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What’s behind China’s boom in company formation?

72 points3 yearsandrewbatson.com
contingencies3 years ago

This data looks a few years old and questionable. Anyway, my opinion (China on-off since 2001, multiple businesses):

1. The government recently banned using personal electronic payment accounts to receive business funds (affects 2022 only).

2. To be listed on an ecommerce site you need a company.

3. Government handouts. To obtain local government handouts you have to put forward a corporate identity as a potential employer to justify receipt of funds. There's a lot of funds to receive, and all sorts of excuses for doing so. Some people's entire business is just a front for handouts, especially many "technology" businesses.

4. Face. If you are unemployed it's easier to maintain appearances with a company, even if you're not doing any business.

5. If you run your own company you control how much income is declared, which potentially increases profits at the expense of the tax man. A huge proportion of China's economy runs on the slightly cheaper ordering option of "不要发票" (don't need a tax-receipt). This is not a huge thing since it's rife in large companies too but it does allow for back-scratching deals that are of greater utility in a slowing economy (ie. now).

temp89643 years ago

My guess the main cause is the change of business model brought by eCommerce, especially WeChat. WeChat really makes it extremely easy for everyone to open a business and get paid. There are also other popular eCommerce platforms in China like TaoBao/Tmall , Pinduoduo, JD, DouYing (TikTok), etc.

nine_k3 years ago

In short: the number of small businesses in China grows steadily, but their summary share in the economy remains stable. Data for COVID years is not available yet.

fredgrott3 years ago

Sounds like labor being switched, i.e. from hourly worker to one-person service firm that still does the same job except as contractor. China is not like the US or EU in that you get social benefits like retirement and unemployment from the geo-locale you were born in not the place where you live and work.

Thus, the have workers in factories that cannot get social benefits in that locale as they were not born there. It makes the non-locales more pliable as a far as moving them to non-employee I would think ass they may be more hungry to make up the difference in social benefits they miss out on.

rfoo3 years ago

> get social benefits like retirement and unemployment from the geo-locale you were born in not the place where you live and work

You can get social benefits where you work (as an employee, no self-employment), but not where you live.

This may sound subtle but it's important for the topic.

e1bcc38a3 years ago

Most benefits come from a registration. That registration can derive from a job or a home or even a school.

Thorrez3 years ago

I would say more than steadily. 10.9M companies in 2012 to 44.6M in 2021. They've more than quadrupled the number of companies they have.

bigcat123456783 years ago

An article put out be semi expert on China read by readers have no idea on China, what could go wrong?...

desi_ninja3 years ago

I regularly see similar articles on HN about India. Written by someone with very shallow understanding counting on ignorance of the reader as long as it plays to their biases

scruffyherder3 years ago

Hong Kong is paying companies to form companies in the Mainland. So if you like Grant money, I'm sure it'll end in a massive surge

whoevercares3 years ago

I searched my Dad’s name online just out of curiosity, only to discover he actually has a shell company with my childhood home address… now I finally remember how I learned excel 20 years ago

baybal23 years ago