HH Riding Waves: China's New Entrepreneurs Worthy Bet

Perhaps many years later, the people of the world will really learn the significance of 2018 in the history of Chinese entrepreneurs. The events like the China-United States Trade War 2018, China's International Import Expo – will become the key events in history. And more importantly, it was this year that the third generation of Chinese entrepreneurs and their private companies became a new source of China's rising innovation.


The sparkle of 2018 catches fire

The wave began with the first China International Import Expo (CIIE). Early in 2017, China's President Xi Jinping announced that China planned to hold CIIE annually from 2018 in Shanghai, which is the world's first import-themed national-level expo, to promote the Chinese products and services to foreign companies. Half a year later, the 2018 World Artificial Intelligence Conference was held in Shanghai, showing China's intention to encourage artificial intelligence and lead innovation and entrepreneurship. At the historic moment when a new round of technological and industrial reforms aimed at high-quality development in China, the United States started to worry about a rising China challenging on the world stage. In January 2018, U.S. former President Donald Trump began setting tariffs barriers on China to limit the rapid development of the red giant, and the range of tariffs has been increasing in the following two years. In December 2018, the animosity got worse – Meng Wanzhou, the CFO of Chinese telecom and electronics company Huawei, was arrested in Canada at the United States' request to handicap Huawei's 5G networks technology.

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The Chinese government used to focus on industry-leading companies, but the Huawei event taught it a lesson that China cannot rely only on the giants, especially those who have cutting-edge technology. China finally decided to vigorously support the development of key-tech small and medium-sized companies (like the hidden champions of Germany). In November 2018, China's Ministry of Industry and Information Technology (MIIT) issued a statement on further cultivating 'Zhuan Jing Te Xin' companies. So far, three batches of nearly 5,000 small and medium-sized companies have been selected for the list of 'Zhuan Jing Te Xin' companies (please check our former analysis for more information). This has greatly promoted the enthusiasm of high-tech small and medium-sized companies and start-ups and provided a basis for the reform of China's small and medium-sized companies after.

In the following three years, these companies developed into excellent companies focusing on specific market segmentation, showing strong innovation ability and mastering key technologies, which has indirectly contributed to the change of China's science and technology pattern in emerging markets.

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As shown in the figure, 88% of the companies in the MSCI index are from China. Meanwhile, in 2020, 67% of Unicorn companies in emerging markets came from China. We believe that these data show a great relationship with the change of China's policy direction in 2018.

Generation succession

Benefiting from the policy, the third generation of entrepreneurs appeared. After the Reform and Opening-up, some people caught up with the demographic dividend and urbanization dividend, created unprecedented wealth, and became the first generation of entrepreneurs – examples include Xu Jiayin and Liu Chuanzhi. The second generation of entrepreneurs seized the tide of Internet development, with examples including Jack Ma and Pony Ma. Notably, summarizing the essential intention of these two generations of entrepreneurs and considering China's administrative and economic environment, we find that their intentions in creating companies have mainly been for getting rid of poverty and improving life.

Compared with the first and the second generation, entrepreneurs of the third generation don't have to worry about getting rid of poverty and improving life. They generally have a high educational background, have stronger abilities, and dare to innovate in technology and science. Moreover, these entrepreneurs generally have a strong sense of rules. The younger generation pays more attention to the use of modern enterprise systems to run companies. They would like to pay more attention to the social impact of companies and individuals and are equipped to responsibly helping give back to the state and society.

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Disclaimer: This article's content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal ...

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