Why Chinese Entrepreneurs Thrive In Singapore, But Not In China

Singapore is beating China in global entrepreneurship, according to the recently released 2016 Global Entrepreneurship Index.

By a big margin, that is. Singapore is to be found in the 11th and China in the 6oth position.

That may come as a surprise to some. Singapore has been beating China in another index, the Index of Economic Freedom, where it occupies the second position, while China occupies the 144th position.

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Entrepreneurship and Economic Freedom In 2016: Singapore versus China

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Why bother making the comparison? Because Singapore is mostly Chinese populated.

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After all, cultural factors, such as Confucian conformity and the heredity system — usually cited as factors that impair Chinese entrepreneurship — follow Chinese when they move from China to Singapore.

So what else is there to explain China’s entrepreneurial position so far behind Singapore?

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The answer is simple – it’s the central planning legacy which still dominates the Chinese economy.

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In spite of years of reforms in the post liberalization period, major Chinese enterprises generally lack the information, the freedom, and the incentive to develop pioneering products, because they remain “units” within a central plan… rather than “firms,” within a market economy.

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Within this institutional framework, entrepreneurship begins with the supply side of the market, with resources — rather on the demand side with consumers, as is usually the case in market economies.

Supply side entrepreneurship may make sense from the perspective of Chinese planners who are in command of enormous resources and anxious to find quick uses that will produce short-term growth.

But it doesn’t make sense from the perspective of fast-moving global markets, where consumers rather than central planners, are at the center of the economic universe.

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To be fair, there are plenty of exceptions to this rule. Companies like Alibaba, Xiaomi, Baidu, and Tencent, for example which have been consumer-oriented.  But their numbers aren’t sufficient to push China up the global entrepreneurship scale.

At least not yet.

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The bottom line: Free the Chinese economy from the central planning legacy, and Chinese entrepreneurs will thrive, as they do in Singapore and in many countries around the globe.