Economic Reform and Liberalization and Small and Medium Size Enterprises in Chinese Manufacturing Industries

Economic reform and liberalization in China have affected many institutional obstacles constraining the development and growth of Chinese small and medium size enterprises (SMEs). Using a firm-level data set that comprises all “above-scale” Chinese industrial enterprises for the period of 1995 to 2003, I investigate the patterns of entry and exit of Chinese SMEs and relate these patterns to the structural features of the three-digit industries where these SMEs enter or exit from. Net entry rate of SMEs surged across all manufacturing industries in the latter part of the sample period. There is clear evidence of discrimination against private SMEs in the capital market. Foreign direct investment represents an alternative to the domestic capital market for Chinese SMEs and does not seem to crowd out domestic entrepreneurship. Engaging in export reduces the incidence of exit for all domestic SMEs. ∗Financial support support from the National University of Singapore Academic Research Fund(R122-000-091-112) is gratefully acknowledged.