WHEN Maria Veikhman, founder of SCORISTA, a Russian credit-scoring startup, was considering expansion abroad, China immediately came to mind. She believes the scope there is vast, for two-fifths of Chinese have no credit records. Ms Veikhman settled in Tianfu Software Park, a state-owned incubator in Chengdu, capital of Sichuan province where city authorities “offer almost everything for free”. Complementary facilities range from office space, basic furniture and logistics services to detailed guidance on entrepreneurial methods.
Chengdu aims to catch up with Beijing, Shanghai, and Shenzhen, which at present are in a different entrepreneurial league—together they have over a hundred unicorns, or private startups worth over $1bn. The south-western city allocated 200m yuan ($30m) in 2016 to an innovation-and-startup fund for overseas founders, and hands out up to 1m yuan in cash to well-capitalised foreign startups and joint ventures. If the founders are “top international talents”, such as Nobel laureates, the incentive soars to 100m yuan. Last March Chengdu’s Hi-Tech Zone opened an office to provide startup services for expats, including corporate registrations. Some 3,000 foreigners now work there, many operating their own businesses.
Other cities are making similar moves. Beijing and Zhejiang have opened well-funded centres for overseas entrepreneurs. The authorities may be particularly keen on attracting venturesome “sea turtles”, meaning foreign-educated or foreign-born Chinese, but they help non-ethnic Chinese too. Shanghai and Wuhan, the capital of Hubei province, are planning new facilities for winners of international startup competitions held in China. In at least ten provinces, new immigration policies are easing the visa process. Foreigners graduating from Chinese universities can apply for two- to five-year residence permits marked “startup”. If they meet certain criteria, expatriates working for young firms can apply for permanent residence. In Zhongguancun, a tech hub in Beijing, 353 expatriates have been issued with “green cards” since 2016. A state-owned incubator there, Zhongguancun Inno Way, in 2017 incubated 878 startups; 121 of them were founded by foreigners or by sea turtles.
Three big hurdles still stand in the way of foreign entrepreneurs. Despite cities’ efforts to smooth immigration, for many founders visas are still hard to come by. Ms Veikhman has been refused a visa for months with little explanation, and has to shuttle between Moscow and Chengdu each month. Tight internet control also cuts the efficiency of starting a business. Overseas entrepreneurs must work hard to adapt to the internet environment inside the “great firewall” where Google, Twitter and many other services are blocked.
Notwithstanding the cash on offer from Chengdu and other cities, raising proper finance also remains problematic. Capital controls make it difficult for venture-capital firms that use yuan to invest in foreign entities; they usually have to enter a joint venture with a Chinese citizen. Local investors tend to prefer backing fully Chinese enterprises.
Yet the country’s other attractions are potent. “Even a niche market in China is a huge one,” says Greig Charlton, a former British banker who has run 247tickets.com, a ticket-purchase website, in Shanghai since 2014. Thanks to the promise of online ticket-booking in China, a relatively inexperienced entrepreneur like Mr Charlton has the opportunity to work with some of the world’s biggest concert-promoters.
A deep pool of talent is another lure—the reason why, for example, App Annie, a market data and insights provider co-founded by a group of European entrepreneurs in Beijing, maintained its R&D centre in Beijing even after it shifted its headquarters to San Francisco. When Stuart Oda, a Japanese entrepreneur, co-founded Alesca Life, a Beijing-based agricultural-technology company, he found young Chinese executives far more willing to take a risk with a startup than Japanese ones were.
Low labour costs as well as preferential land and taxation policies also help startups. In the internet realm prominent examples of those founded by foreigners in China are Qunar.com, a popular travel portal, and Tudou.com, which merged with Youku, another startup, in 2012 to become China’s biggest video-streaming platform. Qunar.com was co-founded by Fritz Demopoulos, an American. A Dutch serial entrepreneur, Marc van der Chijs, co-founded Tudou.com.
What explains the warmth towards overseas entrepreneurs? Lin Tao, a senior official of Chengdu’s hi-tech zone, gives a simple answer. Chengdu wants to turn itself into a cosmopolitan city like New York and London by 2025, and “the gathering of global talents is a precondition”, he says. Another entrepreneurial type, Steven Tong, chief executive of Startupbootcamp China, cites the government’s desire to develop cutting-edge technologies. It also wants to promote a favourable view of China, he notes, and that is far easier to achieve with startups than with established multinational companies.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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