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Guidelines on Innovation-driven Development and Real Economy Upgrade

Jul 21, 2017

The Shanghai Municipal Government’s Information Office held a press conference on May 31 on the guidelines for innovation-driven development and real economy upgrade. The following are the highlights:

Chen Mingbo, director, Shanghai Commission of Economy and Informatization
Ruan Qing, deputy director, Shanghai Development and Reform Commission
Wu Jincheng, deputy director, Shanghai Commission of Economy and Informatization
Cen Fukang, deputy director, Shanghai Planning, Land and Resources Administration
Wang Lan, deputy director, Shanghai Finance Bureau
Gan Pin, deputy director, Shanghai Science and Technology Commission

The Paper: The real economy covers industry as well as the service industry. We can see that the added value for the service industry accounted for over 60 percent of the GDP in 2016. What other measures will be launched to speed up the development of the service industry as well as the real economy?

Ruan Qing: This is a comprehensive document which can be interpreted from three perspectives with measures to support the real economy by developing the service industry.

First we will strive to develop the modern service industry. A majority of modern service industry is productive service industry. Statistics show that in 2016, the productive service industry took up about 59 percent of the service industry and 40 percent of the city’s total output value. The productive service industry works for manufacturing, especially advanced manufacturing. According to the Shanghai Commission of Economy and Informatization and the Shanghai Statistics Bureau, the productive service industry includes R&D design, cultural innovation, IT, design and build (DB) and total integration, examination and certification, supply chain management, and human resources management. These industries have seen double-digit growth. They serve not only Shanghai but also the whole country.

Second, we plan to develop new technologies, new industrial patterns, new modes and new industries featuring the integration of the Internet of Things and service, namely big data, industrial design, satellite navigation, and the Internet of Things education. The significance of developing these industries is not only about the industries alone, but also about the improvement of the whole industrial chain, especially the traditional manufacturing industry.

Third, we need to strengthen financial support and promote the integration of industry and finance as well as the integration of capital and industrial capital. Let the capital market play its role.

This is how we plan to upgrade the real economy.

China National Radio: What new features of real economy development have been revealed this year, especially in industry development? Which areas require more support?

Wu Jincheng: The real economy is an important foundation for the national economy as well as a support for Shanghai’s urban functions. People have been paying close attention to real economy development in Shanghai. The real economy needs to maintain a reasonable, healthy and balanced industrial structure. Overall the real economy in Shanghai has been moving steadily toward its expected goal with improving structure, quality and profit. In the first quarter of this year, the industry has performed better than expected. The enterprises with certain scale have a comparable increase of 6.6 percent in overall production value, an uptrend extended from the end of last year. For the automobile industry the increase is 17.6 percent. The ROEWE RX5 Internet vehicle, Volkswagen All New Tiguan and Cadillac sold well and played a major role in driving up consumption. Strategic emerging industries have been rising quickly. In the first quarter, the comparable increase was 6.5 percent with new energy vehicles growing 30.5 percent, new generation of IT rising 12.2 percent and new materials 6.3 percent. The growth of energy-saving, high-end equipment and biomedicine industries has been steady. From January to March, industrial profit grew 23.8 percent and the industry profit margin was 8.8 percent, a level higher than the national average of 6.1 percent and higher than the 6.2 percent for the eastern coastal area. It can be said that our industry is changing for the better.

Just now a question was raised about the measures to break the bottleneck. We know that science and technology innovation and transformation still need to be improved and breakthroughs still need to be made on core technologies. The construction to strengthen the industrial foundation, including key basic parts and components, key basic materials, advanced basic craft and industry technology, is being boosted.

We are still cultivating emerging industries and there are two indexes in this respect. For one, the added value of emerging industries should account for at least 20 percent of the city GDP; for the other, the production value should account for about 35 percent of the city’s total production value. It is rather a high standard to boost strategic emerging industries. As for the high-end productive service industry people have been wondering about, it is rather lagging at the moment. What we actually care about is the connotation, though people are more concerned about the percentage of the service industry as well as the manufacturing industry. We need to be honest with the industry structure. The developing service industry should be a high-end service industry that fits with Shanghai’s positioning to play an important role on the international stage on behalf of China. Advanced manufacturing is placed as a priority. In our national strategy to strengthen national power through industry, manufacturing counts, especially extreme manufacturing. A sign of our strength would be the ability to produce largest and the most sophisticated high-end products. Also, enterprises’ ability to operate across borders or regions has to improve. The guidelines land on these specific problems and are aimed at promoting a better real economy and building Shanghai into an international economic, finance, shipping and trade center.

Xinhua News Agency: Land resources in Shanghai are increasingly scarce and many enterprises’ development is curtailed due to the lack of land. The guidelines have set a flexible annual limit on land use. How will these policies guarantee the industrial use of land and lower the cost to land use?

Cen Fukang: There are two ways to guarantee real economy development in terms of land planning.

First of all we have an overall space planning, namely the land resource allocation in the city. We are clear that by 2020, industrial use of land in the city should remain at 550 square kilometers of which certain percentage of land should be used for advanced manufacturing. I have said that we need to protect advanced manufacturing like we do for arable land. We need to strictly control land-use scale.

Also in keeping and supporting real economy development, we will also lower the cost of land use. There are three measures in specific. Since 2014 we have been implementing the flexible transfer time limit for industrial land. The Land Administration Law stipulates that the transfer limit for land should be no longer than 50 years. In the past, 50 years was normally the period, but now for industrial land, the limit is 20 years. There are two perspectives to look into this. On the one hand, the land needs to be used intensively as Shanghai is a megacity and land is scarce. In adopting 20 years as a limit, the industries are forced to use land efficiently. While retaining the land stock, profits will indeed increase. We have also calculated the land price in detail. Assume that the transfer would cost 100 yuan in 50 years; the cost would be only 60 yuan if the limit is 20 years. The 40 yuan can be saved for another 20 years and that should be enough to extend the renewal. The cost for initial startup is lowered. Land users might have concerns on whether the land price will rise or whether they will be allowed to use the land after 20 years. Conditions for renewal have been specifically written into this document. Productive and profitable enterprises capable of manufacturing are allowed to use the land after 20 years. Meanwhile, the renewal price can be written into the contract at the start and you can renew with the price agreed on 20 years later. This is an actual support for the industry. It lowers the cost of initial use of the land and eases concern about the future.

The second would be the differentiated and multiple ways of land transfer. For example, we are piloting a leasing and transfer mechanism. For the first three years enterprises will be charged a rent, but after a certain stage of development and with the real economy indeed developing, they will have the capability to purchase the land. Then we will transfer the land to the enterprises. In this way the cost for enterprises to use the land is lowered, too.

The third is the upgrade for enterprises that use land stock. When an enterprise updates its technologies, it will need to renovate and improve its production capability. In this case, the intensity of land use will increase. More land transfer fee will need to be paid. The Guidelines, as this document is called, also specifies the proportion of fees required according to the content and development of the technology update in the district. No lower limit is mentioned, which means there can be none. As long as the enterprise indeed uses the land for technical reform and development of the real economy, the extra land transfer fee can be erased, on condition that the appraisal and decision is made through the government’s collective judgment. We really support real economy development.

STV: The guidelines mention measures to cut taxes for enterprises. What are they?

Wang Lan: Thank you for your concern over tax cuts. In terms of lowering expenditure, we have been clearing up governmental funds and other administrative charges according to current policies. For example, since April 1, Shanghai has cancelled funds pertaining to city public business and new wall materials as well as other governmental special funds. Meanwhile, a bunch of 16 charges for enterprises or individuals have been cut, including river way engineering construction and management fee, medical exam fee, gauge fee, environment supervision fee, etc.

Also, we will continue to clear municipal public institutions’ charges on enterprises. Shanghai financial and price departments have followed the latest national policies to lower the rates and cancelled five charge items in public services with approval from the municipal government.

As for the tax cut policies, five perspectives are involved. The first is to carry on replacing business tax with value-added tax and to simplify the tax rate structure for the VAT. Starting this July, the rates for VAT are 17 percent, 11 percent and 6 percent. The original 13 percent has been erased. Meanwhile, the VAT rate for agricultural produce and gas has declined from 13 percent to 11 percent.

Second, the range of micro enterprises that can enjoy favorable income tax has been expanded. From January 1, 2017, to the end of 2019, for enterprises that can calculate half of the original income tax and pay at the rate of 20 percent, the annual upper limit for them to pay the income tax has been raised from 300,000 yuan to 500,000 yuan.

The third, the pre-tax deductions have been enlarged for scientific SMEs in research and development expenditures. From January 1, 2017, to the end of 2019, the proportion has been hiked to 75 percent from the previous 50 percent for the scientific SME’s actual expenditure on developing new technologies, products and craft.

The fourth, in the initial stage, venture capital enterprises and the sci-tech firms can have income tax discount depending on 70 percent of their investment.

The fifth, part of the favorable tax policies due at the end of 2016 will be extended to the end of 2019. Logistics companies with their own large warehouses will have city and town land use tax cut in half. Startups by college graduates and unemployed people can enjoy cuts in VAT, city maintenance and construction fee, additional education tax, income tax and other levies.

Next, the Shanghai Municipal Finance Bureau will also ensure the implementation of various tax and charge cuts, perform appraisals for implementation, lower the cost for and strengthen the benign policy environment for real economy development.

Jiefang Daily: Intellectualization is a major task of the transformation and development of manufacturing industries. Could you introduce some of the city’s specific measures to promote intelligent manufacturing and accelerate the transformation and upgrading of enterprises?

Wu Jincheng: Intelligent manufacturing is a hot issue as well. When I visited an affiliated company of Foxconn, I saw that a single robot can replace six workers to save costs and improve efficiency. A worker costs 60,000 to 70,000 yuan a year while a robot can replace 400,000 yuan in labor costs. Intelligent manufacturing undoubtedly has a bright future. It is an important way to fully implement the “Made in China 2025” planning and to build a world-class science and technology innovation center.

Firstly,we need to improve the top-level design and optimize the strategic layout. We have launched the Guidelines of Shanghai Municipality on the Implementation of Innovative Application Modes and Mechanisms of Intelligent Manufacturing. In the guidelines, we have put forward a plan of building Shanghai into a national base of intelligent manufacturing application and systematic solutions by 2020. Besides, Shanghai is undoubtedly “a city of robots” where big robot manufacturers have gathered. The city produces 40 percent of all robots across the country. We have the “1+X” strategic layout: “1” refers to Lingang and “X” refers to the city’s intelligent manufacturing clusters, including Songjiang, Jiading etc.

Secondly, we will develop 10 leading suppliers who can offer systematic solutions of intelligent manufacturing to ensure nationwide service; about 100 model intelligent factories will be built in vehicle equipment manufacturing, aerospace industry, ship building and maritime industries; we will also promote the intelligent transformation of 1,000 above-scale enterprises.

Thirdly, we will promote the application of intelligent manufacturing which requires a big investment in the early stages. We can take methods, including finance leasing, market input, revenue sharing and also promote integrated application of intelligent manufacturing equipment, industrial software and the Internet.

Fourthly, we will build research and transformation platforms for intelligent manufacturing, especially those aspects centered on intelligent manufacturing, including generic technologies, equipment R&D, systematic solution standards   experimental testing and technological achievement transformation.

We hope to build a national model area of intelligent manufacturing through these measures. There are relevant policies to support intelligent manufacturing. We have the “G60 Sci-tech Corridor” policy for Songjiang, and special policies and mechanisms for the Shanghai free trade zone and Lingang.

China News Service: Last year, Shanghai launched the 13th five-year plan on manufacturing to support the industry and took measures to promote supply-side reforms. What are the characteristics and highlights of the Guidelines launched today compared with the former policies?

Chen Mingbo: That’s what we considered when drafting the Guidelines. Last year, we issued “27 Measures” and the 13th five-year plan for manufacturing industries. Shanghai’s economy has four 1/4 structures, which is different from other cities around the country. Four “bottom lines” and four 1/4 structures are the premise of the Guidelines.

As for highlights and characteristics, firstly we have a clear understanding of the economic industries of the city. We can ask questions like what happened to the city’s manufacturing industry and whether Shanghai needs the manufacturing industry or not. Secondly, we have a more effective overall planning. The Guidelines points out that the city’s resources, especially land resources, shall be integrated. Thirdly, we will put more emphasis on services. We will offer more accurate and inclusive services to support the development of enterprises.

Shanghai will adhere to sustainable development. Party Secretary of Shanghai Han Zheng pointed out that the core of the city’s industrial and economic development is innovation in areas of technologies and industries, which are all written in the Guidelines.

We don’t lack land for good projects. The guidelines point out that we will generate new momentum for development. We took six months to draft a plan for building a service platform. We decided to integrate the existing service resources to solve problems of enterprises.

Wenhui Daily: Could you introduce some highlights on the policies for technological innovation in the real economy? Article 36 mentions that the city will establish several industrial investment funds with the scale of more than 1 billion yuan. My second question is: Where will the money be used?

Gan Pin: Thank you for your concerns on the city’s scientific innovation and real economy development. For a long time, the city’s science and technology innovation has a close connection with the city’s real economy development. At present, Shanghai is accelerating the construction of a scientific innovation center with global influence which requires innovative development of the real economy. We have in mind the following measures:

Firstly, the city will build a group of functional platforms for research and transformation. We will focus on real economy development, stimulate the R&D ability of university institutes and build a group of functional platforms to promote the research achievements transformation and make a breakthrough in industrial development. In the past, a lot of investment in science and technology was used in project development and at present the government's investment mode has changed. The government now prefers to build a functional platform to influence the entire industry. At present, we have put forward the projects of research and transformation platforms in five major fields namely biomedicine, new materials, information technology, advanced manufacturing, innovation and entrepreneurship services, and construction projects of other 18 platforms. The project was first piloted at the Shanghai Micro-Tech Industry Research Institute, which integrates the R&D, engineering, marketing and incubation. The institute has made big progress in generic technology R&D and the industrialization of research achievements. At present, 7-8 specialized enterprises have been successfully incubated.

Secondly, we will develop mass entrepreneurship and innovation. Entrepreneurship and innovation is “fertile soil” for real economy development. The city will take full advantage of the power of the market and society, and gradually build a low-cost, convenient and open service environment.At present, more than 500 public startup incubators have emerged in the city and more than 90 percent of them are newly built by social organizations. At the same time, the city has established the nation’s first regional maker space alliance to lead the development of entrepreneur platforms.From 2014 to 2016, more than 50,000 people and 14,700 small and micro enterprises teams had participated in innovation and entrepreneurship competitions.

Thirdly, we will implement a number of major scientific and technological innovation projects. We will focus on the world’s front-line science and strategic areas and launch a number of strategic and cutting-edge scientific research projects, including brain science and artificial intelligence, quantum communications and human phenotype group. At the same time, we will implement national science and technology programs and start planning for a number of major strategic projects, including large aircraft, aero engines and gas turbines, high-end medical imaging equipment, high-end chips, new-type displays etc.

Fourthly, we will deepen reforms at science and technology institutions. We will consolidate and enhance the real economy by making scientific innovations and optimize the government's scientific and technological management system. We launched the “Regulations of Shanghai Municipality on the Promotion of Scientific Achievements Transformation” to promote the transformation of scientific and technological achievements as well as the delegation of scientific and technological achievements disposal, use and income rights. The key point is to increase the investment in talents and knowledge value and accelerate the achievement transformation of university research institutes. At the same time, we will also actively implement the development policies of the full-period, inclusive enterprises, including R&D expenses deduction, Certification of New Hi-tech Enterprises and the Certification of Advanced Technical Service-oriented Enterprises, which deducted 20.7 billion yuan of taxes in 2016 for enterprises, increasing 37 percent from a year earlier. We will at the same time pilot innovative policies in biopharmaceutical commissioned production industries, allocate and improve resources of scientific finance services in accordance with the actual life cycle of enterprises and help enterprises to reduce costs and optimize the allocation of resources.

Chen Mingbo: Last year, a 50-billion yuan IC fund was established. But the material and equipment funds will come between June and July. So the first-phase establishment of the 50-billion yuan fund is sound.

In addition, the Shanghai industrial transformation and upgrading investment fund was launched at the end of last year and was recently registered. Besides, a special transformation fund has been set up to support the redevelopment of land in industrial parks. The local development and reform commission and science and technology commission will establish funds for the transformation of scientific achievements. The government will direct more social powers to establish and operate industrial funds instead of doing these on its own.

People’s Daily: The data released in the Guidelines and relevant measures today are eye-catching. Where do these projects come from? Were the projects promoted by the market or the government? My second question is that production methods shall be digital, intelligent networked and flexible. What do you mean by “flexible?”

Wu Jincheng: We have listed 66 big projects of more than 1 billion yuan. Most of them adopt market-oriented operation modes. The sources of the projects involve the investment invitation mechanism. The government will make an overall planning on the investment invitation for major projects. For instance, advanced manufacturing industries will be moved into industrial parks in the suburbs. In urban areas, we will usually develop high-end service industries.

As for the project, we have an information sharing platform and a service platform. The city’s commissions and offices have made a joint effort to introduce big projects by offering land resources and financial support. We are promoting cluster development, which refers to organic integration in the aspect of industrial ecology instead of geographical layout. Take the intelligent manufacturing of Lingang as an example; it may involve many industries, including engines, new-energy vehicles and aviation. We need an overall and coordinated planning to integrate these industries.

Chen Mingbo: I would like to add that most of the projects of more than 1 billion yuan, including the SMIC and Huali microelectronics, adopt market-oriented operation modes. The Shanghai government can promote big projects powerfully. However, we need to strengthen the ability of choosing projects in the market. For the second question, I would like to explain with an example. SAIC can produce the Roewe RX5 today and produce Roewe 550 tomorrow on the same production line. A single production line can be applied to the production of a variety of vehicle models, that’s what we call flexibility.