World Development Vol. 35, No. 6, pp. 1056–1074, 2007� 2007 Elsevier Ltd. All rights reserved

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Universities/Research Institutes and

Regional Innovation Systems:

The Cases of Beijing and ShenzhenI

KUN CHENUniversity of California, Berkeley, USA

and

MARTIN KENNEY *

University of California, Davis, USABerkeley Roundtable on the International Economy, USA

Summary. — This paper explores the role of universities and research institutes (URIs) in the devel-opment of the Chinese economy through a comparison of the development of the Beijing andShenzhen technology clusters. The two locations, while embedded in the same national innovationsystem, have exhibited completely different evolutionary trajectories. In the case of Beijing, theURIs have played an extremely important role in the development of largest high technology clus-ter in China. In contrast, in Shenzhen, which is now the third most important cluster in China, hasin the last twenty years policy makers have consciously worked to establish and attract institutionsof higher education. We suggest that the Chinese experience, though not without problems, pro-vides an interesting model for other nations with strong URIs.

� 2007 Elsevier Ltd. All rights reserved.

Key words — China, Beijing, Shenzhen, universities, clusters, research and development

I‘‘Universities as Drivers of the Urban Economies inAsia’’ sponsored by the World Bank and SocialResearch Council (May 24–25, 2005).* Final revision accepted: May 18, 2006.

1. INTRODUCTION

It is now widely accepted that universitiesand public research institutes (URIs) played asubstantial role in the development of manyhigh-technology regions in the United Statesand abroad (Bresnahan & Gambardella,2004). In the United States, the two most suc-cessful clusters of high-technology firms in boththe information technologies and biotechnolo-gies are the Boston and San Francisco Bayareas, which are also the locations of the topfour universities (Kenney & von Burg,1999). 1 The presence of global-class universi-ties in these two regions is partially responsiblefor their success. Their students often remainedin the area and eventually became entrepre-neurs, and the research conducted at their uni-versities, at times, became the seed for new

105

firms (Kenney, 1986; Shane, 2004; Zucker, Dar-by, & Brewer, 1998). 2

The discussions of high-technology regionshave focused on developed countries. 3 In thecases of Taiwan (Saxenian, 2004) and India(Arora, Gambardella, & Torrisi, 2004), univer-sity research does not appear to have been asignificant contributor to regional growth thusfar; although in Taiwan the Information Tech-nology Research Institute played an importantrole in the development of the HsinchuTechnology Park (Noble, 2000). In all of thesecountries, well-trained university graduates

6

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1057

were critical inputs. In the last decade, three ITindustry-based clusters, Beijing, Shanghai, andShenzhen, have emerged in China. 4 This paperexamines the role of URIs in the developmentof IT clusters in Beijing and Shenzhen. We willargue that in the case of Beijing, the URIs werecritical contributors, while in Shenzhen theymade no contribution.

Universities have long been consideredimportant institutions in national innovationsystems (NIS) (Lundvall, 1992; Nelson, 1993).Over the decades the university has been dele-gated a variety of roles in addition to educationand research; these include public service,improving national competitiveness, helpingto ameliorate social injustice (e.g., affirmativeaction), and regional economic development.The NIS perspective highlights the fact thatcountries organize innovation differently. Notunexpectedly, the role of universities in eachNIS differs significantly. The NIS perspectivehas been criticized by scholars who have as-serted that innovation processes in industriesand regions differ even within the countries. 5

For example, Saxenian (1994) argued that theinstitutions and entrepreneurship of SiliconValley and Boston differed appreciably, some-thing she attributed to cultural characteristics,rather than path dependent historical outcomesand different industry foci. 6

Though recognizing the importance of theNIS for understanding how innovation oc-curred in countries, geographers argued thatinnovation systems had a strong regional char-acter (Cooke, 1992, 2001; Storper, 1997). Theregional argument fits with the findings of econ-omists such as Jaffe, Trajtenberg, and Hender-son (1993) and Feldman (1993) that inventorscite other patents originating in the same loca-tion more frequently than patents outside thelocation even when controlling for the existinggeography of related research activity. Thissuggests that it might be profitable to considerwhether there were regional innovation systems(RIS) that consisted of private and publicsector actors interacting to create local arrange-ments and relationships encouraging innova-tion (Doloreux, 2003; Edquist, 2004; Wolfe,2003).

The linkages between the NIS and variousRISs are often omitted or assumed by thosestudying regions (Niosi, 2005). The NIS isimportant because it sets the basic parametersfor what is possible. For example, in China uni-versities can own profit-making firms, while inthe United States a university’s direct owner-

ship of a commercial firm would invalidate itstax-exempt status—a line that private and pub-lic research universities have been unwilling tocross. Thus, national laws and decisions pro-vide the parameters for the actions of organiza-tions such as universities.

The literature treats URIs as an endow-ment. Regions have excellent URIs or theydo not. Beijing and Shenzhen are interestingbecause Beijing is the Chinese city most en-dowed with top-quality universities and re-search institutes (URIs), while Shenzhen only20 years ago had no URIs, yet it has experi-enced significant high-technology growth. Asan illustration, after Beijing and Shanghai,Shenzhen firms are the recipients of the great-est amount of technology-oriented venturecapital (Zero-2-IPO, 2005). In contrast, Bei-jing had little in the way of industry, whileShenzhen was the earliest growth pole in thenew export-oriented Chinese economy. Giventheir different endowments, the developmenttrajectory of the two regions with respect toutilizing URIs diverged significantly. 7 As po-lar opposites, these two cities can provide in-sight into the deeply held belief by localofficials throughout China that universitiesare the fount of high-technology developmentthat will lead to prosperity.

When discussing Chinese growth and statis-tics, it is important to note that governmentalstatistics are often deceptive because officialsare under pressure to meet targets and plans,therefore there is a tendency to minimize thenegative and maximize the positive. The Chi-nese definition of ‘‘high technology’’ is verybroad and only some of the activities wouldconform to the commonly accepted definitionsof high technology in developed countries. InChina, personal computer assembly is consid-ered ‘‘high technology’’, while few in the Uni-ted States would define it as such. Becausefirms considered to be in high technology re-ceive tax and the other benefits, there are ulte-rior motives for declaring oneself to be a hightechnology firm. In the case of Chinese tech-nology parks, Cao (2004) in a withering anal-ysis finds that the government, thoughemphasizing innovation, has in practice beenmore interested in simple quantitative statisticssuch as rates of growth, numbers of firms, andvalue of exports. In the case of Chinese patentstatistics, it is generally accepted that many ofthem are of dubious merit, and also anincreasing number of them are filed by foreignfirms seeking protection in China, and thus are

1058 WORLD DEVELOPMENT

not Chinese in origin. Where possible we usedata from other sources, however often Chi-nese government data is all that is available.Though the number and quality of what iscounted is suspect, it is likely that the trendsdo represent an underlying reality.

2. LITERATURE REVIEW

The literature broadly defines the NIS as anetwork of institutions, policies, and agentssupporting and sustaining scientific and techni-cal advance (Crow & Bozeman, 1998; Furman,Porter, & Stern, 2002; Nelson & Rosenberg,1993; Porter & Stern, 2001). In knowledgeeconomies, URIs are vital actors in the crea-tion, acquisition, dissemination, and utilizationof knowledge (Nelson & Rosenberg, 1993).Three core actors to an NIS are URIs, industry,and government (Etzkowitz, 1999; Mowery &Rosenberg, 1993).

URI–industry relations are myriad and caninclude: labor market related linkages, linkagesfor creation, acquisition, and dissemination ofknowledge, and linkages to create new enter-prises. URIs are the major educational andtraining institutions where students and profes-sionals educated and trained gain knowledgeand skills, and become part of the labor poolin regional economies (Jaffe, 1989). Linkagesbetween URIs and industry also take a varietyof forms such as joint R&D projects, technol-ogy licensing, consulting, internships, and othercollaborations between firms and URIs to de-velop a product or technology (Kodama &Branscomb, 1999).

Recent research has shown that URIs can bekey elements in RISs because of the geographicspillovers of knowledge both through theirroles as a human capital provider and as a tech-nology incubator. More recently, there hasbeen great interest in the role of universitiesas a source of spin-offs. There is substantial evi-dence that universities around the world areadopting a policy of encouraging entrepreneur-ship (Goldfarb & Henrekson, 2003; Rappert,Webster, & Charles, 1999; Shane, 2004).Framed in a slightly different way, Etzkowitz,Wester, Gebhardt, and Terra (2000) observedthat the university as an institution is movingtoward a more entrepreneurial paradigm. De-spite the importance of universities in the localdevelopment plans, the relationship betweenthe RIS and local URIs should be understoodin a national context. For this reason, the next

section begins with a discussion of the historicalbackground within which the Chinese URIsevolved.

3. THE CHINESE CONTEXT

Until approximately the 15th century, Chinawas the global technology leader. With the riseof Western Europe, China increasingly laggedbehind Europe and later the European settlerstates, particularly the United States, in thedevelopment of new technology and economicgrowth. The reasons for China’s decline arenot certain, however by the 19th Century Chinano longer played a significant role in the globaleconomy; nor was it a contributor of newtechnical or scientific knowledge (Adas, 1989;Mokyr, 1992; Needham, 1954).

In 1895, China established its first Western-style university in Tianjin. This was followedin quick succession by Xi’an Jiaotong andShanghai Jiaotong Universities in 1896. Soonevery major Chinese city established a univer-sity, for example Zhejiang University (1897),Peking University (1898), and Nanjing Univer-sity (1902). Tsinghua University, which becameChina’s premier technical university, was estab-lished in 1911. By 1920, though most major cit-ies had universities, the Chinese universitysystem was concentrated in Beijing and Shang-hai. The universities were severely affected bythe Japanese invasion (1937–45) and the ensu-ing Civil War (1946–49).

In 1949, the Communist Party led by MaoZedong was victorious. The victory resulted ina mass exodus of many professors appointedby the previous regime, which eroded the capa-bilities of tertiary level institutions. However,the new government increased its investmentin basic education creating a broad educationalbase. As in the earlier Confucian system, exam-inations were instituted nationally to identifythe most capable students that could continuefor completely subsidized post-secondary edu-cation. The result has been an adequately edu-cated population and a well-educated elite thathas been concentrated by the university systemin a few locations. Beijing and Shanghai werethe beneficiaries of this concentration, whileShenzhen, at least through the late 1970s, wasirrelevant.

Upon the establishment of the People’sRepublic of China in 1949, China adopted theSoviet Union’s model of comprehensive andspecialized universities and a large network of

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1059

research institutes. In 1978, the Chinese univer-sity model was again reformed to one that moreresembled that of the United States and empha-sized comprehensive universities (Pepper, 1996;Wang, 2000). Universities did undertake re-search, but their most important priority waspedagogy.

Prior to the reforms initiated in late 1970s,government planners considered that innova-tion was ‘‘an organized collective activity, gov-erned by research laws,’’ and these beliefs led toan extremely linear and rigid model (Segal,2003). This conceptualization proved to be inef-fective as few research results were applied toindustrial production. For all intents and pur-poses, the science and technology (S&T) systemwas isolated from industry. From the perspec-tive of economic development, researchers inthe URIs had few linkages or interactions withindustry, and the centralized command systemfor allocating research efforts led to a limitedscope and range of research activities (Lu,2000).

Whatever forward momentum the S&T sys-tem developed in the 1950s and 1960s wasbrought to halt during 1966–76, while the Cul-tural Revolution roiled the country, and led toan even greater isolation of the country fromthe outside world. After the death of Chair-man Mao Zedong in 1976, Deng Xiaopingbecame the Chinese leader. He advocated fun-damental reforms in the economy and the NISsystem arguing that ‘‘science and technologyare the chief productive forces’’ and thatChina needed to learn from Western nations.As a result, the government began reformingthe old systems and began creating a market-oriented economy, launching the ‘‘Open DoorPolicy,’’ decentralizing fiscal and managerialcontrol, redefining public and private owner-ship, and encouraging new linkages betweenresearch and production (Lu, 2000; Segal,2003).

The establishment and legitimization ofprivate ownership allowed the economy todiversify, and small businesses and privatecompanies gradually became more significant.Concurrently, the state-owned enterprises wereincreasingly pressed to compete in the market-place. In conjunction with the development ofan internal market orientation, the ‘‘OpenDoor Policy’’ attracted foreign direct invest-ment (FDI). Foreign firms established manu-facturing facilities for export and later toserve the domestic market. The governmentpressured foreign firms to do research in

China, while encouraging Chinese firms toimprove their research capacity. Chineseprivate sector firms were able to ‘‘absorb’’advanced technology from foreign firms. Fromthe mid-1980s onward, the Chinese govern-ment continually adjusted the S&T system tostrengthen Chinese R&D and develop thecountry’s absorptive capacity (Cohen & Levin-thal, 1990).

One of the most important reforms to theNIS came in the early 1980s, when the govern-ment driven by a desire to lower the cost of sup-porting the URIs drastically cut their funding.For URIs, the only option was to search foralternative sources of funds. The most signifi-cant of these was the establishment of URI-affiliated firms that were meant to generateprofit that the URIs could use to fund theiroperations. The government encouraged greaterlinkages between the URIs by encouragingURI-affiliated enterprises, establishing fiscaland legal services for professorial and studentstart-ups, strengthening patent laws (from whatthey were previously), building new technologyindustry zones (high-tech zones)/innovationcenters/software industry bases near URIs,providing innovation funds for small technol-ogy-based firms, and supporting the establish-ment of university science parks. Recognizingthe need to promote technological progress,the central government also initiated large-scalenational research programs on technologies(Kondo, 2003; Leydesdorff & Zeng, 2001).These included the 863 Program/Plan (BaliusanXiangmu/Jihua) targeting biotechnology, newmaterials, lasers, energy, information, androbotics and space (Segal, 2003).

The other prominent initiative was the TorchProgram launched in 1988. It eased regulations,provided support for building facilities to at-tract foreign high-tech companies, and encour-aged the establishment of indigenous high-techcompanies in special zones throughout China.These high-tech zones were built in close prox-imity to URIs with the goal of promoting link-ages between researchers and firms. Accordingto The 2003 Annual Report on China Torch Pro-gram, 53 high-tech zones had been establishedsince 1991 (Wu, 2004). These zones have experi-enced rapid growth, though as Cao (2004)points out, much of this growth has been inproduct assembly and thus does not representWestern notions of high technology. By 2003,the national high-tech zones (and state-levelscience and technology industrial parks)had received RMB155 billion 8 investments in

1060 WORLD DEVELOPMENT

infrastructure and hosted 32,857 companies.The total reported annual revenue in 2003 forthese zones was RMB2,094 billion up from 8.7billion in 1991, net profit grew from RMB800million to RMB113 billion, employment grewfrom 67,000 in 1991 to 589,000 in 2003, andexports increased from RMB100 million toRMB51 billion. In terms of research output,these Zones increased their number of Chinesepatents from 933 in 1992 to nearly 7,000 in2002. The R&D personnel increased fromapproximately 67,000 to over 589,000 in 2003(Zhang, 2004; Zhao, 2002, 2003a, 2003b).Though the statistics and definitions are sus-pect, there can be little doubt about the growthof economic activity within the zones.

Over the last two decades, R&D investmentin China increased rapidly. The Chinese Na-tional Bureau of Statistics calculates that in2003 the total R&D expenditure was RMB154billion, an increase of 20% from 2002. The per-centage of GDP invested in R&D grew from0.6% in 1991 to 1.31% in 2003. Universities ex-pended 10.5% of total R&D, while the RIsspent 25.9%. The expenditures by RIs de-creased from 42.8% of the total in 1996 to25.9% in 2003, as companies increased theirpercentage of total spending from 43.3% in1996 to 62.4% of the total in 2003 (China Sci-ence & Technology Statistics Net, 2005). AsFigure 1 indicates, more than half of theR&D funding in China is undertaken by theprivate sector, while the government is the mainsource of R&D funding for URIs. It is alsoimportant to note that research institutions re-

Figure 1. R&D sources and distributions in China (2003, 10

Statistics Ne

ceive approximately 2 12

times more funds thando universities.

China’s scientific capacity is expanding rap-idly. In terms of publications, China improvedfrom 15th in terms of publications listed inSCI, EI, and ISTP in 1990 to the fifth in 2003with 93,352 publications listed (China Science& Technology Statistics Net, 2005). Thoughstill at a very low base, the cumulative numberof US patents granted to Chinese inventors inChina totaled 3,521 US patents, however theannual rate had increased from 294 in 2000 to597 in 2004. 9

Improving research at China’s URIs is animportant component of the national S&Tstrategy. To facilitate this improvement thegovernment has been increasing URI funding.For example, allocations to the URIs increasedby 4% from 2000 to 2003 (China Science &Technology Statistics Net, 2005). The percent-age of government funding in the expendituresof research institutes increased from 53% in1991 to 71% in 2003, in absolute terms it wasfive times greater in 2003 than it was in 1991(see Table 1). Moreover, the research compo-nent has increased while the development com-ponent has decreased, which is largely a resultof the corporatization of many research insti-tutes that had commercial goals and the reori-entation of the remaining RIs to research.The effect of this corporatization is responsiblefor the decrease in the number of R&D person-nel in 2001.

The universities also experienced a changefrom the 1980s when their budgets were cut.

0 million RMB). Source: China Science and Technology

t (2005).

0

50

100

150

200

250

300

350

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Amount From Government Total

Figure 2. S&T funding in universities (1991–2003, 100 million RMB). S&T expenditures refer to R&D expenditure,

application expenditure of R&D achievements, and S&T service expenditure including S&T personal service expenditure,

S&T fixed asset expenditure, etc. Source: China Science and Technology Statistics Net (2005).

Table 1. R&D statistics of government research institutes (1991–2003, 100 million RMB)

1991 1994 1996 1998 2000 2001 2002 2003

S&T expenditure 170.7 308.9 409.1 479.7 495.7 557.9 620.2 681.3Government support 93.5 158.2 192.9 244.7 377.4 434.9 498 535Government/total (%) 53.2 48.87 44.24 45.29 67.46 69.47 70.86 71.28R&D expenditure 78.8 128.7 172.9 234.3 258 288.5 351.3 399Basic research (%) 6.2 8.2 6.5 7.5 9.8 11.6 11.6 11.8Applied research (%) 27.4 29.8 27.4 28.1 25.9 27.7 34.5 35.3Development (%) 66.4 62 66.1 64.4 64.3 60.6 53.9 52.9R&D personnel (10,000) 27.4 25.7 23 22.7 22.7 20.5 20.6 20.4

Source: China Science and Technology Statistics Net (2005).

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1061

Since 2000, universities received more than 50%of their R&D expenditures from the gov-ernment (see Figure 2). In 2003, universityR&D expenditures were RMB16.23 billion,RMB3.18 billion more than in 2002 (China Sci-ence & Technology Statistics Net, 2005). Thus,R&D expenditures grew rapidly as the Chinese

Table 2. S&T achievements in S&T

Internationalpublications

Patentapplication

Pap

1997 8,396 2,249 11998 9,560 2,356 11999 9,531 2,488 12001 8,342 N/A 12003 10,000a 4,374 2

Source: Compiled by authors from the China Science anda Estimates.

government pursued its policy of improvingresearch performance in the universities.

In terms of sheer quantity, the output at theURIs has grown steadily. Prior to 1999, publi-cations and patenting had already begunincreasing (see Table 2), then decreased from1999 to 2001 due to 25% of the RIs being

research institutes (1997–2003)

atentproved

Inventionpatents approved

Internationalpatent

,110 457 18,340 526 29,687 669 24,298 617 10,010 1,305 13

Technology Statistics Net (2005).

1062 WORLD DEVELOPMENT

corporatized and removed from the base. TheRIs that were corporatized during the restruc-turing had a total revenue of $34.3 billion andsales income of $21 billion (China Science &Technology Statistics Net, 2005).

The universities also have become more ac-tive. In 2003, there were 63,600 papers withthe first authors from universities listed inSCI, EI, and ISTP. Since 2000, there has beena dramatic growth in patents granted to univer-sity inventors. During 1988–99, Chinese patentsapproved ranged between 1,300 and 1,800. In2003, universities applied for 10,252 Chinesepatents. This veritable wave of patent applica-tions continues to grow. In the first six monthsof 2004, there were 6,250 Chinese patent appli-cations from universities, an increase of 34%over the same period in 2003 (China Intellec-tual Property Net, 2005.). The fact that thenumber of foreign patents is not increasing sug-gests that the output of high quality researchremains roughly unchanged (Chinese Scienceand Technology Statistics Net, 2005).

(a) URI enterprises

The unique feature of the Chinese NIS is theURI-owned enterprises. Regardless of one’sopinion of this strategy, and there are critics,they have grown rapidly. The total revenuesof the URI-affiliated enterprises has grown dra-matically (Table 3). The literature typicallyfocuses on three URI-related firms, Lenovo,Founder, and Stone Group. However, thereare many more. For example, Datang Telecom-munications Technology, a spin-off of the Min-istry of Post and Telecommunications research

Table 3. University rank, revenue of their affiliated firm

1999

Rank University Income Location

1 Peking 87 Beijing2 Tsinghua 32.4 Beijing3 Harbin Tech 9.5 Harbin4 Zhejiang 8.8 Hangzho5 Northeast 8.6 Shenyang6 Shanghai Jiaotong 8.2 Shanghai7 Petroleum (East China) 7.6 Dongyin8 Tongji 6.8 Shanghai9 Tianjin 6.4 Tianjin

10 Nankai 5.9 Tianjin

Source: Compiled by authors from the Center of S&T DeveEducation and Research Network (2005).

arm the Chinese Academy of Telecommunica-tions Technology, Datang employs 4,000 per-sons and in 2004 had annual revenues ofapproximately $300 million (Hoover’s, 2005).As of 1999, 15 firms from 13 different universi-ties had listed on various Chinese stock markets(Xue, 2005). This had increased to 29 firms in2003 (Song, 2005). The total annual revenuesof Beijing and Tsinghua University affiliatedfirms are nearing $2 billion each. Though only45% of all URI-affiliated enterprises are inhigh-technology fields (again the definition ofhigh technology is quite loose), the URI-firmsin high technology produce more than 80% ofthe total revenue (Ministry of Education, 2005).

In Beijing and Shanghai, local authoritieshave established industrial parks affiliated withlocal universities. For example, the Zhong-guancun area of Beijing, which is in close prox-imity to CAS, and Beijing and TsinghuaUniversities, is recognized as the largest con-centration of Chinese and MNC R&D facilitiesin China (Cao, 2004; Zedtwitz, 2004; Zhou,2005). In total, by the end of 2002, the 44 uni-versity-established science parks had attractedRMB29.7 billion investments, employed100,000 persons in 1,200 R&D centers, sup-ported 5,500 high-technology companies, incu-bated 2,300 start-ups of which 920 havegraduated, and 29 had been listed on the stockexchange (Zhou, 2003). Despite these successes,in 2007 there were press reports suggesting thatsome universities might go bankrupt because ofthe losses their affiliated firms were suffering. Inother words, the strategy of having universitiesoperate for-profit firms was having potentiallynegative consequences.

s, and location (1999 and 2003, 100 million RMB)

2003

University Income Location

Peking 163.60 BeijingTsinghua 144.60 BeijingZhejiang 33.80 Hangzhou

u Xi’an Jiaotong 25.70 Xi’anNortheast 24.00 ShenyangTongji 22.30 Shanghai

g Shanghai Jiaotong 19.00 ShanghaiHarbin Tech 15.30 HarbinPetroleum (East China) 13.90 DongyingFudan 13.60 Shanghai

lopment of the Ministry of Education (2005), the China

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1063

The university’s role in the Chinese NIS hasevolved dramatically over the last two decades.Local governments throughout China believethat universities and their affiliated technologyparks are important pillars of economic devel-opment. In the next section, we examine therole of URIs in Beijing and Shenzhen.

4. TWO MODELS FOR URIINVOLVEMENT IN LOCAL ECONOMIC

DEVELOPMENT

The deregulation of the Chinese economyalso included a significant devolution of deci-sion-making to local jurisdictions and organi-zations, thereby providing latitude forcreating their own models. Due to the differenthistorical background and the stage of develop-ment of Beijing and Shenzhen and their respec-tive URIs, different strategies for forming andcultivating URI–industry linkages evolved.

Traditional URIs

URIs spin-offs and university science

Industrialization and commercialization of technological innovation

Figure 3. URI-industry model in Beijing.

Industrialization and commercialization oftechnological innovation

Local high-tech enterprises

Industrial growth with no URIs

Figure 4. URI-industry

The Beijing URIs not only function as humancapital providers and core research centers forthe entire country, but also have generatedspin-offs and established science parks to com-mercialize their research and technologies. Bei-jing utilizes its rich URI resources to encouragehigh-tech development. Shenzhen, as a youngcity, is in a different position because onlytwo decades ago, it had no URIs, and its indus-trial growth did not rely on local URIs. Shenz-hen firms developed their own internal R&Dcapacities utilizing foreign technology and at-tracted educated Chinese from around thecountry. URIs were established later to meetthe demand of the rapid high-tech develop-ment, and only recently have begun to play arole in the local economy. Figures 3 and 4 pro-vide stylized depictions of the URI–industrylinkages in Beijing and Shenzhen.

5. BEIJING

Beijing is the political, educational, and S&Tcapital of China. In 2003, 71 universities and371 research institutes were located in BeijingBeijing Statistical Information Net, 2005, byfar the largest concentration in any Chinesecity. The most prominent of these were the Chi-nese Academy of Sciences, Peking University,and Tsinghua University, all of which arelocated in the Haidian District. The Haidiandistrict is the location of the ZhongguancunScience Park (ZGC), the earliest and mostimportant concentration of IT-related firms inChina. Given a concerted effort that began inthe 1980s to move industrial production outof Beijing, high-technology firms have become

URI-affiliated research institutes and virtual campus

URIs in other regions

model in Shenzhen.

1064 WORLD DEVELOPMENT

a primary force for economic growth in Beijing.As an indicator of the importance of high tech-nology, in 1999 high-technology businesses ac-counted for 25.4% of the city’s total industrialvalue added, and rose to 39.3% in 2004 (BeijingStatistical Information Net, 2005). Given thissuccess, the municipal government has focusedon encouraging further growth (Li, 2000).

In 2004, Beijing was rated as the top Chinesecity in terms of S&T capacity (Chinese Acad-emy of Social Sciences, 2004). In 2000, 25% ofgovernment S&T funds were allocated to Bei-jing institutions while 18% of all R&D fundswere expended in Beijing and 18% of all patentswere granted to entities located in Beijing (Bei-jing Statistical Information Net, 2005). Thirty-three percent of all research institute R&Dspending and 20% of university R&D spendingtook place in Beijing. In 2003, total R&Dspending in Beijing reached RMB25.63 billion,of which government funding accounted forRMB13.67 billion; Chinese companies,RMB8.42 billion; foreign companies,RMB0.96 billion; and other institutions andorganizations, RMB2.57 billion (Beijing Statis-tical Information Net, 2005).

Beijing’s success is mirrored in various objec-tive indicators of performance. For example,since 1995 Beijing has received between 17%and 21% of total patent approvals (see Table4). In terms of URI-industry technology con-

Table 4. Invention patents appr

1995 1996

Beijing 328 246Liaoning 131 118Shanghai 72 74Jiangsu 72 98Shandong 84 84Guangdong 56 57Country 1,530 1,383Beijing/country (%) 21.4 17.8

Source: Beijing Municipal Science and Technology Commi

Table 5. Technology contract value in Beijing a

Year 1999 2000

Country 523.5 650.8Beijing 92.2 140.3Beijing/country (%) 17.6 21.6

Source: Beijing Statistical Information Net (2005).

tracts, Beijing’s URIs captured more than20% of the total contract revenue for the entirecountry (see Table 5).

However, the commercialization of theBeijing URIs is not the commercialization ofresearch results, but rather the transfer ofpersonnel from non-commercial activities suchas teaching and research to the commercial sec-tor. For example, many of the early spin-offssimply provided technology services to otherfirms. Skilled personnel were more significantthan research results. The technology beingtransferred was not comparable to that gener-ated by US universities such as MIT and Stan-ford, but rather was adequate for the Chinesemarket. Despite these caveats, what is signifi-cant is that a few spin-offs became importantChinese IT firms, and Lenovo has managed tobecome a global player.

(a) Research institutes

Beijing is home to more research institutesthan any other Chinese city. Though the Chi-nese Academy of Sciences (CAS), which wasfounded in 1949, has institutes throughout Chi-na, the largest and most prestigious are locatedin Beijing. In the 1980s, CAS shifted from de-fense-related research toward conductingR&D that had greater commercial application.In the process, CAS was corporatized and the

oved by region (1995–2000)

1997 1998 1999 2000

281 309 573 1,074131 131 224 45888 97 189 304106 85 167 34196 91 172 36349 77 123 261

1,472 1,574 3,097 6,17719.1 19.6 18.5 17.4

ssion (2005).

nd in China (1999–2003, 100 million RMB)

2001 2002 2003

782.5 884.2 1084.7191 221.1 265.424.4 25 24.5

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1065

number of institutes was reduced to increaseefficiency, better reflect the market, and toencourage its staff to establish new firms (Kon-do, 2003). In 2005, CAS employed approxi-mately 37,000 scientists and engineer, morethan 20,000 graduate students, and 1,000 post-doctoral scholars. In 2003, CAS expendedRMB8.28 billion on R&D (http://www.cas.cn)and was China’s leading URI in terms of pub-lications and patents.

In response to the economic reforms and therestructuring of the S&T system in the 1980s,CAS established a Technology Licensing Office(TLO), and with the local government,established an ‘‘S&T Development Center’’ inHaidian District to facilitate the commerciali-zation of CAS research. CAS also formed aventure capital firm, China Science and Tech-nology Promotion and Economic InvestmentCompany, to support CAS staff establishingstart-ups (Kondo, 2003). As of 2004, CAS hasinvested in and spun off more than 400 high-tech enterprises, eight of which have beenpublicly listed. In 2003, the gross revenue ofthe CAS affiliated enterprises was RMB53.37billion and they had a net profit of RMB2.03billion (Chinese Academy of Sciences, 2005).The most successful company to emerge fromCAS was the Lenovo Group Limited (formerlycalled the Legend Group). Lenovo was foundedby eleven CAS Institute of Computing Tech-nology (ICT) scientists in November 1984 inthe Zhongguancun Region with a RMB200,000 start-up loan from CAS. The foundersremained institute employees even as theyworked at the firm, and CAS provided technol-ogies, the loan, and office space as well as re-search facilities. The decision to start Lenovoin ZGC was sparked by a government initiativeto reform the national S&T system giving riseto new non-government S&T enterprises(Lazonick, 2004; Lu, 2000). Today, Lenovo isthe largest Chinese IT company, and since1996 it has been China’s sales leader. In 2004,Lenovo reported a turnover of HK$23.2 billionand net profit of HK$1.05 billion (Lenovo,2006). With its 2005 acquisition of IBM’s per-sonal computer (PC) business, Lenovo has be-come the world’s third largest PC firm interms of sales.

As a CAS-affiliated company, Lenovo bene-fited from the economic reforms as well as theinstitutional and organizational restructuringof China’s S&T system. This enterprise modelis known as ‘‘one academy, two systems’’ andis ‘‘a symbiosis between the system of scientific

research and the system of technology commer-cialization under one organizational roof’’ (Lu,2000). CAS supported Lenovo with preferentialtreatment including allowing full autonomy inmanagerial decision-making, financial budget-ing, employee recruitment, full access to CASresources, and use of the institute’s name inmaking business deals (Lu, 2000). ThoughCAS owns a controlling interest, Lenovo enjoyssubstantial autonomy. The benefit for CAS isfrom the fixed sum of earnings that Lenovotransfers to CAS each year.

CAS is by far the most successful of the gov-ernment research institutes in spinning offfirms. But Datang shows that there are othercases. In effect, the RIs were large concentra-tions of commercially under-utilized skilledlabor power. By providing access to facilitiesand guaranteeing the salaries of the entrepre-neurs, the RIs lowered the risks, thereby per-forming a function like that of a venturecapitalist in an environment that in the early1980s could not have supported true venturecapital either ideologically or economically.

(b) Universities

Beijing is the center of the Chinese universityeducation system. In the latest university rank-ing 20% of the top 100 universities of China arelocated in Beijing (Shanghai Jiaotong Univer-sity, 2005). Of the eight Chinese universitieslisted in the top 100 Asian Pacific universities,the top two are Tsinghua University (THU)and Peking University (PKU) (Shanghai Jiao-tong University, 2005). Not only are THUand PKU the most prestigious Chinese researchuniversities, they also are the national leaders incommercialization (see Table 3). In 2002, therewere 26,038 S&T employees in the universities.The local universities were responsible for47.58% of the publications and 36% of all Chi-nese patents allocated to entities in Beijing in2000 (Beijing Statistical Information Net,2005).

Beijing universities have developed close rela-tionships with industry through joint projects,professional consulting, and training. In 2000,among 8,278 research projects underway in Bei-jing universities, 1,540 of them were conductedin cooperation with firms, and another 795were technology service contracts. In order topromote the commercialization of university re-search results and patent licensing, Beijing uni-versities signed 1,159 technology transfercontracts with industry worth RMB811.95

Table 6. University-affiliated enterprise sales income rank by region (1998–2002, 100 million RMB)

Year Rank 1 2 3 4 5

1998 Beijing Shanghai Jiangsu Sichuan Liaoning121.28 38.78 23.99 14 12.91

1999 Beijing Shanghai Jiangsu Liaoning Guangdong146.93 40.23 24.69 18.2 15.98

2000 Beijing Shanghai Jiangsu Tianjin Liaoning200.81 53.82 27.56 26.18 24.21

2001 Beijing Shanghai Tianjin Jiangsu Liaoning261.85 59.71 32.6 32.52 32.46

2002 Beijing Shanghai Jiangsu Liaoning Shandong299.55 76.95 40.07 36.09 33.85

Source: Compiled by authors from the Ministry of Education (2005) and the China Education and ResearchNetwork (2005).

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million. But the most striking relationship isthrough spin-offs and the ownership of for-profit enterprises. Put simply, Beijing has themost university-affiliated enterprises and theyare the largest in terms of sales and profit (seeTable 6).

The two leading universities in terms of com-mercialization are THU and PKU. As China’spremier technical university, THU has a strongendowment of personnel. In 2005, THU housed11 national key research labs, employed over7,800 faculty and staff, and served more than27,000 students (Tsinghua University, 2005).In terms of R&D funding, it leads the countryin the number of patents and publications (seeTable 7). In total, in 2001 THU expendedRMB 724 million on research, of which RMB323 million was from the private sector; theremainder was largely from the governmentsector (Beijing Statistical Information Net,2005). For example, in 2004 THU had 527 pat-ents approved and ranked first in the country(Center of S&T Development Ministry of Edu-cation, 2005). As was the case with CAS, THUis actively involved in commercializing facultyand staff inventions. In 1991, it established an

Table 7. THU S&T achievem

Year Patent application Patent approved Nu

1999 189 1212000 344 1352001 396 1632003 N/A N/A

Internet Edition.Source: Compiled by authors from the Beijing Statisticalopment of the Ministry of Education (2005).

internal Technology Licensing Organization(TLO) to promote technology transfer andindustrial cooperation. In 2001, THU signed828 research contracts worth RMB432 millionand 534 technology transfer contracts worthRMB234 million (Beijing Statistical Informa-tion Net, 2005).

In addition to active collaboration with indus-try through joint projects and technology trans-fer, THU established firms to commercialize itsinventions. In 1922, the first university-affiliatedfirm at THU was established to create internshipand apprenticeship opportunities for students.Early on, the firms did not have many market-oriented or commercial activities, yet they didprovide services such as managing guest housesand print shops. 10 Since the early 1980s, theseenterprises have been required to generate prof-its. In 1980, THU established Tsinghua Tech-nology Service Company to utilize THUpersonnel to provide technical services to themarketplace. By the early 1990s, more than190 companies had been created by the profes-sors and staff at THU or in partnerships withcompanies outside the university. Some firms re-mained small and were based in the professor’s

ent statistics (1999–2003)

mber of contract Contract revenue (10 thousand)

341 18,367534 23,500534 23,400N/A N/A

Information Net (2005) and the Center of S&D Devel-

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1067

or researcher’s labs. However, there were otheraffiliated firms such as Tsinghua Tongfang andTsinghua Unisplendour that grew sufficientlylarge to make public stock offerings.

As THU’s commercial activities grew, man-agement of the disparate firms became morecomplicated. To assist the growing number ofspin-off companies and accelerate the commer-cialization of technologies, THU built its ownuniversity science park as an incubator in1994 and established Tsinghua UniversityEnterprise Group in 1995. By 2002, the total as-sets of the Group had grown to RMB17.8 bil-lion, and gross income reached RMB11.4billion. In 2003, THU’s assets were capitalizedat RMB22.7 billion—in comparison PKU’s as-sets were worth RMB14.8 billion. The revenuesgrew rapidly reaching RMB15.22 billion in2003 (http://www.cutech.edu.cn). Because ofthe increasing size and complexity of THU’sbusiness operations and the necessity of provid-ing professional management, in 1995 TsinghuaHolding Company (THC) was established tomanage various spin-off enterprises and to in-vest in new companies. THC was better ableto rationalize the businesses including improv-ing the process of evaluating the provision ofcapital to spin-offs, the culling of less successfulfirms, and a standardization in the naming offirms in the THU group. By 2004, the THChad 30 technology-based spin-offs and approx-imately 30 service-oriented companies such asthe university press, hospitals, and logistic com-panies, three of which are ranked as the top 10profitable university enterprises in China (Chi-na Education & Research Network, 2005).

Through the establishment of a science parkon campus in 1993, THU encouraged linkagesbetween the university and industry. By 2003,the park had grown to 300 thousand squaremeters, and by the end of 2005 is expected tohave 690 thousand square meters of space(Mei, 2004). Currently, the science park housesmore than 300 different institutes including na-tional research labs; R&D centers for variousmultinational corporations such as Sun Micro-systems, Proctor & Gamble, and NEC; theheadquarters of the university enterprisesincluding Tongfang, Unisplendour and Zhich-eng; and various firms in financial, law andconsulting services, and professional and edu-cational training (Mei, 2004). The space utiliza-tion has prompted some to conclude that thesescience parks are, in some measure, real estatedevelopment schemes. The science park also

serves as an incubator to develop start-ups,many of which are operated by university alum-ni and former students who have returned toChina from overseas.

In 2001, a professional incubator company,Tsinghua Business Incubator Co. (THBI) wasset up in the park to help startups secure finan-cial support, including venture capital fromvarious companies, loans from banks, govern-ment funding, and a RMB200 million invest-ment fund for returning students fromoverseas. In addition, it provides concessions,including free incubation space for the firstyear, preferential rents for the first two years,introductions to professional consulting ser-vices, and assistance in networking with variousinstitutions and organizations. In 2003, THBIincubated 70 start-ups and 27 graduated.

The university spin-off companies help com-mercialize research results and produce profitsto finance university research and employee’swelfare (Kondo, 2003). The close organiza-tional tie between the university and the spin-offs integrates postgraduate education intoindustrial R&D (Lazonick, 2004). The spin-offcompanies provide internship opportunities tostudents at the university, many of whom arehired directly after graduation. Meanwhile,the companies receive access to S&T resources,university facilities, and the benefit of THU’sname when doing business with other enter-prises.

Beijing with its preeminent endowment ofURIs in both number and quality has benefitedfrom commercialization. THU and CAS areexamples of how Chinese URIs have commer-cialized both some of their research staff andtheir inventions. Other Beijing universities suchas PKU, China Agricultural University (CAU),Beijing University of Posts and Telecommuni-cations (BUPT), and Beijing University ofAeronautics and Astronautics (BUAA) alsoare encouraging commercialization of their re-search results. PKU has commercialized a num-ber of its inventions through its spin-offs.Established in 1985, PKU’s spin-off, the Foun-der Group, currently is the largest universityenterprise in China with a total revenue ofRMB22 billion in 2004. It is dominant in themarkets for Chinese-language electronics pub-lishing systems in Asia, the US, and Europe.Founder’s professional technology in picto-graphic-language electronic publishing systemsoriginated in a government-led R&D projectwhich a PKU professor worked on as the chief

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designer (Lu, 2000). Founder not only contin-ues to develop its electronic publishing system,but has entered other businesses such as per-sonal computer assembly.

CAU has spin-offs commercializing trans-genic technologies, which generated revenueof over RMB500 million in 2004. BUPT hasdeveloped enterprises commercializing com-puter networking technology and telecommuni-cation software. BUAA owns more than fortyspin-offs. Recently, it established a science parkin ZGC to incubate start-ups. All of these URIshave affiliated for-profit firms commercializingtheir particular expertise.

For Beijing, which has been a governmentcity with little industry and a relatively weakcommercial tradition, the commercializationof university research has provided an impor-tant source of employment and taxes. Beijingmunicipal officials have decided that futuregrowth is dependent upon training and retain-ing the talented students coming to Beijing tostudy.

6. SHENZHEN

In 1979, Shenzhen, which is located close toHong Kong, was a fishing village and had nolocal academic institutions. In 1980, it was des-ignated as a ‘‘special economic zone’’ by theCentral Government and the State Council ofGuangdong Province. Established as a plat-form to experiment with market reforms andto act as a base for the relocation of manufac-turing from Hong Kong, it was given the statusof free trade zone so that goods could beimported and exported without duty. Multi-national firms established manufacturing facili-ties there to draw upon a vast pool of relativelyunskilled but inexpensive labor.

Shenzhen grew rapidly as a center for manu-facturing for export. The policy was a massive

Table 8. Shenzhen S&T statistics

Year GDP High-techoutput value

Indigenoustechnology value

High

2000 1,665.24 1,064.45 532.42001 1,954.17 1,321.36 697.962002 2,239.41 1,709.92 954.482003 2,860.51 2,482.79 1,386.642004 3,422.80 3,266.52 1,853.09

Source: Compiled by authors from the Shenzhen Annual R

success and the city grew rapidly. Since 1979,its GDP has grown at an average rate of 30%per annum. Today, Shenzhen is an importanteconomic center (see Table 8). In recent years,Shenzhen has become one of the top five Chi-nese cities in terms of GDP. Its GDP per capitawas over $7,400 in 2004, which was the highestin China.

Shenzhen’s success is the result of favorablepolicies, geographic advantages, visionaryplanning, deliberate development of a strongindustrial structure, and an entrepreneurialinstitutional and organizational framework.The Chinese Academy of Social Sciences(2005) rated Shenzhen as the second most com-petitive Chinese city trailing only Shanghai.These factors allowed Shenzhen to attract tal-ented personnel from throughout China andinvestment from around the world.

As Shenzhen grew, labor and infrastructurecosts inexorably rose. The municipal govern-ment recognized that Shenzhen could notremain successful as a center for low-costassembly—it had to develop an innovation sys-tem. In response, it devised a strategy toencourage higher technology business activities.In pursuit of this goal, the municipal govern-ment has built office parks to attract high-tech-nology firms, MNC R&D, and encourage theentry of local high-technology firms. The lead-ing examples of the new firms driving thegrowth of Shenzhen are the communicationstechnology firms, Huawei Technologies andZhongxing Telecommunications (ZTE). How-ever, many smaller technology-based firmshave also appeared.

The roots of Shenzhen’s movement up thevalue-added ladder can be traced to 1985, whenthe municipal government and CAS jointlyestablished the Shenzhen Science and Technol-ogy Industrial Park. In 1996, Shenzhen estab-lished the national-level Shenzhen High-TechIndustrial Park (SHIP) (Li, 2000). In 2005,SHIP encompassed an area of 11.5 km2. As

(2000–04, 100 million RMB)

-tech companynumber

S&Tfunding

S&T personnel(10,000)

Patentapprovals

212 2.5 15.89 2,401314 2.8 17.23 3,506422 3.25 18.64 4,496673 3.18 57.54 4,937943 5.3 66.34 7,737

eports on Shenzhen Government Online (2005).

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1069

with most Chinese industrial parks, there is lit-tle apparent specialization as it welcomes firmsfrom nearly every industry and it also aims toimprove traditional industries by making useof high technology and advanced applicabletechnologies (Shenzhen Industrial Park Net,2005).

In 2004, the value of production in Shenzhenreached RMB245.4 billion, 11 times that of1996. In contrast to Beijing, 90% of the R&Din Shenzhen is conducted by firms, and 80%of all R&D funding originates from firms. In2003, R&D expenditures were RMB7.2 bil-lion—an increase of 19.8% over 2002. The larg-est high-tech enterprise, Huawei Technologiesinvested RMB3 billion in R&D. The numberof patents has increased annually (see Table 8).Only Beijing and Shanghai had more Chinesepatents granted than Shenzhen. Moreover, thegrowth in patenting was stunning. The applica-tions, for example, grew from 1,440 in 1997 to12,361 in 2003 (Shenzhen Intellectual PropertyNet, 2005).

Shenzhen had a different growth trajectoryand concomitant model by which universitieswere meant to contribute to the cities develop-ment (see Figure 3). Already, in the early 1980s,the municipal government believed that thelack of institutions of higher education and re-search would become an obstacle to industrialupgrading. In response, Shenzhen Universitywas established in 1983 and a technology-basedcollege, Shenzhen Polytechnic, in 1993. In the1990s, the municipal government decided thatthese were not sufficient and embarked upona strategy of attracting URIs to the area. Itsfirst success was convincing THU to establishShenzhen Tsinghua Research Institute in SHIP.Later, PKU, CAS, Chinese Academy of Engi-neering, and Hong Kong University of Science& Technology also set up research bases inShenzhen. To increase cooperation with theexisting university branches and encourage yetmore URIs to come to Shenzhen, the municipalgovernment established the ‘‘virtual campus’’concept in SHIP in 2000. As an incentive forURIs to establish branches at the UniversityVirtual Campus (UVC), the municipal govern-ment offers free office space and infrastructureincluding furniture, computers, telephones,and computer networks for the first two years.It also provides long-term passes to HongKong 11 for staff, transportation, printing,computer server, rooms for meeting and teach-ing, apartments for staff, and other amenities athighly subsidized prices.

These incentives were so attractive that with-in five years 43 URIs including five Hong Konguniversities and one French university (Cent-rale Lyonais) located branches at UVC. Eighttechnology-based incubators are incubating252 enterprises, and 217 technologies have beentransferred. The campus houses 78 researchlabs and centers including 42 national key re-search labs and engineering centers (ShenzhenIndustrial Park Net, 2005). In 2000, a univer-sity town was created within SHIP, whereTHU, PKU, Nankai University, and HarbinInstitute of Technology have set up full-timegraduate schools. By 2004, more than 50,000students had studied at UVC and 10,000students had graduated with a master’s or aPh.D. degree. Over 120 high-tech enterpriseswere established by the universities and morethan 100 research projects from the universitieswere transferred to industry. Despite beginningwith no URIs, the local Shenzhen governmentwas able to implement policies to attract URIs.

In the case of Shenzhen, it was economic suc-cess that drove the development of a highereducation infrastructure. In return, the estab-lishment of numerous educational facilitiesmake Shenzhen more attractive as a destinationfor educated Chinese because of the ability topursue higher degrees from prestigious URIslocally. Thus the relocated URI branches mayoperate as an attraction and retention strategyfor highly trained engineers and scientists.Whether the educational institutions are mak-ing Shenzhen a research center is not yet cer-tain. What is certain is that Shenzhen is beingtransformed from a low-cost production centerinto a location for undertaking higher value-added activity. The addition of universitybranch campuses can only contribute to thatprocess, and over time these branch campusesmay also be improved.

7. DISCUSSION

URIs have been significant contributors tothe growth of the Chinese economy. In termsof economic activity, the commercialization ofChinese universities and their personnel hasmade an impact on a few of the leading univer-sities in the major cities. In the case of Beijing, aRIS built upon the URIs has emerged. CAS,THU, and PKU have been the sources of firmsthat are now among the largest IT firms in Chi-na. For the universities suffering from budgetcuts successful commercialization is seen as a

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source of funds. Beijing as the leading city inthe China’s S&T system has developed success-ful URI-industry linkages, particularly throughspin-offs and university science parks. URIs areone of the fundamental forces in the establish-ment and development of technology-basedfirms in Beijing. For economic growth, Beijinghas relied upon the knowledge and humanresources in the URIs.

Whereas the URIs have contributed to thedevelopment of the Beijing economy, in Shenz-hen economic growth occurred prior to thedevelopment of institutions of higher educa-tion. However, the municipal government real-izing the importance of upgrading its economicbase is actively working to create a higher edu-cation infrastructure to contribute to that pro-cess. Though research is clearly a part of theShenzhen strategy, there can be little doubt thatthe university’s most important function is toprovide for educational upgrading.

Chinese universities like those in other coun-tries have a role of selecting and educating theworkers of tomorrow—a task that will becomeeven more vital in the emerging knowledge econ-omy. The elite universities are critical becausethey have proven to be pathways for the bestChinese students to prepare to go on to foreignuniversities that provide global-class training.

As in other countries, there has been concernthat the commercialization of Chinese URIs willaffect research and teaching. 12 There are reportsthat some professors are so engrossed in theircommercial activities that they exploit their ac-cess to institute or university resources and re-search facilities. There is concern that studentsare being used as cheap labor with little attentionto research quality or pedagogy. These are seri-ous, but, perhaps, of even greater concern maybe the involvement of the university and itsadministrators in the daily operation of com-mercial enterprises. This might skew universitydecision-making regarding research funding,faculty hiring and promotion, and even lead touniversities making decisions that are in theireconomic best interest, but are antithetical tothe interests of the society as a whole.

In many countries, URIs have been impor-tant repositories of the humanities, culture,and the arts. Will the commercialized ChineseURIs where departments and laboratoriesoperate as profit centers protect the unprofit-able humanities and arts? Creativity and de-sign, which many believe is as important inglobal competition as engineering and produc-tion, does not stem solely from well-trained

engineers, but requires aesthetics and innova-tion. Will these be abandoned in the universitythat operates more like a profit making firmthan as an institution in the pursuit of knowl-edge and pedagogy?

There are operational difficulties, also. Be-cause of the nature of these arrangements, theactual ownership of firms may be unclear. Forexample, there have been conflicts regardingthe remittances the spin-offs should provide totheir mother institutions. For example, in thecase of the largest university spin-off PKU’sFounder Group, the company’s first presidentwas fired by PKU because of his unwillingnessto increase payments to levels that the univer-sity felt were ‘‘reasonable’’ (Fan, 1999). The dif-ficulty here is that university bureaucrats maybecome too involved in the operation of thefirm, thereby harming the firm. There is evi-dence that URI-affiliated firms under performsimilar non-affiliated firms. Based on a studyby the Administrative Committee of ZGC andPKU Network Economics Research Center(2004) it was found that from 1995 to 2003 uni-versity spin-offs in ZGC had far greater imma-terial assets and a greater proportion ofpersonnel with higher education, but some ofthe spin-offs are under-performing in technol-ogy commercialization. These enterprises onaverage made a net profit equal to only halfthat of the non-affiliated companies in ZGC.The university-affiliated spin-offs had exportswhich were only one-sixth of those in nonaffili-ated companies. Underperforming universityspin-offs paid less tax and were less productivein patenting than nonaffiliated companies. Le-novo and Founder, etc. are still the most suc-cessful firms in ZGC. The report attributesthis under performance to a lack of clarity inownership, ineffective personnel relations, andthe lack of capital and management supervisorysystems.

There is variability in performance and re-source distribution among university enter-prises. The revenues generated by PKU andTHU spin-offs account for more than half ofthe total revenue generated by all spin-offs.Interestingly enough, PKU and THU also re-ceive much greater research funding from gov-ernment than universities in other regions.Finally, in cities like Beijing and Shanghai thatare undergoing real estate speculation, thebuilding of university science parks may havealso been aimed as much at creating rentableoffice space as they were toward incubatingand transferring technology.

UNIVERSITIES/RESEARCH INSTITUTES AND REGIONAL INNOVATION SYSTEMS 1071

8. CONCLUSION

The NIS literature initially treated the na-tion-state as the appropriate unit of analysisfor understanding innovation systems. Ourstudy has shown that the national level wasimportant, but there are clear differences inChinese regions. This also suggests that analy-sis treating China as being a monolithic entitymisses the nuance in how China innovates.Our study, which confirms Segal (2003) findingsregarding the importance of local officials indeveloping the evolutionary trajectories of theirregions, shows that Beijing and Shenzhen,starting with different endowments, establishedremarkably different methodologies for devel-oping their technology clusters. Without adoubt, China has built a unique relationshipbetween its URIs and industry. In most coun-tries, some separation between universitiesand industry has been considered healthy, inChina URIs own and operate firms.

Chinese local authorities place great faith inthe economic development benefits of URI-developed technology. This is evidenced by thedetailed statistics that have been collected to

provide evidence of success. In the case of Bei-jing, the URIs have provided the seeds for anumber of significant firms, and some spin-offshave grown to be large businesses. In Shenzhenthus far URIs were not the origins of significantspin-offs, the source of successful firms such asHuawei and ZTE are quite different.

Because Chinese universities actually ownand operate firms, one could argue that theyhave the closest relationship with the privatesector of any universities in the world. In thecase of the elite universities, the number offirms owned by the university can be in thehundreds and include everything from high-technology start-ups to low-tech service firms.Some firms having their roots in Chinese URIssuch as Lenovo, Dongfang and Founder, areamong the largest and most important Chinesetechnology firms. From this perspective,Chinese policy has had tremendous success intapping the capabilities of universities andresearchers. For other developing countriesthat have strong URIs, the Chinese model isworthy of study. The direction which ChineseURI–industry relationships evolve is of signifi-cance to China and the world.

NOTES

1. There is an enormous literature on Silicon Valley andBoston. Some work compares the two regions (Fleminget al., 2004, Kenney & von Burg, 1999; Saxenian, 1994)particularly in biotechnology (Powell, Koput, Bowie, &Smith-Doerr, 2002; Zhang & Patel, 2005).

2. For a discussion of the roots of venture capital in theUnited States, see Etzkowitz (1999) and Hsu andKenney (2005).

3. An important exception is Bresnahan and Gam-bardella (2004).

4. Definitions of high-technology are always difficult.In China high technology industries these include almostanything in the IT and software industries and includesquite routine work such as PC assembly. There is no wayof separating these out, and we believe a credibleargument can be made that even assembling suchelectronics items can over time lead to greater value-added creation as the cases of Japan, Korea, and Taiwanhave demonstrated.

5. On industry differences, see differences betweenbiotechnology and IT in Kenney and Patton (2005).

6. For a critique of this explanation, see Kenney andvon Burg (1999). For partial corroboration of Kenneyand Burg, see Fleming et al. (2004) who finds that‘‘simple characterizations of Boston secrecy and autarkyvs. Silicon Valley cooperation and interdependence failto reflect the tension between managers and engineers onboth coasts.’’ On path dependency, see David (1986) andArthur (1994).

7. On development trajectories, see Dosi (1988).

8. The exchange rate is around RMB8.3 to US$1.

9. It is impossible to assess the quality of these patents.Also, we do not know whether these were granted toMNCs operating in China or indigenous Chineseorganizations. If China is similar to Japan, Korea, andTaiwan, then it is likely that their patents will improveover time.

10. This was not unique to China as universities inmany countries manage activities such as dormitoriesand university presses.

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11. The long-term pass is important because there arestill immigration controls that limit those who can enterHong Kong. For persons working in Shenzhen the abilityto visit or live in Hong Kong is an important perk.

12. For discussion of these concerns in relation to USuniversities, see Bok (2004), Kenney (1986), and Slaugh-ter and Leslie (1997).

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