Page 34 - The South China Business Journal

c OMMUNITY NEWS

Startups or the State:

Where Does China Allocate

Its Top Talent?

By the Stanford Center on China’s Economy and Institutions (SCCEI)
three major groups: STEM, which includes science,
• By matching millions of college entrance technology, engineering, and mathematics (52% of
exam scores with job placement and firm- students), economics, finance, and law (28%), and
level data, researchers find that China’s most humanities (20%). They also segmented colleges
talented individuals are less inclined to launch into three quality tiers: the top 10 institutions, those
their own firms.
ranked 11–100, and the rest.
• Instead, high-ability individuals gravitate In the aggregate, a one standard deviation increase
toward the wage sector, particularly the in one’s ability, as proxied by college entrance
state sector, drawn by higher wages and scores, is associated with a decrease in the
local hukou eligibility, especially in cities with likelihood of founding a firm of approximately 7%
larger state sectors.
from the average probability of 7.36%. The findings
remain across majors and tiers of college quality.
• Although higher-ability individuals are less likely Specifically, a one standard deviation increase in
to start firms, those that do tend to build companies exam scores correlates with a 13% reduction in
that grow faster and become publicly listed.
probability of firm creation for STEM majors, 11%
for economics, finance, and law majors, and 14% for
• The findings suggest the state may be humanities majors. The correlation is evident across
drawing talent away from more dynamic, all college quality categories. Test scores were not
innovative sectors, highlighting a tradeoff significantly correlated with participation in social
between building state capacity and fueling activities or risk appetite.
private sector dynamism.
Higher-ability individuals achieve greater success
he private sector accounts for an estimated when founding firms. Even though individuals with
T60% of China’s GDP, 40% of its tax revenues, higher ability were less likely to start firms, those
and 80% of its employment. Allocating high-ability who did tended to drive better firm outcomes. A one
individuals to the entrepreneurial sector can enhance standard deviation increase in exam scores is linked
productivity and further boost the private sector’s to a 1.2% increase in a founded firm’s size, a 5.8%
significant contribution to China’s economic growth. higher likelihood of establishing a firm outside the
However, China’s economy is also characterized by a home province, and a 12% increase in the likelihood
strong state sector, known for job security, superior a founded firm invests in other companies. The
non-wage benefits, and elevated social status. What probability of a firm becoming publicly listed also
do China’s most talented people choose to do: build showed a substantial increase of about 39% relative
private firms or work for the state? to the average startup firm.

The data. This study uses China’s college entrance High-ability individuals gravitate towards the
exam scores as a proxy for individual ability, as these state sector. According to the survey data of the
scores are strong predictors of economic outcomes. authors, 43% of graduates found employment in
Researchers compiled over 20 million records on state enterprises, 50% in private entities, and 6.1%
exam scores and student backgrounds from 1999 launched a firm, while 64% of graduates indicated
to 2003 and supplemented this with survey data that state-owned enterprises were their top
from 30,000 students collected between 2010 and employment choice.
2015 on wages, first jobs, and college behavior. The
authors then matched these scores with records To assess what drew talented individuals away
of all firm owners in China through 2015 to assess from founding startups, the researchers sought to
entrepreneurial performance, including firm size, quantify the attractions of waged jobs. They found
expansion, investments, and public listing status. The that higher exam scores were also correlated with
final sample included 1.57 million individuals who 2.6% higher wages in the job market after college,
founded 150,473 firms by 2015. and a higher likelihood that a worker’s job conferred
local hukou eligibility, an important perk granting
High-ability individuals are less likely to start access to better local schools and healthcare. This
firms. The researchers categorized students into suggests that higher wages and non-wage perks (in

31 AMCHAM SOUTH CHINA