How Zhongguancun became the innovation hub powering China’s tech aspirations | KrASIA

The night is falling on China’s capital, Beijing, during a cold winter. The power is out on the second floor of Kemao Market, a 24-floor multi-story mall on the east side of the Zhongguancun Avenue, in the northwest district of Haidian. In the darkness, vendors remain at their stalls, looking down at their phones or chatting over the counters, while waiting for customers.

Yellow-brown boxes packed with computer parts, cellphones, and gadget components crowded the small aisles between stores, while on the ground floor, two people are playing badminton.

Kemao Market is the only remaining wholesale retail electronics marketplace in Zhongguancun. The building used to be the go-to place for customers looking for electronics products such as MP3 players, phones, second-hand computers, USB cords, printers, etc. Basically, any type of tech device could be found here.

Known as the “Zhongguancun Electronics Street,” the street was a retail tech paradise thanks to landmark electronics malls like the Kemao, the Hailong Electronics Mall, the Zhongguancun E-Plaza, and Dinghao. Lenovo’s founder Liu Chuanzhi, and ​JD.com​’s Richard Liu Qiangdong started by selling stuff in Zhongguancun like thousands of other vendors before launching their successful careers in entrepreneurship.

However, major electronics malls on the street started to shut down one after another in 2010 due to a government policy advocating for an industrial upgrade in Zhongguancun. The closures were accelerated by declining sales as Chinese shoppers jumped on the online shopping bandwagon.

Walking out of Kemao at around 6:00 p.m on the west side of the avenue, a complex of buildings is still brightly lit, probably with many employees working overtime to nurture China’s next big app, a glimpse of the transformation of the area, where aged electronics markets are phased out while new cohorts of entrepreneurs are establishing their first startup offices.

The Zhongguancun tale

In 1978, When Deng Xiaoping, then the paramount leader of China, opened the country and launched widespread economic reform, the country’s first batch of private tech-focused enterprises emerged in Zhongguancun, owing to the talents and resources from nearby prestigious universities such as Peking University, Tsinghua University, and the Chinese Academy of Sciences.

In 1988, the Chinese government promised favorable policies benefits to enterprises with the establishment of the Beijing New Technology Industrial Development Trial Zone in Zhongguancun, establishing China’s first high-tech park, which accelerated the flow of talents to the area.

Meanwhile, the neighborhood also became popular as a thriving market for cheap local knockoffs as China had vague regulations on intellectual property rights. Smartphones, tablets, headphones, speakers, GPS navigators, and other gadgets could be found in Zhongguancun’s shopping malls for cheap prices, which attracted many local buyers but also many foreign visitors.

“The period between 1995 and 2010 was the most glorious time for the Electronics Street,” Chai Haikun, who sells phones and computers in an office on the twelfth floor of Kemao, told KrASIA. “Customers crowded into these markets and oftentimes there wasn’t even room for them to stand,” he added.

Chai explained that Zhongguancun’s malls were also popular for selling “Shuihuo” products (meaning “water goods” in Mandarin). Basically, illegally imported devices such as iPhones, laptops, tablets, and cameras from Hong Kong, the US, and other overseas markets. Shuihuo’s products were usually cheaper than goods officially released in China due to the country’s high taxation rate on foreign electronics and were in high demand from price-conscious buyers looking for foreign brands.

However, the market demand for foreign products and knockoffs started to change from around 2005, thanks to the rise of an array of local phone brands including ZTE, Gionee, Coolpad, Meizu, and Huawei, which popularized their products along with China’s early adoption of 3G networks.

“They stood out from counterfeit phone makers, mocking features of foreign brands but selling at a very low price,” said Chai.

Around the same time, China was also experiencing another major market disruption: the growing adoption of e-commerce platforms such as Taobao and JD.com. “When I really entered the industry in 2010, it had been going downhill,” Chai said.

“The shopping habit of customers changed and the advantage of price had gone,” he affirmed.

Renovation of Zhongguancun

In a push to recreate the area’s original ambitions, the Chinese government also started to take action to curb the market of counterfeit products and illegal imports. In 2009, when tech retail malls covered almost 320,000 square meters in Zhongguancun, the local government of Haidian district released an announcement limiting the development of malls and restaurants on the west side of Zhongguancun.

In 2010, the Chinese government also approved a plan to establish the Zhongguancun Science Park, which has attracted emerging startups in high-tech sectors such as biosciences, aerospace, and information networks, among others. Foreign tech giants such as Google, Microsoft, and Intel, also established their headquarters and research centers in the area.

In 2015, the Zhongguancun Street Development Plan further boosted the transformation of the neighborhood to nurture tech innovation. It designated five functional zones along the 7.2 kilometers covering the former Electronics Street, including a core innovation zone, a collaborative innovation zone, a professional innovation service area, a financial innovation zone, and a special innovation zone.

Beijing’s new innovation hub 

Although markets along Electronics Street are mostly gone, Zhongguancun is now a place of innovation boosted by Chinese startups looking to seize new opportunities, as China focuses on becoming the next tech powerhouse.

According to state-owned media outlet China Daily, from January to May of 2018, on average, 89 new technology companies were established in Zhongguancun every day. Currently, there are over 25,000 high-tech enterprises in Zhongguancun employing more than 1.3 million employees, while the total combined revenues of these companies stood at RMB 2.9 trillion (USD 428.3 billion) in the first half of 2020.

“We started from an incubator there,” Gao Yutong, who founded cross-border payment startup EasyTransfer seven years ago, told KrASIA. Incubators in Zhongguancun provide space, workshops, and connections with investors, he explained.

His firm, which provides an online platform to simplify transfer payments targetting students abroad, also received a rent reduction during its early stages from the Zhongguancun Association of Internet Finance, the first industry-wide association for the Internet finance sector in China. 

“Besides, the location of Zhongguancun put us closer to other partners in our sector. Except for universities, many educational institutions and companies are nearby, including New Oriental and TAL Education Group,” Gao explained.

Thousands of other entrepreneurs have also chosen Zhongguancun as their headquarters, thanks to governmental support, a constant flow of young talents, and the area’s convenient location near China’s most famed universities. According to the China Internet Information Center, thanks to favorable policies, the area has attracted over 10,000 foreign talents and 30,000 Chinese from overseas in recent years, while companies headquartered in Zhongguancun have filed 86,395 patent applications as of 2019.

As of 2017, the Zhongguancun Science Park counted 65 of the world’s most valuable startups, only second to Silicon Valley, China Daily reported. Just to name an example, ByteDance, the company behind short-video app TikTok and Douyin, started from an office in Zhongguancun and grew into a global company worth over USD 100 billion in just eight years. 

Other Chinese unicorns that arose in Zhongguancun are JD.com, Kuaishou, Megvii Technology, Baidu, Meituan, and Didi Chuxing, even if some of these companies have now moved their headquarters to other areas of the city. 

“These giants need bigger space and they are big enough to form a ‘self-ecosystem,” said Wang Yongwang, who works as a volunteer for the Museum of Entrepreneurship located in Zhongguancun.

As Zhongguancun had grown in popularity, rents have also skyrocketed. Earlier this year, Gao’s EasyTransfer also opted to find a new location. “The main reason is the rent costs increase as our team enlarges,” he said, noting that one square office costs around RMB 12 (USD 1.84) per day in his old office building in the area.

Yet, Zhongguancun is set to keep growing in the next five years. By 2025, the total income of the digital economy in the Zhongguancun Science Park is expected to exceed RMB 6 trillion (USD 917 billion), with an annual growth rate of about 15%, according to the Zhongguancun park’s management committee, as reported by China’s official news agency Xinhua.

According to Xinhua, the park will “foster strong enterprises in the digital economy and support industrial innovation” in areas such as artificial intelligence, big data, blockchain, and the Internet of Things.

As for vendors still managing stores in the last existing mall in the area, they have also started to embrace e-commerce. Chai recently launched an English online store within WeChat which he self-developed using Tencent’s mini program feature. “We have sold dozens of phones here. Hopefully, it can get me more sales soon,” he said.

“The goal this year is to survive.”