Overcoming the Fear of Failure: Boosting Small Business in China

06/21/2015 04:16 pm ET | Updated Jun 21, 2016

Leigh Wedell is the Chief Sustainability Officer of the Paulson Institute and a long time China hand. Deborah Lehr is the CEO of Basilinna, a strategic consulting firm.

Is fear of failure hindering Chinese entrepreneurship? A new initiative by the Chinese government suggests that cultural sensitivity to failure may be preventing some Chinese businessmen from launching their own companies. On June 17, China announced 100 measures to support Chinese entrepreneurs, particularly in the tech and service industries. Tucked into the fine print is an offer to counsel businessmen in overcoming their fear of failure -- and coping with failure when it does occur, in the cutthroat, breakneck pace of China's booming small business sector. This initiative is vitally important because energizing China's entrepreneurial spirit and fostering small businesses are essential components of China's economic restructuring plan: to stimulate a slowing economy by promoting the private sector as the primary engine of growth.

As the face of China's small business growth initiatives, Premier Li Keqiang is sympathetic about the great wall of red tape Chinese entrepreneurs run into. "People shouldn't have to go through so much trouble to get business registered," he said. "The government must eliminate roadblocks and pave the way for entrepreneurship."

There are more than 11.7 million "small" businesses in China, defined as those with less than 100 employees and assets under US $4.8 million for industry and $1.6 million for other sectors. China's National Bureau of Statistics estimates that they account for about 77 percent of all companies -- and up to 94 percent, if you count one-man shops. Most importantly, however, these firms are responsible for about 70 percent of all jobs. By contrast, there are about 28 million small businesses in the United States, accounting for 55 percent of all jobs.

Cutting red tape and removing government obstacles has been a priority since President Xi took office. Measures announced in 2014 and earlier this year that eliminated cumbersome administrative requirements on new business registrations and lowered the registered capital minimum have resulted in a great leap forward in new small business ventures. Just six months after the measures were announced, over 1.7 million companies registered, up 68 percent from 2013.

The newest incentives include government subsidies, access to small business loans, more university classes teaching entrepreneurship skills, and mandates for all levels of government to purchase innovation products and services from start-up companies when possible. Affordable pricing for land use, power and Internet services are also being rolled out. Another leap forward in registrations is likely to ensue.

Further, the China Securities Regulatory Commission is considering measures that would allow investment in firms that are pre-profit, and there is consideration to allow crowd funding. Some analysts have speculated that this plan is reminiscent of the types of policies that led to the tech bubble of the late '90s in the U.S.

The surge in new firms could also mean a surge in government taxation and regulation of these smaller entities, which may have been operating in gray areas prior to the new business-friendly policies and incentives. A case in point is the popular ride-hailing cell phone apps that have created new business models. Technically, private cars are barred from providing commercial rides, but this is nevertheless a growing trend. The government will need to determine how best to regulate these new services without stifling entrepreneurship.

Cultural differences in entrepreneurship can be instructive to the Chinese. In the US, Silicon Valley rewards the testing of new business ideas. Failure is considered perhaps the most important key to success. Most of the successful US business leaders have failed or gone broke - many times. For a country like China that is loath to admit that some of Mao Zedong's policies were a failure more than 50 years later, this will be an important cultural shift.

China's latest efforts to streamline small business development and its investments in people as well as products could boost Chinese resolve to risk failure. Ultimately, it is this entrepreneurial spirit that may spark economic growth.