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>>>>Viewpoints of Industrial Structure and Industrial Policy

The restructuring of state enterprises poses a critical issue in Shenyang and there are great
expectations that SMEs will play a leading role in such restructuring. To enable SMEs to
perform their expected role, however, it is essential for the Study to identify the structure
and future vision of aid policies of the government for the subject industries in order to
clarify the present status of SMEs in Shenyang. The Shenyang Municipal Authority
hopes to link the promotion of SMEs to the general industrial development of the city.
SMEs are considered to comprise key components of supporting industries for such
important industries as the automobile and machine processing industries in the city as
they are expected to act as subcontractors capable of supplying reliable parts to large
enterprises, including public enterprises, in these industries. The industry attracting
particularly strong expectations is the environmental protection industry which is
expected to not only manufacture environmental protection equipment but also to lead
industrial promotion in the city through the development of new markets and new
industries based on the introduction of new products as well as new technologies.
Moreover, this industry is expected to upgrade the city’s socioeconomic image. In the
case of finance, information and high-tech industries, a strong concentration of these
activities in the city is planned. However, it is not a sound policy to promote SMEs to
create supporting industries as SMEs can play a leading role in the electric/electronics
industry and the information industry, etc. Therefore, comprehensive SME promotion
policies are required.

Placing Emphasis on High-technology

In February 2001, Shenyang ETC established “Shenyang enterprise technology
innovation center” in order to optimize science and technology resources allocation,
technology reform service, and integration of technology and economy. Shenyang ETC
assembled 100 excellent SMEs to explain this decree. The study team also proposed
some measures of industrialization of high-technology research output and supporting
methods for new business founders. In order to confirm proposals, the study team visited
incubation centers in research institutes, universities, and industry development zones.

Technology Transfer to Counterparts

Although technology transfer to enterprises targeted for diagnosis is of utmost
importance for the development study, the highest priority has to be placed on those who
are in a position to conduct diagnosis and guidance for enterprises. They are counterparts.
Counterparts are classified into three types. (1) Government officers (2) Members of
government subsidiary organization (C/Ps for the pilot project) (3) Private consultants
(participants of enterprise diagnosis in the first field survey as assistant to study team
members) 1 – 17 In the Study, C/Ps from the government organizations were basically not
participating full time. It is not certain that they will be permanent specialists in the
diagnosis job. Rather, some of them have been moved to other sections as a result of
administrative reform. However, their experience of working at shop floors or
exchanging ideas with the study team members will be significant for them regardless of
their change of position. Private consultants, or members of government subsidiary
organizations, on the other hand, are in the position of earning their own income by
themselves according to market principles; therefore, they are very serious about
absorbing professional technology and skill. SY ETC nominated Meridian Consulting
Co., which joined the Study from October 2000 through November 2000 as the assistant
to the visiting diagnosis staff, to the Shenyang SMEs Service Center in December 2000.
SY SME Service center has been participating in the pilot project as a counterpart since
May 2001, and it has been a mediator of business matching under the Study Team’s
guidance. Such matching was the most effective technology transfer.

Historical Changes of Gross Domestic Product

Following the boom period from 1992 to 1995, the macroeconomy of Shenyang has
recorded gradual growth in the last four years. While the production share of tertiary
industries is showing a long-term growth trend, its surge has halted just before reaching
the 50% level. Meanwhile, despite a declining trend, the share of secondary industries has
been maintaining a level of slightly less than 45%. Investment in fixed assets is slightly
below 20% of the GDP and there is an absence of any main players. Investment in fixed
assets by state enterprises, which used to account for 85% of the total investment in fixed
assets, is now below 50%. The amount of investment in fixed assets by collective
enterprises has also declined. This relative decline of investment in fixed assets by state
and collective enterprises appears to have been compensated by increased investment by
the private sector and foreign capitals which are not included in the statistics shown in
Table 3-1-4. One noticeable fact is the substantial increase of investment in private
housing in 1999. The indices relating to consumption have been generally weak. The
consumer price index in particular recorded successive negative growth in 1998 and
1999. The growth rates of the disposal income of urban dwellers and workers’ wages
have been below the GDP growth rate. These macroeconomic indices for Shenyang are a
cause of concern, indicating that the dynamic growth of the city is now a thing of the
past

Dadong Science and Technology Zone

Dadong Science and Technology Zone is the focal point of SME measures in Dadong
ward. The municipal economic and technological development zone (above) is located
inconveniently 20 km away in the western suburbs, and Shenyang High-tech Industry
Development Zone is only intended for high-tech enterprises and thus does not cater to 3
– 14 ordinary SMEs. It was against this background that a miniature industrial zone
intended for local SMEs was constructed. Promotion of privatized SMEs requires land,
and the aim of this zone is to attract private sector capital by providing this land. As a
result of vigorous attraction activities carried out by the ward government, the zone has
almost totally been filled by vibrant SMEs which are displaying good performance in
their new location. Dadong Science and Technology Zone is located north of Shenyang
East Station, approximately 30 minutes by car traveling northeast from the ward
government offices. The Study Team visited the administration office and two factories.
One of these was a pipe manufacturing plant, and the other manufactures counterfeit note
identification devices. These counterfeit note identification devices are capable of
counting paper money and screening counterfeit notes at the same time. Since counterfeit
money is prevalent in China, there is a high demand for such devices and this company
sells its products all over the country. It enjoys a 40% share of the market in China and
production is unable to keep pace with the high demand. This plant has a technical patent
and its products have high added value. Its quality systems have received ISO
certification, the plant itself is clean, and its production control and technological
development setups are firmly in place. The company possesses advanced technology and
unique know-how, and it internally produces plastic parts and high added value parts
such as molds and dies, etc. while purchasing other cheap parts externally. In this way,
the company is well on the way to achieving rational business management. It enjoys a
good business record and is a good enterprise. Dadong Science and Technology Zone is
filled with factories and is very lively. The zone authorities are considering attracting
overseas enterprises, and Korean enterprises have already set up there. Consideration is
also being given to attracting Japanese affiliated enterprises.

Main Functions of Economic and Trade Commission

The Shenyang Municipal Economic and Trade Commission (SMETC) was established in
May 1995 following the dissolution of the Shenyang Municipal Planning Commission in
accordance with the Notification Regarding the Reform Plan of Party and Government
Organizations of the People’s Government of Liaoning Province in Shenyang by the
Liaoning Provincial Committee of the Communist Party of China (Official Document
No. 25 of 1995 of the Liaoning Provincial Party Committee). The SMETC is the general
organization responsible for management of the economy and coordination of the
economic progress in Shenyang and has the following main functions.

(1) Examination and formulation of an economic development strategy and formulation
of medium and long-term plans

(2) Reporting of the state of economic management to the municipal government from
time to time based on analysis, monitoring and forecasting of the macroeconomy of the
city while controlling economic operation in the city in an integral manner;
recommendation of solutions; adjustment of economic operation in the city through
collaboration with related sections using appropriate control measures and coordination
to solve serious problems which occur during economic operation; extension of support
for all businesses in all areas of the city; formulation, implementation and management of
a thermal energy supply program for all enterprises and formulation of relevant measures;
guidance on and coordination of safe production by manufacturers and business relief
activities of the municipal government

(3) Participation in the formulation and implementation of an industrial policy master
plan, industrial restructuring policies and local industrial policies

(4) Examination and enactment of comprehensive laws and regulations relating to
manufacturing, transport, domestic trade, international trade and energy conservation,
etc.; supervision and inspection of the state of progress of enforcing these laws and
regulations

(5) Guidance on market creation and development; solving of problems relating to market
creation and management

(6) Formulation and implementation of an enterprise reform program and solving of
problems; guidance on the formulation of laws and regulations on management
enterprises of state and non-state enterprises and on enterprises in general; joint
formulation of regulations to supervise and manage state assets with related sections;
activities to convert loss-making enterprises to profit-making enterprises; energy
conservation and environmental protection; control of production and physical
distribution sectors; guidance on the businesses of industrial associations and academic
societies and management of foreign subsidiaries

(7) Checking of the state of supervision of enterprises and development of an enterprises
control system jointly with related sections; examination and evaluation of the annual
economic progress plans of the municipal government, ward and district authorities,
industrial bureaus and collective corporations; training of leading officials responsible for
economic management and company executives; evaluation of business qualifications;
guidance on and cooperation for the introduction of technologies from overseas

(8) Control of technological innovation movements by enterprises; formulation,
refinement, notification and implementation of investment plans for technological
remodeling (including attraction of inward foreign investment and overseas loans, etc.),
technology import plans, new product development and new technology extension plans,
domestic manufacturing plans for important equipment and annual programs for all of
these plans; guidance on and implementation of activities to encourage joint industrial
and academic projects and high-tech industries

(9) Harmonization between domestic trade and international trade; formulation of
policies and measures concerning the product import/export structure jointly with related
sections and inspection of the implementation/progress situation of such policies and
measures; guidance on investment by local enterprises which opt for the introduction of
foreign capital; declaration and control of the rights of enterprises to import or export
products

(10) Establishment of an economic and trade information network for the city; gathering
and publicity of various economic and trade information/data at home and abroad;
provision of reference materials for the formulation of economic policies by the
municipal government; provision of information for enterprises

(11) Quality control work and macroscopic adjustment of the technology policies of the
municipal government; thorough implementation of international quality control
standards; guidance on quality certification activities

(12) Import/export control of machinery and electrical goods; tender for machinery and
electrical goods at home and abroad

Industrial Technology Exchange Center

Shenyang Municipality Industrial Technology Exchange Center was established in 1969
and its priority is placed on enhancement of four themes, namely new technologies, new
materials, new manufacturing processes and new products. Although, in the past, the
Center has been more supportive to the large enterprises, recently it has changed to be
more oriented to SME support. The Shenyang Municipality Industrial Technology
Exchange Center now maintains the following three networks: – Shenyang Economy and
Trade Information Network – China Technology Creation Shenyang Network – Shenyang
SME Information Network A ceremony of public opening of the Economy and Trade
Information Network was held at the end of November 2000. At that time, the
establishment of the Shenyang SME Information Network was also announced. The
details of the Shenyang SME Information Network had been almost worked out and the
outline of the idea of the three-year plan was also revealed. 5 – 29 The number of the staff
of the Information Center is planned to be increased from the present level of 5 to 6
people. The activities of the Center are focused on the spread and application of the
processes for the new product development and on the retarded industrial and
technological reform. Being a non-profit organization, it is engaged in the activities that
cannot be handled independently by either the government or enterprises, thus playing
the role of intermediary offering the bridge between them. Also, to encourage the
coordinated works among the industrial, academic and research sectors, it is supporting
the transfer to the industrial sectors of technologies that are the fruits of development by
the research institutes and universities. It is pointed out that one of the problems SMEs
are facing is the retarded manufacturing technologies and the level of product
technologies that are not competitive in the international markets. This is due to the low
levels of culture and expertise in scientific technology of the executives. It largely owes
to the fact that most of the enterprises are township-village enterprises. In 1999, the
government announced the policy of social appropriation of the technological resources
and enhancement of the technological levels. State Economy and Trade Committee
constructed the Technology Creation Networks and inaugurated 40 service stations
throughout the country including the Municipality of Shenyang. This network is offering
Technology services to the private sector enterprises. On this network are : – Results of
studies at universities and research institutions – Products and technologies from all over
the world – Information on certain enterprises

The followings are how to use the networks

: – Introduction of enterprises to possible future partners – Support to marketing of
enterprises wishing to sell their products – Information on the demand and supply of
personnel – Information on the demand and supply of specialists 5 – 30 Results of the
above mentioned activities are being announced by the Department and the Municipality.
100 questions are asked daily to the Technology Exchange Center of the Department, and
business negotiation meetings among the industrial, academic and research sectors are
being held once a year. Although 9,000 items are proposed to the meeting, they cannot be
seen on the networks. The Department has the New Technology Spread Center which is
supervised by the Department’s Economy and Trade Committee. Notices are issued by
the Department and sent to more than 1,000 enterprises. More than 120 universities and
research institutions are invited to report the results of their studies. During the meetings,
discussions on certain matters, business matching talks and even signing of the letters of
intent is conducted. Exhibitions for business matching are held at the same time. Science
and Technology Committee is engaged in the similar kind of activities and the activities
are divided in accordance with each new technology project basis.

Economy and Trade
Committee is based on the needs of enterprises. For industrialization, the mutual support
service system is under way by means of introducing to the Credit Guarantee Center
when funds are needed, and to the Technology Exchange Office when new technology is
needed
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