A.V. AFONASIEVA

Candidate of Economic Sciences Institute of the Far East of the Russian Academy of Sciences

By the beginning of the XXI century. China has created favorable conditions for innovation - capital has been accumulated sufficient to finance innovative projects, hundreds of technology parks and business incubators have successfully operated, and some startups* have grown into full-fledged companies that have entered the market.

One of the most significant aspects of the current results and resources for achieving future success is the return to China from abroad of highly qualified Chinese specialists and graduates of foreign universities, or haigui-re-emigrants, whose share in the innovative business of China, according to the author's estimates, is about 70%.

Returned specialists and university graduates are not re-emigrants. In the article, they are referred to as such only for the convenience of presentation. Most of them, despite long-term residence abroad, retained Chinese citizenship, so their activities in the PRC are officially considered as the activities of Chinese citizens.

Re-emigrants, in the strict sense of the word, are Gui-qiao: people who returned from abroad to their historical homeland and regained their citizenship. But today in China, the term Guiqiao is more often understood as forcibly returned Chinese people with low qualifications.

In China, Haigui are employed in both the public (30% of re-emigrants) and private (70%) sectors of the economy ^.1 Half of those employed in the private sector start their own businesses, which is associated with a good chance of business development due to the difference in scientific and technological development in the host countries of potential re-emigrants and in China. It is not profitable for haigui re-emigrants to start their own business in developed Western countries due to high competition and market saturation. It is much more profitable to conduct business in China using the knowledge, connections in business circles, and access to advanced technologies obtained in the process of studying and working in developed countries.

According to statistics, 35% of² open their own companies in China, and more than 75% of these companies are innovative ³.

WHAT COMPANIES ARE CREATED BY RE-EMIGRANTS

Chinese experts identify three main models of companies created by re-emigrants in China.

1) team building + business plan + high-tech industries + risky investments* * + access to foreign markets.

In China, the majority of successful innovative companies are re-emigrants (Asialnfo-Linkage, Sohu.com, SouFun Holdings, Neusoft Group, Baidu.com, Dangdang.com) were created according to this model, the successful operation of which resulted in the spread of the Internet in the PRC.

2) team building + traditional industries + effective foreign business model + investment and entry into the domestic market.

Companies created under this model are not innovative, but they are making significant progress, mainly due to advanced management methods borrowed from large foreign companies.

3) individual entrepreneur initiative + international relations + Chinese resources + intermediary services + company development.

Companies of this type are also not innovative, but they require a high level of education, creative thinking, and knowledge of the internal market from the creator. The most successful ones are New Oriental Education & Technology Group, Korn / Ferry International Inc., investment company ChinaEquity, SINOTRUST and a number of others ⁴.

Not all companies created by re-emigrants-haigui, develop and make a profit. Only 1/3 is functioning and thriving successfully, the other third is barely making ends meet, and 1/3 of companies are closing ⁵.

The prospects of an innovative company of re-emigrants depend mainly on the qualifications and personal qualities of a particular entrepreneur and attracting risky investments in innovative projects.

The main characteristics of successful haigui entrepreneurs are shown in table 1.

As can be seen from Table 1, success in starting their own company is most often achieved by Haigui men aged 31 to 40 years (64.8%), who have a master's or doctoral degree (more precisely, a PhD degree) (82.27%). The majority of successful entrepreneurs studied in the United States - 54.74%. Almost all of them had at least five years of experience working abroad in research centers, well-known companies or TNCs (including in the PRC), and some of them had experience working in the PRC before leaving to study abroad. Returning specialists who have studied abroad for only one or two years, as a rule, cannot create a viable company in China.

Participation of most successful haigui entrepreneurs in various public organizations (chambers of commerce, industry organizations, etc.).

* Startup, or startup company (from the English start-up-run) - a company with a short operational history. As a rule, such companies are established recently, are in the stage of development or research of promising markets (author's note).

** Risky investments - investments to finance new, growing or struggling enterprises and firms (startups) in the market, and therefore associated with a high or relatively high degree of risk (author's note).

Table 1

Key characteristics of successful entrepreneurs-haigui (%)*

* Note: Based on a survey of 300 Haigui entrepreneurs.

Source: Haiwai gaocentsi rencai yu renli zi-yuan jianshe [Foreign highly qualified personnel and formation of labor reserves]. Beijing, 2009, p. 174.

It expands their understanding of promising areas of company creation, makes it easier for them to find personnel and partners, allows them to get information about other companies, etc.

MAIN AREAS OF ACTIVITY OF RE-EMIGRANTS

According to statistics, the absolute majority of successful re-emigrant companies (76.84%) are created in the field of high technologies. The team of founders and managers is recruited from among Haigui who have received education and work experience abroad.

An important component of success is attracting risky investments. Almost all successful innovative companies in Haigui, which have a good reputation in China and abroad, have managed to attract risky investments in their projects, and these investments have already brought good returns to company creators and investors.

Risky investments are not only capital investments, they lead to the formation of new management mechanisms and a new management team. Previously, Chinese entrepreneurs had no idea about the business plan and the importance of the team's role in starting a company. These concepts came to China thanks to Haigui, engaged in the field of risky investments. Currently, they are the heads of almost all international venture funds in China.

Examples of PE/VC funds**, such as IDG and CDH, created with the assistance of returning professionals are illustrative.

In 1993, at the initiative of IDG (re-emigrant Vice President), the first Chinese-foreign venture capital company in China was established. In 1998, IDG, together with the Ministry of Science and Technology of the People's Republic of China, established a venture fund that allocated $1 billion over 7 years. to open high-tech companies. The most famous companies that received risky investments from IDG are Asialnfo-Linkage, Sohu, Dangdang, Baidu, etc. ⁶

In April 2002, China International Capital Corporation (CEO, Deputy CEO and other managers - haigui) jointly with China National Investment and Guarantee Co. We have established a company that manages the CDH fund.

The fund has 2 branches: one operates in foreign currency, with a volume of $100 million, and the other-in Chinese currency, 135 million yuan ($22 million). The main advantage of CDH, according to its managers, is not in the amount of capital and not in international relations, but in a professional management team consisting of re-emigrants-haigui. Thanks to its good connections, the fund has secured the support of such international investment banks as Morgan Stanley, Goldman Sachs, and conducted an IPO (Initial Public Offering) - an initial public offering of ⁷ shares.

** PE / VC funds - private equity and Venture Capital Funds.

*** Venture capital companies - organizations created for the implementation of innovative activities. They represent business cooperation between the company's owners (innovators) and venture capital owners to implement projects with a high degree of risk and the possibility of generating significant income (author's note).

Table 2

Dynamics of direct private investment (Private Equity) in China

Calculated by the author for: http://cvsource.chinaven-ture.com.cn/listorga-nization.action

Private equity funds (PE) and venture capital funds (PE/US)⁸ are created not only by large foreign companies under the guidance of returning specialists. Today in China, many Haigui re-emigrants, having successfully created their own company, independently open PE/VC funds, thereby accelerating the development of medium and small companies.

The story of one of the founders of the Northern Light venture fund, a re - emigrant Dan Feng, is indicative. In 1997, he founded a network security company (the largest Chinese company in Silicon Valley) in the United States and sold it in 2002. Returning to China, in 2005 Deng Feng founded Northern Light, which aims to invest in IT companies at the earliest stage of their development, and to date the fund has financed more than 20 medium and small companies in China. Deng Feng explained his choice as a desire to make a greater contribution to the economic development of the PRC.⁹

The fact is that an entrepreneur, regardless of the degree of success, has an impact only on the activities of his company, and the influence of a venture investor extends to various areas, even to the economy as a whole. A private venture fund allows a re-emigrant to establish connections, organize their team, accumulate financial resources, and search for risky investments.

The examples discussed above indicate a significant interest of foreign companies and personally re-emigrants in the development of the PE/VCb industry in China. At the government level, the issue of developing risky investments in the country was addressed in the 2000s.

In 2001-2008, venture capital (VC) in China grew, in 2009 its volume decreased by 41%, and in 2010-by another 27%. In 2011, it rose to a record level of $10.68 billion, but in 2012 it sharply declined to $3.7 billion. In the first half of 2013, the downward trend continued. Thus, in January-May 2013, the volume of venture capital amounted to $0.44 billion, which is 68.6% lower compared to the same period in 2012.

Private direct investment (PE) has a slightly different trend. In 2001-2005, their volume grew, while in 2006-2010 there was no clear trend of growth or decline in investment volumes. During the crisis of 2009, the volume of PE increased by 79% compared to 2008, and in 2010 it decreased by 64.5% compared to 2009. In 2011, the volume of private direct investment rose to a record level of $29 billion in 2001-2012, falling in 2012 to $22.4 billion. Data for January-March 2013 suggested that the downward trend would continue for the first half of the current year (see Table 2).

The global financial and economic crisis has had a negative impact on the risk investment industry in China, leading to a reduction in investment volumes. The increase in investment in the creation of new enterprises in 2009 can be attributed to the category of exceptions, especially since in 2010 their volume fell below the level of 2008.

In 2011, China managed to reach a record level of risky investment in innovative projects comparable to Western countries, and the number of projects themselves also increased significantly. The downward trend in 2012 continued in the first half of 2013, while Chinese experts expected a resumption of growth in the second half of the year.

Thus, we can talk about the important role of re-emigrants in the development of the risk investment industry in China. And this is especially valuable in the context of the existing problem of financing innovative companies in the PRC (despite the sufficient amount of financial resources).

Local Chinese investors are careful in choosing an investment project, do not want to take risks, preferring projects that should bring instant and obvious profit. The majority of local Chinese investors lack specific knowledge in the areas that innovation projects are focused on, i.e. potential investors do not fully understand the essence of the innovative projects that they are invited to invest in.

Difficulties in financing innovative companies in China are explained by the following reasons::

- a narrow range of financial products on the Chinese financial market. Lack of financial products suitable for medium-sized and small innovative companies that are at the stage of their formation (most haigui companies belong to this type);

- complexity of the procedure for obtaining loans. This often requires administrative intervention by the Government, i.e. commercial operations require administrative intervention;

- lack of a special opening law

the company. Currently, there is only a "company law" in China, which obliges both the founder of the company and the investor to pay taxes, i.e. it leads to double taxation. In China, the law "Methods of regulating investment in starting a business" was developed, but never adopted. This law abolishes double taxation of investors and innovators ¹⁰. If the legislative problem is overcome, Chinese investors will become more willing to finance investment projects.;

- underestimation of innovative developments of re-emigrant companies-Haigui in the domestic market of China. This also includes local protectionism, an imperfect intellectual property protection system, and other factors that increase the financial difficulties of innovators.;

- complexity of solving administrative issues. At the stage of promotion of the finished project/product, significant difficulties arise due to the complexity of solving administrative issues outside the technopark, which also affects the financial well-being of specific companies.

FOREIGN RISKY INVESTMENTS

The existence of the above reasons calls into question the speedy resolution of the problem of financing innovative companies in China. In this regard, foreign risky investments are a tempting option.

Foreign investors are risk-averse and have specialized industry knowledge. Foreign risky investments at one time helped to rise such major companies of re-emigrants-haigui, as Sohu.com, NetEase, etc. Their success attracts more and more followers - new haigui innovators.

But foreign risky investments should be treated cautiously, because there is a high probability that a foreign company will take over a young innovative company of a re-emigrant. It should be noted that most of the foreign risky investments in innovative companies are attracted from PE/VC funds created by foreign companies managed by Haigui. There is also the practice of creating PE/VC funds by re-emigrants themselves, which we discussed above.

China does not yet have a universal plan for financing an innovative company at the stage of its development. Therefore, re-emigrants have to rely on local innovation development funds that are not regulated by the center. The lack of control on the part of the center leads to an irrational expenditure of funds.

Despite a number of problems, innovative companies of Haigui re-emigrants managed to achieve significant success. Currently, 29 Chinese innovation companies are listed on the NASDAQ, the largest U.S. stock exchange, including 24 Haigui companies.¹¹ There are also very successful innovative companies of re-emigrants that have not yet conducted an IPO, but occupy a serious position in the Chinese market.

Table 3

Baidu and Google China share in China's Internet market (%)

Compiled by the author using: http://www.cio.com/article/23386/Google_China_Search_Revenue_Lags_Yahoo_ Baidu; http://www.marketingpilgrim. com/2007/10/goog-le-challenges-baidu-for-china-market-share.html; http://www.reuters.com/article/2008/01/25/us-baidu-china-share-idUSSHA 11273420080125; http://www.them. pro/Baidu-takes-full-advantage-Google%E2%80%99s-pull-out-China; http://news.softpedia.com/news/Google-Gains-Search-Ad-Share-in-China-Again-17919 l.shtml; http://www.chinainternetwatch. com/1353/sem-2011/; http://www.chinainternetwatch.com/1972/china-search-engine-market-share-in-2012

COPY COMPANIES

Among the successful innovative companies of re-emigrants, there are both truly innovative companies and "copies" of leading Western innovative companies. The Chinese government, along with encouraging the creation of innovative companies, encouraged the development of technologies in China "not the latest in the world, but new to China." As a result, since the 1990s, "copies" of leading Western innovative companies created by re-emigrants-haigui-began to appear in China. While they are not inherently innovative, they have made a significant contribution to the technological development of the PRC through the use of proven advanced foreign technologies that were not previously used in the PRC.

Let's take a look at some of the "copies" of leading American innovative companies created by re-emigrants: Baidu.com (copy Google.com), Dangdang. com (copy Amazon.com), Chinacars.com (copy of the American Automobile Association).

The competition between Baidu and Google China for the Chinese market is most significant (see Table 3).

Baidu was founded in 1999 in Beijing, and already in 2005, through an IPO, it entered the NASDAQ ¹². The Chinese branch of Google (Google China) was opened only in 2006,13 when Baidu already occupied a serious position in the market.

Since entering the Chinese market, Google China has never managed to bypass Baidu. In 2012, its share in the Chinese market decreased to 15.6%, which is lower than in 2007 - 2011. The decline in Google China's share is due to the friction of its management.-

The Government of the People's Republic of China on the issue of lifting censorship, which arose after hacker attacks on the email addresses of Chinese human rights defenders based on its portal. The company even announced its intention to withdraw from the Chinese market.

Tensions between Google China's management and the Chinese government have had a positive impact on Baidu, whose market share rose to 78.6% in 2012 (see Table 4).

The company also developed in approximately the same scenario with Baidu Dangdang.com, opened in 1999 in Beijing by analogy with the American giant company Amazon.com. In 2003. Dangdang.com It became profitable and entered the New York Stock Exchange (NYSE) through an IPO at the end of 2010.

Until 2007 Dangdang.com it had a stronger position in the Chinese market compared to Amazon.cn (18% and 12%, respectively)¹⁴. In 2008, the share of Dangdang.com decreased to 14.5%, and Amazon.cn increased to 15.1%¹⁵. In 2012, these companies accounted for 1.5% and 2.3% of the Chinese market16, respectively, significantly losing out to the other two largest Chinese companies specializing in e - commerce-Tmall and 360by.

Thus, starting from 2008, we can talk about approximately equal positions in the Chinese e-commerce market of the copy company and the original company (with a slight preponderance towards the original).

On the global market Dangdang.com - not a competitor Amazon.com although its share in the global e-commerce market is still 13.3%¹⁷. Dangdang.com specializes in e-commerce within the country. It doesn't have any foreign branches or a foreign-language version of the site, so the company is focused only on the Chinese consumer.

Let's take another example. In 2001, a copy company was established in Beijing Chinacars.com which is practically the Chinese "version" of the American Automobile Association (AAA), founded in 1902 in Chicago. Chinacars.com (CCC) offers quick assistance for road problems, as well as a standard set of AAA services: insurance support and car repairs ¹⁸.

In China, CCC competes with six local Chinese companies, the largest of which is the Beijing United Automobile Association (UAA). The number of UAA members is 1.2 million ¹⁹, which is 300 thousand less than that of the CCC. That is, despite the fact that CCC represents a smaller copy of the largest American automobile association AAA, its position in the Chinese market is stronger than that of local competitors.

WHAT COPY COMPANIES CAN AND CAN'T DO

The considered examples allow us to draw the following conclusions:

- copy companies can only compete with original companies in the domestic Chinese market. They occupy either leading positions in the domestic Chinese market, displacing branches of the original companies (for example, Baidu and Google China), or almost identical positions in the Chinese market (for example Dangdang.com and Amazon.cn);

- in the global market, none of the reviewed copy companies has achieved great success and is not able to compete with the original companies;

- copy companies may not overlap with the original companies in the domestic Chinese market (for example, CCC and AAA);

- copy companies can take a leading position in the domestic Chinese market compared to local competitors, or have an equal market share with local companies, or lose to local competitors in the fight for the market.

Note that managers of branches of American companies in China, such as Google China, Amazon.cn MySpace China, etc., are also re-emigrants-Haigui, but not all of them are able to compete with Haigui-owners of copy companies in the domestic Chinese market. This is a consequence of the fact that the branches of the original companies were opened in China later than the copy companies. Owners of copy companies foresaw possible competition with the original companies and took the most favorable positions in the domestic Chinese market in advance.

Despite the strong position of innovative copy companies in the domestic Chinese market, they do not have serious prospects to become leaders in the global market, because they do not have such resources and reputation as global leaders. In addition, risk investors (both foreign and Chinese) prefer genuinely innovative companies rather than copy companies.

Let's compare the positions of successful truly innovative re-emigrant companies in China (NetEase, Sohu.com, Asialnfo-Linkage, SouFun) and the most successful copy companies (Baidu and Dangdang.com).

All the considered genuine companies of re-emigrants-haigui in terms of gross income are inferior to the largest copy company Baidu, and Asialnfo-Linkage and SouFun are also inferior to the copy companies Dangdang (see Table 4).

Truly innovative companies have a strong position in the domestic Chinese market. So, NetEase occupies 60 % of the e-mail market in China ²⁰; Sohu.com - 32% of the market of infotainment Internet portals ²¹; Asialnfo-Linkage - 55% of the market of billing systems*, 52% of the market of CRM systems** and 39% of the market of BI systems** * used by Chinese telecom operators ²²; SouFun Company - 58.9% of the real estate search market on the Internet ²³.

However, the above-mentioned companies are not represented in the global market, or are represented by

* Billing system - the most important element of the software of any operator activity (regular telephone communication, calls from mobile phones, Internet access).

** CRM system - a customer relationship management system.

*** BI-system - a business analytical system (author's note).

Table 4

Gross revenue of copy companies and truly innovative companies in China, $ mln

Составлено автором по: http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?tic ker=BIDU:US&dataset=incomeStatement&period=A&currency=US%20Dollar; http://investing.business week.com/businessweek/research/stocks/financials/finan-cials.asp?ticker=DANG:US&dataset =incomeStatement&period=A&currency=US%20Dollar; http://investing. business-week.com/businessweek/research/stocks/financials/financials.asp?ticker=NTES:US &dataset=incomeStatement&period=A&currency=US%20Dollar; http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=SOHU:US ; http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=ASIA:US; http://investing. businessweek.com/research/stocks/financials/financials.asp?ticker=SFUN:US

very weak. In analytical reviews of various segments of the global market, the names of these companies do not appear, unlike the copy company Baidu, whose share in the global market at various times was 4.5-7.02%.

It seems that the truly innovative companies of Haigui re-emigrants are developing more slowly than the copy companies, because they were opened earlier or simultaneously with Baidu and Dangdang.com, and the results were achieved less or equal to them. The faster development of copy companies can be explained by the availability of ready-made, time-tested schemes and business plans, "copied" from large foreign companies. Genuine companies, on the other hand, develop their own development strategy, test and implement new products, which requires more time.

The original Haigui companies of re-emigrants (as well as the copy companies) were not affected during the 2008 - 2009 crisis, and their profits continued to grow. Despite a number of difficulties, they have already achieved significant results, bringing tangible benefits to China, and they are expected to grow rapidly in the future and become a serious force that can help China become an innovative state.

* * *

The results achieved by Haigui re-emigrants in the development of innovative business in China were made possible primarily due to the successful implementation of the strategy of returning highly qualified specialists from among foreign Chinese to China, the systematic work of the Chinese leadership with the foreign Chinese diaspora, the high intellectual and economic potential of the foreign Chinese diaspora, its historical ties with the ethnic homeland.

China's experience in returning highly qualified specialists and scientists to their homeland is of particular value for Russia, as our country, like the PRC, is experiencing a shortage of highly qualified personnel, despite the fact that a significant number of highly qualified specialists and scientists of Russian origin currently live and work abroad.

Although the Russian Federation does not have historically established ties with the Russian diaspora abroad and a clear policy for the return of specialists of Russian origin, it could play a significant role in the modernization of the motherland if properly approached.

¹ Haiwai gaocentsi rencai yu renli ziyuan jianshe [Foreign highly qualified personnel and formation of labor reserves]. Beijing, 2009, p. 225.

² Ibid.

³ Ibid., p. 174.

^{Wang Huiyao.} 4 Haigui shidai [The Age of Haigui]. Beijing, 2005, p. 148.

⁵ Haiwai gaoceng and rencai yu... p. 178.

^{Wang Huiyao.} 6 Dandai zhongguo haigui [Haigui in modern China]. Beijing, 2007, p. 63.

⁷ Ibid., p. 64.

^{Direct private investment (Private Equity) -8} investments in the share capital of companies whose shares are not registered on the stock exchange and do not participate in free circulation on the stock market. They are usually used to conduct research and development, increase working capital, acquire new companies, or improve the balance sheet structure.

Venture Capital is the capital of investors to finance new, growing or struggling enterprises and firms (startups) in the market, and therefore associated with a high or relatively high degree of risk (author's note).

^{Wang Huiyao.} 9 Decree. Op. p. 67.

^{Yang Hai.} 10 "Haigui" chuane rongzi de xianzhuang, wenti he dui-tse [Current financial condition, issues and strategy of creating Haigui companies] / / Zhongguo shehui kexuyeyuan yanjushenyu-an xuebao [Scientific Journal of Postgraduate Studies of the Autonomous Non-Governmental Organization of the People's Republic of China]. 03.2008. N 2. P. 60.

¹¹ Ibid.

^{Fannin Rebecca A.} 12 Silicon dragon: how China is winning the tech race. USA. 2008. P. 4 - 5.

¹³ Ibid. P. 14.

¹⁴ http://globaltechforum.eiu.com/index.asp?layout=rich_story&channelid=4&categoryid=30&ti tle-China+internet%3A+The+long+mar ch+toward+e-commerce&doc_id=11038

¹⁵ http://www.cptoday.com.cn/En/News/2008-12-04/65.html

¹⁶ http://www.chinainternetwatch.com/tag/b2c/

¹⁷ http://www.3dnews.ru/software-news/amazon_com_samii_nadezhnii_brend_ameriki/

^{Fannin Rebecca A.} 18 Op. cit. P. 46 - 47.

¹⁹ Ibidem.

²⁰ http://www.chinahourly.com/bizchina/2533/

²¹ http://www.china-online-marketing.com/news/china-tech-com-panies/sohu-com-inc/

²² http://www.asiainfo,com/file/ASIA%20-%20Corporate%20Pre-sentation%20-%20May.pdf

²³ http://ir.soufun.com/phoenix.zhtml?c-233487&p-irol-newsArticle&ID=1527996&highlight-

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