Zhejiang Province has nurtured an economic environment that fosters the growth of its private sector
　　
　　Zhejiang Province, one of China’s leading economic performers, ranked fourth after Guangdong, Jiangsu and Shandong provinces with a gross domestic product (GDP) of 1.3 trillion yuan in 2005, while its per-capita income of 27,552 yuan also put it in fourth place after Shanghai, Beijing and Tianjin municipalities.
　　The province’s GDP has risen from 12th to fourth place since China began its opening up and reform in 1978, with an average yearly increase of 13 percent, and it is the fourth province to have a GDP of over 1 trillion yuan.
　　Between 2000 and 2005, the total value of its trade rose to $107.39 billion from $27.83 billion, an average annual increase of 31 percent, with exports totaling $76.8 billion in 2005. Paid-in foreign investment rose to $7.72 billion last year from $1.61 billion in 2000, growing at an average annual rate of 36.8 percent.
　　In the World Competitiveness Yearbook 2005, released by the International Institute for Management Development, Zhejiang ranked 20th and was considered the fastest growing region in China. The province has plans to raise that level further.
　　
　　Private sector leads
　　
　　The private sector accounts for over 70 percent of Zhejiang’s economy, said Fu Du’er, Deputy Director of the Zhejiang Provincial Foreign Trade and Economic Cooperation Bureau.
　　At present, there are 359,000 private companies in Zhejiang, with 1.7 million people running their own small businesses. About 5 million Zhejiang natives have expanded their operations to other provinces and even overseas, but 70 percent of the products they sell are manufactured in Zhejiang. Over 50 percent of fixed assets investment comes from the private sector.
　　Among the latest listing of the Best 500 Private Companies in Comprehensive Strength in China, released by the All-China Federation of Industry and Commerce, 188 are from Zhejiang. The Chinese Academy of Social Sciences said that among the 100 private companies with the greatest potential, 37 are in the province.
　　But many of the companies are still small. Luo Lili, Deputy Director of the Information Office of the Zhejiang Provincial Government, said that people in the province seem to have an instinctive business sense, against the background that many private companies have clustered in one area to develop the type of healthy business environment that benefits all, which is another feature of Zhejiang’s economy.
　　Since the 1980s, with the guidance of the government, Zhejiang has developed an economic model that features “one village, one product; one region, one industry,” which aims to avoid vicious competition.
　　For instance, Yongkang is recognized for its hardware industry. There, small companies play their own respective roles, with some producing different components, others assembling parts into integrated products and others selling the products. They apply this process to generate profits and benefits for all.
　　According to official statistics, Zhejiang now has 35 such industry-specific regions with a yearly output value exceeding 10 billion yuan and 283 such regions with a yearly output value over 1 billion yuan, such as Shaoxing’s textiles, Haining’s feather processing and Zhuji’s sock making. These regions are involved in the manufacturing, processing, construction, transportation, textiles and service industries, among others. This model enhances Zhejiang companies’ competitiveness in the market and manages to “make small companies develop big cooperation.”
　　The strength of private companies is that they are much more flexible than state-owned enterprises. Ding Minzhe, Director of Zhejiang’s Financial Affairs Office, admitted the same is true for investment in those companies, one of the important reasons that many foreign investors choose to invest in Zhejiang.
　　As the private sector has become Zhejiang’s economic pillar, the local government has tried hard to foster its development. The government has reduced its control over and intervention in the companies’ affairs, and cut complicated bureaucratic red tape. A provincial corporate credit information system has also been established to assist and supervise private companies in doing business in the proper manner. Their good reputation has helped to attract more investment.
　　Ding said well-performing companies contribute a lot toward ensuring a low ratio of non-performing loans in Zhejiang’s financial sector, which has declined to around 2 percent from 5 percent five years ago. He said all banks that have opened branches in Zhejiang have recorded profits there.
　　The government has also benchmarked some areas in which to assemble resources for more competitive and promising development.
　　
　　Favorable market environment
　　
　　Historical factors have shaped Zhejiang’s economic structure, which is mainly supported by the textile industry. Trading of textile products takes place within the province, throughout the country and with the world. Scattered factories, trading agencies and transportation companies increase the time and cost of doing business. Thus, a market that brings all products together was viewed as a good idea. That is why the China Textile International Logistics Center was formed.
　　The center, part of the China Textile City, located in Shaoxing City, is a well-equipped, international distribution hub that has established business links with over 100 countries and regions in the world. It handles the largest trade of textile products in China, said Liang Zhigang, a market supervisor.
　　The center is divided into two parts, a retail area with shops that sell products directly to consumers and a wholesale area that houses companies’ representative offices for large transactions. Liang said Shaoxing’s output and sales of textiles account for 20 percent of China’s total. About 70 percent of the textile products coming to the market are from areas near Shaoxing. Last year, its business volume topped 27.8 billion yuan.
　　However, protectionist measures imposed by the United States and the EU against Chinese textile products have disturbed the development of related enterprises and markets in Zhejiang, Fu complained. In addition, textile products are not high value-added export items. The government thus is helping to establish some enterprises that can develop their proprietary technologies or cooperate with foreign institutions and companies to produce hi-tech or high-end products.
　　Expected to serve as an applied technology research institution and talent cultivation center, the Jiaxing Science Park was established in 2003.
　　Sun Xugang, Director of the park’s Administrative Committee, said innovation-oriented companies are springing up there. About 80 percent of the companies in the park are private, and they attracted paid-in investment of $1.156 billion last year, he added.
　　Sun said Chinese companies are generally short of funds for research and development, since even the most profitable company may have annual sales of only multimillion dollars. Thus, one important function of this science park should be to incubate small companies with creative ideas. On the other side of the coin, he said, many research achievements fail to find a proper channel for mass application.
　　The science park has invited Tsinghua University and the Chinese Academy of Sciences to set up research institutions there. It also has a cooperative program with the Academy of Science of Ukraine, which will soon send scientists to the park to help with research and development programs. Some of the park’s achievements that are in the process of being commercialized include the monitoring of product transport through wireless networks, magnesium alloy, macromolecular materials and functional polymers and fine chemical technology transfer, among others.
　　The Hangzhou Economic and Technological Development Area was set up 10 years before the Jiaxing Science Park. It is located in the provincial capital’s “university community,” which houses 14 universities with 130,000 students, and the number is still growing. Zhang Xuening, a local official, said that talented personnel are key to Zhejiang’s future development, so the model of combining universities and businesses promises an integrated chain of education, innovation and industrialization of research fruits.
　　Over a decade of development placed the Hangzhou Economic and Technological Development Area among the top 10 of all 54 state-level development zones, according to a 2004 ranking.
　　
　　Dividend of innovation
　　
　　To establish a modern manufacturing base, Hangzhou focuses on creating a favorable environment to guarantee investors’ profits. Over 390 companies from 30 countries and regions have established research and development centers or manufacturing bases in the city, including many famous international companies, such as Motorola, Coca-Cola and Mitsubishi. American cosmetics company Mary Kay set its first overseas factory in the city and now it serves as the company’s manufacturing and sales center for the whole Asia-Pacific region.
　　Many local Chinese companies have centered on the development of core technologies with their own intellectual property rights (IPR). For instance, Zhejiang Feiya Electric Appliance Machinery Co. Ltd. managed to develop its own FAI system, ending the monopoly of the core EMS technology held by international companies. The company has over 20 patents for the FAI system, the only proprietary Chinese EMS technological system.
　　Insigma Technology Co. Ltd. is among the most successful Chinese enterprises in terms of software exports. Since India has virtual control over the world’s software market, Sun Jianhua, Insigma’s Vice President, noted with pride that the company has managed to become the first Chinese company to take a slice, though not a very big one, of the American market.
　　The company is offering software outsourcing services to America’s biggest fund management company, State Street Corp., which is the world’s leading financial service firm for institutional investors. In confronting the fierce market competition, Sun said his company is more nimble, since India’s big software companies have too many procedural formalities; Insigma has a much lower human resource cost, as many Chinese programmers have reached a level that is competitive with their Indian counterparts.
　　Sun said he is very optimistic about the future development of the software export business, which is one of the most important components of the company’s service.
　　Zhejiang Governor Lu Zushan said that while it is a big exporting province, Zhejiang currently exports many low value-added products. He cited Insigma as an example to be followed, and said more such types of companies should be developed.
　　
　　Talent a focus
　　
　　Everyone understands that the real competition nowadays is obtaining talented workers. Zhejiang places a world of emphasis on education and attracting talent.
　　Zhejiang’s education leads China’s other provinces, as it is the first province in which a 15-year compulsory education system prevails for almost all children, while China as a whole has adopted a nine-year system.
　　Besides locally trained professionals, Zhejiang tries to attract overseas Chinese scholars to work there. Jiang Wenchao, Director of the Division of Personnel Exchange and Development of the Zhejiang Provincial Bureau of Personnel, said the province has adopted many preferential policies to attract overseas Chinese scholars, such as offering the greatest possible convenience in housing purchase, residence registration and taxation and other benefits. Salaries offered are fairly high, based on local living standards, and the education of the introduced professionals’ children is also taken into account. The children may be sent to the closest schools or to international schools offering bilingual education.
　　The government, research and educational institutions and companies are all thirsty for talented personnel, either from home or abroad, and they will have promising career prospects in Zhejiang, the official added.

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