How China Boosts Its Tech Start-ups

How China Boosts Its Tech Start-ups

A report in WSJ, the Wall Street Journal reveals how China Boosts its Tech start-ups, and TextileFuture present the findings to our readers

Now, much like in the U.S., tech start-ups are about the coolest places to work for ambitious young Chinese. And they have an unlikely advocate: the Chinese government

State television’s prime-time news program has a regular segment that trumpets innovation and tech entrepreneurship. Premier Li Keqiang, an economist by training, started 2015 by visiting three tech companies in Shenzhen.

In early May, he toured the Zhongguancun district, or Beijing’s answer to Silicon Valley, and had a cup of cappuccino in a cafe popular among tech entrepreneurs. He even wrote to a group of tech DIY enthusiasts, or “makers,” promising more favourable economic policies and a visit to their maker space someday.

The Chinese government has traditionally focused on huge infrastructure projects such as high-speed rail, national highways and big state-owned enterprises that would make big bangs for the economy, or at least newspaper headlines. In the “New Normal” of slowing growth, it needs to find a bright spot in the economy that creates employment opportunities and a (possibly false) sense of social mobility. The fast-growing mobile Internet and buzzing tech-start-up scene fit the bill.

It isn’t just talk. The central government announced a USD 6.5 billion start-up fund early this year. In a news briefing in March, a vice science and technology minister said that by the end of 2014 there were more than 1600 tech incubators in China, with 80000-plus start-up projects employing 1.75 million people. The government approved the establishment of 115 high-tech parks nationwide, with more than half a million companies registered.

On its website in June, the science and technology ministry announced a list of 281 incubators that will enjoy tax benefits. Beijing’s municipal government is offering CNY 600000, or roughly USD 100000, subsidies to qualified tech companies. In August, Shenzhen announced as much as five million yuan in financial support for maker spaces.

Universities, almost all state-run, are getting students more prepared to start their own companies. Matte Liu, a senior at Guangzhou University of Chinese Medicine, said his university offers an elective on career training. In addition to teaching how to write résumés, the course devotes a significant amount of time to how to start businesses.

It’s far from clear how this new round of government-driven campaigning will pan out, especially with sharp corrections in China’s stock markets that have affected start-up valuations and exit strategies.

In the past, similar government initiatives have had mixed results. The enormous investments in transportation provided a backbone for the country’s economic take off. But other initiatives resulted in ghost cities where few people moved in, as well as deserted steel mills or other projects that have created overcapacity.

Many people fear that the overcapacity problems will extend to incubation spaces. The majority of the 67 incubators registered with the Shenzhen government in 2013 and 2014 are more than 10000 square meters (107600 square feet) each, with the biggest standing at half a million square meters, or roughly 5.4 million square feet. “These are, at the end of day, office spaces,” said Jonathan Woetzel, a McKinsey analyst in Shanghai.

Even some venture capitalists who have reaped huge profits in China’s burgeoning Internet industry are sceptical of this new campaign. “While the Internet can increase information flow of a society and optimize resource allocations, it’s far from clear how effective it is for increasing productivity and employment,” wrote Sha Ye and Eric Li, managing directors of Chengwei Capital, which has invested in companies such as Youku, now part of China’s biggest video website: Youku Tudou.

They argue that China should look to industrial upgrading for sustainable growth, rather than the Internet and the capital markets. “Silicon Valley employs no more than one million technology staff,” they continued in an op-ed article on a Chinese news site. “This number isn’t even sufficient for Shanghai’s Pudong district, not to mention propping up the whole country’s employment.”

There are also other risks of the government playing too big a role in the start-up scene. McKinsey Global Institute recommends in a report that when it comes to the start-up fund, the Chinese government should “be careful to avoid picking winners (and losers) or crowding out private financing.” Empower entrepreneurs and let markets work, the report recommends.

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