China’s Greater Bay Area dwarfs US counterpart but still looks to unlock the secret of its success

Mark Magnier

In rapid succession during a recent two-week period, the Bay Area Council’s Sean Randolph found himself speaking at seven Chinese universities, government agencies and think tanks in the Pearl River Delta and beyond, all eager to explore links between California’s and China’s bay areas.

“You get the sense it’s the flavour of the month, that word has come out from Beijing,” said Randolph, senior director of the council’s Economic Institute.

From the moment Beijing mentioned the Hong Kong-Macau-southern China “Greater Bay Area” in a 2015 blueprint, San Francisco has been hit by waves of interest from Chinese groups keen to learn from its success.

In addition to those directly affected, a host of aspiring Chinese cities have also reached out hoping to replicate Silicon Valley’s secret sauce of technology, urban development, trade logistics and innovation – and convince Beijing that they deserve their own bay area, with the funds and prestige that brings.

A screen shows a map of Greater Bay Area during a regional development symposium in Hong Kong in February. Photo: AP

“They want that in their bay,” said Randolph. “OK, maybe it’s not quite a bay, but that doesn’t matter. There’s water out there. Hangzhou, that’s not really a bay, but they have waterfront property.”

China’s Greater Bay Area – with twice the gross domestic product, three times the geographical area and eight times the population – dwarfs its American counterpart, in a country where size tends to matter.

“The scale of the Greater Bay Area is such that we’re not even close to matching up with what you have here,” James Leckie, a Stanford University environmental engineering, geological and environmental sciences professor, says he told a recent panel discussion in Guangzhou on the two bay areas, before adding: “But big isn’t always better.”

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While Silicon Valley grew organically over decades as iconoclastic entrepreneurs rewrote the global rules, often fighting government at every turn, China with its central-planning DNA hopes to replicate its older cousin in short order, drawing on its tradition of five-year plans, infrastructure-building skill and slogans.

China has long been fascinated by Silicon Valley, but Beijing’s Greater Bay Area designation has put a sharper focus on regional factors. Often unappreciated by the many visiting Chinese fact-finding delegations – who tend to say, you have a bay, universities, venture capitalists and start-ups and so do we, experts say – are less obvious, even intangible, factors driving northern California’s success.

Among these are a rule of law tradition, robust bankruptcy and intellectual property protection, a cultural acceptance of failure, nuanced attention to human motivation, even the weather and lifestyle attracting the world’s best minds.

“I’m sure they can construct this kind of thing partially by dictate. But it’s hard to get the sense of how they’d really do it,” said Leckie, who runs exchange programmes for Chinese executives – including a recent one for car giant SAIC Motors – who consistently ask how northern California has done it.

“Now, we routinely include the history of how Silicon Valley came to be, and the fact that government played absolutely no role,” Leckie said.

Despite its debt-ridden state-led system and inherent inefficiencies, China has frequently exceeded foreign expectations, as seen in the success of Shenzhen telecoms giant Huawei Technologies, social media powerhouse Tencent and drone leader DJI.

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That has forced some Western policymakers to rethink their core views about state-directed growth, leading to calls for more federal support for US industry.

But that system has also saddled Chinese companies with mounting restrictions and outright bans as they expand overseas, and their base in China and implicit connection with the often opaque Chinese Communist Party has sparked resistance in foreign capitals over state-directed hacking and the use of subsidies to build national champions.

Others say the success of Shenzhen’s tech giants reflects, in part, their distance from, rather than proximity to, Chinese central planners.

“Government is important, even in Silicon Valley,” said Xiaohua Yang, a management professor at the University of San Francisco. “But you need to have business take its own course. Otherwise it won’t go. Guangdong has always enjoyed more freedom, given its proximity to Hong Kong and being further away from the Beijing government.”

Despite differences between the two bay areas, some believe potential synergies could spur closer ties over time. One possibility: China’s planning prowess might help it sidestep some Silicon Valley by-products of rapid growth, including transport gridlock, local government rivalries and largely unaffordable housing. Last month, Apple pledged US$2.5 billion to help ease the regional housing crisis, although analysts said corporate largesse was not a long-term solution.

“They can learn from us and the old bay area can learn from the new one,” said Yang, who directs the university’s China Business Studies Initiative. “Because they’re starting anew, they can have more of a plan.”

Shenzhen is home to many of China’s tech giants. Photo: Xinhua

Also possible, if still untested, is some vague notion that southern China’s hardware and Silicon Valley’s software strengths can be paired for mutual benefit.

But any significant cooperation between the two regions – or indeed the broader tech sectors – is premised on a thaw in the 18-month trade war and festering Beijing-Washington distrust. And that’s a reversal few expect any time soon.

Despite the recent partial tariff rollback under a “phase one” trade deal, suspicion remains widespread, tech deals face lengthy reviews and existing investors are seeing tighter restrictions. A new US defence spending law enacted on December 20, for example, imposes tougher standards or outright market bans on Huawei, DJI, Chinese rail maker CRRC and electric bus company BYD.

“The long-term effects of Sino-US relations on technological cooperation between firms of the two countries, including those in Shenzhen and Silicon Valley, are still unclear,” said Zhang Baohui, political science professor and director of the Centre for Asian Pacific Studies at Lingnan University. “We need a few more years to know if decoupling will become a reality.”

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Beneath the political mud fight are also differences in the way Chinese and US companies view closer bay-to-bay cooperation, analysts say. While Chinese companies tend to take broad investment cues from Beijing, Silicon Valley companies and US venture capitalists (VCs) focus more on the merits of individual deals, experts say.

Earlier US enthusiasm over China’s market potential has waned amid concern that benefits too often flow one way. Beijing’s tech ambitions have become more explicit under its “Made in China 2025” blueprint, intellectual property and corporate espionage cases have proliferated and US companies such as Facebook, Twitter and Google remain blocked in China.

Hopes have also foundered that closer bay area ties would see China hire American architects and engineers for their expertise in traffic management and clean technologies. Many Chinese groups sought advice without necessarily wanting to pay for it, some said.

China’s DJI is a world leader in the consumer drone market. Photo: Handout

“The idea that it could be a multibillion-dollar partnership faded pretty quickly,” said Gordon Feller, San Francisco-based founder of Meeting of the Minds, a smart cities group that helped organise, along with the Bay Area Council, a Bay2Bay conference in San Francisco in March. “And the message from the VCs is, we don’t know about Bohai, about bay to bay, we just want to know about your company and will it make money.”

“It’s a bit like sister cities,” added Feller, a former Cisco director. “It’s nice to have banquets. But is there really anything with a bay-to-bay partnership that’s going to happen? I don’t know the answer. It may be that it does if there’s enough political will.”

Paul Woolford, San Francisco-based senior principal with HOK, a global architecture, planning and design firm, said he had hosted several Chinese delegations filled with members who tended to view the trips largely as a government-sanctioned opportunity to travel on someone else’s budget.

“After 10 of them, I realised it’s about coming to America and shopping and sightseeing,” Woolford said. “It’s important to make contact. But the American organisations end up doing all this translating, and nothing ever come out of it.”

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Growing political and regulatory uncertainty has seen US-China tech links ebb and Chinese companies pull in their US wings. Huawei laid off 600 workers at its US Futurewei subsidiary in July after being placed on the US entity list. Chinese venture firm Sinovation, founded by ex-Google China head Kai-Fu Lee, shifted operations to Guangzhou this year from the Valley.

One area where China’s footprint in northern California remains large, however, is in real estate.

Tens of thousands of individual Chinese have bought homes as investments, for children’s schooling or as a safety valve should life in China become untenable. And scores of Chinese property developers have invested in low-income and luxury projects fuelled by special visa and tax breaks.

“First, Chinese money drives up prices in suburbs, the second is in cities in places starved for housing, like San Francisco,” said Matt Sheehan, a fellow at the Paulson Institute.

“Both lead to tensions” tied to price appreciation and gentrification concerns, said Sheehan, author of The Transpacific Experiment: How China and California Collaborate and Compete for Our Future. “But both also lead to new opportunities.”

Ultimately, ties between the two bay areas will rise or fall less on political winds than on whether such links make economic sense, experts said.

“A Bay2Bay idea is obviously more of a concept than anything at all concrete,” said Alejandro Reyes, director of knowledge dissemination at the University of Hong Kong’s Asia Global Institute. “But business does as business does, so if there are opportunities for link-ups between the bay areas, they will happen.”

Others say it can’t hurt, provided expectations are kept low.

“Any kind of trade or cultural connection is never a bad thing,” said Woolford. “Especially nowadays, given all the tension between the US and China.”

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