What China’s Greater Bay Area Can Learn from Silicon Valley’s Challenges

The Greater Bay Area (GBA) is the Chinese government’s answer to Silicon Valley, an initiative that aims to promote cooperation and economic integration among nine cities and two special administrative regions (SARs) in southern China. It is rapidly developing into an economic and a center of technology, innovation and entrepreneurship. While its economic resilience, appeal to rising talent and connectivity give the GBA a competitive edge, considering the similarities it shares with the San Francisco Bay Area, it could encounter comparable, if not more challenging, problems than Silicon Valley.

The rise of Silicon Valley

Since California attained statehood in 1850, the San Francisco Bay Area started growing rapidly. Through the 20th century, its living environment began attracting scientific researchers. Stanford University, founded in 1885, encouraged students to capitalize on their ideas, which led to the formation of iconic companies such as the information technology multinational Hewlett-Packard (HP) in 1939. Two features that contributed to the growth and success of Silicon Valley are critical mass and disruptive power.

Abundant critical mass

Steady US Department of Defense spending and an abundant supply of venture capital contributed to the Bay Area’s robust growth. By the time I set foot there in the 1970s, Silicon Valley was already producing world-class computer chips, software and other technology. It was also moving forward on modern mobility, computer networking and space technology. The Bay Area also gradually became an important connector to the Asia Pacific.

Today, serial acquirers abound, starting initially with companies such as Oracle, Cisco, HP and Intel, followed by big tech firms including Alphabet's Google, Apple and Meta Platforms (previously known as Facebook). These Silicon Valley companies have healthy balance sheets, cutting-edge technologies and forward-looking strategies that encourage technological innovation and value intellectual property rights.

Disruptors are everywhere

Valley companies vigorously develop disruptive technologies that change industries or even create entire industry sectors. Apple and Google have disrupted the mobile communications industry, and Google and Facebook revolutionized advertising. Apple rules the music business. Tesla shook up the auto industry. Netflix, Airbnb, Uber, Zoom and dozens of other companies have also created value and caused upheavals. In the process, these Valley companies have collectively created valuations of hundreds of billion dollars. As of July 2022, Apple, the world's most valuable company, boasts a market capitalization of US$2.5 trillion.

The GBA has a similar division of roles. Guangzhou is the cultural, political and economic center of southern China. Hong Kong is a global financial center and “super-connector” between East and West. Shenzhen is China’s undisputed center of technology, innovation and entrepreneurship, with an outstanding private sector. Flanking Shenzhen are the manufacturing bases in neighboring Dongguan, Huizhou, Zhongshan and Jiangmen. Zhuhai has long held the title of the most livable city in China, while Macau is a tourism and leisure industry attraction.

Challenges to Silicon Valley’s success and potential lessons for the GBA

In spite of its success and free market economy, the Silicon Valley area, with dozens of independent transportation systems across more than 100 cities, lacks government planning and coordination. This has led to low facility utilization, resource overlap and inefficiency. In addition, the Valley now faces a plethora of other problems, leading to a hemorrhage of talents, businesses and business leaders, including to clusters in less hospitable climates such as Toronto. What have been Silicon Valley’s missteps?

Failure to retain key players

Silicon-Valley giants such as HP, Oracle, Cisco, Tesla or Google provide critical mass. Moreover, they develop disruptive technologies which often create entirely new industry sectors. Therefore, when Hewlett Packard Enterprise (HPE) revealed in December 2020 its decision to relocate its headquarters from Silicon Valley to Texas, the announcement sent shockwaves throughout the entire Valley community.

HP is just one example. The long list of companies that are planning to or have already left California also includes Uber, Airbnb, Salesforce, Yelp, Twitter and Pinterest.

This exodus might appear to have been precipitated by the Covid-19 pandemic, now almost three years running. As many Valley observers believe, however, the pandemic simply accelerated a trend that was already playing out. While the decisions to leave might vary and personal decisions come into play, the exodus has shed light on a handful of underlying problems: high costs, unaffordable housing, traffic congestion, high taxes, red tape and over-regulation, among others.

Escalating costs

Among all metropolitan statistical areas in the US, the San Jose-Sunnyvale-Santa Clara area has the largest population of millionaires and billionaires per capita. This is largely a result of the wealth created in the tech business. Such affluence is partly to blame for escalating costs in the Valley. The median annual tech worker salary in Silicon Valley was about US$133,000 – the highest in the US. This has prompted some Valley companies to consider transferring part of their operations elsewhere, such as the Midwest or Sun Belt states.

The shortage of affordable housing in Silicon Valley is also severe: Year after year, the number of housing units built in the Valley fails to catch up with the demand and with the number of jobs created. The resulting shortage has driven home prices up, making them the most expensive in the US.

The pandemic has exacerbated the problem: As major tech firms announced long-term shifts to remote work, employees have been looking for more space for work and family. Although the housing market is beginning to level out, it remains the hottest in the US, with the median sale price for houses in the Bay Area standing at US$1.5 million. In choice locations such as Cupertino, Los Altos or Saratoga, it has exceeded US$4 million.

The opening of the Bay Area Rapid Transit (BART) system in 1972 was a game changer for Silicon Valley. Consider Fremont, which had been somewhat removed from the action in the Valley, but the BART connection with San Francisco and other cities has spurred the city’s growth. In 2010, Tesla purchased a factory owned by a GM-Toyota joint venture, remodeled and expanded it substantially. Employment in 2022 reached 22,000, almost doubling in the last two years. Many other companies such as Seagate, Lam Research and Cirrus Logic have also built and expanded factories, creating thousands of jobs every year.

Strengths of the Greater Bay Area

While the GBA fabric is arguably simpler than Silicon Valley, with only nine cities and two SARs, it is actually more complex. We must deal with three customs areas, three currencies, and two social systems, not to mention complex international politics. With a planned economic development model driven by strong leadership from China’s central government, however, the GBA has a number of notable advantages.

Economic resilience

The economic strength of the GBA is extraordinary. According to the latest official figures from the Guangdong Province, the region had a population of 86 million and a GDP of US$1,670 billion in 2020 – comparable to that of Canada and bigger than those of Australia, Russia or South Korea. Although the GBA’s area accounts for only one percent of China's total and its population is six percent of the nationwide figure, it has attracted well over 100,000 companies and its economic output accounts for over 11 percent of China's GDP and 25 percent of China's export volume. Moreover, over half of China’s high-quality patents come from the GBA.

Credit: HKSARG

Hong Kong has faced formidable challenges in recent years, including economic fallout from the US-China rivalry, the 2014 and 2019 social unrest, Covid-19 and the Ukraine War. The city, however, has demonstrated remarkable resilience throughout its history and is already showing signs of recovery.

Hong Kong even stands to benefit from certain actions taken by the US to "punish" China. For example, the threat of delisting from US exchanges has forced some 200 mainland Chinese companies including some giants such as Alibaba, JD.com and Baidu to apply to the HKEx for dual-primary listing status. Hong Kong’s special status as an excellent bi-directional gateway between the mainland and the world remains intact, though the pandemic has severely limited cross-border traffic. The SAR will thrive in its continuing role as China's premier global financial center, IPO center, offshore renminbi center, and international business, trading and transportation hub, as set out in China's 14th Five-Year Plan.

Positive appeal to future talent

The GBA appears to offer promising opportunities to the future workforce. A recent study by HSBC and the Hong Kong Federation of Youth Groups showed that almost 80 percent of Hong Kong university students believed that the GBA provided an ideal environment for startups, while 84 percent of respondents were most drawn to the career prospects offered in the GBA.

Sophisticated transport infrastructure

The GBA is well served by existing infrastructure networks and transport systems, which are continuing to expand. Projects such as the Hong Kong-Zhuhai-Macau Bridge (HZMB) or the Guangzhou–Shenzhen–Hong Kong Express Rail Link (XRL) have consolidated Hong Kong's position as a GBA transport hub, bolstering its critical role in regional economic development, human security and wealth creation. Also notable is the expansion of Hong Kong International Airport into a three-runway facility (the third runway, which will serve only arrivals, is set to open in 2024), the intermodal code-sharing services among GBA cities, and cross-boundary helicopter services to and from Hong Kong that cover the whole of Guangdong Province.

Policy actions: Avoiding the pitfalls

So how can the GBA, with all its strengths, steer clear of the pitfalls that have plagued Silicon Valley? I believe the key lies in three main policy actions:

To some extent, these actions will require guidance from the central government. Taking these steps will transform vague ideas into concrete initiatives. The resulting collaboration in spirit and action will make the GBA total much greater than the sum of the individual cities and regions. The key is neither to imitate Silicon Valley nor to compete with it. Indeed, there may be opportunities for both clusters to work together. The GBA needs to blaze a fresh trail and create its own brand.

The Hong Kong SAR’s new government took office on July 1. A key priority of the administration of Chief Executive John Lee Ka-chiu will be to foster close regional collaboration and smooth integration of the GBA. Despite its competitive advantages, the GBA will undoubtedly encounter similar or even thornier problems than those that have troubled Silicon Valley. For Hong Kong, working closely with the 10 neighboring cities, particularly Shenzhen, will be key to maintaining its own edge and contributing to the overall success of the GBA.