China’s national strategy to address emerging problems of unemployment and slowing economic growth has identified entrepreneurship as a critical component. After initiating the “mass entrepreneurship and innovation” campaign in 2014, Premier Li Keqiang announced in his 2017 government work report that approximately 15,000 new businesses per day were registered during 2016, a 24.5 percent year on year increase. Government support has played a critical role in driving entrepreneurship growth and is likely to continue. In 2015 the central government announced its intention to establish a RMB 40 billion national entrepreneurship fund, which was quickly emulated by local governments. This drastic investment in top-down entrepreneurship has not always been met with success however, and has inherent risks.
Technology Driven Entrepreneurship
Entrepreneurship is closely connected with innovation and technology in China. The government encourages entrepreneurs to participate in emerging industries such as big data, VR/AR, cloud computing, AI, and smart manufacturing. The government’s interest in these industries is motivated by its Made in China 2025 strategy and Internet Plus initiative, both of which aim to upgrade China’s position in the global supply chain through technological innovation. Following Shenzhen’s designation as a pioneer city aimed at promoting entrepreneurship, it set up a government venture capital investment fund which has placed RMB 500 million annually into start-up programs. Over 60 percent of the 140 programs financed by this fund by 2016 were related to these emerging industries.
Short and Medium Term Risks
Despite the promising data released by the government celebrating the success of its entrepreneurship policy, its ability to hurdle the “middle income trap” is not assured. Government-favored industries run the risk of forming bubble economies as investors rush to capitalize on incentives, while high-risk business models that can nonetheless access government funding can lead to waste. An official from the National People’s Political Consulate Economic Policy Committee stated that around 30 percent of newly registered business in China never take off, with another 20 percent shutting down within a year. On average, only two percent of college student entrepreneurs succeed.
While China’s entrepreneurship policy primarily impacts domestic players, multinationals need to be aware of potential talent loss and increased competition from Chinese start-ups. As talented workers, many of them middle-senior managers, leave multinationals to begin their own startups, their familiarity with foreign technology and management makes them potential competitors of tomorrow. The Chinese government’s efforts at cracking down on cybersecurity threats and reducing foreign influence in China’s cyberspace may also offer Chinese high-tech startups an upper hand on multinationals.
This piece was written with assistance from Gina Pan, Keran Shao, Xinhui Zhai, and Nancy Zhang.
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