(Chinese Version)

As a country that has been adopting collectivism and centralized government model for five thousand years, it’s very natural for China to come up with major national strategies to boost the economy. China has been pursuing communism and socialism for a century, and has adhered to the reform and opening up policy and common prosperity for three decades. In recent years, China has kept to the path of building a prosperous, culturally advanced country and in pursuit of the Chinese dream. Top-down strategies, especially the major national strategies, are extremely important in China for the fact that they can be used to mobilize Chinese people and allocate resources effectively.

China will very likely take the throne from the US and become the world’s largest economic entity in 2015, while mobile Internet is making its way to penetrate every aspect of everyday life. China has came up with 7 major national strategies in response to this tendency, creating both opportunities and risks for entrepreneurs.

Strategy One: One Belt, One Road

Proposed by president Xi Jinping, One Belt, One Road is a national development strategy and framework that focuses on connectivity and cooperation among countries primarily in Eurasia. This strategy consists of two main components, the land-based "Silk Road Economic Belt" (SREB) and oceangoing "Maritime Silk Road" (MSR). It underlines China's push to take a bigger role in global affairs, and its need to export China's production capacity in areas of overproduction. Its ultimate goal is to build a close-looped economic belt that covers Eurasia and African continent.

So why exactly would China propose such strategy? Here’s the background information:

China has excessive production capacity and foreign exchange assets.

China relies heavily on the import of oil, gas, and mineral resources from overseas.

Most Chinese industrial facilities and infrastructures are located in cities by the coast near the coast. Core facilities will be easily lost if China is under attack from the sea.

Opportunities:  The isthmus of Kra canal is a vivid proof. It is a major project jointly carried out by China and Thailand. LiuGong Machinery, XCMG and SANY Group have already taken a great share of this project while state-owned enterprises will surely dominate fields such as petroleum development and oil delivery. However, there are still tremendous opportunities left for entrepreneurship in other related fields, including international infrastructure construction, project investment, logistics, outputting labor forces from the west China, foreign trade, and e-commerce.

Risks:  Developed countries such as Japan, South Korea, and Russia also suffer from excessive production capacity. Ma Ying-jeou, current President of Taiwan, even stated once that Taiwan needed to join and help carry out one belt, one road strategy together with AIIB, Singapore, India, and other developed countries in Europe. It’s said that this close-loop will bring huge impact on China’s agricultural and industrial products. Rising labor cost will kill China’s comparative advantage. Also, pressure from other rising countries that are starting to exploit the Internet will make it difficult for entrepreneurs in Pearl delta, Bohai Bay Rim and Yangtze River Delta. The surviving circle of business projects will be deeply affected as well.

Strategy 2: Free Trade Zones

China aims to use free trade zones to meet Chinese people’s voracious consuming needs. Free trade zone (FTZ) is a specific economic zone that enjoys more trading benefits than that of WTO assigned. It is a geographic area where goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. In nature, it’s a special customs zone that adopts free port policy.

Shanghai Free Trade Zone officially opened its official account on WeChat, Sales Center Of Shanghai Free Trade Zone, on October 26th, 2013. On March 24th, 2015, the Political Bureau of the Central Committee of the CPC approved the establishment of free trade zones in Guangdong province(Guangzhou Nansha Free Trade Zone, Shenzhen Shekou Free Trade Zone, and Zhuhai Hengqing Free Trade Zone), Tianjin city, and Fujian province to further carry out the free trade zone reform strategy.

What benefits will free trade zones bring?

a.    A variety of credible imported goods with lower prices will be available to the consumers. Outlet stores that offer bargains 10% to 30% lower than the market price will be set up in the free trade zone.

b.    Imported cars will also be cheaper in free trade zones. Their price will be 30% lower than the market price in China, which challenges 4S stores’ monopoly position in purchasing channels.

c.    Consumers can enjoy medical care with lower expenses. They can enjoy medical services in foreign hospitals in the free trade zones.

d.    Sino-foreign joint venture travel agencies established in free trade zone will make overseas traveling become more convenient for tourists.

e.    More and more job opportunities will be provided by foreign firms in free trade zones for job hunters. It’ll be easier to kickstart a startup company in the free trade zones thanks to the taxation preference policies provided in the areas.

f.     More entertainments. Consumers will be able to enjoy original foreign art shows and performances in free trade zones.

Opportunities: Free trade zones have better business environment for entrepreneurships because they enjoy taxation preference policies. Additionally, entrepreneurs from China and overseas will find professional talents they need for their start-up companies more easily. Entrepreneurs will also find lots of opportunities in different areas, such as car import, traveling agency, and Internet entertainment. This year, online medical service is incredibly hot. Whoever finds ways to integrate overseas medical giants and resources to their start-up projects will surely enjoy huge success.        

Prime minister Li Keqiang approved the establishment of the cross-border e-commerce zone in Hangzhou on March 12th. It is set to be another pilot area similar to free trade zones. In recent years, buying goods on overseas e-commerce sites has been incredibly popular in China. And now, the cross-border e-commerce zone in Hangzhou and free trade zones in Shanghai, Tianjin, and Guangdong and Fujian province enable entrepreneurs to find ways to improve the logistics service. Additionally, the car sector in these pilot zones is also full of possibilities. Entrepreneurs are already trying to apply Internet thinking to the car insurance sector, and this year, we witness the reform of car insurance rate. There’s no doubt that tremendous possibilities are hidden in this area, waiting for entrepreneurs to explore.

Risks: There had been rumors saying that China would go through 15 years of protection period after joining WTO and that on July 1st, 2006, China would meet the end of its transitional period. These rumors had been proved wrong. According to official documents, 2015 tariff implementation plan issued on December 31st, 2014, and general administration of customs’ interpretaion on 2015 tariff implementation plan enacted on January 9th, 2015, the commitments of tax reduction that China made when joining the WTO had all been fulfilled in 2010. What’s more, it was widely reported that the zero rate of duty for imported cars policy in 2015 happened to overlap with the car bargains in the free trade zones.

In accordance with the Working Party’s Report on the Accession of China and China's WTO protocol, starting from July 1st, 2006, China had reduced the import tariffs from 28% down to 25% for mini-sedans, go-anywhere vehicles and passenger cars. As for car components such as car body, chassis, medium and low gasoline consuming engines, the import tariff will be reduced from around 13.8%-16.4% to 10%. In this case, China had already fulfilled its commitments it made when joining WTO. If we were to look deeper into the matter, we could tell that Chinese entrepreneurs were very insecure when facing pressure from overseas products. It is generally accepted by the mass that Chinese products are usually badly designed and of low quality. Therefore, for Chinese businessmen, the biggest danger lies in the competition with overseas products.

Strategy 3: Use the stock market as the channel to transfer mass capitals to entities

In 2015, Chinese industrial funds outflew and foreign investments flooded into Chinese market. Apparently, we are getting more and more hot money while banks are printing even more money.

How to invest?

Ordinary people invest in stocks, hoping to make some extra money. As for businessmen or agencies that have a great deal of money, they make investments. Investors show their trust in your company by buying your stocks. With the money you collect from the stock market, you are able to develop your company and boosting the industry as a result.

Opportunities: Entrepreneurs will find that in 2015, it’s easier to get financing since there are just too much capital out there waiting for potential investing candidates.

Risks: Yes, investments are pouring into the market, but it’s not necessarily a good thing. There are too much hot money that we don’t really know where they came from.

Strategy 4: Use the Infrastructure Investment Bank(AIIB) to invest China’s enormous foreign exchange reserves in allied countries

Asia takes up one third of the world’s economic aggregate and 60% of the world’s population. It’s the world’s fastest growing region with incredible economic potential. However, due to the lack of construction funds, some countries still have troubles building enough infrastructures badly needed for economic development such as railways, roads, bridges, ports, airports and communication facilities, which creates obstacles for the further economic development in these countries. Every country wants to maintain its current level of economic growth, and relevant infrastructures are the crucial factors that will determine their success. To build necessary infrastructures, it will cost them at least US$8 trillion with annual investments up to US$800 billion. Among which 68% of the aggregate investment will be put into the building of new infrastructures while 32% of it will be used for the maintenance of existing infrastructures.

The existing multilateral agencies can’t afford to provide such huge amount of money. Asian Development Bank has around US$160 billion in total while the World Bank has US$223 billion. Both banks are offering a limited fund of US$20 billion to Asian countries every year, which is far from enough. Private organizations and groups can’t handle investments of such level due to the fact that infrastructure constructions usually require enormous investments, longer implementation period and have a uncertain income flux.

China is now the third largest global investor in the world. In 2012, China’s foreign investment achieved a 17.6% increase in its year-on-year growth, up to US$87.8 billion, breaking the record in history. China has achieved great success in the manufacturing sector of infrastructures building and has completed a rather mature industry chain through 30 years of development. China’s construction capability tops the world in infrastructure areas, such as roads, bridges, tunnels and railways building. Since the country already has the ability to build major projects, Chinese infrastructure builders are seeking ways to expand their businesses to overseas markets. However, it’s very difficult for different Asian countries to utilize each other’s mass capitals to support their infrastructure projects. The lack of multilateral cooperative mechanisms and investment are holding them back.

AIIB, short for Asian Infrastructure Investment Bank, was established under these circumstances. Proposed by Chinese government, AIIB is a Beijing-based international financial institution with a total capital of US$100 billion. The main purpose of the multilateral development bank is to provide financial support to help carry out infrastructure projects in Asia and realize economic integration and Internet connectivity. It is also set to improve cooperation among investment banks in other Asian countries and regions.

Opportunities: Entrepreneurs can follow the footsteps of AIIB and search for more business opportunities in other Asian countries, which might help them earn billions of dollars.

Risks: This strategy is a state act. It relies on the central government to carry it out. Private companies, especially start-ups, won’t survive under the heat. The long investment circle will destroy them.

Strategy 5: Guide inexperienced domestic companies to explore in the capital market

Wu Xiaoling, deputy director of NPC Financial and Economic Committee, publicly stated on the Tsinghua PBCSF Global Finance Forum held on May 24th, 2015, that they would soon ask for public opinions on the amendment of securities law, which plans to remove the thresholds concerning the profitability of stock issuing. Qi Bin, director of International Cooperation Department in China Securities Regulatory Commission, stated that China’s capital market would soon welcome a new era in which capital can pour in and draw out easily, and that the CSRC’s working on a blueprint for this new opening era.

Opportunities: Enterprises will be able to access to overseas capital more easily. Silicon Valley is losing its momentum and Chinese entrepreneurs will be able to receive investments and guidance from the capital market.

Risks: Inexperienced enterprises lack actual experience and therefore they would lose easily when facing competition from globalized economy. They probably can’t survive in the fierce battle in the capital market either. It’s a common phenomenon that some listed companies went broke after a few attempts in the market. On May 20th, 2015, the stock price of Hanergy Holding Group dropped almost 50% in just a few seconds. According to media analysis, it was probably caused by some financial institutions. It’s said that they might undersell mass stocks at the same time. Li Junhe, a major shareholder of this company, lost around US$14 billion in this plunge, which took up half of his total assets.

Strategy 6: Attract tech companies back to Chinese stock markets with premium and evaluation

On March 24th, 2015, Baofeng Tech’s stock price rocketed after getting listed, hitting the raising limit 29 times. After the weekend break, Baofeng Tech’s stock price started to go down and hit its second down limit since its opening quotation on May 25th. Baofeng Tech’s stock prize dropped 10% to 260.1 RMB that day at a 3.87% turnover rate. By now, this hot stock has already hit the raising limit 36 times. Currently, the average profit rate of the growth enterprise market in the A stock sector has multiplied over a hundred times. Letv.com, which’s listed in China, now has a market value 8 times higher than the US listed YoukuTudou’s stock price. The same thing happens to Baofeng Tech and Xunlei. Apparently, this situation will frustrate entrepreneurs who got their companies listed in overseas stock markets. There even have been rumors going around that Focus Media and Sohu are planning to get listed in China’s stock market.

Opportunities: Internet finance sector still has lots of opportunities of entrepreneurships, such as financing, financial management, investment management, and crowdfunding etc. There are a great number of enterprises and shareholders that need professional financial services. And players such as THfund, Jimubox, Wukonglicai and even JD finance and Cowdfunding are already exploring this particular sector.

Risks:  Internet finance platforms could be abused as tools to commit economic cirmes such as money laundering.

Strategy 7: Encourage postgraduate students to start their own businesses or pursue further education

According to statistics released by the Ministry of Education, the number of university graduates is on the rise every year: in 2007, the number hit 4.95 million, and in 2013 and 2014, the number reached 6.99 million and 7.27 million respectively. It’s said that the number will jump to 7.5 million this year.

Opportunities: University graduates are getting better diplomas, and many of them are thirst for starting their own business. The best part is we have more and more of such graduates every year. With blazing passion and amazing ideas, they will surely kickstart their businesses successfully. It’s very possible that Chinese Steve Jobs, Bill Gates and Buffett will rise from the young generation of 90s and 00s.

Risks: However, college students, who generally lack business experience, are over confident about their abilities and overrate the market. In short, most of the time they fail, and they fail hard. Furthermore, college students in general are not mentally strong. They tend to have emotional breakdown and suffer from depression under pressure, which can affect their businesses. Some college students, while being eager to achieve success, will make irrational business decisions, including selling facial masks on WeChat, which is considered as a pyramid selling mode. New graduates usually are too inexperienced to tell legitimated businesses from extreme business organizations, and therefore they could march in the wrong direction very easily. The alarming fact is that a lot of college students were tricked into such organizations and became a part of the pyramid selling. It’s happening everywhere in China.

Major national strategies are the guidelines for the country to follow. They are the tools to help boost economy and guide it to the right direction. Ma Yun once said: “Economists study the past to find business patterns and tendency in order to forecast the future while entrepreneurs make instant decisions and grasp as many opportunities as possible to achieve success.” Entrepreneurs can’t blindly listen to economists and simply believe their predictions about the future. Entrepreneurs can sense the changes and tendency in business. Everyone has the potential to become an entrepreneur. By getting to know and understand these major national strategies, you are already learning the things that might help you succeed in running a business.

[The article is published and edited with authorization from the author @Tianfangyantan-LiYan, please note source and hyperlink when reproduce.]

Translated by Garrett Lee(Senor translator at Echo), working  for TMTpost.