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China's Services SMEs
Sep 10, 2002

Small and medium enterprises (SME) in China continue to thrive and are now seeking to service the subsidiaries of some of the world's top 500 companies currently operating in China.

China’s more than 8 million SMEs, account for 99 percent of China's total enterprise and 60 percent of the nation's industrial output and exports. These enterprises also employ three quarters of the labor force.

The high growth rates in turnover and employment exhibited by SMEs in China is the result of growing business links between Chinese services and goods providers and multinational corporations in China. SMEs with closer ties have experienced faster growth rates and higher productivity according to the China’s Economic and Trade Commission. These ties have been fostered by government policies that have set up over 40 technological innovation services centres, 500 productivity promotion centres to make enhance the ability of Chinese SMEs to meet the sophisticated demand of multinationals in China. The gains in competitiveness of Chinese SMEs have allowed these corporations to start exporting and reach far beyond the domestic market.

The government’s plan to develop 30 university scientific and technological parks and 20 business foundation parks for returning students have greatly contributed to the development of high-tech SMEs in China.This developments have also been possible following the development of credit guarantee institutions which have made possible loans for over US$4.8 billion to SMEs during the past two years.

Not surprisingly, China's exports of software and other business services has began to grow at an unprecedented speed. Software exports are expected to catch up with India's in four years with the growing integration of South Asia’s information markets according to a report by Gartner Asia-Pacific. Exports of software and application services of the more than 6,000 chinese software companies will grow from last year's US$850 million to US$27 billion in 2006, with an average annual growth rate of 620 per cent. During the same time, Indian software and service sector exports will also jump from US$6.2 billion to US$27.5 billion.

The explosive growth of China's software and IT service exports will be inseparable from the Indian software businesses since Indian-related companies in China will contribute to 40 per cent of the total of China's exports in the software and IT service industry, or US$108 billion in 2006.

The entry of Indian software vendors is expected to bring new technology and management expertise to China, helping upgrade the level of China's software industry.

Although China has more than 6,000 software companies, double that of India, they only exported US$850 million in 2001, compared with US$6.2 billion of their Indian counterparts.

TCS, Asia's biggest software and service provider and the first Indian software firm to set up a Chinese subsidiary, will expand from 50 engineers in Hangzhou to 250 by next year.

Booming SMEs have also attracted venture capitalists in China. Recently more than 15 venture funds have opened operations in China and next year a joint venture of Chinese and Belgian investors will start funding projects worth over $100 million in high-tech industries.

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