Is Fear of Failure Holding Back Innovation in China?

Turning business setbacks into comebacks.
May 19 2014 7:00 AM

Learning to Move Fast and Break Things

Is fear of failure holding back innovation in China?

Lee Kai-Fu
Lee Kai-Fu, former president of Google China and former corporate vice president of Microsoft, speaks about his new company, Innovation Works, in Beijing on Sept. 6, 2010.

Photo illustration by Lisa Larson-Walker. Photo by David Gray/Reuters

Considering that they’ve engineered one of the greatest economic success stories in human history, China’s business and political leaders seem oddly preoccupied with failure.

“We need a society which has enough patience to be able to withstand failures,” says China’s science and technology minister, Wan Gang.

Joshua Keating Joshua Keating

Joshua Keating is a staff writer at Slate focusing on international affairs and writes the World blog. 

“In order for Chinese financial markets to advance more quickly, we should tolerate failures,” says Wu Xiaoling, former deputy governor of the People’s Bank of China, now dean of the school of finance at Tsinghua University.

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Kai-Fu Lee, a Google and Apple veteran and one of the country’s best-known tech entrepreneurs, tells the BBC that “it will be difficult to produce a Steve Jobs or Mark Zuckerburg in China,” because unlike China, “the U.S. has a culture tolerant of failure, driven by individual passion.”

Why are all of these highly successful people preoccupied with failure? It’s likely part of a larger sense of anxiety that, even as the country’s economy has taken off, it has lagged on innovation, with Chinese firms preferring to tinker with inventions from abroad rather than develop ideas of their own. Search giant Baidu, for instance, bears an uncanny resemblance to Google. Microblogging site Weibo isn’t substantially different from Twitter. Part of the reason for this, some suspect, is that there’s much less tolerance for failure in Chinese business and research compared with other countries.   

“You’re more likely to find success introducing something from outside into China rather than introducing something totally new,” Cong Cao, a specialist in Chinese innovation and science at the University of Nottingham, tells Slate. “You don’t see many things that are introduced completely new.”

Business leaders like Steve Jobs who bounced back from embarrassing failure to reach their greatest success are a common American archetype, and a common motif for the TED Talk set. But in China, where entrepreneurship is a newer phenomenon and millions are only recently emerging from poverty, the idea that you need to fail before you can succeed is a tougher sell. 

A similar dynamic is at work in the country’s scientific research system. “Because of the intolerance of failure, scientists are likely to take on projects that lead to guaranteed success,” Cao says. “They are less likely to venture into something new that nobody had been doing before. If you fail at something, you can be stigmatized in society.”

Cao has argued that this stigma is one reason why China—despite its increasingly high-tech society—has had few homegrown scientific breakthroughs. The country’s lack of scientific Nobel Prizes has been a continual source of irritation for the government. A number of Chinese-born scientists have won the award, but all were based outside China at the time.

Cao pinpoints the Chinese education system as the major source of the failure-to-fail problem. “The way Chinese students are educated, they are not encouraged to take a critical attitude toward mentors,” he says. Institutions like the gao kao, the nationwide, high-pressure, nine-hour exam that is the sole determinant of admission to nearly all Chinese universities, doesn’t exactly foster a relaxed attitude toward academic setbacks and experimentation.

Any discussion of a problem like this risks veering quickly into lazy stereotypes about Confucian values and filial piety, with the worst perpetrators sometimes being Chinese authorities themselves. For instance, as the nationalist, Communist Party-controlled Global Times editorialized in 2012, “The social atmosphere in China has too much respect for authority. Chinese people prefer to obey orders. They care a lot about face and fear failure.”

But as Tracy Yue Wang, a professor of finance at the University of Minnesota’s Carlson School of Management, notes, the problem isn’t simply that Chinese entrepreneurs are too timid. They also face a reality in which the consequences of failure can be extremely high.

“The competition there is really harsh,” she tells Slate. “There are so many people trying to survive and so many firms being created. Everyone wants fast success.” More than 52 million Chinese were self-employed as of 2012, marking a 44 percent increase since 2008. That’s an awful lot of people under a lot of pressure.

Wang, whose research has focused on the role of venture capital in fostering failure tolerance, points out that in China, many small firms “simply do not have access to formal financing”; instead, they’re forced to borrow from black or gray markets, which can carry extremely high interest rates.

She also notes that in an economy still dominated to a large extent by state-linked firms, some companies “can easily get a lot of resources, and therefore they don’t have a lot of incentive to innovate and don’t have a lot of the tolerance for failure you need to develop really innovative products.” For instance, Geely Automobile, the owner of Volvo, receives more than half of its net profit in government subsidies, according to a recent study.

Bankruptcies are also still relatively rare in China, not because companies aren’t going under, but because owners and local governments often simply don’t report them. More often, government officials have arranged bailouts for failing companies rather than risk an embarrassing default.

To its credit, the government has taken steps to create a more failure-friendly climate. The country’s bankruptcy laws have been simplified and formalized. In 2008, following a rash of cheating scandals in state-run research programs, China amended its science and technology law to “allow scientists to report failures freely without losing face or affecting future funding.” The law is meant to encourage researchers to take risks on areas that may not produce concrete results.

Cao welcomes the steps, but say they will be unlikely to change the country’s scientific culture very much in the short term. “This culture impacts people already in the workforce,” he says. “You need to wait for a new generation to bring a new attitude to the workforce. It will happen very slowly.”

Wang feels that a more productive measure would be for the “central government and provincial governments to give these entrepreneurs more access to financing and other resources. This could itself help develop a failure-tolerant culture.”

It’s certainly easy to be cynical about a government that has been demanding success from its people for years suddenly telling them to start failing. Ultimately, though, recent developments suggest that Chinese entrepreneurs aren’t as worried about this problem as speakers at innovation summits from Shanghai to Harvard think they should be. China now has a higher rate of entrepreneurship than the U.S. Four percent of China’s working-age population is engaged in “high-expectation entrepreneurship,” meaning they intend to create at least 20 jobs. Twenty-three percent of Chinese between the ages of 18 and 64 say they intend to start a business.

What’s more, China’s research and development spending as a percentage of the global total has increased almost sevenfold over the last decade while America’s slipped. While everyone’s been worried about why they aren’t failing, China’s entrepreneurs just seem to be succeeding.

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