The number of startups in China with local listings may soon be increasing, following the recent statements by Chinese Premier Li Keqiang.
As the Premier explained on Thursday, the Chinese government will promote domestic listings of startups with special ownership design. This is the latest move by China to increase funding in the economy’s productive sectors. The statements were made by Li at a council of the state council of China.
In addition, the Premier encouraged local governments to give startups tax incentives, as well as similar incentives to angel investors. He also spoke of the benefits of developing the area of venture capital.
The special ownership structure Li spoke of is called variable interest entity (VIE). It has already be used by online and tech startup firms such as Tencent and Baidu. The reason for VIE is that it is that foreign ownership is forbidden in the Internet sector of China. As well, must-have guidelines for profitability make it hard for Internet startups in China to list onshore. Thus, the VIE structure fills meets requirements of overseas security regulating officials without technically going against Chinese law.
If startups are able to get funding easier, then it will help China’s economy by boosting revenues and increasing job opportunities. Given how difficult China’s job market is to be a part of and that small business is vital to improving China’s economy, Li’s approach makes sense.
Li’s arrival has been met with good news for much of China’s startup community, including the stipends that are for encouraging college students to launch start-up ventures. Of course, beginning a startup firm anywhere in the world, let alone China, is risky, and most do fail, as per popular opinion. It is not a get-rich-quick scheme and, ironically if shortcuts are taken then the odds of the startup failing do increase substantially.
