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2 Aug, 2013

Half of Chinese businesses fail within five years


Beijing, 2013-08-01, (China.org.cn) – Half of Chinese businesses fail within the first five years and are likely to encounter a bottleneck in three to seven years, according to a report from the State Administration for Industry and Commerce released on Tuesday.

By late 2012, China had a total of 13.2 million businesses. 6.53 million businesses, accounting for 49.4 percent, failed within the first five years; 4.35 million businesses, accounting for 32.9 percent, failed in five to 10 years; 2.35 million businesses, accounting for 17.7 percent, made it past the 10-year mark.

The vast majority of businesses, however, are far more likely to collapse in their third year.

Businesses in different industries have quite different life expectancies.

From early 2008 to late 2012, 1.43 million wholesale and retail businesses closed their doors and 2.49 million businesses in the manufacturing, leasing and commercial service industries were forced to drop out of the market.

The average lifespan for businesses operating in the traditional service industry is currently 6.32 years. The lifespan of businesses in the modern service industry differs greatly due to their different characteristics.

Financial businesses hold the longest life expectancy, averaging at 8.84 years, due to their high threshold and strong competence.

Real estate agencies, accounting for a large proportion of businesses in the real estate industry, with their low threshold and high dependence on economic conditions and real estate adjustments, enter and exit the market quite frequently. As a result, the average lifespan of real estate businesses is rather short, about 4.49 years.

The report shows that mining, power, heating, gas and water-related operations, as well as businesses in public management and social security and social organizations, usually enjoy a rather stable development due to funding, technology and policy limits.

Businesses running community services, repair services, accommodation services and restaurants have a high mortality rate.

Fortune magazine statistics showed that 62 percent of US businesses have a lifespan of less than five years; only 2 percent could survive for 50 years. Another study showed that the average lifespan of Japanese businesses now stands at 30 years.

OECD data showed 20 to 40 percent of businesses drop out of the market within the first two years; 40 to 50 percent of businesses can survive more than seven years. Generally speaking, within a specified market, 5 to 10 percent of the businesses drop out within the first year.

Studies on business lifespan both at home and abroad showed that the larger the business scale, the higher the survival rate.

By the end of the first decade, the survival rate for Chinese businesses with a registered capital of less than 1 million yuan, 1 to 10 million yuan and over 10 million yuan is 40 percent, 65 percent and 90 percent, respectively.

In the US, the Fortune 500 companies have an average lifespan of 40 to 42 years, medium and small businesses often have one of less than seven years and transnational companies run from 10 to 12 years. In Europe only 50 percent of medium and small businesses survive five years.