Innovation Fund for Small Technology-based Firms

The year of 2003 is the fifth operational year of the Innovation Fund for Technology-Based SMEs (hereinafter Innofund). Under the steering of the Ministry of Science & Technology and the Ministry of Finance, with the joint efforts from the departments concerned and the Innofund Administration Center, Innofund went on smoothly in the year of 2003 with the annual plan fully accomplished.

In the year of 2003, Innofund continued to follow the principles of "market-oriented, supporting innovation and encouraging entrepreneurship" and highlighted the Innofund's policy-guided function of "offering warm in snowy weather" by providing focused support to technology-based start-ups, especially those that are tenanted in technology business incubators. In the mean time, Innofund gave priorities to R&D projects with high degree of innovation, intensive technology content, strong competitiveness and good market potential, aiming to cultivate new and high-tech industry clusters with independent intellectual properties. Preferential supports were continuously given to projects from "Mianyang S&T City" and other western regions as well as projects in software technology and enterprises founded by returned overseas scholars.

As it was all over the country, the outbreak of "SARS" epidemic in 2003 also made great impact on the work of Innofund. Meanwhile, the movements in the economic, social, and technological environment also required some corresponding adjustments. Facing all these new challenges, the annual work plan of 2003 was still accomplished successfully with the help from various sides.

For the past five years since its establishment, Innofund has made conspicuous achievements in supporting the innovation activities of technology-based SMEs and encouraging entrepreneurship. In addition, the operational mechanism and the administration mode of Innofund have been continuously improved and perfected with the public image and prestige of the fund being enhanced unceasingly. In the future, with the continuation of the standardized management of the Innofund projects, more efforts will be made to extend the service scope and reinforce the work on creating a pleasant exterior environment for the development of technology-based SMEs. The policy guiding function of Innofund will be brought into full play to make more contributions to the implementation of the national strategy of "prospering the nation with science & education" and the promotion of high-tech industrialization as well as the acceleration of the economic growth.

Department of Development Planning　　　Department of Enterprises
Ministry of Science & Technology　　　　　Ministry of Finance

The year of 2003 is the fifth operational year of Innofund. With the guidance and support from the Ministry of Science & Technology and the Ministry of Finance, the Administration Center of Innovation Fund for Technology-Based SMEs (hereinafter the Innofund Administration Center) fulfilled the annual tasks properly following the principles of "innovation, factualism, and efficiency".

The central fiscal budget appropriated for Innofund was 500 million RMB Yuan in 2003.

Within the year, the Innofund Administration Center received a total of 4,249 project applications. With 1,472 applications carried forward from the previous year of 2002, altogether 5,721 applications were reviewed throughout the year.

Via evaluation by the expert team or evaluation agencies, 1,197 projects were selected and jointly approved by the Ministry of Science & Technology and the Ministry of Finance as the 2003 Innofund Projects with a total funding of 663.82 million RMB Yuan, among which 490.65 million RMB Yuan has been allocated through the arrangement of the annual budget.

Among the total approved 1,197 projects of the year, 963 obtained grants with a sum of 516.77 million RMB, accounting for 77.8% of the total allocated funding. The portfolio of the approved projects by forms of funding is illustrated in Figure-1.

The key technology fields supported by Innofund in 2003 continued to be Electronics and Information Technology, Biotechnology and Medicine, Advanced Materials, Automation Technology, Environmental Resources as well as New Energy and Energy Saving. Projects in Electronics and Information Technology still ranked first, accounting for 39% of all the projects approved. The distribution of the approved projects by technology field is illustrated in Figure-2.

The major policy and economic target to be realized through the implementation of the 1,197 approved projects is as follows.

To encourage the development of software industry, 227 software projects were awarded, accounting for 19.0% of the total approved projects (19.6% in the year of 2002).

To provide support for the implementation of the Western Development Strategy, 313 projects submitted from the western regions were awarded, accounting for 26.1% of the total approved projects (24.6% in the year of 2002).

To carry out the strategy of "bringing in talents", Innofund supported 137 projects from enterprises established by returned overseas scholars, accounting for 11.4% of the total approved projects (9.2% in the year of 2002).

To bring into full play the advantages of the high-tech industry development zones (science and technology industrial parks) in industrial clustering, 537 projects from the zones were awarded, accounting for 44.9% of the total approved projects (41.2% in the year of 2002).

To reinforce the support for the start-up enterprises, 152 Small Grant projects were awarded, accounting for 12.7% of the total approved projects.

To give emphasis to the independent intellectual properties possessed by the project undertakers, all the projects approved hold a total of 913 various patents, among which 327 are patents for invention.

Upon the accomplishment, the 1,197 approved projects will realize a total estimated accumulative sales income of 26.9 billion RMB with a total net profit of 4.7 billion and a tax contribution of 3.3 billion. In the mean time, 40,000 new jobs will have been created.

The Guide for Innofund Project (2003') gives more prominence to the key projects to be supported while clearly lists some projects/products that will not be funded by the fund.

The enrichment of a balanced evaluation expert team has been continued throughout the year. Efforts have been made for the establishment of the selecting, employing, training, and reviewing mechanism of the expert team and delegated evaluation agencies. Currently, there are more than 1,360 experts within the expert database (160 were added within the year of 2003). For the project assessment this year, 2,200 expert person-times have been employed and 20 evaluation agencies have been delegated to conduct partial evaluation work.

The project acceptance evaluation system has been improved with amended and more specified criteria and standardized internal appraisal and acceptance procedure. By the end of 2003, the accepted Innofund projects added up to 1,447 with an acceptance rate of 81%.

In 2003, Innofund Administration Center strengthened the promotional activities of the fund. Ten editions of Innofund Newsletters were issued and more than one hundred articles were released throughout the year. Over sixty Innofund related reports were published by Xinhua News Agency, Science & Technology Daily, Economic Daily, China Financial & Economic News and other media. As an example, a front page article titled "Spending Taxpayers' Money is not an Easy Job" published on China Financial & Economic News presented an overview on the overall implementation of Innofund and brought about desirable effects.

To further improve the fund-raising environment for technology-based SMEs and explore to establish a butt joint platform for Innofund projects with venture capitals and financial institutions, the Innofund Administration Center organized the first Innofund Projects Recommendation Conference, during which 135 Innofund projects were presented to the venture capital investment companies, financial institutions and news media with their financing demand and achieved expected results.

To promote the integration of technology and finance, the center kept active communications with commercial banks to make a better understanding of their business loan requirements and delivering procedures. In the mean time, the center was actively involved in the overall cooperation scheme between the Ministry of Science and Technology and the State Development Bank by making the joint support for technology-based SMEs as a major content of this cooperation.

In addition, Innofund Administration Center was also entrusted to organize the competition of "Sino-British Award for Technology-based Start-ups" co-sponsored by the Ministry of Science & Technology" of China and the Ministry of Trade & Industry of UK. The award is equally financed by the two sides with a total award of 100,000 pounds for two winners from technology-based SMEs in China. The campaign was successfully implemented with strong response aroused and highly appraised by both sides from China and UK.

To strengthen the support for technology-based start-ups, Innofund launched a pilot mechanism of "Micro Grant" in 2003. This funding is delivered to the tenant start-up enterprises in selected support agencies including national high-tech innovation centers, national overseas students parks, national university science parks and technology business incubators.

In consideration of the nature of technology-based start-ups, the principles of "keeping to the criteria, relying on local governments and simplifying the application procedure" were respected in the approval and afterwards management of the "Micro Grant" projects. More work was conducted by dint of the support agencies to take their advantages in delivering handy management on the awarded projects. The Innofund funding was a one-off payment instead of two payments as in the normal cases while the support agencies are required to organize more complementary funding.

Recommended by the local Innofund supervision organizations (usually the science and technology departments of the provincial or municipal governments) where the candidate support agencies are located and short-listed by Torch High Technology Industry Development Center (Torch Center), 16 agencies were finalized as the 2003 Innofund "Micro Grant" Support Agencies by a joint evaluation committee composed of representatives from Torch Center and Innofund Administration Center, including:

1. Changchun S&T Innovation Service Center
2. The Innovation Service Center of Xi'an Hi-Tech Industry Development Zone
3. The Technology Innovation Service Center of Chengdu Hi-Tech Industry Development Zone
4. Shanghai Science and Technology Innovation Center
5. Harbin Hi-Tech Innovation Center
6. The S&T Innovation Service Center of Shenyang Hi-Tech Industry Development Zone
7. Beijing (Haidian) Overseas Scholar Innovation Park
8. The International Business Incubator of Tianjin Hi-tech Industry Development Zone
9. Suzhou Hi-Tech Innovation Service Center
10. Jinan Hi-Tech Innovation Service Center
11. Xiamen Hi-tech Innovation Center
12. Changsha Software Park
13. The Innovation Service Center of Chongqing Hi-Tech Industry Development Zone
14. State University Science Park at Zhejiang University
15. The Innovation Service Center of Mianyang Hi-Tech Industry Development Zone
16. Kunming Hi-Tech Innovation Service Center

The "Micro Grant" funding is a beneficial experiment made by the Innofund Administration Center with the backing from the Ministry of Science and Technology and the Ministry of Finance. This funding mechanism fully manifests the "providing timely help" function of Innofund and is warmly welcomed by the technology-based small firms. It has also mobilized the enthusiasm of the local governments for providing support to the start-up enterprises. In 2003, 265 projects were applied via the 16 support agencies for "Micro Grant" funding and 152 projects were awarded with a total amount of 37.57 million RMB. The average funding for each project was 247,000 RMB.

According to statistics summarized from 2,018 Innofund projects surveyed in 2003, the overall implementation of the projects is proceeding rather well in that both the technological innovation has been facilitated and the economic as well as social benefits have been reaped by the project undertakers.

Based on the 2,018 projects surveyed, the average total income of the project undertakers in 2003 was 39.35 million RMB with an average per capita of 280,000 RMB. For the 504 "loan interest subsidy" project undertakers, the average gross income of the year was 89 million RMB while that for the 1,514 "grant" project undertakers was 23 million RMB.

The average tax contribution per capita of the 2,018 project undertakers was 230,000 RMB.

At the end of 2003, the average total assets of 2,018 project undertakers were 58.22 million RMB.

The average total liabilities of 2,018 project undertakers were 27.98 million RMB and thus the average asset/liability ratio was 48.06%. The average shareholder's equity at the end of the year was 30.24 million RMB among which 26.40 million RMB was the paid-in capital and 3.84 million RMB was the earnings retained.

On average, the 2,018 project undertakers employed 140 people at the end of 2003. For all the 283,632 people employed by these undertakers at that time, 49.46% of them held a college degree or higher, among whom 3,035 possessed a doctoral or postdoctoral degree, accounting for 1.07% of the total employees.

The total R&D expenditures in 2003 of the 2,018 project undertakers was 5.93 billion RMB, accounting for 7.47% of the total annual incomes of 79.40 billion RMB.

Within the 2,018 project undertakers, there were 8,168 projects under research and development in the year of 2003 and each project undertaker averagely was conducting 4.05 R&D projects. Based on the statistics collected on 4,173 R&D projects reported by the project undertakers, 77% projects held proprietary technologies.

Most of the 2,018 Innofund project undertakers surveyed in 2003 are featured with multiple concurring characteristics:

* 70.52% enterprises are high-tech enterprise entitled by the local governments;
* 6.19% enterprises were founded by universities and colleges;
* 6.54% enterprises are spin-offs from research institutions;
* 9.27% enterprises were established by returned overseas scholars;
* 3.37% enterprises were transformed from research institutions;
* 39.15% enterprises are located in state high-tech industry development zones;
* 10.51% enterprises are tenants in state hi-tech innovation service centers;

According to the statistics from the 2,018 projects investigated, 1,358 projects (67.29%) have fulfilled the milestone objectives on schedule and 151 projects (7.49%) ahead of schedule. In other words, 74.78% projects have accomplished the prescribed milestone objectives. There were 493 projects (24.43%) protracted and 13 projects (0.64%) idle. Altogether 3 projects (0.15%) were cancelled during the year.

Among the 2,018 projects investigated, 573 projects were in the phase of R&D when awarded, 1,169 in pilot production and 276 in scale production. By the end of 2003, 438projects had moved into the phase of pilot production and 693 from pilot production into scale production. When awarded as the Innofund Projects, there were only 665 products that had been put into market, accounting for 32.95% of the total products being developed. By the end of 2003, 1,527 projects had their products in the market, accounting for 75.67% of the total. The overall improvement in project stage is shown in Figure-4.

Among the 2,018 projects surveyed, 846 projects had been authorized with 2,269 patents by the end of 2003, including 879 invention patents.

Administration Center for Innovation Fund for Small Technology-Based SMEs
Ministry of Science & Technology
Address: P. O. Box 3823, 12, Fuxing Road, Beijing 100038, China
Tel: 86-10-63972359 Fax: 86-10-63972391
Http://www.Innofund.gov.cn