China's first law to promote small and medium enterprises (SMEs) is in the pipeline. This move, aiming to pave the way for SME's long-term development by elevating their legitimate status, is a reflection of SMEs' increasing importance to the Chinese economy. Nowadays, there are over 39.8 million SMEs in China, accounting for 99% of the country's enterprises in population, 50% in assets value, 60% in turnover and 60% in exports. Due to their relatively labour-intensive nature, SMEs have been the most important employers in China, providing nearly 75% of job opportunities.

Besides overwhelming weights, SMEs are also pivotal to the current development of Chinese economy on several other accounts. First, since SMEs are liable to kick-start business with relatively small amount of capitals, they have the potential to become a powerhouse for private investment, whereby to pump-prime the growth of domestic demands. Second, with high degree of flexibility and resilience, SMEs are apt at attuning their products and operational modes to the ever-changing market needs, and their smallness matches well the growing trends towards personalization and diversification that are prevalent in the international marketplace recently. Beyond doubt, externally-oriented SMEs are an important driving force for the sustainable growth of China's import and export.

Third, in order to make the best use of limited operating resources, SMEs are more inclined to fit into team work, while pursuing specialization individually. Because of this, they often act as a catalyst for the deepening of industrial division of labor, as well as cornerstones for the synergetic network that supports and nurtures large-scale companies. Fourth, with the advent of New Economy era, SMEs can also become a cradle for innovations, in that knowledge-based economy is much predicated on individual researches and entrepreneurship. As a matter of fact, a lot of world-class hi-tech giants like Microsoft, Yahoo! have evolved from anonymous start-ups with few employees, and it is reported that more than 60% of the patent transferred in China have gone to Village and Townage Enterprises - which are dominated mainly by SMEs.

However, it should be admitted that SMEs are generally less than solid, relatively slack in management, and lacking the experience and ability to guard against external shocks. Among other things, financing, R & D, marketing, human resources, and information management are the foremost areas that often pose difficulties for them. In order to assist SMEs to overcome such inherent weaknesses, many governments have taken concrete measure to offer some relief. The Small Business Administration of the US, SME Basic Law of South Korea, SME Guidance System of Taiwan, and Special Financial Scheme for SMEs of Hong Kong are cases in point.

In Mainland China, SMEs have drawn increasing attention from the government in the recent two years. For example, state-owned banks have been advised to set up credit departments catering for SMEs, the VAT (Value Added Tax) rate for small commercial firms has been cut down to 4%, and the Department of Small and Medium-sized Enterprises has been established under the aegis of the State Economic and Trade Commission. These measures, though having started the ball rolling, are far from sufficient. In this connection, the CMA would like to suggest several directions for the Chinese government to pursue in its future work, especially in formulating the Law for Promoting SMEs:

• Creating a friendly social environment. Above all, it is imperative to give due recognition to SMEs' contributions toward China's economic and social development, so as to treat them on equal terms with big companies, and eliminate any discrimination in terms of size or stature.
  
  
• Establishing a supporting system. For the one thing, the Government should strengthen the function of its administrative arms in charge of SME affairs, and broaden its representativeness. For the other, more efforts should be devoted to establishing a supporting system that can provide full-scale assistance to SMEs in respect of, for example, information, finance, technology, manpower recruitment and training, and inter-enterprise cooperation.
  
  
• Improving SME's financing ability. Financing is always a headache for SMEs. To alleviate this difficulty, a SME Development Fund and a credit insurance system should be set up as soon as possible. Moreover, the Government should stimulate SMEs' direct financing activities through liberalizing security markets, setting up a second board stock market and fostering venture capitalism.
  
  
• Promoting internationalization. In order to pave the way for SMEs to tap international market, franchises on foreign trade should be greatly delegated, and red tapes should be reduced to facilitate cross-border travel, overseas investments and international financing. Moreover, export credits and market intelligence, which are desperately needed by SMEs, should also be placed top on the list of government's supporting initiatives.
  
  
• Fostering intra-regional collaborations. International cooperation not only brings about business opportunities, but also lead to the inter-fertilization of ideas, technology and managerial skills. To the extent that there are 300 thousands SMEs in Hong Kong and 1.02 million in Taiwan - which are ideal paragons and partners for their counterparts in the Mainland, SMEs in the Greater China can forge a variety of strategic alliances based on complimentarity and to the mutual benefit. In particular, they can team up to explore domestic market, establish brand names, develop and commercialize new technology, and even participate in the reform of Mainland's State-owned Enterprises (SOEs).