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Development and Transformation of National High-tech Zones: Problems and Challenges

2015-08-14

By Long Haibo

Research Report Vol.17 No.3, 2015

As clearly pointed out in The Implementation Plan for Innovation-driven and Strategic Upgrading Actions for National High-tech Zones issued by the Ministry of Science and Technology in 2013, it is still necessary for national high-tech zones to strengthen their original innovation, accelerate the cultivation and development of strategically new industries and modern services, and enhance the international competitiveness of the industries. They also need to play a more influential role, further reform and innovate their systems and mechanisms, and persistently improve their development level of science. While the power for review on administrative items is continuously delegated to lower level governments, and market system is formed, which is characterized by unification, openness and fair competition, the dividends from traditional preferential policies and regional advantages enjoyed by national high-tech zones are diminishing. Meanwhile, the internal environment in which some policies reside are undergoing changes. The development of high-tech zones faces restraints of unprecedented breadth and intensity. Particularly, there exists a sharp conflict between poor capacity of technology innovation and the urgent need for transformation and development.

I. “Increase vs. Decrease”: Increase in Factor Cost versus Weakening of Preferential Policies

During the past 25 years, the development of national high-tech zones at the initial stage has been benefited from the accumulative dividends of low-cost production factors and various preferential policies. At present, the first challenge faced by national high-tech zones is the increasing cost of production factors and the weakening or termination of some preferential policies, which will be analyzed from the supply side.

On the one hand, it is difficult to continue the development model purely driven by factors. With the increasing cost of such factors as land, labor, and capital, national high-tech zones can not maintain their former driving force. Specifically speaking, first of all, land cost of the first-tier cities in China is very close to, or even higher than, that in the developed countries. The current land resource can not meet the need of national high-tech zones for expansion. Second, in recent years, the cost of labor specialized in high-tech production has on the rise remarkably. Those high-tech enterprises that completely rely on mass production or simple technology imitation have to pay more for labor. Third, influenced by incomplete financial system and exchange rate policy, many small and medium-sized technology-oriented enterprises still face the problems of being difficult and costly in raising capital. Moreover, the considerable system cost, during the reform process, prompts the pressing need of entity enterprises, including small and medium-sized technology-oriented enterprises, for low-cost financing. Fourth, it is becoming more difficult to obtain technologies from outside sources, especially those key technologies essential for corporate core competitiveness due to high cost or mostly prohibitive sale. Due to the four above-mentioned reasons, the scale effect of production factors has been weakened. Consequently, the development of national high-tech zones will rely more on quality human capital and technological advancement which is mainly backed by independent innovation.

On the other hand, some preferential policies are weakened, delayed, and unfulfilled, which directly compromises their designed effects. For example, more enterprises outside the high-tech zones can also be accredited as high-tech firms, thus tax breaks are no longer applied only within national high-tech zones. Adopted in 2007, the new Enterprises Income Tax Law established the new tax preference system which places “industry preference first, regional preference second.” This system put an end to the period during which enterprises can enjoy differential tax breaks based on their different “identities”. Furthermore, some preferential policies have expired. For instance, the tax policies for the high-tech zones of national universities have been practically terminated in most places. Moreover, although being issued to support small and medium-sized enterprises for technology innovation in recent years, these preferential policies didn’t actually reduce their tax burden because current tax breaks for high-tech enterprises are mainly based on their profits, overemphasizing the incentive for innovative achievements, but ignoring preferential treatment to innovation process. Thus, it is really difficult for small and medium-sized enterprises to be benefited from these preferential policies. What’s more, some policies on administrative authority, comprehensive evaluation, as well as laws and regulations have not been fulfilled, which has negative impacts on policy implementation.

The cost increase in production factor supply is attributed to objective circumstances, unchanged by personal wishes. However, the majority problems of weakened, delayed, and unfulfilled preferential policies are the result of subjective actions. Some preferential policies issued by the state are too general with only some principles outlined. Some are ill-considered. Some policies are not followed up timely. Overemphasizing supportive policies for short-term economic growth, local governments are not active in providing supportive policies to encourage technology innovation and to create favorable environment for innovation.

II. “High vs. Low”: Increasingly High Economic Growth versus Relatively Low Innovative Capability

With China’s economic development still driven by production factors, local governments focus more on the capability of economic production by national high-tech zones, failing to combine it with upgrading innovative capability. Under the pressure of high factor cost and with the current policies available in high-tech zones, there appears a phenomenon in all high-tech zones nationwide. That is the distorted mechanism where there is a high incentive for “short-term economic growth” and a low incentive for “independent technology innovation.” The second challenge faced by national high-tech zones is the persistent increase in economic growth but low innovative capability as a whole, which will be analyzed from the perspective of objectives and results.

On the one hand, the leading role played by national high-tech zones for economic growth should be correctly understood. After the development in the past 25 years, national high-tech zones have made great progress in promoting technological advancement, leading independent innovation, stimulating the development of new industries, to name a few. However, they exercised a more striking role in boosting local economic development. According to the statistics of High-tech Zone Bulletin 2013 published by the Torch Center, Ministry of Science and Technology, the gross revenues of high-tech zones reach 20.3 trillion yuan, achieving the added value of more than 10% of national GDP. High-tech enterprises in the zones account for more than 45% in many indexes such as gross revenues, net profits, total tax, and total export volume. It can be said that national high-tech zones have become the major growth pole of regional development. Nevertheless, we have to admit the fact, with the annual GDP growth rate getting closer to the national level, national high-tech zones are catching up with the average growth of the country in recent years. As a whole, the profit rate of high-tech enterprises in the zones is, for a long time, lower than that of those outside the zones. Compared with the counterparts in developed countries, high-tech zones in China lag behind in such important areas as industrial added value, productivity per worker, and global competitiveness, which clearly shows the quality content of economic growth.

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