'Informal' Entrepreneurship is the key to China's success (page 3 of 3)

But thousands of regulations still govern businesses, many of which aren't always published. In addition, the rules change frequently and the mandates of various government agencies are not coordinated. "Many regulatory laws are conflicting, because different governments make different rules," Zhang said, adding, however, that some relief is on the way. He pointed to a central government office whose mission is to reform the administrative approval process. The office helped slash the number of required approvals at the State Economic and Trade Commission from 121 to 58, and some regional governments have made similar progress.

Each stamp of approval a business avoids means one less opportunity for a corrupt official to demand a bribe. And Zhang pointed to another development suggesting politics is playing a smaller role in business affairs: Multinational companies such as Sony have been moving their headquarters from national capital Beijing to Shanghai, the country's economic dynamo. "That is a very, very important signal," Zhang said. "That means Beijing is less and less important."

Less important, perhaps, but China's government still can make life difficult for entrepreneurs. So said conference speaker Hong-Tai Chou, CEO of Incubenet, an organization of angel investors with business connections in China, Hong Kong, Taiwan and Singapore. Chou sparked laughter with the results of his informal survey about how "free" China's markets are. "They are free...if you don't get caught," Chou quoted a Shanghai friend saying. Another friend in Taiwan said the answer depends "on whom you know and how you motivate them."

Silicon Valley entrepreneurs of Asian descent who are thinking about returning to China had yet another answer, according to Chou. The markets will be free, they say, once China joins the World Trade Organization. China officially became a member of the WTO last year, and has agreed to undertake additional economic reforms.

Taiwan-born Chou, who sold his firm Omniscience to Oracle before he founded Incubenet, concluded that China's economy is flexible and rewarding for the adventurous. But he added that it is a challenging environment for both multinationals and people of Chinese descent returning from overseas. Echoing a point of Zhang's, Chou said it is difficult to keep up with rapidly changing laws and regulations. China also lacks experienced managers, Chou said, and it can be confusing for overseas investors to understand the accounting methods used by Chinese firms. To top it off, investors often struggle to take money made in China out of the country. "There are lots of ways," Chou joked. "But most are not very legal."

Anthony Neoh, chief adviser to the China Securities Regulatory Commission and another speaker at the conference, asked Chou if the obstacles he (Chou) cited are stopping him from investing in China. "Not stopping me, just delaying me," Chou answered. "We're still learning."

Understanding more about China's economy is critical, argued Allen, Qian and Qian. In particular, Allen and his colleagues say more information must be gathered about the informal sector at the heart of China's growth. To ignore that part of the economy while pushing to make China look like the developed world risks killing the goose laying the country's golden eggs, Allen told the conference audience. Care must be taken not to harm that sector "by trying to go for the traditional kinds of reforms."

He added that China's informal sector may provide lessons for other developing and even developed countries as they seek to spur economic expansion.

Another important question is how China's economic growth relates to the country's political system, which remains largely authoritarian. On the one hand, the Chinese Communist Party's firm hand is contributing to the burgeoning informal sector, Qian suggested. Given a poor court system for settling business disputes, one could imagine gangs arising to enforce deals. But through its very harsh criminal penalties, the government deters organized crime, Qian said.

Yet Qian also noted that the prosperity created by China's growth could help trigger the downfall of Communist Party rule. In other words, economic success may breed more democratic yearnings. "When people have more money to spend," he said, "they care about other parts of their life as well.



Source:
For more articles like this one, visit Knowledge@Wharton http://knowledge.wharton.upenn.edu

All materials copyright of the Wharton School of Business, University of Pennsylvania
http://www.upenn.edu