Zhongguancun model driving the dual engines of science technology and capital

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
Weidong Yin Estela Kuo
•

•

Zhongguancun Model:
Driving the Dual Engines
of Science & Technology
and Capital

123


Xiaoying Dong
Guanghua School of Management
Peking University
Beijing, China

Weidong Yin
Zhongguancun Listed Companies
Association
Beijing, China

Yanni Hu
Guanghua School of Management
Peking University
Beijing, China

Estela Kuo
Zhongguancun Listed Companies
Association
Beijing, China

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

Jointly published with Peking University Press, Beijing, China
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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 about
Zhongguancun focused heavily on its emerging tech companies and their innovations. Although ZLCs’ total market capitalization had already reached 1.3 trillion
RMB at that time, there was a lack of data and integrated information on these
companies. Subsequently, Yin Weidong and I sat down with a number of officials at
China Securities Regulatory Commission, China Investment Securities, and other
relevant institutions to discuss Zhongguancun and its exciting achievements. These
meetings eventually led to an annual paper, Competitiveness Report of
Zhongguancun Listed Companies, which provides an independent review of the
latest Zhongguancun developments.
The innovation-driven development strategy, which was proposed at the 18th
CPC National Congress, emphasizes the importance of scientific and technological
innovation in strategic support. At present, during this critical time for China’s

economic transformation, scientific and technological innovation has become an
important driving force for the transformation mode of the country’s economic
growth. As Kang Youwei said, “adopt new thoughts and technology for
self-improvement, abandon old routines for the society’s development.” Scientific
and technological innovation is an expectation for China moving forward and is
being promoted at all levels of government and the public sphere; it is also the
mission of companies and entrepreneurs in Zhongguancun.
Mass entrepreneurship and innovation is one of the important engines of China’s
economic development. As China’s leading innovators, ZLCs shoulder an important responsibility. As of 2015, ZLCs’ total market capitalization exceeded the 4.8
trillion RMB, its net investment reached 200 billion RMB, and its research and
development input exceeded 80 billion RMB. This significant amount of capital
fully demonstrates that technological innovation can drive economic development.
In fact, the scale that ZLCs have achieved is inseparable from China’s overall
emphasis on innovation. As the first national independent innovation demonstration
zone, Zhongguancun bears an important historical function and also creates a good
v


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Foreword I

environment for innovation and entrepreneurship. This ecosystem is inseparable
from the innate characteristics of ZLCs as companies that remain steadfast when
faced with hardships and the success and failures of start-ups.
When we first founded Lenovo, we met a lot of uncertainties; in fact, we were
only certain about one thing: entrepreneurship is tough. Thirty years later, Lenovo
has carved out a way for high-tech industrialization; further, it is a Zhongguancun
listed company and a member of the Fortune Global 500. In 2015, we (refer to the
founders of Lenovo including Liu Chuanzhi) pushed Lenovo to the capital market,

thus providing investment services for technological innovation. In fact, many of
Legend Holdings’ investments are in Zhongguancun companies. Lenovo is a real
start-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, there
are more than 200 domestic listed companies and over 100 overseas listed companies, such as Baidu, BOE, and Lenovo. Scientific and technological innovation
has no geographical limitations; Zhongguancun does not only belong to Beijing or
China, but rather it belongs to the world. We have seen the increasingly rapid pace
of Zhongguancun’s internationalization, and, in some areas, we are consistently
narrowing the gap with competitors and reaching global leading standards. In
particular, President Xi Jinping has identified strategies, such as the Belt and Road
Initiative and the coordinated development of Beijing, Tianjin, and Hebei Province,
which provides future direction for Zhongguancun companies and offers them
unlimited possibilities for future development.
Technological innovations have brought about disruptive changes to industry
and even to the society as a whole. When it comes to scientific and technological
innovation in China, Zhongguancun is the first entity that comes to mind. One must
observe ZLCs to understand sci-tech, innovation-oriented enterprises. Zhongguancun Model: Driving the Dual Engines of Science & Technology and Capital
analyzes the overall situation and presents typical case studies of ZLCs over the
past five years. I hope this book can help you understand Zhongguancun.
It is my hope that in the next five years, Zhongguancun’s total market capitalization doubles and its new model will be even greater!
Beijing, China
September 2017

Mr. Liu Chuanzhi
Chairman of Legend Holdings


Foreword II

We are in a great era marked by change, creation, and uncertainty. For enterprises,
this era presents both great challenges and unlimited opportunities.
Generally speaking, this era has three important characteristics: First, the
explosion of science and technology has caused dramatic changes in enterprises’
development models and in our way of life; second, global economic integration
and development has led to a dynamic and constantly evolving global economic
structure and competition; third, the interaction and competition between the fictitious and real economies has led to subversive innovation in market behavior. In
the face of these new characteristics, How should enterprises make strategic
adjustments? How should they change their development path? How can they
continue to drive innovation?
I always say that there is commonality in the failure of enterprises, but successful
enterprises are distinct. So, the first thing we must address is preventing enterprises
from making common mistakes that lead to failure. Then, on this basis, we must
continuously innovate and change, in order to promote the success of enterprises. In
order to achieve this end, enterprises must engage in learning and use learning as a
source of inspiration and reference. It is my belief that gaining insights from the
experience and lessons of other enterprises is a very effective learning method.
Zhongguancun Model: Driving the Dual Engines of Science & Technology and
Capital is an invaluable book. It includes an overall data analysis of ZLCs and case
studies from a variety of industries with detailed information and comprehensive
analyses. It is worth reading and is a great reference to macroeconomic researchers
and entrepreneurs, as well as government officials and young scholars.
As the old Chinese proverb says, “Stones from other hills may serve to polish the
jade of this one.”
Beijing, China
June 2017

Mr. Xu Jinghong
Chairman of Tsinghua Holdings

vii


Preface

In a March 2009 investigation interview with Guo Jinlong, Mayor of Beijing,
(Zhongguancun Science Park had just been approved as the first national innovation
demonstration zone)1 he asked me: “In ten years from now, what would be the
marker of Zhongguancun’s success? I answered: if Zhongguancun had produced
ten more enterprises like Lenovo, then Zhongguancun would be considered successful. Now, it has been less than ten years and Zhongguancun has produced more
than ten listed enterprises with a market capitalization of over 50 billion RMB and
dozens more enterprises with a market capitalization of over hundreds of billion
RMB, such as Baidu and JD.com. Zhongguancun high-tech enterprises have shown
explosive growth; their scientific and technological innovations are remarkable, and
countless scientific achievements have emerged. Indeed, Zhongguancun is now a
powerhouse of technological innovation.
At present, Zhongguancun has produced more than 20,000 enterprises. As all of
its enterprises focus on innovation, ZLCs demonstrate typical innovation-driven
development. As public companies, ZLCs have made fruitful achievements in the
global capital market: In 2015, Zhongguancun’s total market capitalization reached
4.8 trillion RMB, net investment reached 20 billion RMB, and research and
development input reached over 8 billion RMB. ZLC’s total market capitalization
increased from 1.3 trillion RMB in 2011 to 4.8 trillion RMB in 2015, thus
achieving over 50% growth for three consecutive years. I think this remarkably
rapid growth is primarily due to scientific and technological innovations. In 2013,
when the CPC Central Committee Political Bureau conducted a collective study on
the implementation of innovation-driven development strategy, President Xi
Jinping emphasized the importance of comprehending the global innovation-driven
development trend and effectively implementing its strategy. In the future,
Zhongguancun should strengthen the implementation of innovation-driven development strategy and increase the speed of its efforts to establish a science and

technology innovation center with global influence, in order to play a leading role in
“Zhongguancun” mentioned below refers to Zhongguancun National Innovation Demonstration
Zone.

1

ix


x

Preface

implementing innovation-driven development strategy across the country. President
Xi’s speech encouraged many board members of listed companies to report on their
business innovation. The policies of the Party Central Committee have provided a
new world for the rapid development of innovative technology-based enterprises in
Zhongguancun. In the transformation of China’s economy, Zhongguancun has
pioneered a new economy, characterized by the Internet’s cross-border integration,
innovation and economic sharing, and a new land to explore. Statistics show that
Zhongguancun’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 economic
growth in 2015. Technological innovation drives economic development, and
Zhongguancun’s innovation has become an engine of new economic growth in
China. How much displacement does this “engine” have? How much energy does it
consume? How fast can this engine grow?
Until now, there has been little to no literature on Zhongguancun that provides
its readers with a comprehensive account and analysis of this innovative space. As a
scientific researcher specializing in bioscience, I have devoted my life to the
research and development of vaccines for more than 30 years. I formed my first

team, started a business in Beijing, and finally 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 Zhongguancun
Listed Companies Association, and I have the fortune to serve as the association’s
president for the past five years. It is precisely because of my rich experience and
dynamic identities as a researcher, entrepreneur, and president of an NPO that I
have the understanding of the language and data needed to accurately describe the
recent the development of Zhongguancun. I hope that this book’s account, along
with a wealth of data sets and graphs, provides people with a true understanding of
Zhongguancun.
Each year, the Association’s research team publishes The Competitiveness
Report of Zhongguancun Listed Companies, which is based on the financial data of
listed companies. We have found that the data sets have significantly changed over
the past five years. With the unique access to Zhongguancun’s data, I believe that it
is imperative to conduct research and analysis on the Zhongguancun’s innovation
phenomenon. With this aim in mind, we collaborated with Dong Xiaoying, an
Associate Professor at the Peking University, Guanghua School of Management,
and his academic team in order to leverage the strengths of both parties in conducting the study.
The majority of the existing literature on research on development patterns and
strategies focuses on macrofactors and variables; this book, however, draws from a
large amount of basic data, takes 238 listed companies as the research object, and
examines these high-tech enterprises, all of which are active in global capital
markets, in order to provide a comprehensive overview of ZLCs’ development over
the past five years through an objective account. In addition, the research team also
conducted a number of interviews and research. During the study, the research team
selected eight listed companies to serve as a typical case. These companies, while
not the largest or the fastest growing, they are an accurate representation of


Preface

xi

Zhongguancun enterprises across a wide range of industries; they reflect and
highlight the development of Zhongguancun’s science and technological trends.
Through the combination of quantitative research and qualitative descriptions, this
book presents a thorough analysis based on the capital market valuation of enterprises, quantifies the contribution of science and technology innovation to the
economy, and explores the circulation of R&D and human capital investment to the
improvement of products and service levels to access to capital markets to the
promotion of financing and finally to driving a new round of technology innovation
investment. In this book, Zhongguancun’s innovative ecology is explored; this
innovative ecology has not only promoted the development of ZLCs over the past
five years, but also continuously affects the operation of Zhongguancun.
This book plays a valuable role in sparking further discussion on Zhongguancun
and will hopefully lead to increased research in this area. Firstly, we hope to
increase the number of experts that conduct research on Zhongguancun and analyze
the development zone as a new economic engine with different research perspectives. The increased research in this area will further the general understanding of
Zhongguancun as a whole.
Secondly, we hope that this book will serve as a reference for all levels of
government as they develop science and technology innovation strategies.
Zhongguancun is the first independent innovation demonstration area approved by
the State Council. Through this pilot, a number of innovation and entrepreneurship
projects have taken root and blossomed; further, similar policies have been
implemented in other national demonstration zones for the development of innovation. In the process of development, which is driven by science and technology
innovation, the Zhongguancun Administrative Committee has given its full support
and a high degree of independence and freedom to its enterprises, thus forming the
area’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 science
and technology innovation-oriented enterprises and entrepreneurs. Success or
failure is never the only criterion in Zhongguancun; however, it is essential for

enterprises to reflect and adjust its means of survival, as it moves forward in the
tides of innovation and entrepreneurship. To some extent, this book is also a
textbook 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-year
history of development.
Fourthly, we hope that more investors can understand and discern ZLCs’ distribution in various capital markets. Zhongguancun has now become the most
active venture capital zone in China, and venture capital investment has played an
important role for ZLCs as they enter the capital market and increase in scale and
size. The book also allows investors to “diagnose” ZLC’s development prospects in
relation to its historical trends, which are based on objective data, in order to refuel
Zhongguancun technological innovation.
As an experimental mechanism of innovation and policy implementation in
China, Zhongguancun, now with over 20 years of development, has grown into the
first national independent innovation demonstration zone. It has always been


xii

Preface

regarded as a hub for innovation and dares to be a global leader. Innovation here is
not a mere slogan, but rather a visible, accessible, and tangible result. However, we
must also be soberly aware that ZLCs still have a long way to go, because technological innovation requires multiple attempts and, in the process of innovation,
there is much uncertainty; that is the case for both companies and governments
alike. It is the uncertainty that forces companies to make attempts. Encouraging and
revering the uncertainty facilitates the incubation of the Zhongguancun model, and
the development of the service-oriented government and innovative enterprises.
Finally, I would like to express my heartfelt thanks to people who contributed to
the formation of the book’s ideas and the publication itself. Thanks to Director Zhai
Lixin of the Zhongguancun Administrative Committee for providing your strong

support 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, the
Associate Director of the Administrative Committee of Zhongguancun for his
interview; Thanks to Gao Li for her ideas in the policy section; Thanks to Dong
Xiaoying, an Associate Professor at the Peking University, Guanghua School of
Management, and his team for their contributions and comments; Thanks to the
enterprises that shared their experiences and data in the case section; Thanks to
Ernst and Young for the professional audit of the book’s financial data from 2011 to
2015; Thanks to Lin Junxiu, the Director of the Beijing University Press, for the
editorial work; Thanks to Chief Yin Hao and Deputy Chief Zhao Junjie of the
Science, Technology and Finance Department of the Administrative Committee of
Zhongguancun for their great support of the association’s work and the book;
Thanks to Estela Kuo, Chen Hong, Wang Yangdan, Xue Xiaoying, Ge Yan, Liu
Yongxin, and all of my colleagues for your dedication to the book. Finally, I would
like to thank the numerous institutes and friends, who are not listed above; please
accept my sincere thanks to all of you!
Beijing, China
August 2017

Mr. Yin Weidong
President of Zhongguancun
Listed Companies Association
Chairman of Sinovac Biotech


Recommendations

This book summarizes and analyzes comprehensive data from Zhongguancun listed
companies over the past five years. After reading this book, you will be able to
understand Zhongguancun’s current situation and its development over the past five

years. The fact that Zhongguancun’s total market capitalization has doubled over
this period makes it an important model for China.
—Liu Chuanzhi, Chairman of Legend Holdings
This book provided me with rich insight. The rise of Zhongguancun has not only
produced a group of outstanding enterprises for the Chinese society, but also cultivated an untiring pursuit of technological innovation. The positive interaction and
“mutual education” between the government and enterprises has created an environment conducive to innovation and entrepreneurship, and thus laid the foundation
for the development of excellent companies.
—Liu Qiao, Dean of Guanghua School of Management, Peking University
The new economy calls for new finances; the new era breeds new opportunities.
Pioneered by Zhongguancun, in this new model which integrates finance and
technology, ZLCs will continue to play an important role.
—Guo Hong, Chairman of Zhongguancun Bank
In 2009, Sinovation Ventures was founded in Zhongguancun; the company witnessed
the 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 foreign
readers as an in-depth analysis of Zhongguancun’s development.
—Li Kaifu, Chairman of Sinovation Ventures

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Recommendations

This book contains an overall data analysis of ZLCs and case studies from different
industries; it provides detailed information and a thorough analysis. It is particularly
worth reading for macroeconomic researchers, entrepreneurs, young students, and
even 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 low
carbon, modern supply chain, and high-end services identified as priorities by the
Party Central Committee. These companies developed from mere concepts through
scientific and technological innovation, and from small to large scale with the
assistance 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 outstanding
companies born there, but the fact also its unique economic development model of
“promoting entrepreneurship, advocating innovative culture, targeting international
frontiers, and comprehensively serving innovation and entrepreneurship.” This
model is of great significance to the successful completion of China’s transition
from the traditional to new kinetic energy; it symbolizes China’s new journey in
building an inclusive, socialist modern country.

xv


Contents

1 The History of Zhongguancun . . . . . . . . . . . . . . . . . . . . . . . .
Zhongguancun Electronics Street (December 1978—April 1988) .
Beijing New Technology Industrial Development Trial Zone
(May 1988—May 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zhongguancun Science Park (June 1999—February 2009) . . . . .

Zhongguancun National Innovation Demonstration Zone
(from March 2009 till Present) . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Data of Zhongguancun . . . . . . . . . . . . . . . .
IPO: Domestic or Overseas, Which Is Better?
Market Capitalization: Growth and Ranking . .
Market Capitalization Growth . . . . . . . . . .
Market Capitalization Distribution . . . . . . .
Market Cap Rankings . . . . . . . . . . . . . . . .
Business: Where Is the Core Competency? . .
Revenue Quality Analysis . . . . . . . . . . . . .
Profit Quality Analysis . . . . . . . . . . . . . . .
Asset Quality Analysis . . . . . . . . . . . . . . .
DuPont Analysis . . . . . . . . . . . . . . . . . . . .
Financing: Status and Impact Factors . . . . . . .
Cash Content Analysis . . . . . . . . . . . . . . .
Operating Cash Flow . . . . . . . . . . . . . . . .
Cash Flow of Investment Activities . . . . . .
Cash Flows of Fund-Raising Activities . . .
Industry: Internet and Non-Internet Layouts . .
Zhongguancun “641” . . . . . . . . . . . . . . . .
Internet Versus Non-Internet . . . . . . . . . . .
Valuation: Investors’ Perceptions . . . . . . . . . .
P/B Ratio . . . . . . . . . . . . . . . . . . . . . . . . .

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xviii

P/S Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P/E Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Top 100 PE Assets in ZLCs: Entrepreneurs’ Wealth Creativity
Ownership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Development Characteristics of the Top Ten ZLCs
in Market Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The List of Entrepreneurs’ Equity Assets in ZLCs . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 Zhongguancun Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOW: The “Membrane” Technology of Water Protection . . . .
Entrepreneurial Background . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DHC Software: A Behind-the-Scenes Look into the Software
Hero for Multiple Industries . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Glodon: Digital Housekeeper of Intelligent Architecture . . . . .

Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlueFocus: The Way of Digital Transformation . . . . . . . . . . .
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . .
Human Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shenwu Group: Futuristic Combustion Technology Is Turning
“Waste” into Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Contents

xix

DBN Technology Group: Agricultural Internet of “The Doctor
of Swine” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China High-Speed Railway: An Intelligent Defender for Rail
Transit Operation and Maintenance . . . . . . . . . . . . . . . . . . . . . .
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kyland: A Blue Chip That Challenges Germany’s “Industry 4.0”
Corporate Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Innovative Research and Development . . . . . . . . . . . . . . . . . .
Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 Zhongguancun Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategy and Layout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“Two Cities and Two Belts” . . . . . . . . . . . . . . . . . . . . . . . .
“Multiple Gardens in One Park” . . . . . . . . . . . . . . . . . . . . .
The Role of the Zhongguancun Administrative Committee . . . .
Developing a Leading Enterprise . . . . . . . . . . . . . . . . . . . . .
Promoting the Cultivation of Science and Technology Talent

Promoting Innovation and Entrepreneurship Services . . . . . .
Perfecting Science and Technology Financial Support . . . . . .
Create Mass Entrepreneurship and Innovation Ecology
and Entrepreneurial Culture . . . . . . . . . . . . . . . . . . . . . . . . .
Integration of Production, Study, and Research . . . . . . . . . . .
Interview with Wang Rufang, a Leader in the Zhongguancun
Administrative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Zhongguancun Policies . . . . . . . . . . . . . . . . . . . .
5 Zhongguancun Model . . . . . . . . . . . . . . . . . . . . . . . .
How Do Government and Policy Mechanisms Support
Zhongguancun? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building an Ecosystem Is the First Priority . . . . . . . .
Emphasizing Services not Management . . . . . . . . . .
Established for the Market . . . . . . . . . . . . . . . . . . . .

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xx

Contents

Adhering to a People-Oriented Principle . . . . . . . . . . . . .
Creating a New Entrepreneurial Culture . . . . . . . . . . . . .
What Are the Elements of the Regional Ecosystem? . . . . . .
Industrial Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diversity in Scale . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relationship Diversity . . . . . . . . . . . . . . . . . . . . . . . . . .
Services Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How the Enterprise Innovation System Works . . . . . . . . . .
Leaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Transformations . . . . . . . . . . . . . . . . . . . . . . .
Research and Development Mechanisms . . . . . . . . . . . .
External Communications . . . . . . . . . . . . . . . . . . . . . . .
Talent System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How Capital Helps Scientific and Technological Innovation
Seed Stage: Angel Investment and Policy-Based Finance
Start-up Stage: Venture-Guide Funds, Microfinancing,
and Secured Financing . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Stage: Venture Capital Investment, Small
and Medium Loans, and the Gazelle Project . . . . . . . . . .

Maturity Stage: Financing by Listing, Acquisition
and Reorganization, Large and Medium-Sized Credit . . .
Map of Region/Enterprise Boundary Extension . . . . . . . . .
Regional Boundary Extension . . . . . . . . . . . . . . . . . . . .
Enterprise Boundary Expansion . . . . . . . . . . . . . . . . . . .
Conclusion and Revelation . . . . . . . . . . . . . . . . . . . . . . . .

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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 Center
and serves as a Ph.D. Research Advisor. She is the Vice Chairman of the China
Information Economics Association. She also holds membership positions on the

Expert Committee of the Information and Communication Economic (ECICE)
of the Ministry of Industry and Information Technology, and the National
Technical Committee on Intellectual Property and Knowledge Management
Standardization Administration of China. She has conducted in-depth research on
scientific 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, Peking
University. His research advisor is Guanghua Prof. Dong Xiaoying. She previously
served as the Chairman of the Beijing Student Federation. She was named the
Beijing 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. He
currently serves as the President of the Zhongguancun Listed Companies
Association, a Vice Chairman of the Beijing Federation of Industry and Commerce,
and a Member of People’s Congress Standing Committee of Haidian District. He is
the Chairman and CEO of Sinovac Biotech Co., Ltd. In addition, he is a
Professor-level Senior Engineer in biopharmaceuticals and has pioneered the
development of the human bird flu vaccine, A/H1N1 influenza vaccine, and the
EV71 hand-foot-and-mouth disease vaccine.

xxi


xxii

About the Authors

Estela Kuo earned her Master of Communications from the University of
California, Santa Barbara, and an EMBA from Harvard Kennedy School. She
founded three companies and currently serves as the Secretary General of

Zhongguancun Listed Companies Association. In 2017, she was appointed as the
Director of the Beijing Taiwan Business Association. Since 2009, she has also
served as the Chair of the Yanxing China Foundation, which assists impoverished
rural 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).” As
early as the Ming Dynasty, the area’s picturesque scenery attracted palace eunuchs
looking for the perfect burial grounds, thus becoming a sought-after eunuch
cemetery. As eunuchs were called “Zhong Guan er (or Chinese officials),” the
modern-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 of
Zhongguancun. 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 in
the area. At this time, the name “Zhong Guan er,” deemed unsuitable for the area’s
academic stature, became “Zhong Guan Cun.” The new name is said to have been
proposed 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 with
the highest concentration of research centers and universities in Asia. The CPC
Central Committee and the State Council attach great importance to its innovation

and development, and have made a number of key decisions and arrangements, in
order for Zhongguancun to become China’s first national high-tech zone and its first
innovation demonstration zone. The area’s development can be divided into four
distinct 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, />
1


2

1

The History of Zhongguancun

Zhongguancun Electronics Street (December 1978—April
1988)
In December 1978, China’s Third Plenary Session of the Eleventh Central
Committee of CPC announced the new Reform and Opening-up Policy, which is
the prologue to China’s modern reform. Based on strong scientific research and
human capital, Zhongguancun become one of the first areas to emerge as a response
to the reform.
October 1980: Beijing Plasma Society’s Service Department for Advanced
Technology Development was founded.
On October 23rd, CHEN Chunxian, a researcher at the CAS Institute of Physics
visited Silicon Valley in the United States twice. He later established the Beijing
Plasma Society’s Service Department for Advanced Technology Development with
six science and technology personnel, thus becoming the first to provide market and

business access for scientific and technological personnel.

CHEN Chunxian, a pioneer of Zhongguancun (right)

December 1982: Jinghai Company was established.
On December 22nd, WANG Hongde, an employee at the CAS Institute of
Computer Science, resigned from office and established the Beijing Jinghai
Computer Room Technology Development Company (abbr. “Jinghai Company”)
in Zhongguancun with seven scientific and technical personnel. Jinghai Company’s
core business is to provide customers with computer room installation, including
the installation of anti-static flooring, wiring, etc.


Zhongguancun Electronics Street (December 1978—April 1988)

3

May 1983: Kehai Company was founded.
On May 4th, Beijing Haidian New Technology Joint Development Center of the
Chinese Academy of Sciences (abbr. Kehai) was founded in Sijiqing People’s
Commune in Haidian District; CHEN Qingzhen served as the director.
November 1984: New Technology Development Company of the Institute of
Computing Technology at CAS (predecessor of Lenovo) was founded.
On November 1st, with the investment of 20,000 RMB from the Institute of
Computing Technology of CAS, LIU Chuanzhi with ten other technological personnel founded the New Technology Development Company of the Institute of
Computing Technology at CAS, which later became Lenovo.

The site of Lenovo group

November 1984: Xintong Company, the first joint-stock science and technology

enterprise in Zhongguancun, was founded.
On November 14th, Beijing Xintong Computer Technology Co., Ltd. (abbr.
“Xintong”) was established; the company received 1 million RMB investments
from the Institute of Computing Technology of CAS, the Scientific Instrument
Factory of CAS, and the New-industry Joint Venture of Haidian District, respectively. Xintong is the first joint-stock technology enterprise in Zhongguancun.
August 1985: The first sci-tech intermediary service organization was established.
In August, the State Scientific and Technological Commission set up China New
Technologies Development Company, which mainly engaged in organizing the


4

1

The History of Zhongguancun

transfer of scientific and technological achievements; the company has a registered
capital of 200,000 RMB. The company was the first sci-tech intermediary service
organization on the Electronics Street.
November 1986: The first individual technology enterprise was established.
In November, Beijing Haidian Yongming Power Technology Research Studio was
established with the approval of the Haidian Science and Technology Commission.
It is the first individual technology enterprise on the Electronics Street and mainly
engaged in power source and electronics.
March 1987: The first Sino-Foreign joint sci-tech venture was established.
On March 24th, Beijing Stone Office Automation Equipment Co. Ltd was established by Stone Group and Mitsui & Co., Ltd. This was the first Sino-foreign joint
venture technology enterprise on the Electronics Street. It mainly engages in
research and development, production, and manufacturing of Stone typewriters.
April 1987: The first invention patent application was submitted.
On April 10th, SUN Qiang from the Beijing Stone Group submitted an application

for the invention patent of a Chinese character font generator, which produced
multiple fonts, to the State Intellectual Property Office (Patent No.: CN
87102545.0). This is the first invention patent submitted by a Zhongguancun
enterprise.
September 1987: China’s first email sent from Zhongguancun.
On September 20th, QIAN Tianbai, who works for the CANet project at the
Chinese Academy of Sciences, sent an email to the University of Karlsruhe in
Germany from the Beijing Institute of Computer Applied Technology. His email
states: “across the Great Wall we can reach every corner in the world.” This is the
first e-mail sent from China.
As of the end of 1987, nearly a hundred science and technology enterprises
represented 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, Zhongguancun
Electronics Street had around 148 science and technology enterprises, which
employed 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 Haidian
District. The majority of these companies were engaged in research and development, and the application of computer and electronic technology.


Beijing New Technology Industrial Development Trial Zone …

5

The Zhongguancun electronics street in the 1980s

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 a
massive amount of wealth. This series of positive changes attracted attention from
the State Council and leaders from the Beijing municipal government. After many
investigations and discussions, the State Council formally approved the Provisional
Regulations on Beijing New Technology Industrial Development Trial Zone on
May 10, 1988 and stipulated that Zhongguancun, with an area of about 100 km2,
would be designated as the Beijing New technology Industrial Development Trial
Zone. On May 20th, the Beijing municipal government issued the Provisional
Regulations on Beijing New Technology Industrial Development Trial Zone and the
pilot zone was formally established, thus opening a brand-new development phase
for Zhongguancun.
May 1988: Beijing New Technology Industrial Development Trial Zone was officially established.