Chinese taxpayers are helping to underwrite tech start-up risks

Meng Jing

“You set up the business, I shoulder the risks.”

It sounds too good to be true? It is no scam, but a real programme rolled out in China to encourage entrepreneurship.

This start-up insurance scheme launched in Hangzhou offers up to 10 million yuan (US$1.4 million) to cover research and development costs in failed projects, as well as provide an allowance of up to 30,000 yuan each on living expenses for distressed entrepreneurs, according to a report by Chinese news agency Xinhua on Monday.

The Zhejiang provincial government jointly developed the programme with the state-owned People’s Insurance Company of China and Shanghai-based China Pacific Insurance Co. It was established as a protection mechanism to help relieve start-ups from some financial risks, while spurring more entrepreneurs to create and build innovative businesses, according to the Xinhua report.

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The local government will shoulder up to 300,000 yuan of the insurance cost for each start-up, depending on the type of project being pursued, the report said.

This insurance scheme has come amid signs of a so-called tech winter in China, where talk of lay-offs and hiring freezes has gained ground in what was once one of the country’s fastest-growing sectors.

The industry, especially for start-ups, is driven by investors looking to back the next big thing. But that wall of money has eased up amid a slowdown in the world’s second largest economy, exacerbated by the trade war with the US.

It has put the squeeze on a number of heavily indebted entrepreneurs. Luo Yonghao, founder of smartphone maker Smartisan Technology, and Dai Wei, founder of dockless bike-sharing pioneer Ofo, have joined the 15 million “deadbeats” – officially designated as “discredited individuals”, or laolai in Chinese – on a national database maintained by China’s Supreme Court. They are barred from taking flights or high-speed train trips, as well as any sort of lavish spending.

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Despite those recent failures, China has become home to the world’s largest number unicorns – start-ups valued at more than US$1 billion, according to the inaugural Hurun Global Unicorn List 2019 released in October this year. Of the 494 tech unicorns founded in the 2000s that have not yet gone public as of June 30, China had 206 such firms to move ahead of the US with 203.

Among cities, Beijing was ranked as the world’s biggest unicorn capital with 82 such firms, ahead of San Francisco with 55. Shanghai had 47, New York at 25 and Hangzhou with 19.

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This article Chinese taxpayers are helping to underwrite tech start-up risks first appeared on South China Morning Post

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