Opportunities and Challenges for Business Development of Start-ups in Mainland China

Sophia Tsai and Joline Chen (mainland China)

On February 28, 2018, the Specific Measures for Promoting the Cross-Strait Economic and Cultural Exchanges and Cooperation (hereinafter, the “31 Measures to Benefit Taiwan”) were promulgated on February 28, 2018. In particular, it is pointed out that “the same treatments available to mainland Chinese compatriots will be gradually provided to Taiwanese compatriots when they learn, start their businesses, seek employment and live in mainland China.”  With respect to encouraging start-up teams in Taiwan to develop their business in mainland China, these are not the first relevant preferential measures released in mainland China.  In recent years, mainland China has spared no effort in attracting start-up teams in Taiwan to develop their business in mainland China by offering venture capital, offices, and housing as incentives.  Culture and creativity, information technology, food and beverage and crafts are projects that start-up teams in Taiwan desire to develop.  According to the conclusions drawn by Xiaoguang Ma, Spokesman of the Taiwan Affairs Office, on the development in 2017, there were a total of over 1400 teams in the Cross-Strait Youth Entrepreneurship Base and demonstration sites for employment and entrepreneurship.  For example, statistics released by the Taiwan Affairs Office of Jiansu Province  show that as of the end of 2017, there were cumulatively over 740 Taiwan youth entrepreneurship projects in Jiangsu alone.  If the youth involved in internship and employment were included, there were a total of 11,400 people.   The scope of assistance offered by entrepreneurship facilitating incubators has been quite comprehensive already.  For example, the scope of services offered by the DG Young T.E.A.M.S includes venture capital financing, application for government funding, sites, and company registration.  Help is even provided in the pursuit of local partners.

Challenges for starting business in mainland China

Although the mainland China government provided policy assistance to start-up teams in the past, still the actual success rate is still not high. As for the reasons, the review standards adopted by local governments or relevant private organizations were relatively loose in order to operate incubators, achieve policy data requirements and successfully attract start-up teams.  As a result, the scenarios where a start-up team took the funding but achieved no actual results were not uncommon.  Also, some bases or parks only have hardware equipment without overall accommodating planning for neighboring transportation.  As a result, the actual occupancy rate is not high.  In other circumstances, examples where a start-up team could not receive subsidies as they experienced technical barriers due to a lack of understanding of local laws and regulations and hidden local rules are also quite common.   In addition, some entrepreneurs do not understand the ecosystem of the mainland China market and cannot develop goods or services that meet market demands, and short-term policy funding subsidies cannot sustain long-term operation of start-up teams.

Preferential measures separately released by various local governments

To carry out the spirit of the 31 Measures to Benefit Taiwan, various local governments have successively released relevant implementation opinions such as the Opinions on Implementing the Promotion of Economic and Cultural Exchanges and Cooperation between Putian and Taiwan promulgated by Putian of Fujian. Under such opinions, a project involving young Taiwanese entrepreneurs as verified by reviewers may be eligible for an venture capital fund of RMB100,000 or RMB200,000, and office premises used by young Taiwanese to start their businesses may also be eligible for funding subsidies.  In addition, special projects for specially recruited Taiwanese talents are also implemented.  In particular, a selected high-level entrepreneurial and creative team may receive a handsome subsidy as high as RMB3 million.  Take, for example, the Several Measures on Further Deepening Economic, Social and Cultural Exchanges and Cooperation between Xiamen and Taiwan released by the Xiamen Municipality to encourage young Taiwanese to seek employment and start businesses in Xiamen.  All kinds of preferential policies such as entrepreneurial project support, financing support and subsidies for technological innovations, market development, production and operating premises and housing rents as  announced by municipal and regional people’s governments are equally enjoyed by young Taiwanese.  Take, for example, the Circular of the State Council on Issuing the Reform and Opening-up Arrangements for the China (Fujian) Pilot Free Trade Zone on May 24, 2018.  One of its objectives is to create a new innovative and entrepreneurial platform.  Other objectives include the support of employment in the pilot free trade zone, provision of same treatments available to residents of mainland China in aspects such as health care, finance, home purchase, housing, etc. to Taiwanese residing there, promotion of the construction of entrepreneurial carriers such as entrepreneurial parks, entrepreneurial communities, and entrepreneurial families, expansion and enhancement of Xiamen as “three entrepreneurial bases,” namely, a cross-strait youth innovative and entrepreneurial base, the Taiwan Innovation Park in Pingtan, the Fuzhou Taiwan Youth Entrepreneurship Innovation and Entrepreneurial Base.  Take, for example, the Circular on the Rules Implementing the Promotion of Economic and Cultural Exchanges and Cooperation between Shanghai and Taiwan promulgated by the Shanghai Municipal People’s Government in July 2018.  This circular indicates that support will be provided to young Taiwanese engaging in innovative and entrepreneurial activities in Shanghai through policy support such as rental subsidies for the initial start-up premises and entrepreneurial guarantee loan and interest subsidies pursuant to applicable requirements.

Based on the foregoing, it can be inferred that various local governments are strengthening their support to start-up teams in accommodation of the 31 Measures to Benefit Taiwan. However, relevant measures are still focused on venture capital, offices, housing and entrepreneurial parks without resolving fundamental issues facing start-up teams seeking to operate in mainland China.  Therefore, the focus should not be put on funding subsidies only, but rather more attention should be given to helping start-up teams understand aspects of local society and laws and regulations and providing relevant assessment mechanisms for goods and services.

Preparation before starting a business

Before starting a business in mainland China, an entrepreneur is advised to work or intern in mainland China for a period of time and properly leverage all the additional employment and internship subsidies provided by various local governments under the 31 Measures to Benefit Taiwan. And then, the time spent in employment or internship in mainland China can be further leveraged to gain an in-depth understanding of local social requirements, government entrepreneurial polices or base or park facilities before it can be further considered if goods or services appropriate to markets and attractive to the public can be provided.  In addition, for legal issues involving initial stages of setting up a business such as intellectual property arrangements, cooperation contracts, labor contracts, company types and shareholding structure, etc., law firms that have relevant and extensive experience in mainland China and Taiwan and are familiar with local laws and regulations may be consulted for proper planning in order to minimize relevant legal risks so that the wonderful opportunities to start a business in mainland China can be property harnessed in the face of policy subsidies and substantive market challenges.