Shenzhen Municipal People's Government
January 28, 1999

1. Hi-tech industries: the prime growth sector of Shenzhen's economy

Since the rise of Shenzhen hi-tech sector in early 1990s, it has witnessed speedy growth in a short span of time. From 1991 to 1998, the output value of hi-tech products increased from only 2.29 billion yuan to 65.5 billion yuan, the proportion in the total industrial output from 8.1 % to 35.44%. The export volume of hi-tech products jumped from US$ 192 million to US$ 4.4 billion. Last year, the export of hi-tech products still managed a 19.19% growth despite the severe impact of the Asian financial crisis.

2. The main features of Shenzhen hi-tech industrial development

1) Expanding industrial scale with market as the orientation

In recent years, hi-tech industries like electronic information, bio-engineering and new materials sprang up rapidly, among which electronic information achieved a considerable scale. In 1998, the output value of electronic information products was around 60.4 billion yuan, 92.2% of the output value of hi-tech products and 32.67% of the city's total industrial output value. In the electronic information industry, much effort is made to the development of computers and telecom equipment. A production chain for computer has formed with renowned enterprises from home and abroad such as IBM, Compaq, Fuji, Xerox, Seagate, FIC (First International Computer), Kaifa Technology, Great Wall, Epson and Foxcom, manufacturing peripheral equipment, hard disc drivers, CPUs, magnetic head, PC set and printers etc.. They are supported by 1,500-plus small and medium-sized enterprises. In the field of telecom equipment, Shenzhen developed and industrialized two of the five types of regional switchboard systems with a capacity of 10,000 lines in China, and there are factories in Shenzhen manufacturing another two systems. The switchboard production capacity in 1998 reached 9.05 million lines. The output values of bio-engineering and new materials reached 798 million yuan and 1.692 billion yuan respectively in 1998.

2) Combining importation and innovation

In early 1990s, Shenzhen preferred introducing advanced technologies since we were not well-equipped for independent development of hi-tech industries. Up to the present, 30 multinationals have invested in Shenzhen hi-tech industries, including 17 Fortune 500 Companies. Among them are IBM, Compaq, Seagate, Sanyo and Xerox in computer industry, and Phillips, Northern Telecom, Lucent Technologies in telecom industry, Du pont in new materials industry and other corporations such as Epson and Olympus. Foreign-funded hi-tech enterprises not only play an important role in developing Shenzhen's hi-tech sector and expanding exports, but also help to accumulate capitals, train personnel and bring up-to-date information for Shenzhen's hi-tech development.

While introducing advanced technologies from other countries, much emphasis is put into the research and manufacturing of self-developed hi-tech products. In 1998, the output value of products with intellectual property owned by Shenzhen firms was 28.6 billion yuan, accounting for 43.68% of the total output value of hi-tech products. A group of pillar enterprises with self-developed hi-tech products have emerged in Shenzhen, such as Huawei Technologies, Zhongxing Telecom, Great Wall and Tianma Microelectronics in the IT industry, Kexing Co. in bio-engineering industry, Analogue Co., Our Co. and Mairui Co. in medical equipment industry, and Beyond Co. and Tianyu Co. in the new materials industry. Self-developed products of Huawei cover main telecom areas such as exchanges, transmission, wireless and mobile communication, intelligent network, supporting network, data communication, ATM, power supply and terminals. The ASIC design level of self-developed chips has reached 0.35 ¦Ì£í. Huawei's sales volume of last year was 8.5 billion yuan, two times the volume of the previous year. In recent years, the achievements of ¡®863' Plan Projects, Key Research Projects, Torch Plan Projects and ¡°Spark Plan¡± Projects and overseas research institutes have been transformed into products in Shenzhen. 25 achievements of ¡°863¡± Projects including ¦Á-1£â interferon and electronic notebook have realized commercialization.

3) To initiate R&D system with the enterprises as the mainstay, combining technology and economy

As a newly built city, Shenzhen has tried to combine technology and economy by extricating itself from the shackles of the tradition from the very beginning. By the end of 1998, there were 521 R&D institutions in Shenzhen, with 477 institutions affiliated to enterprises, 91.7% of the total. 90% of the R&D staff are working in enterprises, and 81.86% of the R&D funds are from the enterprises. In 1998, over 1.868 billion yuan was injected in R&D by 125 hi-tech enterprises.

To take full advantage of domestic and foreign research institutes, Shenzhen's enterprises set up R&D facilities in other cities. The ZXJ10 switchboard and conference television system developed by research institutions owned by Zhongxing Telecom in Shanghai and Nanjing produced profit of over 1 billion yuan. Huawei Technologies set up research sub-stations in universities in cities like Beijing and Shanghai. ¡°999¡± Pharmaceutical Group injected a lump-sum investment of 5 million yuan to Shenyang Pharmacy University and a cooperative agreement was signed allowing ¡°999¡± Group to enjoy priority in the transfer of research achievements of the university in the coming 15 years. According to incomplete statistics, Shenzhen's enterprises have cemented steady cooperative ties with more than 130 universities and research institutes nationwide. Konka, Huawei, Zhongxing Telecom and Kaifa Technologies have also set up R&D centers in Silicon Valley in the United States to keep pace with the most advanced technologies.

4) Learning from other countries and cultivating new mechanism to aid hi-tech development

In recent years, a system of exchanging intellectual property for shares, a technician share-holding system and a technology development award system have been gradually carried out. Distribution and management systems which suit hi-tech development also have been established under international practice with IPR protection at the core. Technology and achievements are regarded as elements of production and technicians are rewarded appropriately.

System innovations enliven enterprises. In 1993, Zhongxingxin Telecom, with a registered capital of 3 million yuan, was jointly launched by two state-owned enterprises (SOEs) with a 1.53 million yuan investment to hold a combined 51% of the stock, and one private company. The private company was held responsible for daily operation and management objectives. The managing company should guarantee proportional increase of state assets, otherwise it has to use its shares and stock rights as collateral to the compensation for losses. If the company outstrips the target, it would be awarded. Zhongxingxin has already become a listed company with state assets jumping to 100 million yuan, whose share price is in the forefront among 900 listed companies nationwide. In 1985, Kaifa Technologies was jointly established by a Chinese partner with an investment of $ 2 million and a foreign partner holding a 34% stake with its high technology and international marketing channels. Making full use of domestic and foreign advantages, the company continuously innovated its technology and upgraded its management, therefore remained competitive in the computer market. Its output of magnetic heads ranks the third in the world, all of which are exported to European and American countries. In 1998, its total assets reached 2.7 billion yuan including 2 billion yuan in net assets. The export volume registered $ 310 million, 47.6 % higher than the previous year. Kaifa Technologies pioneered the concept of exchanging share rights for foreign market and technology, and effectively realized the growth of state assets.

3. Important measures to promote Shenzhen hi-tech industrial development

1) Drawing up a far-sighted plan to guide hi-tech industrial development

In the Eighth Five-year Plan, an industrial development strategy was put forward by Shenzhen ¡°with hi-tech industries as the lead, an advanced industrial sector as the foundation and a service sector as the pillar¡±, and in the Ninth Five-year Plan, a target was set that Shenzhen become ¡°a research and manufacturing base for hi-tech industries¡±. The Municipal Government stipulated Program for Shenzhen's Science and Technology Development During 1990 to 2000, The Ninth Five-year Plan and Blueprint for 2010 for Shenzhen's Science and Technology Development , The Ninth Five-year Plan and Blueprint for 2010 for Shenzhen's High-tech Industrial Development, A Guide to Plan for Shenzhen's Annual Science and Technology Development Projects and Plan for Shenzhen's Key Annual Science and Technology Development Projects, and defined that emphasis would be given to the development of the following seven industries: computer, telecommunications, micro-electronics and new components, optical-mechanical integration, new materials, bio-engineering, and lasers.

2) Improving legal regulations construction for hi-tech industrial development and for cultivating favorable legal and administrative environment

A series of rules and regulations have been gradually stipulated with IPR protection at the core to promote the integration of technology with economy. As to IPR protection, Regulations of the Shenzhen Special Economic Zone (SSEZ) on the Protection of Enterprises Technical Secrets, Administrative Measures of SSEZ on the Appraisal of Incorporeal Assets, and Enforcement Rules of SSEZ on the Protection of Computer Software Copyrights have been drawn up. To give incentives to the creativity of the technicians, Interim Measures of Shenzhen on the Reward for Enterprises's Research Personnel, Interim Measures on the Withdrawal and Use of Enterprises's Technology Development Funds have now been made public. To facilitate staff recruitment and training, Administrative Regulations of SSEZ for Civil-owned Hi-tech Enterprises and Certain Regulations to Speed Up the Process of Professional Training and Recruitment for Hi-tech Industries have also been implemented, which help private technological enterprises to strengthen their position in Shenzhen's hi-tech industrial development. In early 1998, the Municipal Government promulgated Certain Regulations for Further Promotion of High-tech Industries ( termed ¡°22 Regulations¡±) which is the most systematic and powerful document yet in the promotion of hi-tech industries, and will exert a positive influence on the future development of hi-tech industries of Shenzhen.

3) Giving full play to the role of the Government as a lever and forming a benign investment and financing mechanism

A many-channeled and multi-level financing system for science and technology projects should be set up with the Government as the driving force, the enterprises as the mainstay, and the banks as the backup.

4.Attracting high-quality personnel to meet the need of hi-tech sector

High-quality professionals are the most important factor in development. So, Shenzhen attaches great importance to both attracting and training of high-quality personnel from home and abroad, and in the early stage emphasis was placed on drawing good personnel. First, employment fairs for overseas Chinese students and talent markets at the Municipal and District levels have contributed greatly to the pool of senior technicians. Meanwhile, a system was created which allows employees to hold shares. This in turn encourages their creativity, since as part owners, they will benefit from any improvement and resulting increased profits. Also, a system of cooperative share-holding allows technicians to trade their patents and expertise for shares in the companies.

5.Strengthening support services to ensure a favorable environment for hi-tech companies

Shenzhen Municipal Government encourages the cooperation between hi-tech companies and research institutes and universities, which serve as a backup for the development of hi-tech industries. Shenzhen Municipal Government has cooperatively established the Shenzhen Hi-tech Industrial Park with the Chinese Academy of Sciences, the Chinese Technology Development Institute with the Ministry of Science and Technology, Shenzhen--Qinghua Research Institute with Qinghua University, and the Bio-engineering Industrialization Base with the Military Medical Institute of PLA, respectively. The planned joint projects with Beijing University, Xi'an Jiaotong University and Zhejiang University are currently in a state of preparation.

Finally, the Municipal Government is determined to ameliorate the infrastructure of the city, giving special attention to the water and power supply, telecommunications facilities, seaports, airport, highways and railways. The city of Shenzhen also attaches importance to its ecological environment to create enjoyable conditions for hi-tech companies and their personnel.