Entrepreneurs and China’s private sector SMEs’ performance

ABSTRACT

The Chinese government adopted the ‘Mass Entrepreneurship and Innovation’ (MEI) strategy in 2015 to increase the number of entrepreneurs, the number of private small-medium enterprises (SMEs) and firm innovation. Using China’s firm-level data, we find that different entrepreneurial factors such as startup motivation, personal characteristics (age, gender), human capital (education, experience) and guanxi (political and business connections) impact the technical efficiency scores of SMEs in Eastern and non-Eastern regions differently. Our results also show that regional economic development and entrepreneurial quality disparities in China’s economy warrant entrepreneurial policies tailored to address these differences if they are to be effective in improving the technical efficiency performance of firms. Based on our findings, one may argue that the MEI strategy will not be adequate by simply focusing upon increasing the number of entrepreneurs without considering regional differences in development and entrepreneur characteristics.

Keyword:

• regional development
• China
• entrepreneurial activity
• SME manufacturing performance
• MEI strategy

JEL code:

• L25
• L26
• L53
• O14
• O25
• R58

Disclosure statement

No potential conflict of interest was reportedby the authors.

Notes

¹ Previous empirical studies have traditionally linked entrepreneurial factors to a firm’s growth (Stuart and Abetti 1990; Cooper, Gimeno-Gascon, and Woo 1994), survival Bosma et al. (2004) or profitability (Parker and van Praag 2006; Robb and Watson 2012).

² A legacy of the economic development strategy pursued from the 1980s which prioritised development in the Eastern or Coastal provinces.

³ This is the so-called Special Economic Zones (see Crane et al. 2018).

⁴ In December 1978 the guideline that China should ‘let some people get rich first’ was firstly proposed by Deng Xiaoping in the CPC central committee work conference (Deng, 19841984). He then clarified this guideline as ‘Some areas and some people can get rich first, lead and help other regions and people, and gradually achieve common prosperity’, when meeting with a senior U.S. business delegation on 23 October 1985(Deng, 1995).

⁵ The SEZs were to be primarily focused on attracting FDI, exporting processed goods, and integrating science, industry and innovation with trade.

⁶ The four initial SEZs were in Shenzhen, Zhuhai and Shantou in Guangdong Province, and Xiamen in Fujian Province. In 1984 14 coastal cities: Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang and Beihai were also opened up to foreign investment. From 1988 opening up was extended to border areas, areas along the Yangtze River and inland areas. In this same year Hainan Island became China’s fifth, and largest, special economic zone. A number of border cities were also opened up in 1992.

⁷ Examples are in Vietnam (Minh et al. 2007), Thailand (Charoenrat and Harvie 2014) and Kenya (Lundvall and Battese 2000) to name a few.

⁸ According to Wank (1996), one of the most significant forms of business guanxi is participation in business associations. The All-China Federation of Industry and Commerce (ACFIC) organises meetings, commodity fairs and trade fairs in order to promote connections, communications, cooperation and information exchange with local, domestic and foreign commercial and industrial entities.

⁹ Unlike surveys in earlier years, which covered mainly large and medium-sized enterprises, the 2012 survey included more small and micro-sized enterprises due to the increasing importance of the small and micro sector to the economy. The sample was drawn from 31 province-level regions, covering all of the political subdivisions and all industry sectors in mainland China. In 2012 the number of private enterprises in China was 9,676,776. The survey comprises 4,800 newly surveyed enterprises representing 0.05% of the total number, and 653 enterprises tracked from the previous survey sample. The truthful reporting of surveyed firms is required by Chinese legal regulations. Entrepreneurs also prefer to report accurate information incentivised by the fact that this survey is used for making policies that ultimately promote their enterprises. To control the quality of this survey, the agency adopts on-site face-to-face interviews and the respondents must be the entrepreneurs in person.

¹⁰ The Eastern or coastal provinces have attained a higher GDP per capita and economic development compared to the non-eastern provinces. A legacy of the period of reform from 1980 which placed emphasis on the opening up of open coastal cities located in the Eastern provinces.

¹¹ However, this may also reflect a situation where politically connected entrepreneurs expect their firms to be protected or given special favors. As the market develops and becomes more competitive such a favored situation may eventually be eroded through more competition and more anti-corruption activities by the authorities. If a firm survives through corrupt activity it is unlikely that it will be competitive and sustainable.

¹² This could also be due to the lack of activity and influence of ACFIC in these regions or the perceived lack of benefits from such connections by local entrepreneurs. An attitude of protecting rather than sharing knowledge/ideas by SMEs in underdeveloped regions could predominate.