The Rapid Nanshan Mode

How the Chinese Government turns Nanshan District into a Hi-Tech Incubator

By Qin Yi, PhD Candidate, Department of Management, CUHK Business School

The Nanshan District only takes up 10 percent of the total area of Shenzhen, but it contributes 25 percent of the city’s GDP. The secret behind the productivity of Nanshan District is its technological innovation. Today, it houses more than 100 listed companies and more than 1,000 national high-tech companies. In terms of enterprise sizes, over 20,000 of them are SMEs, of which more than 60 percent are technology companies.

“As many as 80 percent start-up companies in Shenzhen are located in Nanshan District. These companies face a shortage of talent, facilities and capital, according to Dr. Wang Hongwei, Director of Nanshan Hi-Tech Incubator. The incubator is a government-sponsored institution that serves start-ups,” Dr. Wang said in a lecture at the BiG Forum at the CUHK Shenzhen Research Institute in Nanshan District. “The key is that the government plays the role of a guide for the start-ups rather than replacing the market mechanism.”

Wang summarized the development of Nanshan Hi-Tech Incubator in three stages. First, the starting period was 1999-2003. There were several Nanshan companies that were listed on NASDAQ. The district government of Nanshan proposed a concept of “Big Incubator,” providing entrepreneurship service for all start-ups in the area. In the second stage, from 2003 to 2013, Nanshan District built more than 40 start-up incubators and professional zones. In addition, the union between universities and industry was forged.

The third stage started from the time when Nanshan District held a technological innovation meeting in 2013. The meeting announced several measures to speed up the construction of a regional innovation system during 2013-2015. Nanshan Hi-Tech Incubator, which is a national incubator and technological service institution, will provide systematic entrepreneurial services and a public technological platform for start-ups. It also aims to expand its scope and promote international cooperation.

Wang then introduced the service system in Nanshan District from five perspectives to demonstrate how the government helps the start-ups.

First, geographically, Nanshan District is a “Big Incubator” that consists of industry unions, incubators, research institutions, universities and more. Within 180 square kilometers, there are more than 40 technology zones and incubators, which mainly cover six strategic industries in Shenzhen–next-generation information technology, the Internet, renewable energy, new material, biotech and cultural innovation. Among the many research institutions are China Academy of Science and Technology Development (CASTD), Shenzhen Academy of Aerospace Technology and Chinese University of Hong Kong. All these companies and institutions share the space as well as their resources.

Second, there is an online-offline network, known as the entrepreneurship service center, in Nanshan District. The start-ups can submit their requirements for R&D devices and research talent on the service center’s website. The center will respond to start-ups online and help them build connections with institutions that may be able to help them. The service center is a bridge that decreases the information asymmetry of new start-ups when they are looking for resources.

Third, there are more than 20 industry unions established within the Nanshan Hi-Tech Incubator. The unions aim to help the companies in the same value chain to learn from one another and share their innovative ideas.

Fourth, the incubator provides different levels of financial support to technology companies based on their revenues, and the government undertakes all the risks for the loans. For companies with a revenue of less than 5 million yuan and have been established fewer than three years, the incubator provides a loan with a subsidized interest rate of 3 percent. For companies with a revenue of 5 million to 20 million yuan, the incubator provides packaged loans.

Recently, the incubator has established investment funding to directly invest in the start-ups. Currently, it is providing its 300-plus entrepreneurial members seven financing programs with 1.85 billion yuan in funding for direct investments. So far, a total of 32 projects have been funded in various forms, including venture capital, angel investment and indirect investment.

Fifth, the incubator has developed many services and activities for start-ups, including the following:

1. Entrepreneurship contests – The incubator has been running entrepreneur contests every year since 2008, attracting more than 1,300 enterprises to participate in the latest round.

2. Entrepreneurial salon – The incubator has been organizing entrepreneurial salons since 2005, providing information on government policies, innovation methodologies, R&D management and so on.

3. Introduction of companies that provide testing services for small companies – These testing services help small companies examine whether their products meet the standards of their targeted export countries.

4. Intellectual property rights protection – The incubator introduces service institutions that help to evaluate the intellectual property protection of small companies.

5. Knowledge transfer -With the collaboration of Chinese Academy Sciences in Shenzhen, the incubator promotes the transfer of advanced technology from academia to companies.

6. Resources sharing – The incubator builds channels with universities and other institutions to decrease the costs of innovation.

7. International collaboration. The incubator is building two international entrepreneurial collaboration centers–the China-Finland Golden Bridge Innovation Center and the Israeli knowledge transfer center.

Wang summarizes the experience of Nanshan Hi-Tech Incubator into four key points.

First, the government plays a leadership role in guiding the start-ups. Second, this role should be realized through market mechanisms.

“Although the government guides the entrepreneurial activities at the incubator, most of the resources are provided by private companies. For example, the entrepreneurial contests are supported by more than 10 service institutions. Nine of these institutions are companies,” he said.

Third, the incubator has been promoting the openness of resources among universities, institutes, technology companies and high-level companies and fourth, the incubator provides a holistic range of services ranging from fundamental services to an ecology of innovation.

“However, the government respects the autonomy of the companies and does not seek to replace what the companies can do themselves. This is the so-called “Nanshan mode”, which explains to a large extent why Shenzhen has experienced such rapid growth in recent years.”