Growth Challenges

California dreaming in Hangzhou, patent leader of China’s economic upgrade


With the world watching with held breath as China engineers its race to move up the economic value chain, a city less than an hour away by train from Shanghai appears to be taking the lead. Home to China’s highest per capita millionaire residency, in Hangzhou, capital of Zhejiang province, even the city’s soon-to-open new rubbish treatment station is solar powered. The city’s bike-sharing programme is the world’s largest, and in 2011 the BBC listed it as one of the world’s top eight public bike initiatives. Patently standing out, Hangzhou ranked first among China’s provincial capitals in terms of effective patents, Hangzhou realised a total of 13,204 effective patents in 2011. Sales of related products are reported to have reached Rmb169.4bn.[1]   In the same year, Hangzhou-based Zhejiang University, one of China’s emerging ‘C9’ Ivy League, topped Chinese university tables for number of patents realised.   

Hangzhou’s place in China’s national innovation planning is official. Alongside Nanjing, Suzhou and Wuxi, it is one the official experimental innovative cities selected by the National Development and Reform Commission (NDRC), China’s key planning body. The plan promotes both high technology and new energy sectors, and brings preferential treatment to the development of these fields.  The seven identified sectors receiving priority attention as part of China’s five-year plan are energy saving and environmental protection, new-generation information technology, biotechnology, high-end equipment manufacturing, new energy, new materials and new-energy vehicles.  

Hangzhou’s own New Energy and Industrial Development Plan (2010-2015) (NEIDP) aims to place the city at China’s and increasingly the global forefront in the low-carbon, new-energy and solar industries. Among its goals is cutting per unit GDP carbon emissions to half of 2005 levels by 2020 – nearly ten percentage points ahead of the national goal. A high density of leading Chinese and international private companies based in the city should help toward realising the Plan – over 80 of the Fortunate-500 companies have a presence in Hangzhou, alongside privately owned Chinese companies calling the city home include e-commerce leader Alibaba, beverages conglomerate Wahaha and national automotive maker Geely.

At the heart of the NEIDP is the Singapore-Hangzhou Science and Technology Park, particularly important for the city’s IT sector. Opened by Singaporean Premier Lee in 2009, IBM and Cisco are among its investors, alongside Zhejiang University. Nokia and Siemens are also among international companies that have also invested in Hangzhou’s R&D. Hangzhou was one of the five Chinese cities participating in a 2011 national cloud computing pilot programme (alongside Beijing, Shanghai, Shenzhen and Wuxi). In that year Hangzhou realised R&D spending of 2.9% of GDP. This level is already higher than the national 2020 goal of 2.5%, as well as higher than the reported 2011 OECD average of 2.3%.

Not only foreign companies but universities too are beginning to take part in Hangzhou’s R&D plans. In August 2012, the UK’s Nottingham University signed a five-year agreement with Hangzhou’s Wahaha Group. The partnership will inaugurate the Electrical Motor Research Institute of Hangzhou, with onward plans also to establish several joint-venture research institutes focussing on topics ranging from bioenergy to food technologies to robotics.

The presence of Geely and this new partnership-based research institute are leading the charge for Hangzhou’s electric car ambitions. The city is one of thirteen in China that qualifies for national subsidies for the sale of electric vehicles. Together with local subsidies, these come to a maximum of Rmb123,000 (just under USD20,000), and payable to Hangzhou residents purchasing electric vehicles via the manufacturer. Hangzhou targets 20,000 electric car vehicle sales and 25 operational electric car-charging stations by end-2012.

A rental car initiative seeks to attract those not able to afford to buy a ‘green’ car. Hangzhou residents will soon be able to rent an electric car for less than Rmb1,000/month for a minimum period of six months. “After decades of challenges in getting the global public to accept electric vehicles as a viable means of getting from place to place, this will be the first mass experiment in promoting this technology at low cost to private drivers.  After bad press about the safety of electric vehicles in China, this might just be the kick this technology needs to really take off in China”, says Canadian Robert Earley, Director of the Clean Energy Transportation Program at the Beijing-based Innovation Center for Energy and Transportation. 

Among those leading Hangzhou’s attempt at a green leap forward, are recruits under China’s Thousand Talents programme. The Hangzhou government reports that more than 100 high-level overseas talents and eight talents within the ongoing Thousand Talents programme have relocated to the city’s Science and Technology zone alone.[i]   A typical profile is Dr. Zhao Fuquan whom now serves as President of the Zhejiang Geely Automotive Research Institute and President of the Zhejiang Automobile Engineering Institute. Zhao has a PhD in Engineering from Japan, has authored multiple texts on automotive technology and been involved in work leading to numerous patents. He is a former research executive of Daimler Chrysler and Fellow of the Society of Automotive Engineers, and a part-time professor at Tsinghua University. 

Despite such progress, this is still early days for China’s patent ambition. According to the findings of an August 2012 report commissioned by the European Union in China: Dulling the Cutting Edge: How Patent-Related Policies and Practices Hamper Innovation in China, China’s current innovation capacity is over-hyped, under-supported by IP laws, and undermined by targets that push for quality over quantity. In the meantime, patent quantity has been found to be racing ahead of patent quality, without guarantees that this gap is to shrink. The report identifies that Chinese patents have lower than average lifespans, and that a lower percentage of patents are owned by domestic filers as against foreign filers, when compared with rates in the EU countries sampled. The report notes that there are similarly higher rates of patent utility models and design patent invalidations.

Despite the limitations on China’s patent progress, in the broader context of China seeking to transform its economic model, a forecast of China’s reformist leader Deng Xiaoping may be more prescient than ever: “When our thousands of Chinese students abroad return home, you will see how China will transform itself”. If Deng is right, and if the trickle of experts returning to China were to gain the momentum of a flood, led by broader and current trends in Zhejiang’s capital Hangzhou, patent progress could indeed take hold in China. The international economy would be transformed in the process.

A famous Venetian visitor to Hangzhou in the 1200s, Marco Polo, is remembered in the city by a statue marking his apparent marvel at Hangzhou, then a city much larger than any in Europe, and vaunting advanced urban planning and culture. In the early 21st century Hangzhou is again attracting significant international attention from investors, IP lawyers and scientists alike, and can boast one of China’s highest per capita urban incomes. It is not, though, the sister city of Paolo Alto, California. In August 2012, Hangzhou agreed a less assuming sister city relationship with Indianapolis, an auto-focused city in America’s mid-west. The two sides agreed to foster the mutual development of industry, information technology and environmental protection. Hangzhou already has 108.5 millionaires per 100,000 residents, China’s highest concentration of wealth. Who knows – a sister city arrangement with Paolo Alto may yet be next.

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Lauren has worked in economic policy and research at the World Bank, World Economic Forum, EIU and for the governments of Sierra Leone and Guyana. She has learned Chinese since 1995, and lived in Beijing for almost six years, on and off since 1997. Lauren has a PhD in Economics from Peking University, an MSc in Development Economics from the School of Oriental and African Studies (SOAS) and a B.A/B.Com from the University of Melbourne.

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