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China aims for its own Silicon Valley

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Last month, the National Development and Reform Commission announced revised plans to transform Guangdong and neighboring Hong Kong and Macau into a “significant innovation center” by 2020.

One hundred R&D labs will be set up over the next three years. By 2012, per-capita output in the region should jump 50 percent from 2007, to 80,000 yuan ($11,700) And by 2020, the study predicts, 30 percent of all industrial output should come from high-tech manufacturing.

“While some traditional competitive industries such as household appliances, textiles and garments, papermaking, and Chinese herbal medicine will be upgraded to increase competence, inefficient energy-consuming sectors will gradually be phased out,” the plan states.

Low-end factories will have to relocate to cheaper provinces or countries.

For provincial officials, whose standing rises with Guangdong’s economic performance, that’s the only way forward. As global recession hit Chinese exports last year, growth in this region dropped to 10.1 percent, from 14.7 percent in 2007.

“Restarting outdated capacities for the sake of growth would just be like drinking poison to quench thirst,” Guangdong’s Communist Party boss Wang Yang, an advocate of upgrading, wrote in a recent opinion piece.

Still, the economic crisis has forced some compromise. To stem the troubling tide of millions of layoffs, officials decided to prop up the struggling companies they’ve sought to run into the ground, by reinstating an export tax rebate to help them cut costs.

“They’re trying to provide enough benefits to companies so they don’t go out of business, while at the same time not backtracking too much,” says Arthur Kroeber, head of Dragonomics, a consultancy based in Beijing.

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