“Every innovation system is unique. It's not a zero sum game. China's Greater Bay Area doesn't need to be like Silicon Valley,” said Micah Weinberg, president of the Bay Area Council Economic Institute at the November 2018 Peking University Global Finance Forum. The institute describes itself as “the leading think tank focused on the economic and policy issues facing the San Francisco/Silicon Valley Bay Area.”

China's Greater Bay Area has been compared with economic areas in San Francisco, New York and Tokyo. Chinese authorities unveiled the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area in February 2019. The initiative aims to merge Hong Kong, Macao and nine mainland cities in Guangdong Province, including Shenzhen and Guangzhou, into an innovation hub and economic powerhouse.


In his speech at the 2018 Peking University Global Finance Forum in Guangzhou, Weinberg shared key factors of Silicon Valley's continuing economic growth with Chinese financial industry practitioners and policymakers. He emphasized the importance of talent, capital, industrial diversification, and openness to the world. Weinberg noted that although the Silicon Valley model is built on an open, global model with little or no government leadership or planning, China doesn't need to replicate that example. In China's Greater Bay Area, the cities and systems to be integrated and resources to be optimized are far more diverse and complex. In an interview with this PHBS financial media student, Weinberg pointed out that some central planning can help to reallocate resources and combine the strengths of each city.


What Can China Learn from Silicon Valley?

There are some lessons China may learn from its American counterpart, the nine-county San Francisco Bay Area. According to Weinberg, the first widely acknowledged “law” is that education and research institutions are primary assets in all innovation economies, providing a highly-educated labor force for regional high-tech companies. Government should make the foundational investment in higher education and research centers in the area—not only the universities like Stanford and Berkeley, for example, but also university-affiliated, independent, and corporate innovation centers— which then pay dividends over time.


Apart from government investment and human capital, venture capital is of equal importance. According to a report published on the website of the Bay Area Council Economic Institute, in addition to the “titans”—Alphabet, Apple, and Facebook—startups also prosper in the San Francisco Bay Area. Venture capital enables startup companies like Uber and Airbnb to flourish and expand. Low barriers to the movement of people andinformation also contribute greatly to the instant waves of innovation. Weinberg noted that California doesn't recognize non-compete agreements, which prohibit employees from going to work for their employer's competitors or setting up a competing business themselves. That enables the labor force to move fluently in the ecosystem of innovation. “Silicon Valley minimizes institutional barriers to collaboration and advocates openness to sharing,” said Weinberg.

Difference May Also Work to the Area's Advantage

Challenges do exist in fulfilling the ambition of China's Greater Bay Area. Political, jurisdictional, and economic systems differ greatly in the nine cities of the Pearl River Delta and the special administrative regions of Hong Kong and Macao. China needs to consider how to lower the cost of people, capital and information circulation among different regions. However, Weinberg viewed the difference as diversity, which he terms an asset instead of a drawback or strength rather than weakness. “Because you can do more or less central planning of those three different economies to optimize it,” Weinberg said.

“Each city in the Greater Bay Area has its own strengths,” Weinberg continued, “Hong Kong, as an international financial center, has better engagement with foreign companies and investment. Macao is hub of entertainment and tourism, with more connection in the Portuguese-speaking countries. Like Silicon Valley, Shenzhen is the base for technology giants. It has Tencent, Huawei and DJI.” Further, Guangzhou is a transportation junction to other major cities in China, and other cities—Foshan, Zhaoqing, Jiangmen, Zhuhai and Huizhou— are well-known for their manufacturing industries.

The San Francisco Bay Area, despite being strongly identified with technology, actually has strong industry diversification across its top-performing companies compared to other economic centers. Companies in the Bay Area also thrive in energy, financial service, media, biochemistry, consumer goods, and other sectors. Weinberg regarded the diversification as a chance for the economy to reinvent itself over time.

‘It's Not a Zero-Sum Game’

“A lot of people would like to think of economics in zero-sum terms, that if China does well, the United States can't be well. If London is a more innovative economy, then it will come at the expense of the Silicon Valley. Nothing could be further from the truth,” Weinberg said.

On the contrary, the collaboration between the San Francisco Bay Area and other international gateway cities contributes to its continuing economic growth. Silicon Valley is never disconnected from the rest of the global economy. “At a very basic level, there are more companies using products that our companies create—international collaboration creates a larger market than domestic collaboration,” he explained. Although competition is unavoidable, Weinberg insists there are plenty of opportunities for places to exploit their comparative advantages. He believes China's Greater Bay Area is never going to be a replica of Silicon Valley. “It's not only that China and the United States are very different, but also there are things that China does extraordinarily well that we don't do well at all, and vice versa,” he added.

What China and the United States should both be cautious about is the steep rise in the cost of living in the bay areas. “A high cost of living has created a significant barrier to moving into the Bay Area from other regions,” the report published by Bay Area Council Economic Institute says. Weinberg admitted that figuring out how to manage the cost of living, especially in a capitalistic country like the United States, is a huge challenge, and the population in the San Francisco Bay Area just stops growing. “But Shenzhen is growing very quickly,” he continued. “If you're going to have economic growth, you need to make sure that it has a social safety net, like guaranteeing universal access to quality health care and affordable housing.”

Weinberg also made some suggestions for China's Greater Bay Area project. He pointed out that manufacturing bases in cities like Foshan and Huizhou will not create plentiful employment in the future, as most of the production will be automated. “The rest of these cities should stop thinking of themselves just as the back office of the Greater Bay Area, and really regard themselves as a part of the innovation hub.”

By Shi Shengyuan 
Published on PHBS Magazine Fall 2019 (Read More)