Special Issue: Technology Business Incubators in China

Special Issue: Technology Business Incubators in China

Technology Business Incubators in China

Model Exploration (1): Wuhan Eastlake Hi-tech Innovation Center

Model Exploration (2): Xi’an Pioneering Park in High-tech Zone

Model Exploration (3): Technology Business Incubators in Shanghai

Model Exploration (4): Yangpu Technology Innovation Center

Model Exploration (5): Tsinghua Pioneering Park in Beijing

Technology Business Incubators in China

As an important part within the policy frameworkof China’s science and technology, technology businessincubators(TBI) have achieved tremendous progressafter two decades’ development. With the directionof the State Council and Ministry of Science andTechnology (MOST) as well as strong support from thelocal governments, the incubators have grown into amajor policy instrument for commercializing scientificachievements, cultivating enterprises and entrepreneurs,and promoting innovation and entrepreneurship, aimingto build China into an innovative country. The effectsand features of technology business incubators are asfollows:

1.Nurturing hi-tech enterprises and flagships foremerging industries by encouraging technologicalinnovation and entrepreneurship.

The fundamental role of TBI is to promotetechnological innovation and entrepreneurshipby supporting companies in their early stages ofdevelopment. According to statistics, over 95% of newlyfounded technology-based companies in China growin the incubators and the number of start-ups keepsincreasing year-on-year. By the end of 2012, there were1,239 technology business incubators with over 22,000service and management staff nationwide, of which 435were at the national level. The incubators covered a totalfloor area of over 43 million square meters, holdingmore than 70,000 incubatees with 1.43 million peoplein different teams. There were nearly 50,000 incubateesgraduated from TBIs, among which over 180 were listedcompanies.

Through comprehensive incubating services,the incubators provide strong support to start-ups forinnovation and entrepreneurship, and have cultivated alarge group of hi-tech companies as well as pioneers andflagship enterprises for emerging industries. In 2012,the incubatees obtained 57,515 patent licenses, 14,981of which were invention patents. About 90% of theincubatees applied for different kinds of IPR protectionand 60% obtained patent licenses, among which over40% were invention patents and software copyrights. Theincubators have become a driving force for endogenousgrowth realized in the hi-tech development zones, formost of the newly identified hi-tech companies in thehi-tech zones are graduated incubatees in TBIs. A largenumber of the graduated enterprises have grown intoleading SMEs in their respective industries and becomethe primary force for the emerging industries of thecountry.

2. Concentrating high caliber professionals andfostering emerging enterprises and entrepreneurs.

Thanks to the preferential policies for innovationand entrepreneurship and incubation programsnationwide, the incubators have attracted large numberof high caliber talents, university graduates and overseasreturnees and become the cradle of entrepreneurs oftechnology-based companies. For example, 60% of theentrepreneurs selected by the national “Thousand TalentsProgram” are from the start-ups at incubators. By theend of 2012, a total of 9,000 incubatees were foundedby 19,602 overseas returnees. A group of successfulentrepreneurs from the incubators have turned into starsleading the industrialization of high technologies.

Some entrepreneurial centers for university studentswere also set up in the incubators, aiming to bringpotential strength and passion of college graduates intofull play and create more job opportunities for them.There have been more than 8,000 companies started upby university graduates in 149 such centers, providing100,000 new jobs.

3. Contributing to local socio-economic developmentand becoming part of government action plans.

The extraordinary role of enterprises in regionalinnovation and entrepreneurship triggered the passionof both government and private sector in buildingincubators. So far, some regions in the country, witha sound economic growth and adequate resourcesin science and education, have set up technologybusiness incubators. Beijing, Shanghai, Tianjin,Jiangsu, Zhejiang, Shandong, Qingdao, Dalian, Wuhanand Hefei are planning to build incubators locallyin each affiliated county while the incubators arewitnessing strong momentum with improved efficiencyand services in the central part of the country likeAnhui, Henan, Hebei, Hunan and Hubei as well as theregions where ethnic groups live, such as Xinjiang,Ningxia, Inner Mongolia and Guangxi. A new modelof incubating companies in other provinces created byInner Mongolia and Tibet has helped foster and attracta large number of hi-tech companies into these tworegions. The national-level incubators in Jiashan ofZhejiang Province, Jiangyin of Jiangsu Province andGaoming of Guangdong Province have now grown intopowerful pillars for local emerging enterprises withhundreds of technology-based companies and dozens ofPhD holders, starting from receiving the first doctorateholder 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 riskinvestment reaching 35.7 billion yuan.

4. Creating an atmosphere for innovation andentrepreneurship and building a good brand ofincubation with international influence.

After twenty year ’s development, China isamong the front-runners in terms of number, scale andperformances of incubators. The innovativeness andentrepreneurship advocated by incubators are nowwidely accepted and respected in the country. A socialenvironment that encourages innovation, tolerates failureand respects success has taken shape.

TBIs in China have also expanded their ties withinternational counterparts and fostered partnership.Since 1996, MOST has selected and approved 9incubators as pilot International Business Incubators(IBI) in Beijing, Xi’an, Shanghai, Suzhou, Wuhan,Tianjin, Chengdu, Chongqing and Guangzhou, whichgreatly strengthened mutual visits and communicationbetween China’s TBI and the incubators abroad.Following the pace, 5 IBI training bases have beenrespectively established in Beijing, Shanghai, Xi’an,Wuhan and Guangzhou since 1998, forming aninternational training network that covers the mainregions of China and connects global counterparts inincubation with international training workshops. Inthe past twenty years, China has trained over 1,000incubator executives and managerial staff from about50 countries. The Chinese incubators have also attractedhi-tech talents from France, Japan and Israel to start-upcompanies in China, and are also making plans to setup branches in other countries. Through internationalcooperation and communication, the Chinese incubatorsare widely recognized and promoted in the world,building the Chinese brand with a positive influence.

5. Developing policy systems and workinginstitutions to facilitate overall deployment ofincubators across the country.

The Chinese government has worked out aseries of policies and measures to support innovation,entrepreneurship and business incubation, reflectingthe strategic thinking of building an innovativecountry. Since late 1980s, MOST has been encouragingincubation programs nationwide through the TorchProgram and later Innovation Fund for TechnologybasedFirms, setting up technology service platforms forincubators, building up incubation capacities and fundingR&D activities of start-ups in different regions. TheMinistry of Finance and State Administration of Taxationhave implemented policies to reduce business tax,property tax, land use tax and income tax for incubatorsas well as guiding private capital to invest in incubators.Many local governments have also set strategic targetsfor incubation development through legislation oradministrative regulation.

As a leading body guiding the development ofincubation, MOST organizes and coordinates incubatorsacross the country by setting up the management officeand issuing administrative rules. MOST also promotesthe establishment of the Committee for EntrepreneurialCenters under the National Hi-tech Zone Association,an incubator consortium within China TechnologyEntrepreneurship Association, an alliance for innovationparks for overseas returnees and the incubator networkcovering 5 regions of the country, with the engagementof central government, local governments and industrialassociations.

6. Improving institutions and developing newincubating service system

As an important platform for technologicalinnovation and entrepreneurship, the Chinese incubatorshave developed from tranditional centers that simplyprovide supportive services into incubation agencieswith diversified investors and various organizationalforms, including technology business incubator,international business incubator, innovation park foroverseas returnees, incubator corporation and universityscience park, etc. The incubators not only cultivate newenterprises and entrepreneurs, but also foster emergingindustries and high caliber business leaders. Therefore,the incubators have expanded from national hi-tech zonesto other places near universities and industrial areas, andfrom the central area of city to the affiliated counties.Supported by the government authorities in differentsectors, the incubators have been able to provide valueaddedservices such as business consulting, professionalincubation, angel investment and shareholding incubationin addition to their conventional activities. Lookingto the future, the incubators will explore new servicesthrough institutional improvement:

——The business mentor system has begun to takeshape across the country to facilitate growth of start-ups.

——Focus will be given to professional incubatorsin a bid to promote technology upgrading and regionalindustrial restructuring, assist the incubates to connectthe market directly, and improve the competitiveness ofstart-ups.

——Efforts will be made to solve the financingbottlenecks by exploring a shareholding incubationmodel based on the mutual economic benefits amongincubators, financing institutions and incubatees.

——Enterprise accelerators will be built througha speeding-up mechanism, which provides massproduction facilities and conditions for industrialization,to support rapid growth of graduated incubatees.

In the future, the incubators will continue toserve technological innovation and entrepreneurshipand keep improving the services. Emphasis will beattached to cultivating incubatees rather than improvingphysical facilities, promoting industrial clusters ratherthan enterprise clusters, doing value-added servicesrather than basic services, continuing development ofinnovation and entrepreneurship rather than buildingincubators themselves. Aiming at “creating soundenvironment, concentrating resources, fostering talentsand facilitating entrepreneurship”, the incubatorsneed to gather resources, expand services, strengthenfinancing capacity and improve the coaching and trainingsystem. More should be done to build 10 technologicalinnovation and entrepreneurship demonstration areas,100 regional leading incubators, 1,000 high levelentrepreneurial teams, 10,000 innovative technologybasedenterprises as well as new incubation servicesystem and leading enterprises for emerging industriesnationwide.

Model Exploration (1): Wuhan Eastlake Hi-tech Innovation Center

In the late 1980s, in order to embrace new technologyrevolution in the world, the Chinese government approved theTorch Program, which would facilitate the industrialization,commercialization and internationalization of hitechachievements. In June 1987, Wuhan witnessedthe establishment of China’s first technology businessincubator - Wuhan Eastlake Hi-tech Innovation Center(Wuhan EHIC).

Over the past 20 years, Wuhan Eastlake Hi-techInnovation Center has been dedicated to the incubationof technology-based small and medium-sized enterprises(SMEs). While incubating such enterprises, cultivatingentrepreneurs of the enterprises and translating researchfindings into productivity, the Center has accumulateda great deal of experience in enterprise incubation. Atpresent, with an incubation area of about 300,000 squaremeters, the Center has established and improved itsconsulting services, investment and financing services,conducted exchanges for international development andbettered its public relations. It also boasts a managementteam featuring good education, excellent skills and strongserving capacity.

Over the past two decades, Wuhan EHIC hasaccumulatively incubated 1,044 technology-basedenterprises, among which 611 were graduated. Someof these graduated enterprises have already becomeindustrial leaders. For example, in 1993 Kaidi Corporationwas established with a registered capital of only 103,000yuan, while now it has become China’s leading enterprisein energy and environmental protection. In 1989 WuhanFingu Electronic Technology Co Ltd was establishedwith a registered capital of only 30,000 yuan, while nowit has become a star listed corporation in the field ofcommunications. In 1989 Sante Cableway was establishedwith a capital of only 30,000 yuan, while now it hasbecome China’s No.1 in cableway construction. KMSoft has become the largest CAD software supplier withits own copyrights in China. Chutian Laser Group wasestablished with a registered capital of only 100,000 yuan,but now it has become China’s largest production baseof medical and industrial laser products that made itsinternational presence.

Wuhan EHIC has created a business model ofShared Business Incubator (SBI), which is developed andmanaged by the Center, owned by investors and utilizedby incubatees. This has provided opportunities for varioussocial sectors to invest in incubation development andshare the benefit of regional economic growth, whichrepresents an organizational and institutional innovation.Under the government’s policy support and almost zeroinvestment from public finance, the Center has completedthe first and second phase construction of SBI, withthe incubation area soaring from 25,000 square metersto 300,000 square meters, the number of employeesincreasing from 30 to 380 and the incubatees rising from60 to 433.

Among graduated enterprises, Wuhan Kaidi ElectricPower Co Ltd and Kaidi Water Service Co Ltd have beenlisted in China’s and Singapore’s main boards, while KMSoft and Huagongtech have been jointly listed. In July andNovember 2013, Sante Cableway and Fingu ElectronicTechnology Co Ltd, which both came from WuhanEHIC, were respectively listed. In the meantime, amongincubated and graduated companies, some have alreadybeen preparing to get listed, such as Leador Spatial, SunicLaser, Rixin Technology, Guoce, Xingtuxinke and LvkangDigital.

In multiple areas concerning incubation of technologybasedenterprises in China, Wuhan EHIC has been forgingahead with pioneering spirit. The decision-making team ofthe Center innovatively put forward the concept of SharedBusiness 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 thebuilding of technology business incubators. The Centerand its team earned the following comment:

Being no governments, they have provided jobopportunities for more than 60,000 people;

Being no banks, they have helped enterprises financeand invest over 500 million yuan;

Being no research institutes, they have introducedover 900 technology-oriented projects;

Being no thinkers, they are changing the traditionalvalues of Chinese intellectuals from “he who excels inlearning can be an official” to “making wealth by startingbusiness”. 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’anestablished Shaanxi’s first technology business incubator- Xi’an Hi-tech Innovation Service Center (HISC) in1990s. After decades’ development, a new form of theregional incubation, Xi’an Pioneering Park, emergedunder the direction and management of Xi'an HISC andit has become an important base of the application ofscientific and technological achievements in productionas well as a major platform for the development oftechnology-based SMEs, playing a significant role inattracting and pooling scientific talents and facilitatingregional technological innovation.

After 2000, the incubators in Xi’an hi-tech zone sawa rapid development, with an increasingly large numberof incubatees. In 2005, the hi-tech zone received another55 enterprises, therefore the proportion of Xi’an’sincubators in China increased to 44.8%. In the sameyear, the Xi’an’s incubation fund totaled 371 millionyuan, ranking 7th among all of regional incubation areasin China; its incubation area reached 345,000 squaremeters, the 4th in China; the total number of its incubatesstood at 500, the 5th in China; the number of newlyincubated enterprises reached 100, the 11th in China; thenumber of graduated enterprises stood at 50, the 9th in thecountry; accumulated number of graduated enterprisesreached 235, the 9th in China. Among innovation centersnationwide, Xi’an Pioneering Park has been rankingamong the top based on a comprehensive evaluation.

Innovation bases have played a marked role inpooling start-ups and providing innovation services.From 2002 to 2007, the number of innovation basesowned by the hi-tech zone jumped from 3 to 10, with thearea increased from 102,000 square meters to 389,000square meters; by increasing investment, the innovationcenter has evolved from single incubator to a clusterof incubators, consisting of seven incubators and oneNational Science and Technology Enterprise Accelerator.The management staff of the incubators increasedfrom 15 to 45; self-owned assets of the incubatorsincreased from 200 million yuan to 600 million yuan.The actual utilization area of enterprises stood at about100,000 square meters. The incubators have received266 technology-based start-ups, among them 120 werezero-revenue enterprises. In 2007, the enterprises haverealized a total turnover of 433.65 million yuan, witha tax of 23.58 million yuan. In other words, every perthousand square meter of the incubation areas cangenerate an output of 4.33 million yuan, with a tax of240,000 yuan.

Since its establishment, the Innovation Center hasaccumulatively incubated 265 graduated enterprises,among which 211 have seen healthy developmentwhile the rest closed down or moved out. Amongincubated enterprises, 151 have been identified as hi-techenterprises, accounting for 71% of the total. In 2007, theturnover of enterprises graduated from the innovationbase reached 2.613 billion yuan, with a tax of 105million yuan paid and 4,870 job opportunities created.Among these enterprises, there are 6 whose turnoverexceeded 100 million yuan, 43 whose turnover exceeded10 million yuan and 67 whose turnover exceeded 5million yuan.

Enterprises in the Pioneering Park have carriedout 105 projects supported by the public S&T plans,among which 31 projects gained financial support bynational plans. 12 enterprises had their projects approvedby the Innovation fund for Technology-based Firms ofthe Ministry of Science and Technology. 38 enterprisesestablished by overseas returnees enjoyed supportfrom the Overseas Returnees Entrepreneurship Fund,while 9 enterprises received financial support from theIncubation Program of the Park.

While keeping pace with China’s development,Xi’an Pioneering Park Development Center, as thePark’s working body, has developed greater incubationscale and improved services, becoming China’s largestnational hi-tech innovation center and internationalbusines s incubator. The incubator cluster andEnterprise Accelerator formed by Xi’an PioneeringPark Development Center and 6 technology incubatorsconcerning dominant industries jointly formed thefacilitators for the development of technology-basedstart-ups. In recent years, on an annual basis, there were100 enterprises received by the Pioneering Park, 40enterprises graduated and about 500 under incubation.

In China, Xi’an Pioneering Park DevelopmentCenter is one of the innovation centers with the largestnumber of graduated enterprises, highest incubationrate and strongest innovation capacity. The Center hasbeen assessed as one of China’s top innovation centersfor consecutive years, and has won the prize of AsianIncubator.