Incubators hatch plots for healthy future

From nurturing startups to funding mature firms, Shanghai's SME initiatives pave the way

It's not quite Catch-22, but for most startups, you can't make much money until you spend a lot first. Then come all the other catches of setting up and running a business.

So finding seed money through grants and loans is often the priority of business incubators, programs that support novice entrepreneurs or new ideas before they are fit enough to stand on their own, and hopefully thrive.

Shanghai has been expanding its incubator programs over the past few years amid increased demand for the resources, services and counseling they typically provide for little or no cost.

Many programs offer startups commercial space for below-market lease rates, counseling, administrative support and services in areas such as human resources, information technology and marketing.

Founded in 1997, the Yangpu Technology Business Incubator, which works closely with the Shanghai Small Enterprises Center, created a unique channel for young enterprises' long-term development by providing mentors, market expansion and financing services, and other professional assistance.

In 2009, it established the country's first credit firm formed by an incubator, Enterprise Accelerator, aiming to provide funding to entrepreneurs.

Backed by a string of policy incentives, including tax deductions, Yangpu TBI has become a comprehensive incubator that offers a one-stop solution for startups. Many of the early startups it fostered are run today as established SMEs.

Now, the incubator has sensed the necessity to make strides into overseas markets, paving way for Shanghai's SMEs to be on a solid footing when venturing beyond the border.

"Internationalization is the trend for technology and business incubator programs, through which small firms intend to improve their product competitiveness overseas with international cooperation," says Xie Ning, director of Yangpu TBI's first overseas branch in the Netherlands.

Known outside China as YP Base, the incubator consolidated its position in Europe by partnering with counterparts in the United Kingdom and France, and conducting joint research programs via local universities.

"It is necessary to integrate all the international incubators in the same region, which enables them to share the resources," Xie says.

The center is designed to build a communication channel between Chinese and Western companies through a series of business seminars. YP Base also assists companies in applying for patents in all relevant countries, so they can simultaneously get overseas and domestic authentication of scientific and technological achievements.

Finding finance

Apart from promoting incubator programs, Shanghai is also planning to revitalize the domestic financial market by giving private capital better access via a series of pilot programs.

One idea is to introduce a financial brokers' system to quench SMEs' thirst for funds while regulating the market, say sources affiliated with the municipal government.

Financing could be made accessible to many cash-strapped firms from a large network of underground lenders, says Fan Yun, chairperson of Shanghai Fushen State Assets Evaluation Co Ltd.

"Since many SMEs fail to reach the threshold for obtaining direct loans from banks, they have already turned to these intermediaries. But as the majority are non-registered agencies, we want to regulate them into a legal framework," says Fan, an economic adviser to the local government, who led a research team in June to study the credit crunch among SMEs.

Dai Jie, head of the international cooperation office of the Shanghai Small Enterprises Center under the Shanghai municipal government, agrees, saying hundreds of brokers and financial service intermediaries are running around the city extending top-notch services to small corporate borrowers.

Many of these middlemen used to work as bank creditors so they know how to pursue options that work well with the operating budget of the client, Dai adds. They are well acquainted with the lending policies and seek to identify and secure the best mortgage deals for clients.

"The finance broker does all the legwork for the client, meaning considerable savings in time and effort to find the right business arrangement," he says.

"All we want is to make things transparent and entitle them with a legal identity."

This plan differs from financial reforms taking place in Wenzhou, a neighboring city famed for private lending, but where a local credit crisis has led to direct government intervention.

According to Dai, the Wenzhou model established a government-led lending registration that aims to match the needs of lenders and borrowers. But instead, it may deter borrowers, because they would have to disclose secret company information, such as that relating to revenue and assets.

"It may be more efficient if the government leaves the business to professionals," he says.

In the Shanghai government research team's plan for a certified financial broker system, Fan suggests a government-run test to determine whether a middleman is eligible to conduct such financial services.

If approved, the broker would register under the local industrial and commercial bureau and work with the guidance of the SME center.

"They don't need to transform into financial companies," Fan says. "Rather, they would help companies get loans and examine and evaluate the risks for banks. It is a win-win situation."

Dai says that many of the financial service intermediaries surveyed by the research team welcomed such proposals because legal status would free them from "living in the dark".

The proposed moves are conducive to diversifying the financial market and making the biggest use of financial tools, says Lin Yinmao, deputy secretary-general of the Standing Committee of Shanghai Municipal People's Congress.

Other plans under discussion include the establishment of community banks, and the introduction of preferential policies waiving tax and administrative burdens for small-sum loan companies.

Lin encourages the establishment of community banks so that similar rules to those they operate rurally can be extended to serve the funding needs of SMEs in the city.

She also suggests reducing tax and administration fees levied on small-sum loan companies, while raising the financing cap from the current 50 percent of its registered capital to 100 percent.

hewei@chinadaily.com.cn

(China Daily Africa Weekly 11/15/2013 page19)