheng. However, before Shenzhen emerges as the centre of the region's cyberdelta, the economic zone must first overcome a number of challenges. Most pressing is the city's dearth of venture capital. 'Systems allowing for venture-capital investment have not taken shape,' said Mr Tang. 'That has handicapped the development of some small hi-tech enterprises and forced others out of business.' SC Mak, vice-president at venture capital firm Walden International Investment Group, agreed. Shenzhen did not measure up to Hong Kong's standards when it came to international exposure, access to information, infrastructure and regulation, he said. That is where Frank Chen's Cyber City Shenzhen comes in. Through the company's New York-based investment arm, Cyber City Capital, Mr Chen is hoping to turn his software park designs into reality. 'It's a high-risk investment, but one that I think will pay off,' he said.