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Entrepreneurship in China

China has emerged as a worldl economic super power, forcing all players to consider new economic models. The growing significance of small and medium-sized enterprises (SMEs) in China's economy is hard to ignore. Chinese and foreign experts estimate that SMEs are now responsible for about 60% of China's industrial output and employ about 75% of the workforce in China's cities and towns.

Private business is the fastest-growing sector of China's economy, expanding at an annual rate of 20 percent, far above the 9.5 percent average growth of the national economy over the past two decades. The private sector employs millions of people laid off from failing state factories and contributes an increasing proportion of taxes to government revenue. By the end of 2001, China‘s private companies employed 70 million people, generated an output of 1.9 trillion Yuan ($232 billion), and contributed 20 percent of GDP, according to official statistics released in November 2002. Also, China has the highest number of the world's richest people under age 40 outside of the United States, according to Fortune magazine.

The Chinese government is providing the "enabling environment" for small and medium-sized enterprises (SMEs). During the 16th Congress of the Communist Party of China, at least four entrepreneurs are listed as delegates to the congress - three of them are on Forbes Magazine's list of China's 100 richest people. Also, the political theory from the party chief, Jian Zemin, allowed private entrepreneurs to become members. Some observers have hailed the move to persuade capitalists to become card-carrying communists as one of the most significant likely outcomes of the week-long meeting. They say such a result could eventually change the character of the leadership and create pressures for democracy within the party. The party estimates that more than 113,000 of their members already run businesses. Most joined before privatization and formed companies later.

Chinese entrepreneurs bid on antique Rolls-Royces and pay cash for the latest BMWs. They build ostentatious Western-style mansions, including replicas of the White House, the US Capitol, and the Hearst mansion in California. Not many entrepreneurs have any interest in joining a party; however, they are not without social conscience. Many entrepreneurs intend to give shares to their employees in a couple of years. One entrepreneur said: "the profits of my enterprise should be part of my contribution to society. ...To get rich together is the final goal of a socialist society.”

Since China entered the World Trade Organization in 2001, committing itself to further liberalizing its economy, China has received the most foreign capital inflows of any nation, surpassing the United States as the world's favorite locale for investment. For the U.S. Entrepreneur, China presents a great opportunity, but they need to be aware of the barriers and address them as needed.

The history of Entrepreneurship runs long in a country like China. Until l the 1980s, entrepreneurship consisted of very small-scale activities in retail and services such as street vendors, businesses known as getihu. For this group, business was a means of subsistence. The second group emerged in the late 1980s, with more highly educated individuals, often engineers or State Owned Enterprise[SOE] managers, operating on a larger scale out of choice rather than necessity. These businesses, known as siying qiye, operated in all sectors, ranging from restaurants to transportation to manufacturing, especially the production of inputs for SOEs. The third type is the foreign educated or trained Chinese[Overseas] returning to China to start businesses. This type of entrepreneurship has been evident recently in the Internet sector.

Most private companies are still tiny: 90% employ fewer than eight people. Despite such successes, China's private sector as a whole does not enjoy a level playing field. One fundamental issue is property rights. Also the Chinese propensity to base business on relationships, especially with the Government officials[guanxi], is very critical for the success of entrepreneurs. To continue to develop, China's private companies need, above all, rational banks and a well-functioning stock market. Yet if the private sector is China's brightest hope, the financial and accounting systems are their weakest points. While the entrepreneurial spirit has gained social acceptance over the last two decades, the odds are still stacked against startups in China and they must fight to survive in a very harsh economic and political environment where the next day is based on Government policy. Therefore, most Chinese entrepreneurs, including those overseas, tend to emphasize short-term profits and opportunism instead of long-term strategy.

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