Mr. Chairman,

Distinguished advisers,

As a Chinese saying goes, ¡°Three cobblers with their wits combined equal Zhuge Liang¨Dthe master mind¡± which means the perception of one smart person cannot match what is discussed by three ordinary persons. The message the saying tries to get across is the need for brainstorming. As each distinguished advisor present here is very resourceful and far-sighted, Zhongguancun would not lose its sense of orientation with all of you giving us guidance and ideas.

Here, I would like to express my gratitude to you for the staunch support at the last Session of the Advisory Committee which came up with a number of good suggestions that helped us crystallize the conceptions underpinning the Science Park construction. We have summarized the essential opinions of strategic importance put forward by you in ¡°three first¡±, namely, legislation first, environment first and talent first. Those priorities happen to be in line with our working conceptions, which enhances our confidence. Since the last Session, in the field of ¡°legislation first¡±, the by-law ¡°Regulations on Zhongguancun Science Park¡± have made quite a big breakthrough in China. In terms of ¡°environment first¡±, great amount of work has been done in urban infrastructure and the expansion of land use by the enterprises. And in terms of ¡°talent first¡±, a ¡°hand in hand¡± scheme of serving the returned students in their effort to start up business is carried out, coupled with the most liberal residence permit policy of all the major cities. All of those moves are of strategic importance and have supported or will continue supporting the development in Zhongguancun. I would like to thank you once more for you support.

Today, we are gathered here to discuss the situation of the changing and restructuring hi-tech industry word-wide as well as the way Zhongguancun should respond to the change. In conjunction with that, we have two issues on our agenda. The first one is ¡°The opportunities and challenges facing the Zhongguancun hi-tech enterprises once China accedes to WTO¡±, the other one is ¡°How should Zhongguancun Science Park attract the major transnational corporations (TNCs) to enter into the Park.¡± I would ask you to take the floor and voice your valuable views.

Allow me, distinguished advisers, to begin with my three humble comments:

First, the dormant new economy represented by the US over the past year has not affected the development of Zhongguancun. This merits concrete analysis against the background of the global economic integration process.

In the first half of 2000, the hi-tech industry represented by dotcoms stocks found itself in difficulties with the plunge of NASDAQ composite index. Across the Pacific, the US economy has sown signs of sluggishness after a boom lasting for over 100 months or so. This could be the signal of a normal economic cycle. This also may be the consequence of an overheated economy. Whatever the reason, we need to follow the trend closely. The overall sluggishness of the economy is bound to impact the Silicon Valley firms bearing the brunt of the crunch. Many big firms have to lay off their employees against their will. Some firms have gone bankruptcy. The economic performance of our neighbor¨DJapan has been faring badly for years. Taiwan Province has been beset by natural and human disasters resulting from earthquakes and unstable political situation which force a number of firms to move outward. All in all, the hi-tech industry worldwide has been in a process of continued restructuring and since last year, its momentum has been somewhat slowing down. Under these circumstances, we must ask ourselves what difference has Zhongguancun made in terms of its development in the light of the global downturn.

Looking at a macro level, the Silicon Valley firms in the US depend heavily on their domestic market. The backsliding US economy and the low purchasing power are bound to cause damage to the Silicon Valley firms. At the same time, the failure of boosting the US economy by means of Fed Reserve¡¯s repeated interest cuts would considerably affect those regions relying on the US market for their export of products and services. Take India for instance, 60% of its software and service are exported to the US. Hsinchu¡¯s staple export to the US and Japan is comprised of processed service. On the contrary, Zhongguancun relies on China¡¯s domestic market; its export accounts for around 10% of its total income only. Therefore, we have reasons to believe that Zhongguancun will enjoy a sustainable high growth as long as China¡¯s economy keeps its current rate of development.

As facts have clearly proved, the year 2000 was one of sustained growth and sound development in Zhongguancun in contrast to the bleak situation in some countries. The Science Park witnessed a new surge of start-ups. In 2000, 2461 new firms were based in the Park, up 1234 hi-tech firms doubling the total number of the previous year and bringing the number of hi-tech firms to over 8200. There were auspicious signs of entry of big firms; 59 of them each having a registered capital of over 100 million yuan. The sales of the high and new-tech firms came to 167.9 billion yuan, up 60.1% compared with that in 1999¨Da match for the earnings of Hsinchu Science Park. As is known to us, the sales of the Hsinchu firms were reported to amount to US$20.3 billion which was equivalent to RMB168.4 billion.

Second, Zhongguancun must and can seize the opportunity of adjustment of the volatile new economy world-wide headed by the Silicon Valley by attracting resources of global strategic importance including financial resources, technology and talents in order to realize yet another leapfrog. That is made possible by the following factors:

1. New and high -tech firms in Zhongguancun are relying on the expanding domestic market. Sustained growth of China¡¯s economy constitutes the basis of the leapfrog of Zhongguancun.

For example, Zhongguancun realized a sales income amounting to 119.2 billion yuan in 2000, accounting for 71% of the total sales volume of the firms in the Science Park. According to the State statistical data, the tele-com industry reached an all-time top of 1000 billion yuan and became the single largest sector of China¡¯s manufacturing industry. The PC market registered an increase of 47.6%, meaning 670 thousand sold sets. The output of the software industry reached 23.5 billion yuan. The products offered by the dotcoms increased by 32.3%, and realized 10.5 billion yuan in sales volume. Yet, despite all the above achievements, China¡¯s IT remains in infancy.

2. Zhongguancun can be proud of a number of avant-garde firms that have reached advanced international level in some technological fields.

There are a great number of sophisticated scientific and technological achievements in Zhongguancun area. Some of them have already been converted to marketable commodities. For instances, the Han Wang Co. Ltd which has the backing of the Automation Institute of the Chinese Academy of Sciences focuses on the R&D of the Chinese character recognition technique and multi-intelligence computer human interaction has come by several major technological innovations thereby measuring up to the advanced international standards in some core technology fields. The Shuguang Co. Ltd is another case in point. It is the sole supplier of a whole collection of servers in China.

Software industry is the soul of the IT industry. There is now over 1,000 software firms in Beijing alone employing a staff of 60 thousand and earning the nation¡¯s 35% of software and service revenue. The most representative firms are UF Co., Ltd, China¡¯s number one producer of fiscal and business management software, and the RedFlag Software Company which is striving to become China¡¯s Linux¨Da giant corporation.

The 21st century is one of the biotechnology. We have some successful projects in that field too, which are gradually showcasing the huge potential of Zhongguancun in the ¡°biological century¡±. Beijing Kaizheng Bio-engineering Company and other units have completed their R&D of ¡°human blood substitute¡±, and the technology has been bought by Stone Tiantan Biotech Company for 160 million yuan. The latter will engage in its further development for mass production. The success can go a long way to effectively solving a series of problems including blood shortage and blood contamination. Beijing Weixiao Bio-tech Company, the Hemophilia Institute and the People¡¯s Hospital have jointly formed a cell treatment center and they are now building the largest Chinese hetero-genetic cord blood dry cell bank in the world and are expected to complete the task of deep-freezing 50 thousand copies of hetero-genetic cord blood dry cell by 2002 when 2.5 billion yuan in assets will be created. According to statistical data, the sales volume of the biomedicine in the Park in 2000 will double that of 1999.

3. The Zhongguancun firms are playing a remarkable role in setting up and maintaining the market regulation.

For example, in the mid-90¡¯s the Zhongguancun firms took the initiative of establishing ¡°China¡¯s Software Alliance¡± aimed at protecting the IPR of the software industry. In order to have in place a unified and globalized standard environment for conducting e-commerce and boosting China¡¯s e-commerce growth, a cnXML Alliance has been forged at the initiative of the e-Commerce Research Center of the Chinese Academy of Sciences. The Alliance will make available a set of unified, flexible, open-ended and expandable transaction language. The Shenzhou Digital, Founder, 8848 and UF Group are the founding fathers of that Alliance together with China Electronic Information Development Institute.

4. The Zhongguancun hi-tech firms are the bridge connecting the domestic hi-tech firms with their overseas partners.

Historically speaking, the first generation of start-ups in Zhongguancun Science Park began their business by importing computers from abroad. The first homebred technology was directly related to the Chinese use of computers and Chinese culture. For instance, Chinese Card of the Legend, electronic publishing system of Founder, Series 2401 printers of Stone are just cases in point. Today, the Zhongguancun firms have covered every link of the IT industry. Most recently, the development trend of mobile Internet is likely to bring about enormous business opportunities for the Chinese language information processing technology. As there is no way that the equipment with mobile interactive capability can have a standard keyboard and big screen, it calls for new input/output mode.

5. The advanced R&D institutes established by transnational corporations in the Park have upgraded the innovative status of the Park in the hi-tech business around the world.

Currently, some world-famous hi-tech companies such as IBM, Microsoft, Intel, Motorola, Panasonic and Fujitsu have all based their R&D centers in Zhongguancun. They are not only working for the localization of their parent company products, but also pursuing the goal of their worldwide R&D strategies. At the same time, the growing proportion of Chinese domestic researchers has gradually become a force that could integrate into the world¡¯s mainstream technology thereby upgrading the status of Zhongguancun in the global hi-tech industry.

Third, with a view to better responding to the changing situation and seeking a leapfrog growth, the Beijing Municipality has and is getting down to certain basic work of first importance.

Zhongguancun Science Park has achieved remarkable performance in the current situation where global economy is backsliding. However, we must be well aware of a number of problems and challenges existing objectively in the way of Zhongguancun¡¯s further development. One of the biggest challenges is whether or not the government can create a sound commercial environment and a relatively streamlined infrastructure by means of sustained system innovation and indispensable investment in the construction.

In this regard, the Beijing municipality has come a long way.

1. It has come to realize the need for a scientific and rational defining of functions between the government and the enterprise and has decided on the management mode of ¡°small government and big society¡±, in other words, in moving the economy forward with scientific and technological resources, the government must rely on the enterprise, since it is the enterprise that has the motivation mechanism of developing the new technology and turning it to marketable product for commercial interest. What the government should do is to create a better commercial environment where enterprise can play such an effective role.

2. The government needs to employ legal means to create and protect that commercial environment. At the end of last year, the Beijing Municipality People¡¯s Congress promulgated the ¡°Regulations on Zhongguancun Science Park¡± which were hailed by the media as ¡°one of the most far-reaching touch to China¡¯s reform history¡±. Some scholars take them as a major breakthrough of Chinese rule of law. One of the Regulations is as follows:

¡°Any organization or individual may in Zhongguancun Science Park engage in activities that are not explicitly banned by laws, rules or regulations¡±.

According to some experts, it also marks a great step in the direction of international accepted rules and globalization and represents one of the pillars supporting the modern system of rule of law. The support given by the Regulations to the innovation is also in line with the inherent needs of Zhongguancun. Furthermore, there are scores of legal innovations in those Regulations including the one with regard to the limited partnership of venture capital. And I am not going to dwell on them.

3. The government has employed necessary economic means to build a commercial environment conductive to the growth of SMEs. The municipal financial resources are used to set up a ¡°Returned Student Start-up Support Fund¡± and ¡°Seed Money for Innovative Projects¡± earmarked for small firms in their initial stage. Loan guarantee company is in place to deal with the difficulties faced by the small and medium sci-tech firms in getting loans. Guidance and support are given to university Science Parks and incubators. The university and colleges are encouraged to turn their R&D achievements into marketable products. Venture capital fund has been set up and it is ready to select several venture capital institutions to spread the risks in appropriate forms and speed up the development of venture capital as a whole.

4. The urban infrastructure and industry base construction inside the Science Park will be given a further boost with a view to upgrading the quality of life and work ambient.