Since the onset of the financial crisis, many developed nations have looked to China’s buoyant economy to help keep their profit margins healthy. From Starbucks to French luxury leader LVMH, more and more Western companies have said China is an ever growing focus of their business model. For a country that only allowed foreign direct investment for the first time in 1978 during Deng Xiaoping’s period of reform, China’s economic position in 2013 is a far cry from the economy once teetering on collapse. However, with declining exports to developed nations and the increasing costs of manufacturing in China, the era of double digit export led growth has come to a close. President Xi Jinping has advocated in its place an economy led by domestic consumption and driven by innovation. With a population that has never been so well educated or so globally aware, a number of Chinese start-ups have appeared and flourished, indicating there might be a change in the wind.

Success stories

In fact, China is already home to an army of successful internet start-ups. From shopping giant Taobao owned by the privately owned Alibaba Group to Youku created by the former president of Sohu and the travel giant Ctrip, successful start-ups do already exist in the country. With a growing number of college graduates no longer satisfied working for someone else, more and more people in the country are seeking funds and taking that giant leap. For a country that has only fairly recently broken away from the “iron bowl” employment model where your job was guaranteed for life, those setting up start-ups are a revolution in themselves. Youku, Taobao and Ctrip aside, successful internet start-ups (not forgetting giants Baidu and Sina’s Weibo) are a step in the right direction to achieve Xi Jinping’s innovation driven economy.

Xiaomi

Touted as one of the best start-ups to watch in China, Xiaomi is already well-known in the country for its inexpensive smartphones after the release of its first handset in August 2011. At only three years of age, the company is now worth $10 billion. Having gained an impressive market share (sixth largest smartphone vendor in the country), the company is expanding outside of mainland China into Singapore, Taiwan and Hong Kong. Xiaomi is even preparing to enter the US in a few years and has hired former Google executive Hugo Barra as vice-president of Xiaomi Global signalling the company’s ambitions. Aside from smartphones, Xiaomi also sells a wide range of its own apps and consumer electronics from its website.

Wine

Surprisingly, wine is one to watch in China. The country is already the world’s eighth largest producer of wine, predicted to be the sixth by 2016 with consumers drinking 1.6 billion bottles of wine per year. Despite domestically grown wine’s poor reputation, local start-ups are starting to win acclaim. Jia Bei Lan, won a gold medal for its Bordeaux-style Grand Reserve wine from 2009, beating out French rivals in 2011. This impressive feat led some to claim the winery in northern China’s Ningxia Province had not used its own wine. However, this has not stopped its customer base from growing.

Jia Bei Lan is not alone. Domaines Barons de Rothschild, owners of Chateau Lafite, have joined forces with CITIC to set up a winery in Yunnan Province and Moet Hennessy has acquired an area of land in Ningxia with the idea of producing the first Chinese wine made using French methods. If they succeed it will mark a significant change in China’s wine industry.

Android explosion

With the Android market seeing somewhat of a revolution in China, a growing number of companies are in a prime position to take advantage of this change, with apps manager Wandoujia one of them. Seeing itself as Android’s answer to ITunes, it fills a gap in the country. Aside from apps, it also lets you backup messages and contacts and with the launch of its international version SnapPea, the company could see expansion overseas as well.

Swably is another start-up riding off the Android explosion. In essence, it is a network that allows Android users to share apps they have discovered along with a short message. Dennis Chu, one of Swably’s developers, said “there are 700,000 apps on Google Play, how many of them would you be able to find? We hope Swably will get the less popular, but quality apps more exposure and more downloads.”

Up and comers

Despite its reputation as no more than an app for one night stands, Momo has been attracting attention as a start-up to watch. With over 16 million users and China’s very own sexual revolution occurring, this app (available in both English and Chinese) is on the rise. Interestingly, the English language version connects with Facebook, showing its ambition to move past China’s borders and its subsequent internet restrictions. 

UCWeb, the mobile browser company started by Xiaomi’s founder Lei Jun, has already become a player to be reckoned with in both the Chinese and Indian markets and has set its sights on the US. Already the most used browser in India, it boasts 400 million users worldwide.

Troubles Ahead

However, start-ups do not always have an easy time in China. The lengthy bureaucracy coupled with the difficulty many entrepreneurs encounter trying to acquire funding is holding back innovation in the country. It was recently announced that 25 percent of start-up founders in Zhongguancun, arguably the heart of innovation and start-ups in the country, are overseas Chinese who have returned. Given their extremely small percentage of the general population, this large number raises the important issue of creativity and innovation in China. With the Chinese education system often accused of not fostering these two pillars of a successful start-up, many have claimed a sustained period of time abroad removes the Chinese aversion to risk taking.

China does, however, seem to be acutely aware of this and there have been many drives in recent years to attract overseas Chinese. The government’s Thousand Talents program not only offers enviable positions and research grants back home but also a moving allowance anywhere in the region of one million RMB (approximately $165,000) to high-level overseas Chinese who return. Out of an estimated one million who have gone abroad to study since the country’s reforms in 1978, only 25% have returned. The Chinese government finds the issue so important that the Thousand Talents program is in fact administered by the same body that appoints high ranking Communist Party officials.

It would seem that China is aware of the problems it now faces. However, with a wealth of already successful private start-ups powering economic and personal growth, the Chinese people are in many ways reshaping their own country. China has already managed one of the greatest changes in fortune mankind has ever known and with the Chinese economy entering a new phase, only time will tell what’s in store for the second largest economy in the world.

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Keywords: Chinese start-ups successful Chinese start-ups