Shanghai has been the municipality with the highest concentration of foreign-funded R&D centers in the Chinese mainland, and Pudong New Area is the area with the largest number of foreign-funded R&D centers in Shanghai. By the end of February 2023, Pudong New Area cumulatively recognized 254 foreign-funded R&D centers, accounting for nearly half of Shanghai’s total. Of these, seven global R&D centers account for almost 60% of Shanghai’s total, and they have clearly created an agglomeration effect. Among all the foreign-funded R&D centers in Shanghai, about one-fourth were established by Fortune Global 500 companies, mostly in the biomedicine, information technology, auto parts and chemicals. Pudong New Area has recently introduced 10 new initiatives around the establishment and upgrading of foreign-funded R&D centers, the services for the introduction of R&D talents, etc. Moreover, seven foreign-funded R&D centers have been selected in the first batch enjoying tax-free imports to support sci-tech innovation in Pudong, and another seven recently completed foreign-funded R&D centers have signed project contracts with their respective development zones.

Recently, around the above new initiatives, Professor Zhang Yuchen from the Department of Innovation and Strategy (under preparation) of Tongji SEM and Deputy Director Li Junqiang from the China Industrial Park Development Research Center of Tongji University have jointly been interviewed by the Oriental Financial Pudong Channel to discuss how Pudong can better attract internationally competitive R&D institutions and build an important hub of the global industrial and value chains.

Q1: Seven enterprises have been selected in the first batch enjoying tax-free imports to support sci-tech innovation in Pudong. This is highly aligned with Pudong’s core technology industries. How do you view this measure?

Zhang Yuchen: Enterprises in the first batch are those that do the best in original technology R&D among existing enterprises in Pudong New Area and are leading in the core industries. This is the first characteristic. Supporting their development sends a very powerful policy signal because they engage in novel research, another characteristic of them.

Q2: The Opinions of the CPC Central Committee and the State Council on Supporting the Pudong New Area in Building Itself into a Leading Area in Socialist Modernization through High-standard Reform and Opening-up released previously (referred to as the “Opinions”) proposes that R&D institutions that are recognized by the Pudong government shall be allowed to have their imported self-use equipment being exempted from import-related taxes. In implementing this policy this time, Pudong first gives preferential treatment to foreign-funded R&D centers. How do you view this?

Zhang Yuchen: Pudong’s recent history has seen excellent development in foreign investment. Foreign-funded enterprises have made substantial contributions to the prosperity and development of Pudong. Supporting the development of foreign-funded enterprises can have better demonstration, driving and spillover effects because they have relatively higher R&D standards, levels and capabilities.

Q3: The Opinions also mention that Pudong should spare no effort in creating an innovative engine and building an independent innovation center. Do you think the policy of the first batch of R&D centers enjoying tax exemption is conducive to the implementation of the above measure?

Zhang Yuchen: After so many years of development, Pudong now focuses on cutting-edge technologies. This positioning sets it apart from other areas in China. Pudong should no longer provide inclusive support because it already has a huge industrial foundation built over the past 30 years. Of course, from a development perspective, with transformation and upgrading, when other Pudong enterprises meet the same conditions as the seven enterprises that have been recognized, they will also benefit from the policy.

Q4: In which aspects do you think the newly established R&D centers should play a better role?

Zhang Yuchen: I think they should have two characteristics. Firstly, they should have the “futuristic technological content” that anticipates how the sci-tech industry will grow over the following three decades. Secondly, their industrial chains should be relatively long and complex because only long industrial chains may have a longer-term and broader driving effect and have more public attributes, providing a justification for the government to offer targeted support.

Q5: When we first discussed foreign investment, we focused more on whether foreign-funded enterprises could locate their headquarters here, and we refer to this as the Headquarters Economy. But this time, we emphasize foreign-funded R&D centers. So what are the differences between headquarters and R&D centers?

 Zhang Yuchen:  The Headquarters Economy, in my opinion, focuses more on making the most of China’s huge market advantages. The government hopes to provide some market space for the development enterprises in exchange for capital inflow and technology introduction. Previously, Pudong had pursued this strategy. R&D centers, on the other hand, are an example of industrial upgrading and concentrate on high-end industries. Therefore, the focus on R&D centers is a policy adjustment in line with Pudong’s current development stage and positioning. I think support for R&D centers, particularly enterprises engaging in basic and cutting-edge R&D, will be increasing.

Q6: The 10 initiatives Pudong recently announced are intended to address some “difficulties” and “challenges” faced by enterprises. How do you see this?

 Zhang Yuchen:  Pudong has implemented a number of initiatives in the past two years to support ground-breaking innovative platforms. I think it is a very timely policy adjustment. The importance of core technologies has continued to be stressed, but some enterprises, including industry leaders, continue to follow a closed innovation model. Supporting ground-breaking innovative platforms can effectively guide enterprises, especially large industry enterprises, to engage in open innovation. Secondly, the 10 initiatives can attract the participation of small industry enterprises and even other entities from society, and this will produce a great driving and demonstration effect on the independent and controllable technologies of the industrial chain and the development of an innovative culture.

Q7: Pudong now has Shanghai’s highest concentration of foreign-funded R&D centers, giving it a quantity-based agglomeration advantage. What else should Pudong do next to attract and utilize more foreign investment?

 Zhang Yuchen: I think the next step is to exploit Pudong’s advantage in institutional innovation to achieve institutional opening-up. Pudong should not only provide preferential support in the factor market but also allow multinational companies to follow the same standards and rules as those in other prosperous business districts across the world.