Topics in this section: - China's push for technology independence may boost GBA companies - Greater Bay Area teamwork may lift China's tech prowess - Investment in research and development may accelerate - Tech companies may lead R&D hiring charge - Domestic pull, overseas push may close talent gap - Ambitions need better-educated, English-speaking workers
These analyses are by Bloomberg Intelligence senior analyst Francis Chan and contributing analysts Vey-Sern Ling and Tiffany Tam.
China's push for greater technology self-sufficiency, spurred by U.S.-China tensions, may accelerate the development of the Greater Bay Area (GBA) into the nation's technology hub, in turn boosting the region's top tech firms such as Tencent. Tech companies rely heavily on R&D, which could be fueled by greater inflow of investment and talent.
Greater Bay Area teamwork may lift China's tech prowess
The closer integration of resources and collaboration within the Greater Bay Area should help charge China's technological capabilities. The area is already host to many of China's tech giants who operate across areas ranging from communication technology to mobile game development. Huawei's role in 5G development, BYD's leading position in the electric-vehicle market and Tencent's ramp up of its industrial internet capabilities, could help the area develop a tech ecosystem that rivals Silicon Valley in the longer-term.
Several of Tencent's early investments in the area have since gone public, such as Huya and Tencent Music Entertainment.
Investment in research and development may accelerate
China's focus on developing the GBA may result in further policies to incentivize firms in the area, such as Tencent, to ramp up their research expenditure. Research as a proportion of Tencent's operating expenses has steadily risen since 2017 and could continue to trend upwards with the company's push into developing industrial internet applications. 42% of the company's 1Q operating expenses came from research, 9 percentage points higher than the year earlier. The company's expenditure on research is now on par with Baidu, which has been aggressively investing on AI and autonomous vehicle ventures.
R&D is typically the largest cost component for tech companies and favorable policies could significantly boost the propensity of these companies to spend.
Tech companies may lead R&D hiring charge
The high concentration of companies spanning the technology value chain could continue to attract a diverse range of talent to the GBA. Unlike Silicon Valley, where almost a third of researchers work in academia, 93% of research opportunities in Shenzhen are with private companies, suggesting that tech development in the GBA is skewed towards commercial applications rather than theoretical research. Employment opportunities in the region will likely remain robust as China pushes for greater technological self-dependence.
Companies should benefit from the pool of young talent in the area. Nearly 70% of graduates in Shenzhen are 25-34 years old, compared with just 40% in Silicon Valley, according to research conducted by Tsinghua and Linkedin.
Domestic pull, overseas push may close talent gap
Policies to attract R&D talent, coupled with increasing obstacles for Chinese researchers in the U.S. due to the trade tensions, may work together to help the GBA narrow its skills gap with Silicon Valley. Highly-skilled foreigners working in the GBA will be exempted from paying individual income tax for 5 years starting 2019, while locals heading to Shenzhen will have their individual tax rates slashed to 15% from 45%. Hong Kong is also providing 300% tax deduction for companies' R&D expenditure. This comes amid tighter U.S. visa approvals for Chinese researchers.
7% of Silicon Valley's degree holders are doctorates, dwarfing Shenzhen's 2% and Hong Kong's 3%.
Ambitions need better-educated, English-speaking workers
This analysis is by Bloomberg Intelligence senior analyst Francis Chan and contributing analyst Charles Shum.
Technology companies in Guangdong can develop faster with more English-proficient researchers to effectively communicate with foreign scientists and businessmen. More graduate workers should also raise long-term productivity and creativity. The province' percentage of university graduates in its working population was 27 basis points below China's average in 2015, according to the latest national census, and 3.53 percentage points less than Jiangsu, which has the most workers with university degrees.