By David Kirton
SHENZHEN, China, Nov 12 (Reuters) – The billboards along the thoroughfares of this metropolis welcome US President Donald Trump and other world leaders next week with a futuristic pitch: “Gather in Shenzhen, Witness the Wonders.” Driverless taxis nearby weave through traffic while delivery drones fly coffee orders to customers in a park.
The Asia-Pacific Economic Cooperation forum taking place on November 18-19 is something of a coming-out party for this southern city, which the Communist Party used as an early testbed for its embrace of business and market economics. Shenzhen is now the country’s Silicon Valley, its skyline crowded with gleaming skyscrapers housing tech giants including Tencent, while neighborhoods like Liuxiandong host companies building portable power stations and exoskeletons.
Shenzhen’s boom began in a more forgiving era of globalization, when it served as a sort of factory floor to the world. That bargain is being reset today as many countries complain that their local industries are being undercut by a flood of Chinese exports. China’s trade surplus topped $1 trillion in the first 10 months of 2026 and is on track to beat last year’s record. The European Union, which struck a deal with Beijing in October to cap Chinese hybrid car imports, also says it will propose curbs on other sectors.
While the alarm over China’s trade dominance is getting louder abroad, it hasn’t changed how many Shenzhen businesses plan to operate. Reuters interviews with executives at seven startups, as well as a review of municipal economic data, show that many are doubling down on making products aimed at wealthier customers overseas. At the hardware incubator InnoX in Liuxiandong, the would-be wonders being dreamed up are targeted at foreign buyers.
Foreign trade barriers are a burden but virtually all competitors selling to markets like the US face similar challenges, said Chen Congyi, founder of sports-recovery device maker XPolar. Beijing has also argued that its products are not only cheaper, but of increasingly high quality.
“In terms of the ability to pay and willingness to pay, it’s still much stronger in overseas markets,” said InnoX co-founder Carol Yu. Some 80% of the projects undertaken by the 120-plus startups located at the incubator target foreign customers, she said.
InnoX, whose other co-founder is a former chairman of drone giant DJI, sits in the shadow of that company’s skybridge-connected towers. It also represents a new, more state-directed wave of Chinese economic growth: the incubator was set up in 2021 under a Shenzhen city plan. Municipal authorities have sold plots in Liuxiandong to companies working in robotics, aerospace and cybersecurity, all sectors Beijing classifies as strategically important. State-backed projects in the area now total more than 60 billion yuan ($8.7 billion).
The incubator’s export-focused startups are partly the result of Beijing’s decades-long push to move companies up the global manufacturing value chain. Chinese firms in 15 heavy and strategic industries received on average three to eight times as much government support as peers in many developed economies between 2005 and 2024, according to the Organisation for Economic Co-operation and Development.
That drive to sell abroad has been accelerated in recent years by cutthroat price competition that has compressed domestic sales margins, as well as a property crisis that has crimped consumer spending. Shenzhen retail sales grew just 2.3% between January and September, underperforming the municipal government’s target and far outpaced by the 18.5% increase in city exports.
“Domestic consumption has been downgraded,” said Yu, using a phrase common in China for shoppers trading down to cheaper goods.
Officials chasing growth “have to look to overseas markets,” said Richard Yarrow, a fellow at Harvard University’s Asia Center.
But the tools used to support export-focused industries also divert resources from households, he said. Cheap business loans, for instance, require low interest rates that mean households earn less on their savings and have less money to spend on consumption. And encouraging businesses to chase foreign market share also hits their profits and payrolls.
China has rejected accusations of driving industrial overcapacity and keeping its currency undervalued to undercut global competitors, saying its growth model reflects the needs of a country still converging with advanced economies.
GOING FROM ZERO TO ONE
Shenzhen was a semi-rural backwater in 1980, when former Chinese leader Deng Xiaoping designated it as one of the People’s Republic’s first special economic zones. A lighter touch to state regulation, as well as investment from neighboring Hong Kong, turned it into a manufacturing hub for garments and toys.
The city’s factories eventually moved into the production and design of high-end electronics, including in places like Liuxiandong, literally “cave where immortals linger.”
Many founders are drawn to Shenzhen by the supply chain concentrated around the city, which deepened when manufacturing giant Foxconn assembled iPhones and other electronics there for foreign brands in the 2000s.
Electric jet-ski maker Anavi sources parts from Shenzhen and four other cities, but its founder, Li An, says Shenzhen is best for startups going from “zero to one.”
“The suppliers around you are more willing to support you,” said Li, one of the engineers recruited by InnoX. The incubator gives founders prototyping labs and a pilot production line, introduces them to suppliers and takes them to overseas trade shows.
Yu describes InnoX’s model as a public-private partnership: The government funds talent training and co-invests in seed rounds, after which market investors take over.
Founders say the local government also helps with rent, housing and hiring.
The flip side of the Chinese government’s growing reach into the economy has been backlash from trading partners.
Selling to the US in recent years has meant riding a tariff roller coaster: Duties on Chinese goods peaked at 145% in April 2025 before a truce, and the Supreme Court struck down Trump’s emergency tariffs in February. A separate 12.5% levy was added this July, though shipments to the US rebounded by nearly 40% year-on-year in September after a meeting between Trump and Chinese leader Xi Jinping eased tensions.
Europe brings its own tariff hurdles. Combined duties of almost 80% from the EU led e-cargo-bike maker Tarran to move frame, battery and controller production to Southeast Asia, where levies are lower. Smart components and most raw materials still come from China.
“These movements of manufacturing actually increase cost to the products and raise the price to end users,” said Tarran founder Ben Guo.
Shenzhen is the “best place to be and probably the only place to be because everything’s so accessible,” said Denise Wu of scalp-care company Rootique. The firm has sold about 10,000 of its $148 devices, more than half to US customers.
She added: “We’re not selling in China.”
(Editing by Philip McClellan and Katerina Ang)
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