BJCG Article: Understanding the Chinese Entrepreneur

According to estimates, there are almost 20 million entrepreneurs in China – almost equal to Australia’s total population.

But Chinese entrepreneurs differ significantly from their Western counterparts, Cecilia Fan explains why.

Most foreign business people will come across the Chinese entrepreneur at some point, be it merely shaking hands, drinking and dining together, or in some cases, working together in the same management team or sitting on the same board. Although entrepreneurs are inevitably unique characters, the aim of this column is to give a general portrait of the Chinese entrepreneur as a group, and the cultural factors that shape their decisions and objectives.

In 2009, according to the State Administration for Industry and Commerce (SAIC), there were over 6 million private companies registered in China. Assuming an average of three individual Chinese behind each of these entities, then there are almost 20 million entrepreneurs in China – almost equal to Australia’s total population. Those figures suggest that one in every 30 to 40 people in China’s workforce fall into the entrepreneur category. Moreover, while the private sector covers over 70 percent of domestic companies, the average registered investment into the business is less than RMB 200,000 (A$40,000).

According to a US study of entrepreneurship, one of the critical points for private business is when revenue reaches US$2 million to US$3 million with a minimum 10 staff. In China, the critical point in dollar terms is fairly similar, but the corresponding number of staff is multiplied tremendously. The vast majority of these companies are in the manufacturing, distribution and retail industries.

The Chinese Entrepreneur as a social class has never gained much respect in modern Chinese history. Only in the late 1980s did the Chinese Constitution admit that private ownership was beneficial and necessary for the economy. In the 40 years prior to that, private companies were absent from the Chinese economy, and accordingly, so were entrepreneurs. Even today, the more conservative members of Chinese society still view the path of the entrepreneur as one of necessity – for school drop-outs and others who have failed to find decent employment elsewhere.

Studies in the US have also shown that most Americans have family and friends acting as the initial “angel investor”, but very few Chinese entrepreneurs enjoy this level of support.

In China, it is not uncommon for a young entrepreneur to regularly spend US$2000 and upwards, entertaining their clients, while the entrepreneur’s own parents shop at the street market, and shun supermarket groceries as too expensive. The entrepreneur and their parents often live in completely different worlds, with little understanding of one another. Family life may become strained when young parents both work full time, exemplified by one unique private tour package to Hong Kong Disneyland which is tailored for grandparents and grandchildren – without their working parents. More broadly, China’s entrepreneurs certainly make a significant contribution to the community in terms of the tax they pay. The proportion of the tax contribution by China’s private sector has been increasing by about 20 percent per annum; yet entrepreneurs have little control over how this tax revenue is spent. One interesting trend to emerge is that more and more Chinese entrepreneurs are willing to make donations in directions they can control – one of the largest individual donations to the Sichuan Earthquake appeal – the sum of RMB 30million (A$6m) – was made by a Tangshan entrepreneur who had been a toddler himself during the devastating 1976 Tangshan earthquake.

With a few exceptions, including enterprises who have great connections with local banks, or that are already large enough to gain support from the government (such as white good makers Hai’er and Meidi, with annual turnovers in the tens of billions US dollars), most entrepreneurs find it extremely difficult to secure external funding. Operating in a maze of ambiguous situations and conflicting policies, entrepreneurs are also often concerned with the security of their own wealth and social status. Many explore the possibility of immigration to ensure security. Despite their success, in reality, very little of their skills and experience is transferable outside China. The objective of the recent trend of “business immigration” is not to build another business empire outside of China – it is an investment in the education of their children, and the security of their retirement. The Chinese entrepreneur views him or herself as a warrior and a transformer – words such as fear, hesitation and consultation have no place in their dictionary.

Unlike entrepreneurs in the West, who tend to seek the advice of lawyers, accountants and other professionals, Chinese entrepreneurs prefer to seek solutions to problems through their “guanxi” (relationship) network, or they carry the problem on their own shoulders. Suicide among this demographic is high. There have been over 1,200 recorded entrepreneur suicides since the ‘80s including Volkswagen China headman, Fang Hongyi, who jumped from a building in 1993 as a result of severe depression. Chinese entrepreneurs are often a topic of amusement for intellectuals and bourgeoisies who poke fun at their poor style and nouveau riche tastes. Although we can’t turn all entrepreneurs into tasteful artists overnight, we can at least expect that in the future, Chinese entrepreneurs will live with more pride given what they have achieved in the last 20 years, and with more confidence about their futures.