Sunday, July 21, 2024

Transcript: China tech — Shenzhen speed 

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This is an audio transcript of the Tech Tonic podcast episode: ‘China tech — Shenzhen speed

[SHENZHEN AUDIO CLIP PLAYING]

James Kynge
In the heart of Shenzhen, a city in southern China, is the district of Huaqiangbei. And it’s home to the biggest electronics market in the world. It’s a vast warren of stalls selling every kind of electronic component under the sun. 

So we’re standing in the middle of one of the Huaqiangbei electronics markets. And the scene is really quite impressive. It’s basically one stall after another. There’s hundreds of stalls here. I mean, there’s just piles of electronic components on top of each other in a very higgledy piggledy way. It looks like a rather eccentric hardware shop where you know that you’re selling everything, but you’re not quite sure where anything is. 

Noah Zerkin
So we have signal generators. We have multimeters, lots of different kinds of multimeters, obviously, any microcontroller you could possibly want. And . . . 

James Kynge
In the market, I met Noah Zerkin. He’s a tech inventor from the US, and he’s chosen to innovate new products not back home in America, but here in Shenzhen. For him, the electronics market is an Aladdin’s cave of potential treasures. 

Noah Zerkin
USB connectors of every sort, including some rather exotic ones and big . . . 

James Kynge
These ones over here with lots of like, brass-looking nodules coming out of them. 

Noah Zerkin
Something that I’ve actually been looking for for close to a year. A suitable one. Yes. 

James Kynge
So what kind of products could you build with the components that we can find in these markets here? 

Noah Zerkin
Everything from consumer electronics devices to robots, drones, military systems to maybe even space systems, right. You can build anything using the components here. Yes. I mean, it’s such a tough question because you can literally build anything. 

James Kynge
For decades, this part of China was known as the electronics workshop of the world. But these days, Shenzhen doesn’t just make other people’s technology. It’s building its own Chinese tech. And in the process, China is emerging as a tech innovator on a course to overtake the US as the most important technology power in the world.

[MUSIC PLAYING]

This is Tech Tonic from the Financial Times. I’m James Kynge. I cover China for the FT. And for more than 20 years, I’ve been watching China’s rise as a technological superpower. There is a race going on between China and the US for tech supremacy, and I believe China is winning that race. It’s reaching a level of innovation few thought possible in an authoritarian state. So in this season of the podcast, I’m taking you to the front lines of China’s technological rise — from electric cars to the most advanced robotics. I’ll be travelling to Europe and Africa to see the impact that Chinese technology is having around the world. But in this episode, I want to start in the city that has become an engine for China’s technological progress: how Shenzhen is helping China win the global tech race. 

[SHENZHEN AUDIO CLIP PLAYING]

We’re here in Shenzhen. We’re standing by a busy road intersection, surrounded by a forest of enormous skyscrapers, glass and metal buildings reaching all the way down this long avenue. Cars, taxis, even motorbikes riding on the pavements around us. Pretty much in the centre of this vast metropolis. Shenzhen is known as the Silicon Valley of China, and it’s changed dramatically in the last few decades. About 20 years ago, Shenzhen and the cities around it in the Pearl River Delta made a name for themselves by mostly manufacturing other countries’ technologies and maybe copying it as well. But now we’re on the brink of a really totally different new era. These days, Chinese companies are making their own brands, innovating their own technology and selling that to Europe, America, and all over the rest of the world.

Shenzhen is home to some of the biggest names in Chinese technology. The internet giant Tencent is based here, as is Huawei, the tech behemoth that’s found itself at the centre of US-China tensions over technology in recent years. There are newer trailblazers, too. DJI, which essentially invented the consumer drone market, is a Shenzhen company, as is BYD, the Chinese carmaker that is fast becoming a dominant force in electric vehicles. It all points in one direction, something a think-tank recently highlighted — that China is overtaking the US in its capacity to innovate, and it’s now ahead of the US in everything from advanced batteries to hypersonic aircraft, quantum communications and supercomputers. To understand how that has happened, you need to look at China’s long history of manufacturing consumer technology. 

Noah Zerkin
OK. In this bin here, these are sort of ancient prototype parts, but . . . so let’s take this down. And this, oop, this needs to go on the floor. 

James Kynge
In his workshop, a short walk away from Shenzhen’s electronics markets, the American inventor Noah Zerkin shows me what he’s building — an augmented-reality headset. 

Noah Zerkin
OK, so there are, you see there are these three circuit boards up here. And that’s just for making the displays work. And there are these two sensors, each of which have two little cameras on them, little fisheye cameras to track your hands. Then there are these two big curved mirrors that rest in front of your eyes. And the electronics on this headset are basically all made from stuff that you can find in the market downstairs. 

James Kynge
Tech inventors like Noah have chosen to base themselves in Shenzhen rather than the United States, because being in Shenzhen means having instant access to a vast supply chain of components and factories. It means they can work quickly, develop prototype products, test them, and manufacture them all at a rapid rate. 

Noah Zerkin
Being able to source those components, I was able to order things mostly from places that have stalls representing them in the Huaqiangbei markets, right, that are right here and have them arrive at my doorstep, if not that day, the next day. Same with the PCBs, the circuit boards. Nowhere else can you get 24-hour turnaround. If I make a mistake on one of my prototypes, I can identify it, change it. Anywhere else, this is a big deal. So I can do a prototype iteration in 24 to 48 hours. That is not true anywhere else in the world. 

James Kynge
The ability to prototype and manufacture tech products rapidly is giving rise to some really exciting companies in Shenzhen.

[SHENZHEN AUDIO CLIP PLAYING]

Very smart factory . . . 

Guan Jian
It’s . . . Matter of fact, this is not a factory. All right. It looks like an explosion centre, but it’s not. This is our R&D testing field. So where, you can see along the windows, there are over 250 chairs. And those are for R&D and production staff only. 

James Kynge
A few miles north of Huaqiangbei are the offices of the robotics start-up Youibot. They design and build industrial robots. In that bright and spacious new research and development centre, dozens of robots move around the vast open floor guided by lasers and algorithms.

[SOUNDS OF LASER AND ROBOTIC MOVEMENT]

The company is growing rapidly. Just a few years ago it was a neighbour of Noah Zerkin’s in a small workshop above the electronics market. Guan Jian from Youibot says access to supply chains and manufacturing expertise means start-ups here can operate at what he calls Shenzhen speed. 

Guan Jian
For the most typical example, during the pandemic, we built an anti-pandemic robot with UVC lights and a thermometer camera on top within 14 days. I’m not talking about 14 days to get the conception of a robot. I mean, 14 days for the first prototype. From an idea to a prototype, two weeks. That’s supply chain. 

James Kynge
How were you able to do that? 

Guan Jian
We can get every single component downstairs in Huaqiang North. 

James Kynge
This means Youibot is rapidly catching up with more established US and European competitors. 

Guan Jian
Before the pandemic, there were several strong competitors globally. Like, we look up to them and we try to study from them. After the the pandemic, when we joined a conference in Germany, we strangely realised that the European players, they still trying to sell the same thing with the one before pandemic, three years earlier. And when we look at ourself, everything’s totally different. 

James Kynge
So your R&D effort was moving at Shenzhen speed. 

Guan Jian
Well, I prefer to call it Shenzhen speed, yes.

James Kynge
For newer start-ups like Youibot, there are plenty of examples around Shenzhen of the potential global success that Chinese companies can aspire to.

We’ve come to a different part of Shenzhen. We’re now in one of the big tech centres of this city. We’re surrounded by huge buildings, mostly occupied by some of the biggest tech companies in China and in the world. There’s sound of construction in the background. Three more huge blocks are going up, soon to be occupied by other Chinese tech companies. And we’re standing in front of the brand-new headquarters of one of the companies that really put Shenzhen on the map in the last few years, and that’s DJI.

[MUSIC PLAYING]

If you want an example of a Chinese company totally dominating a sector, Shenzhen’s drone maker DJI is a good example. Over the last decade, it effectively invented the consumer drone market. It now sells eight out of 10 drones around the world.

When it’s coming towards us, it really looks like an insect, I’d say a dragonfly or something like that. It’s now gone, I don’t know. That must be 20, 30 metres into the sky. It’s just hovering over the forecourt of this building. It’s going even higher. Oh, my. It’s now out of sight.

Success for DJI means a massive new headquarters, two towers that appear to hover in the sky, called Sky City.

Everywhere we go in Shenzhen, there’s enormous buildings, you know? 

Christina Zhang
Yeah. So if you come here six years ago, now it’s seven years ago, there’s no this building. But right now, of course, we got this piece of land in 2016. And in 2022 we moved into this building. So after six years, we have this beautiful twin building and campus here. And right now we live here more than one and a half year already. 

James Kynge
Christina Zhang showed us around the buildings and told us about the secret drone testing area housed inside one of the towers. 

Christina Zhang
Before, when we have the office that we rent, it’s so difficult to find a place to fly because people are gonna walk around. We need to avoid the people, and also some of the people they try to know or try to find out what is DJI’s next product. So they try to steal and see the product that we’re testing fly. So we have to fly inside this building. You may see it, of this two box, there are four-floor-high area. 

James Kynge
Four-floor-high area. 

Christina Zhang
That’s the flight inside. 

James Kynge
Wow. That’s very interesting. So they can fly it there in peace. They know nobody is watching. You can maintain your intellectual property. Nobody can see. 

Christina Zhang
Yeah. And also even without the good condition, like if it’s raining, windy you can do a test inside. Yeah. 

James Kynge
Yeah. Have you got any really cool prototypes you’re working on at the moment? 

Christina Zhang
We have so many, but I cannot share now. (laughs)

James Kynge
A company like DJI represents something that, 10 or 20 years ago, to observers in the west at least would have been difficult to imagine — a Chinese company way out in front of the competition, setting the pace in the creation of leading tech products. But China’s tech ambitions are not limited to robots or drones. China wants to lead the world in all kinds of cutting-edge technologies.

[MUSIC PLAYING]

The drone maker DJI is one example of a Chinese tech company that’s leading its field in the development of technology. Huawei is another. And China might be leading in a multitude of other areas.

Last year, the Australian Strategic Policy Institute, a think-tank, made waves when it concluded that China now leads the world in 37 out of 44 critical areas of technology. Another think-tank, the Information Technology and Innovation Foundation, based in Washington, warned that China is evolving from an imitator to an innovator. 

Matt Sheehan
It’s easy to forget now just how far behind China was in technology and how dismissive most of us in the west were about China’s tech capabilities all the way up until pretty recently. 

James Kynge
Matt Sheehan is a fellow in the Asia Program of the Carnegie Endowment for International Peace in the US. Where would you say China is right now? Is China catching up to the US level in many technologies? Is it a peer competitor already? Is it on a trajectory to overtake? 

Matt Sheehan
I think the term peer competitor captures it. I mean, there are some areas where the US is clearly ahead. You know, right now in the frontiers of AI, in large language models, in generative AI, that’s an area where the US can pretty comfortably say we are ahead. But if you look across other areas, if you look at renewable energy technologies, clean technologies, battery-powered vehicles, electric vehicles, China is far and away the global leader in these. It has the supply chains. It has the deep manufacturing expertise. And it’s really on a trajectory currently to dominate those industries globally. Look at an area like quantum. It’s still a wide open field. We don’t know which sort of path is going to be the most promising. But China is showing results that are just as impressive or roughly on par with the US across a few of those different approaches. If you look at, you know, the success of platform technology companies, obviously the US has some of the global leaders in Google, Facebook, Twitter, Amazon, but, you know, the most popular app in the world right now is a Chinese app. It’s TikTok. 

James Kynge
In recent years, China has overtaken the US to become the biggest filer of patents in the world. Last year, Huawei filed more patents than any other company anywhere. But Sheehan says innovation is not just about coming up with new ideas, it’s about turning them into solutions and products at a scale that can reach a mass market. 

Matt Sheehan
This is really an area where China’s manufacturing prowess is gonna come into play. You know, the idea of China being the factory of the world just because it has cheap labour is way out of date. China’s advantage is not the cost of its labour. It’s the fact that it’s built up the most sophisticated, intricate manufacturing ecosystem in the world, that they have trained engineers who have spent 30, 40 years progressively building and refining more and more precise manufacturing technologies, and especially learning how to take a good idea and scale it up to the level of, you know, hundreds of thousands or millions of products. 

James Kynge
The Chinese government has technological progress at the centre of its national ambitions. Matt Sheehan says it’s not clear that China will inevitably overtake the US. But he says China’s progress so far suggests that the US cannot assume that it will always be in the lead. 

Matt Sheehan
Broadly. But I think especially if you zoom in on the United States and on Silicon Valley, we have this narrative that technological innovation, freedom of speech and democracy are all intimately intertwined, that you cannot have innovation unless you have free speech, free internet, political freedoms. And I think that was a nice story. It fit broadly with our perception of the way that creativity works and the way that business and markets work.

I think what China has done over the last 10, 15 years, it’s essentially pulled apart that narrative, that innovation depends on certain types of freedoms. You can have, you know, world-leading apps come out of a country that doesn’t have a free internet. You can have some of the biggest and most successful technology companies in a country that has quite controlled markets and a very heavy-handed government. And I think it turned a lot of ideas that we had in the west on their head. 

James Kynge
It’s a profound conclusion. It used to be an article of faith that you need a democracy to spur tech innovation, but China is turning that argument upside down. In an authoritarian state, you can still innovate tech products and sell them to the rest of the world via gloves-off, bare-knuckle capitalism.

So in your daily life, how many times do you feel surprised by new products being made and new innovations? 

Qi Zhou
Almost every day. Almost every day. 

James Kynge
Qi Zhou is a venture capitalist based in Shenzhen. He spent years working at Huawei and in Japanese tech companies, before returning to China to capitalise on what he saw as a boom in Chinese innovation. 

Qi Zhou
I forced myself to meet at least one company one day, at least one company one day, and read five to 10 business plans one day, five to 10 business every day. Every day, almost, almost. So I can see a lot of innovative products. 

James Kynge
Zhou agrees that China’s expertise in manufacturing has helped tech companies develop. But he says there’s another factor spurring Chinese firms on — the intense competition between Chinese companies for Chinese tech consumers. 

Qi Zhou
Chinese guys like to use new things, like application, one app, and they will give up one app very quickly too. So if you can’t let them know the valuations of your app, they will give up very quickly. This is one point. And another point is competition. Competition. This is a different culture. I think in western countries, I do my business, you do yours. But in China? I don’t think so. I do my business, and I do your business, too. 

James Kynge
Zhou says Chinese companies think of it in terms of survival — innovate or die. 

Qi Zhou
Survive. Survive is very important keyword in China. 

James Kynge
China’s transformation into a global tech superpower to rival the US is an incredible story. But the question now is whether China is going to maintain that momentum and power past the US and other countries to become “the” tech power in the world. The global success of Shenzhen’s companies suggest it might. But it’s not a given. 

Qi Zhou
I would say, so most advanced technology is not in China, even now. In some key industries, we need some time. We need time to develop, like semiconductors, like AIs. 

James Kynge
So China is not the most advanced in terms of technology, but it’s catching up fast. Do you think that China, one day, soon, in the next few years, could become the most advanced country for technology? 

Qi Zhou
We developed very rapidly before today, but after that, I cannot predict. We are still working hard on catching up. But when we overtake the US, we don’t know. And I think from the point of government, we don’t think one day we have to. We have to overtake America, I don’t think so. But as a boss of a company, we have to overtake the other guys. I am a businessman. When I invest in a company, I hope to say we’ll be the first one in the world one day. 

[MUSIC PLAYING]

James Kynge
A changing of the guard when it comes to technology happens very rarely. For the first time, we’re seeing global tech come out of an authoritarian state without free internet, without freedom of expression, and where surveillance cameras monitor your every move. If China wins the tech race, the impact on the rest of the world will be huge, and we’re already starting to see it.

In the next episode of Tech Tonic, we follow one of Shenzhen’s hottest companies to Germany.

[CLIP FROM NEXT EPISODE PLAYING]

James Kynge
You’ve been listening to Tech Tonic from the Financial Times with me, James Kynge. Our senior producer is Edwin Lane. The producer is Josh Gabert-Doyon, and the executive producer is Manuela Saragosa. Sound design by Breen Turner and Samantha Giovinco. Original music by Metaphor Music. The FT’s head of audio is Cheryl Brumley. 

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