Young Chinese entreprenuers seek fortunes in cafes and other “lower value” businesses

Chinese students are increasingly heading into the private sector upon graduation, disenchanted at their prospects in the public sector opening up cafes and running other “lower value” businesses than pursuing the path of high-flying entrepreneurs.

BEIJING, CHINA (REUTERS) – Every year, hundreds of thousands of Chinese graduates scour the job market for work. For years an ideal position meant stable employment pushing pens in an office, but as increasing numbers of university students drive down white collar wages, a generation of China’s youth are choosing to strike out on their own and try their hands at entrepreneurship.

The University Students Venture Park is an example of the hopes Chinese officials have for the country’s ambitious youth and their anxiety about their lack of preparation.

Designed as an incubator both for experienced entrepreneurs and for current college students considering starting out on their own, it is designed to Silicon Valley standards: a sunny outlook, an open floorplan, lots of glass, couches scattered around and walls hung with inspirational corporate art, and clever slogans about creativity.

There are two cafes, and lots of little nooks for brainstorming. At the entrance a large sign reads: “Dream Community.”

And indeed, the students inside are dreamers. Song Chengzhou, a quiet and intense young entrepreneur from Hubei who graduated in 2014, dropped out of his technology job after the monotony made him feel like a robot.

“Before, I was working as an electrical engineer, I’d just make designs based on whatever blueprint my boss gave me. I felt like I was on a production line. I was producing things then adding to them one step at a time, it felt really boring. I wanted to use some of the ideas I had in my mind so I came to Shanghai to become an entrepreneur with some of my friends,” he said.

Song is one of a generation of university graduates who has chosen to leave the safety of steady but often unrewarding and poorly paid employment, to strike out on his own.

Average starting wages for college graduates have remained brutally low given the stratospheric increase in the cost of living in Chinese cities – around 2,500 yuan per month in 2014, according to a Peking University survey. Even more worrying for Beijing is the mismatch between salary expectations and reality. Year after year, surveys show Chinese students expecting twice the wages they end up getting.

Optimists see these entrepreneurs as a step toward building a Chinese version of Silicon Valley, that among these swarms of kids must be the next Jack Ma or Mark Zuckerberg, the founder of the next killer app or biotechnology firm.

But sceptics warn that pushing kids who have for the most part never held even part time jobs to rebrand themselves as CEOs is setting them up for failure without having prepared them for success.

Cui Ernan, a labour market analyst at Gavekal Dragonomics in Beijing who has been closely following the entrepreneurship trend, said that many of the business models dreamt up by the country’s young entrepreneurs never make it off the ground.

“Basically most (of their ideas) die in the cradle. Their ideas are a bit out of sync with what society actually needs. So I think this is trend is related to the current education system, the training students get in school, and the disconnect between theory and practice,” she said.

Entrepreneurs such as Alibaba’s Jack Ma and Tencent’s Ma Huateng helped make entrepreneurship cool for a generation of students, but what many don’t consider is that both of their idols had years of experience before either hit success.

As ubiquitous as the stories of young entrepreneurs are in today’s China, so too are the anecdotes of their failure. Ding Jia, who opened her own cafe-cum-cocktail bar after bouncing around China’s informal economy as a serial entrepreneur, says not everyone can make it.

“I don’t think being able to find something good that can make money is something a normal person can see. If they haven’t had that period of education I don’t know if they have the ability to face the types of problems you come across in society,” she said.

Another problem is that the subsidies and support are unlikely to offset other policy barriers to success. China is one of the most competitive environments for small businesses in the world, where both market forces and policy barriers combine to make scaling up difficult.

Access to capital is constrained by state domination of the financial system, and at the same time low-level official corruption and weak support for intellectual property disproportionately impacts start-ups.