Like foreign multinational corporations, Chinese entrepreneurs see tremendous opportunity in China. However, unlike foreign entrants who often cannot see beyond China’s massive 1.3 billion-strong population, these entrepreneurs experience firsthand the shortcomings within the current system and are driven to fill the gaps.
In this article we will take a look at 3 sectors that will likely see increased entrepreneurial opportunity and activity in the near-term. These sectors have been mentioned time after time in all the entrepreneurial meetups that I have attended in cities like Beijing and Shanghai. Although these sectors are not new to most experienced China-oriented entrepreneurs, I fell this blog would not be complete without mentioning them.
In 2012, China had the largest number of Internet users in the world at 564 million, compared to 245 million in the U.S. China is currently the world’s largest online gaming market at US$10 billion, and e-commerce volume surpassed that of the U.S. in 2013. There is tremendous demand for high-tech services, but the current supply in China is deficient. According to Steve Blank, professor of entrepreneurship at UC Berkeley’s Haas School of Business, more than 30,000 websites are blocked in China, including Dropbox, Facebook, and YouTube. For this reason, many Chinese entrepreneurs and investors enter this sector. Favorable demographics, combined with low up-front capital investment and relatively minimal government intervention, explain the explosive growth of this sector.
One of the key social issues China faces is its aging population. Within the next few years, the country is expected to have more than 220 million adults over age 60, compared to 180 million today — all of whom will require medical care, facilities, and treatments. Currently, only 5% of China’s GDP is spent on health care compared to 16% in the U.S. The market capitalization of Chinese to U.S. health care companies is 1:20; the ratio of market capitalizations for health care services companies between the two countries is even greater, at 1:100. Realizing the need to improve the quality and increase the quantity of health care in China, the government deregulated the sector, thereby inviting entrepreneurs to enter and close the gaps in basic infrastructure and services. According to Hong Lu, a principal at Piper Jaffray, “we’re still at the low-hanging fruit stage, with limited risk involved but extraordinary growth potential.”
Despite the recent tumble of the Chinese solar and wind-manufacturing sectors, renewable energy remains an opportunity for growth. It was first identified as a strategic industry in the 10th Five-year Plan of 2001 and has continued to be a focus of the government as a way to satisfy the growing demand for energy and simultaneously minimize environmental impact. From 2004 to 2011, the Chinese invested approximately US$200 billion in this sector. This investment will continue as China’s 12th Five-year Plan of 2011 targets generating 11.4% of the country’s energy from non-fossil fuel sources by 2015 and 15% by 2020, up from 8% today. However, the boom and bust of China’s renewable energy sector over the past decade taught the government, investors, and entrepreneurs the negative results of too much government intervention. Entrepreneurs still see an opportunity to ride this policy trend, but have shifted focus to less-crowded verticals within the sector, such as water treatment, lighting, gas-fire generation, and environmental services.