Op-Ed Contributors

Business is not the same in China

By Wellington K. K. Chan (China Daily)
Updated: 2010-07-28 08:00

These structural features fit well with Chinese merchants, who did not want to see their companies grow so large that they attracted official attention. Successful businessmen could in fact build up extensive holdings by owning or sharing several businesses. Since China never established male primogeniture, this meant that when a successful businessman died, each of his sons could have his own business to start with.

Likewise, the functional features of Chinese entrepreneurship were heavily dependent on cultural values, particularly given a financial and legal system that was often unreliable. Thus a business was controlled and managed mostly by family members and relatives, with support through networking with those in an established relationship of trust.

This history and evolution matter in trying to understand today's Chinese entrepreneurs.

The great majority of the roughly 24 million private individuals estimated to have gone into business between 1980 and 2005 were ordinary folk with very small capital - usually obtained by pooling the savings of family members and perhaps friends.

Their businesses include small stores or a stand on a busy sidewalk selling specific goods or providing some service. Only some 3 million of these businesses gained sufficient size and organization to form limited-liability corporations that issued shares. And all firms with annual revenues of $1 million or more seem to have required some form of support from officials, who serve as gatekeepers for all forms of licensing, sourcing, and financing.

In recent years, some of these controls have been relaxed. Attending to the gate-keeping role of officials has become less of a necessity. But networking and connections continue to matter.

And, aside from a relatively small number of joint ventures with foreign partners and State-owned enterprises that are in fact hybrid public-private firms, most businesses today, including publicly listed companies, remain family owned or dominated.

Some may have grown large in size and scale, but only to the point where they could compete efficiently in the international market. Even the small number of national companies that have grown large are relatively small when compared to the Japanese kereitsu or the South Korean chaebol.

Chinese entrepreneurs nowadays are particularly well adapted to take advantage of new market trends brought about by rapidly changing fashion and similarly rapid technological progress. Their relatively small companies and their efficient decision-making processes allow them to remain nimble and to react quickly.

In addition, their often highly diversified structure and their loose network of affiliates and supply chains allow Chinese entrepreneurs to reconfigure business strategy and production facilities quickly, thereby bringing new products to the market with shorter lead time. For example, Chinese cell phone companies offered 3G phones much earlier than in America, and when they learned that each phone was being used by several individuals in rural China, they programmed their phones to allow multiple accounts for each phone, thereby adding tens of millions of new subscribers.

Despite continuing political restrictions, Deng Xiaoping succeeded beyond his wildest imagination.

The author is professor of Humanities and professor of History at Occidental College, Los Angeles.

Project Syndicate.

(China Daily 07/28/2010 page9)