Dream Town: Chinese City Lavishes Resources on Start-Ups

Michael Schuman reported on the front page of the business section in Sunday’s New York Times that, “In Dream Town, a collection of boxy office buildings on the gritty edge of this historic city [Hangzhou, China], one tiny company is developing a portable 3-D printer. Another takes orders for traditional Chinese massages by smartphone. They are just two of the 710 start-ups being nurtured here.

“Anywhere else, an incubator like Dream Town would be a vision of venture capitalists, angel investors or technology stalwarts. But this is China. The Chinese Communist Party doesn’t trust the invisible hand of capitalism alone to encourage entrepreneurship, especially since it is a big part of the leadership’s strategy to reshape the sagging economy.

“Which is why the government of Hangzhou — a former royal capital that has been a major commercial hub for more than a millennium — built Dream Town and lavishes resources on start-ups. The businesses here get a slate of benefits like subsidized rent, cash handouts and special training, all courtesy of the city.”

The Times article noted that, “For much of China’s long economic boom, young people flocked to manufacturing zones for jobs making bluejeans or iPhones. But today China is trying to move beyond just being the world’s factory floor. Policy makers want the next generation to find better-paying work in modern offices, creating the ideas, technologies and jobs to feed the country’s future growth.

“Premier Li Keqiang frequently calls for ‘mass entrepreneurship.’ In March at the National People’s Congress, he bragged that 12,000 new companies were founded each day in 2015.

“The entrepreneurial embrace comes with lots of financial support. Across the country, officials are creating investment funds, providing cash subsidies and building incubators.”

Mr. Schuman explained that, “Some economists and entrepreneurs are concerned that the government is helping fuel a frenzy that might ultimately result in failed businesses, wasted resources and financial losses. Just one city, Suzhou, near Shanghai, has announced it will open 300 incubators by 2020 to house 30,000 start-ups.”

Sunday’s New York Times article noted that, “Hangzhou is a natural center for China’s start-up fever. After China embraced capitalist reform in the 1980s, Zhejiang province, of which Hangzhou is the capital, emerged as a leading base for the export industries that fueled the country’s rapid growth. Factories pumped out products like socks and plastic Christmas trees.

Now that zeal for commerce is being channeled into technology start-ups. Hangzhou is home to China’s most famous internet company, the e-commerce giant Alibaba, which has become a training ground for would-be entrepreneurs.

“The neighborhoods near Alibaba’s sprawling campus, once a poorly developed area on the city’s outskirts, now make up a budding tech center with newly built office parks like Dream Town, dominated by ambitious college graduates, angel investors and venture capitalists.”

And Mr. Schuman added that, “Hangzhou represents what Chinese leaders see as the nation’s economic future. The country used to generate astronomical growth rates by depending heavily on low-cost exports and extremely high investment in apartment towers, factories and highways. China built so many steel mills that it can produce 10 times as much steel as the United States.

“But today, costs are rising, eating away at the competitiveness of many export industries. The long investment boom has saddled the economy with too many factories and a mountain of debt.

Instead, policy makers are encouraging a shift to new growth engines, like services and high tech. The entrepreneurial focus is providing an economic boost for Hangzhou.”

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