Innovation and entrepreneurship in Asia through an Australian lens - China 

Insights from Entrepreneurs in China

Research and interviews conducted by Anna Groot, Asia Director, Advance

Advance, Australia’s network of leading Australian diaspora and alumni, supports innovation and entrepreneurial, global Australians. We conducted a study across Asia over the last eighteen months, on which locations might provide the best environment for start-ups looking to capitalise on the positive growth across the region. Our goals for the study were simple; to be able to assess which location in Asia would provide the best conditions for an extension of our existing Innovation program, currently operating between Australia and Silicon Valley; to identify Australian entrepreneurs and the nature of their industry focus in various locations across Asia, and to spotlight the opportunities and unearth the hidden challenges of these unique geographies for the next generation of start-up creators.

As the world’s largest and most populous continent[1], Asia clearly covers a large area and as we were not able to research every country in the region, we focused the study on five locations within Asia where there is a critical mass of Australian diaspora namely; China, Hong Kong SAR, Singapore, India and Indonesia.

A series of qualitative interviews were undertaken with Asia based Australian start-up founders, entrepreneurs, investors, incubator managers and other market participants about their experience in the start-up scene within their base country. While a portion of the information remains confidential we are able to share some of the learning and insights garnered from our research.

We will be presenting an overview of the study results for each location over the next four months and welcome member feedback and commentary to be added to a white paper outlining the the pros and cons of starting up a business in each location. The third location to be presented is China.

Starting up in China -  At a Glance

 POPULATION:  1,398,216,800

AUSTRALIAN EXPAT POPULATION: Approx. 15,000[2] (excluding Hong Kong SAR)

WORKING LANGUAGE: Official language: Standard Chinese  (Mandarin/Putonghua/官話), Chinese (漢語) comprises of six other main dialects,  Cantonese (Guangdonhua/ 廣州話, 廣府話), Hakka  (客家話), Wu (吳語), Min (閩語), Xiang (湘語), and Gan (贛語)

INCOME TAX: Approx 30 – 45%

CORPORATE TAX: 25% Certain industries and qualified businesses may be entitled to lower corporate income tax rates such as 15%.  Some tax holidays are also available to qualified taxpayers.[3] 

VISAS RELEVANT TO START-UPS: Work Visa/Z Visa: according to the new immigration reform beginning on July 1, 2013,  there are now 2 Z visa options. Z1 visa is for foreigners who come to China for employment over  90 days while Z2 visa will be for foreigners who come to China for employment or paid internships for a period of less than 90 days. This visa is issued to foreigners who are going to China for a post or employment, and to their accompanying family members.

Pros and cons of setting up in China

Pros

  • Government supporting the growth of startup culture and clusters
  • Huge population = huge market and growing middle-class population
  • Pro-business Government
  • Active VC environment - 75% of International VCs have a presence in Beijing or Shanghai
  • Excellent Infrastructure
  • Growth in English Speaking population
  • Good talent base the scaling opportunities

    Cons
     
  • Many issues around ownership both IP and company ownership
  • You generally need to have a local as business owner
  • The market and culture are incredibly complex
  • Physical challenges - current pollution levels
  • Any company that grows to certain size soon succumbs to many challenges
  • Hard to oversee quality control
  • Relatively high tax rates
  • Local relationships and knowledge of local culture essential

Key areas for investment

  • Cleantech
  • Mobile
  • Internet & Hardware
  • B2C models with e-commerce
  • Social Media

Main events and conferences that focus on the start-up ecosystem

  • Beijing Hitech Fair
  • AVCJ in Shenzhen
  • Comdex China
  • Communication China
  • ChinaJoy

There are a lot of events that are sector specific rather than generally start-up focused.

Leading incubators, accelerators and co-working spaces

  • Innovation Works
  • Tsinghua Enterprise Group
  • Beijing University
  • MIIT & MOFTEC Supported Organizations
  • Angelvest: Launched in 2007. Provides early stage capital to companies with significant pre-existing and/or planned operations in China as well as providing value-added investors who leverage professional experiences and netowrks. Angelvest has a presence in Shanghai, Beijing and Hong Kong.

Three key challenges faced when starting a business in China

  1. Local knowledge
  2. Local relationships
  3. Fierce competition

The challenges are very different depending on if you are local or foreign

Five pieces of advice for setting up your business in China

  1. Conduct plenty of research to really understand the market first
  2. Do not invest in China if you are not fully prepared and committed to the region
  3. Do not try and cut corners in terms of setting up your entity
  4. Do not assume being overly familiar or direct with people will get you further faster
  5. Not all typical Australian traits are received well offshore

China’s start-up history and entrepreneurial culture

Start-ups and entrepreneurialism is embedded in the Chinese culture where people are often starting up new businesses - everything from selling product on the street to fully fledged restaurants and beyond - in order to earn an income to survive.

There is a strong entrepreneurial culture and innovation is everywhere as necessity is the mother of invention!

The Government promotes clustering, and provincial governments will try to support businesses but there isn't really a 'valley' or a 'roundabout' community like there is in the UK or USA.

Watch highlights from our 2014 Shanghai Asia Perspectives event:

Doing Business in China online resource: http://www.doingbusiness.org/data/exploreeconomies/china/

The material in this article includes general feedback Advance collected over the course of 2013 and 2014 and current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to businesses or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor.

Acknowledgements

Advance would like to thank for the following people for their generous contribution of knowledge and insightsGeorge Cheung, Mina Guli, Thirst,  Andrew Macintosh, Hanhong Private Equity.

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