Journal of Contemporary China
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Journal of Contemporary China
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Returnee Entrepreneurs: impact on China's globalization process
Huiyao Wang; David Zweig; Xiaohua Lin
Online publication date: 09 May 2011
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To cite this Article Wang, Huiyao , Zweig, David and Lin, Xiaohua(2011) 'Returnee Entrepreneurs: impact on China's
globalization process', Journal of Contemporary China, 20: 70, 413 — 431
To link to this Article: DOI: 10.1080/10670564.2011.565174
URL:
http://dx.doi.org/10.1080/10670564.2011.565174
Returnee Entrepreneurs: impact on China's globalization process
HUIYAO WANG, DAVID ZWEIG and XIAOHUA LIN
Recent research on returning Chinese students has focused on their role as an alternative solution to their home country's mandate to build technological capacity. This study shows the depth of the 'brain circulation' that is underway and the fact that overseas students are not only serving China from abroad or by returning, but after they return they play a leading role in many aspects of China's 'going out' strategy. These returnee entrepreneurs present many advantages to the Chinese economy. They have studied at the best universities in the world, were deeply involved in the New Economy, and have gained valuable experience in listed companies overseas. They often possess venture capital, many have experience working with some of the best MNCs in the world, and they serve to contribute enormously to China's current economic engagement with the world. The paper describes the returnees' impact on China's globalization drive and analyzes the factors leading to their success in comparison to MNCs and indigenous Chinese firms.
China's opening to the outside world has been multidimensional; foreign trade has skyrocketed, and China tops the world as a target of foreign direct investment (FDI). China holds more in US Treasury bills than any other country, and China has become an active purchaser of overseas resources. Many of these sectors are interconnected, such as the growth of foreign trade and the development of port facilities. In fact, in the early 1980s, even before the country's export trade boomed, state leaders began to invest heavily in developing new ports as they had the foresight to see that China would need all the shipping capacity it could handle. Their judgment proved right.
At the outset of the open policy, China's top leaders, particularly Deng Xiaoping, strongly encouraged China's science, technology, and education institutions to send Chinese students abroad. In the first government plan enunciated in 1979, the Education Commission and the Chinese Academy of Sciences sent 3,000 students and scholars overseas each year for five years. In 2007, the Ministry of Education reported that from 1978 to the end of 2007, 1.21 million students and scholars had gone abroad with 319,700 returning to China after they had completed their studies. In the current economic downturn, in which Western countries have been hit the hardest, the number of Chinese students returning has increased. What is the global impact of returning Chinese students and professionals? To date, most scholars have focused on the building of indigenous innovation capabilities.1 We argue that two dimensions of China's economic opening present an interesting synergy—sending students abroad and the policy of Chinese firms 'going out' (zou chu qu). In fact, after returning to China, many returnees play a key role in linking China to the world. Highflying entrepreneurs, in particular, fulfill this role; nevertheless, even entrepreneurs whose success has been more moderate contribute to China's 'going out' policy. How do returnees play such an important role in China's going out policy? Historically, students who have returned from abroad have always been engaged in cutting edge global economics and/or politics, serving as trail blazers for China's modernization. The first group of Chinese who left for overseas opportunities, many of them having studied engineering, went to New Haven, Connecticut in the 1880s and returned home to become leaders. Returnees included a Prime Minister, the Minister of Railways, and leaders in China's military modernization.2 Today, the sectors in which returnees specialize—IT, telecommunications, media, computers, biotechnology—are critical to the New Economy. The returnees are again at the forefront of the global economy and find employment in sectors that tend to do well on international stock markets. Also, having lived abroad and perhaps engaged in IT start-ups, these returnees have greater familiarity with the New Economy and have firsthand knowledge of what type of enterprises will succeed on the NASDAQ. Many of these are sectors in which firms from developing countries can leapfrog, quickly catching up to firms in more developed economies, allowing them to compete globally. Interestingly, most returned entrepreneurs today shun manufacturing, as China's comparative advantage is this sector is only its cheap labor, not the skills, networks or knowledge of the returnees. Hence, returnees tend not to be as active in exports of anything other than high tech goods or IT products and services.
When a Chinese firm decides to take its business to a global market, it will need to draw from its employees' knowledge of global business, the global economy, international trade and international law. Those who have studied abroad, and particularly people who worked abroad, are much more likely than those who studied only in China to have this knowledge. With their international experiences and networks, often established during their work experience overseas, as well as their ties to Wall Street's global financial firms, they have the capabilities to play a bridging role between Chinese firms and the global economy.
Returnees in the business world
Traditionally, the vast majority of returnees have been academics and scientists, but through the 1990s, more of these individuals engaged in business overseas and began to return home. That Chinese intellectuals have been reoriented toward the business world is not something only returnees are engaged in. As is well documented in Zhongguancun's contemporary history, for example, it has become common for scientists to pursue entrepreneurial opportunities in response to the country's transformation toward a market based economy.3 Encouraged by the government's sanctioned incubators in high tech zones (many are specifically targeted at returnees), graduates who possess experience with new technologies return as entrepreneurs. These zones serve to help returnees, who are often unfamiliar with working in China, to get investment capital, workspace, and to fill out the necessary paperwork for their return. Today there are over 110 such parks for returnees working in high tech industries. In the early 1990s, cities, led by Shenzhen and Shanghai, began competing for these returnees, offering them various tax breaks on the purchases of housing, cars and computers if they were to set up their enterprises locally.
The macro-policy environment has also proved encouraging. The willingness of people to return and to open their own enterprise has been increasing significantly since 1999, when a new law confirmed the status of private enterprises (vis-a`-vis state-owned enterprises—SOEs). Following substantial layoffs of SOE workers between 1997 and 1999, the status of the private sector grew dramatically in the eyes of the leadership, as they were hard pressed to find jobs for 9 million new entrants per annum to the work force. China's pending entry to the WTO also increased the flow of returnees, particularly people in the legal profession. The IT boom—which became a bubble—also brought many people back to China because of the size and potential of the Chinese market, but after the IT bubble burst, many could have returned overseas. Finally, opportunities within the domestic economy for people possessing new technology skills brought many mainland scientists and entrepreneurs living abroad back to China to try their hand at a start-up company.
The second component of the open policy was the mid-1990s decision by China's leaders to promote China's overseas business activity—the policy of 'going out' (zou chu qu). The inclusion of IPOs and M&As as part of this policy framework increased the importance of highly talented, globally connected returnees, particularly those with experience in IPOs (they may have started a company overseas and successfully listed it before returning), M&As, and multinational corporations (MNCs), or with access to venture capital (VC). China needed precisely these kinds of individuals in order to take its economy global.
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