Saturday, June 25, 2005

Zhongguancun Lately

(Post 1 of 5)

Published March 1, 2005

Zhongguancun: Heaven or Hell?

Perhaps Future Generations will Regret Boasting about the Past

World Finance Xi Xiumei, Reporter

The “lifecycle” of IT enterprises in Zhongguancun is very short: on the order of 1-5 years. Approximately 20-30% of newly established enterprises face bankruptcy. Other statistics show that in Zhongguancun, a small- and medium-sized (SME) enterprise dies out every 9 minutes.

Going north from the hustle and bustle of Zhongguancun’s Hilon Building past Tsinghua Park, it is only a short distance to the Shangdi Information Industry Base.

February 18, 2005, 10 a.m. Although the beginning of spring is far off, the temperature stood at a dozen degree below zero with a harsh wind creating a hush over the area. Except for a few cars whizzing by, only some unmelted snow was about. Some have predicted that this spring will bring unbearable cold. And with Zhongguancun farther and farther from its goal of being China’s “Silicon Valley,” is this not an “unbearable cold” for the high-tech enterprises here?

At Odds: Zhongguancun Lately

“Starting-up in Zhongguancun these days requires an investment of 1 or 2 million. It’s like skipping rocks on the water?there is no sound,” said Shen Hankun, who has been immersed in Zhongguancun for 6 years.

Shen’s company is in the Shangdi Enterprise Park and is classified as a start-up company in the growth stage. The company was established in 2001 with only a dozen people, including him. These days, the company has almost a hundred employees. “While the company is in Zhongguancun, the customers and market are all overseas, as are the investors. They have nothing to do with Zhongguancun,” Shen Hankun said.

The company does R&D on microprocessors. Before it went into industrial-scale production, there were few people who recognized the value of this company domestically. Moreover, a project that easily requires 10 million in R&D funds is unbearable to the average domestic venture capital company. So the boss had to depend on his own personal “doors” to finance. Despite this, he put everything he had into this company. He received financial support from white-colored “big noses” [Caucasians] and collaborations with overseas high-tech companies.

It is well-known that IT companies like Shen Hankun’s are abundant in Zhongguancun. Founders of these companies have extensive backgrounds overseas so that finance, R&D, products, and markets are oriented overseas. They choose Zhongguancun to start-up mainly because of high-quality, low-cost human resources.

This is a practical business that is” at odds” with Zhongguancun. “The body is present but the mind floats” makes life seem easy for these enterprises.

Yet other SMEs are not quite so lucky. It is said that the “lifecycle” of IT enterprises in Zhongguancun is very short: on the order of 1-5 years. Approximately 20-30% of enterprises face bankruptcy. It is also said that in Zhongguancun, a SME vanishes every 9 minutes.

Without getting into the accuracy of the figures, the survival status of “grassroots” enterprises in Zhongguancun is obvious. Companies move in and then out of office buildings and the names on doorways are replaced in bunches, phenomena common to Zhongguancun-ers.

This reporter took note of the multitudinous companies that occupied a business/residence building in Shangdi. This is the “protozoan state” of a newly established start-up company. Not far away is the spectacular building that holds Lenovo Group. Maybe every humble company here dreams of becoming a “Lenovo,” but at this stage continuing to exist is the problem they face most directly.

The job-hopping rate of those in the IT industry gives us a peek at what is going on. Over a space of four years, a friend of this reporter job-hopped to 5 different jobs, averaging one new company in less than a year. The situation is such that his friends don’t even bother remembering the name of his current company. Some of the companies he left continue to exist, while others have shrunk or vanished. While a high rate of job-hopping is not the specific province of the IT industry, it is undeniable that the shake-up of talent can only occur in a landscape that is being shaken-up.

Another process that is “at odds” with Zhongguancun is currently underway. The IT company where Cui Tao works is in the process of moving out of Zhongguancun to settle in the Chaoyang District. If you ask the reason, he will say: “A company’s choice of location is, first of all, based on the company’s business and the customers’ needs. So the first reason to move is that we wanted a place near our customers where it would be easy to get things done. Preferential policies are no longer enough to attract IT companies.”

Then, is the synergy that large-scale agglomeration of high-tech companies in Zhongguancun brought about still viable? “What are the benefits of agglomeration? Infrastructure? Zone resources? Talent? The truth is that the infrastructure at our new location is superior. In the information age, one can take advantage of Zone resources from far away. As for talent, people want to work in a strong company that can help them develop,” Cui Tao said.

If the above only counts as “at odds” with Zhongguancun’s exterior, then the current “Village base” of Zhongguancun is a core issue--being “at odds” with technological innovation makes people very worried.

There are standards for assessing the innovative capability of a science park. One is the amount of venture capital invested and number of companies listed; another is the number of technological innovations that receive a patent. The amount of venture capital directly influences the industrialization of technology, while the number of technological innovations affects the interest of venture capitalists. The ability to innovate is a crucial factor in determining the life and death of science parks.

Early on in Zhongguancun, famous products emerged: Wang Xuan’s laser typesetting system, Stone’s typewriter, Ni Guangnan’s Chinese card, and Qiu Bojun’s WPS. They all had a high technological content and drove the prosperity of Zhongguancun. Yet it has been reported that, to the present, although there are over 14,000 companies stationed in Zhongguancun, those with their own intellectual property rights are as rare as phoenix feathers and unicorn horns. The vast majority of companies engage in distribution, installation, or technology transfer.

In 1999, the State Council designated the Zhongguancun Science & Technology Zone as a “technology center” and an “innovation base.” Even now, however, a fact that has become clear is that Zhongguancun is far from a technology center. The equation “Zhongguancun = China’s high-tech” is becoming obsolete. No wonder there is an assertion on the streets: Zhongguancun veered off track.

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