The China we knew as the enormous economy largely fueled by cheap labor and inexpensive manufacturing has changed. Though happening slowly compared to its potential, China is becoming one of the most innovative economies on the planet and the birthplace of entrepreneurs like Robin Li, CEO of Baidu, who are entrepreneurial rock stars at home and around the world. Entrepreneurial capitalism seems to be taking hold in China. How is entrepreneurship overcoming the roadblocks of a planned economy?
Part of the answer is that the government, interested in developing the country’s potential, is more and more interested in entrepreneurship, reflected, for example, in the National Natural Science Foundation of China’s (CNSFC) funding of the Chinese Panel Study of Entrepreneurial Dynamics (CPSED) which will measure business creation. China has also established the Entrepreneurship Foundation for Graduates (EFG) with a mission to create a favorable entrepreneurial environment by promoting commercialization of scientific and technological breakthroughs and inspiring innovative minds to cultivate creative and entrepreneurial talents. EFG is the proud host of Global Entrepreneurship Week/China.
A few days ago, the Chair of EFG, Yan Junqi, who is Vice Chairwoman of the Standing Committee of the 11th National People’s Congress along with a distinguished delegation led an official visit to the Kauffman Foundation and Washington, DC. As EFG is the proud host of Global Entrepreneurship Week/China, I have visited with Madam Yan both in Beijing and in Shanghai. She is a smart scientist and has a deep understanding of the importance of incentivizing new generations of Chinese citizens to innovate, invent and be entrepreneurs. The Founders Forum which she invited me to speak at last year as part of GEW, opened my eyes to the fact that the Chinese leadership actively encourages new starts and has been working hard to put in place the right incentives including around individual ownership required to foster a new generation of companies not subsidized at the outset by public funding.
Such interest from Chinese leaders in entrepreneurial activities should not come as a surprise. The Chinese government’s ambition for the country is to produce high-tech goods. In early 2006, Chinese President Hu Jintao declared to the world: “China will be built into an innovative nation in about fifteen years.” In an effort to support this goal, Chinese regulations are slowly spurring the development of a homegrown private-equity industry. China’s government sees private equity as a means to channel money into small and midsize enterprises that don’t always have ready access to bank lending or public markets, told Kathleen Ng, managing director at the Centre for Private Equity Research in Hong Kong, to the Wall Street Journal.
The government is also paying special attention to growth entrepreneurship which may be one reason for visiting the Kauffman Foundation. For example, China’s economic planning agency, the National Development and Reform Commission, launched venture capital funds totaling 9 billion yuan (equivalent to USD $1.32 billion) in 2009 alone. The funds are primarily backed by private investors (6.8 billion yuan), followed by provincial governments (1.2 billion yuan) and the state (1 billion yuan). The hope from many observing from afar is that political meddling doesn’t co-opt and or weaken this effort.
Despite the surges in entrepreneurial activities already observed in China, sustaining and growing its entrepreneurial energy presents an enormous challenge. Entrepreneurs in China face many obstacles, even at the point of entry. It takes 38 days to complete procedures to start a business, compared to the average of 5.7 days in OECD countries. Copyrights, patents, brand names, trademarks, and trade secrets appear to be routinely violated. Overall, China lacks legal and regulatory transparency. Overcoming these obstacles will inevitably involve accelerating China’s transition to greater economic freedom.
In addition, as Yan Junqi herself wrote, China needs a cultural shift. “…innovation can more quickly gain a foothold in an entrepreneurship-friendly and failure-tolerating culture,” Perhaps this is one reason why EFG is doing such an excellent job throughout China in stimulating entrepreneurial enthusiasm using Global Entrepreneurship Week as a platform for promoting a culture of innovation and entrepreneurship.
There is also reason for optimism in the advantages Chinese entrepreneurs have at home. Baidu’s Robin Li, speaking for the Stanford Technology Ventures Program, mentioned one of the greatest. They have a huge domestic market combined with an intimate understanding of Chinese language and culture. This allows Chinese ventures to have a unique approach to products and services, giving them a chance to succeed where other giants have failed. Technology entrepreneurs in China also have access to a growing pool of scientific talent. It is estimated that more than 700,000 computer science-related engineering students graduate each year in China.
But it is not about who wins the entrepreneurial race. Remember, we live in a world where national borders are porous to innovation and all boats rise on an incoming economic tide. If the world’s most populous country becomes an even more entrepreneurial economy, we all win. Investors expect that environmental protection, energy, consumer products, and health care, will remain hot sectors for investment in China in the coming years. As we have seen with companies such as Suntech, we all benefit from innovation in these areas.
So when you next pick up the paper and try to make sense of the morning’s headlines reporting tensions with China over trade, human rights, currencies and debt, be reassured that entrepreneurship is once again powerful diplomacy. In fact, next year, China will even host the Global Entrepreneurship Congress, a gathering of leaders in entrepreneurship from over 100 countries, placing Shanghai at the heart of the global debate around the importance to economies and human welfare of startup economies, young companies, risk, and even that “open source” culture that lies at the heart of messy capitalism and it’s magic at creating jobs and building economies.