Geographies in Depth

One area leads the world in filing tech patents - and it's no longer Silicon Valley

Vehicles are seen on a main avenue during the evening rush hour at sunset in Beijing September 3, 2014.

Citi's Disruptive Innovations report looks at the world's most innovative cities. Image: REUTERS/Jason Lee

Tina Wadhwa
Finance Reporter, Business Insider

China has long been known for its exports, for manufacturing items quickly and cheaply for sale abroad.

But the culture of mass production and copycatting technology has changed as the world's most populous nation has grown.

China is now turning into a force for innovation in its own right.

Citi's latest Disruptive Innovations report includes a bunch of charts and tables on the world's most innovative cities.

It's striking that China is rising up the rankings, and Shenzhen is becoming a patent-filing powerhouse. The emergence of Shenzhen — along with China more broadly — as an innovation hub has broad implications.

China is trying to transition its economy from one based on investment to one based on consumption. Chinese companies having been buying up tech companies around the world. A rising urban middle class that is tech savvy and mobile friendly is gaining more prosperity and demanding more convenience. The population is aging, making healthcare and robotic technology more important.

In short, the Chinese market is huge, and it is giving the West a run for its funding.

Let's look at the charts:

Silicon Valley leads the way in VC investment, but Beijing is closing in.

 VC Investment in Different regions (US$ Billion)
Image: Business Insider

Silicon Valley, of course, comes out on top as the best-known innovation cluster with the most venture capital investment through the years. It is home to computer software, social-media giants, and a hit TV show poking fun at the tech-savvy nature of this city.

But Beijing increased its VC investment from just $0.9 billion in 2007 to a whopping $7.7 billion in 2014, catapulting it into second place.

China ranks second in fintech investment too.

 FinTech Investment by region (GBP millions)
Image: Business Insider

When it comes to financial technology, China comes second, behind only California, in fintech investment by region. Hong Kong actually beats California in the number of fintech hubs it harbors.

China has also vaulted up the rankings for patents filed, with Shenzhen-Guangdong ranking second, behind Tokyo and directly ahead of San Jose-San Francisco-Oakland.

Top 20 regions for patent filing in 2013
Image: Business Insider

China's sudden rise as an innovation hub is thanks in part to support from the government's plans and policies and increases in the number of internet and mobile users.

China's government has given significant support to innovation through favorable land and tax policies, improvements in local infrastructure, and the establishment of important research centers and industrial parks.

In the Hangzhou Yuhang Economic and Technological Development area, for example, 100% of taxes can be refunded to eligible companies in the first two years after starting a business.

Shenzhen-Guangdong takes the top spot for ICT patents filed, ahead of Tokyo and San Jose-San Francisco-Oakland. Beijing ranks fourth.

Image: Citigroup

China is also investing heavily in its graduates. According to the report, the country's universities now produce the most life-sciences graduates and postgraduates in the world, and at least 80,000 new graduates trained in Western universities are returning home to work in companies or academic institutions.

Shenzhen also ranks top in pharma patents, while Beijing again ranks in fourth.

 Top 20 regions filing pharma patents
Image: Citigroup

With Brexit and the coming US election changing the political and economic landscape in the West, China and Asia are showing they are an innovation force to be reckoned with.

A rising, tech-savvy middle class that is gaining more prosperity, and demanding more convenience, is fueling this boom. The market is huge, and it is giving the West a run for its funding.

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