CHINA SCIENCE AND TECHNOLOGY NEWSLETTER(2014 NO.2)
Technology Business Incubators in China
As an important part within the policy framework of China's science and technology, technology business incubators(TBI) have achieved tremendous progress after two decades' development. With the direction of the State Council and Ministry of Science and Technology (MOST) as well as strong support from the local governments, the incubators have grown into a major policy instrument for commercializing scientific achievements, cultivating enterprises and entrepreneurs, and promoting innovation and entrepreneurship, aiming to build China into an innovative country. The effects and features of technology business incubators are as follows:
1. Nurturing hi-tech enterprises and flagships for emerging industries by encouraging technological innovation and entrepreneurship.
The fundamental role of TBI is to promote technological innovation and entrepreneurship by supporting companies in their early stages of development. According to statistics, over 95% of newly founded technology-based companies in China grow in the incubators and the number of start-ups keeps increasing year-on-year. By the end of 2012, there were 1,239 technology business incubators with over 22,000 service and management staff nationwide, of which 435 were at the national level. The incubators covered a total floor area of over 43 million square meters, holding more than 70,000 incubatees with 1.43 million people in different teams. There were nearly 50,000 incubatees graduated from TBIs, among which over 180 were listed companies. Through comprehensive incubating services, the incubators provide strong support to start-ups for innovation and entrepreneurship, and have cultivated a large group of hi-tech companies as well as pioneers and flagship enterprises for emerging industries. In 2012, the incubatees obtained 57,515 patent licenses, 14,981 of which were invention patents. About 90% of the incubatees applied for different kinds of IPR protection and 60% obtained patent licenses, among which over 40% were invention patents and software copyrights. The incubators have become a driving force for endogenous growth realized in the hi-tech development zones, for most of the newly identified hi-tech companies in the hi-tech zones are graduated incubatees in TBIs. A large number of the graduated enterprises have grown into leading SMEs in their respective industries and become the primary force for the emerging industries of the country.
2. Concentrating high caliber professionals and fostering emerging enterprises and entrepreneurs.
Thanks to the preferential policies for innovation and entrepreneurship and incubation programs nationwide, the incubators have attracted large number of high caliber talents, university graduates and overseas returnees and become the cradle of entrepreneurs of technology-based companies. For example, 60% of the entrepreneurs selected by the national "Thousand Talents Program" are from the start-ups at incubators. By the end of 2012, a total of 9,000 incubatees were founded by 19,602 overseas returnees. A group of successful entrepreneurs from the incubators have turned into stars leading the industrialization of high technologies. Some entrepreneurial centers for university students were also set up in the incubators, aiming to bring potential strength and passion of college graduates into full play and create more job opportunities for them. There have been more than 8,000 companies started up by university graduates in 149 such centers, providing 100,000 new jobs.
3. Contributing to local socio-economic development and becoming part of government action plans.
The extraordinary role of enterprises in regional innovation and entrepreneurship triggered the passion of both government and private sector in building incubators. So far, some regions in the country, with a sound economic growth and adequate resources in science and education, have set up technology business incubators. Beijing, Shanghai, Tianjin, Jiangsu, Zhejiang, Shandong, Qingdao, Dalian, Wuhan and Hefei are planning to build incubators locally in each affiliated county while the incubators are witnessing strong momentum with improved efficiency and services in the central part of the country like Anhui, Henan, Hebei, Hunan and Hubei as well as the regions where ethnic groups live, such as Xinjiang, Ningxia, Inner Mongolia and Guangxi. A new model of incubating companies in other provinces created by Inner Mongolia and Tibet has helped foster and attract a large number of hi-tech companies into these two regions. The national-level incubators in Jiashan of Zhejiang Province, Jiangyin of Jiangsu Province and Gaoming of Guangdong Province have now grown into powerful pillars for local emerging enterprises with hundreds of technology-based companies and dozens of PhD holders, starting from receiving the first doctorate holder as entrepreneur. In 2012, there were 15,153 incubatees in incubators, with the total turnover reaching 490 billion yuan, R&D investment reaching 43.7 yuan billion and risk investment reaching 35.7 billion yuan.
4. Creating an atmosphere for innovation and entrepreneurship and building a good brand of incubation with international influence.
After twenty year 's development, China is among the front-runners in terms of number, scale and performances of incubators. The innovativeness and entrepreneurship advocated by incubators are now widely accepted and respected in the country. A social environment that encourages innovation, tolerates failure and respects success has taken shape. TBIs in China have also expanded their ties with international counterparts and fostered partnership. Since 1996, MOST has selected and approved 9 incubators as pilot International Business Incubators (IBI) in Beijing, Xi'an, Shanghai, Suzhou, Wuhan, Tianjin, Chengdu, Chongqing and Guangzhou, which greatly strengthened mutual visits and communication between China's TBI and the incubators abroad. Following the pace, 5 IBI training bases have been respectively established in Beijing, Shanghai, Xi'an, Wuhan and Guangzhou since 1998, forming an international training network that covers the main regions of China and connects global counterparts in incubation with international training workshops. In the past twenty years, China has trained over 1,000 incubator executives and managerial staff from about 50 countries. The Chinese incubators have also attracted hi-tech talents from France, Japan and Israel to start-up companies in China, and are also making plans to set up branches in other countries. Through international cooperation and communication, the Chinese incubators are widely recognized and promoted in the world, building the Chinese brand with a positive influence.
5. Developing policy systems and working institutions to facilitate overall deployment of incubators across the country.
The Chinese government has worked out a series of policies and measures to support innovation, entrepreneurship and business incubation, reflecting the strategic thinking of building an innovative country. Since late 1980s, MOST has been encouraging incubation programs nationwide through the Torch Program and later Innovation Fund for Technology based Firms, setting up technology service platforms for incubators, building up incubation capacities and funding R&D activities of start-ups in different regions. The Ministry of Finance and State Administration of Taxation have implemented policies to reduce business tax, property tax, land use tax and income tax for incubators as well as guiding private capital to invest in incubators. Many local governments have also set strategic targets for incubation development through legislation or administrative regulation. As a leading body guiding the development of incubation, MOST organizes and coordinates incubators across the country by setting up the management office and issuing administrative rules. MOST also promotes the establishment of the Committee for Entrepreneurial Centers under the National Hi-tech Zone Association, an incubator consortium within China Technology Entrepreneurship Association, an alliance for innovation parks for overseas returnees and the incubator network covering 5 regions of the country, with the engagement of central government, local governments and industrial associations.
6. Improving institutions and developing new incubating service system
As an important platform for technological innovation and entrepreneurship, the Chinese incubators have developed from tranditional centers that simply provide supportive services into incubation agencies with diversified investors and various organizational forms, including technology business incubator, international business incubator, innovation park for overseas returnees, incubator corporation and university science park, etc. The incubators not only cultivate new enterprises and entrepreneurs, but also foster emerging industries and high caliber business leaders. Therefore, the incubators have expanded from national hi-tech zones to other places near universities and industrial areas, and from the central area of city to the affiliated counties. Supported by the government authorities in different sectors, the incubators have been able to provide value added services such as business consulting, professional incubation, angel investment and shareholding incubation in addition to their conventional activities. Looking to the future, the incubators will explore new services through institutional improvement: -- The business mentor system has begun to take shape across the country to facilitate growth of start-ups. -- Focus will be given to professional incubators in a bid to promote technology upgrading and regional industrial restructuring, assist the incubates to connect the market directly, and improve the competitiveness of start-ups. -- Efforts will be made to solve the financing bottlenecks by exploring a shareholding incubation model based on the mutual economic benefits among incubators, financing institutions and incubatees. -- Enterprise accelerators will be built through a speeding-up mechanism, which provides mass production facilities and conditions for industrialization, to support rapid growth of graduated incubatees. In the future, the incubators will continue to serve technological innovation and entrepreneurship and keep improving the services. Emphasis will be attached to cultivating incubatees rather than improving physical facilities, promoting industrial clusters rather than enterprise clusters, doing value-added services rather than basic services, continuing development of innovation and entrepreneurship rather than building incubators themselves. Aiming at "creating sound environment, concentrating resources, fostering talents and facilitating entrepreneurship", the incubators need to gather resources, expand services, strengthen financing capacity and improve the coaching and training system. More should be done to build 10 technological innovation and entrepreneurship demonstration areas, 100 regional leading incubators, 1,000 high level entrepreneurial teams, 10,000 innovative technologybased enterprises as well as new incubation service system and leading enterprises for emerging industries nationwide.
Model Exploration (1): Wuhan Eastlake Hi-tech Innovation Center
In the late 1980s, in order to embrace new technology revolution in the world, the Chinese government approved the Torch Program, which would facilitate the industrialization, commercialization and internationalization of hitech achievements. In June 1987, Wuhan witnessed the establishment of China's first technology business incubator - Wuhan Eastlake Hi-tech Innovation Center (Wuhan EHIC). Over the past 20 years, Wuhan Eastlake Hi-tech Innovation Center has been dedicated to the incubation of technology-based small and medium-sized enterprises (SMEs). While incubating such enterprises, cultivating entrepreneurs of the enterprises and translating research findings into productivity, the Center has accumulated a great deal of experience in enterprise incubation. At present, with an incubation area of about 300,000 square meters, the Center has established and improved its consulting services, investment and financing services, conducted exchanges for international development and bettered its public relations. It also boasts a management team featuring good education, excellent skills and strong serving capacity. Over the past two decades, Wuhan EHIC has accumulatively incubated 1,044 technology-based enterprises, among which 611 were graduated. Some of these graduated enterprises have already become industrial leaders. For example, in 1993 Kaidi Corporation was established with a registered capital of only 103,000 yuan, while now it has become China's leading enterprise in energy and environmental protection. In 1989 Wuhan Fingu Electronic Technology Co Ltd was established with a registered capital of only 30,000 yuan, while now it has become a star listed corporation in the field of communications. In 1989 Sante Cableway was established with a capital of only 30,000 yuan, while now it has become China's No.1 in cableway construction. KM Soft has become the largest CAD software supplier with its own copyrights in China. Chutian Laser Group was established with a registered capital of only 100,000 yuan, but now it has become China's largest production base of medical and industrial laser products that made its international presence. Wuhan EHIC has created a business model of Shared Business Incubator (SBI), which is developed and managed by the Center, owned by investors and utilized by incubatees. This has provided opportunities for various social sectors to invest in incubation development and share the benefit of regional economic growth, which represents an organizational and institutional innovation. Under the government's policy support and almost zero investment from public finance, the Center has completed the first and second phase construction of SBI, with the incubation area soaring from 25,000 square meters to 300,000 square meters, the number of employees increasing from 30 to 380 and the incubatees rising from 60 to 433. Among graduated enterprises, Wuhan Kaidi Electric Power Co Ltd and Kaidi Water Service Co Ltd have been listed in China's and Singapore's main boards, while KM Soft and Huagongtech have been jointly listed. In July and November 2013, Sante Cableway and Fingu Electronic Technology Co Ltd, which both came from Wuhan EHIC, were respectively listed. In the meantime, among incubated and graduated companies, some have already been preparing to get listed, such as Leador Spatial, Sunic Laser, Rixin Technology, Guoce, Xingtuxinke and Lvkang Digital. In multiple areas concerning incubation of technologybased enterprises in China, Wuhan EHIC has been forging ahead with pioneering spirit. The decision-making team of the Center innovatively put forward the concept of Shared Business Incubator (SBI). By building the entrepreneurs' community and integrating private capital with real estate, the Center has made innovation in development pattern, forming a unique "Eastlake Model" dedicated to the building of technology business incubators. The Center and its team earned the following comment: Being no governments, they have provided job opportunities for more than 60,000 people; Being no banks, they have helped enterprises finance and invest over 500 million yuan; Being no research institutes, they have introduced over 900 technology-oriented projects; Being no thinkers, they are changing the traditional values of Chinese intellectuals from "he who excels in learning can be an official" to "making wealth by starting business". They are realizing the dream of the times.
Model Exploration (2): Xi'an Pioneering Park in High-tech Zone
According to national S&T policies, Xi'an established Shaanxi's first technology business incubator- Xi'an Hi-tech Innovation Service Center (HISC) in 1990s. After decades' development, a new form of the regional incubation, Xi'an Pioneering Park, emerged under the direction and management of Xi'an HISC and it has become an important base of the application of scientific and technological achievements in production as well as a major platform for the development of technology-based SMEs, playing a significant role in attracting and pooling scientific talents and facilitating regional technological innovation. After 2000, the incubators in Xi'an hi-tech zone saw a rapid development, with an increasingly large number of incubatees. In 2005, the hi-tech zone received another 55 enterprises, therefore the proportion of Xi'an's incubators in China increased to 44.8%. In the same year, the Xi'an's incubation fund totaled 371 million yuan, ranking 7th among all of regional incubation areas in China; its incubation area reached 345,000 square meters, the 4th in China; the total number of its incubates stood at 500, the 5th in China; the number of newly incubated enterprises reached 100, the 11th in China; the number of graduated enterprises stood at 50, the 9th in the country; accumulated number of graduated enterprises reached 235, the 9th in China. Among innovation centers nationwide, Xi'an Pioneering Park has been ranking among the top based on a comprehensive evaluation. Innovation bases have played a marked role in pooling start-ups and providing innovation services. From 2002 to 2007, the number of innovation bases owned by the hi-tech zone jumped from 3 to 10, with the area increased from 102,000 square meters to 389,000 square meters; by increasing investment, the innovation center has evolved from single incubator to a cluster of incubators, consisting of seven incubators and one National Science and Technology Enterprise Accelerator. The management staff of the incubators increased from 15 to 45; self-owned assets of the incubators increased from 200 million yuan to 600 million yuan. The actual utilization area of enterprises stood at about 100,000 square meters. The incubators have received 266 technology-based start-ups, among them 120 were zero-revenue enterprises. In 2007, the enterprises have realized a total turnover of 433.65 million yuan, with a tax of 23.58 million yuan. In other words, every per thousand square meter of the incubation areas can generate an output of 4.33 million yuan, with a tax of 240,000 yuan. Since its establishment, the Innovation Center has accumulatively incubated 265 graduated enterprises, among which 211 have seen healthy development while the rest closed down or moved out. Among incubated enterprises, 151 have been identified as hi-tech enterprises, accounting for 71% of the total. In 2007, the turnover of enterprises graduated from the innovation base reached 2.613 billion yuan, with a tax of 105 million yuan paid and 4,870 job opportunities created. Among these enterprises, there are 6 whose turnover exceeded 100 million yuan, 43 whose turnover exceeded 10 million yuan and 67 whose turnover exceeded 5 million yuan. Enterprises in the Pioneering Park have carried out 105 projects supported by the public S&T plans, among which 31 projects gained financial support by national plans. 12 enterprises had their projects approved by the Innovation fund for Technology-based Firms of the Ministry of Science and Technology. 38 enterprises established by overseas returnees enjoyed support from the Overseas Returnees Entrepreneurship Fund, while 9 enterprises received financial support from the Incubation Program of the Park. While keeping pace with China's development, Xi'an Pioneering Park Development Center, as the Park's working body, has developed greater incubation scale and improved services, becoming China's largest national hi-tech innovation center and international busines s incubator. The incubator cluster and Enterprise Accelerator formed by Xi'an Pioneering Park Development Center and 6 technology incubators concerning dominant industries jointly formed the facilitators for the development of technology-based start-ups. In recent years, on an annual basis, there were 100 enterprises received by the Pioneering Park, 40 enterprises graduated and about 500 under incubation. In China, Xi'an Pioneering Park Development Center is one of the innovation centers with the largest number of graduated enterprises, highest incubation rate and strongest innovation capacity. The Center has been assessed as one of China's top innovation centers for consecutive years, and has won the prize of Asian Incubator.
Model Exploration (3): Technology Business Incubators in Shanghai
Technology incubation started in Shanghai in 1988 with the founding of Shanghai Technology Innovation Center, which is in charge of all incubators in the municipality and has played a leading role in promoting innovation, fostering entrepreneurs and accumulating experience. Over the past twenty years, a network for hi-tech development zones and technology business incubators has been formed. A layout including one district and six parks has been completed in Shanghai and most districts and affiliated counties in the city have more than one incubator. The multiple incubators are enjoying rapid development in resource-intensive districts like Xuhui, Yangpu and Pudong, substantially promoting the growth of start-ups. The scale and competence of incubators in Shanghai has improved tremendously in terms of infrastructure, function and management. By the end of 2007, there were 35 technology business incubators in Shanghai, 15 of which were innovation centers at the national level. The incubators, with a floor area of 600,000 square meters, earmarked 157 million yuan for incubation out of its total investment of 595 million yuan. The total revenue reached 237 million yuan, generating 38.25 million yuan in taxes. The 2,145 incubatees created 33,927 jobs, and the total revenues and taxes stood at 6.78 billion yuan and 522 million yuan respectively. 621 companies had already graduated from the incubators. The incubators in Shanghai are highly professionalized and internationalized. There are now 15 incubators dedicated to different technology areas, such as integrated circuit design and urban industry design in Huangpu district, nanotechnology and computer software in Xuhui, environmental protection technology in Yangpu, bio-medicine in Pudong, special software in Pujiang and multimedia technology in Changning. The Shanghai International Business Incubator (IBI) is consisted of six incubation centers located in Caohejing, Zhangjiang, Yangpu, Huigu and Shanghai University Science Park. It has organized various international symposia and training programs with the support of Technology Innovation Center, and is working with over 20 countries, thus certified by both UNDP and MOST as a pilot incubation agency for international businesses. Moreover, the incubators have created a group of hi-tech enterprises with proprietary IP and huge market potential, such as IDT, Fudan Grand Horizon, MicroPort, Tongji Tongjie and Xinyuan Electronics, and Focus Media was listed in NASDAQ in July, 2005. The technology-based SMEs graduated from the incubators have grown into the power force of the local hi-tech industries and are playing an active role in building Shanghai into an innovative city.