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China’s College Graduates Encouraged to Start Businesses

Can China solve its graduate job shortage by encouraging young entrepreneurship?

China’s College Graduates Encouraged to Start Businesses
Credit: Tsinghua University via

The Chinese government has in recent weeks offered support to college graduates who may otherwise struggle to find jobs in a slowing economy. This year alone, 7.5 million students graduated from college, a level higher than that of previous years. The government’s moves are part of an effort to reduce unemployment and spur innovation, meeting the dual aims of maintaining social stability and bringing about structural change. While admirable, these policies do not reduce the need to create high-skilled employment for new graduates.

Education Minister Yuan Guiren encouraged graduates to find jobs in the services and commercial agriculture sectors, especially in second and third tier cities. Xu Hongcai, assistant to the financial minister, promised tax breaks to college graduates who start their own businesses. Vice Minister of Science and Technology, Cao Jianlin, stated that Guangdong province will provide 2.5 billion RMB ($403 million) to science and technology start-ups, and that Zhejiang province will allocation 100 million RMB for these types of startups. Human Resources and Social Security Minister Yin Weimin said the government will provide business start-up subsidies to individuals on student loans.

Many college students were able to find a job in 2014, a considerable improvement from 2011, but the job market for new graduates has now become far more competitive in first and second tier cities. Age limits for hiring of graduates have made competition for jobs even more heated in some first-tier cities. About 3 percent of college graduates chose to start their own businesses in 2014, which was more than in previous years, but is still a low number.

Still, the lure of starting a new business is enticing, especially in the internet industry. E-commerce start-ups are hot right now, with electronic payment platforms quite of the moment. The success of internet giants Alibaba and, coupled with the stock market boom, has attracted new Internet start-ups to the industry. Premier Li Keqiang’s concept of “Internet plus,” linking online ventures to offline businesses in the manufacturing industry, has underscored the leadership’s interest in moving up the value chain. College graduates, particularly those with one or more years of experience, are encouraged to enter this industry.

No matter what specific jobs graduates choose, creating jobs in high-skilled sectors is essential to ensuring employment for China’s graduating students. Educated young people are loath to work in manufacturing jobs, but mismatches often exist between students’ skills and existing jobs. Academic universities do not necessarily produce graduates with technical skills. This is why some traditional universities are being converted into polytechnic schools.

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Many soon-to-graduate students wish to start their own businesses, but far fewer are able to actually achieve this. Start-up businesses require industry know-how, management skills, and sufficient funding. While some of the new government policies aimed at graduates may help alleviate funding constraints, the reality is that college graduates may fare better with several years of experience under their belt before starting their own businesses. The statistics reflect the disconnect between the desire of graduates to start their own businesses and the ability to do so. While over 10 percent of students wish to start their own businesses, only a fraction of these students can carry it out.

Moreover, while technology start-ups may carry a particular appeal these days, these are especially prone to failure. For example, many of the peer-to-peer (P2P) lending firms that arose in the past couple of years have gone out of business due to reliance on poor business models and inability to sufficiently control for risk. This new, less regulated sector may seem to promise big returns in the way of IPOs, but few firms make it to this point.

In sum, although college graduates may choose to start their own businesses, it is probably wiser to generate more high-skilled jobs in which graduates can first gain experience. The pressing need for economic restructuring will not be staved off by policies encouraging youth entrepreneurship. More substantive policies should transform the manufacturing and services sectors to bring new graduates into higher value-added positions.