China SMEs

1. China SMEs: Todays problem and futures cooperation Dawei Cheng UN Trade Point Beijing Beijing WTO Affairs Center School of Economics,Renmin University of China

The role of China SMEs

Where we are

In Chinas urbanization process(which may last at least for 40 or 50 years) 400-500 millions jobs must be created in non-agricultural sectors, therefore, no matter in the long term or in the short term, the SMEs will continue to be the places absorbing the labors from country.

After WTO accession, more and more foreign companies come and invest in China, international competition on Chinese market has started, such competition and cooperation make China SMEs more stronger.

More than eight million SMEs, accounting for 99 percent of China's total enterprises, account for 60 percent of the nation's industrial output and exports. These enterprises also employ three quarters of the labor force .

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China SMEs have comparative advantages in foodstuff, textile, furniture such labor-intensive industries, these industries are also major sources of Chinas trade surplus.

In capital and technology intensive industries, like ordinary machinery, chemicals, telecom equipment, paper-making, they are also many SMEs.

Governmental problem

Trade problem

Self problem

The governments function-transition faces some challenges. Market economy requests strict prevention against cheating behaviors in commodity production and exchanges, thus the government undertakes a heavy supervision and administration task of maintaining market order. The government has a long way to go.

The SMEs are weak and should get more support from government. But now the SMEs do not have necessary legal protection and their social burden are heavy. In some Chinese ares, the local government does not service the SMEs whole-heartedly, but are enthusiastic about establishing more SMEs.

The SMEs industrial organization faces some challenges, like their scale is not economic. Small textile factories, small paper makers throughout the country, causing many problems, like environmental problem.

In China, private firms produce about 30% more output with the same capital, labor, and materials than SOEs.Yet these same private firms receive very little financing from the formal financial system, which remains focused on serving state enterprises.The problem is particularly acute for SMEs.The typical SME in China gets about 10% of its working capital financing from banks; in Korea or Thailand, the typical SME gets 40% of its financing from the banking system.These issues of improving financial services will be the focus one of the sessions in our conference.

Trade has been a crucial engine of growth in China, but Green barrier becomes biggest obstacle.

Example: food safety issue.

China SMEs also face anti-dumpling and other trade barriers.

China SMEs do not have good brands.

Lack of IPR protection

Face IPR barrier

Recent trade and inflation data released how difficult an environment China-based exporters now operate in.

The consumer price index clocked a year-on-year rise of 8.7 per cent in February a 12-year high exacerbated by shortages stemming from January's severe snowstorms.

The renminbi has appreciated 15 per cent against the dollar since mid-2005.

The prices of China's exports have been rising for almost five years.

China's underlying inflationary pressures make much more difficult for exporters to continue to absorb the brunt of domestic cost pressures.

China's January-February trade surplus provided a hint of what could lie ahead, falling 29 per cent year-on-year to $28bn.

Chinas regional policy

The volume of trade between China and ASEAN had amounted to US$ 160.8billion in 2006, growing 23.4% over the previous year

China and Laos trade grew 69%

China and the Philippines trade grew 33%

China and Thailand trade grew 27

China and Vietnam trade grew 21%

China and Singapore trade grew 23%

China attaches great importance to regional economic cooperation. In 2010, China will establish a free trade zone with ASEAN countries. China has also signed agreements to establish a free trade zone with Pakistan and Chile and the agreement is being implemented. At present, China is working to sign agreements to establish a free trade zone with such countries and regions as New Zealand, Australia, the Gulf Cooperation Council, Singapore, and Iceland.

China has 87.5 bln USD of trade deficit with E. Asian region, why does China still keep free trade policy with ASEAN countries?

Investment.

At present, China has entered into a fast round of expansion in its overseas investment activities. Over the past three years, Chinas direct investment at overseas market has increased at an annual rate of 70% or more, making China now one of the biggest investors in the world.

Chance for SMEs

Business

China SMEs