During the past two decades China has undergone an economic miracle with rising living standards permeating all levels of society, from rural agricultural areas in China’s central and western areas, to the thriving modern metropoles that line the country’s eastern seaboard. As the evolution of the Chinese economy transitions from the world’s center for industrial and manufacturing business, so too have the government policies.
The Chinese government has made it clear that the next era of the Chinese economy must be defined by technological innovation. In May 2018, President Xi Jinping delivered an address at the 19th Meeting of the Academicians of the Chinese Academy of Sciences (CAS) and the 14th Meeting of the Academicians of the Chinese Academy of Engineering (CAE). In his speech he implored Chinese citizens to, “aim for the frontiers of science and technology, lead the direction of its development, shoulder the heavy responsibilities bestowed by history, and be vanguards in innovation in the new era.” Additionally, Xi emphasized the importance of the state’s support for scientific research and achievement. In turn, he hoped that greater domestic innovation will spur the technological self sufficiency of China’s modernizing economy.
However the seeds of an innovation based economy were sown long ago. Launched in 1988, the Torch program was developed by the Chinese Ministry of Science and Technology to help facilitate the long term growth of science and innovation. Increasing labor costs coupled with environmental degradation provided further motivation for policies that would incentivize manufacturing firms to upgrade along the value chain. The flagship initiative within the Torch project was the development of Science and Technology Industrial Parks (STIPs), which concentrated government resources and private sector technology talent in close geographic proximities to enable collaboration, and innovation in science and technology. For a firm to be part of a STIP it must meet certain qualifications: 1) devote at least 3% of its annual gross revenue to R&D related activities, 2) at least 30% of its employees must hold a tertiary-level degree and 3) 10% of its workforce must be employed in the R&D department. Government officials will asses annually whether the STIP enterprise is satisfying these criteria.
China’s first STIP, Beijing’s Zhongguancun set the standard for productivity and creativity, producing 40% of China’s tech unicorns. This success in Beijing was then replicated throughout the country, with a total of 156 STIPs currently active. Notably, China’s STIP development has spanned throughout the country’s massive area, with 23% of the STIPs existing in China’s remote and relatively underdeveloped western region. This is in stark contrast to the United States’ geographic concentration of tech sector resources, which are largely confined to both coasts in cities like San Francisco, Los Angeles, and Seattle on the west coast and New York, Boston and Washington D.C. on the east coast. The more balanced geographic distribution of science and technology resources throughout China has invigorated the innovation and economic output of some of these previously underperforming regions.
Let’s look at some examples of STIPs that are outside China’s heartland.
Founded in 1992 in the capital of Xinjiang province, the Urumqi New and Hi-Tech Industrial Park is the only of its kind in the province. The city of Urumqi was previously the center of industrial business in the region during the 20th century. By the end of 2000, 679 enterprises had been established in the zone, including 51 foreign-invested enterprises with the total foreign investment of $121 million. The research focuses for the Urumqi STIP include biomedicine, new materials, new energy and IT. In total 147 hi-tech enterprises have come out of the Urumqi STIP, completing a total of 300 hi-tech projects of which 134 have been commercialized and 53 were listed in the government’s Torch program.
The successful modernization of Urumqi’s local economy is a prime example of how China’s STIPs can revitalize a city’s economy, as Urumqi is also now the consumption capital of the area with retail sales outpacing any nearby urban center. The city serves as China’s energy and security gateway to central and western Asia, and is the hub for Xinjiang’s rich natural resources including, 30% of the nation’s petroleum, 40% of its coal, all while harboring 80.7% of China’s overall mined mineral resources. These mined minerals include much of China’s globally dominant rare earths market. This abundance of energy rich resources in the region further emphasizes the development of innovative methods to refine and optimize energy efficiency. In addition to increasing the processing capacity from traditional energy sources, the Urumqi STIP has also focused investment on renewable energy technologies including, solar energy, wind energy, clean coal and biomass energy.
Kunming is the capital of Yunnan province, in China’s southwest. Yunnan ranks second to last in terms of GDP per capita among China’s provinces. Kunming’s STIP, founded in 1992, primarily focuses on biomedical and information technologies. During the 9th Five-Year Plan from 1996-2000, Kunming’s STIP generated robust increases in income in sectors including technology (+61%), industry and trade (+59%), industrial output (+30), and amount of foreign currency earned through exports (+78%). Kunming’s STIP includes 878 enterprises, 86% of which are enterprises focused on science and technology; 121 are enterprises of high and new technology approved by the Provincial Department of Science and Technology. In fact, Kunming’s STIP consists of 80% of the hi-tech enterprises in the entire province, highlighting the zone’s importance to the province’s overall economic output. The chart below shows the continued steady growth of Kunming’s GDP, evidencing the potency of projects like the city’s STIP to promote continued economic growth and innovation in the 21st century economy.
The table below demonstrates the relatively impressive performance of western China’s STIPs in terms of economic output during a period of rapid growth in the early 2000s. From 2001 to 2005 China’s western region contributed to roughly 12% of the country’s STIP output value, while its overall GDP contribution during that period was just 17%, despite that most of the region’s overall economic output was from low-tech industrial and agricultural industries. China’s eastern region far outpaces the west in terms of science and technological economic output, but the implementation of STIPs in western China has allowed a modest but growing tech sector to emerge in a regional economy that previously lacked innovative capacity. While western Chinese STIPs may not be able to compete with the country’s most robust STIPs in places like Zhongguancun, Beijing and Shenzhen’s Hi-Tech Industrial Park, they provide a window into the modern innovation driven economy for areas that risk being left behind. Again, this ability to foster sophisticated technology centers in unconventional locations is something the United States has failed to do successfully, which has exacerbated income inequality and caused large divisions within the United States’ society. The geographically balanced development of China’s technology sector should bode well for the company’s long-term innovative capabilities.