What makes China’s entrepreneurship cradle so successful? 

[BCSA BUSINESS TEAM 24/25 – Author : Faye Marie Chen Setiawan; Advisor : Wang Haoqiang]

In recent news, Hangzhou has basked in newfound praise as the “next silicon valley of China” [16]. Its most prominent group of tech start-ups have been nicknamed Hangzhou’s ‘6 Little Dragons’ (六小笼). They consist of:

1. Robotics firm Unitree (宇树科技)
2. AI’s latest prodigy DeepSeek (深度求索)
3. Robotics firm DEEP Robotics (云深处科技)
4. Video game studio Game Science (游戏科学)
5. Brain-machine interface BrainCo (强脑科技)
6. 3D interior design developer Manycore Tech (群核科技)

Though the others may sound unfamiliar, DeepSeek has certainly caused ripples within international media by launching its large language model (LLM) DeepSeek-R1 on January 20th 2025 [10]. It is notorious for its:

1. cost effective performance – reducing the cost of a unit to ⅕ of its’ American counterparts by reconstructing its cooling system [23];

2. Its high performance – outperforming ChatGPT, Gemini and Claude [21] in active size, training cost and performance [7], and 

3. Its mysterious CEO Liang Wenfeng. Although it was only founded in 2023 [10], it is single-handedly taking on the ‘Magnificent Seven’ [14] US tech giants.

The other 5 Dragons have also gained international successes – with Game Science winning 3 awards at the video game-Oscars (Steam Awards) for ‘Black Myth: WuKong’ [9], DEEP Robotics being the first Chinese company to deploying its quadruped robot (X30 Dog) overseas to Singapore’s SP group [12], and ManyCore Tech being the first of the 6 Dragons to file for an initial public offering (IPO) [10]. Their success has elicited pride amongst Chinese ‘netizens’ (slang for internet users) [1], while also raising the question as to what conditions caused the eruption of 6 leading start-ups within the same city? The inquiry into this issue is valuable not only to other Chinese regions and cities, but also to other developing nations who want to encourage entrepreneurship and domestic innovation. 

Hangzhou’s influential conditions

Hangzhou is no stranger to start-up success, with both Alibaba (1999) [2] and Ant Group (2000) [15] being founded there. Historically, Hangzhou’s position by the sea made it a popular sea port until the Ming dynasty, encouraging trade and religious exchange. It was famous for its tea plantations and its silk industry, and was the capital of the Song dynasty until the Mongol invasion [17]. It had always been considered a second-tier city until 2017 [3], but has been making leaps and bounds in its development as a tech powerhouse. Its remarkable progress is evident; in 2024, Hangzhou’s GDP exceeded 2.18 trillion yuan (301 Billion USD), with technology companies contributing over 40% [19]. It is this transformation that makes it unique and a topic for discussion within other second-tier Chinese cities who hope to improve, such as Jinan [23]. Its rapid development can be attributed to 5 factors: 1. Talent support, 2. Business environment, 3. Government support, 4. Contemporary flexibility, 5. National inter-provincial competition [13][23]. 

Hangzhou’s distinctive university environment is uniquely catered toward grooming tech-talent. A large pillar for this culture is Zhejiang University: one of China’s top universities [10] which models itself after Stanford University rather than top universities in Beijing and Shanghai [18] and produces the most scientific papers out of all universities worldwide [4]. Its success as a university comes from its ability to “attract and foster talent”, its proximity to Shanghai, and its efficiency in getting work done without cultural expectations typical to lengthy Chinese business negotiations [18]. It is the alma mater of 3 out of the 6 little dragons: DEEP Robotics’ Zhu Qingguo, DeepSeek’s Liang Wenfeng, and Manycore Tech’s Huang Xiaohuang [4]. It boasts an ‘entrepreneurship credits’ system (创业学分) where students submit an entrepreneurial project rather than a thesis, and professors can maintain their teaching positions while working in start-ups themselves. This arrangement is what helped DeepSeek create its algorithm. The curricula at West Lake University (西湖大学) also boasts a similarly progressive track: their ‘scientist stock ownership plan’ (科学家持股计划) allows professors to hold 70% in shares of companies they start on campus, which exceeds the traditional 15-30% threshold of other universities [23]. This resulted in 11 professors’ entrepreneurial projects obtaining financing in 2023, with 3 of these having a valuation of over 1 billion USD [23]. 

This sentiment has rubbed off on the city’s business environment itself, which has transformed itself into a one-stop-shop for all your tech needs (进一张网，办所有事) [23]. It has become increasingly easy for entrepreneurs to launch products without the traditional 300-page pitch to skeptical investors, as everyone is enthusiastic and open to young founders with passion and a good idea. During the development of Beijing’s finance industry, it was their Zhongguancun (tech-hub)(中关村) that was packed with investors, while now it is the tea houses next to Hangzhou’s Xixi National Wetland park (西溪湿地) that are filled with scientists and engineers arguing over algorithms and coding. This shows the intricate relationship that has been created between tech-talent and the city. Its effects are not unnoticeable, with Hangzhou’s net talent inflow rate reaching 23.8% in 2023 – 45% of which come from Shanghai and Beijing to attain greater ‘work-life balance’ [23]. 

Robust government support from the city of Hangzhou has also encouraged the foundation of many start-ups. There have been substantial investments in capital and technological R&D over extended periods [19], “8+4” preferential tax policies [19] which exempt new companies from certain local taxes in their initial years, and “Angel Investment tax deduction” policies which give up to a 30% reduction. These tax breaks allow start-ups to re-allocate resources spent on sourcing funding toward R&D, while simultaneously encouraging investors to spend. This resulted in 40% of Hangzhou’s angel round financing in 2023 to come from local entrepreneurs – many of which are old Alibaba executives, which recycles ‘old’ money to nurture new talent [23]. Rent for offices and warehouses within innovation parks and incubators are rent-free or 40% of market price for the first 3-5 years [19] – this is a scheme that Game Science specifically benefited from by being based in Yichuang Town neighbourhood [10]. Targeted subsidies (8000 yuan/~1106 USD per month) are provided to PHDs that qualify [23], and long-term (up to 10 years) low-interest loans are tailored for tech start-ups. All these schemes remove significant barriers for start-ups and minimise the risk traditionally taken as an entrepreneur, directly explaining the high concentration of young people daring to innovate. 

The city’s contemporary flexibility should also not be underestimated. The traditional sentiment of Chinese scholars has always been to investigate in order to gain knowledge. This motto is sometimes overshadowed by the populations’ contemporary tendency to strive for perfection and success. This contradiction is why Hangzhou’s tolerance for failure is a striking and unique key ingredient in fostering start-up success. As previously mentioned, Zhejiang University is generally more ‘Westernised’ than other leading Chinese universities, encouraging staff and students to take risks and make mistakes to learn [23]. This tolerance for error is also seen in Hangzhou’s legal system, which implements “three prudent principles” (三审慎原则) for disputes between technology companies: 1. ‘Prudent’ account freezing, 2. Cautious issuance of consumption restriction orders’ and 3. Careful inclusion in the 失信名单 Credit blacklist [23]. This unique method has shown to shorten the bankruptcy liquidation process of firms by 48 days compared to the national average [23]. This culture of mistake tolerance has also benefited the 6 Little Dragons, because 4 of them have experienced past entrepreneurial failure, but could still gain the trust of capital investors afterward. This “loser resurrection” (败者复活) process is a polar opposite of the typical ‘winner takes all’ system in China. 

Finally, inter-provincial competition is institutionalised within China, boosting competitive spirit and overall national growth. It runs based on a “GDP-based evaluation” and “promotion system for local officials” [10], and has been around for much longer than the 6 Little Dragons. It is clearly visible within ‘netizen’s’ posts online comparing their province’s growth to Hangzhou, particularly one previously cited article [23] by Feng Ge Business Observation about what Jinan can do to learn from Hangzhou. Among Hangzhou’s successful policies is the Hangzhou National Independent Innovation Demonstration Zone Development Plan in 2015 (杭州国家自主创新示范区发展规划) [23] which marked a shift in policy logic where the government no longer played a leading role in resource allocation, but rather stimulated market vitality through institutional design. It was coupled with a five billion yuan fund for scientific and technological achievements, which directs resources into the field of technology. Another way to stimulate production is the “unveiling the list and taking charge system” (揭榜挂帅) [23] where the government releases a list of technological resources it requires, and firms can bid for jobs and receive payment according to different phases of completion. Finally, its “Hangzhou model” of the capital market dictates that state-owned industrial funds hold less than 10% of shares in technology companies, and must abide by the principles of (三不原则) [23]: 

1. No intervention in operations

2. No demand for valuation guarantees

3. No fixed exit timeline. 

This gives businesses a newfound pillar of support in the government with a results-driven approach for real world performance, rather than a bureaucratic process with tight control. 

Implications of Hangzhou’s Success

Even by itself, the success of the companies have stirred commotion and resulted in change. Baidu, a previous proponent of closed sourced AI has made a 180º turn, as they announced  at the Dubai World Government Summit that they will evolve with innovation by implementing DeepSeek’s R1 model into its Wen Xiao Yan app [20]. Tencent also integrated DeepSeek-R1 into WeChat search, causing shares to rise to their highest since 2010 [20]. It seems that only Alibaba is a large player competing with DeepSeek, as they became Apple’s AI partner in China in February 2025 [8], causing its shares to rise by 8% [20]. 

On a national level, developments within technology hubs like Hangzhou are a beacon of light for the Chinese economy. A domestic survey reports that roughly 60% of SMEs are only in the early stages of digitalisation [11], a statistic that can be reduced through increased use of AI simplifying technology and complex accounting and organisatory software. Furthermore, China’s slowing total factor productivity (from 2.8% to 0.7%) [11] indicates that the economy’s efficiency and competitiveness is slowing, and therefore a push for start-ups and entrepreneurship would benefit local economies. Additionally, support for innovation by the state means more relaxed state control, which would slow brain drain – a significant inhibitor of progress within China as 70% of overseas students never return after higher education [5]. Analysts at Goldman Sachs estimate that AI could increase productivity growth in China by 8% over the next decade [11], and its main opponents are 1. Diffusion deficit, 2. Chip production monopolies, 3. Political barriers. 

Conclusion

If Hangzhou’s immense support for a singular industry is recognised and replicated for different industries in different regions or cities, China could revolutionise its provinces’ industries and attract foreign talent, while strengthening their local economy. Hangzhou’s example gives less developed states such as Jinan hope that they too can evolve into a globally recognised space for innovation and modernity. On a national level, Hangzhou is a beacon of light for China’s vision for “technological egalitarianism”, and its future success predicts progress in innovation beyond imagination. 

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