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China Business Sme Essay

5259 words - 22 pages

China's market reforms and accession to the WTO has led to its economy growing rapidly, to the point where it is now the fourth largest on earth, and is expected to be in the top two within the next decade (Business Monitor International, 2006). As a result, China's SMEs are now facing an economy flooded with foreign capital, and with a more open economic climate than in previous years, but also a much more competitive economy, where many of their previous practices are no longer relevant. This piece aims to examine the effect of these changes on the strategies of Chinese SMEs by first examining the role of the SME in the economy, then analysing the strengths and weaknesses of the Chinese ...view middle of the document...

This is particularly true in Asian nations, such as China, where the more developed and newly industrialised nations are seeing the rate of economic growth start to drop off, and are increasingly counting on the SMEs to maintain steady economic growth. Also, many of the 'tiger' economies of East Asia are looking to their SMEs to prevent their economies being over reliant on foreign direct investment and the activities of multinational corporations, as these factors are often outside the control of the government. However, at the same time, as the developing economies become more open to the global markets and economy, they face increased competition of foreign investment, and will often look to SMEs to help attract and channel this investment (Siu, 2005).
Separately, regardless of the state of a country's economy or its reliance on international trade and investment, research by Acs (1996) has shown that the strength of the SME sector is a major factor in economic development in its own right. This factor has been observed and analysed in China (Department of Small and Medium-sized Enterprises of State Economic & Trade Commission 1999; cited in Siu, 2005), and is reflected in the fact that SMEs in China not only dominate and help determine the strength of the Chinese economy in general, but also contribute significantly to increased levels of affluence, business activity, and employment in their respective region within China (Siu, 2005).
Indeed, such is the importance of the role of SMEs in the Chinese economy that the government passed the SME Promotion Law in 2003; which provides support, and defines the Chinese government's rationale for providing support for small and medium enterprises One major change resulting from this law is the creation of support systems and networks and enabling institutions for the small and medium enterprises at the municipal level of government (Atherton and Fairbanks, 2006). This law was the latest in a series of developments aimed to promote the role of SMEs in the Chinese economy since the turn of the century, and shows that the government appreciates the role SMEs will play in China's economy, and the implications of providing government support for these companies.
Potential Challenges and Opportunities Chinese SMEs face after WTO entry
Following entry to the WTO, the Chinese government increased the level of protection and support it provided to the private sector and SMEs; this has led to many growth opportunities for SMEs, and made the private sector the most dynamic in the Chinese economy. Indeed, WTO membership has helped increase the speed at which the Chinese government has adopted a series of reform measures aimed at changing the country from a highly-centralized planned state to a socialist market economy. This has thus given SMEs an increased role: one that is socio-political as well as economic (Anderson et al. 2003). This has led to increased opportunities due to the large number of...

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