Boom of new firms is not what it seems

By Ed Zhang (China Daily) Updated: 2014-07-14 07:04

Of China's half-year economic reports, one is less noticed, the one about the number of newly registered companies, which was issued by the State Administration of Industry and Commerce on July 8.

Some 4 million new companies have sprung up since the beginning of March, when the old capital requirement system was abolished and replaced by a more liberal registration system in which a citizen can practically set up a company with only 1 yuan (16 US cents) of capital.

Their national total showed a spectacular rise of nearly 70 percent from a year ago.

Many of the new companies, up to 80 percent of the register in some places, are privately owned.

Earlier data from the State Administration of Industry and Commerce show that till the end of March, there were 61.7 million companies in China, encompassing all ownership schemes.

In Zhejiang province, which boasts the largest cluster of privately owned enterprises in China, more than 95 percent of new registrations were by private owners.

In Shanghai, 75,000 new companies were set up from March to June, increasing 45 percent, and 350 percent in capital commitment year-on-year - although part of the reason for so much change is the eagerness of many domestic investors to relocate into the Shanghai Free Trade Zone.

Some Chinese business media hailed the development as the opening of the floodgates of entrepreneurship.

Suppose the new companies make an average investment of 1,000 yuan. A total of 4 billion yuan would be channeled to the country's development.

And suppose they each create 10 job opportunities. There would be more than 40 million new jobs, almost six times the number of college graduates the country produces every year.