STARTUP HYPE IN CHINA

China is currently experiencing a startup hype. In this article we will update you about the recent government developments in China and analyze different types of possible investments in the startup sector.

According to the Chinese government 4.854 million new companies have been registered between March 2014 and May 2015, equaling to 10,600 new businesses per daz or seven every minute. Approximately half of the new companies are internet startups, which enter one of the most competitive, complex and fast moving business sectors worldwide. These numbers are remarkable but at the same time raise a lot of questions. In this article we will update you about the recent government developments in China and analyze different types of possible investments in the startup sector.

RECENT GOVERNMENT DEVELOPMENTS

In June 2015, China´s premier Li Keqiang announced further government support for startups again. This includes different types of subsidies such as the reduction of red tape and legal costs for registering a new business, lowering the rent for the company´s office space as well as simplifying the overall process of the business registration and obtaining the business license. In addition, China´s premier promised tax benefits and different types of training to support entrepreneurship. Since the beginning of the year a few of these announced incentives above, such as reduction in rent, have been introduced in coordination with local governments in some Chinese provinces. However, how and if all of the ideas are going to be implemented further remains to be seen.

TYPES OF INVESTMENT

One of the multiple big challenges that almost every new established firm faces is to find credible investors. In regard to startups, one can distinguish between several types of investment.

Angel investment can provide multiple different investment vehicles for small startups or entrepreneurs from a one-time investment to an ongoing cash flow that helps the startups through financially difficult times in the beginning stage. Angel investors often come from the founders or entrepreneur’s family and friends. In the past, this form of investment helped some of today´s largest and extremely successful organizations such as Facebook and Apple.

The more common type of investment is called venture capital and is provided by investors that see a long-term growth potential in an organization. The investors are willing to take the high risk in the beginning in order to potentially receive high returns later.

Another form of investment are business incubators, already widely known throughout Europe and the US. These platforms offer more than just financial support for young startup firms in their early stage. Business incubators can provide several benefits, from affordable office space to different types of management and marketing training as well as access to some sort of financial resource. Moreover, the existing pool of knowledge as well as potential networking opportunities can be highly beneficial for young founders and entrepreneurs.

INCREASE OF INVESTMENT IN STARTUPS

Recently, China has experienced high growth of capital being invested into the startup industry. In 2014 angel investment with a total of US$ 526 million supported 766 different projects with a tendency rising. In 2015 the same investment reached already US$ 260 million in the first quarter of the year.

According to China´s minister for science and technology the country currently has more than 1,000 organizations investing in startups with a total investment capital amounted to more than US$ 56 billion. Multiple small Tech firms are inventing new types of platforms that bring together potential investors and startup firms.

The government in Beijing announced the project “start-up street”, a business incubator located in Zhongguancun. This tech and invention district located in the Northwest of Beijing is often referred to as the Chinese Silicon Valley and accommodates some of the country´s most successful high-tech corporations such as Baidu or Lenovo.

FOREIGN STARTUPS IN CHINA

It is said that there has never been a better time to start a company in China. This begs the question how foreign startups are doing in China. Except from Chinese startups, foreign startups have problems in China that not only concern the company set up but also a general economic survival problem. That is because the Chinese market has a much higher competition than the US or the European market. To be successful in China, foreign startups have to be well-prepared and concentrate on their core business. Therefore, ECOVIS Beijing can support you with an all-round packet, from the company registration to other legal matters and tax optimization. Furthermore, with outsourcing your monthly accounting you can focus on your core competencies and lead your business more efficient. Especially for the beginning stage, startups are advised to consult with a specialist to save time and resources. Besides we make sure to be in compliance with the laws and regulations in order to avoid penalties.

THE BIG THREE ARE DRIVING THE TECH INVENTION MARKET IN CHINA!

In order to stay ahead of China´s exceptional competitive IT market and catch up with the world’s leading companies such as Apple, Microsoft, Google and co., the three biggest Chinese internet companies Alibaba, Baidu and Tencent are heavily involved in acquiring the fastest growing domestic tech projects in addition to their large investments abroad. This enables them to get profound insights into different technologies and to be “right were tech innovation is happening”, as Alibaba´s Vice Chairman Joe Tsai´says.

Tencent, the company behind China´s popular messaging App WeChat, plans to build a startup center in Chongqing providing 8,000 m² office space and being able to accommodate up to 230 firms. In addition, Tencent has plans to launch about 25 different incubators all over mainland China. The company´s investments projects outside of China include the messaging app Snapchat among many others. However, the size of Tencent´s investments is small compared to the investments made by Alibaba and Baidu.

This year Alibaba invested US$ 316 million in a Taiwanese startup fund and spend around US$ 2.3 billion on American startups with high growth potential. Some of Alibaba´s biggest international investments include also Snapchat, the online retailer fanatics and zulily.

Baidu recently invested US$ 11.5 million domestically, amongst them the Chinese startup Qianhai Mobile that provides WiFi service for commuters. On an international level Baidu has supported Uber on a big scale with more than US$ 42 million and also the American discovery platform Taboola.

There are no doubts that the innovation and development in the near future will be mainly driven by Baidu, Tencent and Alibaba. However, the future holds how the startup industry and innovation in China will evolve, but one thing is for sure, today´s startups will become an important provider of tomorrow’s jobs in China.

On these grounds ECOVIS Beijing supports startups in China, helping with tax & legal matters as well as talking over the accounting and payroll.

For further, more comprehensive information and assistance, please contact: richard.hoffmann@ecovis.com.