TIANJIN, China--(BUSINESS WIRE)--Chinese industrial parks were initially conceived to attract foreign investment, but that may now be changing if the Tianjin example is anything to go by.
Officials at the Tianjin Economic-Technological Development Area (TEDA) – China’s first and still top-ranked industrial park – say technology will prove more important in the long run.
“New investors continue to fuel the whole of TEDA,” says Li Hongliang, Deputy General Manager of TEDA’s Science and Technology Group. “But the other pillar is tech and innovation and in our view this has the long-term capability to drive growth as much as, if not more than, incremental investment.”
Hardware and software
TEDA’s Science and Technology Group was established in 2011, some 27 years after the industrial park itself was launched during the first stages of China’s ‘reform and opening up’ policy. The park is now home to 4,600 science and tech SMEs, including 340 ‘Little Giants’ with annual revenues of more than $16.3 million.
Just as much of the radical innovation in the US takes place in universities, so Li sees TEDA as providing a platform where ideas generated in elite Chinese universities in Beijing and Tianjin can be commercialized.
Many of the tech companies focus on providing services to companies already active in finance, biotech, clean tech, environment protection.
“Our tech cluster is no longer about standalone pure internet companies,” says Hou Yanan, the Science and Technology Group’s information director. “Instead our firms focus more on horizontal synergies through applying the internet business approach to established companies, offering services such as product design and marketing.”
TEDA is also home to China’s National Supercomputing Centre, which has developed a cloud computing platform that supports demands for 3D animation, oil exploration, pharmaceutical research and development, simulative analytics, system forecasting, data mining and financial risk modeling.
TEDA’s role is to offer ‘hardware’ and ‘software’ support, where hardware refers to well-equipped buildings and infrastructure and software means financing, business support and other measures including help with finding new talent.
“In the early days, the most important criteria for tenants when it came to choosing an industrial park to locate in were about saving money,” says Hou. “These days their key priority is whether the park can work with them to help them make money. For these companies, accessing funding and talented people have become the key concerns.”
Scandinavia to Silicon Valley
But serious tweaking is underway. Li says TEDA’s support for tech firms is currently comparable to innovation systems in the Nordic countries, where government support plays a considerable role in the early stages of company development. But, he says, the goal is to adopt the US private equity-based model.
Private equity is booming in China, encouraged by government reforms promoting mixed ownership of state-owned enterprises (SOE). President Xi Jinping hopes that bringing private investors in alongside the state will improve SOEs’ efficiency and management.
In 2014 alone, 405 PE funds – up 23 percent from 2013 – have raised at least $56 billion – up 82 percent – according to the Beijing-based Zero2IPO research center.
PE funds made 892 investments over the same period, up 125 percent on the previous year. There were 129 deals in the internet sector, the largest number, followed by 104 in real estate and 76 in biotech and healthcare. However, the property sector attracted the biggest amount of money with $9.5 billion, followed by energy and minerals and then retail.
“Non-government streams are becoming increasingly important in innovation building,” says Li. “We will gradually follow a private equity model to incubate or accelerate start-ups. We will be the angel investor, putting in seed funding. We can also function as a link between other PE investors and new enterprises. So it will be more of a US model and this will be healthy for our long-term development.”
It’s an effort that has not gone unnoticed by tech firms at TEDA.
“When it comes to seeking resources, internet network service providers like us typically have a long cycle before exit and need heavy investment,” says Ouyang Jing, general manager at Tianjin Hechang Networks. “So it’s no surprise that this area is dominated by mostly foreign companies with very deep pockets. In China, among state-owned venture capital arms, I believe TEDA’s Science and Technology Group is the first ever to invest in early-stage internet start-ups like ours.”
However, observers caution that seed funding is only part of what’s needed.
“The key is not so much the financing of the start-up as the mechanisms that enable both founders and financiers to cash out successfully once the firm is beginning to take off,” says Duncan Innes-Ker, China economist at the Economist Intelligence Unit. “An effective stock market is the most important element within this picture.”
Changing culture
Efforts are also underway to import something less tangible – culture. For China, that can be achieved by luring back some of those who have gone abroad to study and work.
“People are always the medium of great cultures,” says Li. “Returnee Chinese understand the Chinese marketplace but also have western tech knowhow. If they start businesses here they are more likely to be successful in exporting their products than other local enterprises.”
One such returnee is Hong Hao, founder of Asymchem, a pharmaceutical research outsourcing company that boasts seven of the top 10 global pharmaceutical multinationals as clients.
Asymchem is among about 100 companies with the Science and Technology Group’s support that have been founded by returnees.
Hong, who had started a company in the US after post-doctoral research at the University of Georgia, was among the first to return to China under the country’s Thousand Talents Program aimed at overseas Chinese.
“Back in 1999, we made an experiment by investing $200,000 in TEDA,” says Hong. “But after a decade of growth, our presence here is achieving an annual output value of $100 million. We are indeed a TEDA-born and TEDA-bred firm.”
Encouraging diversity
Li Hongliang is hoping greater diversity, both in the way TEDA helps tech firms get funding and in terms of attracting Chinese entrepreneurs with experience abroad, will encourage tenant firms to catalyze each other.
It’s a vision of organic growth rather than the government-directed strategy that until recently has been the hallmark of China’s economy.
“A mix of different size tech firms or different sectors can achieve excellent results when they develop organically,” says Albert Goldson, Managing Director of the New York-based Indo-Brazilian Associates advisory firm.
“Many successful collaborations do not follow a seemingly logical model. These symbiotic collaborations may not have technical commonalities, however their visions and objectives synchronistically coincide and, as a result, they thrive.”
Observers say China has had mixed success in its attempts to build creative tech communities – but TEDA is on the right track.
"The future is about vibrant communities that provide tremendous peer interaction and dynamic learning opportunities,” says James Berkeley, managing director at Ellice Consulting in London.
“What TEDA has grasped is its role as the architect of a powerful community that has the foundations in place to attract even more impressive participants. For mainland and Western businesses and investors it is well positioned to be the ‘go to’ industrial park."
But TEDA’s Li says his team is not just incubating tech communities – it’s nurturing something far greater.
“Nowadays in China many young people are looking to a non-conventional path to fulfill their career and personal aspirations: the path of entrepreneurship,” he says. “Pursuing a day job is no longer seen as the only way for young people to grow,” he says. “I believe this is a huge spiritual liberation for the whole of China’s new generation.”