Business Risk, Political Affiliation and Future Development Plans of Small Business Owners in China

This paper studies the future development choices of small business owners, getihu which literally means an individual family household in the People's Republic of China (P.R.C.). We attempt to find out what the major factors are that determine these getihu's choices of expanding, contracting or even closing down their businesses. By using a data set which includes 4,649 getihu collected from a nation-wide survey in 1991, we conduct an ordered probit analysis to obtain the following results: (1) About three quarters of sampled getihu would like to maintain the status quo and do not plan for any change. (2) Being a member of the Chinese Communist Party does not exert any statistically significant effect on their choices. (3) The level of financial risk has no significant effect while the level of failure risk is negatively related to the likelihood of business expansion. However, diversifying into different lines of business has a positive effect on the likelihood of business expansion. (4) The annual wage income of households has a positive and significant effect on the business development plan while company profit does not have any statisccally significant effect at all. (5) Female, aged getihu are less interested in expanding their business.