Ética profesional

Emerging and transition economies in general and China in particular are considered harsh operating environments for entrepreneurs, in part due to poorly developed market institutions. As the transition to a market-based economy continues, China is in the process of forming market and institutional structures (Chen et al., 2012; Zhou et al., 2005). Economic reforms have created enormous business opportunities, as seen in the country’s impressive growth rates, as well as challenges for entrepreneurs, who continue to operate under conditions of institutional uncertainty (Tang, 2010; Yang and Li, 2008). Entrepreneurs contend with inconsistency in regulations and their

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application, lack of clarity regarding property and ownership, an uncertain relationship with officials who lack experience in private enterprise, and mixed views regarding the role of entrepreneurs (Atherton, 2008; Tsai, 2004).

Given a gradual approach to institutional reform that combines a one-party political system with a market economy, China has relative institutional stability compared to other large transition economies such as Russia, which are characterised by institutional instability and voids (Batjargal, 2007a; Puffer et al., 2010). Scholars have noted that China’s institutional and economic conditions “cannot be captured under traditional notions of capitalism” (Hofman et al., 2015: 5), which has inspired labels such as “Authoritarian Capitalism” (Witt and Redding, 2014), “Capitalism with Chinese Characteristics” (Peck and Zhang, 2013), and “Centrally Managed Capitalism” (Lin, 2010). Further, the role of government in China has been described as “intrusive and opaque” (Du and Mickiewicz, 2016). This description portrays an institutional environment of interference and control that is also unpredictable, difficult to understand, and fraught with uncertainty.

Strong rule of law can improve the climate for entrepreneurs (Stephan et al., 2015), for instance by protecting property rights, lowering transaction costs, and enhancing predictability (Estrin et al., 2013). High-quality institutions have a positive impact on commercial entrepreneurship (Estrin et al., 2013), including through legal and regulatory protection (Levie et al., 2014). Yet institutions may act as either obstacles or facilitators of economic activity (McMullen, 2011). Overzealous government involvement in business, such as in highly complex regulations (Levie et al., 2014), discourages growth (Estrin et al., 2013; Hessels et al., 2008). Entrepreneurs in China report time-consuming and stressful problems dealing with conflicting layers of official bureaucracy at local, provincial, and national levels as well as unpublished regulations and unpredictable dictates from courts of law (Chu et al., 2011).

In addition to control, China lacks supportive institutions to foster SME development, despite officially stated support for SMEs. The 2003 SME Promotion Law attempted to create favourable conditions for business by setting up officially sanctioned SME

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support systems at local level (Atherton, 2008; Chen, 2006). However, these systems have not yet come to fruition beyond a pilot phase, due to significant obstacles including lack of local government ability and motivation to provide business support, as well as lack of capability among service providers and underdeveloped demand among SMEs (Atherton and Fairbanks, 2006; Atherton and Smallbone, 2013).

As noted, uncertainty and unpredictability further complicate the situation. For instance, institutional environments and the “rules of the game” vary in different regions of China (Du and Mickiewicz, 2016; Smallbone and Xiao, 2009). This creates challenges for geographic expansion of small enterprises, as well as interaction across boundaries (Bruton and Ahlstrom, 2003; Tsang, 1994; Xu, 2011). Frequent changes and inconsistency in the rules due to institutional flux lead to “rule ambiguities” in which information is unreliable and business transactions are uncertain. While these ambiguities have created market opportunities that some entrepreneurs have successfully exploited, they also heighten risk assumed by private enterprise due to institutional failures (Atherton and Newman, 2016).

The overall result is a challenging business environment. According to the World Bank’s 2013 Doing Business report, China ranked a mediocre 91 out of 181 countries in terms of ease of doing business. Further empirical work suggests an even more hostile environment. In a study of 32 highly developed and transitional economies, scholars found that China ranked low on several measures of an institutional environment friendly to entrepreneurs. These included regulations related to ease of start-up process,8 bankruptcy, and intellectual property protection; to availability of financial capital; to control of corruption; and to public image of entrepreneurs (Walter and Block, 2016). Poor control of corruption, for example, has been found to reduce entrepreneurs’ growth aspirations (Bowen and De Clercq, 2008; Estrin et al., 2013). Walter and Block (2016) found that China ranked the lowest in terms of friendly regulations, access to financial capital, corruption control, and education levels (affecting human capital of both entrepreneurs and their potential employees). It

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was also on the lower end of the scale for public image of entrepreneurs. While China’s level of entrepreneurial activity is nonetheless high, the authors note that the difficulty of doing business affects the results of entrepreneurship, for instance the financial and non-financial rewards. A sample of the countries featured in Walter and Block’s (2016) study, and China’s place among them, is shown in Table 2.1.

In summary, despite official emphasis on expansion of the private sector, Chinese entrepreneurs still face significant obstacles, including a harsh, unpredictable institutional environment and very limited practical support (Guo and Miller, 2010).

Table 2.1 Ranking of Institutional Environments for Entrepreneurs

Entrepreneurial environment measure Lowest country China South Korea Japan UK US Highest country Entrepreneur-friendly regulations -4.08 (China) -4.08 -.49 1.33 2.14 2.84 3.54 (Finland) Financial capital availability 3.27 (China) 3.27 3.86 4.20 4.90 5.04 5.11 (Norway) Corruption control -.57 (China) -.57 .44 1.31 1.43 1.72 2.46 (Denmark) Public image of entrepreneurs .29 (Hungary) .40 .31 .32 .49 .75 .83 (Denmark) Average education (years of schooling) 6.84 (China) 6.84 11.25 11.16 13.14 11.05 13.14 (UK) Entrepreneurship education* 1.99 (UK) 2.71 2.49 2.19 1.99 2.74 2.74 (USA) Level of entrepreneurial activity .10 (Denmark) .30 .41 .22 .17 .29 .41 (S. Korea)

* Degree to which entrepreneurs believe their schooling formed entrepreneurial attitudes and skills

Table based on data from Walter and Block (2016)9