Newspaper article International New York Times

Venture Communism: A China Start-Up Boom ; Government Lavishes Benefits like Free Rent and Cash on Start-Ups

Newspaper article International New York Times

Venture Communism: A China Start-Up Boom ; Government Lavishes Benefits like Free Rent and Cash on Start-Ups

Article excerpt

The Chinese government is lavishing benefits like free rent and cash handouts on homegrown start-ups in an effort to move beyond the factory floor.

In Dream Town, a collection of boxy office buildings on the gritty edge of this historic city, one tiny company is developing a portable 3-D printer. Another takes orders for traditional Chinese massages by smartphone. They are just two of the 710 start-ups being nurtured here.

Anywhere else, an incubator like Dream Town would be a vision of venture capitalists, angel investors or technology stalwarts. But this is China. The Chinese Communist Party doesn't trust the invisible hand of capitalism alone to encourage entrepreneurship, especially since it is a big part of the leadership's strategy to reshape the sagging economy.

Which is why the government of Hangzhou -- a former royal capital that has been a major commercial hub for more than a millennium -- built Dream Town and lavishes resources on start-ups. The businesses here get a slate of benefits like subsidized rent, cash handouts and special training, all courtesy of the city.

Chemayi, which offers car repair services through a smartphone app, is staying rent-free at Dream Town for three years and is applying for as much as $450,000 in subsidies from city authorities to help pay salaries and buy equipment.

"From the central government all the way down to local governments, we have seen a lot of warm support," said Li Liheng, co- founder and chief executive of Chemayi.

For much of China's long economic boom, young people flocked to manufacturing zones for jobs making bluejeans or iPhones. But today China is trying to move beyond just being the world's factory floor. Policy makers want the next generation to find better-paying work in modern offices, creating the ideas, technologies and jobs to feed the country's future growth.

Premier Li Keqiang frequently calls for "mass entrepreneurship." In March at the National People's Congress, he bragged that 12,000 new companies were founded each day in 2015.

The entrepreneurial embrace comes with lots of financial support. Across the country, officials are creating investment funds, providing cash subsidies and building incubators.

"Without these kinds of subsidies, you only rely on private money, and you wouldn't see so many technology start-ups happening today," said Ning Tao, a partner at Innovation Works, a venture capital fund in Beijing. "Without quantity, you cannot have quality."

But the heavy spending is adding to worries about an inflating bubble in the world of China's tiniest companies. Along with the government funds, venture capital money is flooding the country. About $49 billion in deals were made last year, making China second only to the United States, according to the accounting firm Ernst & Young.

Some economists and entrepreneurs are concerned that the government is helping fuel a frenzy that might ultimately result in failed businesses, wasted resources and financial losses. Just one city, Suzhou, near Shanghai, has announced it will open 300 incubators by 2020 to house 30,000 start-ups.

Beijing's policy makers have a long history of giving favored companies easy access to loans and subsidies to propel certain industries, with both good and bad consequences. Though that tactic lubricated the nation's industrialization, it also contributed to the excess that has buried the country in empty apartment blocks, mothballed cement plants and sputtering steel mills -- all of which threaten the economy's stability.

"I think the subsidies shouldn't be a long-term policy," Jin Xiangrong, an economist at Zhejiang University in Hangzhou, said of the start-up support programs. "They can lead to overcapacity like the kind we see now in China's manufacturing sector, which is largely a result of government support."

Hangzhou city officials turned down requests for interviews.

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