Chinese tech companies should focus on conquering the world from Shenzhen, as hostility increases abroad

The stunning arrest of Huawei executive Meng Wanzhou sends the latest signal that Chinese hi-tech exports and investments face increasingly hostile terrain abroad. China’s technology sector is being singled out or contained, in part due to populist pressures in key Western markets.

Given the current standstill, a crucial opportunity emerges for Chinese technology to forge a new growth path, particularly from the Greater Bay Area technology cluster, with Shenzhen and Hong Kong at its epicentre. Huawei has been a crown jewel of Chinese technology in Shenzhen and a symbol of how far China has come in its 40 years of reform and opening up. But what the Huawei case shows is that success is fragile and China has a long way to go, as the global race for technological supremacy heats up.

A key challenge for the Greater Bay Area, already the most international technology cluster in China, is positioning itself to pull ahead of global competitors, including Silicon Valley in the San Francisco Bay Area. To do so, it must focus not only on catching up, but also on leapfrogging. It should learn from the challenges technology clusters around the world face and strive for higher-quality growth. These challenges include an increasing divide in talent and income, asset price and living cost inflation, environmental degradation, and the stifling of competition and entrepreneurs as incumbent players crowd out smaller players.

The divide in talent and income is a growing gap between those who are able to benefit from employment in a technology-driven economy and those who are not. To plug the gap, it is imperative to improve data literacy and skills training to prepare the overall workforce for the future digital economy, and to involve the private sector – especially digital champions.

Second, a technology centre like Shenzhen has seen property prices skyrocket, which is not a new problem, as similar trends have been observed in parts of Silicon Valley. But housing cost inflation not only diminishes the affordability of a technology cluster for new talent who want to work there, it also widens inequality among existing residents.

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Action at the local, regional and national levels to curb prices are nascent and experimental, but efforts by technology firms to secure and subsidise housing may provide a transitional solution. Businesses are also relocating to and expanding in second-tier cities, but holistic urban planning is required to ensure these alternative locations can offer convenience, as well as culinary and cultural attractions, to a high-quality labour pool. As Amazon’s choice of vibrant urban areas, in New York City and outside Washington D.C., for its second headquarters shows, lower living cost alone is not an adequate attraction.

Third, the location of the Greater Bay Area in a low-lying region means greater environmental vulnerability on the horizon. The urban sprawl in Shenzhen has given rise to environmental stress in the form of water and resource depletion as well as air pollution. As the Greater Bay Area further urbanises and industrialises, municipal governments and private companies alike will need to improve the adaptability of their infrastructure and assets to more intense and frequent storms and floods.

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Last but not least, fostering fairer competition and entrepreneurship is key to strengthening the international credibility of the Chinese technology sector, and is also good for domestic consumers.

The winner-take-all nature of the technology market is exacerbated by the combination of big data and artificial intelligence. But this threatens smaller players, who are crucial to the development of future technological innovations. An uneven playing field also means that large incumbents are making bigger profits without delivering commensurate value to the overall economy. One way to achieve a better balance could be data-sharing arrangements, in which companies above a certain size give others access to a subset of their data to foster diversity and market resilience.

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Both China and the US show signs of closing in on themselves and turning their backs on collaboration, forgetting the past openness that has enabled each to become successful. At this critical juncture, China could choose to work on achieving higher-quality growth in its technology clusters by overcoming challenges that still plague most technology clusters worldwide. This would take Chinese technology to the next level, and is in line with the broader goal of achieving more widespread prosperity in the country in the coming decades.

Janet Pau is programme director of the Asia Business Council