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  • At the end of the first millennium, around 1000 AD, China was definitively the most powerful

  • country in the world.

  • More than a third of the world lived within its borders, it's technology was the most

  • advanced in existence, and its economy accounted for an astronomical 50% of the worlds GDP.

  • The west paled in comparison to China, but eventually, Europe arose from its dark ages,

  • the importance of China diminished, and the west came to rule the world.

  • Today that is still largely the case, but China is rising again.

  • In 1978 China had a GDP of only $200 billion, only about 4% of the world's GDP, but nowadays

  • that GDP has risen to $11 trillion and accounts for 15% of all economic activity in the world.

  • This economic renaissance of the last 40 years is largely thanks to one industrymanufacturing.

  • We've come to accept that China is the world's factory, but it wasn't always this way.

  • In the early 20th century goods were often just produced right near where they were sold.

  • America made American goods, Europe made European goods.

  • It wasn't until cheap, worldwide shipping became available that the production side

  • of a company could be relocated to the other side of the world, but why did China win?

  • How did this country become the manufacturing giant it is today?

  • In 1978, Deng Xiaoping took power in the People's Republic of China.

  • He quickly visited Bangkok, Singapore, and other flourishing Asian cities and was convinced

  • that, in order to succeed, China needed to open itself up to the outside world, at least

  • to an extent.

  • He gave people control of their farms, privatized businesses, and, most importantly, allowed

  • foreign investment in the country for the first time in decades.

  • He opened up four special economic zones with tax incentives and exemption from the oversight

  • that the rest of the country saw on its investments and trade activity.

  • These four zones were essentially the free market portions of China, but none was more

  • successful than this oneShenzhen in the Guangdong Province so I went there to see

  • what it was like.

  • Before its designation as a special economic zone in 1980, Shenzhen was a tiny town with

  • about 30,000 inhabitants but today that's grown to nearly 18 million people.

  • That means its size rivals that of New York and London.

  • It's believed that Shenzhen might have been the single fastest growing city in human history.

  • Every other Special Economic Zone was an established area before its designation, but Shenzhen

  • made sense as a spot where China could embrace the west as it lay just north of the border

  • of Hong Kongwhat was at the time a British territory.

  • Today Shenzhen is the electronics manufacturing capital of the world.

  • Shenzhen as a city is really known for two things.

  • One is manufacturing capabilities especially for consumer electronics products and second,

  • its gravitation for talents or human resources especially on the product development or research

  • and development disciplines.”

  • Apple, Samsung, Microsoft, Sony, Canonthey all manufacture products here in Shenzhen.

  • In fact, 90% of the world's electronics are made at least in part in this city.

  • Everything just costs less in China so labor costs less too.

  • Where a factory in the United States might pay upwards of $10-15 an hour, a Chinese laborer

  • would happily accept $3 or $4 an hour in Shenzhen.

  • When I was there I withdrew the equivalent of $80 from the ATM upon arrival and left

  • four days later with cash leftover.

  • A 30 minute taxi ride cost about $7 US dollars.

  • A full meal at a local place was about $3.

  • But China isn't cheap entirely naturally.

  • China has artificially depressed the value of their currency.

  • Up until 2005, the Chinese government just said that the exchange rate was 8.27 yuan

  • per dollar and that was that.

  • They then went a few years allowing it to increase in value within a margin, but in

  • 2008 they pegged its value again to make Chinese exports more attractive during the financial

  • crisis.

  • Nowadays, the government just picks a exchange rate daily and lets the currency fluctuate

  • from it by up to 2%.

  • This just makes it so western companies can buy more for less.

  • China also doesn't charge taxes on exports while the US doesn't charge taxes on imports.

  • The US doesn't even charge customs fees for some products like tablet PC's so some

  • products can make it all the way from their factory in China to stores in the US completely

  • tax free.

  • When I was in Shenzhen I visited a company called Anker.

  • They make all sorts of consumer electronics but chances are if you have something from

  • them, it's one of their portable batteries.

  • I asked their CEO why so many electronics companies are now based in Shenzhen.

  • So the advantage is that, you know, we're close to the supply chain so everything is

  • faster.

  • Right, so, instead of like, you know, you do a mock up and you see it two weeks later

  • here you send design to mockup and you receive it, like, three days later.”

  • In Shenzhen there are markets where you can buy every part imaginable, there are factories

  • ready to build prototypes in a matter of days, there are engineers ready to work at the drop

  • of a hat.

  • Development just happens faster in Shenzhen.

  • A US company might use the same factories as one based in Shenzhen but the geographical

  • distance makes production slower.

  • In addition, word travels fast in Shenzhen.

  • A few years ago Anker was first-to-market with a technology called PowerIQ that allows

  • for faster device charging.

  • The engineers from Anker told me that a big reason they were able to go to market before

  • the western companies was because they heard about it first thanks to their proximity to

  • other engineers and companies.

  • Shenzhen just produces things better and faster, but a product isn't just a physical item.

  • Honestly being in Shenzhen for this company is an advantage for the supply chain that

  • we can develop good products with a competitive price but for the brand its also a kind of

  • a challenge.”

  • What Shenzhen can't build as well is brands.

  • Certain companies like Anker have been able to to an extent thanks to smart PR and marketing,

  • but some other companies just don't bother.

  • Lucrative western consumers want familiar and approachable feeling brands but cultural

  • differences and geographic distance often make China based companies just seem different.

  • All across Shenzhen I saw these boxes filled with rentable portable chargers and as it

  • turns out, it was an Anker product but the Chinese designed product didn't really succeed

  • in the western market.

  • Talking about AnkerBox, the product is initially designed for the western market,

  • however, actually, our trial in Seattle wasn't that successful so we realized that, first

  • of all, that US people actually, when they go to a bar they actually really go there

  • drinking instead of looking at their phones.

  • Well if you walk into a bar in China you'll find that actually, like 20 tables of people

  • standing around looking at their phones.”

  • When the designers are thousands of miles away from the consumer they might not be as

  • knowledgeable of their wants.

  • Some companies have sprung up in Shenzhen whose whole business is to develop and produce

  • products without a brand.

  • They're calledwhite label companies.”

  • They might produce earphones, for example, then sell them to a western audio company

  • who will attach their brand and sell the product at a mark-up.

  • Despite it's enormous role in increasing the GDP of China 30-fold in the last 30 years,

  • manufacturing is not an entirely sustainable industry for the country long-term.

  • The problem is that, rather ironically, the economic growth that manufacturing spurred

  • in China has increased labor prices to a point where their manufacturing is less competitive.

  • Before manufacturing came in China was a country of poor, rural farmers but today China has

  • a real middle class and cities that are expensive to live in.

  • It used to be that workers like the ones at Anker's factory moved to the city for a

  • few years when they were young to make money for their family back home but nowadays people

  • are moving to cities permanently and want to be able to set up solid, middle class,

  • urban lives.

  • The average cost for real-estate in central Shenzhen is almost $1,200 per square foot.

  • That's even higher than San Francisco and New York.

  • Even when workers live outside the city center, higher wages are necessary even just to pay

  • for housing.

  • At the same time manufacturing is becoming less labor intensive every day as robots and

  • automation are becoming increasingly advanced and inexpensive.

  • In 2015 China launched a initiative spending hundreds of billions of dollars each year

  • to upgrade and automate factories in order to keep prices low, but this will likely do

  • little to keep companies from packing up shop and moving elsewhere.

  • Manufacturing lines that can be automated are likely to move back to the United States

  • and the rest of the western market.

  • Robots cost the same whether they're in the United States or China so manufacturing

  • products in the US helps save on shipping costs and certainly is good for PR.

  • At the same time, the labor intensive jobs that China prospered on in past decades are

  • moving to less developed and less expensive countries like Vietnam, Bangladesh, and India.

  • Chinese manufacturing firms are responding to this by opening up their own factories

  • all across the worldeverywhere from Africa to the United States itself.

  • The model that might work for China in the future is that of AnkerChinese based firms

  • that can take advantage of their proximity to the production lines to cut down on development

  • cost and time.

  • Shenzhen based start-ups like Anker, DJI, and OnePlus have already succeeded in taking

  • advantages of this proximity, but more are being established each day.

  • If you see a hardware-based Kickstarter campaign, there's a good chance it comes from Shenzhen.

  • 10 years ago a company would be hard-pressed to succeed in Shenzhen as its own brand because

  • historically the retailer has acted as a barrier in between the manufacturer and consumer,

  • but with the rise of Amazon and other e-commerce sites its now possible for eastern companies

  • to sell directly to the western consumer in a system that rewards for quality over price.

  • The time really is ripe for Chinese entrepreneurship.

  • While Silicon Valley might be the dominant area for software start-ups, its hard to rival

  • Shenzhen as an ecosystem for hardware development and manufacturing.

  • I have to give a huge thanks to Anker for bringing me out to Shenzhen to research and

  • film this video.

  • It truly would not have been possible without them and they gave me complete creative control

  • over the video.

  • I've actually owned and used an Anker battery for over five years thats never broken down

  • even when it's been accidentally submerged twice and dropped countless times but luckily

  • they upgraded me to one of their newest ones which I love.

  • The main thing I want to plug for them is theirPower it Upcontest going on right

  • now.

  • 10 winners will each get $2,000 in cash and a bunch of free Anker products.

  • To enter you make a video up to 1 minute long about an unpleasant or awkward situation caused

  • by running out of power, upload it to youtube, then share it on their page and the 10 highest

  • voted ones at the end of the contest win.

  • The link to enter is in the description so good luck!

  • Aside from that, please be sure to check out my podcast Showmakers and subscribe to this

  • channel to get