Z-Park: China's Silicon Valley

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The new Chinese line of "Regenerist" packaging for Olay, developed at Procter & Gamble's R&D Center in Z-Park in the northwest of Beijing.

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Z-Park is something of a laboratory for the liberalization of the Chinese economy. The government can implement various policies in order to observe what works before introducing the fine-tuned policy to the nation. The 15% tax rate, for instance, will soon be rolled out across China. And Z-Park was the first place where enterprises could actually hire or lay off employees at will, and workers had the freedom to choose employers. Before this, there was virtually no legal private enterprise; rather, employment for life within the Communist economy. In 1995, this strategy was then permitted nationwide.

Plan is "Not a Reality Yet"

The park and its ilk are part of a systematic national effort to bring an educated, creative workforce to China, while waiting for the new generation of creative thinkers to come of age. It's a tough balancing act, and as professor Henry Rowen, co-director of the Stanford Project on Regions of Innovation and Entrepreneurship, and co-author of Making IT: The Rise of Asia in High Tech, points out, "The nation's self-reliance plan is not a reality yet." According to him, despite the impressive figures, "several thousands of Z-Park's companies are not real," meaning that it includes many micro- and small-business enterprises with doubtful futures.

He's not wrong: A small or medium enterprise crashes and burns within Z-Park every nine minutes. He also points out that "all technologies have come from the outside." But Rowen also argues that the government is moving in the right direction, toward a role of indirect support, and that there are signs of innovation in R&D, business models, and services. The U.S. and other nations, he believes, will face new opportunities for collaboration—as well as significant challenges in competing with the rise of an innovative China.

For its part, China remains focused on building an innovation infrastructure to encourage the development of formidable companies like global telecommunications giant Huawei, which generated $8.5 billion in sales in 2006 with a 10% spend on R&D. As Jan Gronski, general manager of Cisco's (CSCO) China R&D Center, puts it, Huawei "did not get there just by copying." Others would be ill-advised to underestimate his assessment.

Claire-Juliette Beale is partner and co-founder of Touch360, a multidisciplinary innovation and strategic design firm.