Tea Leaf Nation

China, Start-up Nation

Why everyone from Beijing to Beihai is trying to become the country’s Mark Zuckerberg.

China Daily Life - National Day
BEIJING, CHINA - OCTOBER 01: Chinese tourists take pictures near Tiananmen Square on the 65th National Day on October 1, 2014 in Beijing, China. The day marks the founding of the People's Republic of China on October 1, 1949. (Photo by Kevin Frayer/Getty Images)

A start-up frenzy has gripped China. The smell of money is in the air, and inspirational rags-to-riches stories are seemingly everywhere. Texts abound purporting to teach the dark magic of successful entrepreneurship; Chinese online bookseller Dangdang.com lists more than 27,000 titles featuring the keyword “start-up,” while the same search on Amazon turned up just under 12,000. Some of those stories are already household lore. The top start-up book on Dangdang is called Never Give Up — 24 Lessons for Entrepreneurs from Jack Ma. Ma, the founder of Alibaba and China’s richest man worth something like $21.8 billion, began his career as an English teacher making $12 a month. An entire genre, known as chenggongxue, which literally means “success-ology,” takes up a large swath of the stuffed self-help sections in Chinese bookstores.

The stories are compelling because they are true. The pantheon of Chinese top entrepreneurs who’ve risen from nobody to tycoon include not just Ma, but also “Phone King” Lei Jun, who founded tech megalith (and cheap smartphone maker) Xiaomi and became a billionaire in his early 40s, and serial start-up maverick Shi Yuzhu, who has dabbled in online gaming, melatonin products, and banking, making and losing fortunes along the way. Hundreds of Chinese companies, many started by ordinary people, have completed initial public offerings in the U.S. or Hong Kong – a nod from the world’s most sophisticated capital markets being the ultimate badge of honor for start-ups everywhere – and minted thousands of millionaires in the process. Forbes counted more than 400 Chinese billionaires (that’s with a “b”) in April 2015, almost all of whom have made their fortunes within the last 30 years. Many did so in just the past decade on the backs of rising nationwide Internet penetration and higher disposable income. Most are self-made men (or occasionally women).

Making millions or billions building a business in the nominally communist China now manages to feel both spectacular and normal at the same time. The country’s “post-90s generation” — a term to describe young people born after 1990 — has come of age in a time of connectivity and innovation, and has been weaned on tales of fresh ideas turning into vast riches. China’s hyperactive venture capitalists are determined to sniff out the next Mark Zuckerberg among them. IDG, a well-known venture capital fund, has set aside $100 million for projects started by post-90s youngsters, and has thus far invested in a cartoon app, a karaoke website, and an online camping service. In 2013, a young post-90s couple named Wang Ruixu and Zheng Aiyi made an app that allows college students to look for part-time jobs; by early 2015, their company reportedly had a valuation of more than $16 million.

New success stories are emerging on a near-daily basis, shared widely via microblogging platform Weibo or among family and friends on mobile messaging app WeChat. They are not limited to the tech sector. The latest success story is that of Peng Yu, a college graduate who reportedly gave up graduate school to raise chickens with his girlfriend (and named their poultry farm “Amour” to celebrate their love) in western Sichuan province, and achieved almost $100,000 in sales after only three months. Peng’s story appeared not only on Chinese state mouthpiece People’s Daily, but also on websites and Weibo accounts affiliated with the Communist Youth League, the ruling party organ responsible for working with young people in their teens and early 20s.

It’s just the latest sign that the party is trying to spread start-up fever among young people. In the past year, league-affiliated media outlets have pumped out a steady stream of success stories like Peng’s, featuring young university students starting businesses instead of looking for jobs — whether it is selling menswear or concert tickets. In 2014, the youth league hosted a nationwide start-up contest for university students that attracted 385 entries. The youth league plans to organize a “training camp” for upcoming participants this summer.

Orders to fan the start-up flame came from on high. In November 2013, President Xi Jinping spoke about encouraging entrepreneurship among Chinese youth. In September 2014, Prime Minister Li Keqiang made an important speech about a “new wave of start-ups from the masses and grassroots” at the Summer Davos meeting held in Tianjin. Since taking office in 2013, Li has made five trips to Chinese universities; according to an April 2015 article in a youth league-affiliated newspaper, and student start-ups was his top concern on each of those trips.

All levels of the Chinese government apparatus are taking note of these signals. In March 2015, Beijing announced that it would build an “incubator system” consisting of a “start-up street” for university students in the Zhongguancun area, home to many of the country’s top tech firms like search giant Baidu and web portal Sina. In just the first four months of 2015, several Chinese provinces and municipalities including Hubei, Shanghai, Jiangxi, and Qinghai have invested money, introduced tax incentives, or provided stipends to help college students with start-up ventures.

The government is open about the motivation behind its start-up push: The slowdown in the Chinese economy has led to ever-tougher job market, and developing small businesses is a key to keeping China’s economy growing, its workers (crucially) occupied. Since taking office, Li has repeatedly spoken about the need to cut red tape for small and medium-sized businesses and tap into the power of Chinese e-commerce, a market that consultancy McKinsey expects to get as large as $650 billion in sales by 2020.

Li’s approach seems to be bearing fruit. According to government data, almost 3.6 million new companies were registered in 2014, 46 percent more than the year before. In January, after the Ministry of Education floated a proposal that would allow students to pursue start-ups while in school, a survey by a youth league-affiliated newspaper found that almost 40 percent of university students say they are willing to suspend their studies to start businesses.

None of this means pursuing a start-up is actually in the self-interest of most young Chinese. As a rule, the vast majority of start-ups, in China or elsewhere, invariably fail. According to a December 2014 article in Shanghai-based Xinmin Evening News, in 2013, only 2.1 percent of university students tried to start their own businesses; 90 percent of these ventures failed. In a 2009 survey conducted by the youth league’s Guangzhou chapter, only one percent of ventures started by university students in Guangdong province were successful. (Students from Zhejiang, the province where Alibaba is famously headquartered, apparently fared better, succeeding at a 4 percent clip.)

In language evoking memories of disastrous Mao-era central planning policy, commentators have cautioned against a “Great Leap Forward” for start-ups. Venture capitalist Yan Yan, speaking at a conference in December 2014, warned that the most likely accomplishment for a young entrepreneur was the loss of his shirt and his parents’ hard-earned savings. Christopher Jin, a self-described tech investor, wrote on Weibo that starting businesses is like “jumping into a fire pit” for most people. Li has promised, in vague terms, to build a social safety net for failed entrepreneurs, but so far local governments only provide meager help when ventures turn sour.

A get-rich-quick mentality can lead aspiring entrepreneurs to take dangerous shortcuts. To many young people without much capital or business experience, founding a start-up means selling low-cost products like cosmetics or clothing over WeChat or Taobao, Alibaba’s consumer-to-consumer retail site, sometimes as part of a thinly veiled pyramid scheme. These schemes characteristically tout “self-reliance,” business “ownership,” and a glamorous lifestyle, and continue to attract large numbers of followers in pockets around the country, even as the Chinese police crack down on them and stage “rescue missions” for adherents.

To be sure, the fact that start-up culture is taking hold, particularly among China’s younger generation, is a welcome change. For years, there was much handwringing over the popularity of the civil servant exam in China, which indicated that young people preferred steady but staid jobs over risk-taking and innovation. But with Xi’s austerity campaign slashing perks associated with civil servant jobs, the number of people taking the civil servant exams plummeted to a five-year low in 2014.

Unleashing young, innovative energy is certainly a good thing for the Chinese economy, as it becomes more dependent on services and domestic consumption and moves away from the humdrum business of manufacturing goods for export. The start-up bug has bitten a large number of young Chinese who are now chasing their dreams of creating something new. For most of them, the journey, however quixotic, will bring them excitement and an opportunity for self-expression — even if a champagne toast above the floor of the New York Stock Exchange remains nothing but a mirage.

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