I recently sat in on a great panel about doing business in China hosted by the Manufacturer’s Association of Central New York (MACNY) put on by a client of mine, Tech Bridge International, Inc.  Tech Bridge is an international business development and quality consulting company.  It provides consulting services, connections and introductions to Chinese businesses and government officials for companies seeking to do business there (it also operates in Japan).

The conference was interesting for many reasons, but mainly because of the discussion regarding the industrial, science & technology parks in China and the innovation they were driving there.  I had intended to write a post on this a while back, and that’s why I was pleasantly surprised to hear Governor Cuomo’s Tax Free NY proposal yesterday, which he announced in a few Upstate New York cities (Albany, Buffalo, Syracuse).

One of the speakers at the Tech Bridge conference outlined the vast number of industrial parks that are located throughout  China.  He also specifically discussed the many  new science & technology parks and private tech parks that have been popping up.  These are set up in various provinces in China, some in cities, some rural and some set up by multiple localities, and most of which offer low or no taxes.  China’s main strength is assembly and manufacturing, but it is looking to upgrade in the areas of technology and innovation.  China needs to foster this to maintain its rate of economic growth.   It has the resources to do so – affluent citizens, lots of foreign investment, low cost engineers and innovators and government support.  To date, most of the R&D and innovation in China has come about from multinatioal corporation’s R&D centers in the country (over 1200) but the Chinese government is attempting to push more domestic companies into this arena.

Some of the science & technology parks in China act as mini-economies of their own.  Zhongguancun Science Park in Beijing is home to over 20,000 companies and 950,000 employees, and it churns out annual income of roughtly $110 Billion (850 billion Yuan).  There are more than 800 of these parks which are similar in size.  With numbers that large it’s tough not to be impressed. The reason that these parks are able to grow the economy in such a way is due to the dedication and funding of the Chinese government (and local governments in China).

Now, China isn’t the first country to start a science & technology park, that was us here in the United States – the first one was started in 1948 in Menlo Park, California.   See this great piece if you want to read up on science & technology parks, their successes and where they are going.  See also the International Association of Science Parks and Areas of Innovation for more information.

As to Govenor Cuomo’s proposal, Tax-Free N.Y., it would turn large parts of the state university (SUNY) system into tax free zones for new companies.  Being located in one of these zones would provide an exemption for a variety of state taxes, including corporate income, real estate taxes, (presumably sales tax – unclear) as well as the income tax of employees and owners for 10 years.  Its too bad New York can’t coordinate with the federal government to really make these zones, in fact, free of taxes.  I believe reform of the tax code, both federal and State would be more effective, but this  is a start.

As a contrast to see if the Tax-Free N.Y. plan could lead to real benefits we can look at the State of Michigan’s use of Renaissance Zones (“RZs”).  These RZs were set up as regions in Michigan which would be tax free for up to 15 years. At first the RZ program was open to any company.  Now the state limits it to only certain industries.  According to the Michigan Economic Development Corporation, Michigan’s current 23 RZs (which have 139 subzones) have spurred more than $1.7 billion of private investment in 239 projects and the creation of 6,370 jobs.  Michigan touts the RZs as being beneficial beacuse they boundaries can be changed to accomodate more companies, all committments for permits, incentives and infrastructure is bonded, most companies are not represented by a union, ease in recruiting engineering and techical talent (proximity to schools), tax free bonds, and Foreign Trade Zone (FTZ) designation. There are, however, reports which show that the RZs have not been quite the panacea the State needed.

All in all, one of the functions of the government is to stimulate the private sector, either by direct spending or incentives.  If any government can ensure that the companies coming into a tax free zone are actually “new” companies that wouldn’t have located in the state otherwise, there really is not much to lose with the Tax-Free NY program.  I think the program, if property set up to ensure all the businesses were in fact new (unlike the Empire Zone fiasco), should be expanded to other areas of the state, not just SUNY locations, and that certain other parks should be included in the Tax-Free N.Y. program with locations specifically set aside for science and technology.  Further the federal government should get on board to really give companies an incentive to locate in certain areas.