China lags US in entrepreneurs

Amid the political theater of the US debt ceiling crisis and fears of a double-dip recession, China still looms large as the chief antagonist to the US position as the world’s economic powerhouse. It is estimated that by as early as later this year China will surpass the US as the top global producer of manufactured goods. China isn’t happy with the debt ceiling debacle’s outcome, and as the US’s largest foreign investor, China’s opinion counts.

But fresh research from Northwestern’s Kellogg School of Management suggests China’s economic policies hamstring its potential entrepreneurs. America’s tradition of rugged individualism (which includes Mark Zuckerberg as much as it does Rooster Cogburn) is a counterpoint to China’s economic order in which the entrepreneur takes a backseat to the interests of the state.

The Kellogg School’s research looked closely at Shanghai — a dizzyingly huge city which contributes nearly 7 percent of China’s total industrial production. The research indicates that China’s economic strategies outlined in the 1980s are undermining Shanghai’s ability to produce and sustain a thriving small-business community.

China has emphasized foreign investment as the primary path to Shanghai’s industrial development. To burnish Shanghai’s image as a global economic engine, small businesses that harkened back to the old China — such as the street-food vendors and vegetable stalls operated by some of Shanghai’s poorest citizens – were often stifled. Until 2005, nonprofit workers, university professors, and managers of state-owned companies were not permitted to start their own businesses. Residential properties could not be used for business purposes, and tax policy favored businesses with at least 25 percent foreign investment. Private businesses weren’t allowed to bid on the enormous infrastructure projects that drove Shanghai’s rapid growth in the late 1990s.

While the researchers at the Kellogg School suggest China’s lack of encouragement of small business is not good news for Shanghai’s entrepreneurs, it may be a much-needed bit of good news for US entrepreneurs who are looking eastward for their slice of the American Dream.

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Photo by Brandnliu, used under a Creative Commons license.
James Bryant

James Bryant is a writer and editor for the First Research team at Hoover's.

Read more articles by James Bryant.

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