The size and scale of Chinese social entrepreneurship

Andrea Krause reports on the findings of a recent survey into the state of social enterprise in China

While the social entrepreneurship field has been around for several decades in some countries, it has only begun to emerge in China in the last decade. So there is little understanding about the current organisational structures, origin, size, scope of work and impact of social enterprises in China.

To fill the void FYSE has conducted an annual survey among social entrepreneurs in China for the past two years. In this four part series we share more about the current state of social enterprises in China. Since around 2004 the concept has begun to gain supporters, advocates, incubators, impact investors, the media and academic researchers – have expanded across the country. 95% of respondents to FYSE’s annual Chinese Social Enterprise Survey got involved in social entrepreneurship after 2006, with the Sichuan earthquake of 2008 being a major driving force for participation.

The recent interest in social enterprise is reflected in the youthfulness of enterprises: 54% of them are under three years old and 38% are older than five years. One notable development is that of an inverted pyramid with fewer new social enterprises compared to the number of mature social enterprises. The number of mature social enterprises who were older than five years rose from 15% in 2011 to 38% in 2012. On the flipside the pipeline of early – state social enterprises is drying up, with the number of enterprises up to two years of age and again aged 3-5 years are notably decreasing, indicating that a large proportion of social enterprises are not graduating to the next level and size of operations.

Notwithstanding the perception of China as serious economic competitor with internationally expanding enterprises such as Haier, Lenovo and Sinopec, social enterprises are still limited in scale and economic impact, mainly due to their youthfulness.

Firstly, 71% of surveyed social enterprises generate less than 500,000 Yuan (£50,000) in annual revenues and while social enterprises grow in size over time, older social enterprises are still relatively small. For example, only two surveyed social enterprises achieved a turnover above 10million Yuan (£1m).

Secondly, social enterprises are limited in geographic scope with 63% operating on a village or city level, 13% operating on provincial level, 17% reaching national level and 8% operating on an international level.

Thirdly, two-thirds of surveyed social enterprises are headquartered in either Beijing or Shanghai, with very few social enterprises operating out of China’s smaller cities.

In the 2008 China Social Enterprise Report by the British Council 68% of interviewees predicted social enterprises to be most likely to evolve from existing NGOs. Indeed an increasing number of NGOs in China are embarking towards marketisation and commercialisation out of necessity due to a revenue shortage and institutional challenges facing NGOs. One example is Bread For Life founded by Keith Wyse. Keith originally established an orphanage outside Beijing, for children diagnosed with Osteogenesis Imperfecta, commonly known as brittle bone disease. Eager to see the children strive for more beyond the orphanage walls and with the ambition to break free from a grant dependency model, Keith established the Bread of Life Bakery six years ago. The bakery, which produces and sells western style bread to the mostly expatriate community in Beijing, provides employment to four disabled women who hail from the orphanage and generates profits that are reinvested into the orphanage.

Yet many NGOs striving to become social enterprises struggle to become social enterprises due to inadequate business and market expertise, institutional challenges, an unclear business model and inefficient income generating strategies. Therefore they often revert back to grants and donations to cover costs or are unable to expand. These challenges have led many Chinese experts to question the ability of NGOs to turn into viable social enterprises. Instead they believe that the most promising Chinese social enterprises are to be found in the business sector, among the businesses across China that might not even identify themselves as social enterprises. One example is Beijing Landwasher Science & Technology Development, which produces environmentally friendly toilets that use a water-free flushing system. This technology both conserves resources and meets the sanitation needs of rural communities lacking access to current public infrastructure.

Since 1999 Landwasher has sold over 2,200 of its environmental toilets and achieved sales revenues of £6.6m. This places Landwasher as a leader in the environmental sanitation industry in China.

However, these entrepreneurs often do not know of the concept of social enterprise and do not consider themselves to be social entrepreneurs. In fact, only 63% of social entrepreneurs in our survey consider themselves to be a social entrepreneur (down from 75% in our 2011 survey).

Yet, no matter the size and location social entrepreneurs in China face a variety of challenges, some in common with their global counterparts, some unique to China. The foremost challenges cluster around three key issues: access to funding at different stages of the entrepreneurial lifecycle; access and retention of human resources; and challenges related to government policy and the legal framework. Yet that requires a follow up article to elaborate in detail.

Andrea Krause is executive director at FYSE, an organisation dedicated to inspire, connect and accelerate social entrepreneurs and the field that supports them. This morning (15 August) FYSE officially launches its Social Enterprise Report into social entrepreneurship in China.

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