This Report Shows That Chinese Startups Need to Get the Hell Out of Beijing

Beijing’s air: Think of the kids (Image: Alamy / Guardian)

You’re an entrepreneur or working for a startup. You’re young. You’re about to have a family that you want to bring up in a nice, safe place. But you don’t have much money. For startups in China, Beijing is still the main tech hub – and that’s bad news. A report by a Chinese think tank this week called the nation’s largest cities “barely livable” in terms of general quality of life and the ecological environment.

Beijing ranked 74th among Chinese cities in terms of livability and 119th in terms of the freshness of its environment. Often cloaked in a smog of lung-wrecking particulates from the surrounding low-tech industrial belt, it’s a grim place to be starting out in life or with a young family. Other large cities like Shanghai and Shenzhen also scored badly in the list. The only large (called “first-tier”) Chinese cities to be deemed reasonably livable in this report are Hong Kong and Macao.

The capital adds to the woes of a young entrepreneur with a mandated car license plate lottery that makes it difficult to get your first ever car on the road. And for a roof over your head, you’re looking at rental or purchasing prices that are more than double that of smaller but equally well developed cities across China. To get on the property ladder for the first time, a small-ish two-bedroom apartment outside of the centre of Beijing will cost RMB 2.5 million ($404,000), which you’ll have to somehow buy on your startup salary of anywhere between $800 to $1,600 dollars per month.

Think local

The alternative to all that lies in China’s smaller “second-tier” cities where the population is just a third or a quarter that of Beijing and Shanghai, and where property costs are half (or lower) than the nation’s top cities. They make for a better place to recruit and keep twenty-something tech talent. In terms of creature comforts, these other cities are not lacking in any way – many have subways, Starbucks, Louis Vuitton stores – and offer fresher air and more greenery for families.

These cities – such as Hangzhou, Chengdu, Xiamen – also have business environments that rival Beijing. Admittedly, it wasn’t always that way. Kerry Sun, a senior partner manager at Pinguo, the startup that makes the hugely popular photo app Camera360, lives in Chengdu in south-western China’s Sichuan province. That’s where the young company has always been based. Kerry says that startup life over 1,700 kilometers from the capital is getting easier now:

Several years ago we found some problems being outside Beijing or Shanghai, such as how to get the latest IT information and where to finding experienced staff. Now everything is getting better. More programmers are coming back to Chengdu because of increasing pressure in Beijing or Shanghai.

Recently the Sichuan government keeps introducing policies to attract startups, such as no tax for the first five years or rent the office to them for free.

While Pinguo didn’t get it that easy, such smaller cities are now more receptive to entrepreneurial web firms. The Camera360-making team is now based in Tianfu Software Park in Chengdu alongside other notable local companies such as game studio Tap4Fun. “In my opinion, Chengdu will be another Silicon Valley in the southwest of China,” adds Kerry, who can also count tech giants like IBM, Intel, Huawei, and Tencent as neighbors in that area of Chengdu.

Bye Bye Beijing

Where are China’s startups? Click to enlarge.

While Beijing’s awful livability index doesn’t dint its business or intellectual prowess (plus, Beijing residents are fantastically friendly, which adds to the enjoyment of visiting), the new report (from the National Academy of Economic Strategy under the Chinese Academy of Social Sciences) will give more momentum to a gradual shift away from starting tech companies in the capital. From 2011 to 2012, the percentage of Beijing-based startups listed on the comprehensive 17Startup directory went down from 49.7 percent to 43.9 percent. We’ll add up the numbers again later this summer when we expect to see that figure shrink again.

Instead of starting up in the same city where an entrepreneur graduated – or in the city with the most prestige – it’s increasingly fine for someone to return to their native province in China. Being outside of the hub is not a barrier to getting significant funding in China either. Pinguo’s Kerry admits that CEO Xu Hao needs to fly to Shanghai or Beijing from time to time to meet investors, but that distance is no deterrent for VCs. Kerry says, “I’ve worked in three IT companies so far [in the region] and all of them got investment from VCs”. Pinguo itself has attracted funding from Singapore-based Gobi Partners and US-based Matrix Partners.