Encouraging young entrepreneurs in China

July 22, 2014 by Amy Qin

Just as college seniors in China were preparing to make the transition out of the academic cocoon in May, China’s State Council announced a plan to roll out a series of policies designed to support student entrepreneurs and start-up businesses. The goal, it said, was to provide backing for 800,000 young entrepreneurs between 2014 and 2017. By unveiling these new policies, the government hopes to stimulate the slowing economy and create more white-collar jobs for the increasing numbers of college graduates. Will it work?

Initial impressions are that to reach this goal, may well be an uphill battle for the government. While 20% of the record 7.27m college students graduating this year in China expressed interest in starting a business, less than 2% are actually choosing to go down the road less-traveled, according to the Beijing News, citing Xin Changxing, head of the Ministry of Human Resources and Social Security.

“The percentage of graduate entrepreneurs in China is far behind other countries,” Mr. Xin told the Global Times.

The reasons for graduates’ reluctance to try their hand at entrepreneurship are many, experts say. Some, such as Dong Keyong, an expert in human resources at Renmin University in China, say the biggest obstacle for young entrepreneurs is the lack of capital. Starting a business is often seen as an option available only to those who come from well-to-do families.

In response to the new policies, one person, echoing the sentiments of many other users on Sina Weibo, wrote: “The people who have money are the fu’erdai”  – a term that refers to the children of wealthy Chinese – “How many of them actually want to go through the hardship of starting a company?”

“Whereas poor students don’t have any money – so what would they use to start a business?” the user added.

The new policies are meant to address this hindrance by, for example, providing small-sum guaranteed loans of around 100,000 RMB, depending on the province and interest subsidies to students who open small businesses.

But the policies do not go far enough in lowering the barriers to entry, Liu Su’an, a vocational guidance counselor for Xicheng District in Beijing told the Beijing News. While well-intended, they are mostly difficult to put into practice, with many students either unaware of the policies or unclear about how to take advantage of them, said Mr. Liu.

Nor do they address what other experts say is a more deep-rooted problem in China: the overwhelming societal pressure to find a stable job. A survey of students in Qinghai province in western China this year found that 77% graduates in Qinghai universities were planning on taking the exam to become a civil servant, a position that is as safe (assuming one gets the position – there were 21,000 graduates in Qinghai applying for 6,000 possible civil servant positions this year) as starting a business is risky due to the civil servant’s guarantees of money and stability – hence the nickname “rice bowl”. The top three reasons for applying said the students? Stability, increased job opportunities, and following the crowd.

Aside from the stability and prestige, another major incentive for college graduates to apply to work at big state companies is the opportunity to obtain a hukou, or residence permit, in big cities like Beijing and Shanghai. With the permit comes social services and access to subsidized education – benefits that are otherwise difficult to get for non-hukou holders.

The hukou problem is a deterring factor when it comes to the government’s new beneficial policies for entrepreneurship as well. If a student wants to start a company in, say, Beijing where many angel investors are based, without the local hukou, he or she may not be eligible to apply for the subsidies.

Despite the widespread respect accorded to high-profile entrepreneurs such as Jack Ma of Alibaba and Zhang Xin of Soho, there remains a common perception that being self-employed is akin to being unemployed. In an editorial published in the Shanghai Morning Post in February, Xiong Bingji, vice president of the 21st Century Education Research Group, called for a shift away from the idea that only weak students started businesses.

“In China, there is currently a phenomenon where students who are unable to get into college and college graduates who are unable to find a job have no choice but to start a business,” Mr. Xiong wrote, citing as evidence a 2009 survey which found that the ranking of a university was inversely correlated with the percentage of students who chose the entrepreneurial path. In other words, at top universities where prospects for a traditional job were greater than at lower-ranked universities, graduates were more likely to choose a traditional job over starting a business, given the opportunity.

The idea that an elite student might choose to start a small-stakes venture is for some Chinese so galling that when media reported earlier this year on Zhang Tianyi, a Peking University law student who gave up on being a lawyer to open up a small shop selling rice noodles, the story went viral on Chinese social media.

“What a waste of a six-year education and what a waste of a Peking University legal education,” commented one user.

Some within the entrepreneurial industry have voiced skepticism of the new government policies. Most college students could benefit from more job experience since most are not immediately ready upon graduation to undertake a venture, some say. Not everyone is cut out to be an entrepreneur, other angel investors say, and it shouldn’t be seen as a backup option for those who are unable to find traditional jobs.

“We should be supporting aspiring entrepreneurs, but not encouraging or incentivizing it,” David Cao, founder of SV Entrepreneurs, told Caixin.

For the small minority of college graduates who have successfully started ventures, many say it’s all about “being different”. This year’s graduates are of the post-90’s generation, or those who were born in the 1990’s. Compared to their parents were mostly born in the 1960’s at a time of widespread societal upheaval in China, the post-90’s generation grew up in a relatively more liberal and prosperous time in China and were exposed to many ideas via the Internet and other technologies.

“The fullness of their life circumstances enables post-90’s to have more free agency and to take bigger steps toward their dreams,” wrote the China Entrepreneur Magazine in a report published this year on post-90’s entrepreneurs. “It’s not like what their parents had to go through back then when they were forced to work hard to climb up through the small crack between their dreams and reality.”

The post-90’s generation is ripe for entrepreneurial success, the magazine went on to say, as they “did not experience the same hardship as the post-70’s generation” and while they are only children like the post-80’s, they “are more decisive.”

Whether or not the new government policies are enough to spur the aspiring post-90’s entrepreneurs to take the entrepreneurial leap, however, remains to be seen.

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