China Ranks High for Providing Access to Funding

EY’s G20 Entrepreneurship Barometer 2013 calls on governments, ahead of the G20 Leaders Summit next week, to collaborate with entrepreneurs in order to kick-start their economies and create jobs. According to the report, China shows its outstanding performance in access to funding and coordinated support.


“Access to funding is cited as the top priority for global action by 70% of entrepreneurs, who agree that obtaining finance remains difficult as their businesses grow and develop, and the sources of finance they rely on changes," says Terence Ho, EY’s Greater China Strategic Growth Markets Leader.


The US ranks highest overall for providing access to funding, followed by UK and China, with a varied mix of developed and emerging markets following in the subsequent ranking order.


While in the US only 15% of entrepreneurs report that it is very difficult to find funding, in countries such as Italy and Argentina this figure is much higher at 45% and 40%.


Ho notes that China’s strongest performance has been in access to funding, which has been improving rapidly, allowing more entrepreneurs to start new businesses or expand existing ones.


"The bureaucracy involved in starting a new business has also fallen in recent years, meaning businesses waste less time on non-productive activities," says Ho.


Strong improvements across China’s entrepreneurial ecosystem are helping to boost entrepreneurship further. Entrepreneurs are looking to their governments to incentivize new sources of funding whether it is unlocking bank lending to entrepreneurs, providing public funds, crowdsourcing or microfinance.


"Being creative can be a demonstrable success – nearly half of the entrepreneurs who are aware of crowd funding agree that it has improved their country,” adds Ho.


China’s performance in terms of access to credit for entrepreneurs has been very good. It ranks third overall on this pillar of the EY G20 Entrepreneurship Barometer 2013. The availability of bank credit to the private sector is unusually high for a rapid-growth economy, at 120% of GDP.


In addition, access to private equity and venture capital for entrepreneurs is strong, as these types of funds have been highly active in China.


According to the World Economic Forum, for example, local entrepreneurs rated the ease of access to venture funding as 3.5, on a scale from 1 (impossible) to 7 (very easy), well above the G20 average of 3.0.

China has also been a leader when it comes to expansion capital. The amount of investment raised in initial public offerings (IPOs) between 2009 and 2011 averaged 0.75% of GDP, higher than in any other G20 country. This has stopped during 2013, after the China Securities Regulatory Commission suspended new listings on exchanges in China in October 2012. However, new listings are expected to begin again later in 2013, with a consequent boost in IPOs expected.


Despite the country’s strengths, local entrepreneurship would benefit from intensified efforts to encourage banks to provide more small business financing.


In the survey, respondents from China said that better access to bank lending would do more to improve the long-term growth of entrepreneurship in the country than access to any other credit instrument.


Furthermore, nearly two-thirds (64%) of the local entrepreneurs surveyed ranked improved access to funding through new, innovative funding platforms as the factor that would do most to accelerate entrepreneurship locally, well ahead of anything else.


“The government may create a range of mechanisms and institutions that provide entrepreneurs with capital at every stage of growth, alongside providing support and mentoring, which is essential to enable entrepreneurs to use this capital effectively,” comments Ho.


Increasing government support
China performs well in the Barometer in terms of its performance on coordinated support for entrepreneurs. This is not a measure of the level of support that entrepreneurs can draw on but instead shows the degree of momentum that local entrepreneurs are experiencing. It suggests that China is making strong progress at building the kind of support infrastructure that will help entrepreneurs get their businesses off the ground.


Overall, China performs relatively well in each of the three components of coordinated support, which reviewed mentors, networks and incubators.


Respondents were most positive on the development of business incubators, with 52% saying that access to these vital services had improved in the last three years.


There are also signs that access to informal networks is improving: for example, 48% of respondents said they are getting better access to entrepreneurial clubs and associations.


Meanwhile, China is building 150 business start-up incubators for students returning from education overseas. This initiative will encourage these students to set up businesses by providing start-up support services and facilitating information-sharing about human resources, projects, policies and funding. These incubators work with around 8,000 enterprises and 20,000 students.


Of course, as is to be expected in an economy at China’s level of development, there are also challenges that can frustrate entrepreneurs.


Despite significant progress, entrepreneurial education and culture are both moving from a low base. In addition, further progress is needed on tax and regulation that affect entrepreneurs.


“The message is clear – governments, entrepreneurs and corporates have to work together to spur growth across the G20," says says Martin Qi, EY’s Greater China Government & Public Sector Leader.


"For governments, there is a clear call to action to both improve financial and regulatory environments to better support entrepreneurship but also to do more to encourage an entrepreneurial culture."

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