The Zhongguancun booth at the Beijing International Hi-tech Expo.

 

Zhongguancun Seeks Greater Innovation

By staff reporter LI YAHONG

   For over 20 years Zhongguancun in northwestern Beijing has been a commercial colony of IT companies and a veritable beehive of promotion for the latest electronic products. Dominating a swath of commerce bordering several top Chinese universities, including Peking and Tsinghua, and the Chinese Academy of Sciences, this former suburban community is often compared with Silicon Valley. Today however, its leadership in the nation’s IT industry faces new challenges. Local companies and government alike hope the region can retain its dynamics by leading and fostering greater innovation.

   “Zhongguancun was born out of innovation,” said Zhao Hong, chief of the Zhongguancun Development Research Center, an institute under the Beijing Academy of Social Sciences. “It didn’t receive a cent from the state at its birth in the 1980s, and it still generates an annual revenue of approximately one trillion yuan. The region is an exemplar of how to weather change in China.”

The Pacemaker

   Scientific drive and curiosity lay defamed and dormant in the aftermath of the “cultural revolution” (1966-1976), until 1979, when the late Chinese leader Deng Xiaoping rekindled the passions of Chinese scientists by introducing opening-up and reform policies. His famous directive was “science and technology constitute the primary productive force.” Two years later Chen Chunxian, a research fellow of the Chinese Academy of Sciences, set up the country’s first private sci & tech business in Zhongguancun. After several trips to Silicon Valley in the U.S., he had concluded one reason for the rapid growth of the U.S. is that “its scientists can quickly turn their inventions and patent technologies into actual products; they hold shares in companies established with loans.”

   As China gawked at the developed nations, they peeped back, and discovered a tremendous market for their electronic products. “Zhongguancun gave a home to a number of research institutes, which in turn stimulated huge demand for electronic devices like computers and companion products such as printers and computer screens. It was the perfect spot for an electronic market,” recalled Zhao Hong.

   In its early years the area was a conglomeration of small independent stores, and the pedicab fleets delivering their stocks were a daily spectacle. By the end of 1991 more than 1,300 businesses were registered in Zhongguancun, employing at least 20,000 people. It is interesting to note today that more than half of those businesses claimed to be of state or collective ownership, the only two legitimate ways to operate under China’s centrally-controlled economy. “At the time China had just committed to changes in its economic system, and conservative ideas die hard,” Zhao Hong explained.

   In the modest confines of a concierge office sometime in 1984, Liu Chuanzhi, then an engineer at the Chinese Academy of Sciences, founded the New Technology Development Company, the predecessor of Lenovo. As a dealer in computer parts, he was eager to bring China up to speed in the new hi-tech sector, and his company made handsome profits catering to the high demand. With the emergence of more businesses like Liu’s, Zhongguancun soon grew into the largest electronic market in Beijing and one of the best known in the nation. In those times, 98 percent of computers traded in the region were foreign brands, including IBM, HP and Compaq.

   “The first companies in Zhongguancun took a pragmatic approach,” said Zhao Hong. “The preconditions of industrialization are technology and capital. In the 80s there was not even one stock exchange, and futures and venture capital investing was unheard of in China. Domestic companies had little choice but to amass capital by acting as agents for foreign products. Then they learned and copied the technologies in these products, and eventually developed their own. To build up its capacity for innovation, an emerging economy undergoes the initial process of borrowing, digesting, modifying and refining.”

   Throughout its history Zhongguancun has been “game”: its key movers and shakers identified with an ethos of risk-readinesss and trailblazing, which explains, at least in part, the legendary success of its occupants. Lenovo, for instance, is now a transnational colossus, and in 2004 acquired the PC division of global industry giant IBM. A throng of other IT big names originating in the area, including Sohu, Sina, Baidu, Net Ease and Founder, have all established a global presence and reputation.

Rise and Fall

   Today’s Zhongguancun is a conglomeration of 10 hi-tech parks that feature the IT cannon of brands, but also house promising enterprises in bio-pharmacy, aviation and space, new materials, new energy and energy saving, and resources and environment. By 2008, the 20,000-plus new and high technology companies accommodated there boasted revenues exceeding RMB one trillion. Among these are offshoots of 70-odd transnational big names on the world 500 list. But as the precinct moves to the forefront of China’s interface with the global high tech economy, some experts warn that Zhongguancun will be undermined by a woeful trend toward imitation and superficial innovation.

   Five years back, Fang Xingdong, founder of Blogchina.com and the reputed godfather of Chinese bloggers, made the stinging comment “Zhongguancun is dying.” Fang started a business in the area in 1999, and detailed his adventures in his book Lost Zhongguancun. “When I say lost, I mean the area is losing its de facto leading position in China’s high tech industry,” he clarifies.

   Of the dozen Zhongguancun-based IT companies listed on Nasdaq since 2003, relatively few, namely Hc360.com and Baidu.com, remain in the area. “In other spheres such as hardware, software and telecommunications, the lure of Zhongguancun is also waning,” he concluded.

   Aigo, a domestic company producing digital merchandise, sits on the 11th floor of the Ideal International Plaza in central Zhongguancun. Posters bearing its logo “building Aigo into an international brand name of Chinese pride” are plastered all over the office walls. But in electronic stores downstairs, stocks of foreign-made brands such as Apple and Sony are in the clear majority. Zhongguancun also feels the pinch of the ongoing financial crisis. In 2008 its IT sector, nearly 40 percent of its whole operation, experienced an evident slowdown. Lenovo slid into the red for the first time in its history after acquiring IBM’s PC sector, and responded by slashing jobs worldwide. All this helped fuel speculation about whether, as Zhao Hong put it, “Zhongguancun can face up to the vital test of regaining the innovative vigor of its youth.”

Pilot Again

   In his book China’s New Revolution Ling Zhijun, a journalist with People’s Daily, credited Zhongguancun with a matter of greater significance – its bravery in taking action on new thinking and values. Earlier this year the area was singled out as China’s first exemplary project in independent innovation. With this status, it will offer stronger incentives for scientists to maintain this track record, by rewarding them with company stocks and bonuses for profitable research results, upgrading the agency share transfer system, and establishing a multi-stratum capital market.

   Yue Xiongwei, a Great Wall Securities analyst, believes the new policies will both lower the threshold on financing and open new funding channels for emerging hi-tech enterprises. “This flings open yet another door for these companies to go public and get bank loans.” Deng Zhonghan, president of Vimicro, a chip company listed in Nasdaq, also hailed the move, pointing out that the first issue the exemplary project faces is to remove institutional obstacles. Hopes run high that the new status will essentially put Zhongguancun’s reputation for innovation back in play, and eventually power its rise to the summit of global technology powerhouses. Zhao Hong, unequivocal about ambitions for the region’s resurgence, declared, “Securing the top spot in the world’s high tech industrial chain is a national strategic objective.”