Stimulating technical innovation by small and medium-sized enterprises in China

The effect of innovation on the economy is increasingly obvious and important in many countries, including China. In order to encourage and sustain technological innovation, Small and Medium sized Enterprises (SMEs) are not only necessary but also vital. This dissertation is an empirical study to test what critical measures the government should adopt and balance in order to efficiently pursue its goal of increasing innovation by SMEs. This dissertation focuses on the measures of intellectual property (IP), public sector, including the subsidies or grants from government, and private sector, the financial tools as the main capital resources for technology companies. The government makes the rules and policies for both a market-oriented economy and a government-oriented economy. However, under both models, the government should craft meaningful rules and regulations that benefit SMEs. Accordingly, government regulators need to know whether they should encourage the free market further or pursue command and control in the government-dominated sector. This study will evaluate the flexibility of the different administrative systems, rules and regulations of IP, taxes, subsidies, financial market and other related government actions. This study will use panel data regressions to study with the 140 public SMEs from two science parks in China, Zhongguan-Cun Science Park in Beijing and Zhangjiang Hi-Tech Park in Shanghai, to learn the efficiency of the variance of the rules and policies in their innovation between 2009 and 2013, especially when the rules and policies are criticized by other countries as a weak IP regime, over subsidies, weak lender protection and bad enforcement of financial contract. Moreover, this study will also use difference-in-difference estimations to study the impact of the 2011 tax policy changes in China and the 2012 patent subsidy policy change in Shanghai on the innovation, market performance and patenting behaviors of the 140 SMEs. Zhongguan-Cun Science Park and Zhangjiang Hi-Tech Park are two national model technical industry parks, and they include most of the enterprises developing technologies in Beijing or Shanghai. Usually, various types of national favoring policies apply to the firms in these two science parks ahead of the science parks in the other provinces in China. Their administrative measures are tested and analyzed, and those measures that are found to be successful and innovative are then applied to other science parks. Regardless of what caused the successful growth of the domestic companies, the Chinese government has kept providing funding, offering subsidies and attractive regulations to them. The main objective of the policies in the two parks is to create and to facilitate technical SMEs' survival and growth. The government also understands the important of the capital from the financial market, so it is providing guide funds and policies governing the financial market. In addition, the government is also guiding companies to use IP regimes to improve their ability to compete and the government expects original innovations from them to improve China’s ability to compete and innovate in the technology sector in a time of globalization. However, the costs of different measures are different, so it is necessary for the government to identify the most efficient strategies to encourage SMEs' creation. Hence, besides independently testing the efficiency of each approach of the policies, this study combines and compares the efficiency of the three approaches of policies in stimulating the SME to innovate. The results from this work will not only help the government of China to understand the strategies adopted by the two cities for stimulating technical innovation by SMEs but also help to engineer similar science parks in the other provinces. In addition, this work will help other developing countries to learn effective strategies involving policies, laws and regulations to create SMEs, and to simultaneously develop technological innovation and the economies of their countries