China's Entrepreneurs Need a New International Outlook

The following is an interview with Fu Xiaoyong by Liu Zichang. Originally published in Chinese in Consumption Daily, 2023. It has been translated and republished here in an abridged form with editorial annotations.

Firms are the nodes on the web of an economy. Whether that web expands or contracts depends on the expectations of entrepreneurs, and the prospects of any economy are, in effect, the sum of those expectations. In a downturn, entrepreneurial confidence matters all the more.

What is the essence of entrepreneurship? How can entrepreneurs' confidence be strengthened? Is Chinese entrepreneurship taking on new characteristics? And why do entrepreneurs need a new international perspective? Consumer Daily recently sat down with Fu Xiaoyong, co-founder and board member of the Humanistic Economics Society.

Fu long served as deputy secretary-general of the Yabuli China Entrepreneurs Forum, general manager of its research center, and editor-in-chief of Yabuli Perspectives, among other posts. He now lives in Los Angeles. In 2012 he and several colleagues founded the Humanistic Economics Society, where he remains a board member. He has led or contributed to reports such as the China Entrepreneur Development Confidence Index, A Century of Entrepreneurship 1840-2020, and Entrepreneurship and China's Future. These reports carry considerable weight in business circles and are an important data reference for entrepreneurs making decisions. Fu's research and views on entrepreneurs and entrepreneurship are widely recognized within China's business community.

The economy, Fu notes, is a web, and firms are its individual nodes. Whether that web stretches and expands rests on the expectations of entrepreneurs. Those expectations are what hold the web up, and it is hard to imagine a better way to judge an economy's prospects than by observing them. The sum of every entrepreneur's expectations is an economy's confidence index.

When he reads specialized research reports, Fu says, he often thinks of the cold-storage plant managers and textile mill owners in the small coastal fishing towns near his native Fuzhou. Their instinct for economic questions may be far sharper than those aggregate-level reports. One well-known economist once said that ten minutes spent walking through the Yiwu small-commodities market is enough to gauge roughly what China's GDP will be for the year. That may be an exaggeration, but sound economic judgment comes from the rural field. Only an accurate feel for individual, micro-level cases can keep the aggregate view from becoming distorted.

A longtime scholar of entrepreneurship, Fu distills the entrepreneurial spirit into a single word: alertness. People may understand alertness in different ways, but how to keep entrepreneurs alert matters far more than the precise meaning of the term. What conditions must be in place for entrepreneurs to stay alert?

When people discuss China's economic reforms, Fu says, they turn naturally to price reform, property-rights reform, and ownership reform; few think of media reform, yet its economic role has very likely been underestimated. Entrepreneurs can perceive accurately only when they have comprehensive, multidimensional information. Only through the constant stream of information from many directions, whether optimistic or pessimistic, internal or external, supportive or opposed, can they remain continuously alert. Any one-dimensional information cocoon is bound to distort perception and so damage entrepreneurs' rounded judgment and alertness. To undermine the alertness of entrepreneurs is to undermine the efficiency of an economy.

Distinguishing between risk and uncertainty, Fu stresses, is a great help in making sense of present conditions. Risk refers to probabilities that can be known in advance. When you buy a car and need insurance, the insurer checks your driving record, your years behind the wheel, the area where you live, and can then calculate the risk. Precisely because these probabilities are knowable beforehand, insurers and actuaries can cope with them.

Uncertainty, he continues, refers to probabilities that cannot be known in advance. The only option is to wade into the water and test it; you learn how deep it is only by trying. This is where the value of the entrepreneur lies. The firm is an institution that, through the profit mechanism, prompts entrepreneurs to meet uncertainty by wading in and testing the depths. The probabilities behind uncertainty can be learned only after the fact. In short, insurance is there to handle risk. Only entrepreneurs can handle uncertainty.

The importance of scale can hardly be overstated. If the new economy had to be summed up in a single phrase, that phrase would most likely be increasing returns to scale. If economy A is five times the size of economy B, the market value or valuation of A's new-economy companies should be more than five times that of comparable firms in B, perhaps far more. In other words, returns grow faster, often much faster, than scale itself. The more an economy takes on the character of the internet and of new technology, the more pronounced this trend becomes, and the more scale matters.

Since ChatGPT appeared, the conversation at home has centered on a new outlook of technology. But for entrepreneurs, Fu argues, a new outlook of the world may matter more.

China's central economic problem at the moment, he says, is that its production and supply capacity is unchanged while demand has shifted for various reasons, so its export-oriented entrepreneurs must chase orders across the globe.

As an economist who studies firms, Fu emphasizes that probably no country in history has benefited from globalization as much as China has over the past few decades. Globalization on this scale and at this speed inevitably redistributes vitality and gains, and inevitably leaves some regions stripped and cast aside. Naturally, those places first embraced the process, then came to doubt it, and finally resisted it. If it cannot generate even basic empathy, who will go on supporting globalization? In a word, the outside world is testing a new pricing strategy toward China.

In closing, Fu says the ducks are the first to feel the spring river warm: China's entrepreneurs were the first to sense how fierce this strategy has grown. Rather than cast blame, it is better to look inward. China's entrepreneurs want to keep reforming those parts of ideology that sit poorly with entrepreneurship, so that entrepreneurial talent can be steadily unleashed, and they also want the country to keep opening up, extending greater tolerance, calm, and empathy to the outside world. After all, what for others is the simple phrase "going global" was built up for China one shirt and one button at a time, through years of painstaking work.