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SYS-CON MEDIA Authors: Carmen Gonzalez, Liz McMillan, Jon McNeill, Elizabeth White, Pat Romanski

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Repositioning Beijing: A Tale of Two Cities

New York and New Jersey, San Francisco and Oakland – just some of the cities that have sprung up alongside one another all over the world, with one often fulfilling functions that the other cannot.

The most obvious such example in China is perhaps Shenzhen, which rapidly grew into a sprawling agglomeration of 7 million people to serve as a manufacturing and services hub for nearby Hong Kong.

Now something similar might be about to happen further north. In late February 2014, China’s President Xi Jinping said it was time for a new approach to “positioning Beijing”.

Although Beijing is attractive because it is the capital, Mr. Xi said some of its functions would be better off located in nearby Tianjin, a much less expensive city with a slightly smaller population that can be reached in about half an hour by high-speed train.

Mr. Xi said Beijing, Tianjin and Hebei Province – which together have a total population of 100 million people – should be considered as one big cluster for planning purposes instead of silo-ed against each other. The Chinese leader added that a shared regional culture and social norms as well as family ties would support such integration.

“China's regions are enormous markets in and of themselves. Tastes and regulatory environments vary significantly between different regions, making it important to recognise their specific characteristics,” said Duncan Innes-Ker, China economist at the Economist Intelligence Unit. “History has also resulted in very different economic profiles among regions. Building on these characteristics has been key to successfully developing local comparative advantages.”

Tianjin is already doing its best to serve as an alternative to Beijing. Its Yujiapu district is aiming to become a headquarters hub for China’s national-level State Owned Enterprises, while the Tianjin Economic-Technological Development Area (TEDA), which is consistently ranked as China’s top development zone since two decades ago, is bent on hi-tech innovation as well.

That means investment in facilities for hi-tech companies that may not be available in the capital.

China’s version of Silicon Valley, dubbed ‘Silicon Hutong’ is located in Beijing’s Zhongguancun district, near the country’s elite universities.

But it’s not an easy place to be for startup firms, many of which must grow without significant outside investment and find a way to cover their costs. Beijing rents alone are as much as three times higher than in Tianjin.

“Many high-tech companies come [to TEDA] from Beijing, and Beijing and Tianjin form a mega-city,” said Zou Fang, Deputy Director of TEDA’s Investment Promotion Bureau.

“The technology achievements and capital mostly come from Beijing. But Tianjin has something special to offer to complement Beijing – that is low costs, development space, government support, and a service mechanism. Many Beijing firms are start-ups that need such a growth environment.”

To this end, TEDA has developed the Tianjin-Beijing Interconnected Entrepreneurship Promotion Center, with Zhongguancun as a key collaborator. It was visited by Chinese Premier Li Keqiang last December.

Such inter-regional initiatives are moving China into the same league as the US when it comes to supporting entrepreneurs. “Innovation is not a zero-sum activity. Different regions have different strengths, not just domestically, but internationally,” said Dr. Olaf J. Groth, Managing Director of advisory firm Emergent Frontiers Group LLC; Professor of Global Innovation, Strategy, Organization & Economics at HULT International Business School; Co-author of the “The Bay Area Innovation System – How the Bay Area Became the World’s Leading Innovation Hub and What Will Be Necessary to Secure Its Future” published by the Bay Area Council Economic Institute.

“In the US, much of the cleantech innovation originates in California, but is highly dependent on partners in other regions, such as the mid-west and south-east of the US, Germany, France, Japan or Korea, where many automobile manufacturers are located,” said Groth. “As more and more domains converge, it makes no sense to tether a venture to one certain location, but rather to let it source its inputs and even to move where it is best supported in a given stage of its growth.”

As a part of the support program to high-tech start-ups, TEDA administrator also purchases products and services from the big Chinese IT service provider Teamsun, such as cloud services, server capacity and technical training, which are then given to tenants free-of-charge.

Although this accounts for just 6 to 7 percent of Teamsun's overall operation, General Manager of Teamsun Zhou Peiyong said it has become strategically important to their business, as down the line the firms that benefit often approach Teamsun directly and become clients.

“We have found that this cooperation pattern has secured its own viable business model, which is win-win for all: to the tenants, to our company as a service provider, and to the whole region,” said Zhou. “In fact, TEDA is the first industrial park ever to have piloted this model in China. And now Zhongguancun is following suit,” he added.

TEDA also offers a wealth of financing options for growing companies. Its status as a development area means there is less red tape to wade through and it is now home to China’s first wholly foreign-invested venture capital firm and China’s first industry-focused private equity firm. There are also nine microfinance firms, creating a robust growth-environment for SMEs.

In late February, TEDA announced the creation of an Internet-based financial services cluster, further working on the convergence among the region’s top-notch IT industry and financial innovation.

“Tianjin has a very solid bricks-and-mortar industry base, including the port economy and trade, etc. That is extremely important critical mass for internet business to thrive because after all the click is there to serve the brick,” said Luo Mingxiong, executive director of China’s Internet Finance Lab and vice-president of Beijing Software & Information Services Exchange.

Luo said more than two-thirds of commercial factoring firm licenses and more than half of financial leasing firm licenses in China are held in Tianjin.

“Tianjin and TEDA have done great work in piloting innovation in the financial service sector. All this is encouraging Tianjin-based enterprises to embrace the innovation economy and create a unique economic landscape.

“On top of this, it’s inevitable that many Beijing-based companies will relocate, driven by factors such as high housing-cost. This is a great opportunity for Tianjin and so it’s imperative that the city works hard to synchronize its planning and overall vision with Beijing,” said Luo.

While Beijing and Tianjin share a cultural identity, some observers argue that different perspectives are also invaluable for stimulating new ideas.

“One of the exceptional attributes that China and the US share is heterogeneity and diversity,” said Sara Sandford, an attorney with the law firm Garvey Schubert Barer.

“The related diversity of perspectives and ideas have often been touted as the foundation of innovation in the US. China has the same unique opportunity to use heterogeneity to the benefit of its efforts to innovate and develop new technology and business...[For regional collaboration to work,] they also need to create an infrastructure that allows for greater sharing of ideas,” she added.

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