Policy System on Promoting SME Innovation

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Policy System on Promoting SME Innovation
Entrepreneurship in China

• Dr. LIANG Gui , Director General
• Torch High Technology Industry Development Center
  
• Ministry of Science and Technology, China

2
Torch Center Nature, History Position

• Nature
• A public entity as a director subsidiary under
  MOST
• History
• 1988 Established to implement Torch Program
  (www.ctp.gov.cn )
• 1999 In-house Innofund Administration Center
  set up (www.innofund.gov.cn )
• 2006 Integration with China Technology Market
  Administration Center (www.sinotechmart.org )
• Current Position
• The sole agency commissioned by MOST to improve
  the overall environment for innovation and
  high-tech industry development

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Outlines

• An Overview on SMEs in China
• Public Measures to Promote Innovation
  Entrepreneurship
• Challenges still Facing
• Future Strategy

4
SMEs in China Contributions
to Economy and Innovation

• A rapid growth since 1978
• 99.6 of all companies registered
• Already an essential part of the national economy
• 58.5 of GDP
• 68 of import and export volume
• 48.2 of tax revenue
• 75 of urban employment
• Technology-based SMEs
• 140,000 by end of 2004
• 92 are private
• only 3 of all SMEs, but having created
• 66 patents
• 75 technology innovations
• 82 new products

5
SMEs in China
Difficulties and Constraints

• Innovation and Development Restricted as a Result
  of Capital Scarcity
• Limited own capital
• Restricted external financing
• Bank loan difficult due to scale and lack of
  guaranties
• Only 10 can obtain bank credits
• Commercial capitals risk-evasive (not for
  innovation)
• Fund raising from capital market more difficult
• Government funding mainly to research institutes
  as a legacy of the planned economy

6
Public Measures to Promote
Innovation Entrepreneurship

• Technology Business Incubators
• Improvement in Overall Environment
• Innovation Fund for Tech-based SMEs
• Roadmap Scheme

7
TBIs Earlier Efforts to Promote
Entrepreneurship and Innovation

• A major content of China Torch Program
  (www.ctp.gov.cn )
• Missions Nurturing of technopreneurs and
  technology-base startups
• Statistics (2005)
• Total number 510, (general and sector-specific)
• Incubating area 15 million m2
• Tenant companies 33,048
• Accumulated graduates 11,671

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TBIs Recent Development

• Diversified forms
• 58 university science parks
• 45 innovation park for overseas returned scholars
• Sector Specific Incubation
• Biomedicine Incubator, Shanghai
• Advanced Material Incubator, Beijing
• Marine Technology Incubator, Tianjin
• Multiple Ownership (gov. business. VC.
  Multinationals)
• Networking at central and local levels

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Improvement in Overall Environment

• SMEs Promotion Law implemented in 2003
• SME board in Shenzhen Stock Exchange
• launched in May, 2004
• 50 Companies listed currently
• OTC Stock Trading System (Third Board)
• Over 10 high-tech companies from Zhongguancun
  Science Park entered the system
• A good demonstration of the government's
  continuing efforts to build a multi-level capital
  market
• Third Board companies are expected to have
  easier access to SME Board or the Shenzhen and
  Shanghai Stock Exchanges
• To be extended to more science parks

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Innofund SBIR in China

• Supporting projects in early stage
  commercialization with
• Innovative technology and
• Good market potential but
• Unattractive for commercial capital
• Laying the foundation for industrial expansion
  and introduction of commercial funds
• Targeting at market failure where government
  support is needed
• Bridging the gap of capital market
• Incubating innovative start-ups

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Innofund Filling the Market Gap
Income
Mature
Innofund
IPO/MA
CB
High Growth Expansion
VC
Development
Idea
Prototype
Death Valley
FFF
Time
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Innofund an Overview

• Birth May, 1999 (www.innofund.gov.cn)
• Nature Central Government Funding
• Major Statistics (1999-2005)
• Applications received 30,623
• Projects approved 7,962
• Total funding allocated 5.2bn CNY ( 650 M )
• Average funding 650,000 CNY ( 81,250)

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Innofund Target Group

• Applicant Qualifications
• Independent business entity
• Involving in high-tech RD, production/services
• RD investment/sales gt 5
• Technological personnel/total employees gt 30
• Various ownership (Chinese equity 50 up)
• Less than 500 employees

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Innofund Funding to Innovation
(Million CNY)
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Innofund Technology Priorities
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Innofund Achievements

• Support to Early-stage Companies Emphasized
• Start-up companies (lt18 months) 31
• Companies with less than 100 people 60
• Companies with less than 50 people 41
• Innovation Promoted
• 17 projects holds IPR (4946 projects funded
  1999-2003)
• Transformation Facilitated
• 15.6 projects from National Key RD Program and
  863 Program
• Fund-raising Channels Broadened for Tech-based
  SMEs
• Innofund funding expanded by 17 times by
  investment from
• Employment Contribution
• 63 new jobs created by one project on average

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Roadmap Scheme Joint Efforts to Promote SME
Innovation Growth

• Roadmap Scheme for Growth of Tech-based SMEs
• Initiated by Innofund in 2004 with sponsors
  including
• Innofund Administration Center (Innofund)
• Shenzhen Stock Exchange (SSE)
• State Development Bank (SDB)
• National Incubator Association (Incubators)
• National VC Association (VCs)
• Aim
• To create a favorable environment for the
  development of tech-based SMEs at various stages
  via joint efforts from various aspects

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Roadmap Scheme Total Solution for SME Growth
Incubators
Com. Banks
SSE
Services
Loans
Training, OTC, IPO
Tech-based SMEs
Exit
Tech-based SME Loans
Equity
Grant Funding
VCs
Default Reserve
Fund of funds
SDB
Innofund
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Roadmap Scheme Missions

• Promotion of seed/early stage (Dead Valley)
  financing
• Innofund Investment Subsidy to Start-up
  projects
• Grant to tenant company innovation projects which
  has been invested by the selected incubators
• Support to technological innovations by SMEs
• Innofund funding to be strengthened with more
  attention to cultivate innovative enterprises
  rather than only the projects
• Establishment of Innovation Network
• Incubators as the nodes
• Equity investment by public funds to
  promote/guide VC development
• Fund of funds to be set up with investment from
  Innofund to technology-oriented VC funds (SBIC?)
• Leading commercial loans to tech-based SMEs (SDB
  SME Loans)
• Promotion the establishment of a multi-layered
  capital market system

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Challenges Lack of Core Technologies
Note All the nine DVD patents and ten of the 72
Color TV patents possessed by Chinese enterprises
are not core technologies.
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Challenges Indigenous Innovation
Capacity still Weaker

• Patent Preemption and Patent Barrier
• Advantage in technology monopoly by
  multinationals
• High-priced patent fee thus charged
• Independent Innovation Restricted
• Market dominancy by large corporation and
  multinationals hinder the innovation and
  development of SMEs via
• Acquisition
• Branding (OEM)
• Market for Technology strategy not ideally
  realized as expected
• Reluctance of foreign-funded enterprises to
  disseminate technology
• JVs mostly involved in license manufacturing
  rather than product development

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Challenges Patent Barrier
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Challenges the Recognition

• There is still a lack of driving force and
  overall capacity for sustainable innovation in
  our current economic system and so

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Future An Innovation-oriented Country

• A Strategic Decision Building up the
  innovation-oriented country
• Strengthening the indigenous innovation capacity
• Technological innovation system with enterprises
  as the core hub, and combine industry, university
  and research institution
• Commercialized ST intermediaries service system
• Regional innovation system with specific
  characteristics and advantages

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Future Strategic Missions of Torch

• Torch will play an important role to realize the
  national strategy
• Creating innovation headstreams (Growing
  Seedlings)
• To reinforce the development of tech-based SME
  community
• To lower the individual risk and cost of the
  innovation activities undertaken by tech-based
  SMEs
• Developing Innovation Clusters (Forestation)
• To guide the random innovation activities of SMEs
  to follow the national development strategy so as
  to build up
• the innovation ecosystems representing national
  competitiveness
• Environment Building (The soil)
• Capital
• Technology
• People

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Future Growing Seedlings

• Addressing the Death Valley Problem
• A socialized and multiply funding system
• Enhancing the leveraging effect of public funding
  (Innofund)
• Catalyzing the emergence of business angels and
  promoting the establishment of BANs
• Drafting specific policies to promote the
  effective integration of business angels and
  technology business incubators
• A coordinated integrate fostering system
• Continuous implementation of the Roadmap Scheme
• Promoting the incubation mode of entrepreneurial
  tutor (SCORE) combined with professional
  incubation

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Future Forestation

• Developing Innovation Clusters
• Fostering technology innovation alliances
• To promote the networking, interaction and
  collaboration among key innovation players
• Establishing innovation relay centers (CIRCs)
• To make easier access for SMEs to applicable
  innovation resources so as
• To lower the information cost, transaction cost
  and organizational cost of innovation activities
• Encouraging the upgrading in the value chain
• Technology-based Export Promotion Project
• From OEM to ODM( Own Design and Manufacturing)
  OBM (Own Brand Manufacturing)
• COSEP (China Offshore Software Engineering
  Project)

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Final Words Joint Innovation

• We promote joint innovation partnership between
  Chinese and foreign innovative SMEs via
  cooperation with counterpart innovation agencies
  in other countries
• OESO anvar (France)
• CDTI (Spain)
• EDB (Singapore)
• INSME (International Network of SMEs)

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Future Growing Seedlings
Funding System
Seedlings (Market)
Sprouts (Products)
Seeds (Idea)
High Growth Innovative SMEs
Entrepreneurial Team
Innovative Technologies with Good Market Potential
Fostering System
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Clusters Hotbeds for Innovation
(B. Klein Rosenberg)
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Future Optimized Funding and Fostering System
Mature
Income
Innofund BAF Funding
IPO/MA
CB
High Growth Expansion
VC
Prototype
Idea
Development
Incubator Angel Fostering
FFF
Time
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Thank You ! ????!
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