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Business trends

Business openings boom in China, but jobs are a bust

Mom-and-pop shops on the rise as employment opportunities dry up

The majority of new businesses opening up in China are single-owner proprietorships, such as clothing stores,which do not lead to much job creation. (Photo by Issaku Harada)

BEIJING -- China has seen an explosion in new companies over the past few years amid a government effort to encourage entrepreneurship, yet the pace of job creation has plunged, while many workers opt to go into business for themselves.

China had 21.8 million "legal entities" -- a category that includes corporations, government agencies and nonprofits -- at the end of 2018, according to economic census results released this month. That number doubled from the previous tally for 2013 and grew twice as fast as the previous five year period. Corporations made up the vast majority, shooting up 126% to 18.6 million.

But a broader look at the data shows that the proliferation of businesses has not brought an abundance of quality jobs.

The surge followed the launch of Beijing's "mass entrepreneurship and innovation" campaign, which got fully underway in 2015. The government simplified the process of creating new companies, helped founders access capital, offered tax incentives and even provided low-rent office space.

On average, nearly 20,000 new enterprises were registered each day between January and October of this year, government data shows. The growing spirit of entrepreneurship has given rise to successful startups, particularly in the tech industry.

Yet the number of people working at legal entities edged up just 8% from the end of 2013 -- a sharp slowdown from the 30% of the previous half-decade. Net job additions sank by two-thirds to 27.2 million. The average number of workers per company dropped to 17 from 32, indicating that small and midsize businesses are playing a larger role in employment.

Meanwhile, sole proprietorships -- a separate category from legal entities -- brought on 59.2 million more people, accounting for 69% of the total increase in employment. These enterprises jumped 92% to 64 million, with the highest growth seen in wholesaling and retail, followed by hotels and restaurants.

These trends suggest that rural migrant workers, who used to take factory jobs in cities, are now having trouble finding steady work at existing businesses and setting up their own stores or restaurants instead.

The census also provided further proof that the core of China's economy is shifting from manufacturing to services. Legal entities in tertiary industries more than doubled to 16.9 million, while secondary industries, including manufacturing and construction, saw a more modest 69% rise to 4.7 million. The survey does not cover primary industries such as agriculture and resource extraction.

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