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Limited Space, Unlimited Growth
An ancient city grows innovatively by developing its digital economy
By Ding Ying & Wang Hairong | NO.49 DECEMBER 6, 2018
West Lake, an eternal tourist destination in Hangzhou (WEI YAO)

There is a famous Chinese saying that "in heaven, there is paradise, on earth, Hangzhou and Suzhou." Hangzhou, capital of east China's Zhejiang Province, is reputed for its enchanting scenery and abundant natural resources. During four decades of reform and opening up, Hangzhou attained prosperity through traditional industrialization that consumed resources and produced low-value goods.

Today, with the boom in information technology (IT) and Internet Plus industries, it has grown into a paradise for innovation and entrepreneurship, especially in emerging Internet Plus industries. As reform and opening up entered a new phase of transformation, Hangzhou seized the opportunity to develop its digital economy and its efforts have paid off. Today, it is known as "the capital of e-commerce" because of its flourishing Internet industry.

A flourishing industry

Hangzhou's Internet industry has maintained an annual growth rate of more than 40 percent, higher than that of megacities such as Beijing and Shanghai. Its Internet companies account for 6.5 percent of the total nationwide, only behind Beijing, Shanghai and Shenzhen, according to a report on the Internet industry published by Lagou.com and NetEase's joint Innovation Center in October.

Hangzhou had 21 unicorns as of the end of October­—startups in emerging industries valued at more than $1 billion. Though fewer than Beijing's 83 and Shanghai's 34, it outpaced Shenzhen's 18, according to ITjuzi, a business information service provider focusing on the Internet industry.

In 2017, the value added of Hangzhou's information industry accounted for more than one quarter of the city's GDP, growing at 21.8 percent and contributing more than 50 percent to the economic growth of the whole city, according to the local government's work report released at the beginning of this year.

Ye Rong, Deputy Mayor of Shangcheng District, used the city's two famous landmarks to describe its transition from traditional to emerging economies. "We are striding from the West Lake era into the Qiantang River era," he told Beijing Review.

West Lake and the Qiantang have distinctly different personalities. The former, with gently rippling water, is regarded as a suave beauty who always charms, no matter whether wearing plain clothes or gaily made up. The latter is famous for its spectacular, powerful waves that sometimes surge on the banks.

"Tourism was at the heart of the West Lake era. Hangzhou, a picturesque tourist destination, impressed people with the landscape south of the Yangtze River," Ye said. "Now it is not only a tourist city with exquisite scenery, but also a vibrant city full of innovation."

With urbanization, big cities are facing the common challenge of development slowdown caused by limited urban space and resources. Hangzhou is breaking this bottleneck by developing its digital economy.

Shangcheng is one of the oldest and smallest districts in Hangzhou with an area of 18.1 square km. It was where the royal palace located in the Southern Song Dynasty (1127-1279). "Shangcheng has a very small development space geographically, but big ambitions strategically," Ye said.

It is striving for unlimited growth by developing its emerging economies. Ye said emerging industries' contribution to the district's economy has surpassed that of traditional industries. The digital economy has become a pillar industry, alongside finance, cultural and creative industries, and modern commerce. It can boost the development of traditional industries by enhancing their value and change consumption by upgrading habits. "In the past, people regarded the Internet merely as a tool, but now they find it to be a resource too," he added. "[By harnessing the Internet] we can finally realize our development motto of 'Limited Space, Unlimited Growth.'"

An evolution leader

Hangzhou's booming Internet Plus industry has benefited from two factors. One is the hi-tech atmosphere jointly created by its Internet giants and universities. The other is the local government's preferential policies to support Internet innovation.

Hangzhou hosts the headquarters of the Alibaba Group and the offices of NetEase. Alibaba topped the list of the 100 biggest Internet enterprises in China in 2018 jointly released by the Internet Society of China and the Ministry of Industry and Information Technology, while NetEase was fifth.

Alibaba is famed for its annual shopping spree that started in 2009. Since then, every year it has concluded with colossal sales, breaking the previous year's record. This year's bonanza on November 11 generated $30.8 billion of gross merchandise volume, an increase of 27 percent year on year. The group's CEO Daniel Zhang confidently proclaimed, "Looking ahead, Alibaba will continue to lead the evolution toward the future digital economy and lifestyle."

Many of Hangzhou's Internet-related companies have some link to Alibaba. Some business starters are former Alibaba employees. Some obtain financing from it. Li Zi, founder and General Manager of Hangzhou Findland Information Technology Co., told Beijing Review that she worked for Alibaba for eight years, when she was in marketing. "Alibaba has a very open-minded culture of encouraging employees who are starting their own business," Li said.

Formed in partnership with Google in 2014, Findland helps Chinese companies' overseas expansion. "We serve 200 to 300 clients every year. Our sales volume this year is double last year's," Li said.

Zhejiang University, one of China's top universities, prides itself on its culture of innovation and entrepreneurship. The university is also renowned for the number of business startups it has fostered. Its researchers are making an impact in areas like artificial intelligence (AI), assembling technology for large aircraft, clean energy, ocean technology, industrial control technology, and global public health initiatives for the prevention and treatment of infectious diseases.

In addition to Zhejiang University, a number of private institutions have emerged in recent years. Westlake University, inaugurated on October 20, is a private university that has already attracted dozens of internationally renowned scholars. Hupan University, founded by Alibaba founder Jack Ma and several entrepreneurs and scholars in Hangzhou, aims to cultivate the next generation of Chinese entrepreneurs.

The local government has also come up with preferential policies to encourage innovation and startups. According to the latest policy published in August, startups including Internet-related companies can enjoy a subsidy of 5,000-20,000 yuan ($725-$2,900) every year. College graduates who start a business can receive free funds between 20,000 yuan and 200,000 yuan ($2,900-$29,000) from the government if their projects make the grade. Once their programs reach the national level, the enterprises can win an award of 300,000 yuan ($43,500). Moreover, the local government can also subsidize their office space rent.

Bigdata Workspace, an incubator started in 2015, is located in one of the tall office buildings crammed with Internet companies in Shangcheng. The incubator has standard facilities for startup founders: office rooms, private telephone rooms, conference rooms and a cozy coffee shop. It also provides supporting services such as printing and meeting services and technology support.

The incubator has tutors for startups, who range from CEOs, professors and government officials to investors who can provide technology, policy, legal and financial consulting services, said Yu Lu, Operation Director of the incubator's mother company Winkind Smart Park Technology (Hangzhou) Co. Ltd.

Incubated enterprises' logos are displayed at Bigdata Workspace, an incubator center in Hangzhou (WEI YAO)

Bigdata Workspace has a three-stage development plan: At the first stage, be a makers' space; at the second stage, incubate internal and external cloud computing projects; and at the third stage, invest in incubator-related services. Currently, 13 companies are being incubated in the workspace. More than 30 have already graduated and moved out.

According to Yu, startups choose the incubator center also due to the cheaper costs, especially the rent, as the incubator receives financial support from the government to encourage startups.

In 2017, the city started a one-stop service initiative. Under the initiative, the municipality has simplified administrative procedures and enhanced information sharing. "The economic affairs department of Shangcheng has moved into the same building as Bigdata to better serve enterprises in daily activities like providing innovation subsidies, simplifying the approval procedure, getting bank loans and speeding up tax declaration," Tang Chaoqun, an official with the Wangjiang Sub-District Office, said.

Besides education and policy support, Hangzhou, with its livable environment, relatively moderate cost of living, and concentration of science and technology resources, has attracted a large number of talented IT professionals from other cities.

Ding Siyu, a 22-year-old who worked for an IT company in Beijing, came to Hangzhou several years ago with her boyfriend. Now she works with Xiaowanzi, a leisure game producing company.

"We earn similar salaries here but the rent is much lower than in Beijing. Also, in Beijing, people normally spend hours commuting. Here in Hangzhou, it takes us only 30 minutes to go to work. And the climate and air quality are better than in Beijing," Ding said.

A staff member of Hangzhou Findland Information Technology Co. talks about the company's cooperation with Google (WEI YAO)

A digital city

Today, Hangzhou has become a digital city. People can go anywhere and buy whatever they want with their smartphones using the Alipay app. Hangzhou was ranked the world's 20th smartest city based on its performance in 2017 by Juniper Research, a UK-based company that is one of the leading analyst firms in the mobile and digital tech sector. The organization gauges cities based on their use of the Internet of Things and other relevant technologies to improve their infrastructure.

In such a smart city, residents can pay for their commute, access medical services, order food, get an invoice and do many other things by simply scanning barcodes or QR codes with their phone. The reform promoted digital applications in people's livelihoods and implemented Internet Plus-based targeted poverty alleviation, Zhu Guoxian, head of the Publicity Department of the Zhejiang Provincial Committee of the Communist Party of China, said at the 2018 World Internet Conference in Zhejiang's Wuzhen Town in November.

To promote the emerging digital economy, the city's infrastructure has been upgraded. Clusters of high-rise buildings stand near the northern bank of the Qiantang. Pointing at a tall stylish building with a huge ball on its top, a 65-year-old, who declined to be named, told Beijing Review that when he was a child, the area used to be villages and farmland with a flowing river, where he played and caught fish. About five to 10 years ago, tall buildings sprouted up there, a new digital forest in Shangcheng.

Shangcheng not only supports the development of hi-tech industries in the region, but also applies digital technology to urban management to achieve "all-weather, wide-coverage and high-efficiency" intelligent management. Ye pointed out that compared with traditional urban management, intelligent urban management is more convenient and humane. Photographs and facts can be recorded and retrieved, which reduces conflicts between law enforcement personnel and the public.

He had examples to prove his point. In the past, manhole covers were often dislodged or stolen, resulting in people falling in and cars getting their wheels caught. Today, intelligent equipment has been installed on manhole covers to trigger an alarm if people try to move them. The devices have been installed on all the 5,000-plus manhole covers and the government has the copyright to the software.

Many elderly people in China live in empty nests as their children have grown up and left for greener pastures elsewhere. Shangcheng has launched smart homecare projects for such people. The intelligent old-age care systems make it easy for senior citizens to make calls in an emergency and ask for housekeeping services.

Zhu may have had all this in mind when he told the Wuzhen Internet conference, "The Internet has brought the people of Zhejiang happiness and a greater sense of well-being."

(Reporting from Hangzhou, Zhejiang Province)

Copyedited by Sudeshna Sarkar

Comments to dingying@bjreview.com

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