Asia is now home to many of the world’s most innovative and valuable technology startups.
Investors have continued to pour capital into these companies, thanks to the implementation of business-friendly policies to help nurture their growth in major Asian cities.
Last year, nine out of the 10 largest public venture capital deals involved startups in Asia – seven of which were based in China, according to capital market research firm Preqin.
Asian cities that have succeeded in attracting a steady stream of venture capital and startups have relatively strong economies, highly educated populations, major academic institutions, and well-developed infrastructure. To stay competitive, these places also offer a range of tax incentives, subsidies and related programs to support entrepreneurs.
Major cities in China, for example, have various government-backed funds on offer for startups. Government institutions and state-owned enterprises are the biggest source of venture capital funding in the world’s second-largest economy. In 2016, these entities accounted for 35.3 percent of all venture capital funding in the country, according to a report by Mitsui & Co Global Strategic Studies Institute.
China’s state-backed funding support for startups is reminiscent of how entrepreneurship in the United States received a big boost after the Small Business Investment Act of 1958 was passed into law. It helped create privately organized and managed investment firms, which provided new and established businesses with funding that consisted of money borrowed at favorable rates from the US government. Later on, the program helped foster the development of high-tech businesses at a vast, sprawling area in northern California – a place that’s now known as Silicon Valley.
Here are some of the most popular Asian cities where tech startups can establish and build up their operations:
The capital of China is also home to the country’s most prominent technology hub, Zhongguancun, which was founded 30 years ago with a mission to “learn and replicate Silicon Valley.
There are about 9,000 technology companies located in Zhongguancun, a 488 square kilometer zone in northwestern Beijing’s Haidian district. These include some of China’s biggest high-tech firms, such as personal computer maker Lenovo Group, online search giant Baidu, and ecommerce services provider JD.com.
Close to some of China’s most prestigious universities and research institutes, Zhongguancun enjoys great advantages in access to talent. Its Haidian park has more than 40 universities, including the world-class Peking and Tsinghua Universities, as well as more than 200 research institutes and national-level laboratories.
Zhongguancun is a product of the central government’s efforts to foster high-tech development. Backed by the State Council, the area became China’s first high-tech pilot zone in 1998. It offers tax breaks, funding and other incentives for enterprises that move there.
Beijing ranked as the top destination for venture capital in China last year, when it received a total of 66.3 billion yuan (US$9.8 billion) in funding, according to private equity data tracker Zero2IPO. That was about 1.5 times more than the total received by second-ranked Shanghai.
With efficient access to funding and a highly educated workforce, Beijing has nurtured many unicorns, or startups valued at least US$1 billion. There were 79 such companies located in Beijing last year, according to the Hurun Greater China Unicorn Index 2018. These include ride-hailing services giant Didi Chuxing and internet technology firm Bytedance.
Shanghai is the second most popular city for tech startups to build their businesses. Last year, this major port city drew a total of 42.7 billion yuan in venture capital funding, found to Zero2IPO.
According to the Hurun Report’s latest China unicorn index, Shanghai was home to 42 of these fast-growing startups last year, just behind Beijing.
Still, Shanghai is offering creative incentives to better compete with Beijing. Investors in Shanghai can be compensated for up to 60 percent of their initial capital funding, depending on the size of the venture and number of employees. The compensation for each investment is up to 3 million yuan, while the compensation for each investment firm is capped at 6 million yuan every year.
A hotly anticipated development is the move by the city’s stock exchange to establish a new Technology Innovation Board. This is expected to increase Shanghai’s ability to attract tech startups and raise large financing.
Shanghai has also relaxed its business visa policies to attract more foreign entrepreneurs to live and start their business in the city. In May last year, it launched a pilot program for new “business startup visas” in selected districts in Shanghai. Each visa is valid for one year, but can be extended for another year if the foreign entrepreneur is able to demonstrate the successful incorporation of a company within that time. The same visa can become a work permit once the company gets set up.
Prominent tech startups based in Shanghai include ecommerce companies Pinduoduo and Red, bike-sharing services provider Hellobike and Liulishuo, which runs an AI-powered English-learning app.
The capital of eastern China’s Zhejiang province is widely known today as the city where Alibaba Group Holding, China’s biggest ecommerce company, was established. The city is also where the New York-listed company started developing a vast ecosystem of partners, suppliers, and high-tech operations.
The Hurun Report’s latest China unicorn index found that in 2018, there were 18 such startups based in Hangzhou.
The local government announced last year that foreign startups which are able to develop projects under the city’s industrial vision may be eligible for subsidies of as much as 100 million yuan. Foreigners with master’s degrees that work in Hangzhou may also receive a one-time rent subsidy of 20,000 yuan.
The city has set up a 100 million yuan fund to help local university students start their own businesses as well.
Located 175.7 kilometers from Shanghai, Hangzhou is home to Alipay operator Ant Financial Services and Canaan Creative, the world’s second largest cryptocurrency mining rig maker.
Greater Bay Area
With a total population of 70 million and an economy worth more than US$1.5 billion, the 11 cities which make up the Greater Bay Area (GBA) are expected to eventually develop into an integrated innovation and technology powerhouse to rival Silicon Valley.
The cities covered by this initiative are Hong Kong and Macau as well as nine others in neighboring Guangdong province: Shenzhen, Guangzhou, Dongguan, Zhuhai, Zhonghan, Foshan, Jiangmen, Huizhou, and Zhaoqing.
Major goals under the GBA include building an innovation corridor that links Guangzhou, Shenzhen, Hong Kong, and Macau, as well as streamlining customs and immigration procedures. Tax incentives, similar to those offered by special economic zones on the mainland, are being discussed by authorities to help attract more entrepreneurs and relevant high-tech talents in the GBA.
Shenzhen is already home to Tencent Holdings, which runs the world’s biggest video games business, and WeChat, China’s ubiquitous social media and mobile messaging platform with more than 1 billion users. The city is also where Huawei Technologies, the world’s largest telecommunications equipment manufacturer, and SZ DJI Technology, the world’s biggest drone company, are headquartered.
The southern coastal city has been implementing a variety of preferential policies and subsidies to attract high-level foreign talent to the city. Since 2016, Shenzhen has been spending upwards of US$10 billion each year in research and development, which is estimated to be roughly 4 percent of the country’s total gross domestic product.
With its primary role as an international financial center, Hong Kong has lagged behind in annual technology research and development spending. The city also ranks last in availability of private funding, talent, and pilot testing among 10 regional peers including Singapore, Beijing and Tokyo, according to the Hong Kong Startup Index, which measures the favorability of Asian business environments.
To catch up, Hong Kong plans to set aside HK$28 billion (US$3.6 billion) for research and development in universities and re-industrialization for innovation and technology, Chief Executive Carrie Lam Cheng Yuet-ngor announced in September last year. The new funding will add to the HK$50 billion in the government’s 2018 budget that’s earmarked for innovation in the areas of biotechnology, AI, smart cities, and financial technology. That’s on top of the HK$10 billion commitment for supporting high-tech industries from the year before.
The city-state’s ambition to become an innovation hub for Southeast Asia has been helped by its success as a destination where large global enterprises can establish their regional headquarters. With generous grants and tax incentives for businesses, major tech startups, such as ride-hailing firm Grab and mobile virtual network operator Circles.Life, have been set up shop in Singapore in recent years.
Singapore recently unveiled EntryPass, a new scheme that gives foreign entrepreneurs a two-year window to start a new business in the city. The program also waives the minimum paid-up funding of US$35,800 for a newly formed company.
The government has announced plans to pour US$2.86 million in funding companies involved in various advanced technology projects, such as those in artificial intelligence and virtual reality.
For instance, the National Research Foundation invests S$10 million (US$7.4 million) on a matching basis to seed corporate venture capital funds.
The Lion City has also attached plenty of importance in mentoring and other support facilities for startups. Singapore is also home to about 40 trade associations and chambers to help local businesses upgrade their operations and develop operations overseas.
Over the past several years, the South Korean government has been leading a program to make Seoul a major hub for startups. The country is now recognized for having the highest government backing per capita for startups, according to Forbes.
The government set up a US$9 billion venture fund with public and private capital in 2017 to support startups, the same year it created the Ministry of Small and Medium-sized Enterprises and Startups. It made an initial investment of US$3 billion in 2015.
Those investments have led major international companies, including internet search giant Google and SparkLabs Global Ventures, to set up shop in the country.
The South Korean government runs a business-friendly visa program called Overall Assistance for Startup Immigration System or OASIS to attract foreign entrepreneurs. Participants are required to take classes in intellectual property, business laws, and Korean culture, which count as points to obtaining a startup visa.
Compared to China, there are fewer unicorns in South Korea, but the country is the home base of internet company Kakao, ecommerce services provider Coupang, and diversified online platform operator Yello Mobile.