Silicon Valley may be the world champion of software innovation, but Shenzhen (pronounced “shun-jun”) wears that crown for hardware.

In the last five years, this young manufacturing metropolis on China’s southern coast has turned into the world’s most vibrant ecosystem for building intelligent hardware. Creating an innovative app requires almost no real world tools: all you need is a computer and a programmer with a clever idea. But building the hardware for perception AI demands a powerful and flexible manufacturing ecosystem, including sensor suppliers, injection-mold engineers, and small-batch electronics factories.

When most people think of Chinese factories, they envision sweatshops with thousands of underpaid workers stitching together cheap shoes and teddy bears. These factories do still exist, but the Chinese manufacturing ecosystem has undergone a major technological upgrade. Today, the greatest advantage of manufacturing in China isn’t the cheap labor—countries like Indonesia and Vietnam offer lower wages. Instead, it’s the unparalleled flexibility of the supply chains and the armies of skilled industrial engineers who can make prototypes of new devices and build them at scale.

These are the secret ingredients powering Shenzhen, whose talented workers have transformed it from a dirt-cheap factory town to a go-to city for entrepreneurs who want to build new drones, robots, wearables, or intelligent machines. In Shenzhen, those entrepreneurs have direct access to thousands of factories and hundreds of thousands of engineers who help them iterate faster and produce goods cheaper than anywhere else.

At the city’s dizzying electronics markets, they can choose from thousands of different variations of circuit boards, sensors, microphones, and miniature cameras. Once a prototype is assembled, the builders can go door to door at hundreds of factories to find one capable of producing their product in small batches or at large scale. That geographic density of parts suppliers and product manufacturers accelerates the innovation process. Hardware entrepreneurs say that a week spent working in Shenzhen is equivalent to a month in the United States.

As perception AI transforms our lived environment, the ease of experimentation and the production of smart devices gives Chinese startups an edge. Shenzhen is open to international hardware startups, but locals have a heavy home-court advantage. The many frictions of operating in a foreign country—language barrier, visa issues, tax complications, and distance from headquarters—can slow down American startups and raise the cost of their products. Massive multinationals like Apple have the resources to leverage Chinese manufacturing to the fullest, but for foreign startups small frictions can spell doom. Meanwhile, homegrown hardware
startups in Shenzhen are like kids in a candy store, experimenting freely and building cheaply.