Chinas phenomenal growing over the past few decennaries has raised many inquiries and some of which critics argue include that if China is to win as a world power of the universe, so it must innate a manner out of a planetary recession.

This undertaking aims to discourse the transmutation of the Chinese Economy after 2008 with comparing to before 2008 and makes an attempt to understand the cardinal inquiries of the inventions used by China ‘s SME ‘s after the fiscal crisis.

After analyzing the assorted inventions and supply a critical rating based on empirical grounds, the undertaking will reason by offering an sentiment and raise some of the penetrations and challenges for SME in China from when the crisis began.

Introduction

The market-oriented reform included the state-owned endeavors ( SOEs ) altering into the little and average non-SOEs which stopped in 2004. In the interim, the little and average endeavors ( SMEs ) in China emerged rapidly and the figure of SMEs increased fast with the non-SOEs encouragement policy.

First, it will give the definition of SMEs in China. Second, it will demo the SMEs play an of import place of Chinese economic system. Third, it will reexamine the trouble of Chinese SMEs have faced and what invention SMEs have carried out before the planetary fiscal crisis takes topographic point.

Then, it will analyse the consequence of the fiscal crisis on export-oriented SMEs and the funding job of Chinese SMEs and use the PEST model to this undertaking. Following, it will demo the recent the advanced publicity of engineering. Fifthly, it will demo the recent invention and actions of Chinese SMEs after the planetary fiscal crisis occur. Finally, this undertaking will bespeak the Chinese SMEs do non hold excessively much different in making invention before and after the fiscal crisis.

The transmutation of the Chinese economic system after 2008 has triggered us to concentrate on the inventions of China ‘s SME ‘s after the fiscal crisis as this will enable us to understand the range of the transmutation.

LITERATURE REVIEW

1. The Definition of SMEs in China

The figure of employment in SEs was between 100 and 500 people. However, around 70 per centums SEs employed no more than five people or operated by freelance ( Liu, X. , 2007 ) .

Similarly Stokes and Wilson ( 2008 ) support this but province that an SME has less so 250 employees. This is of import as Entrepreneurship and SME ‘s are responsible for assisting most economic systems out of recession. Many universe leaders including Obama and Brown have argued for more investing in SME ‘s to hike the economic system out of recession. This is because enterprisers can present new inventions that can deliver economic system and hike economic growing ; this can construct assurance in investors and turn the economic system about.

In 2003, China authorities accorded to the SME Promotion Law of China established the Interim Categorizing Criteria on Small and Medium-sized Enterprises. The medium size enterprises the maximal figure of employment and the gross were 3000 people and RMB 300 million per twelvemonth ( See Table 1 ) ( Liu, X. , 2007 ) .

Table 1: The Definition of SMEs in China

Beginning: PRC, 2003.

2. The SMEs Play an Essential Role in China ‘s Economy

The consequence of compared SMEs with big houses could turn out the stating “ little is beautiful ” . SMEs were flexible because they could change or modify their class and measure of merchandises.

SMEs gave China authorities a favour they sucked up otiose labors and offered 75 per centums metropolis employment chances ( PAPPER.WENWEIPO.COM, 2008 ) .

The medium size and the little size companies accounted for 1.78 per centums ( 42,291 ) and 98 per centums ( 2,327,969 ) of entire registered endeavors in China separately in 2007 ; nevertheless, the big companies merely took 0.19 per centums ( 4,459 ) . Chinese endeavors accounted for over 99 % of SME ‘s ( Liu, 2007 ) .

In add-on, the SMEs paid 50 per centums revenue enhancements of entire revenue enhancements gross to China authorities and contributed to over half per centums of the gross domestic merchandise ( GDP ) in China ( PAPPER.WENWEIPO.COM, 2008 ) . The SMEs accounted for 60.42 per centums of entire concern gross and 66.28 per centums of industrial earning. Furthermore, the SMEs provided about 82 per centums of China ‘s employment chances. The growing of China ‘s SMEs has taken an indispensable function of economic development in China ( Liu, 2007 ) .

Table2: The Quantity and Employment of SMEs in China ( 2007 )

Small size endeavors

Medium size endeavors

Entire sum ( number/percentage )

Quantity ( number/percentage )

2,327,969

98i?…

42,291

1.78i?…

2,370,260

99.78i?…

Employment ( person/percentage )

33,464.3

30.76i?…

58,947.8

51.13i?…

92,412.1

81.89i?…

Note: The statistics of this tabular array were made from ERIA RESEARCH PROJECT REPORT.

Beginning: Liu, X. , 2007.

3. Problems and Inventions have existed in Chinese SMEs before current fiscal crisis

3.1 The connexion of outside market

China ‘s little endeavors ( SEs ) did non hold strong nexus with external market. Harmonizing to the China Statistics Yearbook SMEs contributed 62.3 per centums to the entire exports of China and the SEs took 5 to 10 per centums of 62.3i?… ( All-China Federation of Industry and Commerce and the China Private Economy Research Society, 2007 ) . This meant that SEs concentrated on internal market.

3.2 The technological invention

Many SMEs involved in the light industrial sector ; in the service sector, SMEs focused on retailing, nutrient service and advertisement.

China ‘s SMEs accustomed to bring forth low value added merchandises by Original Equipment Manufacturer ( OEM ) and sold merchandises to domestic clients ( persons and big houses ) in early phases ( PAPPER.WENWEIPO.COM, 2008 ) . Furthermore, SMEs in China put to death technological inventions through the internal research and development ( R & A ; D ) , R & A ; D led by university and establishment, imitation and consign ; particularly, the manner of invention through imitation made much more net incomes than others. Therefore, the technological invention could non travel frontward rapidly ( Liang, 2007 )

Figure 1: Technology Innovation of little endeavor

Beginning: China SME online, 2006.

3.3 The deficient fiscal support of Chinese SMEs

SMEs suffered from the short of fiscal support from bank and fiscal establishment, warrant system, necessary banking information and just chance of finance and so on ( See Table 3 ) .

Additionally, there were specific Bankss making finance for SMEs in Taiwan which lent money to SMEs with good concern thoughts and development potency. On the contrary, there was non SME Bank in China to assist SMEs to finance. SMEs in China merely had commercial Bankss which preferred doing loan to large houses instead than SMEs because SMEs did non hold mature accounting system and administrative direction. Harmonizing to Chan Shan-ho, Hong Kong GRE[ 1 ]experience could be a good lesson for China to set up more efficient fiscal channels and system to back up SMEs. Furthermore, the venture fund was a good step to finance for SMEs in China. However, the investing of venture fund was non active ( PAPPER.WENWEIPO.COM, 2008 ) . Therefore, the insufficient funding had been a large job for SMEs in China.

Table 3: Troubles of SEs Financing

Beginning: China SME online, 2006.

Method

4. The Impact of Current Financial Crisis on Economic Development

of China

The growing rate of Chinese GDP in 2008 ( 9.0i?… ) compared with 2007 ( 11.9i?… ) decreased 2.9i?… . The lowest GDP growing rate showed in the first half twelvemonth of 2009 which was 6.1i?… ( See Figure 2 ) ( NBSC, 2009 ) .

In add-on, the growing rate of export declined well. There was a important addition of export growing rate in 2007 which was 23.5 i?… compared with 2006 so once more the export growing rate in the terminal of 2008 dropped to -2.8i?… ( PRC, 2009 ) . Meanwhile, the high unemployment rate provoked hard funding environment for Chinese SMEs to raise capital ( Li, 2008 ) . This partially affected the economic development of China.

Figure 2: Real Growth Rate of GDP in China ( % )

Beginning: National Bureau of Statistic of China ( 2003-2009 )

4.1 The recent development of SMEs in China

The figure of endeavor, people in employment and registered capital declined gently from 2005 ( See Figure3 & A ; Figure4 ) .

It was a turning point in 2007 because Chinese authorities proclaimed new policies to command rising prices such as the cardinal bank and the People ‘s Bank of China increased the involvement rate of loan, sedimentation and modified required modesty ratio several times.

Additionally, the decrease of export grant for specific or contaminated and low added value industries resulted in the high operating costs ( See Figure 3 & A ; Figure 4 ) . However, the export rate of SMEs did non worsen excessively much which compared with the export rate of entire private endeavors in China ( See Figure 5 ) ( Liu, 2009 ) .

Figure 3: Growth Rate of Related Economic Index of Small and Medium Private

Enterprises 2005-2008

Beginning: PRC Industry and Commerce Association ( 2009 ) .

Figure 4: Growth Rate of Related Economic Index of Micro-Small Private

Enterprises in the PRC ( % ) 2005-2008

Beginning: PRC Industry and Commerce Association ( 2009 ) .

Figure 5: Export Growth Rate of Small and Medium Private Enterprises

2005-2008 ( % )

Beginning: PRC Industry and Commerce Association ( 2009 ) .

4.2 The impact on export-led SMEs – external demand shrank

The current planetary fiscal crisis resulted in deflation and affected the international import and export trade market. China ‘s SMEs confronted with the diminution of external demand caused by the export orders were cancelled or postponed.

The figure of export orders from Europe and USA dropped dramatically triggered by the current fiscal crisis because they were major import states to China. Besides, the lessening of export non merely affected the export-led SMEs but besides the domestic supply concatenation such as upstream and midstream industries. Therefore, some export-led SMEs changed mark market that developed toward to domestic market.

However, export-led SMEs had to set up ain trade names and sale channel before entered domestic market ( Ding, 2001 ) . Chinese Academy of Social Sciences announced a SMEs development study which indicated around 67,000 SMEs stopped bring forth in the center of 2008 ( Chen, 2009 ) .

Some SMEs had altered production topographic points and manufactured goods ; nevertheless, there were 60,000 SMEs which located alongside the seashore folded up. Around 20 million ( 15.3i?… of entire itinerant labor force ) employees who worked in metropoliss got demission in 2008. Furthermore, harmonizing to the statistics, there was 5i?… addition in unemployment rate in the beginning of 2009. ( Chen 2009 ) .

4.2.1. Plague Model

Political

Deng Xiaopings reforms after 2005 halted denationalization, and adopted loose

pecuniary policy, which led to the formation of a US manner belongings policy

Economic

Recession after 2008 had a immense impact on SME ‘s and forced many to go

more advanced

Disposable income fell from consumers impacting growing of the economic system

Social

Chinese consumer lifestyle alteration really rapidly and hence SME ‘s have to

focal point on advanced techniques more on a regular basis

Technological

Although Technology progresss are apparent in China, many SME ‘s behave like

monetary value takers and imitate foreign engineering instead than introducing themselves

within China

4.3 The Financing Difficulties of Chinese SMEs

Chinese authorities implemented a CNY 4 trillion undertaking which aimed to promote the China ‘s economic growing in 2009 and 2010.

Harmonizing to a 2009 statistic, there was a CNY162 million financess in Bankss which prepared to finance new undertakings ; nevertheless, merely 5i?… of this fund flowed into SMEs. SMEs in China raised financess by publishing bonds and equities and made loans from Bankss which accounted for 1i?… or less and 20i?… severally because most financess financed from the proprietors of endeavors and inner grosss around 50i?…to 60i?… . In add-on, SMEs financed more than 70i?… interim financess from non-government establishments. The deficit of support beginnings led to many SMEs was traveling into bankruptcy ( Chen 2009 ) .

The fiscal crisis increased the SMEs costs of financing even though Chinese authorities decreased the benchmark of bank involvement rates in 2008. There were still many bank providing loans to SMEs with involvement rates between 20i?… and 60i?… which exceeded the benchmark involvement rates and asked for collateral and consulting fees ( Chen 2009 ) .

In general, the involvement rates which Bankss lent to SMEs were above 1 per centum added to plus rating, fiscal and cautiousness fees. The costs of SMEs finance rose by 40i?… to 50i?… since the fiscal crisis. There was an addition in input costs resulted from the lifting monetary value of natural stuff which rose around 11i?… to 15i?… . SMEs could non acquire excessively many net incomes or suffered from loss due to these significantly increased costs.

4.4 The development of hi-tech industry

Harmonizing to Yizhong Li stating in May 2010, China will heighten the integrating of industrialisation, urbanisation and informationization.

There are three steps to transport on this program. First of all, set up state-wide web, addition pass oning velocity of rural countries and rush the development of cyberspace, computing machine industry and telecommunication. Second, in order to advance the development of 3G, e-business, electronic industry, package industry, and vary cyberspace merchandises and services that china will beef up the integrating of informationization and urbanisation.

Third, speed up the development of information engineering can progress long-established industries since it quicken information update velocity and circulation ( China SME online, 2010 ) .

Consequence

5. Recent invention and actions of Chinese SMEsA

There were three chief advanced waies for Chinese SMEs. First of all, SMEs changed the mark market from international to domestic and transformed into Own Branding and Manufacturing ( OBM ) .

Chinese authorities announced several Torahs to back up and speed up invention of SMEs which included the Innovation Fund for Technology-Based SMEs, the SME Promotion Law, and the Notice of Improving SMEs Loan and Credit Insurance System.

Besides, in order to assist SMEs set up ain trade name and promote to domestic and international markets that the Ministry of Commerce raised the Foreign Trade Development Fund. In add-on, the China Banking Regulatory Commission ( CBRC ) provided more channels to acquire venture capital by printing the Guidance on Bank Loan Business to Small Enterprises. Furthermore, the China Association of Small and Medium Enterprises ( CASME ) offered 3-billion-yuan venture investing fund to SMEs which was helpful for SMEs during the planetary economic recession period. Third, the technological invention was an of import function for SMEs. China has already initiated 16 chief province technological invention strategies until now ( PRO INNO Europe, 2009 ) .

Decision

The lone evident alteration is engineering inventions that late concentrate on developing hi-tech industry and speed up the update velocity of technique. To recapitulate, there are three chief way of recent invention. First, SMEs expand internal demand due to the psychiatrist of external demand. SMEs transform from OEM/ODM to OBM and advance their ain trade name to international and domestic market.

Second, Chinese authorities supports SMEs continue to make technological invention by offering grant to science and engineering industries. Third, to work out the funding trouble of SMEs, Chinese authorities provides immense figure of financess and expands entree to venture capital to back up SMEs.

Actually, there exist some drawbacks behind these policies. Most inventions are led by authorities and the authorities support may travel to state-owned sectors. SMEs may make non hold equal chance and protection comparison with SOEs. Although, some inventions may originate other jobs, these state-led invention advance the development of Chinese SMEs and increase the economic growing of China.