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The global financial crisis has affected not only the world economy, but also the enthusiasm of entrepreneurs to start new businesses, as revealed in a latest study conducted by the Center for Entrepreneurship of The Chinese University of Hong Kong (CUHK).

The study, which is part of the 2009 Global Entrepreneurship Monitor (GEM), shows that the early stage entrepreneurial activity rate in Hong Kong has dropped dramatically from 10% in 2007 study to 3.6% in 2009, back to the level of 2004. Shenzhen experienced an even greater drop from 11.5% in 2004 to 4.8% in 2009. These levels of entrepreneurship are well below Brazil (15.32%), United States (7.96%) and United Kingdom (5.74%). China’s level of early stage entrepreneurship is also high and growing steadily from 13.7% in 2005 to 18.8% in 2009.

In 2009, the 2009 GEM Consortium conducted 175,000 interviews worldwide, of which 4,000 telephone and 72 face to face interviews were conducted in Hong Kong and Shenzhen.

"People's perception of starting a new business has been changing. The proportion of people that considers starting a new business as a desirable and highly respected career choice has dropped from two-third (2/3) to around half (1/2) since the 2007 study. Moreover, the number of people expressing confidence in having the skills and experience to start a new business has fallen from one-third (1/3) to one-fifth (1/5) of the population. This deterioration in confidence and change in attitude, probably shaped by the volatile economic environment, has contributed to the dramatic drop in entrepreneurial activities in both Hong Kong and Shenzhen over the past few years," explained Prof. Hugh Thomas, Director of the CUHK Center for Entrepreneurship.

People in Hong Kong (as of mid 2009, when the interviews were conducted) are comparatively pessimistic about the future business outlook. According to the study, only 14% of the Hong Kong population thinks there will be good business opportunities in the coming six months, a big drop from 81% in 2007. Such pessimistic views also prevail among informal investors: The percentage of the population who had invested in a start-up firm over the previous year dropped from almost 10% of the population in 2007 to just over 2.5% in 2009. The sample of Hong Kong's entrepreneurship was taken in the summer of 2009 to coincide with the globally harmonized study, and so does not take account of any rebounds in confidence seen since the middle of last year.

The good news is that the quality of entrepreneurship in Hong Kong has improved. Unlike the US, where the relative amount of necessity-driven entrepreneurship (compared with opportunity-driven entrepreneurship) increased with the crisis, here we find that necessity-driven entrepreneurship has relatively declined. Entrepreneurship is profitable in Hong Kong. If you divide the Hong Kong population into three groups by income, you find that established and early stage entrepreneurs are 27 times and 3.8 times respectively more prevalent in the top third than in the bottom third. In Shenzhen a similar, although slightly less pronounced pattern of higher entrepreneurship correlated with higher income persists; whereas in China, entrepreneurship is spread evenly through income groups. Good quality in entrepreneurship is also reflected in high growth expectations of Hong Kong entrepreneurs. 23% of Hong Kong’s and 43% of Shenzhen’s entrepreneurs expect high growth (growing to more than 20 employees in 5 years) compared with only 14% in China and 9% in the US and UK.

Another sign of increasing quality of entrepreneurship is the education level of entrepreneurs. Hong Kong’s entrepreneurs are increasingly better educated. Today, people with post-graduate degree are twice as likely to be entrepreneurs as the average. This positive correlation of education and entrepreneurship, observed in the US and to a lesser extent in Shenzhen, is the opposite of what is seen in China where post-graduate degree holders are only one-fifth (1/5) as likely to be entrepreneurs as the population as a whole.

Looking into the future, while there is still substantial room for improvement in Hong Kong’s entrepreneurship policies, R&D transfer and education system, Prof. Thomas did see encouraging signs for further development. "Experts now recognize the positive role of the Science Park and business incubators. This, together with the increasing recognition of entrepreneurial training in both technical and management education, will provide a better breeding ground and more opportunities for potential entrepreneurs, especially when the world economy is back on the track again."

GEM is a global research consortium that includes scholars from more than 55 countries. The CUHK Center for Entrepreneurship takes lead of the Hong Kong study, teaming with the Shenzhen Academy of Social Sciences to benchmark start-up activity of our twin cities against other parts of the world.