Jack Austin Centre for Asia-Pacific Business Studies: The Chinese crowdfunding model

Thanks to popular websites such as Kickstarter, crowdfunding – the process of raising money to fund a project or business venture through many donors using an online platform – has permeated the public’s consciousness. Yet in China, the process of crowdfunding has a different look – one that relies on face-to-face contact.

Professor Zhang Jiawei, visiting scholar at the Beedie School of Business’ Jack Austin Centre for Asia-Pacific Business Studies, explained the different approach the Chinese model of crowdfunding takes in a special presentation at the Segal Graduate School on November 18.

The presentation, which was delivered in Mandarin and simultaneously translated into English, explained the differences between the established western crowdfunding model and the Chinese operational model, citing the example of Peking University’s 1898 Café. Zhang also debated the prospects and potential problems associated with the Chinese crowdfunding business model, and the potential pitfalls of transferring it to western business practice.

Zhang has extensive experience in business and as an angel investor. He was the Chairman and President of a large state-owned company in China for more than ten years, is an expert in Chinese enterprises’ reform and development, and has a deep understanding of China’s Corporation Law. He has also played an active role in Chinese crowdfunding projects, and was the chief architect behind the establishment of the Vancouver 1029 Café, the first Chinese-style crowdfunding coffee shop launched overseas.

A relatively recent worldwide phenomenon in itself, crowdfunding is even newer in China, having been introduced to the country in 2012, where it has since become increasingly popular. Rather than rely on online interaction for its success, which is the basis of the traditional crowdfunding model, the Chinese method instead relies on face-to-face interaction.

The Chinese model originated in Beijing with the 1898 Café, a bricks-and-mortar establishment that facilitates patrons in gathering funding for entrepreneurial projects. The concept relies on a small group of business acquaintances each putting up capital to purchase a coffee shop. They then use the establishment as an entrepreneurial incubator where each investor can bring in ideas to present to the group and solicit funding.

The model has proven successful in China due to the strict financial restrictions imposed within the country. In the past, financial institutions would not have been permitted to invest in initiatives, with only banks being allowed to do so. However the advent of crowdfunding has opened up potential investment avenues to numerous parties, including smaller investors who would not have the capital to invest large amounts of money, but can now invest small sums in projects due to crowdfunding.

“The model has worked in China for two reasons: In Chinese culture people are more prone to relationships; and the commercial business environment is imperfect in China, especially on the internet,” said Zhang. “Chinese people value more face to face communication and the openness and trust among friends and relatives. In traditional crowdfunding, money comes first. In Chinese crowdfunding, people come first.”

The 1898 Café currently has 160 investors, each of whom pay an equal amount of RMB 30,000, effectively providing the café with three years’ worth of capital up front, with the investors receiving an equivalent amount of credit to spend in the café over that period. As they bring friends, relatives, and business connections to the café, it becomes a type of social network, and acts as a platform to create business opportunities for its patrons.

The café concept has attracted considerable media interest around the globe, with one of the owners even running an advert on the main digital display in New York’s Times Square to promote it. Its success has not gone unnoticed, with a wave of similar venues opening across China since then, and Vancouver seeing the first such venue, Café 1029, open in Richmond in March 2015.

With ventures utilizing the model becoming more frequently used outside of Chinese borders, Zhang predicts that the Chinese model of crowdfunding will ultimately become a mainstream method both within Vancouver and across the globe.

“The Chinese crowdfunding model, which values equality, openness, and decentralization, will become an innovative business model that will change the existing corporate ecology and create value,” he said. “Eventually a new crowdfunding website similar to Kickstarter or OurCrowd will rise from offline communications to an online presence.”

For more information on the Jack Austin Centre for Asia-Pacific Business Studies, visit beedie.sfu.ca/jack-austin-centre/