A district government in the eastern Chinese city of Hangzhou is offering “start-up insurance” allowing entrepreneurs to write off development costs or even qualify for a living stipend if initiatives go belly up.
Why it matters: Over the last three years, Chinese cities have been competing over young, educated talent, a demographic scramble which will determine their future development prospects.
- Some local governments offer research and development (R & D) insurance, but this is one of the first insurance initiatives with comprehensive benefits.
Details: The Yuhang district government and Zhejiang branches of state-owned insurance companies, PICC and CPIC, launched the program on Monday. While currently a local-level initiative, policymakers have previously discussed start-up insurance.
- Start-up insurance takes three forms: compensation for lost R & D costs up to RMB 10 million (around $1.4 million), living allowance for entrepreneurs for up to RMB 30,000, and coverage of up to RMB 10 million for losses from research projects which fail because of specific reasons.
- Some commentators have already raised concerns about insurance fraud, and determining who is honest may be difficult, said Guo Shuai, a doctorate candidate at Leiden University studying insolvency law.
“Chinese bankruptcy law is a creditor-centered regime.”
Context: Currently, enterprise bankruptcy law does not extend special treatment to smaller companies or startups. While bankruptcy regulations do not necessarily dissuade entrepreneurs, start-up insurance and faster or cheaper processes for starting companies can be important incentives, Guo explained.
- Other government-led startup incentive initiatives have taken the form of streamlined access to residency, housing subsidies, and preferential policies for those starting up businesses.
- This initiative aligns with state policy which asks banks and insurers to facilitate entrepreneurship-related matters. A 2015 guideline document (in Chinese) released under Premier Li Keqiang’s innovation push explicitly calls for more financing pilots, improving guaranteed loans and developing new lines of insurance business to support innovation.
- China has “half a bankruptcy law” say industry insiders. With no national-level personal bankruptcy law, businesses can be liquidated under enterprise bankruptcy regulations, while individuals bear lifelong liability.
- Judgements at local level may indicate what a national-level personal bankruptcy system could look like. Last month, Wenzhou Intermediate People’s Court issued a judgement which set a time limit on personal liability and allowed the debtor to stave off paying his debts until he amassed a certain amount of funds.