7 Targeted Public Policies in ShanghaiÕs Path to a Knowledge ...

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3 Δεκ 2012 (πριν από 4 χρόνια και 6 μήνες)

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7

Targeted Public Policies in ShanghaiÕs Path to a Knowledge
-
based
Economy

Weiping Wu


Today, rapidly growing economies depend more on the creation,
acquisition, distribution and use of knowledge. The effective use of
knowledge is therefore becoming the
most important factor in
international competition. The pillars of a knowledge
-
based economy
often include: an economic and institutional regime that provides
incentives for the efficient use of existing knowledge, the creation
of new knowledge, and entre
preneurship; an educated and skilled
workforce that can create and use knowledge; a dynamic information
infrastructure that can facilitate the effective communication,
dissemination, and processing of information; and an effective
innovation system that ca
n tap into global knowledge, adapt it to local
needs, and create new knowledge.1

In this new economy the most important resources are likely the ideas,
intellectual capital, and knowledge of the workforce. Proponents of
human capital theory further argu
e that the key to growth now lies not
in reducing costs of doing business, but in endowments of highly educated
and productive people.2 In the U.S. economy, for instance, there has
been a general increase in the contribution of intangible assets to
growth.
3 On the other hand knowledge assets can be costly to acquire
and to develop. They are even more difficult to manage. An example
of such high costs is the exorbitant prices that high
-
tech companies
pay to acquire smaller firms as they look for knowledge
assets to
leverage.4 Digitalization and the explosive growth in electronic
distribution channels also create new uncertainties surrounding
knowledge assets by making property rights hazy. These challenges,
as a result, call for appropriate institutions an
d incentives to promote
and regulate the knowledge
-
based economy

China confronts this knowledge and information revolution as it
undergoes a rapid process of industrialization and the transition from
a planned to a market economy. These changes, along wi
th substantial
domestic and foreign investment, have underlined China's high rate of
economic growth. But to maintain international competitiveness, China
needs to improve productivity, likely through a "high road" based on
efficiency enhancement and inno
vation. As a result, strategies for
enhancing research and innovation capabilities have come to occupy a
more important position. A series of ambitious initiatives have been
launched to enhance the country's technological capabilities and reform
its nati
onal innovation system.5

Already the leading production center, and often seen as China's
economic locomotive, Shanghai is attempting to increase its edge over
other cities by implementing a set of strategic development objectives.
With increasing loc
al autonomy and a rising cadre of younger technocrats,
the new leaderships share in the vision of a market system. They have
guided the city through industrial restructuring to acquire some of
the functions commonly associated with global cities, includin
g finance,
transnational corporate headquarter functions, global services,
transport, information, and cultural activities. This is reflected
in the substantial shift in Shanghai's economic structure during the
last two decades, as the manufacturing secto
r has given way to the
tertiary sector, that is now accounting for more than half of the
municipal GDP.6 Moreover, Shanghai has invested heavily in transport
facilities and the latest fiber optics and mobile communications
technology so essential for the
growth of local producer services and
for integrating with the international business community.

The primary purpose of this paper is to identify targeted public policies,
at both the national and municipal levels, that will allow Shanghai
to compete and p
rosper in the new knowledge
-
based economy. What follows
next is a brief overview of related literature on the critical role
of universities, education, the national innovation system, and
targeted public policy. The third section outlines recent changes
in
China's national innovation system, which are likely to have
significant implications for Shanghai. The fourth section examines
key policies and initiatives proposed and implemented in Shanghai, with
a focus on the overall policy framework for the know
ledge economy and
measures to augment technological capabilities. The paper is concluded
with some future challenges facing the city.


Building an Innovative Environment
-

research Context

Knowledge
-
intensive production and service activities are almost
e
xclusively based in urban areas and tend to have a large number of
small and medium
-
sized enterprises (SMEs). SMEs are considered to be
more flexible and independent than large ones, but also are more
constrained by available resources7. Recent research
shows that the
external environment for innovation is at least as important as the
capabilities and processes within firms.8 Most of all, the vitality
of innovation in a location is shaped by a national innovation system
-
a
complex network of agents, polici
es and institutions supporting the
process of technical advance.9 This system, specifically, includes a
nation's intellectual property (IP) protection system, its
universities and its research laboratories. More broadly, it may also
include many other sub
systems and processes, such as norms of
competition and a nation's financial and monetary policies.

The importance of national innovation systems is showcased in, for
instance, Denmark and Finland. They have made major gains in wireless
technology since t
he mid
-
1980s by substantially increasing their R&D
workforce and investment, and emphasizing policies that support open
competition and strong IP protection. New centers of innovation also
are emerging outside of the western hemisphere, in Singapore, Taiw
an,
South Korea and Israel.10 In the U.S. national innovation system, the
federal government's role is very important in setting the public policy
environment, and a number of federal statues are particularly
noteworthy. The passage of the Stevenson
-
Wydle
r Technology Innovation
Act and the Bayh
-
Dole University and Small Business Patent Act (both
in 1980) has ushered in a new era in the transfer of publicly funded
IP to industrial firms.11 These and other institutional changes have
allowed enterprising indi
viduals to license technology out of their
own labs to create startup companies, and encouraged universities to
embrace closer interactions with industry to facilitate innovation
diffusion.12

Critical to the establishment of an urban knowledge economy is

the local
innovation capacity.13 In particular, the presence of leading research
universities and a high share of college graduates are essential for
dynamic cities to leverage locational advantages, as shown in the U.S.
case. Dynamic cities adapt their
economies to new technologies well
and are constantly reinventing themselves by moving from one field of
specialization to another.14 But innovation capacity alone is not
sufficient, as generating new technologies locally may not be as
important as having
the ability to adapt them. The surrounding
community needs to be able to absorb the innovation generated by research
institutions and help develop the lifestyle amenities sought by firms
and workers.15

In contrast to European countries, both public and
private universities
in the U.S. have long played a significant role in conducting research
that contributes to technological development and industrial
performance.16 There are diverse interfaces between research
universities and the industrial sector. I
ndustry
-
university
relations in Europe, on the other hand, have lagged behind partly because
of legal prohibitions in some countries against faculty collaboration
with commercial firms and cultural biases against academic involvement
with commerce. Select
ed U.S. research universities share this European
cultural predisposition to contribute to knowledge for its own sake
and the unwillingness to allow commercial interests to influence
research.17 In the case of Seattle, the University of Washington (UW)
has

not been an active participant in the formation of new biotech firms,
and its primary role has been in the acquisition of federal research
funding.18 The evolution of the software industry, in particular, has
not been significantly affected by UW. This c
ase presents some evidence
for successful knowledge
-
based development in the absence of leading
universities.19

By and large, universities are thought of as incubators for startup
firms, as places where knowledge is patented, where specialized
research is
housed, and where scientists and industry work together
on product commercialization.20 The core of this success is a
university's ability to build intellectual capacity by recruiting and
retaining top
-
notch faculty. Most scholars agree that the driving
f
orce behind the biotech R&D in the Bay Area of U.S. is the combined
clout of Stanford University, University of California at San Francisco
(UCSF) and UC Berkeley. Professors from Stanford and UCSF launched
Genentech in 1976, a successful anchor firm for
the biotech cluster,
with new gene splicing technology.21 The result is often tight
-
knit
R&D communities dense with insiders. People who start up as graduate
students together can end up as faculty members at the same institution
or collaborators in diffe
rent firms. Similarly, Tokyo's concentration
of universities and public research institutions plays a vital role
in developing new frontier technologies and stimulating corporate
R&D.22

Research also shows that investments in higher education infrastructu
re
predict subsequent city and regional growth far better than investments
in physical infrastructure like highways and railroads.23 Having a
readily available and qualified workforce is one of the best investments
cities can make, and almost all centers o
f innovation are places with
a high concentration of educated people.24 Take the example of Boston.
Its so
-
called Research Row
-
composed of MIT, Harvard, and other local
universities, and a growing concentration of industrial labs
-
offers
an intellectual an
d technical labor pool unsurpassed in the nation in
its depth and diversity.25 In particular, the opportunity to study,
or even work, with professors engaged in cutting
-
edge research greatly
enhances the quality of a student's education. The existence of
such
a community of knowledge also makes the area a more attractive place
for leading scholars and scientists. Specifically for biotech, the
area offers probably the best available selection of bioscience
research scientists and technicians.26

Targeted
public policy is perhaps the most important factor in fostering
a technology sector in the city of Bangalore, India's emerging
innovation center. The software cluster in Bangalore initially
developed in response to and because of government intervention
(
particularly at the national level). Since 1948, the government of
India has prepared the Peenya industrial site and provided the necessary
infrastructure. In addition to the establishment of the Indian
Institute of Science and Hindustan Aeronautics, a l
arge number of public
firms were strategically placed in the city, including the Indian
Telephone Industries and Bharat Electronics. These large firms helped
form a local pool of skilled labor and provided a training ground for
future industrial talent.
Over time, smaller ancillary units and local
suppliers also grew in number and technical sophistication. After
India liberalized its trade regime in the 1990s, foreign firms, such
as IBM and Motorola, were attracted to the city by the highly skilled
labor

pool available for technology
-
intensive operations.27

Good local infrastructure also is important to the knowledge economy,
particularly that critical to the direct operation of the firms. For
biotech laboratories, Internet
-
based companies and large fa
cilities
housing multiple servers, non
-
interruptible power is critical. So is
access to backup power and telecommunication lines. New server
hotels
-
large facilities constructed specifically to house serves of
multiple firms
-
are becoming a significant fac
tor in local electric
demand.28 In addition, four issues have emerged as most important to
the quality of life for many high
-
tech communities, at least in the
U. S.: quality public education, reliable health care, assured public
safety, and a clean and att
ractive natural environment. The
availability of recreational opportunities is another top driver of
quality of life. Surveys find that knowledge workers want urban
amenities such as outdoor dining, walking streets, vibrant night life,
and river walks co
mbined with outdoor recreation activities including
urban kayaking, rock climbing and bike trails.29

China's National Innovation System

For nearly three decades (1949
-
1979), China followed the Soviet Union's
model of establishing functionally specialized

organizations whose
activities and interactions would be managed by a central government
agency. As a result, research, including all creative or innovative
activitities, was conducted by research institutes, manufacturing by
factories, and distribution
by distributors. More than 400 research
units were established and divided into roughly three groups. First
were the research institutions under the Chinese Academy of Science
(CAS) and its subordinate, provincial
-
level academies, primarily
responsible f
or basic research, research in key industrial areas
(including defense) and advanced technology. Second were the research
institutes within universities, with both teaching and research roles.
Third were the industry
-
specific research institutes within d
ifferent
ministries responsible for solving specific applied problems as well
as introducing new technology into industry.30 A multitude of central
ministries coordinated these units, creating a vertically, rather than
horizontally, integrated system.31 As

a result, there were no
incentives to create direct linkages among research institutions,
manufacturers, distributors or users. Instead, these units depended
on centralized, top
-
down allocations for necessary inputs.

Since 1979 this system has been under
going drastic reforms. The central
government has been decentralizing responsibility, and the necessary
authority to make decisions parallel to new levels of responsibility
has moved down. Another measure is to encourage a closer relationship
between res
earch and production by breaking the vertical coordinating
functions of the old planning system, and encouraging horizontal,
market
-
based ties between research institutions/universities and
enterprises. The central government also has paid more attention
to
IP protection, creating the Chinese Patent Office in 1980 and enacting
its patent law in 1985.32 But most of the work conducted by China's
R&D community (about 75 percent in recent years) retains its focus on
product or process development. Basic resea
rch, conversely, has only
constituted about 5 percent, and applied research only about 20
percent33 of the total.

In the mean time, nationwide R&D funding as a percentage of China's
GDP has increased sharply in recent years (see Table 1). Although most
de
veloped countries' R&D ratios range between 2 and 2.5 percent, China
now stands out as a heavy spender among developing countries with the
largest R&D expenditures. Mexico's R&D spending, for example, was 0.4
percent in 1999, while India's score was 0.86
percent in the same year.
Despite the growth in China's R&D funding, China remains far behind
most of the developed world.34


Table 1. China's National R&D Statistics, 1995
-
2000



1995

1996

1997

1998

1999

2000


Gross Expenditure in R&D

34.9

40.5

50.9

5
5.1

67.9

89.6


(GERD, billions of RMB)


Annual Growth of GERD (%)

-
0.6

9.5

24.9

10.9

26.0

17.9


GERD/GDP (%)

0.60

0.60

0.64

0.69

0.83

1.01

Source: Hsiung, "An Evaluation of China's Science & Technology System."


Many of the major reforms begun in the mid
-
1
980s have accelerated sharply
in recent years. Two recent initiatives, the Ministry of Science and
Technology's "863" high technology R&D program and CAS' "Knowledge
Innovation Program," have proven particularly decisive in promoting
intensified competiti
on and higher levels of achievement in research.35
The Torch Program was begun in 1988 primarily to jump
-
start high
-
tech
industrial development.36 Reform policies also have included placing
all research faculty members on contracts. Research institutes ar
e
encouraged to launch commercial spin
-
offs based on successful applied
research in their laboratories.

A major shift has occurred in the national distribution of R&D effort
among the three major sectors performing R&D
-
government R&D
institutions, govern
ment
-
owned and private enterprises, and
universities. Whereas industrial enterprises performed less than 40
percent of the nation's R&D as recently as mid
-
1990s, they now perform
more than 60 percent, thanks to efforts to promote active and organized
R&D
activities within manufacturing enterprises. By 1999, over half
of China's scientists and engineers worked in enterprises, representing
a considerable change from the early 1990's when state institutions
employed most R&D workers. The change also reflect
s steps taken to
send older workers into retirement, as well as moves to eliminate some
242 state
-
owned R&D institutes by merging them into existing industrial
enterprises or university R&D enterprises, or by disbanding them
altogether.37 There are now a v
ariety of spin
-
off R&D enterprises
-
some
state
-
owned, some collectively
-
owned, and others privately
-
owned. As
the government has cut funding to the research community, these
spin
-
offs have become a lucrative and increasingly important source
of revenue for

many research institutes. They also have provided
employment for former institute workers with work experience, but
little in the way of formal academic training.

There are over 1,000 institutions of higher learning in China, although
few outside of th
e top 10
-
20 are well
-
known outside China. The
government now is focused on providing more funding to elite
universities. Various initiatives have been introduced to link schools
run by different ministries, in order to avoid repetition of
specializations
. Another important change is the promotion of
university
-
based research. Through reform, universities have assumed
active commercial roles over the past 15 years. This commercial
orientation has made them more relevant to the nation's economic needs.
The government also has allowed for the opening of privately
-
funded
educational institutions.38

Science parks, also called high
-
tech zones, have played a significant
role in the recent development of China's R&D community. These science
parks allow R&D
institutions and corporations to cooperate and interact
by placing them in close proximity to each other. At the same time,
these parks often offer special incentives for businesses. All
provinces have begun operating science parks with the help of the T
orch
Program. By 1998, there were 53 nationally sponsored (plus hundreds
of locally sponsored) science parks in various parts of the country.
Besides those in Beijing, Shanghai's science parks are the most
developed.39

Stepping up international coopera
tion is another reform effort.
Beginning in the late 1970s, China initiated an extensive set of programs
to acquire foreign technology. Between 1979 and 1993, for instance,
it spent about $US 70 billion on technology imports as part of an overall
technol
ogy renovation effort.40 An important new trend in the
development of industrial R&D is the growing interest by multinational
corporations (MNCs) in doing R&D in China. MNC's R&D activities in
China include R&D in manufacturing and sales facilities, R&D
c
ooperation with universities and research institutions in China, and
stand
-
alone R&D centers.41



Targeted Public Policies in Shanghai

Concerted efforts to establish a municipal innovation system began in
Shanghai in the 1990s, following the national lead
and culminating in
the formation of a comprehensive knowledge strategy in 1999 (see Table
2). Municipal authorities hoped that by 2005 a basic innovation system
would take shape and enable Shanghai to remain at the forefront of
national R&D. Specific tar
gets included increasing the share of R&D
expenditure in GDP (to about 2.5 percent), increasing the number of
patents and number of scientists and engineers, establishing 30
technological incubators, and raising the share of high
-
tech products
in output va
lue and export.42

The city has experienced steady progress during the last decade or so.
R&D investment has increased significantly, reaching over 10.2 billion
YMB in 2002.43 This was equivalent to 1.89 percent of the municipal
GDP and was 0.79 percent hi
gher than the national average ratio (see
Tables 3 and 1). The rise in the number of patents, particularly those
registered by industrial enterprises, is rapid. Private technology
enterprises have mushroomed, now accounting for the bulk of Shanghai's
sci
entists and engineers. After actively pursuing high
-
tech
investment, Shanghai is now home to dozens of R&D centers of
multinationals
-

in such industries as automobiles, machinery,
biotechnology, pharmaceuticals, and software. These MNCs include
General
Electric, Bayer, Bell Labs, and Lucent Technologies.44 Although
some of these R&D activities are not cutting edge, and involve
adaptations to suit local markets, MNCs are clearly taking advantage
of Shanghai's skilled labor force, quality university labs,
and local
production clusters. In the process, they also help restructure the
municipal innovation system through demonstration effects in
joint
-
research labs and market competition in mobilizing local firms
to set up R&D facilities.45

Such progress large
ly results from the building of Shanghai's municipal
innovation system, which has included targeted public policies in five
broad categories
-
nurturing R&D institutions, increasing investment in
R&D, building a support infrastructure to facilitate commercia
lization
of innovation, developing an adequate regulatory and legal framework,
and investing in human capital.46 The rise of R&D expenditure can be
attributed mostly to large and medium
-
sized industrial enterprises.
This explains why about 70 percent of R
&D expenditure is in product
or process development, while basic research accounts for less than
7 percent. Efforts to enhance the legal framework involve the enactment
of laws governing commercialization of high
-
tech innovations, IP
protection, and devel
opment of small and medium
-
sized technological
enterprises. The remainder of this section will elaborate on policies
to nurture R&D institutions and talent, and to build a support
infrastructure.

Augmenting R&D Institutions and Human Capital

Reflecting
a national trend, industrial enterprises dominate
Shanghai's R&D institutions. A key policy initiative has been to
encourage the growth of private or non
-
state technological enterprises,
through a broad array of incentives in financing, taxation, IP
prote
ction, commercialization of innovation, and support services.47
Such policies also have attracted a significant number of overseas
Chinese to Shanghai to create new startups. Most of these private
enterprises are in electronics, information technology (IT
), software,
communications, and biotech industries. They tend to adopt more
flexible measures to turn research findings into new products. They
also invest more in R&D, averaging 5 to 10 percent of corporate
investment, than other types of enterprises i
n Shanghai.48

A new effort was initiated in 1994 to reform the university system in
Shanghai. Three universities, Fudan University, Shanghai
Communications University and Shanghai Foreign Language University,
were selected as pilot projects for an exper
iment called joint
development. The three universities were still under the State
Education Commission, but a dual leadership was introduced. With 37
post
-
doctorate research centers, universities have now become the
cradle for young research scientists.

Several hundred research
findings emerge every year from these laboratories.49 A number of
private technological enterprises are spin
-
offs of university research.

Research establishments in Shanghai have been used by the central
government to advance a nu
mber of major industrial projects and to build
some of China's ballistic missiles and transport aircraft. But until
recently, commercial orientation was weak in many research institutions;
and neither the mix of staff nor the incentives in many institutes

was
conducive to high quality research, its patenting, or application.50
This appears to be changing as budgetary stringencies force the
institutes to compete for contracts with the enterprise sector.
Although the economy began growing at double
-
digit ra
tes since 1993,
the demands of infrastructure have absorbed a large volume of investment,
and reduced public resources for scientific research. The strain on
funds means that university science departments and research institutes
must generate a part of t
heir own revenue. Shanghai's leaders are
providing a small pot of money that local scientists can use to attract
larger sums from other sources. Shanghai's research institutes,
particularly those specializing in applied science and development,
also are
beginning to develop some commercial linkages. Earnings from
technical transfers, engineering services and business operations have
increased steadily since 1992.51

The accumulation of human capital in Shanghai from the universities
and the numerous pro
duction establishments is a key to higher technology.
Although Shanghai's workers command a wider range of skills compared
to other major cities in China, the share of professional and technical
personnel lags far behind key global centers. A key measure

to address
this educational gap is to attract new, young talent into Shanghai's
universities. Annual enrollment for local students in higher education
has been increased substantially
-

for universities from 19,000 in
1991
-
1995 to 30,000 in 1996
-
2000 and

for adult continuing education
from 10,000 to 18,000, and for vocational schools from 22,000 to
35,000.52 Municipal authorities also have relaxed restrictions on
enterprises hiring personnel with college or graduate education from
other parts of China by
allowing them more quotas for urban household
registration. In particular, the city welcomes students who are
returning from overseas, either temporarily or permanently, to open
new businesses. In this regard, Shanghai took the first small step
in 2002,
when it granted 60 professionals from elsewhere in China and
abroad the right to live in the city and engage in business.53

Creating Support Infrastructure

Becoming a major cyber hub is an ambitious undertaking in Shanghai's
building of a knowledge
-
based
economy. A five
-
year key project has
been launched to integrate all the circuits and pipelines for telecom
services into an underground broadband pipeline.54 Upon completion in
2005, this project will not only offer a strong backbone for the city's
develo
pment as an Internet
-
smart metropolis, it also will improve the
aesthetic quality of the environment while reducing the number of
accidents caused by open
-
air circuit poles and lines. Rapidly
increasing Internet usage relates to the export orientation of
Shanghai
-
based enterprises and the steadily improving quality of the
telecom facilities is helping integrate Shanghai with the world economy.
Greater broadband access and the use of mobile technology, as in
Singapore and Japan, will enhance the utility of

the Internet, although
this will require resolving some thorny issues regarding standards,
technology, links with households and freedom of access.55

To appeal to foreign investment and high
-
tech business, several new
science parks have been created. Spe
cial regulations have been
extended to these parks: tax exemptions for enterprises doing business
with foreign companies for a limited duration, tax holidays for new
factories set up with foreign investment, and exemption from
import
-
duty for production ma
terials used by these facilities.56 To
ensure broad
-
based future development, municipal policies are focusing
on the industrial, science, and technology capabilities of these new
parks. Together with the new Shanghai University Science Park, they
are lead
ing the development of high
-
end and new technologies.

Specifically, the development of high
-
tech industry is being
spearheaded by the Zhangjiang Science Park in Pudong, some 25 kilometers
from the new Pudong International Airport. In August of 1999 the

Shanghai Municipal Government issued the "Focus on Zhangjiang"
strategic policy to accelerate the Park's rate of development. The
park's two leading industries are information technology and modern
biotechnology and pharmaceuticals, which are supported b
y four
national
-
level bases: the National Shanghai Biotech & Pharmaceutical
Industry Base, the National IT Industry Base, the National 863
Information Security Industry Base, and the National Technology
Innovation Base.57 This Park, which will eventually c
over 25 square
kilometers, had attracted $4.47 billion worth of investment by the end
of 2000. The turnover during the year was close to $1 billion and has
been rising rapidly as increasing numbers of foreign and private firms
have been drawn to the park.5
8

The success of the park to date is traceable to a number of factors,
among which the planning by the park and authorities, and management
of park services have played a significant part. Firms that have
located at Zhangjiang have been favorably impress
ed by the access to
venture capital and to financial, auditing, consulting, legal and
executive search services. Other cities in China, most notably Beijing
and Tianjin, have also been quick to set up technology parks, but none
of the other cities have bee
n as effective in providing firms with the
environment and services conducive to the emergence of a networked
cluster of high
-
technology firms.

Complementing Zhangjiang Park are the Jinqiao Science Park, Caohejing
High
-
Tech Park, and Jiading High
-
Tech Park
.59 With more specialized
functions, these parks have sought niches in modern industries. Also
located in Pudong, the Jinqiao Science Park builds on its strength in
export processing. Its future development is likely anchored in
electronics, automobiles
and parts, and bio
-
tech industries since the
park is already home to several large MNCs such as General Motors, NEC,
Hewlett Packard and Kodak. The Caohejing High
-
Tech Park is located
in the southwest of the central city and has an area of six square
kilo
meters. It houses firms specializing in microelectronics,
computer, telecommunications, bioengineering, aerospace and precision
instruments.60 This park has the longest history of operation among
all and has already formed a sizeable industrial base. The

Jiading
High
-
Tech Park, located in the western suburb, is home to a cluster
of private technological enterprises with linkages to several
universities and research institutions near or in the Jiading district.
The park's priority areas include laser tech
nology, nuclear power,
software, and new materials.61

In addition, municipal authorities have established a network of
service centers to facilitate the commercialization of product or
process innovations. Chief among them are a technology exchange center
,
a high
-
tech commercialization service center, a science and technology
consulting service, and several high
-
tech enterprise incubators.62
These service centers share the goals of expediting information
exchange among R&D facilities, reducing costs and ri
sks of innovation,
and facilitating the commercialization of new R&D outcomes.

Shanghai's Prospects and Challenges

Shanghai is striving aggressively to retain its national preeminence.
Its continued competitiveness, especially in the global market, will
b
e intertwined with China's prosperity. In particular, the critical
policies determining economic openness and legal practices will be
largely decided by the central government. But equally important will
be municipal policies that advance high
-
tech manufa
cturing, business
services, transport and communications facilities, and availability
of skills.

It is clear that in the new knowledge economy, costs or
government
-
influenced low costs (e.g., lower taxes), and access to
natural resources are less importa
nt. The winning formula in Europe
appears to have been a combination of a favorable business environment
and technological acumen.63 Dynamic cities, such as Dublin, Amsterdam
and Helsinki, showcase local policies designed to build an
infrastructure to sup
port small and emerging businesses. Such policies
range from establishing industry forums to identify sectoral needs,
creating publicly supported venture capital funds, investing in digital
labs, supporting art and technology studios, and organizing trade

missions around particular products, to providing business development
support and training.64 These will have significant relevance to
Shanghai, as it will compete vis
-
a
-
vis well
-
established innovative hubs
of the world.

China's legal system is still ina
dequate for supporting innovative
activities and promoting inter
-
organizational linkages. Most
generally, the problem arises from an incomplete system for assigning,
exercising and protecting property rights.65 Similarly, inadequacies
in contract law and
its enforcement reduce the willingness of innovators
to transfer technology to other organizations. Starting in the
mid
-
1980s, China has been gradually building a legal infrastructure,
training lawyers, assimilating laws, and instituting legal procedures
that are increasingly a common currency worldwide. But the nature of
Chinese legal and regulatory practices, as well as the approach to
enforcing regulations, still differs markedly from that of more open
industrialized countries.66

True venture investm
ents or funds, particularly those with a pure focus
on technology, are still rare in China. Worldwide experience shows
that continuing investment in product development is essential in the
growth of innovation.67 Startup firms, particularly those in
cutti
ng
-
edge R&D, depend on venture capital to underwrite their initial
costs. As the authorities have already recognized, Shanghai will need
to use tax incentives, preferential loans, and risk compensation to
encourage venture financing. The formation of a ve
nture capital market
also will help the city cultivate a more long
-
term
-
driven investment
culture.68

In an economy with accelerating technological innovations and rising
specialized service functions, the labor force needs good basic
education and skills,
and market institutions should permit a high
degree of flexibility. Compared to the substantial investment that
has gone into building the physical infrastructure, Shanghai is
experiencing the drying out of public funding for research activities.
Measure
s to ensure an adequate supply of entrepreneurship, skills, and
labor will be one of Shanghai's biggest challenges.

Notes

1

Carl J. Dahlman and Jean
-
Eric Aubert, China and the Knowledge Economy:
Seizing the 21st Century. Washington D.C.: The World Ban
k, 2001,
p.5
-
p.6.

2

Richard Florida, The Rise of the Creative Class: And How It's
Transforming Work, Leisure and Community. New York: Basic Books, 2002.

3

The ratio of intangible to tangible business capital was 30 to 70
percent in 1929; whereas in 1990 t
he same ratio was 64 to 36 percent.
Research and development (R&D) investments represent roughly 5 percent
of its gross domestic product (GDP). See Eric Abdullateef, "Developing
Knowledge and Creativity: Asset Tracking as a Strategy Centerpiece."
Journa
l of Arts Management, Law, and Society 30, 3 (Fall 2000);
p.174
-
p.192.

4

Ibid.

5

Richard P. Suttmeier and Cong Cao, "China Faces the New Industrial
Revolution: Achievement and Uncertainty in the Search for Research and
Innovation Strategies." Asian Perspe
ctive 23, 3 (1999).

6

Weiping Wu, "Shanghai
-

China's Future Global City." Paper
presented at the Workshop on Global City Regions as Changing Sites of
Governance. Free University of Berlin, Berlin, Germany, 8
-
10 August
2003.

7

Kunita Fujita, "Neo
-
industr
ial Tokyo: Urban Development and
Globalization in Japan's State
-
centered Developmental Capitalism."
Urban Studies 40, 2 (2003); p.249
-
p.281.

8

Peter Karl Kresl and Balwant Singh, "Competitiveness and the Urban
Economy: Twenty
-
four Large US Metropolitan Ar
eas." Urban Studies 36,
5
-
6 (1999); p.1017
-
p.1027. Michael E. Porter, "Clusters and the New
Economics of Competition." Harvard Business Review
(November
-
December 1998); P.77
-
P.87. Michael E. Porter and Scott Stern,
"Innovation: Location Matters." MIT
Sloan Management Review (Summer
2001); p.28
-
p.36.

9

Michael Crow and Barry Bozeman, Limited by Design: R&D Laboratories
in the U.S. National Innovation System. New York: Columbia University
Press, 1998. Richard R. Nelson and Nathan Rosenberg, "Technical
Innovation and National Systems," in Richard R. Nelson, ed. National
Innovation Systems: A Comparative Analysis. Oxford and New York:
Oxford University Press, 1998. Porter and Stern, "Innovation."

10

Porter and Stern, "Innovation."

11

The Stevenson
-
Wydl
er Technology Innovation Act facilitates the
transfer of technologies that have originated and are owned by federal
laboratories to the private sector. The Bayh
-
Dole University and Small
Business Patent Act permits small business, universities and nonprof
it
institutions to retain title to inventions resulting from federally
funded grants and contracts. See Maryann Feldman and Johanna L. Francis,
"Fortune Favors the Prepared Region: The Case of Entrepreneurship and
the Capitol Region Biotechnology Cluster.
" Forthcoming in European
Planning Studies (2004).

12

Other major policy initiatives include two amendments to the
Stevenson
-
Wydler Technology Innovation Act
-
the Federal Technology
Transfer Act and National Competitiveness Technology Transfer Act
-
and
the
Small Business Innovation Development Act. See Feldman and Francis,
"Fortune Favors the Prepared Region."

13

Porter and Stern, "Innovation."

14

Edward L. Glaeser and Albert Saiz, "The Rise of the Skilled City."
Harvard Institute of Economic Research Disc
ussion Paper Number 2025,
December 2003.

15

Weiping Wu, "Dynamic Cities and Creative Clusters." Report
prepared for the Development Economics Research Group, the World Bank,
2004.

16

Patenting by U.S. universities increased nearly sevenfold over the
perio
d of 1976
-
1998 and licensing revenues from the sales of IP grew
briskly as well. See Jason Owen
-
Smith, Massimo Riccaboni, Fabio
Pammolli and Walter W. Powell, "A Comparison of U.S. and European
University
-
Industry Relations in the Life Sciences." Managem
ent
Science 48, 1 (January 2002); p.24
-
p.43.

17

Maryann Feldman and Pierre Desrochers, "Truth for Its Own Sake:
Academic Culture and Technology Transfer at Johns Hopkins University."
Forthcoming in Minerva (2004). Jason Owen
-
Smith and others, "A
Comparis
on of U.S. and European University
-
Industry Relations."

18

P. Haug, "Formation of Biotechnology Firms in the Greater Seattle
Region: An Empirical Investigation of Entrepreneurial, Financial, and
Educational Perspectives." Environment and Planning A 27 (19
95);
p.249
-
p.267.

19

Heike Mayer, "A Clarification of the Role of the University in
Economic Development." Paper presented at the Joint Conference of the
Association of Collegiate Schools of Planning and the Association of
European Schools of Planning, 8
-
13 July 2003, Leuven, Belgium.

20

Abdullateef, "Developing Knowledge and Creativity." Mayer, "A
Clarification of the Role of the University."

21

Cited in Wu, "Dynamic Cities and Creative Clusters."

22

Fujita, "Neo
-
industrial Tokyo."

23

Cited in Florida, T
he Rise of the Creative Class.

24

Research has shown that increasing the average level of education
in a metropolitan area by one grade increase total factor productivity
by 2.8 percent (cited in Appleseed Inc 2003).

25

AnnaLee Saxenian, Regional Advantage
: Culture and Competition in
Silicon Valley and Route 128. Cambridge, MA: Harvard University Press,
1994.

26

Among all major U.S. metropolitan areas, Boston rank first by the
number of life scientists in 1998 and second by the number of bioscience
Ph.D.s
granted in 1999 (trailing New York City). See Joseph Cortright
and Heike Mayer, "High Tech Specialization: A Comparison High
Technology Centers." Survey Series. Washington, DC: The Brookings
Institution Center on Urban and Metropolitan Affairs, 2002.

27

Kostas Skordas, "The Effect of Industrial Clustering on a City's
Economic Competitiveness: A Case Study of the Computing Cluster in
Bangalore, India." Department of Urban Studies and Planning, Virginia
Commonwealth University, Processed, 2001.

28

Paul So
mmers and Daniel Carlson, "Ten Steps to a High Tech Future:
The New Economy in Metropolitan Seattle." Discussion Paper for the
Brooking Institution Center on Urban and Metropolitan Affairs
(Washington DC), CEOs For Cities (Cambridge, MA), City of Seattle
Office
of Economic Development (Seattle, WA), 2000.

29

CEOs for Cities and Progressive Policy Institute, Urban Economic
Prospects in the Knowledge Economy. Boston: CEOs for Cities, 2000


<http://www.ceosforcities.org/research/2000/urban_economic_pros
pects
/index.html>. IntelliQuest, High Tech Communities Quality of
Life Study. 1999


<http://www.intelliquest.com>.

30

Shulin Gu, "Science and Technology Policy in China," in Encyclopedia
of Life Support Systems (EOLSS), Developed under the auspices of the
UN
ESCO, Oxford, UK: EOLSS Publishers, 2003. Xielin Liu and Steven White,
"China's National Innovation System in Transition: An Activity
-
Based
Analysis." Paper presented at the Sino
-
U.S. Conference on
Technological Innovation, Beijing, 24
-
26 April 2000.

31

The main administrative body for science and technology activities
was the State Science and Technology Commission. Its mandate was to
regulate and coordinate activities in R&D institutes, production
enterprises, and research centers in universities. How
ever, the
Ministry of Education was also responsible for education and training
in these same universities, as well as vocational and technical schools.
The industrial bureaus
-
such as the Ministry of Communications and Posts,
Ministry of Machinery, Minist
ry of Chemical Industry, and others
-
also
oversaw research institutes as well as the production and distribution
enterprises within their respective industries. See Liu and White,
"China's National Innovation System in Transition."

32

Liu and White, "China
's National Innovation System in Transition."
Suttmeier and Cao, "China Faces the New Industrial Revolution."

33

Gu, "Science and Technology Policy in China." Deh
-
I Hsiung, "An
Evaluation of China's Science &Technology System and its Impact on the
Resear
ch Community." A Special Report for the Environment, Science
&Technology Section of U.S. Embassy, Beijing, China, 2002.

34

Hsiung, "An Evaluation of China's Science &Technology System."

35

Launched in 1986, the "863" high technology R&D program (i.e. the
National High Technology R&D Program) has focused on cultivating a
younger generation of S&T researchers and finding a niche in the world's
high
-
tech industries for China. See Hsiung, "An Evaluation of China's
Science &Technology System."

36

The Torch Pro
gram has four primary goals: (1) Developing new
high
-
tech industries through the establishment of high
-
tech industrial
development zones; (2) Helping to market high
-
tech products; (3)
Promoting international cooperation with China's high
-
tech industries;
a
nd (4) Training and attracting a talented workforce. See Gu, "Science
and Technology Policy in China." Hsiung, "An Evaluation of China's
Science &Technology System."

37

Hsiung, "An Evaluation of China's Science &Technology System."

38

Hsiung, "An Evaluat
ion of China's Science &Technology System."
Suttmeier and Cao, "China Faces the New Industrial Revolution."

39

Ibid.

40

Suttmeier and Cao, "China Faces the New Industrial Revolution."

41

Lan Xue and Shugui Wang, "Globalization of R&D by Multinational
Corp
orations in China: an Empirical Analysis." Paper presented at the
Sino
-
U.S. Conference on Technological Innovation, Beijing, 24
-
26 April
2000.

42

Bonai Fan, Research on City Technological Innovation (chengshi
jishu chuangxin toushi). Beijing, China: Chin
a Machine Press, 2003.

43

From <http://www.shanghai.gov.cn.>

44

"Asia's New R&D Center," FDI Magazine, 5 April 2004.

45

Yun
-
Chung Chen, "Restructuring The Shanghai Innovation Systems: The
Role of Multinational Corporations' R&D Centers in Shanghai." Pape
r
presented at the First ASIANLICS International Conference: Innovation
Systems and Clusters in Asia
-

Challenges and Regional Integration.
Bangkok, Thailand, 1
-
2 April 2004.

46

Fan, Research on City Technological Innovation.

47

Ibid.

48

Ibid.

49

Shahid Yu
suf and Weiping Wu, The Dynamics of Urban Growth in Three
Chinese Cities. New York: Oxford University Press for the World Bank,
1997.

50

Ibid.

51

Ibid.

52

Shanghai Academy of Social Sciences, Shanghai Entering the New
Century: Issues in Social Developmen
t. Shanghai: Shanghai Academy of
Social Sciences Press, 1997.

53

Economist Intelligence Unit, Business China, 24 June 2002. p.11

54

Shahid Yusuf and Weiping Wu, "Pathway to a World City: Shanghai
Rising in an Era of Globalization." Urban Studies 39, 7
(June 2002);
p.1213
-
p.1240.

55

Gabriela Kennedy, "E
-
commerce: The Taming of the Internet in China."
The China Business Review (July
-
August 2000).

56

Weiping Wu, "City Profile: Shanghai." Cities: The International
Journal of Urban Policy and Planning 16, 3

(May 1999); p.207
-
p.216.

57

From <http://www.zjpark.com.>

58

Yusuf and Wu, "Pathway to a World City."

59

Fan, Research on City Technological Innovation.

60

Wu, "City Profile: Shanghai."

61

Fan, Research on City Technological Innovation.

62

Ibid.

63

Jerem
y Kelly, World Winning Cities in an Era of Change. Chicago:
Jones Lang LaSalle, 2003
<http://www.rakli.fi/uutisia/Lehdisto/JLLProperty_Futures_6_1.pdf>.
James Simmie, ed., Innovative Cities. London: Spon Press, 2001.

64

Steven Jay Tepper, "Creative Asse
ts and the Changing Economy."
Journal of Arts Management, Law, and Society. 32, 2 (Summer 2002);
p.159
-
p.168.

65

Liu and White, "China's National Innovation System in Transition."

66

Yusuf and Wu, "Pathway to a World City."

67

Wu, "Dynamic Cities and Cre
ative Clusters."

68

China has begun to acknowledge the importance of attracting foreign
venture capital to link Chinese startups with international talent.
State
-
backed venture capital firms also are begin restructured in order
to compete. For instance,
Shanghai Venture Capital Corporation now
enjoys considerable autonomy to operate according to market principles.
See Tse
-
Kang Leng, "Economic Globalization and IT Talent Flows across
the Taiwan Strait: The Taipei/Shanghai/Silicon Valley Triangle."
Asian
Survey 42, 2 (March/April 2002); p.230
-
p.250 (243).