"Moreover, many of them (incubators) are not actually qualified as they know little about entrepreneurship and can provide little help to entrepreneurs. As a result, a number of incubators are dying."

Yang says the industry has entered "a period of adjustment", but it's "a good thing" for its ecosystem.

"Unqualified incubators will be washed out of the market, leaving the quality ones."

Last year, there were about 150 incubators in Shenzhen, each capable of accommodating 1,000 entrepreneurs, according to a local media report. But, the number of entrepreneurs in the city was less than 20,000, meaning there was a glut of incubators.

Li Chunyu, chief executive officer of Shenzhen MakerSpace, says investment, industry resources and talents are the three core elements entrepreneurs need.

"As more players join the industry, only incubators that can offer help in those aspects are able to stand out in the wave," he says.

Major enterprises, in particular, should be encouraged to act as incubators as they have sufficient capital, strong industry resources and a big talent pool, he adds.

"This will not only ensure that startups receive actual help but, at the same time, by cooperating with startups, enterprises in traditional industries can find ways to innovate."

In fact, a number of prominent companies have spotted the opportunities and stepped into the industry. For example, Microsoft set up Microsoft Ventures Accelerator in 2012, while TCL, along with several other partners, established Shenzhen MakerSpace in 2014.

According to Li, entrepreneurs at Shenzhen MakerSpace can get access to TCL's manufacturing and sales channels, and receive technological support from the multinational company. They may also find their future partners or team members in the company.

So far, 37 entrepreneurial projects are up and running at Shenzhen MakerSpace, including three that have already received A-round investment.

Instead of charging startups office rents, the incubator generates revenue mainly through equity investment.

"We would invest in startups at the early stage and take up a certain share of the companies by signing a contract with them. When the startups got investment, we could turn our share into cash and make money," Li says.

Although equity investment is widely believed to be a sustainable business mode for incubators, Yang reckons it's still a risky business on the Chinese mainland. "Contract consciousness is relatively weak among Chinese entrepreneurs. Compared with their US counterparts, they're more likely to break contracts. This is a problem that cannot be thrashed out in the short term."

While shaping up a healthy and efficient market still needs time, Li and Yang want the government to do more in the process apart from providing financial support.

A better environment will result if the government makes a greater effort in promoting entrepreneurial education and cultivating an awareness of entrepreneurship among young people, Yang says.

sally@chinadailyhk.com