Local SEI Plans Seek to Foster “Indigenous Innovation”

In the year since the State Council released its 12^th Five Year Plan (FYP) on developing strategic emerging industries (SEIs), local governments have pressed forward in developing their own local plans, pilot projects, and funding mechanisms. Given the significant role that the government hopes SEIs will play in China’s economy over the next several years, companies need to understand local governments’ industry and funding priorities. USCBC continues to monitor and report on SEI-related developments at both the national and local levels. 

The SEIs are seven industries that the Chinese government views as engines of growth for China’s economy: new materials, high-end equipment manufacturing, new energy, next-generation information technology, energy-efficient and environmental technologies, pharmaceuticals and biotechnology, and new-energy vehicles. USCBC recently reviewed SEI policies and pilot projects in four provinces. It is clear that local governments remain committed to increasing gross SEI economic output, setting specific economic targets for SEIs (see Table).

Provincial economic goals for SEIs

USCBC analysis of policies in Guangdong, Henan, Jiangsu, and Sichuan indicates that all provinces are giving preference—either in funding or government procurement—to investments and technologies that have some “innovative” component generated in China. What specifically qualifies as “local innovation” is not spelled out, nor is it clear what weight “local innovation” is given when local governments evaluate projects, funding, and investment. Some provinces have been explicit in their support of indigenous innovation. Therefore, companies wishing to invest in or sell SEI technologies should be prepared to have their investments or sales heavily scrutinized for signs that they are supporting the development of home-grown intellectual property (IP).

Guangdong

·         Indigenous Innovation: The Guangdong Economic and Information Technology Commission (GEITC) released in 2011 and 2013 plans that aim to identify priority companies in key SEI industries. These companies will likely receive preferential access to funding and special channels for completing local administrative processes. To qualify, companies must have an R&D center in Guangdong and own at least one “core” patent in the relevant SEI industry there (“core” patent is not defined). The latest SEI enterprises list includes 120 companies, of which the overwhelming majority are domestic.

·         Pilot Projects: GEITC published a notice last issued in 2012 soliciting projects to be considered for provincially supported pilot projects. Selected projects should be able to make breakthroughs in R&D and contribute to the development of indigenous IP in any of the SEIs.

·         Funding: According to media reports, such pilot projects will receive the lion’s share of the RMB 22 billion that the government has allocated for SEI funds for the 12^th FYP period. Individual projects must have independent legal person status (i.e. branch R&D centers would not qualify) and be recommended by GEITC or another Guangdong government agency, according to SEI funds management measures. Projects will receive a minimum of RMB 5 million.

Sichuan

·         Indigenous Innovation: Protecting IP is a distinctive feature of Sichuan’s SEI policies. The local IP bureau released opinions stressing the importance of improving IP protection. Although no details were given, the opinions emphasize the need to improve the quality of patent ownership in order for a company to be qualified as an innovative company. Another provincial government plan aims to have enterprises make breakthroughs in 60 “core technologies” by 2015. However, in this plan IP is not specifically mentioned.

·         Pilot Projects: Sichuan government agencies have focused on establishing specific geographic areas in the province to serve as “bases” for pilot projects. For example, Leshan was designated as an industry cluster zone to pilot the integrated, large-scale application of information technology and products utilizing the “Internet of Things.” This follows the establishment of the Second Beidou Satellite Navigation Industry Park, which focuses on the development of telemetry and satellite navigation. Details about incentives for locating in the base areas have not been disclosed.

·         Funding: As an incentive to spur SEI development, Sichuan has allocated RMB 2 billion to support SEI projects. Interim measures released in April 2012 suggested that funding preference will be given to projects with a focus on indigenous IP.

Jiangsu

·         Indigenous Innovation: Fostering the development of indigenous technologies within domestic companies is an explicit part of Jiangsu’s SEI promotion plans. The province’s five-year plan fo SEIs has a general goal of developing 100 indigenous innovation projects and brands. In addition, these projects will receive preference in government procurement. Projects that have received recognition for indigenous innovation can compete against other projects to receive low-interest loans. 

·         Pilot Projects: Similar to Sichuan, Jiangsu is establishing “bases” throughout the province to facilitate SEI-related projects. For example, northern Jiangsu is to focus on projects in which Chinese companies import from foreign partners and then develop their own indigenous technologies.

·         Funding: The Jiangsu government has established funding for ten industries specifically listed in the province’s five year plan for SEI development. Companies can submit applications to local governments, which will make recommendations to provincial authorities. Energy saving, low carbon, export-oriented, and unspecified “high technology” projects and technologies will be given preference in funding decisions.

Henan

·         Indigenous Innovation: Advancing indigenous innovation is a central feature in Henan’s action plan, which covers 14 industries. While the plan is quite general, government procurement will be the main benefit for companies that produce products with indigenous technology, particularly in the automotive and display industries.

·         Pilot Projects: Although details are lacking, Henan aims to set up 20 projects in such fields as network display, battery, and new alloy technologies, as well as biomedical engineering.

·         Funding: Henan released very general details about possible funding, but aims to spend more than RMB 200 million.

Implications for member companies

In a recent USCBC report on SEI recommendations, USCBC members indicated that SEI-related incentives and programs do not drive their strategy and investment decisions and are not vital to their business development in China. Nevertheless, the trend of promoting domestic companies is concerning. Foreign companies should monitor current and future SEI incentives and programs to make sure incentives are not offered on a discriminatory basis. They should also make certain that they are not unfairly disadvantaged from participating, if they choose to do so.

USCBC will continue to report on SEI developments in future issues of CMI.