What's the Next Step of Chinese Business Class - Term Paper Example

Next Step of Chinese Business of the of the Introduction When one talks about entrepreneurship and China in the same breath it seems like these two terms are Oxy morons. It is a common belief that Entrepreneurship and China cannot go hand in hand. Ideologically China is a communist state which has long suppressed and blocked the progress of Capitalist activities in the country. The country has followed communist philosophy since Mao Zedong took over in the year 1949. Yet the question still remains as to if the entrepreneurial activities could really be stopped at a time when a person indulging in the capitalist activities meant that he had to face public humiliation and persecution. Entrepreneurship has been defined as the process which causes in economic system through the process of innovations that is brought about by the individuals who respond to the economic opportunities thus creating value for both the individuals and the society. However there is a difference in between the entrepreneurial management as it applies to the large organization and entrepreneurship which relates to the starting own business. When an entrepreneur starts his or her own business then the amount of risk that he has to take is much higher. It also applies that for the entrepreneur involved in the starting own business means that he is far more independent. In China there is a proverb that can be linked to the pertinence of entrepreneurship. The proverb tells that it is better to be the head of the chicken than the tail of a phoenix. There is a widely held belief in china that the Chinese people like the freedom that is associated with entrepreneurship and that every Chinese wants to be his own boss. It is startling to note that the story of China’s remarkable economic growth is in complete without the inclusion of the entrepreneurs. That is to say that the remarkable economic growth of China has been achieved through the process that led to the rapid growth of the dynamic private sector in the country. The Chinese economy has been experiencing almost double digit growth for a long period of time. From the period that began in the 1990s to the year 2008 the GDP growth in China was in double digit for most of the intervening period. It was during this period that a large no. of businessman, scholars and policy makers emerged in the scenario and they collectively helped in order to give shape to the country’s economic growth. The entrepreneurs in China who have been most successful have driven the growth of china, have created great multinational companies and have amassed fortunes that have been stunning in proportion. Often the entrepreneurs in China are little known abroad but now the times are changing as these entrepreneurs are expanding abroad and selling their shares on the Wall Street. One famous example of such a company is the Chinese e commerce giant Alibaba. The following essay studies entrepreneurship in China and its effect of the communist regime in the country. Analysis and Discussion Chinese business class Entrepreneurs in China The entrepreneurship has been developed in China during the period of 1949-2000. Communism is prevailing in the Chinese economy. The communist rose to power in the year 1949. The communist economy of China was converted into social economy. The agriculture industry was nationalized, but the private sector is eliminated in 1956. China has determined the optimum allocation of economic outputs and inputs. The emergence of the socialist economy has introduced the Iron bowl concept under which the government has committed to provide life time employment to the citizens of the country. Various enterprises have been developed to provide employment to the citizens. The enterprises were engaged in providing various benefits and amenities to the employees such as housing facilities were offered which restricted the employees from staying outside the system or the economy as a whole. The entrepreneurship concept has always been supported in China. The increase in the growth of the entrepreneurs in china has been observed from the mid of 1990.But the growth and development of entrepreneurship has also lead to the emergence of various problems and obstacles for China since the increase in employment opportunity provided to the people of china has discouraged the urban workers of the country from becoming self independent and self employed. The entrepreneur also encountered problem due to limited availability of credit. The economy of China is lead by competition, productivity and innovation (Nee and Opper, 2012). Entrepreneurs in the state-owned enterprises After the Cultural Revolution in China, the economy of China has encountered various ups and downs in its economy. The increase in the rural unemployment and the local level revenue has created various problems in the economy. The enterprises that have been developed for providing employment to the citizens of China were not state owned enterprises as a result the economy faced a downturn. The increase in entrepreneurship has resulted in increasing the sustainability of the economy. But it has lead to the emergence of various problems and obstacles in the economy. The entrepreneurs in the process of providing national security and lifetime employment in its state owned enterprises are considered as the iron bowl concept has de-motivated the urban workers of the country from becoming self employed and independent. The entrepreneurs in the state owned enterprise of the country has offered alternative sources of revenue and employment to the citizens of the country. The ease of the state control over the country has lead to the emergence and development of the state owned entrepreneurship in China. The state owned entrepreneurs has contributed towards the increase in the Gross Domestic Product of the country during the period of 1985-2000.the state owned entrepreneurs has contributed more than 90% of the total GDP by the end of the year 2005.The development of the non state sector has motivated the state owned entrepreneur to renovate the enterprises. Entrepreneurs in the 80s, - whose who left public sector With the development in the non state sector of the economy it has been observed that the citizens of the country has switched their employment from the state owned enterprises to the non state owned enterprises. The entrepreneurs that has emerged during the period of 1980 were basically highly qualified individuals mostly the SOE managers, engineers etc operating in the segment of their choice. The businesses that were carried out by this segment of the entrepreneurs were transportation, manufacturing, restaurants etc. With the gradual development in the economy the entrepreneurs during the 80’s preferred to work in the segment or sector of their choice. The small rural entrepreneurs started their business in the urban areas. These entrepreneurs carried out their business independently and they received adequate credit from the banks which has increased the level of confidence of the rural entrepreneurs. Another development that took place during the 80’s is that the private entrepreneurs were developing significantly in the rural segment. Therefore the private segment or the non state owned entrepreneurs has influenced the poorest and the largest population of the country to the large extent. With the gradual change in the policy and rise in the income and saving, the number of private enterprises has increased to a large extent. The entrepreneur has left the public sector and started their enterprises. The state owned enterprises has various constraints such as over employment. The private entrepreneur is providing an opportunity to the employees to pursue higher degree along with their job (Tsai, 2007). Entrepreneurs in the 2000, -information technology new entrepreneurs The importance of entrepreneurs and entrepreneurship has developed gradually in China. The people who went abroad for pursuing higher degree have returned to china for starting their own business or enterprises. This type of entrepreneur has been flourishing mostly in the information technology sector of the economy. The specialties of these entrepreneurs are that these entrepreneurs are engaged in carrying out their business differently under different business environment and they are faced with different problems and challenges. The minister of State development and planning commission has motivated the entrepreneurs to start their own enterprises or business in 2000, since the government has encouraged private investment. The lack of infrastructural growth and development is considered as the constraint in the future entrepreneurial growth of the country. The rise of Entrepreneurship in Chinas economic reform The rise of the entrepreneurship in China has lead to the growth and development in the economic reform of the country. China is considered as one of the most well known entrepreneurial country of the world. Entrepreneurship is considered as the vital element contributing towards the growth and development of China. Before the economic reform of China all the enterprises in the country were owned and operated by the state owned enterprises under the supervision and guidance of the government of the country in a planned economic development framework. The official in charge of the enterprises before the economic reform were selected and designated by the officials not on the basis of their performance but on the basis of their fate. There were no definite rules and regulations for selecting an employee and parameters were not fixed on the basis of which the employees can be judged or analyzed as a result of which the entrepreneurs were not efficient and skilful. Therefore changes and modifications have taken place during the period of time. With the gradual change in the economic reform of the concerned country, the entrepreneurial skill has also developed with the due course of time. Therefore the non state owned enterprise has been emerged in the economy. The private or the non state owned enterprise has been able to operate effectively in the economy as compared to the state owned enterprise of the economy. With the gradual development in the non state owned enterprises in the economy, the foreign capital will be attracted in the economy. The diversity in the Chinese culture has lead to the development of relationship between the local and the central government in understanding and developing the business in China (Yang, 2014). Growth of private enterprise in China Towards the end of 1987, a change in the policy has lead to the emergence and growth of private enterprises in China. The number of private sector enterprises has increased by 93% during the year 1987. The entrepreneurs of China are considered as the key factor for the growth and development of the nation. The remarkable economic growth of China has been achieved through the emergence and development of the dynamic private sector. The private entrepreneurs have also contributed towards the generation of revenue of the country. The entrepreneurs have faced the problem of shortage of assets such as land property etc. The technological advancement and development is considered as the result of the emergence of the private entrepreneurship. The innovation that has been undertaken by the private entrepreneurs would not have been developed and managed only by the bureaucrats of the country. The private sector has lead to the increase in opportunities for the people. The rapid rise and the growth of china is the result of the rise of private businesses in the economy and the expanding performance of the market. In the manufacturing sector of the country, the private segment contributes more than seven times as compared to the state owned enterprises of the country. The productivity and the revenue generation capacity of the private sectors is more as compared to the state owned enterprises of the economy. On the basis of the financial perspective also it has been observed that the return on asset is twice as compared to the state enterprises. The growth of the state owned enterprises or the company has become stagnant. But the state owned enterprises are surviving because their earnings are less than their cost of capital, they are considered on the verge of growth. The investment of the private enterprises is also more as compared to the state owned enterprise of the country. Is the Business Class threat to Chinese Communist party The central reason which has led to China’s transition from an economy that was centrally planned is the development of the private sector enterprises by the new class of entrepreneurs. In 1978 for example the share of the state owned companies in the Chinese GDP was around 90% which had by the year 2005 fallen to about half of that level. Figure 1Share of State Owned enterprise in GDP (Yueh, 2008) In analyzing the growth of China some of the facts that can be noted are that most of the entrepreneurs in China live in Beijing. The following pages discusses rise of entrepreneurship in the context of the country and its political regime. Challenges and opportunities The growth of entrepreneurship in China goes well with the sustained economic growth of China. However the growth of entrepreneurship in China has been filled with obstacles all along. The Chinese government followed the practice of guaranteeing employment and provision of social security to the youth population in the urban area. Through this practice of lifetime employment in the Chinese state owned enterprises the Chinese government discouraged self employment and the rise of entrepreneurship. This changed with Deng Xiaoping became the chairman of the CPPCC national committee in the year 1978 (Liao, and Sohmen, 2001). Deng ended the era of the country’s economic isolation. Policies such as de-collectivizing agriculture, opening up the economy to foreign investors and liberalizing the market were introduced. In the mid of the 1990s the employment system was dismantled and there were massive layoffs in the state owned enterprises that was followed by the restructuring of the state owned enterprise. It was in this period that the Chinese firms began to flourish. As the country became more and more liberal and the grip and monopoly of the state owned enterprise were loosened investment started spilling in the development of the private sector from Macau and Hong Kong and this collectively pushed the Chinese economy into the international system. The growth of the private sector was further fuelled by the establishment of SEZ in china. The forming of the SEZ in the 1980 led to FDI flowing into the Chinese economy and encouragement of private businesses. Many Chinese entrepreneurs jumped to the occasion in order to seize the moment and take advantage of the new opportunities that were being offered. By means of providing an alternative source of employment and revenue, the emerging private sector enterprise has given the government the opportunity to the government so that it can reduce the state owned enterprise and reform them. Party policies and rules A challenge that is faced by the entrepreneurs in the country is the shortage of the credit facilities that has been faced by the entrepreneurs in the country. Out of total population of the small and medium sized entrepreneurs in China only 1% could access loan facilities from the banks. A survey by the Time magazine showed that the criteria for giving loans by the Chinese banks are too high to be met by the small businesses. It is also seen that the banks give more preference to the state owned enterprises and the companies which are partially backed by the state when it comes to giving out loans. A challenge that has been faced by the entrepreneurs in the country is the shortage of key assets for doing business such as land property. It is due to the fact that the property market in the country was not developed until the late 1990s. It was also contributed by the fact that as per the government policy and the policy that was proposed by the communist party in China the private ownership of property was not protected until the year 2004. In china ownership of the private property in the urban areas means that one has to be well connected with the government. Most of the land in China is state owned and the process of privatization of land has only begun in the country recently. Starting in the 1980s the Chinese government has actively engaged in the encouragement of entrepreneurship throughout the country. The government has engaged in the support of entrepreneurship development in the country through introducing the patent law, allowing the SOE or the state owned enterprises to go bankrupt if they could not survive the competition. The government has also created a more investor friendly environment that is more suitable for the private entrepreneurs in the country. It is a popular belief that the growth of China as a country over the past 30 years has been fuelled by the state run enterprises in the country. However the country’s private sector has also played a major role in the growth of the country. Traditionally the entrepreneurs of the country have been subject to the dictates of the central government. However, over the years the government of the country has slowly liberalized its stance to the entrepreneurship growth and has recognized the importance of the entrepreneurs in the growth of the country. The entrepreneurs in the country are being granted increasing amount of self determination and independence in the recent years. The official recognition of the importance of the entrepreneurship has come from the government of China in the rise of economic success of the country. Recently the Chinese president Li Keqiang said that the entrepreneurship in the country should be encouraged and the start business should be given the support that they require. The president also called for encouragement and support for entrepreneurship students and the start up business. The government called for the development of entrepreneurship in order to ward of unemployment in the region. The Chinese government has recently increased investment in R&D sector and encourages the students to pursue engineering courses. However there is still no. of obstacles that entrepreneurs have to face in China. The government run legal system is very much state based. This makes corruption levels high in the court and legal proceedings. Private entrepreneurs in China who do not have communist party connections are disadvantaged as compared the State owned enterprises or the private investors who are politically well connected. It is seen that small private enterprises normally lose court battles against giant state owned enterprises. It is also seen that starting a business in China takes 38 days compared to the fact that it takes only 5.7 days in other OECD countries (Ebner, 2014). Next step after they succeeded financially It is seen that most of the entrepreneurs who have made big in China are backed by the communist party or the government of China in some way or the other. Most of the entrepreneurship activity in China is urban based. It is also found that the entrepreneurs share a close relationship with the government with 1/3 rd of the top 50 entrepreneurs holding positions in different government advisory panels. It is also found that 29 of the top 50 entrepreneurs consider that property is the major source of their wealth. It is also found that the entrepreneurs share a close relationship with the ruling party in the country. It is found that 30% of the top 50 entrepreneurs in the country are delegates of the National Party Council or the conference of consultation of the people’s political consultation. Figure 2Entrepreneurs as percentage of total employment (Yueh, 2008) As compared to the persons employed by the state owned enterprises most of the entrepreneurs earn much more. It is seen that the average entrepreneur in China earns about 35% more than the average salaried person in China. It is also seen that only 6% of the entrepreneurs are members of the Chinese Communist party. As compared to this 18% of the non entrepreneurs in China are members of the Communist party in China. This may be due to the fact that membership of the communist party in China protects the person from being laid off and thus prevents him from getting into the private sector. It is also seen that most of the people who have become entrepreneurs had suffered from unemployment in the period of mid to late 1990s when there were large scale layoffs in the state owned enterprise and it was at this time that these people had to start entrepreneurship. Figure 3 Annual income of entrepreneurs and non entrepreneurs in China (Yueh, 2008) Social issues in business It is seen that is china the entrepreneurs have large social connection or large social networks. This is due to the fact that in China legal system is very corrupt and opaque. It is controlled by the dictates of the State. The weakness of the legal system and the opaqueness of the regulatory structure in the country have led to the fact that the business people need to have good contacts in to the government in order to be successful. Starting own business in China requires that the people should have good contact in order to get the loans secure supplies and secure distribution and also get land and the operating license to run the business. It is seen that in China where public debate has long met with tough crackdown from the government new executives of several private companies are starting to speak up on social issue in China. A no. of CEOs is starting to speak up on the matters of social and political issues without caring for their reputation. For example one of the matters on which the executives have started speaking up is the one child policy that was proposed by the Chinese government. The Chinese government used to fine every couple who had more than one child in China. Ceo Like James Liang who is the founder and chief executive of the travel site CTrip.com International limited has been encouraging the employees to have more than one child. The company gives inducements in the form of interest free loans to the employees to have more than one child which exceeds the amount of fines that is imposed by the government. Other executives who have framed policies against the one child system in China are Zou Xianhua who is the CEO of Shenzhen Joaboa Technology Company and Cao Zhiwei chairman of Guangzhou New City Life Group. The communist party has also been severe in its attempts to stop any debate on the social issues in the country. It has intensified the crackdown to ensure that the liberal economic policies which the country has followed over the recent years should not be though about that the country and the party will tolerate dissent. However despite these proceeding happening in the country some of the executives are pushing the levels and limits of tolerance of the system. The Chinese companies are trying to develop the brands of their companies with a social message much like the American companies such as Google and Starbucks. For example Jack Ma who is the chairman of the e- commerce giant Alibaba group holdings limited awarded 10 gay couples in china all expense paid trip to the United States so that they can get married. This is clearly a break from the Chinese tradition. Zong Qinghou who is the leader of the Wahaha group has objected to the government policy which curbs the sales of new car and has instead said that the government could build more roads to ease congestion instead. Figure 4: Cause marketing (Burkitt, 2015) Conclusion The paper does analysis of the businessman in China. China is a communist party and private businesses or the rise of capitalism and Chinese Communism are two terms that seem as Oxymoron. Chinese government once followed the policy of granting guaranteed employment to the Chinese people thus effectively discouraging private entrepreneurship in the country. In fact there was a time in Chinese history when the private sector contributed 90% to Chinese GDP. However, following economic reforms that were instilled by Deng Xiaoping the private sector and entrepreneurship started growing. The government abolished the policy of guaranteed employment and engaged in massive layoffs from the State Owned enterprise. The government also formed special economic Zones and these initiatives in turn brought in foreign investments and led to the development of the private sector in the county. Over the years the private sector has played a major role in the continuing economic growth of the country. However, it is also seen that there are several areas like getting the go ahead to run a business, getting a loan to run the operations getting operating license to commence business in which one needs the support and contacts in the government to get the business running. In other words it is still very difficult to open a new business in the country and one need to have good government connection in order to be able to be a successful entrepreneur. In another development in the business class it is seen after the businessman in the country have established themselves as a good entrepreneur and have secured their financial position they have started speaking up on the social issues in the country. The entrepreneurs have got punished several times for speaking on the social and political issues as the communist regime in the country hates public debate. However the new generation of entrepreneurs following the cue from American companies such as Google and Starbucks has started speaking on the social issues in order to boost the social image and use it for marketing their product. The new generation executives in china are starting to speak up on a variety of topics ranging from one child policy to gay marriage. These companies are trading on a dangerous path and want to boost the image of the company. References Burkitt, L. (2015). Chinese Executives Start Taking Stands on Social Issues. Retrieved from http://www.wsj.com/articles/chinese-executives-start-speaking-up-on-social-issues-1428429078 Ebner, J. (2014). Entrepreneurs: China’s Next Growth Engine? Retrieved from http://thediplomat.com/2014/08/entrepreneurs-chinas-next-growth-engine/ Liao, D. and Sohmen, P. (2001). The development of modern entrepreneurship in China. Stanford Journal of East Asian Affairs, 1(1), 27-33. Nee, V. and Opper, S. (2012). Capitalism from below, London: Harvard University Press. Tsai, K.S. (2007). Capitalism without Democracy, London: Cornell University Press. Yang, K. (2014).Entrepreneurship in China, London: Greenwood Publishing Group. Yueh, L. (2008). China’s entrepreneurs. Retrieved from http://cep.lse.ac.uk/pubs/download/cp253.pdf Read More