Visit to a Shenzhen Tech Market: Imitation Before Innovation
In July 2023, the Trustee Chair team traveled to China with the first delegation of leading American scholars to visit the country since the COVID-19 pandemic. In Beijing, the Trustee Chair co-hosted with Peking University’s Institute of International and Strategic Studies (SIIS) a conference aimed at restoring bilateral scholarly exchange. After the conference, members of the Trustee Chair team spent two weeks traveling in other cities in China. Research Associate Maya Mei and Program Coordinator Matt Barocas visited Shenzhen, a special economic zone and thriving metropolis, situated just north of Hong Kong. The highlight of their time was a day spent at the Huaqiangbei Tech Market (华强北科技市场), a local destination frequented by co-author Maya Mei during her childhood in the city. This blog post re-counts their visit.
We visited the Huaqiangbei Tech Market this past summer because its development is closely intertwined with the city of Shenzhen's emergence as one of China’s tech capitals. Understanding the market’s history and current state is helpful in interpreting the trajectory of the Chinese tech industry. We came away with several observations and reflections from this trip. Most importantly, we found that while Huangqiangbei, and Shenzhen at large, retain conditions beneficial for incubating tech innovation, this ecosystem faces headwinds from domestic political decisions and a shifting international environment.
We headed to the Huaqiangbei tech market, a one and a half square kilometer slice of Shenzhen’s central downtown, that is home to an entire ecosystem of technology production and consumption and accounted for 20 percent of the city’s GDP in 2020. The market itself has a small physical footprint relative to Shenzhen’s sprawl but has played an outsized role in China’s technological development. Some of the most famous Chinese tech companies, such as Tencent, ZTE, and drone manufacturer DJI, started between the walls of Huangqiangbei’s office towers, warehouses, and mega-shopping centers. Much like one area of northern California, Silicon Valley, became a shorthand for America’s tech sector, the connotation of Huaqiangbei to the average Chinese consumer is of trending tech products.
Walking through the multi-story shopping centers that are Huangqiangbei’s most publicly-accessible face during several rainy summer days in July, China’s challenges in reviving consumption and spurring innovation were readily apparent. Across eight or nine floors in each building, we encountered mostly closed stores. The storefronts and small sales counters that once attracted a mad dash of potential renters were barren. The stores that were open mainly sold imitation products of recognizable foreign-designed tech: AirPods, Dyson vacuums, and Fujifilm cameras available in bulk and for a fraction of the real price. Many stores (and even several malls) had given up on selling technology altogether, switching primarily to cosmetics, and these were the most popular. In comparison to Huaqiangbei’s vaunted history of thriving tech business, its current desolation is an aberration and an ominous sign for its resident industry.
Huaqiangbei in the Aughts: Electronic Gold Rush
The origins of Huaqiangbei epitomize the development and reform of Shenzhen’s high-tech industry and shed light on the obstacles that the city and the country are facing during its ongoing transition from “the world’s factory” to a center of tech innovation. Shenzhen was formally established as a special economic zone (SEZ) in 1980, where Deng Xiaoping could test his new “Reform and Opening” policies. Since then, it has transformed from a small fishing village of 30,000 to a global metropolis of 13 million residents, with a GDP that has grown over 10,000 times. Part of Shenzhen’s success lies in its focus on technology design and manufacturing, originally centered around the Huaqiangbei Electronics Market, the world’s largest market of its kind.
When speaking of Huaqiangbei’s rise, the word “shanzhai”(山寨) can’t be left out. Initially meaning “copy” or “imitation,” the term was intended to denigrate Chinese producers of cheap knock-off products. However, this term overlooked something important – “shanzhai” requires a collaborative and comprehensive ecosystem of electronics manufacturers who can copy, produce, and sell a product as quickly as possible. Huaqiangbei was the heart of a network of tens of thousands of factories and sellers. As designs, material lists, manufacturing methods, and illicitly-obtained IP were shared across this network, people in Huaqiangbei were able to profit. They could develop, manufacture, package, ship, and sell products – mostly “shanzhai” phones – all within a few weeks and cramped physical space. This was a “gold rush” of sorts, and Shenzhen locals would swap success stories about high school graduates who became millionaires by reading the market correctly and selling the right products. At that time, Maya’s uncle had just left his job, and like many other young people, he dove head-first into Huaqiangbei in search of an opportunity to get rich by renting a small counter to sell electronic products and cell phone accessories.
With every new generation of Huaqiangbei “shanzhai” electronics, micro-innovations based on consumer needs were added in. Chinese consumers soon experienced the benefits of having “shanzhai” electronics. Maya’s uncle, for example, bought her grandpa a “shanzhai” cell phone specially designed for the elderly when his hearing and eyesight worsened. This cell phone had 8 massive speakers to ensure that everything could be heard loud and clear; and the words on the screen were so big that no one would ever need reading glasses to read them clearly.
On weekends, Maya would follow her uncle to the tech market and run between different sales counters. Some of them sold electronic products like headphones, keyboards, graphics cards, and “shanzhai” cell phones. Others offered services such as cell phone repair, hard drive data recovery, and jailbreaking software-protected phones. To a child, Huaqiangbei appeared like a magical world where one could find any technology they could think of.
While Maya’s uncle was struggling to follow the right trend of products, Huaqiangbei likewise gradually went into decline. Online shopping platforms made the price of electronic products more transparent and diversified the purchase channels. Meanwhile, more and more Chinese customers started to pay for brand names, particularly iPhones, whereas the manufacturers of Huaqiangbei could only produce "shanzhai” iPhones with an Android operating system.
Most critically, the local and national governments finally decided to crack down on the “shanzhai” ecosystem and protect intellectual property. As Huaqiangbei struggled to evolve, Maya’s uncle also switched from selling electronic products to iPhone cases, but soon closed his counter and left the market.
The whole industrial chain, which integrated R&D, design, production, sales, and branding built by “shanzhai” producers soon transformed from the heart of the market to the backbone of original Chinese tech brands such as OPPO, Xiaomi, and DJI. These brands, while homegrown and well known, still developed micro-innovative technologies, similar in capacity to foreign counterparts and secondary in originality.
Shifting Politics Shift the Market
Encapsulating Huaqiangbei’s importance to Shenzhen’s development, and the shifting political narratives around private enterprise’s past contribution and future role in China’s rise, was a newly opened museum for the tech market we encountered. Walking through the museum as some of its first visitors, we were impressed by its cutting-edge interactive displays, and piqued by the way they carefully illuminated the relatively short but eventful history of the special economic zone (SEZ).
In explaining its origins, the museum made no mention of Deng Xiaoping or “Reform and Opening,” nor of the economic isolation that had preceded it. In a new revisionist history fitting with the Xi era, the creation of the market was narrowly attributed to the specific military unit that owned the land that would become Huaqiangbei. The PLA’s contributions to economic development proved a less politically sensitive explanation than the decisions of any political leadership.
While certain political aspects of the SEZ’s formation were absent, the role of private and state-owned enterprises (SOEs) in its transformation was front and center on the displays we read. The exhibits proudly outlined the development of tech behemoths like Tencent as well as SOEs such as Evoc Group and Hytera. The museum’s enthusiastic story of Tencent’s rise omitted the recent regulatory scrutiny hobbling its growth and demonstrated Shenzhen’s reluctance to give up its hometown pride in its successful private enterprises. A uniquely dynamic environment for entrepreneurship was Shenzhen’s raison d’etre and the city remains committed to celebrating this role, requiring it to either sidestep or buck the renewed skepticism of private industry in the new era.
Independent Innovation Dilemma
Before we left Huaqiangbei, we stopped by Huawei’s flagship store in the market. The controversial Mate 60 Pro smartphone had not yet debuted. At that time, we strolled through displays of other Huawei phones, computers, smartwatches, and mobile devices. Despite overall décor reminiscent of an Apple store, the Huawei retail space made a great effort to highlight their Chinese design influences, with product color choices tied to Chinese heritage.
Restrictions imposed by the United States, and agreed to by U.S. allies based on growing concern for national security, have limited China’s access to advanced semiconductors and other cutting-edge technologies and components. In response, companies like Huawei have been forced to reorient their supply chances to replace foreign component manufacturers with domestic sources. For components where domestic sourcing cannot match foreign capabilities, Chinese tech companies must dedicate increased resources to research and development. For less innovative companies, an emerging alternative is moving to developing markets.
In this situation, Huaqiangbei’s most successful companies are confronting the tech market’s limitations. Shanzhai and the market’s ecosystem of micro-innovations were a lucrative addition to the tech industry in an era where foreign design drove innovation and advanced foreign components flowed freely into China. As these higher-level foreign tech streams are being shut off, combined with pressure from shifting domestic politics, Huanqiangbei’s ability to innovate independently is being put to the test.
In our time at Huaqiangbei we found the market to be a microcosm of the successes and limitations of China’s wider attempts at transformation. Shenzhen remains a favorable hub for companies that manage to successfully innovate and create their own IP, but this openness to enterprise confronts political pressure from Beijing, in the case of Tencent, as well as restrictions from the United States, such as with Huawei. In the face of these pressures, some sellers find more stability in shifting from manufacturing to the service sector or low-tech consumer goods.
The sales counters of Shenzhen’s sputtering tech market are a long way from economic policymakers in Beijing or Washington, but seeing once innovative storefronts converted into yet another boba tea shop showed us the downstream effects of China’s domestic and external pressures. The boom and bustle of Huaqiangbei fifteen years ago once explained a unique driver of China’s rapid growth. Now its decline might also explain the struggle for China to advance innovation.
Related Trustee Chair Activity
Qin (Maya) Mei, “Why China’s Long-Awaited “Revenge Spending” Boom Has Not Arrived,” CSIS Trustee China Hand Blog, June 1, 2023.
Qin (Maya) Mei, “Fortune Favors the State-Owned: Three Years of Chinese Dominance on the Global 500 List,” CSIS Trustee China Hand Blog, October 7, 2022.
Scott Kennedy, “China Is the Wrong Industrial Policy Model for the United States,” CSIS Commentary, August 9, 2022.
Scott Kennedy, China’s Uneven High-Tech Drive: Implications for the United States, CSIS Report, February 27, 2020.