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China aims for its own Silicon Valley

Like the 'Asian tigers' before it, China is pushing into higher-end manufacturing and innovation.

By Carol HuangStaff writer of The Christian Science Monitor / February 9, 2009

A worker at Fuji Xerox of Shenzhen assembles a copier. While it courts foreign companies, Guangdong Province wants to become an innovation center by 2020.

Andy Nelson/The Christian Science Monitor

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Shenzhen, China

The land of Nike shoes and plastic Christmas trees – and 40 percent of China’s factories – has been battered by falling foreign demand. But that doesn’t mean Guangdong Province is sitting idle. A pioneer in China’s capitalist experiments, it’s using the country’s worst slowdown in seven years to push ahead with a complete economic makeover.

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Like Japan and the Asian tigers before it, China is moving to loosen the grip of high-volume, low-end manufacturing on its economy – and transform itself into a corner-office innovator that can dream up an idea and build it to exacting specifications.

Instead of just assembling iPods, in other words, China wants to invent the next “it” music player.
In an unusual silver lining, the economic crisis may be helping: By shaking out low-profit companies, it’s making room for more advanced ones.

The policy is known as “emptying the cage, removing the bird,” says Mei Xinyu, a senior researcher at the Ministry of Commerce in Beijing. The slowdown “sped up the process.”

China’s Silicon Valley?

Last month, the National Development and Reform Commission announced revised plans to transform Guangdong and neighboring Hong Kong and Macau into a “significant innovation center” by 2020.

One hundred R&D labs will be set up over the next three years. By 2012, per-capita output in the region should jump 50 percent from 2007, to 80,000 yuan ($11,700) And by 2020, the study predicts, 30 percent of all industrial output should come from high-tech manufacturing.

“While some traditional competitive industries such as household appliances, textiles and garments, papermaking, and Chinese herbal medicine will be upgraded to increase competence, inefficient energy-consuming sectors will gradually be phased out,” the plan states.

Low-end factories will have to relocate to cheaper provinces or countries.

For provincial officials, whose standing rises with Guangdong’s economic performance, that’s the only way forward. As global recession hit Chinese exports last year, growth in this region dropped to 10.1 percent, from 14.7 percent in 2007.

“Restarting outdated capacities for the sake of growth would just be like drinking poison to quench thirst,” Guangdong’s Communist Party boss Wang Yang, an advocate of upgrading, wrote in a recent opinion piece.

Still, the economic crisis has forced some compromise. To stem the troubling tide of millions of layoffs, officials decided to prop up the struggling companies they’ve sought to run into the ground, by reinstating an export tax rebate to help them cut costs.

“They’re trying to provide enough benefits to companies so they don’t go out of business, while at the same time not backtracking too much,” says Arthur Kroeber, head of Dragonomics, a consultancy based in Beijing.

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