SME Development in China: A Policy Perspective on SME Industrial Clustering

The small and medium enterprises (SMEs) in China have achieved rapid and sustainable growth in the past two decades. Such growth has increasingly contributed to China’s economic development. Yet, weak linkages with external market, weak technological innovation, and limited SME financing have limited SMEs’ growth. This brings to the fore the need for more efficient and professional government services to SMEs to enhance their competitiveness. The absence of high-quality services for enterprises should prompt government to provide SMEs with services that are more professional, more convenient and more individualized to enhance their competitive capability. SME clustering is crucial to addressing social and economic objectives, the achievement of which can make them more competitive in the global economy; generating and spreading innovations; creating employment; and distributing broad-based income and welfare. Convergence of 1) production (cable SEs), 2) market (textile industry SEs), and 3) production chain (sewing machine SEs) comprises the main patterns of SME clusters. This essentially reflects the “one village, one product” and “one town, one industry” concept. Future policy should expand the range of government services to SMEs. Local governments could learn some lessons from the Jiangsu government and devote attention to promulgating supporting policies for the development of small enterprises. Government should also develop an industrial cluster plan for small enterprises, as well as a financing and technological innovation system for SMEs.