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Restructure SMEs, take industries to new areas

By Sun Lijian (China Daily)
Updated: 2008-09-05 14:09

Pushing forward the industrial restructuring of small and medium-sized enterprises scattered around the Yangtze River Delta is the key point not only for ensuring a balanced and sustainable development of the country's economy, but also for creating new chances of growth for enterprises with less advanced technology and management in other backward areas. For example, industrial upgrading will transfer some labor-intensive manufacturing industries in developed areas to economically backward but resources-rich areas.

In such a case, we can forge a complete industrial chain with vertical labor division inside the country, as well as reduce our dependence on foreign investment. That will also reduce trade conflicts with other countries and reverse the situation of constant duplication of production in the country.

Third, if the new policies give priority to industrial transformation of small and medium-sized enterprises and the strategic regional industrial restructuring of the Yangtze River Delta, things will change in two aspects. First, foreign enterprises with high-end manufacturing, those of research and development as well as service industries, will gather in the delta; second, foreign capital for processing trade will move westward to backward regions to continue enjoying the competitiveness brought about by the low labor cost there. These processing enterprises will surly improve local employment and people's living standards. They are also expected to push forward the reform and restructuring of local State-owned enterprises.

Finally and most importantly, the process cannot work without the central government's support.

All this requires a lot of policy coordination and promotion, such as the reform of the value-added tax of enterprises, elimination of market barriers among different regions and introduction of democracy and accountability in administrative decisions. The monetary and foreign exchange policies, which are critical for the operation of small and medium-sized enterprises, also need the support of relevant industrial and fiscal policies to explore their full potential.

The author is a professor of economics with Shanghai-based Fudan University.

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