Shenzhen is the poster boy for China's economic progress.

Forty years ago it was just a cluster of small villages lying across the water from bustling Hong Kong, before it was designated China's first "special economic zone".

Now it's a city of some 11 million people and a technological powerhouse – the next Silicon Valley, according to many.

Image: The technological powerhouse of Shenzhen is viewed as the next Silicon Valley

That also means it's the front line in the incipient US-China tariff war, which is as much about technology as it is trade.

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Shenzhen built its name on manufacturing cheap electronics for export.

Huaqiangbei is an electronics market that sprawls across streets, underground and several storeys high.

You can buy everything from computer chips to drones, 3D printers, programmable LEDs, bitcoin mining rigs.

But stall owners are worried about the impact of US tariffs on their business.

Shenzhen
Image: China has ambitious plans to be a world leader in key tech industries

Li Chunyan, a shop owner who sells USB fans, told Sky News: "If more tariffs are imposed on Chinese exports, we won't export any more. And if we only have the Chinese market to rely on, we have no business."

What the US is concerned about isn't shops like Mr Li's; Western consumers love cheap electronics and the US government was happy for China, with its historically low wages, as a low-tech factory for the West.

From that base, though, something else has emerged in Shenzhen: a thriving start-up culture, especially around hardware.

With quick, easy and cheap access to components, tech companies can experiment quickly – and build new technologies on top of them.

Technology in Shenzhen
Image: Shenzhen has a thriving start up culture, especially around hardware

That's how Ubtech, a Chinese company that makes humanoid robots, got its start here. This is the most valuable robotics start up in the world, worth around $5bn (£3.8bn).

Its chief executive and founder James Zhou told Sky News: "To make robotic hardware, Shenzhen is a very good place.

"For example to make a mould in the US or other countries would take six or eight months. Here, it's one month."

Ubtech's robots range from miniature dancing toys, to security robots designed for shopping centres and airports, to advanced bipedal machines that can walk by themselves, climb stairs and even kick footballs.

That level of innovation is getting the US nervous – especially because it's part of a deliberate strategy by China.

Three years ago, Chinese President Xi Jinping announced a new plan, called Made in China 2025.

Made in China
Image: The level of innovation is rattling the US

It was a blueprint for Chinese domination in several key industries, including biotechnology, electric vehicles and robotics.

The US is worried about losing its technological advantage.

And President Donald Trump has argued that the Chinese government gives unfair subsidies and protection to Chinese companies, as well as stealing intellectual property from American companies.

Many of the tariffs he's announced are targeted directly at Made In China 2025 – including new import duties on robotics.

Certainly, the Chinese government is encouraging private companies.

"China is entirely a market economy," Mr Zhou told Sky News.

"But the government plays a leading role at the same time. For example, the government helps you with promotion, with awareness, with encouragement and creating a good business environment. The government offers a spiritual lead."

Robots in Shenzhen
Image: With easy and cheap access to components, tech companies can experiment quickly

Recently the Chinese government has tried to play down Made in China 2025 – at least in public.

Media outlets in China were recently ordered not to mention the strategy at all "or there will be consequences", according to official instructions leaked to the China Digital Times.

More from China

But China won't give up its plans: even if the government wanted to, private companies themselves are pursuing it just as aggressively for their own survival.

That means the trade or technology war between the US and China isn't mere tit-for-tat. It's something much more fundamental – and so much harder to resolve too.

Original Article

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