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Chinese cities fight to seduce foreign startups

The authorities offer offices, money, advice, logistics services and even basic furniture to get new entrepreneurs installed from around the world

When Maria Veikhman, founder of Scorista, a new Russian firm dedicated to the credit rating, was considering expanding abroad, she immediately thought of China. He believes that there are vast possibilities there because two-fifths of the Chinese have no credit history. Veikhman was established in Tianfu Software Park, a state-owned incubator in Chengdu, the capital of Sichuan Province, where municipal authorities “offer almost everything for free.”

Chengdu aims to reach Beijing, Shanghai, and Shenzen, which are currently on another entrepreneurial level: together they have more than a hundred unicorns which is the nickname for foreign startups, or new private firms worth more than US $ 1 billion.

The Southeast city allocated 200 million yuan (US $ 30 million) in 2016 to an innovation fund and startups for foreign founders of companies and delivers up to 1 million yuan in cash to new foreign firms and joint ventures with good capitalization level.

If the founders are “top-level international talent”, for example, Nobel prizes, the incentive climbs to 100 million yuan. Last March Chengdu high-tech zone opened an office to provide startup services to expatriates, including corporate registration.

Now some 3,000 foreigners work there, many of whom operate their own businesses.

Other cities are taking similar steps. Beijing and Zhejiang have created centers with significant funds for foreign entrepreneurs. Authorities may be particularly interested in attracting entrepreneurial “sea turtles,” which means educated or foreign-born Chinese, but they also help non-ethnic Chinese. Shanghai and Wuihan, the capital of Hubei province, are planning new facilities for winners of international startup competitions held in China.

In at least ten provinces there are new immigration policies that facilitate the process of obtaining a visa. Foreigners who graduate from Chinese universities can apply for residence permits for two to five years that bear the startup brand. If they meet certain criteria, expatriates who work for new firms can apply for permanent residency. In Zhongguancun, a technology center in Beijing, 353 expatriates have been granted residence since 2016.

Obstacles:

Foreign entrepreneurs still face three big fences. Despite the efforts of cities to facilitate immigration, for many founders, it is still difficult to obtain a visa.

Veikhman has been denied a visa for months without much explanation and has to travel back and forth between Chengdu and Moscow every month. Strict control of the Internet also reduces the efficiency of new businesses. Foreign entrepreneurs have to work hard to adapt to the Internet environment within the “big firewall”, where Google, Twitter, and many other services are blocked.

Despite the money supply from Chengdu and other cities, getting adequate financing is also problematic. Capital controls hinder the activity of venture capital firms that use the yuan to invest in foreign entities; They usually have to form a joint venture with a Chinese citizen. Local investors tend to prefer to support fully Chinese companies.

However, the other attractions of the country are powerful. “Even a niche market in China is huge,” says Greig Charlton, a British former banker who runs a ticket-buying site in Shanghai since 2014. Thanks to the promise of online ticket booking in China, a businessman like Charlton has the opportunity to work with some of the biggest concert promoters in the world.

Another attraction is a large talent pool, which is why, for example, App Annie, a market reporting provider co-founded by a group of European entrepreneurs in Beijing, maintained its Research and Development Center in Beijing after have moved their headquarters to San Francisco. When Suart Oda, a Japanese businessman co-founded Alesca Life, a Beijing-based agricultural technology company, he found that young Chinese executives were much more willing to take the risk of working with a startup than their Japanese counterparts.

Low labor costs, as well as preferential policies on land purchase and taxes, also favor startups.

What explains the warmth towards foreign entrepreneurs? Lin Tao, a senior official in the high-tech area of Chengdu, gives a simple answer. Chengdu wants to become a cosmopolitan city like New York and London by 2025 and “a precondition for this is to gather global talents,” he says.

Another entrepreneur, Steven Tong, CEO of Sartupbootcamp China, cites the government’s desire to develop state-of-the-art technologies. He also wants to promote a favorable view of China, he says, and that is much easier to achieve with startups than with established multinational companies.


Also published on Medium.

Published inStartups

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