Fostering Entrepreneurship in China: A Survey of the Economic Literature

Published date01 November 2013
Date01 November 2013
DOIhttp://doi.org/10.1002/jsc.1947
Strat. Change 22: 387–415 (2013)
Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/jsc.1947 RESEARCH ARTICLE
Copyright © 2013 John Wiley & Sons, Ltd.
Strategic Change: Brie ngs in Entrepreneurial Finance
Strategic Change
DOI: 10.1002/jsc.1947
Fostering Entrepreneurship in China:
A Survey of the Economic Literature1
Carlo Milana
Birkbeck College, University of London, UK
Jinmin Wang
School of Contemporary Chinese Studies, University of Nottingham, UK
Someone asked Confucius ‘Why do you not take part in government?’
e Master replied: ‘ e Book of History says, Oh! Simply by being a
good son and friendly to his brothers, a man can exert an in uence upon
government.” In so doing a man is, in fact, taking part in government.’
(Confucius, e Anaclets, II.21. Translated by D.C. Lau, 1979)
Zeal without knowledge is the sister of folly.
(John Davies of Hereford, e Scourge of Folly, 1611)
Introduction
China’s economy is a puzzling reality. Its increasing international integration is
creating good opportunities for growth but it is also imposing high costs of adjust-
ment not only on the rest of the world but also on itself.  e main question is
whether fast growth will continue to be sustainable in the years ahead. Associated
with this issue, there are fundamental questions concerning the social costs and
e ective policies, and how long a self-referential single-party political system will be
compatible with further economic development in China.  e recent history of
Chinese economic growth seems to contradict some empirical results suggesting
that, in the age of emerging full political accountability (Bidner and Francois, 2013;
Giuliano and Nunn, 2013), ‘limited government’ performs better in stimulating
China’s emerging economy
presents a number of puzzling
problems, most of which have
been discussed in the economic
literature.
Growth-oriented projects can
be found and equally encouraged
in both private and state-owned
enterprises.
In order to keep being
a successfully growing country,
China needs to reduce wasteful
distortions in resource allocation
across industries, institutions,
and  rms and eliminate
counterproductive discriminating
policies.
The economic literature can help us  nd how to foster entrepreneurship in China
in order to ensure a sustainable economic growth.
1 JEL classi cation codes: E44, F21, F32, F43, O16.  is article complements the
literature survey on growth, institutions, and entrepreneurial  nance in China published
in this journal by Milana and Wu (2012). Other closely related articles in this journal
have been published by Kianfar etal. (2012) on policies supporting entrepreneurial
performance, McManus etal. (2012) on fostering Chinese  rms through
entrepreneurship, globalization, and international  nance, and Milana and Ashta (2012)
with a survey of the literature on micro nance.
388 Carlo Milana and Jinmin Wang
Copyright © 2013 John Wiley & Sons, Ltd. Strategic Change
DOI: 10.1002/jsc
investments and growth than ‘extensive sovereign discre-
tion’ (Przeworski and Limongi, 1993; Durham, 1999; Nee,
2000; Falkinger and Grossmann, 2005; Persson and Tabel-
lini, 2009; Zhang etal., 2013; Art and Harvey, 2013). Even
if there is not yet a complete consensus on these issues, few
people would challenge the notion that the basic engines of
the national productive system are the enterprises.
Entrepreneurship, however, is a concept that is ‘di -
cult to pin down’ (Hébert and Link, 2009, p. xix), and
fostering entrepreneurial  rms has always been problem-
atic. History, culture, and ideology have played a role in
shaping the government attitude and a more or less entre-
preneur-friendly political environment (Tan, 2002).
However, in the case of China, notwithstanding ideological
frictions (Jiang, 2001), other important factors have con-
tributed positively to entrepreneurial initiatives, including
Confucianism, historical inheritance, and a long tradition
of trading (Zheng, 2002; Laulusa, 2008; Lu and Tao, 2010;
Ma and Cheng, 2010; Li, 2013; Spalaore and Wacziarg,
2013). Strangely enough, the dominant economic theories
in the twentieth century have also generally contributed to
undermine a favorable attitude with respect to entrepre-
neurship. After an initial recognition of the importance of
entrepreneurs for growth by classic economists of the eigh-
teenth and nineteenth centuries, the dominant economic
theories of the twentieth century have essentially disre-
garded their role, apart from the Schumpeterian vision of
the ‘innovative entrepreneur’ and management studies of
leadership. Baumol (2010), for example, notes the absence
of a formal microeconomic theory of entrepreneurship.2
is has certainly a ected the direction of the economic
policy in China. Indeed, Karl Marx’s view of entrepreneurs
derived from his critique of classical economics had a clear
and straightforward in uence in the country. Confound-
ing entrepreneurs with capitalists did not help the analysis.
Hence, both the pessimistic Marxian interpretation and
the neglecting mainstream economic theories have con-
tributed greatly to a negative attitude toward the enterprise
all over the world, as described in Winston Churchill’s
famous critical remark:
Some people regard private enterprise as a predatory
tiger to be shot. Others look on it as a cow they can
milk. Not enough people see it as a healthy horse,
pulling a sturdy wagon.
And, as the historians of entrepreneurship Hébert and
Link (2009, p. xix) remind us:
In looking outside the United States today (and even
to some quarters within the United States), one
encounters mostly hostility directed toward the kind
of dynamic capitalism that Phelps [the winner of the
2006 Nobel Prize in Economic Science] extols.
e reasons are undoubtedly as convoluted as they
are complicated, but one reason seems to be the
inability of many intellectuals to escape Marxist
patterns of thought.3
Notwithstanding such enduring negative views around
the world, the entrepreneurship environment in China
has witnessed rapid and dramatic changes since the gov-
ernment pragmatically started liberalizing economic
reforms and adopted the open-door policy in 1978 (Chang
and MacMillan, 1991; Gao, 2002; Tan, 2005; He, 2007,
2009; Yang, 2007; Yang and Li, 2008; Chan, 2010;
2 is fact has not prevented, however, many analysts from
noting the importance of entrepreneurship for economic
growth (see, for example, Davidsson etal., 2006; Minniti and
Levesque, 2008, 2010; Yu, 2013), apart from the literature
on the broader subject of economic development. As for
China, the positive contribution of entrepreneurship to the
economic growth of this country has been underlined by
a number of recent contributions, including Zhang (2006),
Tang etal. (2007), Kwon and Kang (2011), Samila
and Sorenson (2011), Yu etal. (2011), Chance (2013),
Li etal. (2012), Qian et al. (2013), Zhang etal. (2013).
3 e authors refer to Phelps’s (2006) notion of
‘entrepreneurial economy,’ in which dynamic innovative
entrepreneurs are encouraged in contrast with an economy
driven by ‘big employer confederations, big unions and
monopolistic banks [. . .] protecting the interests of
“stakeholders” and “social partners”.’

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