Over the past two decades, entrepreneurship in China has grown at an exponential rate. It is bringing forth disruptive changes not only to China but increasingly also to the rest of the world.
In 2000, total revenues earned by Chinese state-owned industrial enterprises and those in the non-state-owned sector Chinese private enterprises were roughly the same at about 4 trillion yuan each. By 2013, while total revenues at state-owned companies had raised just over six-fold, revenues in the non-state sector had risen by more than 18 times. Profits in the same period showed an even more incredible difference, with state-owned companies showing a sevenfold increase but profits at non-state-owned ones increasing nearly 23 times.
China’s entrepreneurial spirit runs deeper than just in business. It demonstrates itself in the government and the desires of ordinary people. Premier Li Keqiang called for “mass entrepreneurship and innovation” and made it the leading agenda of China’s national economic strategy. In his work report speech at this year’s National People’s Congress, Premier Li mentioned the word “innovation” 59 times and “entrepreneurship” 22 times. Other popular phrases such as “Internet Plus,” “sharing economy,” “big data” and “Internet of Things” also appeared in the report multiple times.
China has grown to become the world’s second-largest economy in merely three decades, and entrepreneurship has been identified as a key driver of China’s fast growth. The China Surveys of Global Entrepreneurship Monitor in the last fifteen years consistently indicate the country’s high rate of entrepreneurship. Furthermore, China has been in transition from the predominance of necessity-based entrepreneurship to that of opportunity-based entrepreneurship since the mid-2000s. In the time being, more Chinese entrepreneurs have started setting their sights on business internationalization. Against the backdrop of a thriving entrepreneurial economy, China has also been experiencing an economic slowdown, increase in inequality and worsening environmental problems since the turn of the century. While entrepreneurship has certainly offered solutions to the economic, social and environmental challenges the country is facing, entrepreneurship may also arguably be part and parcel of those problems in the first place.
The first wave of reforms and opening up of China’s economy under Deng Xiaoping spurred the forerunner generation of entrepreneurs in the 1980s. These entrepreneurs typically had little to no access to knowledge of modern business management. Some even lacked post-secondary education. At the time, they were pioneers who were remarkably bold to start their businesses. In the early 90s, some government officials inspired by Deng’s “Southern Visit” left their government roles and ventured into businesses. This was a rather speculative move that required great courage. If they failed, the “iron rice bowl” they had abandoned would not welcome them back with open arms. At this time, many thought of these people as foolish for leaving these highly desired positions of stability and prosperity. The majority of this “Gang of 1992” were quite successful in their entrepreneurial pursuits and some of them eventually became industry leaders.
Internet entrepreneurs started to emerge in the mid to late 1990. Contemporary giants Alibaba, Tencent and Baidu, were formed shortly after that. The bursting of the first internet bubble took out a fair number of Chinese internet companies, but soon after that, the growth of internet industry resumed and gained momentum. The number of entrepreneurs grew again throughout the 2000s. Leaders from Xiaomi, JD.com and Qihoo 360 are all prime examples of China’s Internet entrepreneurs that arose during this period. Apart from the internet and mobile technology sectors, many entrepreneurs started appearing in other industries: energy, healthcare, financial services, consumer, retail among others, where businesses were increasingly intertwined with the rapid growth of science and technology.
Today in China, we see numerous young people who were born in the 1980’s and 1990’s with entrepreneurial aspirations. They come from not only the metropolis like Beijing, Shenzhen or Shanghai but also from second-tier or even smaller cities. Undoubtedly, a fair number, or perhaps the majority of them will not succeed or at least not on their first attempt, but a few may. China is vast, and even a small percentage of a broad base is still a significant number. Unlike their predecessors, these youngsters are not afraid of failure. For them, “trial and error” is an inevitable part of the process. The outcome, whether positive or not, adds to their experience and opens up, even more, opportunities in the future.
To be sure, many business people in China are still trying to take shortcuts and may not abide by rules and ethics. However, we do see an increasingly growing number of entrepreneurs who are genuinely trying to build their business and be successful in legitimate ways. We are living in an era where entrepreneurship is spreading fast, entrepreneurs are getting younger, and growth is often exponential. This new generation of China’s entrepreneurs illustrates the vitality, creativity and increased productivity that are the core driving forces propelling China’s next stage of development.
China is now the world’s second-largest producer of “unicorns,” i.e., non-listed companies valued at over US$1Bn. The most representative ones are Xiaomi, Didi Chuxing, China Internet Plus (recent merger of Meituan and Dianping) and DJI. Besides, Baidu, Alibaba, Tencent, and Xiaomi are on the world’s 50 smartest companies list presented by MIT Technology Review in 2015. Furthermore, by the count of China’s Ministry of Science and Technology, there are 115 university science parks and over 1,600 technology business incubators in the country providing mentorship, legal advice and office space to dreamers and aspiring entrepreneurs.
A majority of these Chinese innovators excel in business model innovation. As they move on to acquire new capabilities by building ecosystems through strategic partnerships and mergers and acquisitions, we expect to see more China-rooted technology innovators on the global stage. At the heart of China’s disruptors are the entrepreneurs with a shared dream of success, a pursuit of objectives brimming with creativity and a relentless drive to realize their goals. These goals will ultimately rewrite the rules of business for China and increasingly for the rest of the world.
A unique phenomenon is taking place in China today. While its political system is inherited from a top-down planned economy hierarchy, its leading entrepreneurial companies, especially the younger, more dynamic ones found in the Internet industry, adopt much of their mindset, culture and organizational principles from Silicon Valley. In fact, many are closer to Silicon Valley than they are to Beijing. For these companies, China’s political and economic structure is mixed with Silicon Valley culture, each influencing the other and creating something new. This osmosis is changing China in a way that we have not seen before and would lead China into a new era.
However, there are still many obstacles to the development of entrepreneurship in China. Due to relatively high corruption levels in the Chinese courts, private entrepreneurs who lack government support can be disadvantaged, with many small organisations usually losing court proceedings against large state firms, as well a highly bureaucratic and time-consuming process for starting a business. More education is needed in entrepreneurship as well as access to business incubators. And on a cultural level, there can be an incompatibility between Chinese Confucian values such as obedience and respect for authority, which can be at odds with entrepreneurial values. However, steps are being introduced to facilitate access to credit for private entrepreneurs and to create a more investor-friendly lending environment.
To conclude, China is by far one of the most entrepreneurial countries on this planet. But, there is wider horizon to the game with fear of failures and entrepreneurial intentions. In my view, China is not yet an innovative economy, but it is an efficiency-driven economy that is a cut above factor-driven economies that are the norm in developing countries like Pakistan. Having a quick glance at China’s entrepreneurial success, Pakistan should also work on the same lines.