China tech: Wuxi model shows local governments how to drive growth

Wuxi’s evolution from an industrial hub to an epicentre of technological innovation offers other local governments a prime example of how to employ a unique blend of public and private sector integration to promote regional economic development

Shaoshan Liu

Published: 8:30pm, 5 Jan 2024

Why you can trust SCMP

Amid angst over its economic prospects, China has doubled down on its efforts to nurture technological innovation. While the government must make adjustments where its policies have fallen short, it undoubtedly got some things right. Wuxi, in Jiangsu province, is a prime example of how its regional technology policy is working.

Unlike in other countries where distinct boundaries exist between the public and private sectors, China’s municipal governments are deeply entrenched in fostering economic development. And Wuxi’s remarkable growth demonstrates the effectiveness of such government-led initiatives in the technology sector.

The city’s GDP has doubled over the past decade and in 2021, it achieved a significant milestone when its per-capita GDP exceeded that of Beijing, positioning it among the top Chinese cities according to that metric.

Wuxi – historically known for its industrial prowess, especially in textiles – has long been viewed within China as a satellite city to Shanghai and remained relatively unknown to the international community. However, the last decade’s remarkable growth has been propelled by a shift from traditional manufacturing to a focus on the technology sector, with the semiconductor industry playing a pivotal role.

Today, Wuxi is home to more than 600 semiconductor companies, contributing more than 200 billion yuan (US$28.1 billion), accounting for about 15 per cent of the city’s GDP.

The catalyst for Wuxi’s economic metamorphosis was a pivotal event in 2007. That year, Lake Tai suffered a severe cyanobacteria pollution outbreak. This environmental crisis, caused by rapid microorganism growth and industrial pollutants from factories along the lake’s shoreline, garnered widespread attention.

Algal bloom in the contaminated Lake Tai in Wuxi, Jiangsu province, on July 24, 2010. Photo: Chen Zheng

As a result, the Wuxi municipal government faced intense scrutiny from national authorities, compelling a shift in its economic approach away from polluting industries. The municipal government’s decision to turn its focus to hi-tech, innovation-driven sectors, in which it had little foundation or expertise, was a gamble that paid off.

In response to its lack of suitable infrastructure, skilled workforce and established firms, the municipal government took on significant debt to fund the creation of hi-tech industrial estates, modernise infrastructure and attract talent.

This ambitious strategy attracted criticism, especially over its soaring government debt. By 2013, Wuxi became one of China’s most indebted cities.

The investments were primarily channelled into upgrading infrastructure. Wuxi set up state-of-the-art industrial estates and innovation centres to attract technology firms, research bodies and start-ups, with a special focus on the semiconductor industry. A notable example of this is the Tsinghua Wuxi Institute of Applied Technology, a collaborative effort between the Wuxi municipal government and Tsinghua University.

The establishment of this institute led to an influx of Tsinghua alumni and students in Wuxi. In tandem, the municipal government injected substantial financial resources to back emerging tech enterprises. Significant investments were also made to enhance transport networks and research facilities, including the National Supercomputing Centre in Wuxi.

A worker monitors the Sunway TaihuLight supercomputer at the National Supercomputer Centre in Wuxi, Jiangsu province, on August 29, 2020. Photo: AP

The government welcomed all kinds of technology companies and experts as long as they were driven by innovation. This brought an era of explosive growth and transformation for Wuxi, establishing it as a hub of technology and innovation.

The city continues to fine-tune its tech policy. It recently unveiled its new development strategy known as the “465 policy”. The plan aims to channel investment into four established hi-tech industries: the internet of things, semiconductors, biomedicine and IT services.

Additionally, it aims to bolster six key industries – manufacturing equipment, textiles and garments, environmental protection, new materials, renewable energy and automobiles – while nurturing five emergent sectors, in artificial intelligence, quantum computing, third-generation semiconductors, hydrogen energy and deep-sea equipment.

As part of this approach, the Wuxi government is now directing its investment into specific, high-potential industries rather than blanket support for all innovation-driven sectors. This effectively transforms the municipal government into a sector-specific venture capital entity.

Meet the drug maker that wants to cure China’s tainted vaccine market

Moreover, to synchronise with this overarching municipal strategy, district governments in Wuxi have also crafted tailored development plans. A prime example is Binhu District’s “543 policy”, which zeroes in on the biomedicine industry.

The implementation of this policy involves a three-year action plan, introducing specific fiscal incentives for industrial development and the creation of district government-backed investment funds dedicated to the biomedicine and healthcare sectors. This strategic alignment shows how district governments are adopting roles akin to venture capitalists, focusing on targeted industries within their jurisdictions.

In China’s competitive landscape of municipal governance, economic growth is a pivotal factor driving the career advancement of local government officials. Recognising the potential of the technology sector to spur regional economic development, many municipal governments are considering leveraging fiscal policies to steer their local economies towards innovation-driven models.

The “Wuxi model” exemplifies this strategic shift. Initially, the city used debt financing to build essential infrastructure that laid the foundation for innovation. This phase was followed by the formulation of specific policies targeting the development of select industries.

This model represents a unique blend of public and private sector integration in regional economic development. Local governments act as policymakers and regulators but also adopt the functions of venture capitalists, actively nurturing technological innovation. This multifaceted involvement underscores the dynamic nature of economic governance in China, where fostering technological advancement is seen as a key driver of regional prosperity.

Dr Shaoshan Liu is currently a member of the ACM US Technology Policy Committee, and a member of the US National Academy of Public Administration’s Technology Leadership Panel Advisory Group