China Sets up Special Fund to Support Technology Innovation of Technology-based SMEs

Released by the Ministry of Science and Technology, P. R. China June 25, 1999, Beijing

The State Council has decided to establish the Technology Innovation Fund for Technology-based SMEs (Small and Medium-sized Enterprises) to support and promote technology innovation of technology-based SMEs. This governmental special fund, with a primary allocation of 1 billion RMB, is officially launched today.

I Technology-based SMEs have become an important component in the national economy

Ever since China' s reform and opening up to the outside world, a large amount of technology-based SMEs have turned to be a new growth point in national economic development. The technology-based SMEs, which sprang up in 1980s on the basis of "self financing, voluntary integration, independent management and sole responsibility for profits and losses" , have been expanding rapidly and soundly, and their major economic indicators in recent years have been increasing at an annual rate of 30-60%. According to preliminary statistics, the number of technology-based SMEs nationwide in 1998 exceeded 70,000, with a total staff of 3.3 million, a total revenue of over 600 billion RMB, a tax payment of 26 billion RMB and an export income of 10 billion USD. As compared with those of the 1992, the total revenue of technology, industry and trade, total amount of profit, tax payment and export income had increased by 20 fold, 15 fold, 23 fold and 50 fold respectively. The technology-based SMEs have become an important new force in the technology innovation and development of high and new tech industries in China. A group of technology-based SMEs has developed remarkably. The Founder,Huawei, Legend, Broad, Stone, New- Alpine and Shanghai Fortune Group ware all initiated from technology innovation and grew from small enterprises into large companies in the past ten more years.

Development of late years has demonstrated that technology-based SMEs, in terms of both quantity and quality, have become an important component in national economy and constitute a new and significant growth point in national economic development. In this connection,stable policy support to promote the development of technology-based SMEs should become a long-term strategic task for the government.

II Establishment of the Fund is one Significant Strategic Means of the State to Support Technology Innovation of Technology-based SMEs

In view of the current status of the development characteristics of technology-based SMEs and capital market, establishment of the Technology Innovation Fund for Technology-based SMEs featured by governmental support will play a positive role in the overall rationalization of China' s industry and product structure, expansion of internal demand, creation of new employment opportunities and promotion of the healthy, stable and rapid development of national economy. As a special governmental policy fund, it differs from non-governmental fund or commercial venture investment. The Fund is to fully embody the state policy to support technology innovation of technology-based SMEs on one hand, and serve as guidance on the other, so as to effectively attract investment on technology based SMEs by local government, financial institutions, venture capital institutions and enterprises, facilitate the establishment of a new-type investment mechanism in conformity with the objective laws of market economy, further rationalize investment resources on S&T and create a sound environment conducive to the innovation and development of technology-based SMEs. The Fund is not profit-oriented, and its repayment will be made basically through the contribution of technology-based SMEs to economic growth and creation of job opportunities.

The Fund encourages and supports as its priorities the joint innovation of industries, universities and research institutes, and projects which are characterized by independent intellectual property rights, high technologies. high added value, capability of accommodating large number of employees, saving energy, being environment friendly and earning foreign currencies by exportation.

The Fund supports technology-based SMEs of all kind of ownership, and takes the modalities of financial appropriation, loan interest subsidiary and equity investment according to the distinguished features of projects:

1. Financial appropriation is mainly used as launching capital for those S&T personnel with R&D achievements and hoping to establish technology-based SMEs, it is also used to partly support the SMEs to conduct research and innovation in products and their pilot testing.

2. For those innovation projects of SMEs with considerable scale and technological standard, loan interest subsidiary is to be adopted to support and encourage the SMEs to utilize loans from commercial banks, so as to rapidly enlarge their production scale and enhance the competitiveness of their products.

3. For those newly emerged industrial projects with high starting point, high innovation connotation, high innovation standard, successive innovation potential and high market demand, equity investment is to be made to direct the capital investment from enterprises and venture capitals. The amount of the equity investment is generally no more than 20% of the registered capital of the enterprise and will be legally taken back in due course.

Management of the Fund will be featured by the combination of governmental decisions and supervisions, guidance and consultations of expert advisory committees and the operation of fund management institutions. This is to be conducted under the principles of honest application, fair processing, scientific management, supporting on a selective basis, open and transparent operation and special fund for specified purposes. (END)