Invest Hangzhou Information Technology 201104

Innovation-driven development
- Invest Hangzhou: Information Technology
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c | Invest Hangzhou: Information Technology Section or Brochure name
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Invest Hangzhou: Information Technology | 1
Content
Preface
Industrial overview
Major industrial segments
Investment environment
14
About Hangzhou
20
2 | Section or Brochure name
Preface
This report aims to provide an overview of the investment climate in Hangzhou, Zhejiang province, for investors interested in China. Hangzhou, the capital city of Zhejiang province, was once regarded as the Best Zhou (an ancient Chinese administrative unit) in southeast China As a pivotal city in the Yangtze River . Delta, Hangzhou contributes towards the rapid growth of the economy. From 2005 to 2010, Hangzhous gross domestic product (GDP) surged from RMB 294.4 billion to RMB 594.6 billion, representing a compound annual growth rate (CAGR) of 15.1%. The proportion of the tertiary industry also climbed from 44% to 49% over the period. The industrial structure of Hangzhou has evolved over recent years. The cultural and creative industry, financial services, e-commerce, software and IT services, Internet of things (IOT), and the tourist industry are becoming the key drivers of economic growth. The Information Technology (IT) industry has been expanding fast in Hangzhou. In 2010, revenue from major activities in the IT industry amounted to RMB 192.8 billion, rising by 36% over the last year. Hangzhou plays a key role in Chinas IT industry. Hangzhou has won the recognition of the government and investors for its remarkable achievements in economic development. For six straight years from 2005 to 2010, Hangzhou has been rated by Forbes magazine as the best mainland city for doing business. In 2009, Hangzhou was ranked first in the World Banks survey of investment climates in 120 Chinese cities. In 2010, Hangzhou was rated first in the China Institute of City Competitiveness rankings of the Top 10 Chinese Cities with the Best Investment Environment. In a fast-changing market like China, various enterprises and industries may find themselves in different situations. It is recommended that investors who are operating or planning to operate in China should seek the latest information and specific advice from experienced professional consultants, and conduct due diligence when appropriate. This report aims to provide information about the investment climate in Hangzhou through our independent analysis of publicly available information. It should not be used as a substitute for adequate due diligence before any investment. Sources of information are indicated in the report. We would like to thank the Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau for its kind assistance. This report adopts an exchange rate of USD 1 = RMB 6.57 (based on the Bank of Chinas benchmark rate on 14 March 2011), and includes data up to March 2011.
Sources: Hangzhou National Economic and Social Development Report 2010 ; hzstats.gov.cn; Hangzhou Municipal Information Office; China Daily website (http://www.chinadaily.com.cn/dfpd/zhejiang/2010-10-13/content_998674.html); Zhejiang Online (http://3n.zjol.com. cn/05sn/system/2011/01/24/017257961.shtml); chinacity.org.cn (http://www.chinacity.org.cn/csph/csph/59201.html)
Industrial overview
Scale and industrial structure Foreign investments
In 2010, revenue from major activities in the IT industry amounted to RMB 192.8 billion, rising by 36% over the last year. According to an article on the China Daily website, Hangzhou is the only city in China that is the base for the national IT industry, national software industry, national integrated circuit design industry, services outsourcing industry and high-tech industry at the same time.
6 | Invest Hangzhou: Information Technology
Scale and industrial structure

Scale
The IT industry in Hangzhou includes e-Commerce, software and IT services, and Internet of things (IOT), as well as sectors such as integrated circuit design, digital TV, communications, etc. In 2010, revenue from major activities in the IT industry amounted to RMB 192.8 billion, rising by 36% over the last year, and achieving a CAGR of 10.2% from 2006 to 2010. In 2010, there were approximately 2,000 IT enterprises with a headcount of about 165,000, which is 12,000 more than that in 2009.
Revenue from major activities in the IT industry, 20062010

2,500
RMB 100 million
2,000 1,500 1,000 500 0
1,928 1,306 1,457 1,432 1,417
2006 2007 2008 2009 2010
IT industrial structure, 2010

Others 16.3% e-Commerce 5.7% IOT 15.6% Software and IT services 62.4%
Industrial structure
Software and IT services, IOT and e-Commerce are the major sectors driving the development of the IT industry in Hangzhou. In 2010, the revenue from major activities of each of these sectors accounted for 62.4%, 15.6% and 5.7% respectively of the IT industry as a whole.
Sources: Hangzhou Municipal Information Office; cena.com.cn, 2008
Foreign investments
Increasing influx of foreign investments into Hangzhou, especially in the software and IT services industry
In 2010, the Hangzhou Municipal Government approved the establishment of 545 enterprises with foreign investments, channeling capital of USD 4.36 billion. The CAGR of total foreign investments from 2005 to 2010 was 20.5%. For the first six months of 2010, newly contracted foreign investments in Hangzhous services industry amounted to USD 2.01 billion, of which USD 1.38 billion was attributed to emerging industries such as information transmission, computer services and software development. Software and IT services play a significant role in foreign invested industries. In the first six months of 2010, 53.6% of the operating revenue from the IT industry as a whole was contributed by enterprises with foreign investments and investments from Hong Kong, Macau and Taiwan, up 21.0% year-onyear, and 3.8 percentage points higher than that from the industry as a whole. Almost all e-Commerce and IOT industries in Hangzhou are invested with domestic private capital
Breakdown of operating revenue from the software and IT services industry for the first six months of 2010
Operating revenue from domestic enterprises 46.4%
Operating revenue from enterprises with foreign investments and investments from Hong Kong, Macau and Taiwan
Sources: hzstats.gov.cn; Development Plan of Internet of Things Development in Hangzhou in 20102015 ; smejs.gov.cn, 2011; xiashanet.com/ (http://www.xiasha.com/xiashaqiye/2010/07/2291.html)
Major industrial segments

Software and IT services Internet of things e-Commerce Key areas of development
The software and IT services industry, IOT and e-Commerce are developing rapidly in Hangzhou, and play a key role in Chinas IT industry. They are three of the Top 10 key emerging industries that Hangzhou supports under the 12th Five-year Plan.
Software and IT services

Hangzhou is one of the most important bases of the software industry in China. The software and IT services industry records an annual income of RMB 120.4 billion
In 2010, the software and IT services industry recorded operating revenue of RMB 120.4 billion, representing a year-on-year growth rate of 32% and a CAGR of 21% over the last five years. The revenue from major activities in 2015 is targeted at RMB 150 billion. As at the end of 2010, there were 984 officially approved software enterprises, 143 more than the number in 2009. Among the software enterprises, 27 were listed and 11 were named in Chinas Top 100 Software Companies for 2010. As at the end of 2010, the headcount of Hangzhous software and IT services sector was about 98,000, nearly 59,000 more than the number in 2006. Currently there are more than 20 large software industrial parks scattered in various districts of Hangzhou, each measuring more than 10,000 square metres.
Key drivers of software and IT services development in Hangzhou

1
Robust market demands Hangzhou is located in the Yangtze River Delta where GDP reached nearly RMB 7 trillion, accounting for 17 .6% of the national total. There is a strong demand for software and IT services from more than 2 million enterprises in the Yangtze River Delta.
2
Cluster effect of software enterprises Software enterprises can form conglomerates to accept large orders. Large software enterprises can subcontract these orders to small software enterprises.
3
Adequate human and technological resources There are about 100,000 new college graduates from Hangzhou each year. Hangzhou has a talent pool of over 1.22 million people. There are 637 research and development centres, as well as 501 corporate technology centres.
2 1 3 4
6
Governments support for the industry Initiate and guide various forms of financial support. Outsource more government information projects. Build more industrial parks. Issue more policies to attract skilled people and to encourage training and business start-up.
Key drivers
6 4 5 5
Well-protected intellectual property rights In 2007 Hangzhou became , the first model city for intellectual property rights protection in China. In 2009, Hangzhou issued regulations on intellectual property rights protection in the outsourcing service industry. In 2010, the Gaoxin (Bin-jiang) District in Hangzhou became the first industrial park nationally to pilot implementing intellectual property rights.
Improving investment and financing environment In 2009, Science and Technology Bank was established in Hangzhou which specializes in serving technology enterprises. Hangzhou has abundant private capital and 297 venture capital institutions
Sources: Hangzhou Municipal Information Office; Zhejiang Economic and Information Technology Commission website; Hangzhou Municipal Government website; Three-Year Action Plan for the Restructuring and Promotion of Electronics and Information Industries in Hangzhou from 2009 to 2011
Internet of things (IOT)

Currently, the annual output of the IOT industry in Hangzhou is about RMB 30 billion, and it will surge to over RMB 100 billion by 2015
In 2010, the annual output of the IOT industry in Hangzhou was about RMB 30 billion, nearly 15% of the total output of the IOT industry in China as a whole. The output of the industry in 2012 and 2015 are targeted at RMB 50 billion and RMB 100 billion respectively. As at the end of 2010, there were more than 100 IOT enterprises in Hangzhou, forming an integral industry chain.
IOT industry chain in Hangzhou
Upstream Chip design and development
Midstream Transducers/Terminal devices manufacturing System solutions and integration
Downstream IOT application and operation
Key drivers of IOT development in Hangzhou

Solid foundation for the industry
There is a solid foundation for the development of software, communications, eCommerce, integrated circuit TV and digital TV in Hangzhou.
Integral industry chain led by large enterprises
Rich technological reserve
There are five listed companies and over 100 IOT enterprises in Hangzhou, forming an integral industry chain.
As at the end of 2009, IOT enterprises in Hangzhou had more than 160 relevant patents and software proprietary rights, 56 of which were invention patents.
Support from the Hangzhou Government

Initiate and guide various forms of financial support. Build more industrial parks. Promote the application of IOT technologies in Hangzhous industries and daily life.
Wide applications in industries

Implement smart grids, energy efficiency and emission reduction, security monitoring, environmental monitoring, intelligent medical care, etc.
Sound network infrastructure in Hangzhou
Equipped with an advanced communication network , that makes use of various technologies such as large capacity program control exchange, as well as optical, digital, satellite, wireless and 3G communication networks.
Sources: Hangzhou Municipal Information Office; Development Plan of the IOT Industry in Hangzhou (20102015) ; Output of the IOT industry in Hangzhou may exceed RMB 30 billion in 2010 (http://news.cntv.cn/20101203/102430.shtml)
e-Commerce
Hangzhou is the only Capital of e-Commerce in China, and nearly 55% of the total revenue from e-Commerce corporate services in China is contributed by Hangzhou
In 2010, revenue from e-Commerce corporate services in Hangzhou amounted to RMB 11 billion, representing a year-on-year increase of 57% and nearly 55% of the total revenue from e-Commerce corporate services in China. The revenue in 2015 is targeted at RMB 100 billion. As at the end of 2010, there were over 1,300 B2B and B2C e-Commerce websites in Hangzhou, more than one-fifth of the national total. Alibaba.com and taobao.com are the B2B and B2C websites recording the highest sales in China respectively. In 2010, e-Commerce coverage for enterprises in Hangzhou was about 50%, higher than the national average of 40%. In 2009, e-Commerce retail sales to individual customers in Hangzhou accounted for 5% to 6% of the total retail sales in Hangzhou, more than three times the national average of 1.8%.
Key drivers of e-Commerce development in Hangzhou

1
Robust market demands Hangzhou is located in the prosperous Yangtze River Delta where the GDP reached about RMB 7 trillion, accounting for 17 .6% of the national total. There is strong demand for e-Commerce from over two million enterprises in the Yangtze River Delta.
2
Cluster effect of enterprises One-third of Internet companies in China are in Hangzhou. Leading enterprises such as alibaba.com and taobao.com provide a platform for the business development of small and medium e-Commerce enterprises.
2 1
3 Support from the Hangzhou Government
Allocate funds in support of the use of e-Commerce by enterprises. Issue tax credit policies for the e-Commerce industry. Allocate funds in support of research and development, as well as reward leading enterprises in e-Commerce application. Plan for the establishment of the first eCommerce university in China.
Key drivers
5
4 6
Improving e-Commerce support systems in Hangzhou Building an e-Commerce integrity system since 2002. Building an e-Commerce payment platform since 2003. Building a talent pool for e-Commerce since 2000.
Sources: Hangzhou Municipal Information Office; Test Report on 2010 e-Commerce Market Data in China, China e-Business Research Center ; sohu.com (http://it.sohu.com/20100423/n271709855.shtml); Zhejiang Economic and Information Technology Commission website
Key areas of development

Key areas of IOT development:
1. Pilot and demonstrate smart city: Initiate intelligent transport system, intelligent urban and rural administration, intelligent public security, intelligent travel, energy efficiency and intelligent buildings. 2. Pilot and demonstrate intelligent living: Be the innovators in intelligent homes, intelligent communities and intelligent medical care. 3. Pilot and demonstrate intelligence convergence: Use smart grids, intelligent production and logistics, safe production, energy saving and emission reduction, and food safety tracking. 4. Pilot and demonstrate intelligent environment monitoring: Implement urban water environment monitoring, atmosphere monitoring, underground tube net monitoring and forest ecological safety monitoring.
1. Wider application Apply e-Commerce in enterprises, communities, rural areas and government agencies. 2. Service enhancement Attract and develop more enterprises to engage in e-Commerce and to encourage online trading, business start-up and employment. 3. Technological upgrade and innovation Develop broadband wireless mobile communication, next generation network, network and information security, wireless video identification, online payment, supply chain management, system integration, etc. 4. A sound support system Continuously improve the network infrastructure, and strengthen the logistics support system, standard system, credit system and payment system.
Key areas of e-Commerce development:
Software and IT services

Key areas of software and IT services development:
1. 2. 3. IT and industry convergence: Promote and expedite the use of computer-aided manufacturing applications and information systems in industries, and encourage wider application of the IT system in various processes and e-Commerce in product circulation. Strengthen advantageous software industries such as corporate applications software and communication software, and develop embedded software, network software and video game software. Encourage the outsourcing of software and information services to enhance the global exposure of the software industry.
Sources: (1)Development Plan of Hangzhous IOT Industry (20102015) (2)Development Report on Hangzhous Software and Information Services Industry, 2009 (3)Development Plan of Hangzhous Cultural and Creative Industry (20092015)
Investment environment
Auxiliary industrial parks Investment policies Hangzhous strengths Comments from investors Case study
Hangzhou has created a positive investment environment by setting up over 20 auxiliary industrial parks for e-Commerce, software and IT services, and IOT industries, and by issuing a series of supporting policies.
Auxiliary industrial parks

Major IT industrial parks in Hangzhou
Name of industrial parks Core industries Floor area (in Number of Location square enterprises meters) in the park
9,100 200,000 170,000 500,000 1 million 83,000 130,000 49,000 50,000 Nearly 500,000 Over 80 124 Over 120 400 Over 50 42 Over 700 Over 120 Over 40 Over 330 Shangcheng District Xiacheng District Jianggan District Gongshu District Xihu District Xihu District Xihu District Xihu District Gaoxin District Wenjiao District, Jiangbei District Xihu District Hangzhou Economic and Technological Development Area Xiaoshan District Xiaoshan District Yuhang District
Hangzhou Central Software Park Xiacheng Xinghuo e-Commerce Park Hangzhou East e-Commerce Park Hangzhou North Software Park Hangzhou West Software Park Hangzhou Digital Entertainment Park Ego Software Park (Ego Innovation Park) Changdi Software Park Gaoxin District Animation Software Park Hangzhou East Software Park
Software e-Commerce, Software e-Commerce Software Software Software Software Software Software, cartoon and animation Software
Insigma Software Park Ascendas Software Park
Software Software
460,000 800,000
10 Over 20
Hangzhou South Software Park Hangzhou Audio and Video Software Park Yuhang Innovation Zone Software Park Gaoxin District (Binjiang) IOT Industrial Park
Software Software
155,000 Under Construction
16 Over 50
Software, creativity, 50,000 electronic and information IOT 2.8 million
Over 100
Gaoxin District
Sources: Hangzhou launches the first 17 special software parks, http://tradeinservices.mofcom.gov.cn/local/2009-10-09/77513.shtml; Hangzhou District Government Offices websites; ssfcn.com (http://www.ssfcn.com/outs/news_detail.asp?id=390); Hangzhou Daily website
Investment policies
Major investment policies for the IT industry issued by the Hangzhou Municipal Government in recent years
Year 2011
Policies and their content

Directory of the Way of Development for Hangzhous IT Industry 2010 Details the key areas of the IT industrys development, which is an important basis for the application and the Municipal Governments approval of special funds for the development of the IT services industry.
2010
Certain Opinions from the Hangzhou Municipal Government on the Further Promotion of the Information Services Industry Financial support for the IT industry Development Plan of Internet of Things Development in Hangzhou in 20102015 Five-year plan for the IOT industry Administrative Measures on a Special Fund for the Development of the Information Services Industry in Hangzhou (Trial) Financial support for the IT industry
2009
Three-Year Action Plan for the Restructuring and Promotion of the Electronic and Information Industries in Hangzhou from 2009 to 2011 Three-year plan for the electronics and information industries Reply from the Hangzhou Municipal Government on the Resolution of Issues Relating to Returned Overseas Students Support and incentives for returned overseas students in terms of business start-up, employment and living conditions
Guiding Opinions on the Implementation of a Business Start-up Training Program for Ten Thousand College Students in Hangzhou Financial support for the training of college students
2008
Assessment Methods for Enterprises Filing under the Information Port Project in Hangzhou Further clarify the assessment standards and reward those enterprises with outstanding performance Standards created in 2004 to determine rewards
2007
Sources: Hangzhou Municipal Information Office; Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau website; hangzhouit. gov.cn
Hangzhous strengths
Hangzhou enjoys advantages over neighbouring cities in terms of its skilled people, the cluster effect of enterprises, and its IT infrastructure1
The number of new graduates from colleges and universities in 2010 15 10 5 0
Hangzhou Maximum number in neighboring cities
Total number of officially approved software enterprises in 2010 1500

Number of enterprises
10,000 people
11.6 <5
1000 500 0
984 <500
Hangzhou
Maximum number in neighboring cities
Internet export bandwidth in 2010 800

Gigabytes
Total number of users with broadband Internet access in 2010

10,000 households
600 400 200 0
600 361.5 <280
200 150 100 50 0
158
170
<140
Hangzhou
Suzhou
Maximum bandwidth in neighboring cities
Hangzhou
Suzhou Maximum number in neighboring cities
Hangzhou has continuously enhanced its investment environment and services to strengthen its competitiveness
Measures for strengthening Hangzhous competitiveness Major areas Current situation Measures for improvement and enhancement implemented by Hangzhou Various policies were implemented between 2008 and 2010 to expedite the establishment of a housing security mechanism for talented people Foreign teachers at primary and secondary schools, as well as overseas educational institutes are being introduced to enhance the level of international schools. International medical professionals are brought in to enhance the standard of the medical and auxiliary services for the benefit of foreigners.
Living costs The housing prices in such as housing Hangzhou are in the upper tier in China. International services Institutions specifically serving foreigners are increasing.
Note: 1Neighbouring cities refers to other cities in the Yangtze River Delta, excluding Shanghai and Nanjing. Sources: Hangzhou Municipal Information Office; Jiangsu Economic and Information Technology Commission website; Wuxi Municipal Bureau of Information and Radio website ; Suzhou Economic and Information Technology Commission website; Ningbo Information Industry Bureau website; China Daily (http://www.chinadaily.com.cn/dfpd/zhejiang/2010-10-27/content_1083411.html)
Comments from investors

Hangzhou has improved its environment and quality of life in recent years. --- Motorola (China) Technologies Limited, Hangzhou branch Hangzhou continuously improves its infrastructure by upgrading its railways, high-speed railways and highways. The transportation network is well-developed. ---Hangzhou Bianfeng Networking Co., Ltd. Hangzhou has a solid foundation and large talent pool for industrial development, and this is one of the major reasons we invested in Hangzhou. ---NetEase (Hangzhou) Network Technology Co., Ltd.
Leading IT enterprises in Hangzhou

Europe and the US
Japan and Korea

NEC (Japan) Samsung (Korea) Fuji Heavy Industries (Japan)
Others
Ericsson (Sweden) VIA (Taiwan) Alcatel Alsthom (France) Scanfil (Finland) China Mobile NetEase Shanda Interactive Entertainment
Mitsubishi (Japan) Strategic Systems Solutions (UK) Toshiba (Japan) Motorola (US) IBM (US) State Street (US) Yahoo (US) WebEx (US) Noez Work (US) ArcSoft (US) ASK (US)
Sources: KPMG interview; KPMG analysis
Case study Insigma Technology Company Limited ( Insigma )

- The Hangzhou Government has been innovative and proactive in promoting the IT industry and in creating a conducive environment for growth, for example the Hangzhou Governments promoted local investments and enterprises in the US Global Outsourcing Conference. We have gained publicity and a platform to develop. - Interview with the Management of Insigma A large talent pool in Hangzhou: - Hangzhou has a huge talent pool, and the cooperation between IT academia and enterprises is especially effective in raising the standard of labour skills. - Interview with the Management of Insigma
Background
Established in 2001, Insigma has its headquarter in Hangzhou and presences in Beijing, Wuxi, Shenyang, Dalian, Tokyo and New York. It has a registered capital of RMB 813 million. Insigma mainly provides services related to network equipment and terminals, as well as IT system integration and software outsourcing services (mainly for US and Japanese clients). The company has developed extensive partnerships with technology giants such as Microsoft, IBM and Cisco.
Composition of Insigmas revenue in the first six months of 2010

IT system integration, software outsourcing services 17.8%
Tremendous growth
As a leader in Chinas outsourcing industry, Insigma is ranked by the International Association of Outsourcing Professionals as one of the Top 50 Worlds Best Outsourcing Service Providers. It is ranked second in Chinas Top 20 Enterprises in Software Outsourcing and is one of the 2010 Top 10 Hangzhou Offshore Outsourcing and Export Enterprises. In 2009, Insigmas software park was put into use, This park is recognized as one of the first model software parks for outsourcing and advanced software industries in Hangzhou. In 2010, Insigmas revenue is estimated to be around 5.8 billion, representing a 18% growth over 2009.
Network equipment and terminals 82.2%
Why invest in Hangzhou?

Full support from the Hangzhou Government:
Source: Interview with the management of Insigma, Insigmas corporate website, and Insigmas interim report for the first six months of 2010
About Hangzhou
Overview Economic development Industrial structure Scientific research, education and cultural environment Contact list
Overview
Hangzhou is advantageously located and has a rich historical and cultural heritage
Hangzhou, the capital city of Zhejiang province, is located in the north of Chinas southeast coast. As the economic, transportation and cultural hub of the southern wing of the Yangtze River Delta (YRD), Hangzhou ranks second in terms of economic prosperity in the YRD. As one of the cradles of Chinese culture and one of Chinas seven ancient capitals, Hangzhou was once referred to by Marco Polo as the most beautiful and elegant city in the world . Hangzhou covers a total area of 16,596 square kilometres. Under the jurisdiction of Hangzhou are the eight districts of Shangcheng, Xiacheng, Jianggan, Gongshu, Xihu, Binjiang, Xiaoshan and Yuhang; the three county-level cities of Jiande, Fuyang and Linan; and the two counties of Tonglu and Chunan. As at the end of 2010, the registered population in Hangzhou was about 6,891,200.
As a transportation hub in southeast China, Hangzhou is equipped with a well-developed transportation infrastructure
Hangzhou is conveniently connected with a network of railways and expressways. Major railway routes include the Shanghai-Hangzhou high-speed railway, Ningbo-Hangzhou high-speed railway, Xuancheng-Hangzhou railway, Hangzhou-Ningbo railway and Shanghai-Kunming railway. Major highway routes include the Shanghai-Hangzhou-Ningbo expressway, Hangzhou-Pudong expressway, Hangzhou-Jinhua-Quzhou expressway, Hangzhou-Huizhou expressway and Hangzhou-Nanjing expressway, and 11 national and provincial highways have their centres in Hangzhou. The Hangzhou Xiaoshan International Airport, 27 kilometres away from downtown Hangzhou, serves 160 routes, including 30 international flights to Tokyo, Osaka, Pusan, Singapore, Hong Kong, Macau and Taiwan. In 2010, the airport recorded 17 ,068,600 passenger departures and arrivals, representing a 14.2% growth over 2009.
Hangzhous location in China
Beijing
Shanghai Hangzhou
Hong Kong
Sources: Hangzhou Municipal Government website; Hangzhou Urban Planning Bureau website; Hangzhou National Economic and Social Development Report 2010; Hangzhou Statistical Yearbook 2010
Economic development
Hangzhou is highly competitive and has rapid economic development
In 2010, Hangzhous GDP amounted to RMB 594.6 billion, up 17% year-on-year. The CAGR of Hangzhous GDP from 2005 to 2010 was 15.1%. In 2010, Hangzhous annual value of imports and exports totalled RMB 344.01 billion (USD 52.36 billion), growing by 30% over 2009, of which imports amounted to RMB 111.82 billion and exports to RMB 232.18 billion.
Hangzhou offers a consumer market with huge potential

Disposable income for residents is growing steadily. In 2010, Hangzhous per capita disposable income for urban residents reached RMB 30,035, up 12% year-on-year, and exceeded the national average by 57 .2%. In 2010, the consumer market continued to grow. Hangzhous total retail sales of consumer goods increased year-on-year by 19% to RMB 214.6 billion.
GDP of Hangzhou, 2005-2010

CAGR: 15.1%
Hangzhou versus national per capita disposable income, 2005-2010

Hangzhou CAGR: 12.6% 40,000
RMB 100 million
8,000 4,104
RMB
6,000 4,000 2,000 0 2005 2006 2,944 3,444
4,789 5,088
5,946
30,000 20,000 10,000 0
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
Hangzhou
China
Industrial structure
Evolution of Hangzhous industrial structure
Hangzhou has focused on the secondary and tertiary industries while developing the economy. These two industries have accounted for more than 95% of Hangzhous GDP for the last five years. The tertiary industry has recently been gaining pace in Hangzhou. In 2010, the output value of the tertiary industry totalled approximately RMB 289.3 billion, and the CAGR of the tertiary industrys output value from 2005 to 2010 was 17 .4%.
Foreign direct investment (FDI) as the driving force of Hangzhous economic growth
In 2010, FDI in Hangzhou jumped by 8.5% yearon-year to RMB 28.62 billion (USD 4.36 billion) in total. The CAGR of FDI from 2005 to 2010 was 20.5%. As at the end of 2010, the number of enterprises in Hangzhou with FDI over USD 10 million grew to 2,203, of which 82 are Global 500 companies, including GE, IBM, Siemens and Ericsson. During the 11th Five-year Plan period, Hangzhou attracted 91 investments each valued at over USD 50 million, 429 investments valued at over USD 30 million each and 1,538 investments valued at over USD 10 million each.
Breakdown of Hangzhous GDP in 2010

Primary Primary industry industry 3% 3% Tertiary Tertiary industry industry 49% 49%
Foreign direct investment, 2005-2010

400 400 263.7 286.2 300 263.7 286.2 217.6 300 184.1 217.6 148.2 184.1 200 112.5 200 112.5 148.2 100 100 0 0 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010
RMB 100 million RMB 100 million
CAGR: 20.5%
CAGR: 20.5%
Secondary Secondary industry industry 48% 48%
Sources: Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau; Hangzhou National Economic and Social Development Report 2010; Hangzhou Statistical Yearbook 2010; Hangzhou Gaining Momentum for Economic Transformation, Zhejiang Daily, January 2011
Scientific research, education and cultural environment

Hangzhous strong capability for scientific research and high standard of education
Hangzhou encourages corporate investment in scientific research and the founding of research institutes. In 2009, the proportion of Hangzhous total investment in research and development over GDP was 2.6%, higher than the national average of 1.7%. A total of 26,075 patent applications were submitted and 15,507 were authorized, ranking Hangzhou first among all provincial capitals. There are 38 general colleges and universities, 317 senior and junior secondary schools, as well as 37 vocational training schools in Hangzhou. Major universities include the Zhejiang University, the Hangzhou Dianzi University and the Zhejiang University of Technology. In 2009, there were approximately 107 ,000 new graduates from colleges and universities in Hangzhou, of which 17 .8% were recruited by the IT industry, followed by the service industry, and other industries. Hangzhou International School is the first school in Zhejiang province that caters to the children of foreign nationals, including those from Hong Kong, Taiwan and Macau. It is an American-style school with English as the medium of instruction, and offers a curriculum from pre-school to twelfth grade.
Pleasant weather with four distinct seasons

Hangzhou has a subtropical monsoon climate with an average annual temperature of 16.2 and annual rainfall of 1,469 millimeters. As at the end of 2010, Hangzhou had a greenery coverage rate of 40% and urban per capita green space of 18.34 square metres. In 2009, Hangzhou was voted the Happiest City in China Hangzhou has also received . awards for National Advanced City Landscaping National Garden City National Excellent , , City in Comprehensive Improvement of Urban Environment China Habitat Environment , Prize National Model City of Environmental , Protection and China Outstanding Tourist City .
Employment of Hangzhou graduates by industry, 2009

IT industry 17.8% Service industry 7.7% Others 74.5%
Sources: Hangzhou Municipal Government website; Hangzhou National Economic and Social Development Report 2010; Development of Service Industries in Hangzhou 2009 and Ideas and Keys of the Development of Service Industries in Hangzhou 2010 ; hzstats.gov.cn; hzsk.com
Contact List
Hangzhou Municipal Foreign Trade and Economic Cooperation Bureau
457 Yanan Road, Hangzhou Telephone: +86 (571) 8515 6707 Fax: +86 (571) 8515 5825 Website: http://www.hzwjm.gov.cn
Hangzhou Municipal Science and Technology Bureau

Hangzhou Science & Technology Tower, 2 Huixing Road, Hangzhou Telephone: +86 (571) 8706 0263 Website: http:// www.hzst.gov.cn
Hangzhou Municipal Centre of International Investment Promotion

Telephone: +86 (571) 8515 9060 Fax: +86 (571) 8515 9006 Email: swj@hz.gov.cn
Hangzhou Municipal Administration of Industry and Commerce

109 Fengqi East Road, Hangzhou Telephone: +86 (571) 8643 9900 Website: http://www.hzaic.gov.cn
Hangzhou Municipal Development and Reform Commission

318 North Huancheng Road, Hangzhou Telephone: +86 (571) 8525 1907 Website: http://www.hzdpc.gov.cn/
Hangzhou Municipal Land and Resources Bureau

359 Wensan Road, Hangzhou Telephone: +86 (571) 8822 7527 Website: http://www.hzgtj.gov.cn
Hangzhou Municipal Construction Commission

9 Changsheng Road, Hangzhou Telephone: +86 (571) 8701 2398 Website: http://www.hzjw.gov.cn
Hangzhou Municipal State Taxation Bureau

276 South Jianguo Road, Hangzhou Telephone: +86 (571) 8716 0000 Website: http://www.hzguoshui.gov.cn
Hangzhou Municipal Information Office

318 North Huancheng Road, Hangzhou Telephone: +86 (571) 8525 2333 Website: http://www.hangzhouit.gov.cn
Hangzhou Local Taxation Bureau

152 Zhonghe Middle Road, Hangzhou Telephone: +86 (571) 8780 5588 Website: http://www.hzft.gov.cn
Hangzhou Municipal Bureau of Labor and Social Security

242 Zhonghe Middle Road, Hangzhou Telephone: +86 (571) 12333 Website: http://www.zjhz.lss.gov.cn
Beijing
8th Floor, Tower E2, Oriental Plaza 1 East Chang An Avenue Beijing 100738, China Tel : +86 (10) 8508 5000 Fax : +86 (10) 8518 5111
Shanghai
50th Floor, Plaza 66 1266 Nanjing West Road Shanghai 200040, China Tel : +86 (21) 2212 2888 Fax : +86 (21) 6288 1889
Shenyang
27th Floor, Tower E, Fortune Plaza 59 Beizhan Road Shenyang 110013, China Tel : +86 (24) 3128 3888 Fax : +86 (24) 3128 3899
Nanjing
46th Floor, Zhujiang No.1 Plaza 1 Zhujiang Road Nanjing 210008, China Tel : +86 (25) 8691 2888 Fax : +86 (25) 8691 2828
Hangzhou
8th Floor, West Tower, Julong Building 9 Hangda Road Hangzhou 310007 China , Tel : +86 (571) 2803 8000 Fax : +86 (571) 2803 8111
Fuzhou
25th Floor, Fujian BOC Building 136 Wu Si Road Fuzhou 350003, China Tel : +86 (591) 8833 1000 Fax : +86 (591) 8833 1188
Xiamen
12th Floor, International Plaza 8 Lujiang Road Xiamen 361001, China Tel : +86 (592) 2150 888 Fax : +86 (592) 2150 999
Qingdao
4th Floor, Inter Royal Building 15 Donghai West Road Qingdao 266071, China Tel : +86 (532) 8907 1688 Fax : +86 (532) 8907 1689
Guangzhou
38th Floor, Teem Tower 208 Tianhe Road Guangzhou 510620, China Tel : +86 (20) 3813 8000 Fax : +86 (20) 3813 7000
Shenzhen
9th Floor, China Resources Building 5001 Shennan East Road Shenzhen 518001, China Tel : +86 (755) 2547 1000 Fax : +86 (755) 8266 8930
Chengdu
18th Floor, Tower 1, Plaza Central 8 Shuncheng Avenue Chengdu 610016, China Tel : +86 (28) 8673 3888 Fax : +86 (28) 8673 3838
Hong Kong
8th Floor, Princes Building 10 Chater Road Central, Hong Kong Tel : +852 2522 6022 Fax : +852 2845 2588
Macau
24th Floor, B&C, Bank of China Building Avenida Doutor Mario Soares Macau Tel : +853 2878 1092 Fax : +853 2878 1096 kpmg.com/cn
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 2011 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in China. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. Publication number: CN-T&R11-0011 Publication date: April 2011

Invest Hangzhou Information Technology 201104

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Invest Hangzhou Information Technology 201104

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Innovation-driven development

- Invest Hangzhou: Information Technology

c | Invest Hangzhou: Information Technology Section or Brochure name

Invest Hangzhou: Information Technology | 1

Major industrial segments

2 | Section or Brochure name

Invest Hangzhou: Information Technology | 3

Invest Hangzhou: Information Technology | 5

6 | Invest Hangzhou: Information Technology

Scale and industrial structure

Revenue from major activities in the IT industry, 20062010

RMB 100 million

2,000 1,500 1,000 500 0

1,928 1,306 1,457 1,432 1,417

2006 2007 2008 2009 2010

IT industrial structure, 2010

Sources: Hangzhou Municipal Information Office; cena.com.cn, 2008

Invest Hangzhou: Information Technology | 7

Operating revenue from domestic enterprises 46.4%

Major industrial segments

Invest Hangzhou: Information Technology | 9

Software and IT services

Key drivers of software and IT services development in Hangzhou

10 | Invest Hangzhou: Information Technology

Internet of things (IOT)

IOT industry chain in Hangzhou

Upstream Chip design and development

Midstream Transducers/Terminal devices manufacturing System solutions and integration

Downstream IOT application and operation

Key drivers of IOT development in Hangzhou

Integral industry chain led by large enterprises

Rich technological reserve

Support from the Hangzhou Government

Wide applications in industries

Sound network infrastructure in Hangzhou

Invest Hangzhou: Information Technology | 11

Key drivers of e-Commerce development in Hangzhou

12 | Invest Hangzhou: Information Technology

Key areas of development

Key areas of e-Commerce development:

Software and IT services

14 | Invest Hangzhou: Information Technology

Invest Hangzhou: Information Technology | 15

Auxiliary industrial parks

Insigma Software Park Ascendas Software Park

155,000 Under Construction

Software, creativity, 50,000 electronic and information IOT 2.8 million

16 | Invest Hangzhou: Information Technology

Policies and their content

Invest Hangzhou: Information Technology | 17

Total number of officially approved software enterprises in 2010 1500

Maximum number in neighboring cities

Internet export bandwidth in 2010 800

Total number of users with broadband Internet access in 2010

600 400 200 0

600 361.5 <280

200 150 100 50 0

Maximum bandwidth in neighboring cities

Suzhou Maximum number in neighboring cities

18 | Invest Hangzhou: Information Technology

Comments from investors

Leading IT enterprises in Hangzhou

Japan and Korea