When China implemented its first economic reforms in 1978, the government accounted for more than 90 percent of GDP. By 2005, public sector contributions to GDP represented less than 50 percent. Does this mean entrepreneurs are thriving?
The plight of entrepreneurs in China has been the subject of much debate among startup communities outside China. It is especially fascinating for researchers and policy analysts monitoring the progress and potential of China’s economic transformation. To change from the government accounting for 90 percent of GDP in 1978 to less than 50 percent today speaks volumes about the comfort level China’s strong government has in entrepreneurs as innovators.
In rural China, there were no recorded private enterprises until 1994. Today, self-employment preference rates are in flux in all regions of the country, as the country welcomes back foreign university graduates and continues to experience massive rural to urban migration. Paradoxes abound though. For example, Internet censorship continues relentlessly, while a handful of Chinese ICT public offerings on U.S. exchanges in 2014 are hailed as job and value creators at home.
The size of China’s manufacturing sector should be the envy of the modern day Maker Movement as it works to inject manufacturing innovation in what we know as “industrialized nations”. The size of its population and economy presents a market which entrepreneurs from everywhere are trying to tap. Yet, various socio-political limitations present high obstacles to an innovative manufacturing sector and more entrepreneurs meeting demands from its growing middle-income population. These hurdles affect not only these sectors but also banking, services, government procurement, and even traditional sectors like construction and agriculture.
Beyond navigating a political environment that still favors state-owned enterprises, entrepreneurs also have lots of regulatory hurdles to tackle. For many, these hurdles lower their appetite for risk, deterring new ventures altogether, or limiting the number of ventures to the ones inspired by copy-cat ideas that have proven succesful elsewhere, like the plethora of Chinese versions of Groupon or car apps. According to data collected by the World Bank’s Doing Business project, China is among the most unfavorable business environments, ranking 158th among 183 economies. While piecemeal policy changes have signaled an acknowledgement of the contribution of a new wave of companies, the World Bank reports no significant reforms to make it easier to start a business during the 2009-2011 period.
Insecure property rights represent another major roadblock, and removing it has been on the policy agenda since a system of private ownership officially began in 2004, but progress has been slow. The most recent changes have been in the realm of opening new asset possibilities for raising capital. In October 2007, the new property law in China expanded the range of assets that can be used as collateral, to include accounts receivables and a changing pool of assets to secure a loan. Still, the Heritage Foundation has reported sharp declines in the overall property rights environment.
Despite a comparatively unfavorable policy environment, Chinese entrepreneurs in organic clusters in tier-one cities like Shanghai, Beijing and Gaungzhou have long shown that innovation can still flourish in a top-down economy. They form a critical mass of entrepreneurs that have raised the importance of entrepreneur-to-entrepreneur, and entrepreneur-to-investor networks, creating lots of economic freedom. For example, such strong entrepreneurial ecosystems are visible at the Touch (TNT) monthly meetup in Chinese tech cities, or for the outside world through the writings of TechNode, the official partner of the TechCrunch news and events platform in mainland China that is written in both in English and Chinese.
There are also plenty of positive indicators to be found by looking at the incubators and accelerators for China-based entrepreneurs that can be spotted outside of the main 