The Role of SMEs and Clusters in the National Innovation Systems in China

1. The Role of SMEs and Clusters in the National Innovation Systems in China Yuan CHENG and Jian GAO School of Economics and Management Tsinghua University Beijing 100084 P.R.China

2. Outline • Introduction • Manufacturing Clusters • Cluster in High-tech or science park • Policy implication • Summary

3. A. Introduction • China used to be a country which only large and medium sized SOEs were legal to operate. SME was marginal to China. • The transition period means giving SME or private company rights to develop, from a role of filling the gap left by SOE to an important GDP and employment contributor. • SMEs have gone through a rapid development and SME is one of the important actors in national system of innovation now.

4. Geographical locations of SME • SMEs have a strong geographical orientation: boomed in areas where the role of SOE is limited and where there is strong base of human resources.

5. And Current Landscape ICT Industry

7. Focus of the research • This study is mainly on industrial clusters, analysis the manufacturing industry clusters and innovation clusters. • Cluster analysis is used to analyze the interaction of knowledge flows in national innovation system between different agencies. • Cluster in traditional industry • Cluster in high-tech industry

8. B. Manufacturing Clusters • TVE used to be the first wave of SME when China said good by to SOE dominated system. Those TVEs usually operated in manufacturing industry. some of them born in forms of cluster, specialized in one product. • SME in traditional industry take advantage of cluster. • Cluster advantage in south of China: • Entrepreneurship spirit, low tech, labor intensive, industry with low entry barrier, geography brand rather than company brand, large marketing network, processing innovation.

9. Geographical locations of SME and cluster • In China, the Pearl River Delta and Yangtze River Delta are the two most important economic zones for SME, FDI and cluster. • the Pearl River Delta and Yangtze River Delta have won the honor of "world plant“ • There are many low tech and high-tech clusters in south of China. • Those two regions are more liberal for private investment and FDI. • SME have gradually acquired equal market access, finance and other resources in these two regions

10. Pearl River Delta Economic Zone • Pearl River Delta Economic Zone is located in the northern part of Hong Kong, composed of nine cities. Its area is 24,437 square kilometers. • Its production comprised from baby products to power tools and high-tech products

11. GDP over the years the Pearl River Delta Region Unit: hundred million

12. Investment in fixed assets over the years of the Pearl River Delta Unit: hundred million

13. Exports over the years of the Pearl River Delta Unit: 100 million U.S. dollars

14. The characteristics of the Pearl River Delta • Economic development relies heavily on labor-intensive industries. • Economic development has benefited from the economic interaction between Hong Kong, Taiwan and Guangdong. • The Pearl River Delta's manufacturing are in the bottom of the value chain in the division of labor and cooperation in global value chain. • There are rich ICT components clusters in Perl River Delta. • Attracting huge population of mobile famers as their main work force

15. Yangtze River Deltas • Yangtze River Delta region belongs to China's eastern coastal area. • Yangtze River Delta Area, is defined as the city belt composed of 16 cities on the fan-shaped alluvial plain with Shanghai as their core of production.

16. GDP of Yangtze River Delta region over the years Unit: hundred million

17. Investment in fixed assets over the years of the Yangtze River Unit: hundred million

18. Exports over the years of the Pearl River Delta Unit: 100 million U.S. dollars

19. The characteristics of the Yangtze River Delta • Coordination and cooperation between cities are the driving force of economic development of Yangtze River Delta. • Yangtze River Delta enjoys a unique advantage in high-quality human resources. • Strong manufacturing capability around Shanghai • Good infrastructure for manufacturing • Attracting large multinationals

20. Clusters in Zheijiang

21. Summary of Manufacturing Clusters in China • The relatively low-end of two-triangle’s manufacturing industry, design, development and marketing network of the product are under control of international multinational corporations. • Lack of innovation ability is the bottleneck industrial clusters in China. • Low-cost advantages of China's industrial clusters which built on cheap labor costs and cheap raw materials can easily be replaced by imitation. • How can proceed from GPN to GIN is the challenge for the two most dynamic regions.

22. C. High-tech SME and Clusters • High-tech SME is closely related to government R&D programs and policy. • High-tech Zone • Incubators • University Science Park

23. Role of SME in NIS of China stage of national technology innovation system Stage of plan-led model • High-tech 863 plan • The Torch Program • Spark Program • Torch Program • the National Natural Science Foundation • Climbing plan,973 • “Strategy of Rejuvenation by Science and Education’ • Innovation fund for SME • Knowledge Innovation Program Present 1995 1978

24. SME in high-tech industry • SME, especially technology based firm was seen as the main innovation driver in high-tech industry. • Learning from USA practice, introduced national S&T based SME innovation fund since 1980s.

25. Spin-off and Industry-academy linkage has been promoted • University established lots of linkages with industry: • setup spin-off companies • research grants from industry • consulting and service • training (MBA, EMBA and short term training.) • R&D institutes • Setup spin-off companies • research grants from industry • consulting and service

26. University’s spin-off 资料来源:《2004中国高等学校校办产业统计报告》，教育部科技发展中心，中国高校校办产业协会。

27. The 56th state-level hi-tech industrial development zone is established. The 53rd National Hi-Tech Industrial Development Zone was set up in Shaanxi Yangling, which is the first national agricultural high-tech park. The first national-level high-tech zones, the Zhongguancun Science Park, is established in Beijing The first high-tech zones is established in Shenzhen 2009 1988 1997 1985 High-tech Zone is the home for technology based SME • High-tech Zone as a government infrastructure investment region is an important policy tool to attract foreign investment and creat employment.

28. Overview of high-tech zone enterprises (2000 ~ 2007) Note: the number of enterprises (Unit), numbers of employees (million people); exports (100 million U.S. dollars); the remaining items (100 million)

29. Enterprise Development • Enterprises income distribution of National-level High-tech Zone countries in 2007

30. Role of National High-tech Zone in China Innovation Clusters • National High-tech Zone is an important carrier to implement the strategy of independent innovation. development. • National high-tech zones achieved fruitful results in the promotion high-tech industrialization, institutional innovation, the transformation of production and the optimization the economic structure, the attraction of the talents and the provision of entrepreneurial environment.

31. The development of Incubators in China

32. The development of Incubators in China

33. The role of incubators or high-tech zone to promote the SMEs to innovation • Incubator promotes the overall effects. • Incubator can reduce the start-ups costs • Incubator can help enterprises obtain external resources • Incubator can transmit innovation and entrepreneurial spirit

34. University Science Park • In 1988, Northeastern University has established the first University Science and Technology Park in China --- Northeastern University Software Park. • On February 16, 2009, National University Science and Technology Park in China has risen to 69.

35. The role of university science park to promote the SMEs to innovation • Provide a source of innovation for enterprises • The absolute advantage of human resources. • A wealth of library and network resources.

36. Typical high-tech clusters in China • Zhongguancun Science Park establishment in 1988 in Beijing, with high-tech services as the core • Tianjin Hi-tech Zone set up in 1988 with bio-medicine and green energy as oriented industries • Wuhan East Lake High Technology Park established in 1993 with photoelectron field as the core • Shanghai Zhangjiang Hi-Tech Park established in 1992, with integrated circuits and software, bio-pharmaceutical as leading industries • Shenzhen high-tech zones with telecommunications industry as the leading • Zhengzhou High-tech Zone to with superhard material as the core industry.

37. Clusters out of FDI:The eight products of Suzhou that rank No.1 in the world (2003)

38. Constraints on SMEs in China • The level of management of corporations is relatively hang behind, the shortage of talent is the biggest problem facing by SMEs. • Insufficient funds, the financing channels problem, limited venture capital and financing • Affected by the financial crisis, exports are hampered.

39. Public Policy • Public policy to promote SMEs innovation and entrepreneurship. • the "SME Promotion Law "promulgated and implemented in 2003 • SMEs board in Shenzhen Stock Exchange • Over-the-counter securities trading system (the third board Market)

40. Policy thinking • Innovation Funds develop quickly

41. Innovation network building and support system upgrade

42. D. Summary • SMEs as the core element of national innovation system, has played a pivotal role in in the development of our manufacturing clusters, promoting the emergence and further development and innovation of two major manufacturing clusters. • Cluster proves to be a good practice for SME. • High-tech based SME was given a high priority in promotion agenda of China • SME still cannot enjoy the condition as SOEs do. So, there are space for improving.