China is open for tech startups
E.Hao: China is more open to foriegn companies than ever, but its super competitive
The Chinese government might be known the for the heavy hand of its command-and-control economic operations, but according to GWC partner and co-chief executive E.Hao – a former senior vice-president of electronic giant TCL – the central government has loosened the reigns and was now “more open than ever before”.
For the tech and innovation sectors, this started with Premier Li Keqiang’s 2014 call for 'mass entrepreneurship and innovation' in China. The government has since made the development of entrepreneurship and innovation a leading agenda item in China’s national economic strategy.
“This is why they’re putting a lot of policies in place to help create incubators and accelerators. They’re trying to create a very good environment for entrepreneurs and create good conditions where not only are they well-located, but the rates are competitive,” Mr Hao said.
“There is a whole lot of taxation support from the government, too. Not only are they giving tax breaks for startups, but also for the companies that want to support startups, which will be relayed to the entrepreneurs. It’s becoming a very popular cycle.”
Based on recent statistics by the Chinese State Administration for Industry and Commerce, the support by the Chinese government is starting to pay off. The numbers show that more than 13 million new enterprises were registered between March 2014 and February 2017, equivalent to adding an average of 15,600 new enterprises on a daily basis in the first five months of this year.
The government also reported last year that 28 “entrepreneurship and innovation” zones were established. It comes as part of Premier Keqiang’s commitment to prioritise advanced manufacturing and land use for innovation and entrepreneurship.
Mr Hao said China’s growing entrepreneurial spirt is trickling down to the younger generation, who are increasingly considering starting a business as a serious career option. Startups like Baidu and Mobike are also becoming successful role models for young entrepreneurs.
“Students have started to feel the hype. Not only are they thinking about what they’re going to do in the future when they graduate, but rather than thinking of ‘I’m thinking about working for a big company’, or ‘I’ll go to work in a Chinese company’, or ‘I’ll go work for a foreign company’, they have started to think about ‘why not think about doing something for myself and start something myself’. This is has been large a trend, especially in the past 10 years,” Mr Hao said.
“The opportunity cost for them to lose is also very limited. That’s why they have more opportunity, resource and support from the government. It has created this big hype in China; everybody is talking about entrepreneurship.”
With the encouragement of the Chinese government, Mr Hao said plenty of Chinese companies are now looking to expand globally, particularly now that the Chinese market is “severely competitive”.
“While the Chinese market is a major mass market, for a company to grow, they need to be globalised. They need to find more markets, more opportunities,” he said.
“Sometimes in China, the competition is severe. It’s a big market, but everybody is there. That’s why a lot of companies have started to look at the global market to grow their presence and look for better opportunities.”
Vice versa, there are also mutually untapped opportunities for Australian companies to enter the Chinese market, said Mr Hao, who “believes there’s a major opportunity to be in a good trading position with China because it’s a big market, a big customer, and also because China will become a global technology driver”.
Last month, the financial services industry regulators in Australia and China signed an information sharing agreement that aims to “promote innovation in financial services in their respective markets”.
When it came to the question of how much interference the Chinese government really has over local businesses and potentially foreign businesses, Mr Hao insists the difficulty for a foreign company to enter into China is not because of the government, but local competition.
“The local competition is severe – believe it or not,” Mr Hao said.
“You have Mobike, Baidu, you have a lot of great new business models, but once this business model starts to be well recognised, there will be thousands of competitors that will jump at this opportunity. Imagine there are 1.4 billion people here; everybody wants a piece of that pie.
“That’s why for a lot of foreign companies, if you don’t find a good value proposition or the right position, it can be very difficult.”
Mr Hao does, however, warn that much like travelling into any foreign country, it’s important to follow local customs to avoid any hostility from the government.
“There is a certain bottom line here, which is don’t mess around with the Chinese government. But this bar is much, much lower than it was. People think of China as being strict and you can’t do anything, but actually it’s not.
“It’s a very open business environment, as long as you don’t mess around with the Chinese government or Chairman Xi.
“That’s why Google and Facebook were not allowed to come to China because they messed around with the government, and I respect that decision. It’s like if we go to Australia, we have to follow the local rules as well. It’s just that simple.”