CBN Perspective丨DeepSeek aftermath: Should Shenzhen worry about the rise of Hangzhou?

Hello! Welcome to the new CBN Perspective. I’m Stephanie Li.

Roughly a week before this year's Spring Festival, Chinese AI startup DeepSeek released its latest open-source model R1, which boasts a technological breakthrough in leveraging pure deep learning methods to allow AI to spontaneously emerge with reasoning capabilities.

The surge of DeepSeek, a two-year-old Hangzhou-based startup creating open-source large language models at much lower costs than foreign peers, has not only led to rising global investor interest in Chinese artificial intelligence companies, but also their bullish outlook on the Chinese tech sector in general.

Soon after DeepSeek roaring across the horizon, the so-called “Hangzhou six small dragons" have made a even bigger splash. These six innovative enterprises - Yun Shen Chu Technology, Unitree Robotics, DeepSeek, Game Science, Qunhe Technology and BrainCo - are making waves not only in the domestic market but also on the global stage.

The question then arises: why did these "small dragons" emerge in Hangzhou? The answer lies in a confluence of favorable factors, with the city's tolerance and patience for innovative enterprises standing out prominently.

In the realm of technological innovation, the gestation period for groundbreaking ideas to translate into market-viable products can be protracted. Take, for example, BrainCo, which is dedicated to brain-computer interface technology. Developing high-precision and portable brain-computer interface products demands substantial investments in both capital and technological R&D over extended periods, with minimal short-term economic returns in sight. However, Hangzhou has provided a nurturing environment for such enterprises.

Local pro-innovation policies play an indispensable role. For companies like BrainCo, Hangzhou offers preferential tax policies. They are exempt from certain local taxes in their initial years of operation, allowing them to allocate more resources towards research and development.

Moreover, Hangzhou has established a series of innovation parks and incubators, such as the renowned Hangzhou Future Sci-Tech City. Here, innovative enterprises can enjoy rent-free or highly subsidized office spaces for the first three to five years. This not only reduces their operational costs but also provides a collaborative ecosystem where they can exchange ideas with other like-minded companies and research institutions.

In terms of financial supports, Hangzhou provides low-interest loans specifically tailored for technology-intensive startups. These loans have a longer repayment period, typically extending up to 10 years, which eases the financial burden on enterprises during their formative and R&D-intensive stages.

But more importantly, Hangzhou's academic-industry collaboration is a driving force behind its success. Institutions such as Zhejiang University of Science and Technology (ZUST) work closely with local firms, bridging talent gaps and promoting applied research. Through alumni networks and strategic partnerships, a steady pipeline of skilled professionals is ensured, providing the human capital necessary for sustained growth in AI and robotics.

While Hangzhou captures all the spotlights as a burgeoning center for AI and robotics, it‘s challenging the long-held dominance of Shenzhen, China's traditional tech and innovation powerhouse.

Shenzhen, where Tencent and Huawei are based, came under even harsher social scrutiny. Has the southern tech hub “lagged behind” in the latest AI boom?

This development is not merely a local phenomenon but a significant chapter in China's broader narrative of technological advancement. As Hangzhou's influence grows, it offers both competition and opportunities for collaboration with Shenzhen, providing valuable lessons for the future of China's tech industry.

Shenzhen has long dominated sectors such as consumer electronics, semiconductors, and fintech, with global leaders like BYD, Tencent, and Huawei driving innovation. And Hangzhou's emergence introduces a new dynamic of complementary competition.

Shenzhen's strength in hardware manufacturing could synergies with Hangzhou's advancements in AI software, creating new opportunities for collaboration. At the same time, Hangzhou's focus on AI-driven industrial automation may push Shenzhen to innovate further, maintaining its competitive edge.

This development also signals a shift in China's tech landscape towards a multi-hub model. While Shenzhen retains its leadership in scale and diversity, Hangzhou excels in specialized domains. This regional balance encourages both cities to focus on their respective strengths while fostering collaboration to drive overall technological progress.

For Shenzhen, Hangzhou's success offers valuable lessons. First, strengthening academic-industry ties is crucial. Shenzhen should emulate Hangzhou's model of university-alumni-industry collaboration to cultivate talent tailored to emerging fields.

Second, investing in niche innovation could be a game-changer. Shenzhen's broad tech base could benefit from supporting specialized clusters, similar to Hangzhou's robotics firms. Expanding initiatives like the Hetao Shenzhen-Hong Kong Science Zone to include AI and robotics incubators could provide a fertile ground for innovation.

Additionally, Shenzhen could adapt its fintech regulatory sandbox for AI and robotics, offering startups flexible testing environments while ensuring ethical standards.

While Shenzhen's position as a comprehensive tech hub remains strong, it must adapt by fostering deeper specialization, enhancing R&D ecosystems, and embracing cross-regional collaboration. The emergence of tech hubs like Hangzhou ultimately strengthens China's overall technological competitiveness, pushing cities to innovate rather than merely compete.

As China's tech landscape continues to evolve, the interplay between competition and collaboration will be crucial in shaping the future of the industry.

Executive Editor: Sonia YU

Editor: LI Yanxia

Host: Stephanie LI

Writer: Stephanie LI

Sound Editor: Stephanie LI

Graphic Designer: ZHENG Wenjing, LIAO Yuanni

Produced by 21st Century Business Herald Dept. of Overseas News.

Presented by SFC

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