Zhongguancun model driving the dual engines of science technology and capital

Zhongguancun enterprises across a wide range of industries; they reflect andhighlight the development of Zhongguancun’s science and technological trends.Through the combination of quanti

Xiaoying Dong · Yanni Hu 

Weidong Yin · Estela Kuo

Zhongguancun Model: Driving the Dual

Engines of Science &

Technology and Capital

Zhongguancun Model: Driving the Dual Engines

of Science & Technology and Capital

Xiaoying Dong • Yanni Hu

Zhongguancun Model:

Driving the Dual Engines

of Science & Technology

and Capital

123

Beijing, ChinaEstela KuoZhongguancun Listed CompaniesAssociation

Beijing, China

ISBN 978-981-13-2266-2 ISBN 978-981-13-2267-9 (eBook)

https://doi.org/10.1007/978-981-13-2267-9

Jointly published with Peking University Press, Beijing, China

The print edition is not for sale in China Mainland Customers from China Mainland please order the print book from: Peking University Press.

Library of Congress Control Number: 2018952901

© Peking University Press and Springer Nature Singapore Pte Ltd 2019

This work is subject to copyright All rights are reserved by the Publishers, whether the whole or part

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Foreword I

In 2012, while riding the high-speed train to Nanjing, Yin Weidong and I discussed

a report analyzing the overall statistics of 198 Zhongguancun listed companies(ZLCs): I found the report quite surprising In the past, discussions aboutZhongguancun focused heavily on its emerging tech companies and their innova-tions Although ZLCs’ total market capitalization had already reached 1.3 trillionRMB at that time, there was a lack of data and integrated information on thesecompanies Subsequently, Yin Weidong and I sat down with a number of officials atChina Securities Regulatory Commission, China Investment Securities, and otherrelevant institutions to discuss Zhongguancun and its exciting achievements Thesemeetings eventually led to an annual paper, Competitiveness Report ofZhongguancun Listed Companies, which provides an independent review of thelatest Zhongguancun developments

The innovation-driven development strategy, which was proposed at the 18thCPC National Congress, emphasizes the importance of scientific and technologicalinnovation in strategic support At present, during this critical time for China’seconomic transformation, scientific and technological innovation has become animportant driving force for the transformation mode of the country’s economicgrowth As Kang Youwei said, “adopt new thoughts and technology forself-improvement, abandon old routines for the society’s development.” Scientificand technological innovation is an expectation for China moving forward and isbeing promoted at all levels of government and the public sphere; it is also themission of companies and entrepreneurs in Zhongguancun

Mass entrepreneurship and innovation is one of the important engines of China’seconomic development As China’s leading innovators, ZLCs shoulder an impor-tant responsibility As of 2015, ZLCs’ total market capitalization exceeded the 4.8trillion RMB, its net investment reached 200 billion RMB, and its research anddevelopment input exceeded 80 billion RMB This significant amount of capitalfully demonstrates that technological innovation can drive economic development

In fact, the scale that ZLCs have achieved is inseparable from China’s overallemphasis on innovation As thefirst national independent innovation demonstrationzone, Zhongguancun bears an important historical function and also creates a good

v

environment for innovation and entrepreneurship This ecosystem is inseparablefrom the innate characteristics of ZLCs as companies that remain steadfast whenfaced with hardships and the success and failures of start-ups.

When wefirst founded Lenovo, we met a lot of uncertainties; in fact, we wereonly certain about one thing: entrepreneurship is tough Thirty years later, Lenovohas carved out a way for high-tech industrialization; further, it is a Zhongguancunlisted company and a member of the Fortune Global 500 In 2015, we (refer to thefounders of Lenovo including Liu Chuanzhi) pushed Lenovo to the capital market,thus providing investment services for technological innovation In fact, many ofLegend Holdings’ investments are in Zhongguancun companies Lenovo is a realstart-up company with rich history Similarly, most ZLCs are also blazing the path

of entrepreneurial innovation

We are glad to see the number of ZLCs increasing year by year At present, thereare more than 200 domestic listed companies and over 100 overseas listed com-panies, such as Baidu, BOE, and Lenovo Scientific and technological innovationhas no geographical limitations; Zhongguancun does not only belong to Beijing orChina, but rather it belongs to the world We have seen the increasingly rapid pace

of Zhongguancun’s internationalization, and, in some areas, we are consistentlynarrowing the gap with competitors and reaching global leading standards Inparticular, President Xi Jinping has identified strategies, such as the Belt and RoadInitiative and the coordinated development of Beijing, Tianjin, and Hebei Province,which provides future direction for Zhongguancun companies and offers themunlimited possibilities for future development

Technological innovations have brought about disruptive changes to industryand even to the society as a whole When it comes to scientific and technologicalinnovation in China, Zhongguancun is thefirst entity that comes to mind One mustobserve ZLCs to understand sci-tech, innovation-oriented enterprises Zhong-guancun Model: Driving the Dual Engines of Science & Technology and Capitalanalyzes the overall situation and presents typical case studies of ZLCs over thepastfive years I hope this book can help you understand Zhongguancun

It is my hope that in the nextfive years, Zhongguancun’s total market ization doubles and its new model will be even greater!

capital-Beijing, China

September 2017

Mr Liu ChuanzhiChairman of Legend Holdings

I always say that there is commonality in the failure of enterprises, but successfulenterprises are distinct So, thefirst thing we must address is preventing enterprisesfrom making common mistakes that lead to failure Then, on this basis, we mustcontinuously innovate and change, in order to promote the success of enterprises Inorder to achieve this end, enterprises must engage in learning and use learning as asource of inspiration and reference It is my belief that gaining insights from theexperience and lessons of other enterprises is a very effective learning method.Zhongguancun Model: Driving the Dual Engines of Science & Technology andCapital is an invaluable book It includes an overall data analysis of ZLCs and casestudies from a variety of industries with detailed information and comprehensiveanalyses It is worth reading and is a great reference to macroeconomic researchersand entrepreneurs, as well as government officials and young scholars.

As the old Chinese proverb says,“Stones from other hills may serve to polish thejade of this one.”

Beijing, China

June 2017

Mr Xu JinghongChairman of Tsinghua Holdings

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In a March 2009 investigation interview with Guo Jinlong, Mayor of Beijing,(Zhongguancun Science Park had just been approved as thefirst national innovationdemonstration zone)1he asked me: “In ten years from now, what would be themarker of Zhongguancun’s success? I answered: if Zhongguancun had producedten more enterprises like Lenovo, then Zhongguancun would be considered suc-cessful Now, it has been less than ten years and Zhongguancun has produced morethan ten listed enterprises with a market capitalization of over 50 billion RMB anddozens more enterprises with a market capitalization of over hundreds of billionRMB, such as Baidu and JD.com Zhongguancun high-tech enterprises have shownexplosive growth; their scientific and technological innovations are remarkable, andcountless scientific achievements have emerged Indeed, Zhongguancun is now apowerhouse of technological innovation

At present, Zhongguancun has produced more than 20,000 enterprises As all ofits enterprises focus on innovation, ZLCs demonstrate typical innovation-drivendevelopment As public companies, ZLCs have made fruitful achievements in theglobal capital market: In 2015, Zhongguancun’s total market capitalization reached4.8 trillion RMB, net investment reached 20 billion RMB, and research anddevelopment input reached over 8 billion RMB ZLC’s total market capitalizationincreased from 1.3 trillion RMB in 2011 to 4.8 trillion RMB in 2015, thusachieving over 50% growth for three consecutive years I think this remarkablyrapid growth is primarily due to scientific and technological innovations In 2013,when the CPC Central Committee Political Bureau conducted a collective study onthe implementation of innovation-driven development strategy, President XiJinping emphasized the importance of comprehending the global innovation-drivendevelopment trend and effectively implementing its strategy In the future,Zhongguancun should strengthen the implementation of innovation-driven devel-opment strategy and increase the speed of its efforts to establish a science andtechnology innovation center with global influence, in order to play a leading role in

1 “Zhongguancun” mentioned below refers to Zhongguancun National Innovation Demonstration Zone.

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implementing innovation-driven development strategy across the country President

Xi’s speech encouraged many board members of listed companies to report on theirbusiness innovation The policies of the Party Central Committee have provided anew world for the rapid development of innovative technology-based enterprises inZhongguancun In the transformation of China’s economy, Zhongguancun haspioneered a new economy, characterized by the Internet’s cross-border integration,innovation and economic sharing, and a new land to explore Statistics show thatZhongguancun’s contribution to Beijing’s economic growth increased from 17.9%

in 2010 to 36.8% in 2015—accounting for nearly 40% of Beijing’s economicgrowth in 2015 Technological innovation drives economic development, andZhongguancun’s innovation has become an engine of new economic growth inChina How much displacement does this“engine” have? How much energy does itconsume? How fast can this engine grow?

Until now, there has been little to no literature on Zhongguancun that providesits readers with a comprehensive account and analysis of this innovative space As ascientific researcher specializing in bioscience, I have devoted my life to theresearch and development of vaccines for more than 30 years I formed myfirstteam, started a business in Beijing, andfinally established myself and the business

in Zhongguancun as the Chairman of a listed company (NASDAQ: SVA) In 2012,

I, along with dozens of other ZLCs’ Chairmen, established the ZhongguancunListed Companies Association, and I have the fortune to serve as the association’spresident for the pastfive years It is precisely because of my rich experience anddynamic identities as a researcher, entrepreneur, and president of an NPO that Ihave the understanding of the language and data needed to accurately describe therecent the development of Zhongguancun I hope that this book’s account, alongwith a wealth of data sets and graphs, provides people with a true understanding ofZhongguancun

Each year, the Association’s research team publishes The CompetitivenessReport of Zhongguancun Listed Companies, which is based on thefinancial data oflisted companies We have found that the data sets have significantly changed overthe pastfive years With the unique access to Zhongguancun’s data, I believe that it

is imperative to conduct research and analysis on the Zhongguancun’s innovationphenomenon With this aim in mind, we collaborated with Dong Xiaoying, anAssociate Professor at the Peking University, Guanghua School of Management,and his academic team in order to leverage the strengths of both parties in con-ducting the study

The majority of the existing literature on research on development patterns andstrategies focuses on macrofactors and variables; this book, however, draws from alarge amount of basic data, takes 238 listed companies as the research object, andexamines these high-tech enterprises, all of which are active in global capitalmarkets, in order to provide a comprehensive overview of ZLCs’ development overthe pastfive years through an objective account In addition, the research team alsoconducted a number of interviews and research During the study, the research teamselected eight listed companies to serve as a typical case These companies, whilenot the largest or the fastest growing, they are an accurate representation of

Zhongguancun enterprises across a wide range of industries; they reflect andhighlight the development of Zhongguancun’s science and technological trends.Through the combination of quantitative research and qualitative descriptions, thisbook presents a thorough analysis based on the capital market valuation of enter-prises, quantifies the contribution of science and technology innovation to theeconomy, and explores the circulation of R&D and human capital investment to theimprovement of products and service levels to access to capital markets to thepromotion offinancing and finally to driving a new round of technology innovationinvestment In this book, Zhongguancun’s innovative ecology is explored; thisinnovative ecology has not only promoted the development of ZLCs over the pastfive years, but also continuously affects the operation of Zhongguancun.

This book plays a valuable role in sparking further discussion on Zhongguancunand will hopefully lead to increased research in this area Firstly, we hope toincrease the number of experts that conduct research on Zhongguancun and analyzethe development zone as a new economic engine with different research perspec-tives The increased research in this area will further the general understanding ofZhongguancun as a whole

Secondly, we hope that this book will serve as a reference for all levels ofgovernment as they develop science and technology innovation strategies.Zhongguancun is thefirst independent innovation demonstration area approved bythe State Council Through this pilot, a number of innovation and entrepreneurshipprojects have taken root and blossomed; further, similar policies have beenimplemented in other national demonstration zones for the development of inno-vation In the process of development, which is driven by science and technologyinnovation, the Zhongguancun Administrative Committee has given its full supportand a high degree of independence and freedom to its enterprises, thus forming thearea’s unique innovation ecology We hope that such a model can be replicated.Thirdly, we hope this book can serve as a“textbook” for Zhongguancun scienceand technology innovation-oriented enterprises and entrepreneurs Success orfailure is never the only criterion in Zhongguancun; however, it is essential forenterprises to reflect and adjust its means of survival, as it moves forward in thetides of innovation and entrepreneurship To some extent, this book is also atextbook for Zhongguancun enterprises; through the book’s lens, they will be able

to identify themselves and understand others in relation to the area’s five-yearhistory of development

Fourthly, we hope that more investors can understand and discern ZLCs’ tribution in various capital markets Zhongguancun has now become the mostactive venture capital zone in China, and venture capital investment has played animportant role for ZLCs as they enter the capital market and increase in scale andsize The book also allows investors to“diagnose” ZLC’s development prospects inrelation to its historical trends, which are based on objective data, in order to refuelZhongguancun technological innovation

dis-As an experimental mechanism of innovation and policy implementation inChina, Zhongguancun, now with over 20 years of development, has grown into thefirst national independent innovation demonstration zone It has always been

regarded as a hub for innovation and dares to be a global leader Innovation here isnot a mere slogan, but rather a visible, accessible, and tangible result However, wemust also be soberly aware that ZLCs still have a long way to go, because tech-nological innovation requires multiple attempts and, in the process of innovation,there is much uncertainty; that is the case for both companies and governmentsalike It is the uncertainty that forces companies to make attempts Encouraging andrevering the uncertainty facilitates the incubation of the Zhongguancun model, andthe development of the service-oriented government and innovative enterprises.Finally, I would like to express my heartfelt thanks to people who contributed tothe formation of the book’s ideas and the publication itself Thanks to Director ZhaiLixin of the Zhongguancun Administrative Committee for providing your strongsupport for our work; Thanks to Director Guo Hong for his guidance on the work

of the association and his full support for the book; Thanks to Wang Rufang, theAssociate Director of the Administrative Committee of Zhongguancun for hisinterview; Thanks to Gao Li for her ideas in the policy section; Thanks to DongXiaoying, an Associate Professor at the Peking University, Guanghua School ofManagement, and his team for their contributions and comments; Thanks to theenterprises that shared their experiences and data in the case section; Thanks toErnst and Young for the professional audit of the book’s financial data from 2011 to2015; Thanks to Lin Junxiu, the Director of the Beijing University Press, for theeditorial work; Thanks to Chief Yin Hao and Deputy Chief Zhao Junjie of theScience, Technology and Finance Department of the Administrative Committee ofZhongguancun for their great support of the association’s work and the book;Thanks to Estela Kuo, Chen Hong, Wang Yangdan, Xue Xiaoying, Ge Yan, LiuYongxin, and all of my colleagues for your dedication to the book Finally, I wouldlike to thank the numerous institutes and friends, who are not listed above; pleaseaccept my sincere thanks to all of you!

Listed Companies AssociationChairman of Sinovac Biotech

This book summarizes and analyzes comprehensive data from Zhongguancun listedcompanies over the past five years After reading this book, you will be able tounderstand Zhongguancun’s current situation and its development over the past fiveyears The fact that Zhongguancun’s total market capitalization has doubled overthis period makes it an important model for China

—Liu Chuanzhi, Chairman of Legend HoldingsThis book provided me with rich insight The rise of Zhongguancun has not onlyproduced a group of outstanding enterprises for the Chinese society, but also cul-tivated an untiring pursuit of technological innovation The positive interaction and

“mutual education” between the government and enterprises has created an ronment conducive to innovation and entrepreneurship, and thus laid the foundationfor the development of excellent companies

envi-—Liu Qiao, Dean of Guanghua School of Management, Peking UniversityThe new economy calls for new finances; the new era breeds new opportunities.Pioneered by Zhongguancun, in this new model which integrates finance andtechnology, ZLCs will continue to play an important role

—Guo Hong, Chairman of Zhongguancun Bank

In 2009, Sinovation Ventures was founded in Zhongguancun; the company witnessedthe development course of China’s innovative power as it occupied a prominent space

in the global mobile Internet industry I recommend this book to Chinese and foreignreaders as an in-depth analysis of Zhongguancun’s development

—Li Kaifu, Chairman of Sinovation Ventures

xiii

This book contains an overall data analysis of ZLCs and case studies from differentindustries; it provides detailed information and a thorough analysis It is particularlyworth reading for macroeconomic researchers, entrepreneurs, young students, andeven government officials.

—Xu Jinghong, Chairman of Tsinghua Holdings

About this Book

Zhongguancun Science Park is China’s first national innovation demonstration area

It consists of a large number of world-class leading companies across a wide range

of industries, including the Internet, big data, artificial intelligence, green and lowcarbon, modern supply chain, and high-end services identified as priorities by theParty Central Committee These companies developed from mere concepts throughscientific and technological innovation, and from small to large scale with theassistance of the capital market Zhongguancun, at its core, is a true representation

of the new economy and a pioneer in driving innovation and capital

Zhongguancun’s contribution is not only the significant amount of outstandingcompanies born there, but the fact also its unique economic development model of

“promoting entrepreneurship, advocating innovative culture, targeting internationalfrontiers, and comprehensively serving innovation and entrepreneurship.” Thismodel is of great significance to the successful completion of China’s transitionfrom the traditional to new kinetic energy; it symbolizes China’s new journey inbuilding an inclusive, socialist modern country

xv

1 The History of Zhongguancun 1

Zhongguancun Electronics Street (December 1978—April 1988) 2

Beijing New Technology Industrial Development Trial Zone (May 1988—May 1999) 5

Zhongguancun Science Park (June 1999—February 2009) 9

Zhongguancun National Innovation Demonstration Zone (from March 2009 till Present) 12

Conclusion 15

2 Data of Zhongguancun 17

IPO: Domestic or Overseas, Which Is Better? 18

Market Capitalization: Growth and Ranking 21

Market Capitalization Growth 21

Market Capitalization Distribution 24

Market Cap Rankings 27

Business: Where Is the Core Competency? 30

Revenue Quality Analysis 30

Profit Quality Analysis 35

Asset Quality Analysis 46

DuPont Analysis 61

Financing: Status and Impact Factors 73

Cash Content Analysis 73

Operating Cash Flow 75

Cash Flow of Investment Activities 76

Cash Flows of Fund-Raising Activities 77

Industry: Internet and Non-Internet Layouts 79

Zhongguancun “641” 80

Internet Versus Non-Internet 84

Valuation: Investors’ Perceptions 90

P/B Ratio 91

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P/S Ratio 92

P/E Ratio 96

Top 100 PE Assets in ZLCs: Entrepreneurs’ Wealth Creativity 97

Ownership Structure 97

The Development Characteristics of the Top Ten ZLCs in Market Cap 103

The List of Entrepreneurs’ Equity Assets in ZLCs 109

Conclusion 134

3 Zhongguancun Cases 135

BOW: The“Membrane” Technology of Water Protection 135

Entrepreneurial Background 135

Strategic Layout 138

Innovative Research and Development 139

Conclusion 150

DHC Software: A Behind-the-Scenes Look into the Software Hero for Multiple Industries 153

Corporate Background 154

Business Layout 155

Innovative Research and Development 156

Human Resources 163

Conclusion 166

Glodon: Digital Housekeeper of Intelligent Architecture 169

Corporate Background 169

Strategic Layout 171

Innovative Research and Development 177

Human Resources 180

Conclusion 183

BlueFocus: The Way of Digital Transformation 186

Corporate Background 186

Strategic Layout 188

Innovative Research and Development 193

Human Resource 196

Conclusion 199

Shenwu Group: Futuristic Combustion Technology Is Turning “Waste” into Wealth 201

Corporate Background 201

Strategic Layout 204

Innovative Research and Development 204

Human Resources 213

Conclusion 214

DBN Technology Group: Agricultural Internet of“The Doctor

of Swine” 217

Corporate Background 217

Strategic Layout 219

Innovative Research and Development 220

Human Resources 227

Conclusion 229

China High-Speed Railway: An Intelligent Defender for Rail Transit Operation and Maintenance 232

Corporate Background 232

Strategic Layout 234

Innovative Research and Development 238

Human Resources 240

Conclusion 243

Kyland: A Blue Chip That Challenges Germany’s “Industry 4.0” 246

Corporate Background 247

Strategic Layout 250

Innovative Research and Development 252

Human Resources 255

Conclusion 258

4 Zhongguancun Policies 261

Strategy and Layout 261

“Two Cities and Two Belts” 264

“Multiple Gardens in One Park” 265

The Role of the Zhongguancun Administrative Committee 267

Developing a Leading Enterprise 267

Promoting the Cultivation of Science and Technology Talent 270

Promoting Innovation and Entrepreneurship Services 272

Perfecting Science and Technology Financial Support 273

Create Mass Entrepreneurship and Innovation Ecology and Entrepreneurial Culture 275

Integration of Production, Study, and Research 277

Interview with Wang Rufang, a Leader in the Zhongguancun Administrative Committee 280

Summary of Zhongguancun Policies 286

5 Zhongguancun Model 291

How Do Government and Policy Mechanisms Support Zhongguancun? 291

Building an Ecosystem Is the First Priority 292

Emphasizing Services not Management 293

Established for the Market 293

Adhering to a People-Oriented Principle 294

Creating a New Entrepreneurial Culture 294

What Are the Elements of the Regional Ecosystem? 296

Industrial Diversity 296

Diversity in Scale 296

Relationship Diversity 297

Services Diversity 299

How the Enterprise Innovation System Works 299

Leaders 299

Strategic Transformations 301

Research and Development Mechanisms 302

External Communications 304

Talent System 306

How Capital Helps Scientific and Technological Innovation 308

Seed Stage: Angel Investment and Policy-Based Finance 309

Start-up Stage: Venture-Guide Funds, Microfinancing, and Secured Financing 309

Growth Stage: Venture Capital Investment, Small and Medium Loans, and the Gazelle Project 310

Maturity Stage: Financing by Listing, Acquisition and Reorganization, Large and Medium-Sized Credit 310

Map of Region/Enterprise Boundary Extension 311

Regional Boundary Extension 311

Enterprise Boundary Expansion 315

Conclusion and Revelation 318

Afterword 323

Postscript 327

Bibliography 331

About the Authors

Xiaoying Dong is an Associate Professor at the Guanghua School of Management,Peking University She serves as the Academic Director of the school’s Case Centerand serves as a Ph.D Research Advisor She is the Vice Chairman of the ChinaInformation Economics Association She also holds membership positions on theExpert Committee of the Information and Communication Economic (ECICE)

of the Ministry of Industry and Information Technology, and the NationalTechnical Committee on Intellectual Property and Knowledge ManagementStandardization Administration of China She has conducted in-depth research onscientific and technological enterprise cases She has published more than 50 papers

in Chinese and English, and six monographs

Yanni Hu is a doctoral student at Guanghua School of Management, PekingUniversity His research advisor is Guanghua Prof Dong Xiaoying She previouslyserved as the Chairman of the Beijing Student Federation She was named theBeijing Excellent Student Cadre and won the China National College Student

“Innovation, Originality and Entrepreneurship” Challenge

Weidong Yin earned his EMBA at the National University of Singapore Hecurrently serves as the President of the Zhongguancun Listed CompaniesAssociation, a Vice Chairman of the Beijing Federation of Industry and Commerce,and a Member of People’s Congress Standing Committee of Haidian District He isthe Chairman and CEO of Sinovac Biotech Co., Ltd In addition, he is aProfessor-level Senior Engineer in biopharmaceuticals and has pioneered thedevelopment of the human bird flu vaccine, A/H1N1 influenza vaccine, and theEV71 hand-foot-and-mouth disease vaccine

xxi

Estela Kuo earned her Master of Communications from the University ofCalifornia, Santa Barbara, and an EMBA from Harvard Kennedy School Shefounded three companies and currently serves as the Secretary General ofZhongguancun Listed Companies Association In 2017, she was appointed as theDirector of the Beijing Taiwan Business Association Since 2009, she has alsoserved as the Chair of the Yanxing China Foundation, which assists impoverishedrural students to integrate into society through organizational training.

Chapter 1

The History of Zhongguancun

Building a Park and Establishing a Benchmark

The Zhongguancun area was formerly an old river way for the Yongding River,which was known to Beijing residents as “Zhong Wan er (or Middle Bay).” Asearly as the Ming Dynasty, the area’s picturesque scenery attracted palace eunuchslooking for the perfect burial grounds, thus becoming a sought-after eunuchcemetery As eunuchs were called “Zhong Guan er (or Chinese officials),” themodern-day innovation hub derived its name, dropping the ‘er’ and becoming

“Zhong Guan Cun.”

In the era of the Republic of China, two universities—Tsinghua and Yenching—were built at the base of imperial gardens, which are near the western suburbs ofZhongguancun After the founding of the People’s Republic of China in 1949,Zhongguancun was designated as the capital’s cultural and educational district.Thus, a large number of universities and scientific research institutions converged inthe area At this time, the name“Zhong Guan er,” deemed unsuitable for the area’sacademic stature, became“Zhong Guan Cun.” The new name is said to have beenproposed by CHEN Yuan, a famous historian and educator, during the construction

of the Chinese Academy of Sciences

Through the years, Zhongguancun has gradually become the largest area withthe highest concentration of research centers and universities in Asia The CPCCentral Committee and the State Council attach great importance to its innovationand development, and have made a number of key decisions and arrangements, inorder for Zhongguancun to become China’s first national high-tech zone and its firstinnovation demonstration zone The area’s development can be divided into fourdistinct stages

© Peking University Press and Springer Nature Singapore Pte Ltd 2019

X Dong et al., Zhongguancun Model: Driving the Dual Engines of Science

& Technology and Capital, https://doi.org/10.1007/978-981-13-2267-9_1

1

Zhongguancun Electronics Street (December 1978 —April

1988)

In December 1978, China’s Third Plenary Session of the Eleventh CentralCommittee of CPC announced the new Reform and Opening-up Policy, which isthe prologue to China’s modern reform Based on strong scientific research andhuman capital, Zhongguancun become one of thefirst areas to emerge as a response

December 1982: Jinghai Company was established

On December 22nd, WANG Hongde, an employee at the CAS Institute ofComputer Science, resigned from office and established the Beijing JinghaiComputer Room Technology Development Company (abbr.“Jinghai Company”)

in Zhongguancun with seven scientific and technical personnel Jinghai Company’score business is to provide customers with computer room installation, includingthe installation of anti-staticflooring, wiring, etc

CHEN Chunxian, a pioneer of Zhongguancun (right)

2 1 The History of Zhongguancun

May 1983: Kehai Company was founded.

On May 4th, Beijing Haidian New Technology Joint Development Center of theChinese Academy of Sciences (abbr Kehai) was founded in Sijiqing People’sCommune in Haidian District; CHEN Qingzhen served as the director

November 1984: New Technology Development Company of the Institute ofComputing Technology at CAS (predecessor of Lenovo) was founded

On November 1st, with the investment of 20,000 RMB from the Institute ofComputing Technology of CAS, LIU Chuanzhi with ten other technological per-sonnel founded the New Technology Development Company of the Institute ofComputing Technology at CAS, which later became Lenovo

The site of Lenovo group

November 1984: Xintong Company, thefirst joint-stock science and technologyenterprise in Zhongguancun, was founded

On November 14th, Beijing Xintong Computer Technology Co., Ltd (abbr

“Xintong”) was established; the company received 1 million RMB investmentsfrom the Institute of Computing Technology of CAS, the Scientific InstrumentFactory of CAS, and the New-industry Joint Venture of Haidian District, respec-tively Xintong is thefirst joint-stock technology enterprise in Zhongguancun.August 1985: Thefirst sci-tech intermediary service organization was established

In August, the State Scientific and Technological Commission set up China NewTechnologies Development Company, which mainly engaged in organizing the

Zhongguancun Electronics Street (December 1978 —April 1988) 3

transfer of scientific and technological achievements; the company has a registeredcapital of 200,000 RMB The company was thefirst sci-tech intermediary serviceorganization on the Electronics Street.

November 1986: Thefirst individual technology enterprise was established

In November, Beijing Haidian Yongming Power Technology Research Studio wasestablished with the approval of the Haidian Science and Technology Commission

It is thefirst individual technology enterprise on the Electronics Street and mainlyengaged in power source and electronics

March 1987: Thefirst Sino-Foreign joint sci-tech venture was established

On March 24th, Beijing Stone Office Automation Equipment Co Ltd was lished by Stone Group and Mitsui & Co., Ltd This was thefirst Sino-foreign jointventure technology enterprise on the Electronics Street It mainly engages inresearch and development, production, and manufacturing of Stone typewriters.April 1987: Thefirst invention patent application was submitted

estab-On April 10th, SUN Qiang from the Beijing Stone Group submitted an applicationfor the invention patent of a Chinese character font generator, which producedmultiple fonts, to the State Intellectual Property Office (Patent No.: CN87102545.0) This is the first invention patent submitted by a Zhongguancunenterprise

September 1987: China’s first email sent from Zhongguancun

On September 20th, QIAN Tianbai, who works for the CANet project at theChinese Academy of Sciences, sent an email to the University of Karlsruhe inGermany from the Beijing Institute of Computer Applied Technology His emailstates:“across the Great Wall we can reach every corner in the world.” This is thefirst e-mail sent from China

As of the end of 1987, nearly a hundred science and technology enterprisesrepresented by“Two Tongs and Two Seas” (Stone, Xintong, Kehai, and Jinghai)had emerged in Zhongguancun—spread out from Baishi Bridge, along Baiyi Road(Zhongguancun Street at present), north to Chengfu Road, Zhongguancun Road,and Haidian Road, towards the east to Xueyuan Road These companies formed the

“F” zone and the area was called the Electronics Street At that time, ZhongguancunElectronics Street had around 148 science and technology enterprises, whichemployed more than 5,000 people and generated a total revenue of more than

900 million RMB, which accounted for 37% of the total social income of HaidianDistrict The majority of these companies were engaged in research and develop-ment, and the application of computer and electronic technology

4 1 The History of Zhongguancun

Beijing New Technology Industrial Development Trial Zone (May 1988 —May 1999)

The development of Zhongguancun Electronics Street promoted the development

of new technology industry, accelerated the flow of talents, and accumulated amassive amount of wealth This series of positive changes attracted attention fromthe State Council and leaders from the Beijing municipal government After manyinvestigations and discussions, the State Council formally approved the ProvisionalRegulations on Beijing New Technology Industrial Development Trial Zone onMay 10, 1988 and stipulated that Zhongguancun, with an area of about 100 km2,would be designated as the Beijing New technology Industrial Development TrialZone On May 20th, the Beijing municipal government issued the ProvisionalRegulations on Beijing New Technology Industrial Development Trial Zone and thepilot zone was formally established, thus opening a brand-new development phasefor Zhongguancun

May 1988: Beijing New Technology Industrial Development Trial Zone was ofcially established

fi-The Zhongguancun electronics street in the 1980s

Beijing New Technology Industrial Development Trial Zone … 5

The Beijing municipal government issued the Provisional Regulations on BeijingNew Technology Industrial Development Trial Zone, thus signifying the officialestablishment of the trial zone and opening a brand-new development phase forZhongguancun.

The Beijing new technology industrial development trial zone headquarters

6 1 The History of Zhongguancun

March 1989: Thefirst technology business incubator in Beijing was established.

In March, Beijing High-tech Business Service Center was established The center isthefirst technology business incubator in Beijing

September 1989: Kingsoft successfully developed thefirst Chinese word processingsoftware in China

In September, QIU Bojun, an employee at Kingsoft Corporation, successfullydeveloped thefirst Chinese word processing software WPS 1.0

February 1990: Yonyou Electronic Financial Technology Co Ltd, thefirst privateenterprise in the Beijing New Technology Industrial Development Trial Zone, wasestablished

In February, Yonyou Financial Software Service Society was registered as theYonyou Financial Technology Co., Ltd, and became the first privately-ownedenterprise in the Beijing New Technology Industrial Development Trial Zone.November 1990: Beijing New Technology Industrial Development Trial Zone wasestablished as thefirst liason branch in the coastal area; the office in Shenzhen wasestablished

On November 8th, the Beijing New Technology Industrial Development TrialZone’s Shenzhen office was established This is the zones’ first liason branch set up

in the coastal area for the development of an export-oriented economy

1990: Thefirst Lenovo microcomputer was introduced to market

Lenovo Group’s first computer was introduced to market Lenovo Group formed from an importer of computer products to a manufacturer and distributorwith its own brand

trans-1991: China Potevio established China’s first mobile phone production line.China Potevio introduced communications manufacturing technology fromMotorola Mobile, becoming Motorola’s first partner in China It built China’s firstmobile phone production line, filling the gap in the production of mobile com-munications products in China

August 1993: Stone Electronics became the first company of Beijing NewTechnology Industrial Development Trial Zone to be listed on the Hong Kong stockexchange

On August 16th, Beijing Stone Electronic Technology Co., Ltd listed on the HongKong stock exchange (HK0409 Stone Electronics), becoming the zone’s first listedenterprise on Hong Kong’s stock market

April 1994: Fengtai Park and Changping Park were included in the policy area ofthe trial zone

Beijing New Technology Industrial Development Trial Zone … 7

In April, Fengtai Park and Changping Park were included into Beijing NewTechnology Industrial Development Trial Zone with the approval of the NationalScience and Technology Commission.

October 1995: Thefirst Founder computer was produced

On October 26th, thefirst Founder computer was born

August 1996: Chaoyang ZHANG founded the ITC Electronic Technology (Beijing)Co., Ltd (predecessor of Sohu)

In August, Chaoyang ZHANG, an overseas returnee, founded ITC ElectronicTechnology (Beijing) Co., Ltd, the predecessor of Sohu The company was sup-ported by venture capital from MIT Media Lab’s Director Nicholas Negroponte andAmerican venture capital expert Edward
Roberts It is China’s first internet com-pany to be founded by venture capital funds

November 1996: Bit Co., Ltd became the first company of Beijing NewTechnology Industrial Development Trial Zone to be listed on the Shenzhen StockExchange

On November 5, Bit Co., Ltd was listed on the Shenzhen Stock Exchange andbecame thefirst company of Beijing New Technology Industrial Development TrialZone to be listed on that exchange

November 1997: The Administrative Committee of Beijing New TechnologyIndustrial Development Trial Zone was officially established (predecessor ofAdministrative Committee of Zhongguancun)

On November 11th, the Administrative Committee of Beijing New TechnologyIndustrial Development Trial Zone (predecessor of Administrative Committee ofZhongguancun) was officially established

February 1998: China’s first large-scale classification search engine, Sohu, wasborn

In February, ITC Co., Ltd launched thefirst Chinese-language online search engine

—Sohu (sohu.com) This is China’s first large-scale classification search engine.September 1998: private capital starts to intervene in the venture capitalfield

In September, thefirst Zhongguancun Science & Technology Investment Co., Ltd.,which was founded by private technology enterprises and private capital, was

officially established This marked the beginning of private capital intervention inthefield of venture capital

January 1999: The spatial pattern of “five parks in one district” was formed inBeijing New Technology Industrial Development Trial Zone

8 1 The History of Zhongguancun

In January, approved by the National Science and Technology Commission, thetrial zone made new adjustments; the adjustments included thee Electronic Citiesand Yizhuang Park into the policy area Since then, the spatial pattern of “fivegardens parks in one district” in a pilot zone was formed.

Under the support of a series of relevant policies, Beijing New TechnologyIndustrial Development Trial Zone made significant progress which relied onindependent innovation and the support of technology and capital As of 1999, thezone consisted of 6,690 high-tech enterprises with the staff of 243,000 people, atotal revenue of 104.9 billion RMB, an industrial output value of 76.3 billion RMB,and profit of 6.75 billion RMB

Zhongguancun Science Park (June 1999 —February 2009)

On June 5, 1999, the State Council issued “Replies On the Construction ofZhongguancun Science Park,” and agreed on the “On the Implementation ofRejuvenating the Country through Science and Technology, Speeding up theConstruction of Zhongguancun Science Park” development plan, which was pro-posed by the Beijing municipal government and the Ministry of Science andTechnology The plan aimed to build Zhongguancun Science Park into a com-prehensive reform pilot zone to promote the strategy of rejuvenating the countrythrough science and education and realize two fundamental transformations, anational science and technology innovation demonstration base with internationalcompetitiveness, a base for incubating and radiating scientific and technologicalachievements in the nation, and a training base for high-quality creative talents.Thus, Zhongguancun entered the new development period of ZhongguancunScience Park

June 1999: The State Council issued “Replies on the Construction ofZhongguancun Science Park.”

On June 5th, the State Council issued “Replies On the Construction ofZhongguancun Science Park,” and agreed on the “On the Implementation ofRejuvenating the Country through Science and Technology, Speeding up theConstruction of Zhongguancun Science Park” development plan, which was pro-posed by the Beijing municipal government and the Ministry of Science andTechnology

July 2000: The liaison office of the Zhongguancun Science Park in Silicon Valleyopened

Beijing New Technology Industrial Development Trial Zone … 9

December 2000: The Standing Committee of the Beijing Municipal People’sCongress passed the Regulations of the Zhongguancun Science Park.

October 2001: Baidu officially launched an end-user-oriented search enginewebsite

On October 22nd, Baidu officially launched the end-user-oriented search enginewebsite,www.baidu.com, and launched a new business model—bidding rankings

January 2004: China became thefirst country in the world to approve a clinicalstudy of SARS vaccine

On January 19th, Beijing Sinovac Biological Products Co., Ltd obtained theclinical research document of“SARS virus inactivated vaccine,” which was issued

by the State Food and Drug Administration, making China thefirst country in theworld to approve the SARS vaccine into clinical research

The liaison of fice of Zhongguancun Science Park in Silicon Valley opened (July 1, 2000)

10 1 The History of Zhongguancun

November 2004: Ace Achieve Infocom, thefirst enterprise in Zhongguancun Park,was listed in Singapore.

On November 18th, Ace Achieve Infocom Co., Ltd was listed on the SingaporeStock Exchange and raised a fund of 6.4 million Singapore dollars It is thefirstZhongguancunenterprise listed in Singapore

August 2005: Baidu was listed on Nasdaq

On August 5th, Baidu Online Network Technology Co., Ltd was listed onNASDAQ in the United States The stock code is BIDU It raised a fund of101.9 million USD

January 2006: The spatial pattern of “ten parks in one district” was formed inZhongguancun

On January 17th, after approved from the State Council, the National Developmentand Reform Commission announced thefifth batch of twenty state-level develop-ment zones (No 3 of 2006) Adjusted Zhongguancun Science Park covers a totalarea of 23,252.29 ha, including Haidian Park, Fengtai Park, Changping Park,Desheng Park (including Yonghe Park, E-City (including Jianxiang Park),Yizhuang Park (including Tongzhou Optoelectronics and Mechatronics Park andTongzhou Environmental Protection Park), Shijingshan Park, Daxing BiomedicalIndustry Base, etc Zhongguancun formed a spatial pattern of “ten parks in onedistrict.”

January 2006: The pilot phase for commissioned shares transfer of Zhongguancunnon-listed stock company was officially launched

On January 23rd, the Opening Ceremony for Zhongguancun Non-listed Joint-stockCompanies Entering into Commissioned Shares Transfer System was held at theShenzhen Stock Exchange, thus marking the official launch of commissioned sharestransfer of Zhongguancun non-listed stock companies

November 2007: Baidu becomes Nasdaq’s first Chinese Internet company with amarket capitalization of over 100 billion RMB

Sinovac Biological Vaccine series (2002 –2005)

Zhongguancun Science Park (June 1999 —February 2009) 11

On November 5th, China’s largest Internet search company, Baidu, with a singleshare price over 400 USD becomes Nasdaq’s first Chinese Internet company with amarket capitalization exceeding 100 billion RMB.

In 2008, Zhongguancun’s total economic output continued to expand and itstotal revenue exceeded one trillion RMB, an increase of 13.1% in one year Inaddition, Zhongguancun enterprises made a large number of major technologicaland industrial innovations in areas, such as new energy and environmental pro-tection, biomedicine, software and information services, integrated circuits, com-munications and computer networks; further, they had markedly enhanced theirability to create patent standards They also made outstanding contributions toShengzhou-VII, earthquake relief work, as well as the Beijing Olympics

Zhongguancun National Innovation Demonstration Zone

(from March 2009 till Present)

On March 13, 2009, the State Council’s “Replies on Supporting the Construction of

Demonstration Zone” was released It clarified that Zhongguancun’s new tioning was a national demonstration area for independent innovation and the goalwas for the zone to become a science and technology innovation center with global

posi-influence Zhongguancun’s innovation demonstration status was raised to thenational level with an aim for global influence Zhongguancun has graduallybecome a banner of China’s innovation and development In the future,Zhongguancun will increase its strategic efforts to implement innovation-drivendevelopment, increase the speed of its efforts to promote science and technologyinnovation centers with global influence, and play a leading role in implementinginnovation-driven development strategies across China

October 2009: The world’s first permanent free antivirus software was launched

On October 20th, Qihoo 360 launched the official version of the permanent free 360antivirus 1.0, which was the world’s first permanent free antivirus software.October 2009: China’s Chinext opened and five Zhongguancun enterprises werelisted

On October 30th, China’s Chinext opened Five Zhongguancun enterprises,Ultrapower, Lepu Medical, Lanxum, Dinghan Tech, and BeiLu Pharmaceutical,were listed

12 1 The History of Zhongguancun

October 2010: Xi Jinping says efforts should be made to build the demonstrationarea into a center of scientific and technological innovation with global influence.

On July 23rd, Xi Jinping, who at that time was member of the Standing Committee

of the Politburo and vice chairman of the state, went to Zhongguancun NationalInnovation Demonstration Zone to conduct an investigation He affirmed the pos-itive exploration and bold innovation of the Administrative Committee ofZhongguancun and suggested that it should continue to push forward the reformpilot projects, in order to fully leverage its policy-oriented role and tap the potential

of resources in Zhongguancun Efforts should be made to construct the stration zone into a powerful engine for the transformation of economic growth and

demon-a scientific and technological innovation center with global influence

December 2012: The State Council supported the implementation of the “1 + 6”test policy in Zhongguancun

January 2011: Layard released the world’s first 108-inch LED TV

On January 15th, Leyard Photoelectric Co., Ltd held the“Leyard LED TV WorldPremiere Ceremony,” and released the first 108-inch LED TV in the world Leyardhas full independent intellectual property rights

June 2011: BOE constructed China’s first advanced generation TFT-LCD duction line

pro-Listing ceremony for first issuers on Chinext (October 30, 2009)

Zhongguancun National Innovation Demonstration Zone … 13

On June 29th, BOE’s 8.5 generation TFT-LCD production line was officially putinto operation in Yizhuang Park This is China’s first independently builtadvanced-generation TFT-LCD production line.

July 2012: The 12th Five-Year Plan proposed the building of the ZhongguancunCivil-military Technology Innovation Demonstration Base

In July, the Zhongguancun Civil-military Technology Innovation DemonstrationBase was proposed by the State Council and the Central Military Commission inthe 12th Five-year Plan for Overall Economic Development and National DefenseConstruction

October 2012: The spatial pattern of “16 parks in one district” was formed inZhongguancun

On October 13th, the State Council approved the agreement to adjust the scale andlayout of the Zhongguancun National Innovation Demonstration Zone.Zhongguancun increased from a district of ten parks to a district of sixteen parks,including Dongcheng Park, Xicheng Park, Chaoyang Park, Haidian Park, FengtaiPark, Shijingshan Park, Mentougou Park, Fangshan Park, Tongzhou Park, ShunyiPark, Daxing—Yizhuang Park, Changping Park, Pinggu Park, Huairou Park,Miyun Park, Yanqing Park—and other parks

May 2013: Letv became thefirst Internet company to officially launch its own TVbrand

On May 7th, Letv launched Letv X60, becoming the world’s first Internet company

to officially launch its own TV brand

May 2014: JD becomes China’s first large-scale, comprehensive electronic businessplatform listed in the U.S

In May, JD officially lists on the Nasdaq Stock Exchange in the United States underthe ticker symbol JD.O It was thefirst large-scale, integrated e-commerce platformsuccessfully listed in the United States and became one of the top ten Internetcompanies in the world

February 2015: Zhongguancun A Composite Index and Zhongguancun 50 Indexbecame thefirst stock index series sampled by Zhongguancunlisted companies

On February 5th, Zhongguancun A Composite Index and Zhongguancun 50 Index,the first stock index series sampled by Zhongguancunlisted companies, wasreleased in Beijing The Cultivation Base for Listing Zhongguancun Innovation andEntrepreneurship companies opened on the same day

December 2015: Zhongguancun’s first overseas innovation center, ZhongguancunInnovation Center @ Silicon Valley, was established

On December 11th, the Innovation Center of the Core Area of ZhongguancunScience Park was set up in Zhongguancun Innovation Center @ Silicon Valley,which is thefirst overseas innovation center of Zhongguancun

14 1 The History of Zhongguancun

September 2016: The State Council pushed four initiatives to build the BeijingNational Center for Science and Technology Innovation.

In accordance with the “Outline of National Innovation-Driven DevelopmentStrategy,” issued by the State Council of the CPC Central Committee, promotingthe construction of the Beijing National Science and Technology Innovation Center

is conducive to deepen the Reform and Opening-up, in order to further breakthrough the obstacles in the system and mechanism, stimulate the community tocreate greater vitality, enhance national innovation capability, and promote amid-to-high end economy

April 2017: Zhongguancun issued the“1 + 4” policy support system

Zhongguancun’s Administrative Committee issued the “1 + 4” policy supportsystem in order to build an“upgraded version” of Zhongguancun and support theconstruction of the Beijing National Science and Technology Innovation Center.This policy system aims to build a precise support policy for major frontier projectsand innovation platforms, and contains four general profitable service polices:business entrepreneurial services, innovative capacity building services, financialand sci-tech services, and integrated services for“multiple parks in one district.”

As of the end of 2016, Zhongguancun Demonstration Zone has a planning area of

488 km2 and more than 20,000 high-tech enterprises, forming a developmentpattern of“multiple parks in one district.” In 2016, the total revenue of enterprises

in the demonstration zone was 4.57 trillion RMB, an increase of 12% over the sameperiod last year; the total profits of enterprises reached 355.48 billion RMB, anincrease of 4.4% over the same period of last year; taxes paid amounted to233.02 billion RMB, an increase of 14.3% over the same period last year.Zhongguancun listed companies reached 302, with a total market capitalization of4.93 trillion RMB; Zhongguancun New OTC enterprises reached 1,478, of which

170 were selected as New OTC Innovative enterprises; Zhongguancun Unicornenterprises reached 65 In the meantime, the process of “going global” forZhongguancun enterprises has been accelerated and their global influence hasstrengthened Leading enterprises have accelerated their global footprint, thus,driving an increasing number of Zhongguancun enterprises to establish interna-tional R&D centers and incubator and investment funds, as well as carry outoverseas mergers and acquisitions The demonstration zone set up over 600 over-seas branches, carried out 52 overseas mergers and acquisition, with a mergingvalue of 68.56 billion RMB

Conclusion

Zhongguancun has gradually become the starting point of national innovation and abanner of business innovation and individual entrepreneurship, as it has developedfrom a pilot zone of science and technology reform This stems from numerous

Zhongguancun National Innovation Demonstration Zone … 15

scientific and technological personnel have made concerted efforts in their work inZhongguancun Its development process is a textbook for park development, andmany wonder if Zhongguancun can be replicated We think it is impossible toduplicate abundant resource conditions However, from its 40-year developmenttrack, we can gain a greater understanding from the case studies presented in thebook In the upcoming pages, the book outlines the “ZhongguancunModel” byintegrating the “surface” (presentation of data sets over the five years) with the

“point” (representative company cases and countermeasure interpretation) Thebook’s editorial team consists of entrepreneurs, academics, government officialsand leaders from non-profit organizations; they have put forward their interpreta-tions of the “ZhongguancunModel” from their own respective perspectives Forexample, some academics emphasize systematic analysis; they vividly draw com-parisons with the competitiveness of Zhongguancun listed companies, that is,Zhongguancun’s innovation ecosystem, as a “fountain.” In their view, entrepre-neurs tend to be more effective when they are concerned with the question of

‘where the water comes from’; this curiosity leads to an endless “spring” of vative vitality However, no one can ignore the words “technological innovation”and “capital.” Conclusions are, as the title suggests, the two elements of S&T—innovation and capital drive—are the primary elements of the ZhongguancunModel They are like two“engines” providing an inexhaustible source of power forthe development of Zhongguancun

inno-16 1 The History of Zhongguancun

Chapter 2

Data of Zhongguancun

The Underlying Trends You Must Know

The research object of this book must meet the following criteria: innovativehigh-tech company that is registered in the Zhongguancun National InnovationDemonstration Zone, listed on a global capital market in according to Measures onRegistration Management of Zhongguancun Science and Technology Park, repre-sents China’s new economy, and is a leading company in one of the NationalStrategic Emerging Industries It should be noted that:

Domestic listed company refers to any Zhongguancun listed company that is listed on the Shanghai Stock Exchange (hereinafter referred to as SSE) and the Shenzhen Stock Exchange (hereinafter referred to as SZSE).

Overseas listed company refers to any Zhongguancun listed company that islisted on an overseas capital markets, including the New York Stock Exchange(hereinafter referred to as NYSE), National Association of Securities DealersAutomated Quotations (hereinafter referred to as NASDAQ), Hong Kong StockExchange (hereinafter referred to as HKEx), and Singapore Exchange (hereinafterreferred to as SGX) The companies listed in NASDAQ and NYSE are referred to

as U.S listed companies; the companies listed in HKEx and other stock exchangemarkets are referred to as HK listed and other companies

Unless otherwise specified, all financial data in this book is from the annualreports of ZLCs from 2011 to 2015 The stock price can be found at Sina Finance(http://finance.sina.com.cn/) on the ending date of the balance sheet from the years

2011 to 2015 Other data sets are from the database of WIND, and the websites ofthe World Federation of Exchanges, Beijing Municipal Bureau of Statistics,Shanghai Stock Exchange, Shenzhen Stock Exchange, Hong Kong Exchange, etc.Unless otherwise specified, RMB is used as the currency unit throughout thisbook For companies listed in overseas capital markets, all the financial data islisted as RMB and was converted using the Bank of China’s exchange rate on theending date of balance sheet in each annual report

Allfinancial data of Zhongguancun Listed Companies (ZLCs) cited in this bookwere collected and checked by our project team A special thanks to Ernst &Young LLP who assisted in checking the data throughout this book

© Peking University Press and Springer Nature Singapore Pte Ltd 2019

X Dong et al., Zhongguancun Model: Driving the Dual Engines of Science

& Technology and Capital, https://doi.org/10.1007/978-981-13-2267-9_2

17

Scientific and technological innovation is the core driving force for economicdevelopment and determines its quality and speed However, scientific and tech-nological innovation is often measured by the number of patents or the number ofexperts People pay more attention to the cutting-edge technology in the researchand development phase, but less on the contribution of the technology innovation tothe economy after the market test and capital funding.

The research object of this book is all listed companies in the Zhongguancunregion They belong to the strategic emerging industries and high-tech enterprises, andhave undergone the process of R&D, products, and markets, and are now in a rela-tively mature stage of development; further, they are still active in the global capitalmarkets Based on thefinancial data of the audited annual reports of these enterprisesfrom 2011 to 2015, and with the aim to discover the commonalities and rules of growthand the development for Zhongguancun companies, we try to quantify the contri-bution of science and technology innovation to the economy, explore the investment

of the enterprises on technology research and development and human capital, andmake a cyclic contrastive analysis between the investment mentioned above and therevenue, profit, market capitalization, investment, and financing of these enterprises.Over the pastfive years, with a significant amount of R&D and human capitalresources, Zhongguancun companies have improved product quality and servicelevels, generated massive profits, and obtained the recognition of domestic andforeign capital markets As a result, investment andfinancing are promoted and anew round of scientific and technological innovation investment cycle has emerged.Taking the overallfinancial index of ZLCs in 2015 as an example (see Fig.2.1),Zhongguancun companies have a strong and prosperous cyclical development

In the following introduction, we will use data to tell you the story ofZhongguancun and how scientific and technological innovation and capital drivesdevelopment itself

IPO: Domestic or Overseas, Which Is Better?

Market capitalization is the dynamic valuation of an enterprise’s value; it is often

influenced by the enterprise itself, market factors, etc Through market tion, we can see the value curve of ZLCs at a certain time or period, as well as therelationship between the enterprise and changes in the market environment It can

capitaliza-be said that the changes of market capitalization and its ranking of ZLCs is theepitome of the development of Zhongguancun in recent years

In 2011, there were 179 ZLCs distributed in major global capital markets In

2015, the number of ZLCs reached 238

With China A stock market increasing, more U.S.-listed Zhongguancun nology companies are seeking to be privatized and go public in mainland China andHong Kong for higher valuations Among them, the number of domestic listedcompanies increased from 114 to 267, especially in 2012 and 2015, in which theannual growth rate was higher than 16%, and quantity ratio increased from 64 to

70% The number of companies listed in Hong Kong and other capital marketsincreased significantly from 23 to 35 with a higher growth rate of more than 17%and a quantity ratio increase from 13 to 15% in 2013 and 2014 However, thenumber of U.S listed companies declined from 42 to 36 and the degree of reduction

in 2015 reached 12.2%, and the quantity ratio dropped from 23 to 15% Figure2.2

presents this change

59 billion RMB for

R&D investment

last year

29.8 billion RMB for H&R investment last year

82.1 billion RMB for R&D investment in the current year 64.2 billion RMB for H&R investment in the current year

469.6 billion RMB

for gross profit

90.2 billion RMB for net profit

Obtain revenue based on increasing product quality and service level

2,344.1 billion RMB for operating revenue

Generate profit to support the development of enterprise

4,817.5 billion RMB for market capitalization

137.9 billion RMB

for net proceeds

503.4 billion RMB for cash assets

Earn the recognition of capital market and the valuation increases

199.6 billion RMB for net investment

Promote financing, increase cash, and lead investment

Increase next year’s revenue to make benign cycles

Increase investment

of R&D and H&R

Fig 2.1 The benign circulation development of ZLCs: based on the general financial index of 2015

IPO: Domestic or Overseas, Which Is Better? 19

Scholar’s Perspective

From the perspective of the distribution of capital markets, among all ZLCs,A-share listed companies accounted for 70.17%, U.S listed companiesaccounted for 15.13%, and Hong Kong listed companies accounted for14.71% in 2015; while all A-share listed companies in China reached 3,197(59.42%), Hong Kong listed 2,025 (37.64%), and U.S listed 158 (2.94%).Therefore, compared with all listed companies on the national level, ZLCshave a higher proportion of U.S listed companies, and a lower proportion ofA-share listed companies The difference in this ratio indicates that the ZLCsare more active in international capital markets, and the valuation andfinancing of technology companies are more convenient in the internationalmarket In recent years, the A-share market has gradually matured and canbetter serve high-tech enterprises

Entrepreneur’s Perspective

In Zhongguancun, there are an increasing number of companies, whichthrough a variety of ways, are achieving their internationalization goals Theinnovation in the United States, particularly in Silicon Valley, has been anexample for Zhongguancun entrepreneurs Zhongguancun entrepreneurs arelearning the most advanced technology from Silicon Valley and, at the sametime, accepting Wall Street investment Their growth is not simply a repli-cation of the Silicon Valley model, but rather inherent in the gene ofZhongguancun itself Since high-tech, innovation companies have differingvaluations and financing methods depending on the capital markets, ZLCschoose to be listed in domestic capital markets, New York, Hong Kong andother capital market based on these differences

When a company chooses to enter the overseas capital market, it isintroducing the internationalization mechanism, which aims to realize theinternationalization of its products and services through its internationalshareholder These Zhongguancun overseas listed companies allocate itsoverseas capital for development After acquiring profits, according to theinternational rules, the profit is shared with foreign shareholders

Zhongguancun is committed to building a scientific and technologicalinnovation center with global influence Zhongguancun’s overseas listedcompanies have demonstrated their rising global influence through theirmarket capitalization, global sales income, and international investment.Through these listed companies, Zhongguancun is also bridging the domesticand international capital markets and promoting the development ofZhongguancun’s science and technology innovation at home and abroad