Local governments pave way for new wave of small firms
Streamlined process, financial support help startups turn their ideas into reality
Yu Xu, a migrant worker in Dongguan, Guangdong province, was able to start a business two years earlier than he expected after the local government simplified its commercial registration procedures.
Since last April, ecommerce companies in Dongguan have been allowed to register their offices at the location of Dongguan Thunion Cluster Registration Hosting Co Ltd. The change has saved local entrepreneurs, especially those running small businesses, money that would otherwise have been needed to rent an office or a brickandmortar store.
Dongguan Thunion undertakes the registration procedures on behalf of companies, which is a big help for new business owners, said Yu, who started an online business selling industrial lubricants in May that has only five employees.
“I gave the hosting company my identity card and registration documents and received the business license a few days later,” he said. “It would have taken me a long time to do it myself.”
Dongguan Thunion is China’s first such company. It is also an innovative initiative of the local government to lower the threshold for people to start microsized and small businesses.
Dongguan is one of the four pilot cities in Guangdong designated by the State Administration for Industry and Commerce in 2012 to reform their commercial registration systems. The other three are Shenzhen, Zhuhai and Foshan. The reforms were expanded nationwide last March.
Another part of the reform is the concept of a zerocapital company, meaning that companies can be formed without paidin capital.
“The biggest barriers to startups are capital and having an office for registration, as well as other items for approval needed to get a business license,” said Zhang Zhiyun, an official in charge of commercial registration at the Dongguan Administration for Industry and Commerce.
“Reforms have reduced the paidin capital required for registration to zero, and many items that were needed prior to license approval can now be submitted afterward,” Zhang said. “We also made a breakthrough in allowing multiple business licenses to be registered at one address.”
Dongguan Thunion is a breakthrough initiative, with which the city hopes to “stimulate the vitality of the ecommerce industry”, Zhang said.
As a manufacturing base in the Pearl River Delta, Dongguan has an edge in developing ecommerce, based on its vast supply of products and welldeveloped logistics industry.
“Dongguan has wellmade products, but it doesn’t have established strong brands of its own. Ecommerce can help original equipment manufacturers in the city to transform and upgrade by selling their originally designed products online to gradually build their own brands,” said Lin Jianqiang, managing director of Dongguan Thunion. “Online marketing costs much less than traditional marketing through physical stores.”
Lin said that his company is popular among young people, especially college students. In the first six months of its existence, Dongguan Thunion helped 258 startups get business licenses, and about 20 of those were founded by college students.
The company offers registration and bookkeeping services for studentrun companies for free, while charging other clients 1,000 yuan ($160) for these services.
“Students are able to focus on marketing, which is the core of ecommerce and where they can make good use of their creativity,” Lin said.
Addressing the World Economic Forum Annual Meeting 2015 in Davos, Switzerland, on Jan 21, Premier Li Keqiang said that to foster a new engine of growth, China will encourage mass entrepreneurship and innovation, which is “a gold mine that provides a constant source of creativity and wealth”.
“Excessive regulation discourages innovation, and healthy competition is the way to prosperity. We will deepen reform of the administrative system,” Li said.
As one way to support small companies, they are being offered tax breaks. Businesses with annual taxable incomes below 200,000 yuan will now be eligible for a 50 percent income tax cut, according to a statement released after the State Council’s executive meeting on Wednesday, which was presided over by Li.
The measure is retroactive to Jan 1 this year and runs through the end of 2017. This week’s announcement was the latest reduction in small business taxes. The central government has expanded eligibility for the 50 percent reduction several times since 2012.
The original threshold was a business income below 30,000 yuan.
Guo Huazhong, general manager of a hitech equipment designer and manufacturer based in Foshan, said he is encouraged by the local government’s support of small and mediumsized enterprises in terms of fund ing and talent recruitment.
Guangdong Ruizhou Technology Co Ltd, founded by Guo in 2004, sells originally designed numericalcontrol cutting machines that handle flexible materials to manufacturers of shoes, clothes and automotive interiors to help them upgrade their production lines.
Guo moved his company into the Hantian Science Park in Nanhai district, Foshan, in 2009. He used his patents as collateral for a loan of 3.5 million yuan, with the local government as the guarantor, to meet the capital threshold to enter the park.
“It was incredible that intellectual property, a piece of paper, can be turned into money. It was a big reform and the government has been vigorously promoting loans based on the value of intellectual property,” Guo said.
Guo’s company has about 120 employees, mostly recent college graduates. However, he said that SMEs cannot compete with big companies in recruiting staff and need more government help.
The government of Nanhai district has offered a creative solution, according to Guo. It collects technical problems from SMEs and invites students from the country’s top universities such as Peking University and Tsinghua University to solve these problems during school vacations.
“It kills two birds with one stone. We can solve our practical problems more easily with students’ access to their schools’ data. At the same time, we can find the right talent for our company.”