Recruiting in China

Anyone who has followed China’s business billionaire lists in recent years will probably have noticed an encouraging trend: self-made entrepreneurs are climbing the charts. Six out of the ten billionaires topping this year’s list are genuine entrepreneurs.

There is, for instance, Baidu ’s (NASDAQ:BIDU) founder Robin Li, Tencent’s founder Ma Huateng, and Alibaba’s founder Jack Ma. They all developed true enterprises that parallel those developed by American, European, and Japanese entrepreneurs—they began with consumers and their needs, and came up with innovative products and services to accommodate them, amassing wealth in the process.

Baidu’s CEO Robin Li, number 3 in this year’s list, is a case in point. He made his billions by building a pioneering company in China’s brutal Internet market, where most companies fail to monetize their business model. Baidu’s revenues have been growing by leaps and bounds; reaching $4.17B in 2013, up from $515 million in 2008. Most notably, revenues come from several sources: Internet search, video stream (iQiyi),on-line travel services, on-line recruitment, and on-line payment systems (BaiduPai).

Baidu’s Financials

Forward PE Operating Margins (%) Qtrly Revenue Growth (%) Qtrly Earnings growth (%) Total Revenues Debt Cash
24.66 43.11 38.60 -4.50 4.17B 1.88B 5.43B
The rise of self-made billionaire entrepreneurs who build true enterprises which serve the interests of consumers is a significant departure from the old days, when entrepreneurs were government-made entrepreneurs who build “units” that served the interests of bureaucrats rather than the interests of consumers. This is true for three reasons.

First, it is a sign that China is making good progress in allocating its resources better, having entrepreneurs rather than government bureaucrats make important economic decisions. Second, it is a sign that Chinese corporations are making progress in moving from imitation to innovation, to catch up with their overseas counterparts.

Third, it is a sign that the government is loosening up its grip on the economy, releasing the ingenuity and creativity of the Chinese people.

To be fair, the government may be loosening its grip on the economy, but it continues to be on the driver’s seat, as guanxi –connections with government bureaucrats — continue to be a determining factor in who will get in what business, and for how long.

Nonetheless, this cruel reality doesn’t undermine the success of the self-made entrepreneurs – rather, it supports and re-enforces that success.

Hopefully, this trend will continue in the future.