Tomorrow Village

Zhongguancun

China's hi-tech industry emerged from a village in Beijing. The village is not only the birthplace of many famous companies, such as Lenovo, Stone and Sina Corp, but also the first generation of China's hi-tech elites, including Liu Chuanzhi, Duan Yongji and Wang Zhidong.

From a quiet village of 37 families a century ago to a bustling science community with dazzling buildings, from home to several universities and the Chinese Academy of Sciences (CAS) after 1950 to a hub of hi-tech businesses, venture capitalists and professional research institutes, northwestern Beijing's Zhongguancun - Zhongguan village in Chinese - is now regarded as China's Silicon Valley and the pioneer of the nation's hi-tech industry.

Evolution

"Zhongguancun Science Park, China's first national hi-tech zone, is the result of China's opening up reform and the experimental plots for Chinese intellectuals to carry out scientific industrialization or turn vertical knowledge into real money," writes Ling Zhijun in the preface of his book, China's New Revolution: Zhonguancun and Chinese Society, in which Zhongguancun is used to study the nation's 30-year development after it opened its markets to the outside world.

Traditionally, Chinese intellectuals were devoted to research and study and stayed away from the business community.

However, after market-oriented reforms, many Chinese intellectuals found that technology and business were closely linked. In other words, without money, they could not carry out research and development (R&D). They found that technological industrialization would help them earn money for further studying.

Chen Chunxian, a former CAS researcher, was one of the first pioneers to mesh technology with business. Thanks to the market's opening, Chen and his colleagues were the first batch of scientists organized by the government to investigate technological development in the US, where he was inspired by Silicon Valley. Chen decided to set up a similar technological diffusion zone in China to explore an efficient technological application and scientific industrialization mechanism in line with Chinese conditions.

The establishment of the Advanced Technology Development Service Department of the Plasma Association on October 23, 1980, was a landmark for not only Zhongguancun but also China's hi-tech industry, because it was the nation's first private technology company.

"In a strict sense, the service department was just an embryo of a hi-tech company, but it is a test for a combination of technology and business and stirred up hot discussion about the relations between science and the economy in early 1980s," says Dai Wei, director with Administrative Committee of Zhongguancun Science Park.

From 1980 to 1984, some bold technology staff of research institutes tapped the business waters of Zhongguancun. These included Liu Chuanzhi, a former staff member of the Computer Institute of CAS and the founder of transnational computer giant Lonovo, which was known as Legend when it was established.

He started his business at an old and shabby 20-sq m office without a computer in 1984. The start-up fund was 200,000 yuan from his institute. The company had only 11 staff, including Liu, and all were over age 40.

When Legend took off, there were over 40 small technology companies in Zhongguancun. As a result Zhongguancun Electronics Street, where vendors sold various electronic parts and products made by those companies, was formed. The street was well-known for the sharp contrast between newly developed technological products and simple and crude booths, village vendors, a disorderly commercial environment and rock-bottom prices.

Zhongguancun was introduced to the world in a report titled "An evolution is undergoing in Zhongguancun: China's Silicon Valley is gestating", published on December 10, 1986, in the People's Daily, China's most authoritative newspaper.

The article generated a positive response and over 100 experts from seven key Chinese cities began conducting feasibility research about Zhongguancun.

A key milestone for Zhongguancun was the "Temporary Regulations on Beijing New Technological Industry Development Trial Zone", issued by the State Council in May 1988.

The regulation confirmed the validity of Zhongguancun-based companies and offered a string of preferential policies, including finance, tax, land use and human resource management to hi-tech businesses in Zhongguancun, which inspired more Chinese scientists to start up companies and sparked a boom of hi-tech zones around China.

Duan Yongji and a group of scientists collected 20,000 yuan each to establish Stone. Over the next two decades, Stone developed into an industrial group with many listed IT, logistic, real estate and finance companies, and Duan has been both chairman of the private group and general manager of State-owned Zhongguancun Technology.

Wang Zhidong founded China's largest portal Sina in 1988, when he was a recent university graduate. Sina was the first Chinese IT company to list on the NASDAQ stock exchange.

By the end of 2000, there were nearly 1,000 hi-tech enterprises in Zhongguancun, with combined turnover exceeding 240 billion yuan in 2000. From 1986 to 2000, the annual growth rate in the science park reached an average of 30 percent .

Meanwhile, various hi-tech parks sprung up across China, especially in coastal and eastern areas. Statistics from the Ministry of Science and Technology reveal that there were 53 national-level science and technology parks in China in 1999, with combined technological, industrial and trading revenue of 656 billion yuan.

A total of 17,900 hi-tech companies in the parks generated a profit 35.6 billion yuan, contributing taxes of 2.75 billion yuan, and exporting $10.6 billion worth of hi-tech products and services.

Thanks to local preferential policies and local government stimulation, nearly 4,000 hi-tech development zones at various levels around China had been created by the end of 1999.

Maturity

The boom of science and technology parks stirred up hot debate at the beginning of this century.

Though many of the parks have been incubators to Chinese giants like Huawei, TCL and Semiconductor Manufacturing International Corporation (SMIC), some of them were idle or became tax havens for non-hi-tech corporations.

"Some local governments set up hi-tech zones to attract direct investment or to furbish administrative achievements, which caused a string of problems, involving overuse of land, duplicated development, overheated loans and jumbled industrial structures," says Gao Guoli, a researcher with the Academy of Macro-economic Research, which is affiliated with the National Development and Reform Commission.

During the national overhaul of hi-tech parks that followed, many small local parks were forced to change their titles. Nevertheless, it was a time for not only Zhonguangcun's rapid development but also the hi-tech industry as the whole.

By the end of 2005, there were 17,000 hi-tech companies in Zhongguancun Science Park, which created 480 billion yuan of revenue in 2005, making up one seventh of China's entire hi-tech park sector.

Meanwhile, Zhongguancun's industrial added value reached 96 billion yuan, or 14.1 percent of Beijing's total.

The average annual growth rate of China's hi-tech industry stood at 27 percent during the 10th Five-year Development Plan (2001-2005) period, according to statistics from the Ministry of Science and Technology.

In 2006, the industry's output value and industrial added value hit 4.2 trillion yuan and 1.01 trillion respectively, up 22.2 percent and 23.7 percent from 2005.

The remarkable progress of Zhongguancun and China's hi-tech industry is also reflected by the internationalization of a group of domestic hi-tech enterprises.

On May 2, 2005, Lenovo completed its historic $1.25 billion takeover of the IBM PC division, creating a company with $13 billion in sales and 8 percent of the worldwide PC market. It also marked the occasion for 61-year-old Liu to step down as board chairman, and for 40-year-old Yang Yuanqing, one of the new generation of China's intellectual businessman, to lead the firm's global expansion.

In April 2004, Sina was listed on the tech-focused NASDAQ exchange, which stimulated a wave NASDAQ-listings for China's Web portals, such as Baidu.com, Sohu.com, Etrip and NetEast.

However, the road has not always been smooth. Liu Zhihua, the former Beijing vice mayor and director of Administrative Committee of Zhongguancun Science Park, was sacked in December 2006 for corruption and accepting a bribe. In April 2007, Zhou Liangluo, governor of Haidan District, where Zhongguancun is located, was sued for similar charges.

"Those are just individual cases. Zhongguancun's development will not be hindered, given the sound macro environment for both the hi-tech industry and China's economy," says the researcher Gao.

In addition to domestic hi-tech enterprises, many foreign giants, such as Microsoft, Sun, AMD, NEC, Microsoft, Intel and Oracle have moved their China headquarters or R&D centers here, eyeing Zhongguancun's benefits regarding the hi-tech industrial chain, R&D facilities, the concentration of leading universities and research institutes, as well as rich human resources.

The Ministry of Science and Technology, the administrative body of China's hi-tech industry, predicts that in the next decade China will have a breakthrough in eight key technological sectors, seven of them, such as integrated circuits, 3G and bio vaccinations, are expected to occur in Zhongguancun.

Ling writes in his book that Zhongguancun best represents China's hi-tech progress and economic development.

(China Daily 03/31/2008 page2)