cities, such as Axlr8r, a 90-day accelerator program based in Dalian. Some target specific demographics, such as the Tianjin Women’s Business Incubator (TWBI). Respondents to the EY Barometer survey were most positive about this development — 52 percent saying that access to such supported services had improved in the last three years.
Further, in terms of startup or scale up capital, the success of many Chinese startups has demonstrated that if ideas are validated, the team is dynamic, and the entrepreneurs are rightly coached, money will follow. Earlier this year, the online education website TutorGroup raised approximately $100 million in venture capital. At the same time, Alibaba’s recent filing to go public has set the stage for what could be the largest Wall Street debut in history.
The government does seem to recognize the importance of new firms. As reported by the EY G20 Entrepreneurship Barometer 2013, China’s Ministry of Commerce acknowledged that entrepreneurial ventures are responsible for 75 percent of new jobs each year and 68 percent of exports and has started to focus on improving the regulatory environment. In an attempt to reduce the amount of time spent paying taxes, the criteria and accounting methods for tax deductions were unified through China’s new corporate income tax law. More recently, measures to enforce contracts have been directed at streamlining court proceedings. In 2013, the Chinese government reduced the cost of starting a business by exempting micro and small companies from paying several administrative fees from January 2012 to December 2014. The test will come after this period expires when policymakers will have to decide whether they want to continue to find new ways to remove roadblocks for new venture creation and firm growth.
One other important “feat” has been what the Chinese government, prone to a planned economy, did not do, such as organized innovation clusters that more often than not, fail and become mere physical structures with little entrepreneurial life and energy. Vivek Wadhwa has pointed out that “top-down industry cluster is a modern-day snake oil”. As he explained:
“Governments can build infrastructure and pump money into education and R&D. But they cannot manufacture innovation. Innovation comes from creative people who challenge authority and take risks–who exchange ideas and experiment at the fringe.”
There are also some trends outside of government that might give hope for China’s entrepreneurs. For example, overseas-educated entrepreneurs returning to China are adding to the local mass of entrepreneurs you can see, for example, at the Entrepreneurship Foundation for Graduates (EFG). The returning graduates are injecting cultural capital and demand for entrepreneurial vehicles and support infrastructure such as startup incubators for their patents. EY reported that China is building 150 startup incubators specifically for graduates returning from overseas.
In addition, the rising tide for technology companies raises many other boats. As TechCrunch reported, beyond a statement about the value of the entrepreneurial path, these success stories are building investor confidence. Moreover, the successful ventures will know how to work with startups as they seek innovation opportunities. More importantly, these rising large companies challenge the mindset of the lifetime employment at state-owned enterprises (known as the ‘iron rice bowl’).
Looking ahead, as in other economies, sustainable growth will depend on meaningful reforms to make the economy less hostile to new entrepreneurs by unshackling this giant nation’s entrepreneurial limb. From my meetings in China with government officials, I doubt Beijing will kill this enthusiasm. The shear size of the economy and strong government will make it hard for China to create a healthier environment where established and young upstart companies can coexist, but despite inherent contradictions within the political and economic infrastructure, the dominant flow will continue toward removing roadblocks that hinder the devel