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China tech

Startups power Shenzhen's rise as high-tech hub

City produces more than half of China's international patent filings

SHENZHEN/GUANGZHOU -- When a young entrepreneur was looking for a place to launch his idea for mass-producing a superstrong material of the future, he did not go to Silicon Valley but rather to a Chinese metropolis that has become a magnet for high-tech startups.

Deng Fei, an overseas-educated Chinese haigui (literally "sea turtle") returning to his country to pursue his ambitions, is one of the businesspeople leading Shenzhen's transition from "factory of the world" to a global center of technological innovation. The city accounted for more than half of China's international patent applications last year, far outpacing Beijing, a Nikkei analysis finds.

The 40-year-old Deng, who has a doctorate from the University of Tokyo, founded a company that manufactures carbon nanotubes, or CNTs, in Shenzhen in 2016.

These cylinder-shaped carbon molecules boast extreme strength and conductivity, and they have long held the promise of igniting a revolution in electronics, computers, chemistry and new structural materials.

"We want to play a role in popularizing carbon nanotubes and create an environment that helps Japanese pioneers in this field win Nobel Prizes," says Deng, chairman of Shenzhen CONE Technology.

CNTs were discovered in 1991 by a Japanese researcher named Sumio Iijima, a professor at Meijo University in Nagoya.

Deng Fei's Shenzhen CONE Technology can produce carbon nanotubes of roughly equal length.

Japanese materials makers have tried to produce commercial CNTs, but they have hit a technological wall. The traditional CNT production method does not form nanotubes with even length, meaning manufacturers cannot create products with consistent quality. As a result, no one among the pioneers of this technology has received a Nobel Prize.

Shenzhen CONE Technology has developed a method to grow forests of vertically aligned single-walled CNTs on glass substrates. This new approach can mass-produce nanotubes that are 10 nanometers [10 billionths of a meter] or less in diameter and 0.1-1 mm in length. In March 2018, Shenzhen CONE Technology started operating a plant in Shenzhen that can churn out 30,000 tons of carbon nanotubes yearly in the form of paste.

Shenzhen CONE Technology has begun supplying carbon nanotubes to BYD Auto, a major Chinese electric vehicle manufacturer, and other domestic automakers to make electrodes for lithium-ion batteries. The Shenzhen-based firm is also supplying CNTs for use as a structural material in drones.

The company has also shipped samples to Japanese auto and electronics makers, garnering 20 million yen ($180,000) in sales in 2018.

The fact that Shenzhen CONE Technology is supplying automakers, which generally require strict quality standards for their materials and parts due to safety reasons, indicates that the company's technology has reached a viable level.

Born in Nanchang, the capital of Jiangxi Province, Deng spent his university years in Japan because of his father's job. He studied at Tsukuba University and the University of Tokyo, and also in the U.S. at the University of Delaware.

Shenzhen CONE Technology has operations in the U.S., Japan and China to take advantage of the business and technological environments in each country. It employs about 80 people in the three countries, conducting CNT research operations in the U.S. and developing plant technologies in Japan.

But Deng decided to locate manufacturing operations in Shenzhen because of three important advantages: generous policy support from the municipal government, a rich pool of talent and easy access to venture capital. The city's reputation as a startup hub has attracted a raft of venture capitalists, both foreign and domestic, making one of the contenders for the title of China's Silicon Valley. Many of these startups are founded by haigui like Deng.

His company has received around 1 billion yen in financial aid from the municipal government under a program to support Chinese entrepreneurs who have returned from abroad.

Shenzhen, along with Beijing, Shanghai and Hangzhou, is a center of new business startups in China, and it boasts a long list of rapidly growing new manufacturing companies.

The city has produced a bevy of unicorns -- startups valued at $1 billion or higher -- including leading drone maker DJI and UBTech Robotics, a maker of humanoid robots.

Companies like these have turned Shenzhen into China's intellectual property center. The 53,345 patent applications from within China last year ranked second after U.S.-based applicants, according to data from the World Intellectual Property Organization. Shenzhen serves as the home base for 52% of Chinese applicants, the most of any Chinese city and well ahead of second-place Beijing, which accounted for 13% of applications, according to Nikkei calculations. 

Shenzhen long served mainly as a production center, bustling with assembly lines for personal computers and other electronic gadgets. But it has been grappling with the challenge of becoming a breeding ground for startups that produce high-value-added materials and parts.

The municipal government has been promoting the city's technological evolution through its kongque, or peacock, program for tech startups, which offers 3 million yuan ($447,000) for any Nobel class laureate in natural science. The program is aimed mainly at attracting entrepreneurs who have studied or worked abroad.

One beneficiary of the program is chipmaker Bronze Technologies. The company was founded in 2009 by a group of Cambridge-educated entrepreneurs. It has developed original chip technology for power semiconductor modules, key components for electric vehicles and trains.

Chipmaker Bronze Technologies received investment from Chinese railway car manufacturer CRRC.

German chipmaker Infineon Technologies and Japanese electric machinery makers Fuji Electric and Mitsubishi Electric have already adopted this microchip. In June 2018, Bronze Technologies received an investment from the CRRC group, a Chinese state-owned company and the world's largest railway car manufacturer, to consolidate its finances and customer base.

Royole, a Shenzhen-based manufacturer of organic electroluminescent panels, is a unicorn that also uses the peacock program. The company started operating an 11-billion-yuan panel factory in June 2018. Royole started marketing a foldable smartphone under its own brand name in late 2018, and it is also proposing using its panels for in-vehicle display systems.

"Shenzhen, which was a fishing village before the reform and opening-up in 1979, is a city in which people have come to live from all over China. Like Silicon Valley in the U.S., the contact of different cultures has given vitality to the city," said Tao Yitao, director of Shenzhen University's China Center for Special Economic Zone Research. "Starting enterprises has taken hold as a way of working among young people."

Shenzhen is also known as the headquarters for major telecommunications equipment makers Huawei Technologies and ZTE, companies that are bearing the brunt of the U.S.-China trade war.

Materials and electronic components are priority fields of "Made in China 2025," the country's strategy for developing high-technology industries. If high-tech startups in Shenzhen become too powerful, they could become a point of friction between the two countries in the future.

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