Reuters: Beijing targets 'creatives' as it aims to promote low-paid university graduates to start-up chief executives

China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher

Reuters in Shanghai

20 October 2015

Quitting her job as a receptionist, joining rock bands and chancing her tattoo-sleeved arm at small business ventures would once have branded university graduate Ding Jia as a rebel in China.

Now she can claim state endorsement as a “creative”.

“I haven’t had a formal job in years,” said Ding, 31, sitting in her tiny coffee-and-cocktails bar, D+ Café, on a trendy Shanghai street.

She has no regrets, but no illusions either. “Entrepreneurship can be a really hard experience,” she said. “Profits can be so thin.”

In the week she spoke to Reuters, she and dozens of nearby businesses were forced to close temporarily by city officials on a regular sortie to enforce regulations.

While most parents might warn their children off high-risk, low-reward self-employment – preferring jobs in government or state-owned enterprises – Ding said her Shanghai nurse mother and taxi driver father were both supportive.

That attitude finds an echo in high places; recent graduates who start their own businesses are being hailed in state media as a new creative class that will build China’s Silicon Valley.

“Creatives show the vitality of entrepreneurship and innovation among the people, and such creativity will serve as a lasting engine of China’s economic growth,” Premier Li Keqiang said in January. “I will stoke the fire of innovation with more wood.”

In addition to warm words, many are receiving training, subsidies, free office space and other support from district governments and universities.

Optimists hope the next Jack Ma, Chinese founder of the e-commerce group Alibaba, or Mark Zuckerberg, founder of social media website Facebook, will emerge from this pool, but sceptics believe the policy is setting up inexperienced youngsters for failure.

The aim is to help shift China’s factory-based economy towards knowledge-driven services, and address unemployment among Chinese college students.

Most private employers have little use for new graduates from crowded domestic universities, who consequently can earn less than skilled factory and construction workers.

A Peking University study found that entry-level salaries in Shanghai averaged only 3,241 yuan (US$511) a month – a pittance in a city with one of world’s 10 most expensive property markets.

Chinese surveys show between 20 and 30 per cent of university students now aspire to entrepreneurship or self-employment.

Cui Ernan, a labour analyst at research company Gavekal Dragonomics, said official data suggested these students were following through. Although undergraduate numbers swelled to record highs last year, the number seeking work in the formal job market appeared to shrink. Cynics have said that pushing graduate entrepreneurship is mostly about helping officials meet targets while heading off political unrest among disaffected students – the demographic behind the 1989 Tiananmen Square democracy protests.

A busy entrepreneur, on the other hand, counts as both employed and as a new business registration.

Parker Liu, currently chief operating officer of a mobile technology start-up in Beijing, began launching new companies before he graduated. He said district officials regularly scoured entrepreneurship events seeking start-ups to subsidise, often on the understanding that the company would register in their district.

Liu said he had received small subsidies from district governments and helped introduce officials to other startups, but was doubtful about the benefits.

“The real problem is the money doesn’t come with education,” Liu said. “These government officers, they didn’t know much about entrepreneurs or start-ups, but they know a lot about political evaluations. They have a quota.”

Liu said the support also encouraged too many into sectors with low barriers to entry, such as e-commerce, mobile games, and college prep schools.

Geoffrey Crothall, communications director at China Labour Bulletin, said: “In terms of helping the job market, this sort of thing is of marginal benefit.

“They are going to price themselves into the ground, and so the wages they can afford to pay their staff are going to be very low as well.”

While official data is scant, failure rates appear unsurprisingly high.

“They have very poor management skills,” Cui said.

“Most of the businesses run by [university] students I observe, only a few of them succeeded.”

The University Students Venture Park in northern Shanghai was designed as an incubator for university students considering to launch a start-up. The lobby is decked out in a sunny palette and garnished with inspiring slogans about creativity; outside a large sign reads “Dream Community”.

Some have turned their dreams into a modicum of success.

The free rent, accounting services and internet access helped Jiang Gongbao launch his Long Ai marketing company, which has lasted long enough to hire a few employees.

Jiang said he understands the risks, but regards them as learning opportunities.

“Failure is not a bad thing, as the process to start up a business is always meaningful,” he said.

The incubator’s deputy general manager, Zhu Jiang, backs his tenants, but he is no evangelist.

“I do not encourage all students to start up business,” Zhu said. “Being a successful entrepreneur requires some characteristics that not everybody can possess.”

Many venture capitalists doubt the incubators do much good, since Chinese bureaucrats with little or no experience running private companies lack the skills to pick successful business plans.

“I think it’s really misguided,” said Gary Rieschel, founder of Qiming Venture Partners, which has invested in numerous successful Chinese start-ups, including Alibaba.

William Bao Bean, another China venture capitalist with a long history of investing in Chinese tech start-ups, said: “A university is a terrible place to learn how to start a company.”

Critics have said that what is needed is a dismantling of the policy barriers that make life tough for the private sector, such as weak legal protection for new ideas, restricted access to capital, and labyrinthine regulations that enable corrupt officials to prey on small enterprises.

Robert Zoellick, former World Bank chief, told Reuters in Shanghai: “Some countries make mistakes by trying to pick favourites and pick preferred technologies. Creating a level playing field is the start.

You need to have an effective rule of law and property rights. I think China is struggling with that.”

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