by Nathan Hubbard-Miles
Steve Koon, the founding partner of Innovate99 Impact Investment, and Robin Zhang, founding partner of Venture Avenue, are two of a growing number of Chinese social investors. They have partnered with the British Council for over five years to provide training, mentoring and funding opportunities to social enterprises in China. We asked them about the sector’s evolution and the opportunities and challenges that lie ahead.
The opportunities
While China’s economy has enjoyed near 10% growth for over 30 years, public services have been under strain from the weight of the world’s largest population, massive rural migration to the cities and the restructuring of public health services. Moreover, the country is rapidly ageing: there are now some 200 million Chinese people over the age of 60, accounting for almost 15% of the population, and their number is set to carry on rising. This coupled with its other social and environmental issues means that China is in serious need of new approaches to public services.
That’s where social enterprise, which is now beginning to take off, could really make a difference.
“Social enterprises can target people who can pay to generate profits to subsidise those who can’t pay” says Koon. “The key is to go beyond the ‘free and government subsidy’ models to develop market-based solutions.”
Koon goes on to say that “elderly services and special education are the two sectors most suitable for social enterprise solutions. [They] can deliver the most impact and financial return because of the possibility of building up a scalable business model.”
Zhang likewise sees opportunities in helping NGOs working in education, medical care and elderly care adopt revenue generating social enterprise models.
Moreover, he believes that “urban inclusion of migrant workers and connecting small rural economies to cities” is a highly promising area of work for social enterprises in China.
“These two issues impact on reducing the gap between rural and urban China, and help improve social stability,” he adds.
How the sector is evolving
China’s meteoric rise has caused many changes in Chinese society – and these have been reflected in the development of social enterprise over its relatively short existence.
Both investors have seen an increase in the scale and number of social enterprises in China in recent years, but it is another change that has most profoundly marked the sector’s evolution.
“When we started in 2009, most of the participants [in social enterprise training programmes] were from traditional NGOs and grassroots charity organisations. In the last couple of years, however, we began to have more participants from the business sector,” says Koon.
Zhang goes on to say that “[these] ‘newcomers’ from the business world [are] converting their already successful enterprises into social enterprises.”
While this brought more activity, business experience and capital to the social enterprise sector, it also created new challenges.
As Koon puts it: “At the beginning, the needs were very one-way: how to change from non-profits to social enterprises. As more participants from the business sector joined, another need emerged; changing from a commercial organisation to a social enterprise. The needs changed from a ‘one-way street to a two-way highway’.
“The scale was also becoming bigger. We had organisations whose annual budget ranged from 100,000 renminbi to a few million [£10,000 to a few hundred thousand]. Some were just serving a few people while others were helping hundreds or even thousands of people.”
Zhang adds that “while the old social enterprises need more incubation services, the new social enterprises need more validation that what they are doing is meaningful, and therefore valued by society.”
Challenges and future prospects
A major barrier to the development of social enterprise in China is the fact that it enjoys no legal definition or formal government recognition. And after a few well publicised scandals involving NGOs, there is deep mistrust of allowing businesses engaged in seemingly charitable causes to pay dividends to shareholders – something which is at the core of some social enterprise concepts but also debated in the west.
Aside from these high-level cultural barriers, social enterprises in China also face the same types of operational challenges as those in other countries, though according to Steve Koon access to funding does not top the list.
“The problem is always finding organisations with a scalable strategy and talented people. When I say strategy, I mean a long-term vision plus a practical five-year plan with sustainable revenues to help the organisation grow in both scale and quality of service. When I say people, I mean people with passion and commitment plus business management competence; in other words, professional managers with a sense of mission.”
The sheer number of people in need is also a big problem.
“In the UK, there are a lot of resources and [relatively] few people in need. In China, you have very few resources and too many people in need.”
He adds that in the disability sector alone there are over 80 million people in need in China, more than the total population of the UK.
“The sheer scale of China’s social needs dwarf the entirety of the UK social enterprise sector.”
However, despite these issues, both investors are very optimistic about the future of social enterprise in China.
Zhang believes that the sector’s growth in China over the next five to 10 years will be “explosive”, and expects more and more NGOs, especially in the education, medical care and elderly care industries, to adjust their approach and incorporate some revenue generating activity.
Koon says: “As China’s economy keeps growing, the amount of resources will increase. As the internet and smartphones become more popular, social problems also become more transparent and more people will join in to help.”