China’s Future as a Business Incubator

Developing a killer application takes more than just a network. You need entrepreneurs able to develop cutting-edge technologies who also possess the wherewithal and skill to take them to market.

No one doubts China’s ability to do the former; that is the reason why many in the United States view China as an economic threat. But the latter will be China’s greatest challenge, according to several current Chinese entrepreneurs, and why it may take a generation for China to become an innovation powerhouse.

Independent businesses are still a new concept in China, and until recently there was institutional resistance to entrepreneurial startups. Students who left school to pursue a business idea were not allowed to come back to finish their degrees if the business failed. There was scarce venture capital money to start a company, and China’s business school professors had little or no real-world experience.

Kevin Hu developed software to fund his blogging and social networking site Yimudi. He is now seeking venture funding, but had to figure out for himself how to approach potential investors. “I don’t really care about the finance. But now [my job] is all about cash flow and the P&L,” he says.

But more support is starting to emerge. Chinese universities now encourage students to market their creations, and the government provides startups with incubator space. But because these changes are recent, there aren’t many CEOs who can help an aspiring ¿entrepreneur turn a product into a business.

The result is that the current crop of entrepreneurs will succeed or fail through trial and error. Jason Tian, CEO of Baihe, an online dating service, says today’s entrepreneurs will convey the lessons they learn to the next generation. Only then will Chinese innovations become commonplace. (To learn about China’s play to control the future of the Internet, turn to “China Builds a Better Internet,” Page 42.)