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CHINA TORC
Policy System on Promoting SMEInnovation & Entrepreneurship in
China
Dr. LIANG Gui , Director GenTorch High Technology Industry Development Cen
Ministry of Science and Technology, C
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CHINA TORC
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 Cenwww.sinotechmart.org )
Current Position
The sole agency commissioned by MOST to improve the overallenvironment for innovation and high-tech industry development
http://www.ctp.gov.cn/http://www.innofund.gov.cn/http://www.sinotechmart.org/http://www.sinotechmart.org/http://www.innofund.gov.cn/http://www.ctp.gov.cn/ -
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CHINA TORCOutlines
An Overview on SMEs in China Public Measures to Promote Innovation &
Entrepreneurship
Challenges still Facing
Future Strategy
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CHINA TORC
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
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CHINA TORC
SMEs in China:Difficulties and Constrain
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 leg
the planned economy
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CHINA TORC
Public Measuresto Promote Innovation &
Entrepreneurship Technology Business Incubators
Improvement in Overall Environment
Innovation Fund for Tech-based SMEs
Roadmap Scheme
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CHINA TORC
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-basestartups
Statistics (2005):
Total number: 510, (general and sector-specific) Incubating area: 15 million m2
Tenant companies: 33,048
Accumulated graduates: 11,671
http://www.ctp.gov.cn/http://www.ctp.gov.cn/ -
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CHINA TORCTBIs: 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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CHINA TORCImprovement 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 P
entered the system A good demonstration of the government's continuing efforts
build a multi-level capital market
Third Board companies are expected to have easier access SME Board or the Shenzhen and Shanghai Stock Exchanges
To be extended to more science parks
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CHINA TORCInnofund: 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 introductioof commercial funds
Targeting at market failure where government support needed;
Bridging the gap of capital market
Incubating innovative start-ups
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CHINA TORCInnofund: Filling the Market Gap
TechnologyGrowth Life Cycle
High Growth &
Expansion
Mature
Idea Prototype
FFF
IPO/M&A
T
Income
VC
CBInnofund
Development
Death Valley
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CHINA TORCInnofund: 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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CHINA TORCInnofund: Target Group
Applicant Qualifications Independent business entity
Involving in high-tech R&D, production/services
R&D investment/sales > 5%
Technological personnel/total employees > 30%
Various ownership (Chinese equity 50% up)
Less than 500 employees
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CHINA TORCInnofund: Funding to Innovation
1089
820872
660
1008
780 780
540
1197
660
1464
830
1552
1000
0
200
400
600
800
1000
1200
1400
1600
99' 00' 01' 02' 03' 04' 05'
Innofund Funding 1999-2005
Projects
Funding
(Million CN
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CHINA TORCInnofund: Technology Priorities
Innofund Projects 1999-2004 (By Technology Field)
2223, 36%
1144, 18%
1042, 16%
1287, 20%
409, 6%
278, 4%
27, 0%
IT
Biotech
Material
Automation
Environment
Energy
Others
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CHINA TORCInnofund: Achievements
Support to Early-stage Companies Emphasized
Start-up companies (
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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 otech-based SMEs at various stages via joint efforts fromvarious aspects
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CHINA TORC
Roadmap Scheme: Total Solution for SMEGrowth
Tech-based SMEs
Innofund
SSE
SDB
Com. Banks
VCs
Incubators
Grant Funding
Default ReserveFund of funds
LoansTraining, OTC, IPO
Tech-based
SME Loans
EquityExit
Services
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CHINA TORCRoadmap 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 inve
by the selected incubators
Support to technological innovations by SMEs
Innofund funding to be strengthened with more attention tocultivate innovative enterprises rather than only the project
Establishment of Innovation Network
Incubators as the nodes
Equity investment by public funds to promote/guide VC developme
Fund of funds to be set up with investment from Innofund totechnology-oriented VC funds (SBIC?)
Leading commercial loans to tech-based SMEs (SDB SME Loans)
Promotion the establishment of a multi-layered capital market syst
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CHINA TORCChallenges: Lack of Core Technologies
57
9
114
69
114
7265
33
0
20
40
60
80
100
120
DVD PC Color TV Mobile
Phone
Key Technology Patents of Major IT Products
Total
Chinese
Note: All the nine DVD patents and ten of the 72 Color TV patents possessed by
Chinese enterprises are not core technologies.
Challenges
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CHINA TORC
Challenges:IndigenousInnovation Capacity st
Weaker
Patent Preemptionand Patent Barrier Advantage in technology monopoly by multinationals
High-priced patent fee thus charged
Independent Innovation Restricted
Market dominancy by large corporation and multinationals h
the innovation and development of SMEs via Acquisition
Branding (OEM)
Market for Technology strategy not ideally realized as exp
Reluctance of foreign-funded enterprises to disseminate technolo
JVs mostly involved in license manufacturing rather than productdevelopment
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CHINA TORCChallenges: Patent Barrier
World Patents in Bio-Engineering
51%33%
12% 4%
USA
Europe
Japan
Others
World Patents in IC Products
55%
19%
16%
10%
Japan
USA
S.Korea
China
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CHINA TORCChallenges: the Recognition
There is still a lack of driving force and overall capacitysustainable innovation in our current economic system a
so
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CHINA TORCFuture: An Innovation-oriented Country
A Strategic Decision: Building up the innovation-orientedcountry
Strengthening the indigenous innovation capacity
Technological innovation system with enterprises as thecore hub, and combine industry, university and research
institution Commercialized S&T intermediaries service system
Regional innovation system with specific characteristicsand advantages
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CHINA TORCFuture: Strategic Missions of Torch
Torch will play an important role to realize the national strateg
Creating innovation headstreams (Growing Seedlings)To reinforce the development of tech-based SME communit
To lower the individual risk and cost of the innovation activundertaken by tech-based SMEs
Developing Innovation Clusters(Forestation)To guide the random innovation activities of SMEs to follow
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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CHINA TORCFuture: 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 promotin
establishment of BANs
Drafting specific policies to promote the effective integratiobusiness angels and technology business incubators
A coordinated integrate fostering system
Continuous implementation of the Roadmap Scheme
Promoting the incubation mode of entrepreneurial tutor (SC
combined with professional incubation
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CHINA TORCFuture: Forestation
Developing Innovation Clusters
Fostering technology innovation alliancesTo promote the networking, interaction and collaboration a
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 andorganizational cost of innovation activities
Encouraging the upgrading in the value chainTechnology-based Export Promotion Project
From OEM to ODM( Own Design and Manufacturing) &OBM (OwnBrand Manufacturing
COSEP (China Offshore Software Engineering Project)
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CHINA TORCFinal Words: Joint Innovation
We promote joint innovation partnership between Chinese andforeign 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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CHINA TORCFuture: Growing Seedlings
Innovative Technologies withGood Market Potential
Entrepreneurial Team
Seeds (Idea)
Sprouts (Products)
High Growth
Innovative SME
Seedlings (MarkFunding System
Fostering System
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CHINA TORCClusters: Hotbeds for Innovation
(B. Klein & Rosenberg
F t O ti i d F di d F t i
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CHINA TORC
Future: Optimized Funding and FosteringSystem
TechnologyGrowth Life Cycle
High Growth &
Expansion
Mature
IdeaPrototype
FFF
IPO/M&A
T
Income
VC
CB
Incubator & Angel
Fostering
Development
Innofund & BAF
Funding
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CHINA TORC
Thank You