The economic reforms implemented by the Chinese government some 30 years ago led to an explosion of economic activity across the country.

Millions of people were confronted with the possibility of creating businesses of their own.

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SOUTH BEAUTY

• Employees: 6,000
• HQ Location: Beijing, China
• Year founded: First restaurant launched in 1991; South Beauty Group in 2000
• Ownership: Private
• Annual turnover: N/A

One of the new generation of entrepreneurs that took advantage of this opportunity is Zhang Lan, founder of the South Beauty chain of restaurants, which specialises in Sichuan cuisine.

The company now has branches across China, and says it is looking to expand overseas.

Zhang Lan’s father was a university professor. He was branded a ‘rightist’, and during the Cultural Revolution the family was sent to live in the provinces. In the early 1970s the family returned to Beijing.

Zhang Lan got the chance to go and live in Canada, and found the experience a life-changing one.

She says she was impressed by “the advancement of the Western world” and was determined to make a success of herself. She took on several jobs in Chinese restaurants, and eventually saved up $20,000 (£12,550).

Planting the seed

On her return to Beijing, she decided to launch a restaurant of her own, using her savings as seed capital.

It was not easy at first. According to Zhang Lan, in the early 1990s there was still a feeling of living in a planned economy.

The entrepreneur realised an eye-catching interior was key to her restaurant’s success

There wasn’t much of a culture of eating out, and customers were hard to find. Neither were there many other entrepreneurs or role models to follow.

Zhang Lan had decided to concentrate on Sichuan cuisine, but she came to realise that in order to succeed, the restaurant would have to offer more than just food.

She came up with the idea of emphasising the design and look of the establishment. She hung pictures on the walls, and decorated the place with bamboo imported from the countryside.

This approach seemed to work, and customers flooded in.

Location helped too. The restaurant was situated near to some government ministries, and it proved popular with officials who often brought influential guests with them.

Setbacks

By 2003, Zhang Lan had begun to establish a chain of restaurants, and was employing thousands of people. But, just as she launched a new branch in Beijing, an outbreak of Severe Acute Respiratory Syndrome (Sars) struck the city.

She believes time is better spent dwelling upon all the chances of success, rather than possible failure

She recalls the time as a terrible period in the company’s history: “No-one came to the new restaurant because of the worry of catching the disease.”

She herself became infected, although she subsequently recovered. The business eventually managed to recover as well.

Today the South Beauty company has a network of some 40 restaurants in several Chinese cities, including the opulent Lan Club in Beijing, which has decor by the French designer Philippe Starck.

Branding and belief

One key factor that Zhang Lan believes lies behind the growth of the business is branding.

She says she studied the impact of Western brands on the Chinese market, and tried to emulate their approach, by creating a brand for her own business that would reach out to her preferred target audience: “business, white-collar people”. She chose a logo based on a Peking opera mask.

Zhang Lan thought carefully about branding, its impact and how to reach out to her preferred market

But although Zhang Lan’s ambition seems to know no bounds (she says that in 20 years’ time she would like to make her business one of the “500 strongest companies in the world”), it remains to be seen whether a restaurant brand aimed at the Chinese market will also be able to flourish on a global scale.

Zhang Lan recalls Mao Zedong’s saying that “women hold up half the sky” and believes Chinese women are particularly suited to becoming entrepreneurs because many of them are used to being persistent and are extremely motivated to overcome difficulties. But she adds that persistence is one quality that all entrepreneurs need.

Luck plays an important role too. A friend asked her, when she was starting out, what she would do if her business were to fail.

Zhang Lan replied that, instead of thinking about failure, time would better spent dwelling upon “the thousands of chances for success”.

Ning Li, co-founder and CEO of the online furniture store Made.com, already has two start-up companies under his belt. He launched his first business selling furniture over the internet to customers in France after he left a career in investment banking.

He says he went into banking to prove he could do it but soon realised he had a different itch to scratch.

“As an entrepreneur we like… freedom,” he says. He found investment banking to be at the “opposite [end] of the scale”.

“It’s extremely useful in terms of experience but it didn’t fit me,” he admits. Ning realised he needed to get out quickly. “The longer you go into investment banking, the more you are paid and the more difficult [it is] to leave your job and start something on your own,” he explains.

Ning set up his first company in France selling furniture online when he was 25 years old. To him, launching a start-up seemed like a natural progression.

“When you look at what Chinese people do abroad, a lot of them open restaurants and that’s a very entrepreneurial approach,” he says.

Two perspectives

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MADE.COM

• Employees: 40
• HQ Location: London
• Year founded: 2010
• Ownership: Private
• Annual turnover: N/A

Ning left China to continue his studies in France when he was 15 years old and he says the result was an exposure to a “double culture of Chinese and French”.

The experience made it easy to spot how one market could benefit from the other.

“I come from… a medium-sized town which happens to be one of the biggest furniture manufacturing bases in China,” he says. Yet he found the price difference between goods manufactured in Asia and sold in the West astounding. “How could a $300 sofa sell at 3,000 euros?” he asks. “Just crazy.”

It was something he asked himself again when he realised that the costs of manufacturing designer furniture were the same or less than regular brands.

Pitching designer brands at more affordable prices whilst still making a healthy profit was a clear business model for Ning Li.

“It’s always an opportunity when you see a big market that hasn’t changed so much,” he says.

Many furniture manufacturers find it uneconomic to supply products in small quantities. Using the internet to aggregate orders helps matters – once enough orders have come in to fill a shipping container, it’s possible for the goods to be manufactured and despatched. Ning Li says this approach helps to keep costs down.

Indeed, he says the success of it was apparent from the start. “We had about 300 orders for day one,” he recalls. “Three hundred orders for a furniture business – just amazing.”

Know your weaknesses

Ning Li: “Some people are very good at creating a business, some people are better at managing”

Ning Li admits that rapid growth posed challenges for him.

Managing a surge of staff numbers and expanding product lines required skills he didn’t yet have.

“Some people are very good at creating a business, some people are better at managing,” he says. “I didn’t feel I was a manager good enough for the size of that business anymore.”

In 2009 Ning Li sold his share of his business in France and took a year off to backpack around the world. He says it gave him the breathing space to start afresh.

It was in London that he met entrepreneur Brent Hoberman who encouraged him to start again with the same idea and the same business model, but this time selling to a British market.

Now Ning Li’s online company also works directly with designers to custom-make exclusive products. He says it is harder than buying “off the shelf” products from factories to sell but that “you can still feel in the UK market today a huge gap for designer furniture at a good price”.

Modernising business

Online furniture retail means the ability to take more risks with new talent and designers

For Ning Li, putting the furniture retail market online has helped revolutionise what he calls a “dusty industry.”

“Buying furniture is a conventional thing,” he says, adding that in the past retailers were reluctant to take risks with new designs or new designers, and talent could become stifled. Now the internet has changed all that.

“If a new designer comes to see us with a new amazing table that looks risky, we say ‘Why not?’ because the only risk that we have is taking the photo.

“We put it online, if it doesn’t sell, we pull it off. And if it sells, then everybody wins,” he explains.

But it’s not just about risks and exposure. Ning Li believes that speed is also important when it comes to marketing in the modern age.

“The internet allows us to launch products much faster than traditional business,” he says. “Speed is king.”

“The speed of designing new products and also renewing your catalogue is key… to keep people’s interest… keep them coming back to the website.”

Buying from China

Many British and European manufacturing industries have outsourced various processes abroad in recent decades.

The result, says Ning Li, is that it can be difficult to find good manufacturers based in the West.

Although some 20% of their suppliers are British, they buy from China – not just because of the cost, but because China has developed an “ecosystem of manufacturing” over the last 30 years.

He believes China’s reputation for making goods for worldwide consumption allows the country to understand the global market.

“They have all the insight of what people are looking for,” he elaborates.

Alone at the top

Although Ning Li believes being an entrepreneur can leave you isolated, sharing is important in a start-up

Entrepreneurship can be a solitary occupation, according to Ning Li.

“As an entrepreneur, you always feel kind of lonely,” he confesses. “There are lots of things you cannot share necessarily with all your investors and your employees.”

He believes there’s one thing that can lessen this: co-founders who you get along with.

“It’s really about sharing,” he laughs. “And sharing is a nice thing to have in a start-up.”

Although the entrepreneur has never failed, he says one shouldn’t underestimate the trials of setting up a business from scratch, nor the lessons that can be learned.

“There are so many failures of start-ups,” he says. “But you will see the people that actually survive and succeed… are actually the strongest believers.”

Indeed, Ning Li believes that the initial struggles and despair of launching a start-up mean many successful entrepreneurs never do it for the money alone.

“What I really enjoy in my daily life is having the liberty of deciding what I want to do when I wake up,” he says. “That’s a huge thing that I didn’t get from my investment banking background anyway.”

Can you unscramble an omelette? That, in essence, is what euro zone leaders and the global monetary policy elite will have to do if the euro zone is to be reshaped in any semblance of an orderly manner, be it by letting Greece go or creating an inner hard core and an outer soft one.

Just how difficult this could be can be gleaned from an unusual quarter. Lord Wolfson, a UK eurosceptic, has offered a 250,000 pounds price for anyone coming up with a plan to unwind the euro zone in a non-chaotic fashion.

Not the kind of money you throw around if the answer is obvious.

The potential danger of a breakup, both to euro zone economies and the global financial system, is so great that it is often cited as a reason it will never happen.

Nonetheless, the idea that the euro zone might break up — or at least redesign itself — is no longer just the province of critics who thought it was a bad idea in the first place.

Greece’s removal from the currency bloc is the main talking point. Although European Union leaders have rallied around to say publicly it cannot happen, Eurogroup head Jean-Claude Juncker has couched his support by saying that Greece cannot stay in the euro zone at any price.

French President Nicholas Sarkozy, meanwhile, has raised the idea some euro zone countries accelerate and deepen their integration while a wider and expanding group outside the currency bloc stays more loosely connected.

This, at one stage, would have bordered on euro zone heresy given the official line that all European Union countries should be members and integrate. It may not be what Sarkozy meant, but it raised the old spectre of a northern and southern euro.

The problem is barely anyone believes that any kind of re-configuration can be achieved without destroying public confidence, prompting investor flight and hitting financial institutions as hard or more so than the Lehman Brothers collapse in 2008.
If you knew your euros were about to be switched to, say, new drachmas or an untested currency called the Seuro, would you leave them where they were?

“I don’t think there is a peaceful solution to their problem,” said Andrew Clare, professor of asset management at Cass Business School in London. “The real problem is the potential runs on banks.”

Given European banks’ exposure to the likes of Italy and Greece, confidence in the financial system could easily collapse across the currency bloc and beyond. Bank runs would not be confined to those countries at the centre of the debt crisis.

Schicksalsgemeinschaft

At the heart of the issue, at least practically, is that no contingency was ever made for either the euro zone to fail or for any country to drop out of it.

“It was a taboo to think about it. The whole idea from the beginning was that monetary union is forever,” said one European Union monetary official involved in the euro’s launch during the 1990s.

The Germans even had a word for it: Schicksalsgemeinschaft. Literally meaning fate community, it was used to give the idea that creating the euro was something that could not be put asunder.

Over time, little appears to have changed. A 2009 paper drafted by the European Central Bank looked at the legal implications of the withdrawal or expulsion of a country from the euro zone, but did not give any suggestions about how.

Which is one reason why many economists and investors still consider a break up — certainly beyond a contained removal of Greece — to be a “tail risk”, something that could happen but is not part of a consensus scenario.

When Europe’s leaders and policymakers are staring right into the abyss, the central assumption is that they will overcome their principled objections and do what is necessary to save the euro. That would almost certainly involve a much more active European Central Bank.

UBS said on Tuesday it still believed that when push came to shove Germany would step back from its hard line and allow the ECB free rein to fix the debt problem.

“The most likely change will be the ECB, and we all think that eventually the Germans are going to capitulate and allow the ECB licence to print money and expand the balance sheet even further, (and) allow higher inflation in the euro zone,” said George Magnus, the bank’s senior economic adviser.

In the dark of night

Although there seems no way that any break up or casting off of members could be done without massive disruption to the financial system, it is possible that some things could be done to mitigate the reaction.

“You can minimise the damage, but you have to do it fast and unsuspected,” said Holger Schmieding, chief economist at Germany’s private bank Berenberg.

The idea, he said, would be that if Greece were to leave the euro, capital controls would need to be imposed without warning to stop runs on banks. It would also need to happen in a way that did not imply to markets that more was to come.

“Everything would have to be done overnight in such a way that everybody believes you will never do it again,” he said.

If anything leaked in advance, chaos would ensue and even if it did not, it is not clear how such secrecy would play with financial markets and how you would persuade people that the same thing would not happen to the next country along the debt domino line.

“The issue is whether markets would agree that Greece would be the only one,” said Schmieding. “Possibly you can find out that you can minimize the chaos.

“But this is a risk I would not want to run.”

Japan has banned shipments of rice from an area near the nuclear power station at Fukushima after high levels of radioactive caesium were detected.

The sample came from a Fukushima city farm about 60km from the plant.

The Fukushima Daiichi nuclear plant was damaged by the earthquake and tsunami in March, resulting in radiation leaks.

Chief Cabinet Secretary Osamu Fujimura said the material was detected during pre-shipment tests and the contaminated rice had not been sold to consumers.

“I have told the governor of Fukushima prefecture to restrict shipments of rice harvested this year in the Onami district of Fukushima city,” said Mr Fujimura.

The sample that was tested contained 630 becquerels per kilogram of radioactive caesium, more than the central government’s safety limit of 500 becquerels.

This is the first time that the authorities have imposed a ban on shipments of rice from the area.

There have been a series of scares over radiation in food in Japan in recent months, including beef, mushrooms and green tea.

US legislators have launched a probe into Chinese telecom firms amid growing concerns over cyber espionage.

The US House intelligence committee said the investigation would look into whether the expansion of these firms in the US posed a security threat.

The committee has named Huawei and ZTE as two of the companies that it is probing.

Huawei, founded by ex-Chinese army officer Ren Zhengfei, has previously had US deals blocked on security fears.

“The fact that our critical infrastructure could be used against us is of serious concern,” said Mike Rogers, the chairman of the committee.

Broader probe

US policymakers have long been wary of Huawei, which is one of the world’s biggest makers of network switching equipment.

There have been fears about its links with the Chinese military and allegations of financial support from the Chinese government.

That prompted the Chinese technology giant to write an open letter to the US authorities earlier this year asking them to conduct a probe into its operations and settle the issues.

The current committee though said that its probe is not focussed just on Huawei.

“We are looking at the overall infrastructure threat, and Huawei happens to be the 800-pound gorilla in the room, but there are other companies that will be included in the investigation as well,” he added.

‘Law-abiding partner’

The investigation comes after a US intelligence report earlier this month accused China and Russia of using cyber-espionage to steal trade and technology secrets.

The report said that the industries facing the most threat included information technology and the pharmaceutical sector.

Huawei and ZTE have both welcomed the probe, saying that it will help allay any concerns about their operations.

Huawei spokesperson William Plummer said the company’s equipment was used by 90% of the top 50 telecommunication service providers globally and that there had been “zero security incidents” with any of them.

ZTE said in a statement that “we are confident a fair review will further demonstrate that ZTE is a law-abiding partner for all US carriers and their customers”.

Suzuki Motor has announced it will seek arbitration if German carmaker Volkswagen does not sell its stake in the Japanese company back to it.

VW says Suzuki has “no legal foundation” to force it to sell its shares.

The German firm bought a 19.9% stake in an agreement with Suzuki in 2009, but the relationship has soured since then.

Suzuki declined to provide details on how the arbitration would work saying the process was confidential.

“Because there is only one level of jurisdiction, arbitration is typically favoured since rulings are handed down often much faster than a national court and are just as binding,” said Timo Holzborn, a corporate lawyer at Munich firm Heisse.

Suzuki issued a notice to Volkswagen on Friday saying it had breached the terms of their 2009 agreement.

“Volkswagen AG did not allow Suzuki access to Volkswagen AG’s core technology and it also became clear that there were differences between Suzuki and Volkswagen in the understanding of ‘independence’,” Suzuki said in a statement.

“Once the paperwork is filed and the process begins, we are prepared for it to take potentially as long as one and a half to two years to come to completion,” said chief executive Yasuhito Harayama in Tokyo.

The new governor of the European Central Bank (ECB), Mario Draghi, has called for “urgent action” to implement the new eurozone bailout fund.

His comments come as the Italian parliament gave its approval to the new government led by economist Mario Monti.

The new Greek government also published its budget plans for 2012.

After a turbulent week, markets remained wary of developments with share indexes seeing mixed trading.

By early afternoon on Friday the Dow Jones index in New York was up 0.4% after worries about the eurozone prompted a sharp fall on Thursday.

However other US and European markets remained down or unchanged as investors waited to see how the latest political developments affected efforts to solve the eurozone crisis.

Bond markets – which set the cost of borrowing for governments – were also calmer, with the interest on Italian and Spanish government debt falling slightly.

Action call

Speaking in Frankfurt, Mr Draghi expressed impatience with the lack of progress by European leaders.

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“Where is the implementation of these long-standing decisions? We should not be waiting any longer,” he said at Friday’s European Banking Conference.

In his speech, Mr Draghi suggested the ECB’s main job remained to ensure long-term low inflation.

“Credibility implies that our monetary policy is successful in anchoring inflation expectations over the medium and longer term,” he said.

He called for governments to play their role in tackling the debt crisis through “solid public finances and structural reforms”, as well as reforms to the way the eurozone works.

Investors and the ECB are awaiting details of how the size of the eurozone bailout fund – the European Financial Stability Facility – will be boosted to 1tn euros (£855bn; $1.3tn).

Bond falls

In the meantime, traders have looked to the central bank to ensure the cost of borrowing to Italy and Spain does not rise too high.

If interest on the debt issued by Italy and Spain becomes too high then their debt repayments could become unsustainable, triggering an economic crisis.

Reported intervention by the ECB to buy Italian and Spanish government bonds on Friday helped keep bond yields from rising further.

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“Start Quote

Some day soon, Mrs Merkel will have to decide whether she is going to allow a market panic about the future of the euro become self-fulfilling”

Stephanie Flanders Economics editor

• Read more from Stephanie

By early afternoon Spanish 10-year bonds were yielding 6.35% while Italian 10-year bond yields were at 6.67%.

On Thursday, Spain’s borrowing cost at an auction of 10-year bonds was almost 7%, which is a level seen as unsustainable.

Spain is currently preparing for a general election which is expected to herald a change in government.

In Italy, new Prime Minister Mario Monti has now won confidence votes in both houses of parliament for his new government including bankers, CEOs and university professors.

And in Greece, the government of former central banker Lucas Papademos has passed its first budget promising to reduce the deficit without further austerity measures.

Earlier in the week, the head of the Bundesbank – Germany’s central bank, which is officially subordinate to the European Central Bank – openly opposed the ECB coming to the rescue of troubled Italy and Spain.

German Chancellor Angela Merkel reinforced that stance on Thursday: “If politicians think the ECB can solve the euro crisis, then they are mistaken”.

Mr Draghi’s speech appears to support her position.

Many analysts believe that to stem contagion in the eurozone the ECB should act as “lender of last resort” and commit to buy up unlimited amounts of Italian and Spanish debt, instead of the limited interventions it has been carrying out so far.

France, whose AAA credit rating has come under pressure, has called for the ECB to take stronger action.

The new Greek government has submitted its plans for next year’s budget, promising to almost halve the deficit.

Finance Minister Evangelos Venizelos predicted the deficit would fall from 9% of GDP this year to 5.4% in 2012 due to a write-off of debt held by banks.

The cut, of up to 50% of Greece’s debt held by commercial banks, is part of the eurozone’s latest bailout deal.

Mr Venizelos said banks would be given different options over how to take part in the debt deal.

Coalition government

“There won’t be one model for Greek banks and foreign banks (alike), but there will be two or three variations and anybody can pick the one that suits them,” he said.

The budget is being proposed by the new coalition government headed up by the former head of Greece’s central bank Lucas Papademos.

Passing it is required in order to keep receiving EU bailout funds under an agreement reached in October. Greece has been relying on international bailout funds since 2010.

Mr Papademos said the EU deal made Greece’s national debt “totally sustainable”.

The budget predicts that, excluding interest payments, Greece would post a primary surplus in 2012 of 1.1%.

The government also said it did not need to implement any further austerity measures to achieve the deficit reductions.

The latest round of cuts was introduced in October and include slashing pensions, wages and jobs across the public sector and raising taxes.

The measures have had a severe impact on the economy. The economy is expected to shrink by a total of 5.5% this year and 2.8% next year.

If the economy performs worse than expected, as it did in 2011, there are concerns that Greece may again fail to cut its deficit significantly.