Every would-be entrepreneur knows the old saying, but they still need a reminder from time to time: There’s no such thing as a free launch.
A misunderstood announcement had millions thinking the eastern province of Zhejiang was offering college graduates a chance to start a company risk-free. The actual offer isn’t that generous.
The provincial government announced a package of incentives for people with advanced degrees to move to the province, ranging from subsidies of 20,000 yuan ($3,158) to immediate access to house registration, or hukou, for anyone with a PhD, regardless of whether they had a job lined up. Amid a years-long “war for talent” between wealthy provinces, it’s not uncommon to see regional governments bidding to attract educated young people.
But one item in the announcement caught the internet’s attention: It said college graduates from across the country could borrow up to half a million yuan to start a business in the province. The money was advertised as interest-free for people who graduated within the last five years, and if the business fails, the government would pay at least 80% of the loan.
A related hashtag had been viewed over 4 million times on the Twitter-like platform Weibo at time of publication.
“I am moving to Zhejiang to start a business right now,” one Weibo user wrote.
“The Zhejiang government is going to be the largest angel investor,” another commented.
The catch is that it’s not the borrower who gets help if the business fails: it’s the bank. If a business fails, the founder is still on the hook for debt payments, but the program makes sure the bank won’t lose money.
The government clarified Friday that they were describing an existing program run by the province’s Entrepreneurship Guarantee Fund, which guarantees loans for first-time founders. It’s been around since 2015.
“The policy encourages banks to provide loans to college graduates who have good business ideas but not a lot of mortgageable assets,” Zhang Jialin, deputy director of the Student Development Center at Zhejiang University, told Sixth Tone.
Zhang said that financing is one of the biggest barriers for young people considering entrepreneurship.
Enthusiasm for startups appears to be fading among graduates since the start of the pandemic.
At Zhejiang University, the number of graduates who started their own business fell by almost half between 2017 and 2020, from 68 to 36, according to reports published by the school. Zhejiang University is well known for its entrepreneurship program, and dozens of entrepreneur associations run by alumni help college students seek venture capital funds and government sponsorships.
Last year, the Entrepreneurship Guarantee Fund issued 1.1 billion yuan in guaranteed loans for entrepreneurship, benefiting 2,056 enterprises. It is unclear how many of those companies were established by fresh graduates.
Some say seeking loan-based financing isn’t right for high-tech startups with long payback periods.
“High-tech startups often require over a hundred million in initial capital but don’t see immediate profits,” Xu Yeye, a PhD student at Zhejiang University who is now setting up a company specializing in robotic exoskeleton, told Sixth Tone. “Thus, we rely on provincial or national research grants, and venture capital funds, rather than loans.”
Meanwhile, experts in entrepreneur education caution that young people should recognize the risks of entrepreneurship.
“It’s so important for college students to be aware of what the policy really means and whether they have the quality of entrepreneurship, rather than being overly optimistic,” Zhang said.
Still, Zhejiang hopes you will move there and start a company. “We welcome college graduates from all over the country to come to Zhejiang for employment and entrepreneurship,” Chen Zhong, deputy director of Zhejiang Provincial Department of Human Resources and Social Security, said at Thursday’s press conference.
Editor: David Cohen.
(Header image: A cyclist passes the gate of Zhejiang University in Hangzhou, Zhejiang province, July. 21, 2020. Chen Zhongqiu/VCG)