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Entrepreneurship

Why Are Rich Chinese Entrepreneurs Leaving China?

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Chinese entrepreneurs are leaving China. According  a survey, conducted by China Merchants Bank and Bain & Co., 27% of entrepreneurs worth over 100 million RMB have already emigrated and 47% of them are considering moving abroad.

The growing trend is nurturing resentment towards wealthy emigrants among Chinese citizens. And the recent exposure of a prominent businesswoman and member of the CPPCC (China’s political advisory body) Zhang Lan’s immigration further triggered controversy in Chinese society.

Economic insecurity

Chinese Entrepreneur Magazine  analyzed(video below):

Zhang Lan’s emigration triggered controversy in Chinese society. Screen capture from local news-report via Youku.

Chinese entrepreneurs all suffer from a lack of security. Once they emigrate to another economic system, they will be provided with new opportunities independent of the Chinese economy. The diversity lowers their risk compared to doing business only in one country(China) where policies can be unstable. Overall, it helps to enhance their sense of security.

ifeng.com, a prominent Chinese newspaper, shared similar opinion:

Honestly, Chinese society doesn’t provide citizens with a sense of security. Average citizens may think rich people feel safe because they don’t need to worry about social welfare; however, rich people in China feel even less safe. Recently, one of China’s richest men Liang Wengen said his property and life belong to the country and that the Party members’ wives are more beautiful. It seems a stupid thing to say, but it reveals his fear. How can an entrepreneur make such a statement about his property? Any entrepreneur knows clear property rights are essential for doing business.

Rigid Rules for Chinese Enterprises 

Huang Song, Secretary-General of Finance Industry and Development Research Center of Peking University pointed out a neglected reason behind the immigration:

There are many reasons why entrepreneurs choose to emigrate. Public opinion is usually concerned with two reasons: first, they do not have confidence in China’s future; second, they are trying to escape from something illegal they have done. But there’s a very important reason often ignored, that is, the large number of government restrictions and barriers to overseas investment and financing. First, due to the control of foreign exchange under the capital account, overseas investment by Chinese enterprises need to be approved by the Foreign Exchange Management Department. And although the investment polices have become more relaxed than the past, there are still a lot of limitations and financial investment is still strictly managed. Second, overseas investment has to be approved by the Development and Reform Department, which brings a lot of uncertainty to projects.

China’s financial system essentially only supports state-owned enterprises and large enterprises. For private enterprises and small and medium-sized enterprises there exist difficulties in financing: it’s difficult to get loans, and even more difficult to go public or issue bonds.

Yang Yongmin, GM of Offshore Incorporations Group Beijing Office echoed:

I’m not surprised that Zhang Lan emigrated to that Caribbean island. People who have a little knowledge about Chinese private companies know that it has nothing to do with whether Zhang loves the country or not. It’s because it’s easier for the company to go public overseas. There are so many stupid policies in China that inconvenience Chinese themselves and benefit foreign countries.

People’s Daily published a commentary suggesting following the Americans by implementing heavier taxes on rich entrepreneurs to prevent them from emigrating, the piece soon triggered netizens’ disagreement. Famous TV show host Meng Fei criticized:

This thinking is in the wrong direction. How many rich Americans choose to give up their nationality? What we need to consider is why so many officials, celebrities, rich people and famous scholars want to emigrate, not how to prevent them from doing so. If we don’t reflect on this problem, we can never keep them no matter how strict the rules might be.

Zhi Qiangli echoed:

Zhang Lan’s emigration is a slap in the face to the rigid system.

Also, there are a lot of rules and policies that make it difficult for Chinese private companies to go public but foreign enterprises are exempt from these policies. Perhaps chief editor of Workers’ Daily Shi shusi’s words bestsummarized the problems China needs to tackle in the next decade:

The controversy continues, patriotism aside; the result is a black comedy. As the boss of a private company, she couldn’t make her companies go public in China due to strict rules and difficulties with financing [esp. for restaurant chain business]; however, now that she has emigrated, she stands a better chance of taking her company public. Of course, the outcome is not perfect for China, but who’s responsible for this? The huge emigration trend is just a sign of China’s economic problems. Instead of blaming entrepreneurs, why don’t we promote the formation of consensus for reform and call for more respect for personal property rights, the rule of law and establishment of a just market environment in China?

Callum Connects

Jason Feng, Co-Founder of Pillpresso

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Mr. Jason Feng is re-engineering the healthcare industry.

What’s your story?
I am an engineer at heart. I enjoy the process of problem solving and have been actively developing innovative solutions to existing problems. Me and my co-founder settled on the problem of poor medication adherence among the elderly. This was a problem which struck a chord with us because we all have loved ones who have to take multiple medications on a daily basis. The complex medication regimen, coupled with declining cognitive abilities of the elderly tend to exacerbate the lack of medication adherence, which may lead to disease relapse and hospital readmissions, ultimately increasing the burden to caregivers and the society.

What excites you most about your industry?
The problem of medication adherence is not a new one in the healthcare industry. In fact, lack of medication adherence is a well-researched problem in many countries. Solutions which have been developed to address this problem face three major issues:

  • Entrenched mindset within the healthcare system, many of which are used to and unwilling to change from the legacy systems which were implemented decades ago.
  • Complex nuances in healthcare delivery across different countries, making it hard to “copy” and “paste” solutions which have worked well in other areas.
  • Because poor medication adherence is multifactorial, and many solutions focus solely on a few aspects, and do not employ a holistic approach.

Nevertheless, entering this industry at this time excites me because we are in the midst of a global shift in healthcare models; one where the industry is moving away from a service-based model, towards a more value-based model. This shift means that traditional players such as insurance companies and pharmaceuticals are under increasing pressure from patients and payers to demonstrate the value of their products under real-world use. Medication adherence data is one crucial missing link in this puzzle to deliver better care to patients. Being able to build a business around these incumbents and pioneer a new way of care is something which I look forward to.

What’s your connection to Asia?
I am a Singaporean. Most of my experiences throughout my life have been in Asia.

Favourite city in Asia for business and why?
I have not worked in other Asian countries outside of Singapore, so I can’t comment on other Asian countries too much. Singapore has a relatively low barrier for starting a business, and all business rules and regulations are clear and transparent. The startup ecosystem is also rather comprehensive and easily accessible. Being a small country, Singapore has a very limited market for products and services. However, due to its size and efficiency, it serves as an excellent test bed for new ideas. Being a travel hub, travelling to other Asian countries is cheap and easy.

What’s the best piece of advice you ever received?
Fail fast, fail often. The greatest lessons are never learnt through success.

Who inspires you?
Elon Musk

What have you just learnt recently that blew you away?
Successful launch of Falcon Heavy and the recovery of the 2 side cores. The way the 2 cores landed was like something you’d only see in CGI. Very well calculated.

If you had your time again, what would you do differently?
Applied for NOC (NUS Overseas College)

How do you unwind?
Go rock climbing.

Favourite Asian destination for relaxation? Why?
Nepal. I’m an outdoors guy. Being able to trek around the Himalayas is probably the best form of relaxation for me.

Everyone in business should read this book:
Creative confidence, by the Kelly Brothers

Shameless plug for your business:
Pillpresso is an award-winning health-tech startup that aims to improve medication adherence. We’re developing a medication management system that empowers seniors to manage their medicines independently and deliver proactive healthcare in the community through technology. Comprising individuals with complementary skills across business, engineering and medicine, our team is driven by a desire to improve healthcare and the human condition.

Grand Prize Winner of the 2017 Tech Factor Challenge
https://www.opengovasia.com/articles/8072-top-4-grand-prize-winners-for-3rd-edition-of-ageing-in-place-tech-challenge-announced-in-singapore

Grand Prize Winner of the 2015 Modern Aging
https://www.channelnewsasia.com/news/business/3-teams-receive-s-125-000-of-seed-funding-for-elderly-friendly-i-8246318

How can people connect with you?
[email protected]

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started,
built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Will Financial Liberalisation Trigger a Crisis in China?

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The People’s Republic of China (PRC) has been liberalizing its financial system for nearly 4 decades. While it now has a comprehensive financial system with a large number of financial institutions and large financial assets, its financial policies are still highly repressive. These repressive financial policies are now a major hindrance to the PRC’s economic growth.

The PRC is at the beginning of a new wave of financial liberalization that is necessary for supporting the country’s strong economic growth. The country’s leaders have already unveiled a comprehensive program of financial reform, which includes 11 specific reform measures in three broad areas: creating a level-playing field (such as allowing private banks and developing inclusive finance), freeing the market mechanism (such as reforming interest rate and exchange rate regimes and achieving capital account convertibility), and improving regulation.

But could financial liberalization lead to a major financial crisis in the PRC? What would be the consequences for financial stability as the PRC moves to further liberalize its financial system? If the PRC repeats the painful experiences of Mexico, Indonesia, and Thailand, then it might not be able to achieve its original goal of overcoming the middle-income trap.

International experiences of financial liberalization, especially those of middle-income economies, should offer important lessons for the PRC. In our new research, based on cross-country data analysis, we find that financial liberalization, in general, reduces, not increases, financial instability. This powerful conclusion is valid whether financial instability is measured by crisis occurrence or by fragility indicators, such as impaired loans and net charge-offs. The only exception is that financial liberalization does not appear to significantly lower the probability of systemic banking crises, although it does lower the risk indicators for banks. These results have higher statistical significance and are greater in magnitude for the middle-income group than for the entire sample.

The insignificant impact on banking crises, however, should be interpreted with caution. One of the possible explanations is that under the repressed financial regime, the government supports banks with an implicit or explicit blanket guarantee. This reduces the probability of an explicit banking crisis, although the banking risks may be even greater because of the moral hazard problem. In fact, government protection of banks could also increase the probability of a sovereign debt crisis or even a currency crisis before financial liberalization.

If financial liberalization significantly reduces the likelihood of financial crises, especially in middle-income economies, then why did some middle-income economies experience financial crises following liberalization? We further investigate whether the pace of liberalization, the supervisory structure, and the institutional environment matter for outcomes of financial liberalization.

We obtain three main findings. First, an excessively rapid pace of financial liberalization may increase financial risks. The net impact on financial instability depends on the relative importance of the “liberalization effect” and the “pace effect.” In essence, what the “pace effect” captures could simply be the prerequisite conditions and reform sequencing that are well discussed in the literature. Second, the quality of institutions, such as investor protection and law and order, also matter. International experiences indicate that investor protection can significantly reduce the probability of financial crises. Third, the central bank’s participation in financial regulation is helpful for reducing financial risks during financial liberalization. This is probably because central banks always play central roles in financial liberalization, especially in the liberalization of interest rates, exchange rates, and the capital account. If a central bank is responsible for financial regulation, its liberalization policies might be more cautious and prudent.

Our research findings offer important policy implications for the PRC. (1) Further financial liberalization is necessary not only for sustaining strong economic growth but also for containing or reducing financial risks. (2) Gradual reform may still work better than the “big bang” approach, and sequencing is very important for avoiding the painful financial volatilities that many other middle-income countries have seen. (3) The government should also focus more on improving the quality of other institutions, especially market discipline, to contain financial risks. (4) It is better for the central bank to participate in financial regulation. The new regulatory system should focus exclusively on financial stability and shift from regulating institutions toward regulating functions. It should also become relatively independent to increase accountability.

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About the Author 

This submitted article was written by  and  of Asia Pathways, the blog of The Asian Development Bank Institute was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

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