News Analysis: The companies leading China's tech upgrade

"It is simply another Silicon Valley" -- this is the impression Liu Zihong had of Shenzhen when he came to the southern Chinese city to start his own tech firm four years ago.

The Stanford graduate was struck by Shenzhen's free business environment, strong policy support for startups and efficient venture capital.

"All these favorable conditions created a complete industrial chain that allows you to easily get everything you want, from raw materials to circuit boards. Thus, technologies can be quickly translated into products," said Liu, now chairman and CEO of display producer Royole.

Two years after being founded, Royole has developed bendy screens that if used on an iPad, would allow it to be folded to the size of an iPhone. "This is going to revolutionize the electronics world when it goes into production," according to Liu.

Riding on a wave of government support including easier market access, subsidies and financial services, tech firms like Royole are mushrooming in Shenzhen.

Da-Jiang Innovations grabs around 70 percent of the global civilian drone market; genomics company BGI has sequenced more DNA than any other institutions worldwide; Kuang-Chi, a leading company in aviation material and smart equipment, owns more than 3,000 patents worldwide.

Thanks to rising high-tech firms, Shenzhen's economy expanded 8.4 percent year on year in the first quarter, standing out against the whole country's 6.7 percent.

The region represents an ideal future for the Chinese economy as the country is encouraging technological advance and industrial modernization to steer the economy on an innovation-driven path and put an end to a prolonged slowdown.

As the latest effort from policymakers, China unveiled a plan to build the country into a world powerhouse of scientific and technological innovation by 2050 on Thursday.

Authorities promised policy support including greater R&D investment, better talent cultivation and more favorable measures for startups to realize the ambition.

Encouraged by the move, the ChiNext Index, tracking NASDAQ-style board of growth enterprises, jumped 1.37 percent on Friday.

The McKinsey Global Institute predicted in a report that China would evolve into a "global innovation leader" in the next 10 years from being an "innovation sponge" absorbing and adapting existing technology.

This year's government work report said innovation would lead China's economic development from 2016 to 2020, by which time the government is hoping GDP and income levels will have doubled from 2010 levels. Scientific and technological advances should contribute 60 percent of economic growth by 2020, up from the current 55.1 percent, according to to the report.

Luo Hui, president of the National Academy of Innovation Strategy, believes the strategy is working: "It will help forge new economic engines in emerging industries, prompting steady growth and guaranteeing stable employment."

However, the gap between China and the nations leading technological powers can not be easily closed.

Technological improvement creates around 80 percent of growth for the United States and Germany, a level expected to remain beyond China's reach for years.

"China has become a strong innovator in areas such as consumer electronics and construction equipment. Yet in others -- creating new drugs or designing automobile engines, for example -- the country still is not globally competitive," the McKinsey report said.

Economists agreed that the government should continue to cut red tape and let the market play more of a decisive role. Endi