China’s start-up landscape

New opportunities, new models of collaboration

China has a fast growing and rapidly developing start-up landscape. In 2017, 19.3 million new business were established in China, with 11,284 of those listing on the National Equities Exchange and Quotations (NEEQ) market. Those on the NEEQ are mostly innovative start-ups.

 

The speed of development can be demonstrated through China’s unicorns. 67 out of 70 have been created within the last four years. China also accounts for a significant proportion of unicorns globally, with responsibility for 8 out of the top 20, second only to the US with 9. The value of the US and China’s unicorns in the top 20 are roughly the same. 

Government policies are targeted towards making start-ups thrive

The development of such a vibrant start-up scene is no accident. China has created the right policy incentives. Innovation is the number one guiding principle of the 13th Five Year Plan, China’s national economic strategy, supported by a range of sub policies to drive the necessary conditions across the ecosystem. These include the Innovation Driven Development Strategy, Mass Entrepreneurship and Innovation, Consumer Driven Development Strategy and the Thousand Talents Plan, encouraging the best minds to return from overseas.

 

Funding is abundant

Significant funding is available to support start-ups, especially given the dramatic rise in venture capital from China. This has been bolstered in part by investments from China’s biggest technology companies. In 2017, Alibaba’s top 10 investment payouts were worth over $11bn US dollars and Tencent is rumored to have $60bn US dollars of funds under management. Collectively, the majority of Alibaba and Tencent’s investments are in tech IT companies. However, consumer; healthcare; banking, financial services and insurance are also significant elements of their portfolios. 

 

What does this mean for doing business in China?

Chinese start-ups have a very different culture to State Owned Enterprises. They can be agile, fast moving and innovative. They are often able to test new products, services and scale up activity quickly and cheaply. This clearly presents a range of opportunities for collaboration. However, given the start-up business environment the old models of collaboration such as licencing, joint venture or establishing a Wholly Foreign Owned Enterprise (WFOE) may no longer be fit for purpose. Instead there is scope of create new bespoke models responding to the joint innovation opportunities partnerships with start-ups can bring.