2013 China-Africa Conference Report-Policies for Developing Rural SMEs

Preface

 

1. Definition

China’s rural small- and medium-sized enterprises (SMEs) refer to enterprises at and below county level, most of which are developed from township enterprises. China’s SMEs mainly contain three types: those originated from township enterprises; those run by urban enterprises and by domestic and foreign transferred industries; and those industrialized agricultural enterprises grown in the process of agricultural restructuring, industrial chain extension and the development of modern agricultural system. Although these three types are overlapped to some extent, the first type plays a dominate role in all the SMEs, while the last two types are becoming a new driving force. These two types are covered in many statistics concerning township enterprises, including the System of National Statistical Report on Township Enterprises formulated by Ministry of Agriculture and approved by National Bureau of Statistics in December 2009.

Review on Policies concerning SMEs

1949-1977 Suppression. In this period, most of China’s policies were to suppress non-public SMEs and to develop unitary public ownership economy.

1978-1991 Approval. In 1978, the Chinese government adopted reform and opening-up policies. Thus, the policies concerning SMEs witnessed positive changes. A preference, however, could be seen in the policies, as they were favorable for the large-sized enterprises and set clear constraints on SMEs.

1992-2002 Encouragement. In this period, China’s policies began to encourage and support the SMEs. In 1996, the Law of PRC on Township Enterprises was enacted. The state government began to treat SMEs as an actor in the economy, and the policy system for SMEs has come into being.

2003-today Acceleration. In 2002, Law of the PRC on Promotion of Small and Medium-sized Enterprises was enacted, which was followed by many specific policies to support SMEs.

2. Review on the Development of Rural SMEs

The lack of statistics makes it difficult to depict the development of rural SMEs nationwide accurately and comprehensively. The situation can only be estimated through the development of township enterprises. Township enterprises are significant component of national economy, and creating many jobs for farmers.

As described by Chart 1, from 1978 to 2011, the number of township enterprises witnessed a surge of 30.71 million from 1.52 million to 32.24 million, up by 2015.18%, and the annual increase rate is 9.69%.

Chart 2 shows that from 1978 to 2011, the added value of township enterprises saw a surge from 20.8 billion yuan to 13.09 trillion yuan, up by 62848.08%, and the annual growth rate is 21.57%. The share of township enterprises’ added value in GDP increased from 5.71% in 1978 to 27.73% in 2011. Thus it acts as an important driving force of China’s economy.

Chart 3 shows that from 1978 to 2011, Chinese township enterprises absorbed a large number of labor force, with its employment growing from 28.26 million people to 165.32 million people, an increase of 137.06 million people and up by 484.91%. The annual increase rate is 5.5%. Besides, the number of employees of township enterprises accounts 21.18% of the total in 2011, while in 1978, this figure was only 7.04%. Thus, township enterprises play an important role in mitigating the employment pressure and driving the labor force migration in rural China.

Column 1 Major types of China’s rural SMEs

 Primary Industry:

family business of the farmers; family farm; agricultural cooperatives

 Secondary Industry:

agricultural products procession businesses; industrialized agricultural businesses; township enterprises

 Tertiary Industry:

agricultural products selling enterprises; agricultural products logistic enterprises; recreational agricultural enterprises

I. Policies, Laws And Regulations On SMEs

 

1. The Establishment Of The System Of Policies, Laws And Regulations For Developing SMEs

Since the late 1990s, China gradually launched many policies, laws and regulations to support SMEs.

 (1) Policies, Laws And Regulations For Developing SMEs

Since the beginning of 21^st century, the NPC has been enacting laws, the State Council has been launching regulations and the governments have issued supportive policies and measures. Thus, China has gradually established a framework of policies, laws and regulations for developing SMEs.

a. Laws   On January 1 1997, the NPC issued Law of PRC on Township Enterprises, so as to define the township enterprises, determine their responsibilities to support agriculture, and launch supportive policies for township enterprises. On June 29 2002, Law of the PRC on Promotion of Small and Medium-sized Enterprises was enacted, so as to issue legislative measures to support the SMEs in five aspects: financial support, support on business start-ups, technological innovation, market development and social services. Besides, some other laws that suit the management of SMEs have also been enacted, such as Law of the PRC on Individual Proprietorship Enterprises (January 2000), The Company Law of China (enacted in 1994 and amended in 1995), and Partnership Business Law of the PRC (June 2006).

b. Regulations        In July 2000, the State Council issued Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy. In February 2005, the State Council issued Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy. In September 2009, the State Council issued Several Opinions of the State Council on Further Promoting the Development of Small- and Medium-sized Enterprises, which contains 29 opinions on 8 aspects to create favorable environment for SMEs. In 2010, the State Council issued Several Opinions of the State Council on Encouraging and Guiding the Healthy Development of Private Investment to propose some policy measures on market access expansion, market transformation and upgrading. In March 2011, the State Council reviewed Individual Industrial and Commercial Household Ordinance (draft) and approved it in principle. This Ordinance removed the constraints on the number of employees and the identity of applicants. It also enlarged the scope of business, defined the supportive measures and services for individual businesses and formulated the basic principles of individual businesses.

c. Supportive policies and measures          Under the guidance of the laws, regulations and opinions mentioned above, the ministries and local governments issued their supportive policies and measures. Till the beginning of 2011, 23 provinces (autonomous regions and municipalities directly under the Central Government) have launched local regulations to promote the development of SMEs, such as the Measures for the Promotion of the Development of SMEs of Jiangsu, Zhejiang and Liaoning. Thus, we have more laws and regulations to refer to when develop SMEs.

By and large, in terms of specific policies and measures, supportive policies in seven aspects have been issued: non-public sector development, financial support and preferential tax, credit, technological innovation, entrepreneurship and employment, service system and market development. Therefore, the framework of policies, laws and regulations for developing SMEs in China has established.

(2) Administration of SMEs

After years of reforms and adjustment, the system for government administration of SMEs has gradually completed. In the current system, the “Leading Group for SMEs Development” headed by senior officials of the State Council makes the overall arrangements, the Department of SMEs of the Ministry of Industry and Information Technology (MIIT) shoulder the major responsibilities, the Ministry of Science and Technology and other eight ministries take relative duties, and the provincial, municipal and county governments establish relative offices. In particular, the administration of SMEs can be divided into central level and local level.

Chart 5    Government Administration of SMEs in China

a. Central Level

The central government established the Leading Group for the work concerning SMEs. The Chinese government attached such great importance to the work concerning SMEs that it established a senior level Leading Group very early. In March 1986, with the approval of the State Council, a Coordinating Group for the Foreign Cooperation of SMEs was established under the former State Economic Commission. In December 2009, the State Council decided to establish Leading Group for SMEs Development to promote the leadership and coordination in the work concerning SMEs development.

MIIT take the leading role in the administration of SMEs development. Its Department of SMEs is a comprehensive administration department in the sector. The Department’s responsibilities are making the overall instruction for SMEs, drafting policies and measures to develop SMEs and non-state-owned economy with relative parties, promoting foreign cooperation, completing service system and solving major problems.

Other ministries and departments all shoulder their own duties in developing the SMEs. Ministry of Science and Technology is responsible for the development of private scientific and technological enterprises. State Administration for Industry & Commerce is responsible for the registration, supervision and management of individual businesses and private enterprises. All-China Federation of Industry & Commerce is responsible for the development of private sector. Ministry of Agriculture should instruct the development of township enterprises and agricultural products processing industry. Ministry of Commerce is responsible for the development of commercial distribution enterprises and foreign-related enterprises. Ministry of Finance should manage special funds. State Administration of Taxation is responsible for tax cuts and collection. People’s Bank of China should manage the credits concerning SMEs. China Banking Regulatory Commission should manage the financial institutions concerning SMEs.

b. Local level

The establishment and changes of the local governments’ administration system for SMEs. In 1998, the Department of SMEs of the State Economic and Trade Commission was established, which is the beginning of the establishment of local institutions concerning SMEs. At that time, the SETC had been founded for 6 years, and it has formed a complete administration system with its local counterparts. Local Economic and Trade Commissions followed the SETC to establish the administration offices of SMEs. In July 2008, the Department of SMEs was included in the newly-founded MIIT, and the local administration offices underwent big changes in terms of its affiliation and establishment.

The features of the changes after 2008. After the Department of SMEs was included in MIIT in 2008, local administration offices have witnessed various changes.

(3) The Law of PRC on Township Enterprises

In October 1996, Chinese legislature voted through the Law of PRC on Township Enterprises. This means that township enterprises’ legitimate rights and benefits are protected by the law, and that some prevailing trends and requests of township enterprises has been regulated by way of law.

a. Necessity

Township enterprise is a great invention of Chinese farmers, and it has become a major pillar of China’s rural economy and a significant component of national economy.

b. Purposes

The Law is to lead and support the healthy development of township enterprises, to protect their legitimate rights and benefits, to regulate their operation, to prosper rural economy and to promote the socialist modernization.

c. The definition of township enterprise

Township enterprise refers to those enterprises invested by rural collective economic organizations or farmer individuals, or those co-sponsored by farmers. If the enterprises are not funded by farmer or farmer only makes a small part of investment, they should not be included by this law.

d. Supporting agriculture

Township enterprises should shoulder the obligation to support agriculture. They should use a certain part of their profit after tax to support agriculture and other rural social spending. The state shall reduce some tax on township enterprises in a certain period. Some of the reduced tax should be used to support agriculture and other rural social spending, and the rest can be used for the development of the enterprise.

e. The support for township enterprises

The law makes some targeted regulations on supporting the township enterprises in terms of taxation, loan, and developing funds. The state reduces the tax on the small- and medium-sized township enterprises in a certain period in the following situations: if the enterprise is collectively owned and faced with difficulties when it is just started; if the enterprise is in ethnic minority areas, remote and border areas, and impoverished areas; if the enterprise deals with means of agricultural production; if the enterprise deals with the processing, storage, distribution and sale of grain, feed and meat; if the state industry policies stipulate that the enterprise should be particularly supported.

f. Regulations on the enterprise’s operation

The operation is regulated in terms of land saving, natural resources protection, management of tax collection, product quality, environmental protection and safety in production.

(4) The Law of PRC on the Promotion of SMEs

In June 2002, Chinese legislature voted through the Law of PRC on the Promotion of SMEs. Then the state launched relative measures to apply the law, so as to develop SMEs.

a. Necessity

SMEs plays a significant role in strengthening market competition, creating jobs, facilitating people’s life, promoting technological innovation, developing national economy and stabilizing the society. Since the reform and opening-up, township enterprises have helped develop rural economy, absorb the migrating labor force and build small towns. As a component of SMEs, township enterprises can also be supported by the promotion measures, and gain further development.

b. Purposes

The law is to improve the environment for SME operation, to promote the start-up and development of SMEs, and to leverage the SMEs’ power in creating jobs, developing national economy and the society. The principles of the law are: protecting the SMEs’ legitimate rights and benefits; supporting the start-up and development of SMEs, and promoting the technological innovation of SMEs.

c. Scope of application

The standard of SME is decided by the State Council according to total assets, sales, number of employees and the features of the industry. Besides, some SMEs, as they are funded by large enterprises or groups, are actually the controlled company or share-holding companies of the large enterprises. As the regulations of foreign countries, the law stipulates: “if 25% of the stock of the SME is held by large enterprises, this law should not be applied.”

d. Government’s duties

The departments which are responsible for enterprise work under the State Council issue policies and make overall plan and coordination. According to national policies, other relative departments shoulder their own responsibilities to instruct and provide services for SMEs. Enterprises service departments in local governments above the county level instruct and provide services for the SMEs within their administrative regions.

e. Central budget and development fund

The law incorporates SMEs into central budget, establishes special funds for supporting SMEs and sets up SME development fund. All these are used to instruct and provide services for SMEs, aid the credit guarantee of SMEs, offer information consultation, train the employees, support technological innovation and develop international market.

f. Credit guarantee system

Governments above county level should establish credit guarantee system, so as to create favorable conditions for the financing of SMEs. Since this project is still in the trial period, many measures still need improvement through practices and the management of credit guarantee for SMEs is separately regulated by the State Council.

g. Service system

The state encourages other sectors to provide services for SMEs. Research institutes and colleges are encouraged to provide systematic training for SMEs. Intermediary service organizations are encouraged to provide instructions on start-up businesses; to find and solve problems for SMEs; to provide information consultation, to provide market services; to make investment; to provide loans and credit; to make property rights transaction; to provide technological support; to train the employees; to facilitate foreign cooperation; to hold exhibition and to provide legal advices. According to the actual need, the government exempts or reduces the service fees. Thus, these organizations can provide good services and improper charges can be prevented. The law makes special regulations that the financial institutions shall provide support and services for SMEs, that the government should support the start-up businesses, technological innovation and international trade of SMEs, and that a certain part of government procurement should go to the products and services of SMEs.

(5) The Classification Standards for Small and Medium-sized Enterprises

On June 18 2011, the State Council amended the Classification Standards for SMEs, and ceased to use the old standards stipulated in 2003. This is the eighth amendment of the Standards, and the changes cover more areas than any other in the history. Compared with the old standards, the new ones bear the following features:

a. The Standards For Micro-Enterprises Are Added

In some other countries, the SMEs are always divided into medium-sized, small-sized and micro-enterprises. In this amendment, the standards for micro-enterprises are added according to the reality of China. This is the most important breakthrough. For industry enterprises, micro-enterprises refer to those employ less than 20 people or those enjoy annual income less than 3 million. For other enterprises, micro-enterprises refer to those employ less than 10 people.

b. The Law Covers Major Industries In National Economy

The new standards can be applied to agriculture, forestry, animal husbandry, fishing, mining, manufacturing, the production and supply of power, heat, gas and water, building, wholesale, retailing, transportation, storage and post (except the rail transportation), lodging, catering, IT, real estate, property management, leasing and commercial services, management of water conservancy, environment and public facilities, repair services, other services for residents, social work, culture, sports and recreation. These almost cover all the major industries in national economy, except financial sector, education, public health, public management, social organizations and international organizations.

c. The Indicators Are Selected Flexibly

The Law of PRC on the Promotion of SMEs stipulates that the standard of SME is decided by the State Council according to total assets, sales, number of employees and the features of the industry. The new standards highlight the following features:

Firstly, the indicators have been reduced from three to two or one. Industry, transportation, storage and post, wholesale and retailing, information transmission and IT services adopt two indicators: number of employees and income. Building industry adopt two indicators: income and total assets. Agriculture, forestry, animal husbandry and fishing industry adopt one indicator: total income. Resident services, culture, sports and other service industries adopt one indicator: number of employees.

Secondly, the indicators differ for different industries. In building industry, the number of employees fluctuates a lot due to different projects and seasons. Therefore, the new standards cease to use the number of employees as an indicator. Instead, the new standards adopt income and total assets as indicators, for these can reflect the reality of the industry. In service industries, the number of employees is a good indicator, for it can reflect the industry’s features. Therefore, most of the service industries adopt this indicator. For example, scientific research and technological services, management of water conservancy, environment and public facilities, repair services, other services for residents, social work, culture, sports and recreation all adopt number of employees as the only indicator.

Thirdly, the new standards are convenient to apply. The indicator of sales income is changed into operating revenue according to the current financial requirements. Besides, the former three indicators are reduced to two or one. This is conducive to the implementation of the new standards, and to the better understanding of the enterprises’ scale.

d. The New Standards Can Be Applied To Individual Businesses As Reference

Individual businesses are not enterprises, and now they are within the scope of Individual Industrial and Commercial Household Ordinance. However, given that the individual businesses belong to small-sized or micro-enterprises and that such a great number of individual businesses create many jobs, the new standards include individual businesses into the scope of reference, so as to develop individual businesses and create more jobs.

II. Financial Services

 

1. Commercial Banks Establish Financial Service Institutions For SMEs

The Chinese government requires that the state-owned commercial banks and joint-equity commercial banks to establish special institutions to provide financial services for SMEs. They should also improve their systems of credit businesses for SMEs, and increase the loans for SMEs. The state-owned commercial banks should develop new financial services especially for the SMEs, and establish special service institutions. Their systems of credit businesses for SMEs should be different from those for large enterprises, and those for different categories of enterprises should also differ.

2. To Approve Loan Applications More Quickly, And To Innovate New Financial Products And Services

The approval procedures and contents for the SMEs’ loan applications should be different from those for large enterprises and projects. The former should be simpler and less time-consuming than the latter. Commercial banks should invent new financial products and services for SMEs.

3. The System Of Property Mortgage And The Definition Of Collateral

Movables, accounts receivable, warehouse receipts, stock, and intellectual property rights can all be used as collateral, thus SMEs’ lack of collateral can be solved. Traditional system of property mortgage and collateral is not suitable for SMEs, especially for scientific and technological SMEs. Financial institutions should formulate new systems particularly for SMEs, in which ‘software’ can serve as collateral.

4. To Encourage Private Capital To Set Up Joint-Equity Financial Institutions Such As Village And Township Banks And Small Loan Companies

We encourage private capitals, by way of investment, to take part in the transformation from rural credit cooperatives to rural commercial (cooperative) banks, from urban credit cooperatives to urban commercial banks, and in the investment increase of urban commercial banks. We should also develop local small- and medium-sized banks, which are the major service providers for SMEs. These small- and medium-sized banks are based on share-holding, and private capitals are encouraged to hold the stock. Thus the small- and medium-sized banks can provide more loans. We support small loan companies and encourage those with proper conditions to grow into village and township banks.

 

5. To Improve The Incubation Mechanism For The Listing Of SMEs

We should enlarge the scale of the listing of SMEs, and increase direct financing. Growth Enterprise Market creates a convenient channel for direct financing of SMEs, so that SMEs with large potential can acquire opportunities for direct financing.

6. To Use The Power Of Financial Lease, Mortgage And Trust

We should use the power of financial lease, mortgage and trust in the financing of SMEs, and issue more the SMEs set bond and short-term financing bonds. Financial lease does not have high requirements on company credit and collateral, thus it suits SMEs.

7. To Establish Multi-Level Financing Guarantee Funds And Guarantee Institutions For SMEs

We should establish multi-level financing guarantee funds and guarantee institutions for SMEs which are funded by central and local governments and jointly sponsored by enterprises. Different levels of governments have established many guarantee funds, such as the guarantee funds for unemployed people’s small loans, guarantee funds for small loans of start-up businesses, and science and technology guarantee funds. Meanwhile, we should increase the working efficiency of these guarantee funds, so as to create more jobs and encourage start-up businesses.

III. Preferential Taxation And Fiscal Policies For SMEs

1. Tax Preference For Medium And Small Enterprises

(1) Direct Preferential Policies

Qualified small low-profit enterprises are entitled to a discount of 20% of enterprise income tax.

To help those enterprises address the impact of financial crises, we count 50% of the income of small low-profit enterprises with an annual taxable income lower than (including) 30 thousand yuan into the taxable income.( The policy remained valid until the end of 2011).

For the SMEs that invest in projects encouraged by the country, the imports of needed equipment together with the  technology, necessaries, and spare parts concerned are exempted from tariff.

In accordance with The Provisional Regulations of the People's Republic of China on Value-Added Tax amended in 2008, the tax rates have been reduced from 4% and 6% to 3% on the basis of reducing the number of VAT payers. (The regulation was put in place on January   1^st, 2009.)           

SMEs with difficulties in paying the urban  land use taxes can apply for tax exemption and those with difficulties in paying off the tax within deadlines can apply for an extension of 3 months.

(2) Indirect Preferential Policies

Main beneficiaries of many preferential tax policies targeted at particular industries and enterprises are, however, small- and medium-sized enterprises. The specific is shown as the following.

Hi-tech industries are entitled to an enterprise income tax reduction of 15%.

Enterprises newly established in high-tech industrial parks are exempted from enterprises income tax within 2 years since the beginning of production.

Software industries newly established in China are exempted from income taxes for the first two years of making profit and entitled to an income tax reduction of 50% for the next three years.

The profit made by enterprises in agriculture, forestry, animal husbandry, and fishery is exempted from or entitled to a reduction of enterprise income tax.

Enterprises newly established in areas with old revolutionary bases, areas inhabited by ethnic minorities, border areas, and poverty-stricken areas are entitled to an exemption of or a reduction of income tax for the first 3 years.

Newly established cultural enterprises encouraged by the government are exempted from enterprise income tax for 3 years since the registration with the Administration of Industry and Commerce.

New independent accounting enterprises or business units of transportation, post and telecommunications are exempted from income tax for the first year since opening and entitled to a 50% reduction of income tax for the second year.

New independent accounting enterprises and business units of public utilities, commerce, logistics, foreign trade, tourism, warehousing, resident services, catering, education,   culture and health care enjoy a reduction of or are exempted from income tax for the first two years since opening.

The salaries paid by enterprises to disabled workers and other workers   encouraged to hire by the state can be deducted during the calculation of taxable income tax.

(3)Preferential Taxation/Tax Policies For Social Service Organizations Run By SMEs

Some of our country’s preferential taxation policies are targeted at intermediary institutions and organizations in the market, like credit guarantee institutions, venture capital institutions and information consulting agencies. And these intermediate agencies and organizations mainly serve SMEs, therefore, supporting the former can promote the development of the latter.

Qualified credit guarantee agencies serving SMEs are exempted from business tax for three years; after the period of tax exemption, guarantee agencies can apply for further business tax exemption if they remain qualified.

For venture capital enterprises investing in medium- and small-sized hi-tech non-listed enterprises for more than 2 years through equity investment, the taxable income can be set off against 70% of the investment amount; the balance after set-off may be carried forward to subsequent tax years for set-off.

New independent accounting enterprises or business units operating in consulting industry (including scientific, technological, legal, accounting, auditing, and taxation consultancy), information industry, and technological service industry are exempted from income taxes for the first two years since opening.

2. Direct Fiscal Expenditure For SMEs

(1) Innovation Funds For Technology-Oriented Firms

The fund was established in 1999 and was mainly used to support and guide the technological innovation of science- and technology-oriented SMEs. In accordance with the particular conditions of their characteristics and projects, the fund, through subsidized loans, non-profit funding, and capital investment, encourages the joint innovation of enterprises, universities and researching institutes and prioritizes the projects that have independent IPR, hi-tech, and high value-added ,create jobs in large numbers, and promote environmental protection and earn foreign exchange through export.

(2) International Market Developing Funds Funds Of Small-And Medium-Sized Enterprises

The fund was established in 2000 and is exclusively used for SMEs to take part in exhibitions overseas, quality management system qualification, various product qualifications and carry out international market promotion, overseas advertising, trade mark registration, international market investigation, overseas bidding, purchasing foreign technologies, and brand building. The fund prioritizes the market developing in Latin America, Africa, Middle-east, Eastern Europe, and Southeast Asia, and the certifications needed by enterprises to develop international market, like international quality management system certification, international environment management system certification and international product certifications.

(3) Transformation Fund For Agricultural Science And Technology Achievement

The fund is mainly targeted at  technology-oriented agricultural enterprises, with  focus on the regional tests and demonstrations, pilot tests, and full-scale tests of new agricultural breeds, technology and products that are expected to be produced in batches but have not been applied. The ways of support, including subsidized loans, non-profit funding, and capital injection, vary in accordance with the characteristics of different projects and contracted units.

(4)Special Funds For The Construction Of A Service Platform For SMEs

This special fund has been established in accordance with the Law of the People's Republic of China on the Promotion of Small and Medium-sized Enterprises and is exclusively used to subsidize the construction of a service platform for local SMEs. It subsidizes: the expenditures on purchasing the equipment used to construct the platform, developing and purchasing software, purchasing industrial advanced, generic, and applicable technological achievements, necessary renovation of  sites, and information collection.

(5) Special Subsidy Fund For The Service System Of SMEs

The purpose of establishing the special subsidy fund is to support service agencies of SMEs to provide those enterprises with training, credit, entrepreneurial, and management consulting services.

(6) Special Fund For The Development Of SMEs

The fund is to support SMEs for their specialized development, collaboration with large enterprises, technological progress, and credit guarantee system. The fund is used mainly as non-profit funding and subsidized loans. For a single project, the non-profit line is generally 2 million or less, and the term of the subsidized loans is 2 million yuan or less.

(7) Venture Capital Guiding Fund

 the fund is to  fully magnify the leverage effect of financial funds, and to increase the social supply for venture capital. In addition, unlike ordinary investment funds that are mainly invested in growing and mature SMEs, this fund is encouraged to  invest in enterprises in early stage of entrepreneurship and therefore avoids the shortage of insufficient investment .

(8) Other Financial Subsidy Funds

Related government organs have established some funds to subsidize business related to SMEs. For example, we have established a risk compensation fund for loans issued to SMEs to subsidize banks that increase loans to SMEs; and, we have established a guarantee and risk compensation fund for loans issued to SMEs to subsidize the guarantee loss suffered by loan guarantee companies serving SMEs.

3. State-Owned Capital Injection

To address SME’s difficulties in financing, some local governments have established state-owned credit guarantee companies (or credit guarantee companies where the state holds the controlling stock) that  engage in the guarantee and re-guarantee services for loans issued to SMEs. Guangdong province, for example, has established SME Credit Re-guarantee Company Ltd. of Guangdong (whose registered capital is 2 billion yuan, among which 1 billion is financed by the government and 1 billion is financed by Guangdong Yuecai Investment Holdings Ltd.) through Guangdong Yuecai Investment Holdings Ltd to provide re-guarantee services for credit guarantee companies in Guangdong province.

4. Preferential Land Policies

The establishment of a complete public service system to create a favorable external environment for  SMEs represents a major task on SMEs of governments at all levels. In accordance with the incomplete statistics from Ministry of Industry and Information Technology of the PRC, the office land of more than half of all the SME-serving agencies nationwide is allocated by the government free of charge; the government even provides some subsidies and preferential policies for rented land.

In recent years, some  relatively advanced areas with sufficient funding are promoting the construction of business incubators. And one of the important supports for the construction is “land finance” which means building standardized factories, public technological platforms, public testing platforms, and public service platforms. These constructions are used to attract enterprises with qualifications stipulated in industrial policies and great expectations, with the land and financial support from “land management”. During the period of incubation, the enterprises enjoy the benefit and convenience brought by the free or low-rent factories and different technological (service) platforms.

IV. The Construction Of Service System For SMEs

 

1. The Basic Structure Of Service System Has Taken Shape

China has already established a framework of service system in which state-owned SMEs act as main players, social service agencies supported by the government act as support, and social service providers jointly act as players. The state-owned service institutions are the priority when China builds the service system for SMEs. As the government improves the public services and separates the service function from SMEs, these service institutions are established, funded by the government and providing services for SMEs free of charge or at a price lower than market. Now one-third of the provinces (autonomous regions and municipalities directly under the Central Government) have established service institutions at the level of province, prefecture, and county.

2. Expand The Content Of SME Service

The SME service system provides more than 30 services, among which the most frequent ones are entrepreneurship counseling, personnel training, management consulting, financing guarantee, technological service, legal service, and international cooperation. And different services have different development spans and different degrees of maturity. To be specific: firstly, the credit guarantee system has taken shape; secondly, the credit re-guarantee system is being constructed; thirdly, informatization service network is being constructed; fourthly, the “Milky Way” informatization project is underway; fifthly, the entrepreneurship service is flexible and diversified; sixthly, public service platform is being constructed; seventhly, the trade of SMEs are facilitated.

3. Innovations Have Been Made In The Service Pattern Of SMEs

When promoting the construction of service system, all localities have taken the demand of SMEs as their guidance, and made innovative explorations in service pattern. For instance, we have renewed the order purchasing pattern of SME-serving projects, which means that SMEs are to place orders through questionnaires, telephone, or internet reservation and thereby stipulate specific demands about the services. State-owned SME-serving institutes have organized quality social resources to provide targeted special service in service subjects with a great generic demand and carried out tracing and supervision throughout the whole services.

4. Improve The Policy Environment For The Construction Of The Service System For SMEs

In 2003, the Ministry of Finance established special subsidy fund for agencies serving SMEs, and made preferential financial policies to guide and promote the formation of a system serving and supporting SME services. Related departments issued Guiding Opinions on Promoting the Construction of Public Service Platform For Small and Medium-sized Enterprises, Provisional National Measures on the Management of Demonstrative Service Platform for Small and Medium-sized Enterprises, Opinions on Strengthening the Credit Guarantee System for Small and Medium-sized Enterprises, other documents. More than 20 provinces, regions, and cities have made clear stipulations about the construction of service system in local laws and regulations promoting the development of SMEs.

V. Technological Progress, Transformation And Upgrading

 

1. Strengthening Policy Guidance

To implement the National Medium- and Long-term Science and Technology Development Plan, in 2006 the government formulated the Work Plan for Supporting technological innovation of SMEs. The Work Plan was to build a public support platform for technological innovation, to apply information technology to SMEs, to improve service system for technological innovation, to further the cooperation between enterprises, universities and research institutes, and to protect the enterprises’ intellectual property rights. In 2007, twelve ministries jointly issued the Notice on Policy of Supporting SMEs Technological Innovation. In 2010, seven ministries jointly issued the Guiding Opinion on Building the Public Service Platform for SMEs and Interim Management Regulations of National Model Public Service Platform for SMEs.

2. Build Public Service Platform

The priority is to build public service platform in those regions and industries that hold a lot of SMEs, thus to provide more human resources, technologies and equipment for the innovation of SMEs. Between 2007 and 2010, the special funds within central budget and the special funds for developing the system of SMEs added up to 500 million yuan. These funds supported 238 public service platforms, and thus play an important role in improving the SMEs’ innovative capacity and product quality.

3. Apply Information Technologies To SMEs

In 2005, the IT promotion project was launched. In 2008, eight ministries jointly issued Notice on Opinions of Strengthening services and Applying Information Technologies to SMEs. From 2009 to 2010, to overcome the impact of international financial crisis, the government launched pilot projects of R&D, management and e-commerce informatization. Through training and examination, targeted solutions can be worked out, and thus information technologies can be applied to SMEs.

4. Project For Implementing IPR Strategy Of SMEs

In 2009, the State Intellectual Property Office and MIIT jointly issued Circular on implementing IPR strategy of SMEs. The project focuses on SMEs cluster districts. It aims to develop a hundred SMEs cluster districts with advantages in IPR, a hundred IPR training and service institutions for SMEs, ten thousand IPR workers and IPR managers, and ten thousand SMEs with advantages in IPR.

VI. Industrial Policies Favorable For The Development Of SMEs

 

1. Sort Out The Market Access For Private Enterprises

In 2011, the government issued the Opinions on Encouraging and Guiding the Development of Emerging Strategic Industry for Private Enterprises. We should accelerate sorting out the market access of areas relating to strategic emerging industries, and formulate and improve the regulations about project approval, check, and filing. And, apart from the energy consumption and environmental protection standards and related qualifications stipulated in laws and regulations, no other thresholds are to be set against private enterprises and capital in areas like registered capital, investment volume, investment intensity, production capacity, land supply, procurement and insurance purchasing.

2. The Supporting Fund Should Treat Private Enterprises Equally

All related departments and Development and Reform Committees in different localities should standardize regulations on the allocation of public resources and equally treat private enterprises and other investment subjects when allocating the budgetary investment for the projects of strategic emerging industries, special construction fund, and guiding fund for entrepreneurship and investment and coordinating other public resources.

3. Guarantee The Participation Of Private Enterprises Into The Policy-Making In Related Industries

When formulating supporting policies and plans of development for strategic emerging industries, all related departments and Development and Reform Committees in all localities should establish rational working mechanisms, take efficient measures, ensure the participation of private enterprises and related association representatives, and fully take into consideration the opinions and suggestions from private enterprises.

4. Support Private Enterprises To Build Up Their Innovation Capacity

We should take efficient measures to ensure that public technological innovation platform can serve private enterprises, explore the mechanism of talent flow from universities, researching institutes to private enterprises, and encourage private enterprises to introduce talents. In addition, we should encourage and support private enterprises’ construction and improvement of enterprise technological centers, R&D centers and other researching institutes. We should also support qualified private enterprises to apply for national- and provincial-level enterprise technological centers and assume or participate in tasks like the construction of National Engineering Research Center and National Engineering Laboratory.

5. Support The Industrialization And Market Demonstrative Application Of Scientific And Technological Achievements

We should support private enterprises and private capital to participate the plan of related national research and industrialization for them to develop major technologies and important new products. We should also help related enterprises to promote the development of the whole industrial chain in a coordinated fashion, and promote the engineering and industrialization of new technologies and products. And we should encourage private enterprises with proper conditions to initiate or participate in the formulation of related standards. Furthermore, we should support private enterprises to carry out market demonstration for new products with major social benefit.

6. Encourage New Types Of Operation

We should encourage private enterprise and private capital to carry out commercial pattern innovation, professional services and value-added services like energy performance contracting, franchised operation of pollution treatment, electric car charging, and vehicle leasing, and hi-tech services like informational technology service, biological technology service, e-commerce, content industry, R&D design, testing, and the transformation of IPRs and scientific and technological achievements.

7. Guide Private Capital To Establish The Fund Of Entrepreneurship Investment And Industrial Investment

When establishing the guiding fund for the entrepreneurship and investment of emerging industries, Development and Reform Committees of all localities should encourage private capital to take part in entrepreneurship investment. We should also guide private capital with due qualifications and meeting due standards to participate in the establishment of industry (equity) investment fund for strategic emerging industries.

8. Support Private Enterprises To Finance Through New Financial Instruments

We should support and help qualified private enterprises with a clear property right, standard financial and accounting systems, and a sound credit base to issue bonds, go public, and carry out pilots of new mortgage loans and new ways of guarantee. We should also improve the financial service for private enterprises to invest in related projects of strategic emerging industries.

VII. Policies Promoting The International Businesses Of SMEs

 

1. International Market Developing Funds of Small-and Medium-Sized Enterprises

Against the backdrop of Asian financial crisis and China’s entry into the WTO, China officially established the fund in June 2001 and promulgated the Detailed Rules for the Implementation of International Market Developing Funds of Small-and Medium-Sized Enterprises in 2010. We adjusted the enterprise qualification from below 15 million dollars of export volume to below 45 million dollars of import and export volume. The fund has not only partly solved enterprises’ difficulties in financing but also, more importantly, given them the courage and confidence to develop the global market. Many enterprises took the opportunity to become larger and stronger and became the bridge between ministries of foreign trade and other enterprises. These enterprises, therefore, provided a large market for market-based agencies and promoted their improvement and development.

2. International Exchanges Between SMEs

(1) Exhibitions of SMEs

Our government has held seven China International Small and Medium Enterprise Fares since 2004; and we took an active part in APEC Small and Medium Enterprises Technology Conference and Fare; and we support related organs and organizations and implement market-developing activities of SMEs.

(2) Bilateral And Multi-Lateral Cooperation Mechanism And Regular Policy Negotiation Mechanism

Our government has signed bilateral and multi-lateral SME cooperation agreements: firstly, we have signed a cooperation agreement (memo) between 2005 and 2009 in the area of  SMEs with EU, Italy, Span, America, Japan, South Korea, Singapore, Vietnam, and Pakistan; secondly, we have gradually established bilateral and multilateral regular negotiation mechanisms for the exchange between SMEs; thirdly, we have constructed an exchange and dialogue mechanism in SME policies with Japan, South Korea, Germany, France, EU, and ASEAN.

(3)  The Implementation Of Related Cooperation Agreements

We have attended the APEC Ministerial Meeting on SMEs and the Panel Meeting on SMEs; in 2007, we organized and held the Ministerial Conference on SMEs of ASEM and approved the Beijing Declaration; we also held the first and the second Sino-United States SME Entrepreneurship and Risk Investment Forum.

(4) Cooperation And Exchanges In Major Areas

We have carried out new exploration and practices by using Chinese-foreign cooperation projects; we have also promoted the economic and technological cooperation of SMEs in different regions; and, we have built up SMEs’ capacities in market developing, regional cooperation, exhibition, information consulting, independent brands, IPR protection, and the dealing with trade frictions.

After years of effort, the international exchanges of SMEs have constructed an important cooperation platform for SMEs to renew technologies, transform and upgrade themselves, promote informatization, and develop global market on the government level and therefore created a favorable external environment for the internationalization of SMEs.

Conclusion

 

1. Problems In The Policies Promoting The Development Of Rural SMEs

(1) Low Quality Of The Development Of SMEs

With technology and management at low levels, the operation of China’s most SMEs remains extensive. They compete in the market with “high input, energy consumption, and pollution” and “low cost, price, and profit margin”, but are backward in terms of business management, cultural construction, brand operation, and technological innovation. In addition, the problems of “low salary, insufficient social security, intensive work, and bad working environment” for workers are common,

(2) Many Hindrances For SMEs To Enter The Market

The problem of China’s market access regulations and prior approval hindering SMEs to enter the market remains prominent. Currently, due to the market access regulations in fundamental industries, infrastructure, municipal public utilities, social programs, financial services, and defense industry, SMEs, especially those run by private sector, still cannot enter those areas. The State Council has promulgated the opinions on encouraging and guiding non-government investment and allocated different tasks among all ministries. However, our work has made little progress because the reform of monopolized industries and the transformation of government’s roles lag behind. And, some improper policies in government organs also have negative bearings on the founding and development of SMEs. For example, the government prioritizes big enterprises in land supply, thereby neglecting small enterprises and the demand of SMEs has not been fully taken into consideration in city planning.

 

(3) Heavy Burdens Of Enterprises

With turnover tax as the main player, China’s taxation system exerts too much tax burdens on small and micro enterprises with low profit margin. Although big enterprises and SMEs are subject to the same or approximately same tax standards, the big- and some middle-sized ones are more likely to get direct or indirect taxation preference or fiscal subsidy of various kinds from the government.

(4) Problems In Financing Remain Unsolved

SMEs’ financing problem has been relieved to some degree, with the financing conditions of middle-sized enterprises with sufficient mortgage assets, and sound operation improved significantly. But the financing of small and micro enterprises remains difficult. And the main reasons for SMEs’ funding problems are the incomplete financial system, and the insufficiency of small- and middle-sized financial institutes like community banks, rural banks, micro-credit companies, guarantee companies, and lease finance companies. In addition, the channel of direct financing remains narrow and direct financing like risk investment, industrial fund, and corporate bond has a relatively small scale.

(5) Incomplete Service System For SMEs

The construction of the service system for SMEs has made significant achievement in the last decade, but the system still cannot meet the real demand of SMEs. This problem mainly exists in: low network coverage, with most provinces, regions, and cities having not achieved the three-level coverage of “province, city , and ”; improper distribution, with existing institutes mainly located in large and middle-sized cities and few at the grass-root level; great distinctions between regions, with middle and western regions significantly lagging eastern regions; low capacity of institutes, with most local service institutes  being “small, sparsely distributed, and weak”; low service quality, with non-profit services not meeting the demand of enterprises and  commercial services being “unthinkable and unaffordable”.

2. The Prospect Of Policies Promoting Rural SMEs

(1) The Development Of SMEs Will Be Put Into An Even More Important Position

The development of SMEs will be included into the general strategy of national and local economic and social development. And we should make a scientific plan and put their development on the agendas of government at all levels. We should also spot and solve the prominent problems of SME development in a timely fashion, and conclude and promote advanced experience. In so doing, we should further improve the performance assessment system of government, making the development of SMEs and the increase of jobs important indicators.

(2) Continue To Create A Favorable Environment For The Development Of SMEs

A sound environment is fundamental for SMEs to survive and develop. Therefore we should start by changing the role of government to further improve the external environment for the development of SMEs. We should make the following policies: 1.we should sort out market access and pre-approval; 2.we should establish an effective right protection mechanism of fees on enterprises.3.we should strengthen the enforcement of anti-monopoly laws; 4.we should distribute public resources in a rational fashion.

(3) Increase Our Fiscal And Taxation Support With The Focus On Small And Micro Enterprises

To increase the fiscal and taxation support for SMEs can not only bring significant social profit, lower unemployment rate, lessen the burden on social security, but also increase long-term tax fund and fiscal income. The main policies we should make are as follows: a progressive tax preference system favorable for the development of small and micro enterprises; more investment from the government into SMEs; relief fund for loans issued to small enterprises.

(4) Address The Financing Problem Of SMEs

a. We should expand the market access and lower the threshold for the founding of community banks and rural banks to encourage more private capital to flow into the market; b. We should complete differentiated regulations, allow small banks increase their tolerance towards loan-deposit ratio, and improve the environment for operation. c. We should increase our fiscal and taxation support. In so doing, we should, on the basis of reducing or exempting the business tax of small financial institutes, reduce or exempt their income tax, complete guarantee subsidy system and develop policy guarantee institutes.

(5) Build A Service System For SMEs

We should further clarify the plan for improving the system and give full play to the government guidance and market mechanism. And we should take social, professional, and market-based reform as our orientation, cluster development and the participation in supporting production of SMEs as our core task, and fostering main players and improving mechanisms as our focus. In so doing, we should innovate our way of service, and form a mechanism where government supports the agencies, and the latter serves enterprises” to provide high quality service to SMEs. We should continue to increase government’s investment into the service system for SMEs and include the construction of the system into the budget of all levels.

(6) Accelerate The Technological Progress And Restructuring Of SMEs

We should promote the R&D and application of generic technologies and accelerate the technological progress and restructuring of SMEs. The policies to be made are as follows: we should promote the application of technologies through the service system for SMEs and provide technological and management training, technological consulting service for SMEs; we should give full play to inter-enterprise organizations and industrial associations and encourage joint innovation of enterprises; we should support the growth of technological service institutes through tax cut and exemption and subsidy and provide SMEs with services like testing, checking, certification, technology trade and patent agency; we should also encourage financial leasing service and help SMEs to accelerate technological revolution; we should allow SMEs to practice accelerated depreciation of fixed assets and pre-tax deduction and thereby build up their capacities to update equipment.

(7)Construct Harmonious Labor Relations

To help SMEs to construct harmonious and stable labor relations represents an urgent demand for SMEs to address the major change in labor supply-demand relationship and keep a stable growth. The major policies to be made are as follows: a. We should start with safeguarding migrant workers’ social rights stabilize the expectation of labor relationship and address SMEs’ problem of labor scarcity and worker retaining; b. We should guide SMEs to legally address employment issues like salary distribution, working period, working place safety and sanitation through collective consultation; c. We should establish a job information platform in a network covering the whole country for SMEs; d. We should increase our investment into skill training and vocational education, make the training more targeted, and raise the quality of SME workers; e. We should issue social security subsidies and thereby lessen the burden of social security fee on SMEs.

(8) Encourage SMEs To Carry Out International Operation

With domestic and foreign economic environment changing and enterprise capability rising, SMEs will focus more on other international businesses except from international trade. However, the current policy system does not have measures to support SMEs to carry out overseas direct investment, service outsourcing and international cooperation. We recommend to add some supportive measures: 1. We should elevate the insurance coverage level for various SME’s international businesses and increase our policy support for export funding and subsidized loans of SMEs; 2. We should improve our service in information, talents and technology of international businesses for SMEs and give full play to all chambers of commerce and industrial associations. In so doing, we should provide consulting service for SMEs to go global and elevate the level of international businesses of SMEs.

Annex 1

 

Law of The People’s Republic of China on Township Enterprises

 

(Adopted at the 22nd Meeting of the Standing Committee of the Eighth National People's Congress on October 29, 1996, promulgated by Order No. 76 Of the President of the People's Republic of China on October 29, 1996)

Article 1 This Law is formulated for the purpose of supporting and guiding township enterprises to develop steadily and healthily, protecting the legal rights and interests of township enterprises, standardizing their behaviors, promoting the rural economy and the construction of socialist modernization.

Article 2 Township enterprises as referred to in the this Law mean various enterprises invested in mainly by rural collective economic organizations or peasants and established in townships or towns (including villages under their jurisdiction) , which bear the duty of supporting agriculture.

“Invested in mainly by rural collective economic organizations or peasants” mentioned in the preceding paragraph means that investment made by rural collective economic organizations or peasants exceeds 50% of the total, or the investment can play a holding role or actually has a dominant effect. Any township enterprise that meets the requirements of corporation can be possessed of the qualification.

　　Article 3 Township enterprises constitute an important pillar supporting rural economy and are an important component of the national economy.

The main task for township enterprises shall be to develop production of goods in accordance with market demand, provide social services and substantial social supply, absorb rural surplus labor, increase peasants' income, support agriculture, give rise to agriculture and rural modernization and promote the development of the national economy and public undertakings.

Article 4 The development of township enterprises shall conform with the principle that rural collective economy plays a leading role while diverse economic components are developing in common.

Article 5 The state shall actively support township enterprises, make rational plans for their development, direct them in sorts and control them in accordance with laws.

Article 6 The state shall encourage and particularly support township enterprises in economically less developed regions or in regions where national minorities live, encourage township enterprises and other economic organizations in economically developed regions to support the development of township enterprises in economically less developed regions and in regions where national minorities live.

Article 7 The department of township enterprise administration under the State Council and other departments concerned under the State Council shall, in accordance with their respective responsibility, be held responsible for planning, coordination, supervision and supplying of service for township enterprises of the whole countries. The department of township enterprise administration and other departments concerned under local governments at the county level and above shall, in accordance with their respective responsibility, be responsible for planning, coordination, supervision and supplying of service for the development of township enterprises within their respective regions.

　　Article 8 Township enterprises set up and registered in accordance with the law shall go through the procedure of registration for record with the local department of township enterprise administration.

Township enterprises having changes in its name or domicile or because of division, merger, suspension or closing of business, etc. Shall, after going through the procedure of change registration, establishment registration or cancellation, report the matter for record to the department of township enterprise administration.

Article 9 Branches set up in cities by township enterprises, or enterprises set up in cities by rural economic organizations with the task of supporting agriculture, shall be treated as township enterprises.

　　Article 10 For township enterprises established with investment made by rural collective economic organizations, the property shall belong to the whole body of peasants who have set up the enterprises.

　　For township enterprises established with joint investment made by rural collective economic organizations and other enterprises, organizations or individuals, the property shall belong to every investor in a proportion of the investment made by each of them.

For township enterprises established with investment made by peasants-in partner ship or by individuals, the property shall belong to the investors.

　　Article 11 Township enterprises shall practice independent accounting, autonomous business operation and self-responsibility for profits and losses.

Township enterprises possessing the status of enterprise legal person shall enjoy the right to the property of the legal person.

　　Article 12 The state shall protect legal rights and interests of township enterprises with their legal property subject to no encroachment.

No organization or individual may violate laws or administrative regulations by interfering in the production or management of township enterprises, changing the person in charge or illegally encroaching upon or using without compensation their property.

Article 13 Township enterprises shall be established in a form allowed for by laws or administrative regulations; the investors shall, in accordance with relevant laws and administrative regulations, decide on important affairs of the enterprise, set up managerial and administrative system and enjoy rights and bear liabilities.

Article 14 Township enterprises shall practice democratic management according to law. When deciding on the managerial and administrative system or the person in charge of the enterprise, making important policies for running business or setting standards for wages, welfare, labor protection or labor security, etc., the investors shall heed the opinions of the trade union and employees of the enterprise, and make public regularly the implementation thereof to the employees and subject them to supervision of the employees.

Article 15 The state shall encourage the establishment of social security system for employees in township enterprises in regions where conditions permit.

Article 16 In the case of suspension or termination of business, township enterprises already establishing the social security system shall make arrangement for the employees in accordance with relevant stipulations; those with legal labor contracts shall handle the case by following the contracts. The employees who came from rural collective economic organizations shall have the right to return to their original posts and engage in agricultural production, or they can seek jobs by themselves.

Article 17 Township enterprises shall take a certain proportion of after-tax profit as fund to be used for supporting agriculture and rural social expenses. The actual proportion and measures for managing and using the fund shall be prescribed by the governments of province, autonomous region or municipality directly under the central government.

Except as otherwise stipulated by laws or administrative regulations, no government department, organization or individual may charge any fees or assess any expenses in any form from township enterprises.

Article 18 The state shall, in accordance with the situation of the development of township enterprises, reduce a portion of tax levied from township enterprises within a certain period. The categories for which, the period within which and the proportion by which, the taxation shall be reduced, shall be prescribed by the State Council.

　　Article 19 Medium- and small-sized township enterprises that meet one of the following requirements may, in accordance with particular situation, enjoy preferential treatment of taxation within a certain period：

　　(1) collective-owned township enterprises during their early stage, meeting real difficulty in business;

　　(2) those established in minority nationality regions, remote regions or poverty-stricken regions;

　　(3) those engaging in businesses of processing, storing, conveying or distributing grain, feed or meat; or

　　(4) those to which the state industrial policies promise to render special support.

The concrete measures for the preferential treatment of taxation mentioned in the preceding paragraph shall be prescribed by the State Council.

　　Article 20 The state shall, by means of credits, encourage and support the development of township enterprises. State financial institutions may offer preferred loans to township enterprises which meet any of the requirements stipulated in the preceding article and satisfy the conditions for loans, and among said township enterprises, those with financial handicap but promising well may enjoy loans on favorable terms.

The concrete measures for the preferred loans and loans on favorable terms mentioned in the preceding paragraph shall be prescribed by the State Council.

　　Article 21 Governments at and above county level may, in accordance with relevant regulations of the state, set up development funds for township enterprises. The funds shall comprise of the following resources：

　　(1) revolving funds the state appropriates for the development of township enterprises;

　　(2) a portion of the annual increment of taxes turned over to the localities by township enterprises;

　　(3) earnings from use of the funds; and

(4) funds voluntarily provided by rural collective organizations, township enterprises and individual peasants, etc.

　　Article 22 The development funds for township enterprises shall be used specially for supporting the development of township enterprises, with the scope of using as follows：

　　(1) supporting the development of township enterprises in minority nationality regions, remote regions and poverty-stricken regions;

　　(2) supporting the economic and technological cooperation and the conduct of joint venture projects by and between township enterprises in developed regions and those in economically less developed regions or minority nationality regions;

　　(3) supporting township enterprises to adjust their setup of production and product mix in accordance with the state industrial policies;

　　(4) supporting township enterprises to make technological innovation, develop famous products, special local products, products of good quality and new products and produce traditional handicraft products;

　　(5) developing township enterprises that produce agricultural means of production or that directly serve agricultural production;

　　(6) developing township enterprises that engage in businesses of processing, storing, conveying or distributing grain, feed or meat;

　　(7) supporting the vocational education and technical training for employees in township enterprises; and

　　(8)supporting other items in need of such support.

Measures for the establishment, use and management of development funds for township enterprises shall be prescribed by the State Council.

　　Article 23 The state shall take active measures to train talents for township enterprises, encourage technicians, managers and graduates from colleges and secondary schools to work in them and serve them in various ways.

Township enterprises shall train technicians, managers and workers through various channels and in different ways and adopt preferential policies to attract talents.

Article 24 The state shall take preferential measures to encourage township enterprises to develop economic and technological cooperation in various forms with research institutions, colleges and universities, state-owned enterprises and other enterprises and organizations.

　　Article 25 The state shall encourage township enterprises to develop foreign economic and technological cooperation and exchanges, set up production bases for export-oriented products, and earn foreign exchange through export.

Township enterprises that meet certain requirements can be granted with franchise for running foreign trade, after being approved in accordance with the law.

Article 26 Local governments at all levels shall, in line with the principle of unified planning and rational distribution, combine the development of township enterprises with the construction of small-sized towns, guide and promote township enterprises to develop in an appropriately concentrated way and strengthen step by step the construction of infrastructure and service facilities, to speed up the construction of small-sized towns.

Article 27 Township enterprises shall, in accordance with the market demand and the state industrial policies, rationally readjust their setup of production and product mix, strengthen technological innovation, continuously adopt advanced techniques, production technologies and equipment, and raise the managerial and administrative ability of the enterprises.

　　Article 28 The construction of township enterprises shall conform to the overall plan for land utilization, with land used under strict control and in a rational and economical way. Where there is wasteland or inferior land available for use, no farmland or fertile land shall be used.

　　When township enterprises use land which is under the possession of rural collective bodies, corresponding procedures for approval and registration shall be followed in accordance with relevant laws and regulations.

The land used by township enterprises shall be retrieved by the original owner and put into new use when the land has been set idle for more than two years or for more than one year as a result of business being stopped.

　　Article 29 Township enterprises shall explore and use natural resources in a lawful and rational manner.

Township enterprises wishing to engage in mineral resources exploitation must subject to approval by departments concerned according to stipulations of relevant laws, and obtain the mining license and production license. They must conduct regular operation, try to prevent waste of resources and any damage to resources shall be strictly prohibited.

Article 30 Township enterprises shall, in accordance with relevant stipulations of the state, institute financial and accounting rules, strengthen financial control, set up account books in accordance with the law and keep a true record of financial activities.

Article 31 Township enterprises must, in accordance with statistical rules of the state, submit true statistical data. Township enterprises shall have the right to reject any statistical investigation reports and forms that are made and handed down in violation of provisions of the state.

　　Article 32 Township enterprises shall, in accordance with the law, make tax registration, submit timely tax returns and pay tax to the due amount.

Governments at all levels shall strengthen the administration of taxation with regard to township enterprises. Relevant departments may not give tax reductions or exemptions to township enterprises by overstepping their authority.

Article 33 Township enterprises shall strengthen the quality control of their products, make substantial efforts to improve quality of products. Goods they produce or sell must be up to the standards set by the state and the trade for the security of human health and personal and property safety. No product which has lose effectiveness or has deteriorated or which the state has declared to be obsolete may be sold or produced, and it shall be prohibited to mix impurities or imitations into products that are produced or sold, to pass a fake product as a genuine one or pass a defective product as a high-quality one.

Article 34 Township enterprises shall use trademarks in accordance with the law and attach importance to their commercial credit. They shall make marks for their products as required by state provisions. It is prohibited to forge the origin of a product or to forge or use the name or address of a factory of another producer or forge or use authentication marks or marks for famous quality products of others.

　　Article 35 Township enterprises must comply with laws and regulations concerning environmental protection and, in accordance with the state's industrial policies and under the unified guidance of the local people's government, take measures to develop pollutant-free or less polluting and less resources-consuming enterprises, substantially and practically prevent and control environmental pollution and eco-hazards, protect and improve environment.

Local people's governments shall make and implement programs for township enterprises to do environmental protection, to raise the capability of township enterprises to prevent and control environmental pollution.

　　Article 36 In constructing some projects that may affect environment, township enterprises shall strictly follow the procedure for the assessments of environmental impact.

　　Installations for the prevention and control of pollution at a construction project must be designed, built and put into operation simultaneously with the principal part of the project. No permission shall be given for a construction project to be commissioned or used, until its installations for the prevention and control of pollution are examined and considered up to the standard by the competent department of environmental protection administration.

Township enterprises may not adopt or use production technologies or facilities which may seriously pollute the environment and are expressly prohibited by the state, or produce or sell products which may seriously pollute the environment and are expressly prohibited by the state. Those discharging pollutants in excess of the state or local discharge standards and causing serious environmental pollution shall eliminate or control the pollution within a prescribed period of time or, in the case of failure to do so, they shall be ordered to close down, stop production or change the line of production.

Article 37 Township enterprises must comply with laws and regulations concerning labor protection and labor safety, conscientiously stick to the principle of “putting safety first, putting prevention first”, take effective technical and managerial measures for labor hygiene to prevent accidents and casualties and vocational diseases. In the case of hidden dangers endangering the employees' safety, a time limit shall be set or the production shall be suspended for removing the dangers. It is strictly prohibited for the managerial personnel to break rules and regulation and force employees to perform risky operations. When accident and casualties occur, they shall take active actions to perform rescue and make proper treatment and report the case to the departments concerned.

　　Article 38 Any of the following acts that breach the stipulations of this Law shall be corrected under the order of the department of township enterprise administration under the governments at or below the county level：

　　(1) illegally make change to the ownership of any township enterprise;

　　(2) illegally seize or use without compensation property of any township enterprise;

　　(3) illegally replace the person-in-charge of any township enterprise; or

　　(4) encroach upon any township enterprise's right to autonomous running of business.

If any act referred to in the preceding paragraph causes economic losses the enterprise, a compensation shall be paid to the enterprise in accordance with the law.

Article 39 Township enterprises shall have the right to lodge complaints with or inform the department of audit, supervision, finance or price control or the department of township enterprise administration against any unit or individual that illegally charge fees, assessments from or impose fines on the township enterprise. The department concerned and the higher authorities shall order the persons responsible to stop the illegal acts and make restitution within a time limit. The department concerned may, in accordance with the seriousness of the case, impose certain penalty on those directly responsible for the illegal acts.

Article 40 Any township enterprise violating laws or regulations concerning product quality, environmental protection, land administration, the exploitation of natural resources, labor safety or taxation, etc. shall, in accordance with the seriousness of the case, cease partly or completely to enjoy the preferential treatment stipulated by this Law until they make corrections, in addition to being dealt with in accordance with relevant laws and regulations.

Article 41 If any township enterprise refuses to bear the duty to support agriculture in violation of this Law, the department of township enterprise administration shall order it to make corrections, and may order that the enterprise cease partly or completely to enjoy the preferential treatments stipulated by this Law before the corrections have been made.

　　Article 42 Any party who refuses to accept penalties or decisions made under Articles 38 to 41 of this Law may apply for administrative reconsideration or take legal proceedings.

Article 43 This Law shall enter into force on January 1, 1997.

Annex 2

 

Law of the People's Republic of China

on Promotion of Small and Medium-sized Enterprises

 

　　(Adopted at the 28th Meeting of the Standing Committee of the Ninth National People's Congress on June 29, 2002)

　　

Chapter I  General Provisions

　　Article 1 This Law is enacted for the purpose of improving the business environment for small and medium-sized enterprises, promoting their sound development, creating more job opportunities in both urban and rural areas, and giving play to the important role of such enterprises in national economic and social development.

　　Article 2 For purposes of this Law, small and medium-sized enterprises refer to the different forms of enterprises under different ownerships that are established within the territory of the People's Republic of China according to law, that help to meet the social needs and create more job opportunities, that comply with the industrial policies of the State and that are small and medium-sized in production and business operation.

　　The criteria for determining small and medium-sized enterprises shall be laid down by the department under the State Council in charge of work in respect of enterprises, on the basis of the number of employees, volume of sale, total assets, etc. of an enterprise and in light of the characteristics of different trades and shall be submitted to the State Council for approval.

　　Article 3 With regard to small and medium-sized enterprises, the State applies the principles of active support, strong guidance, perfect service, lawful standardization an guaranteed rights and interests, in order to create a favorable environment for their establishment and development.

　　Article 4 The State Council shall be responsible for formulating policies regarding small and medium-sized enterprises and make overall planning for their development.

　　The department under the State Council in charge of work in respect of enterprises shall arrange for the implementation of the State policies and plans concerning the small and medium-sized enterprises, making all-round coordination and providing guidance and services in the work regarding such enterprises throughout the country.

　　The related departments under the State Council shall, according to the policies and overall planning of the State for small and medium-sized enterprises and within the scope of their respective functions and responsibilities, provide guidance and services to such enterprises.

　　Local people's governments at or above the county level, the administrative departments under them in charge of work in respect of enterprises and other departments concerned shall, within the scope of their respective functions and responsibilities, provide guidance and services to small and medium-sized enterprises located within their respective administrative areas.

　　Article 5 The department under the State Council in charge of work in respect of enterprises shall, according to the industrial policies of the State and in light of the characteristics of the small and medium-sized enterprises and the conditions of their development, determine the key ones for support by formulating a catalogue of small and medium-sized enterprises to be provided with guidance for their industrial development or by other means, in order to encourage the development of all such enterprises.

　　Article 6 The State protects the lawful investments made by small and medium-sized enterprises and their investors, as well as the legitimate profits earned from the investments. No unit or individual may infringe upon the property and lawful rights and interests of such enterprises.

　　No unit may, in violation of laws and regulations, charge fees to or impose fines on small and medium-sized enterprises, nor collect money or things of value from them. The enterprises shall have the right to refuse to make the payment and the right to report and accuse violations of the provisions mentioned above.

　　Article 7 Administrative departments shall safeguard the lawful rights and interests of small and medium-sized enterprises, protect their right to participate in fair competition and transaction according to law, and they may not discriminate against the enterprises or add unequal conditions to their transactions.

　　Article 8 small and medium-sized enterprises shall observe State laws and regulations governing occupational safety, occupational health, social security, resources, environment protection, product quality, public finance, taxation, finance, etc., and manage business according to law, and they may not infringe upon the lawful rights and interests of their employees or impair public interests.

　　Article 9 small and medium-sized enterprises shall observe professional ethics, abide by the principle of good faith, work hard to raise their business level and increase the ability to develop themselves.

　

Chapter II  Funding

　　Article 10 In the budget of the Central Government there shall be a heading for small and medium-sized enterprises, under which to arrange special funds for supporting the development of such enterprises.

　　Local people's governments shall, in light of actual conditions, provide financial support to small and medium-sized enterprises.

　　Article 11 The special funds provided by the State for supporting the development of small and medium-sized enterprises shall be used to promote the establishment of a service system for such enterprises, to carry out work in their support, to supplement their funds for development and to support their development in other areas.

 

　　Article 12 The State establishes development funds for small and medium-sized enterprises, which are composed of the following:

　　(1) the special funds arranged in the budget of the Central Government for supporting the said enterprises;

　　(2) profits yielded by the funds;

　　(3) donation;

　　(4) others.

　　The State encourages donations to the development funds for small and medium-sized enterprises through taxation policies.

 

　　Article 13 The State development funds for small and medium-sized enterprises shall be used to support the following fields of endeavor:

　　(1) instructions on and services for establishment of enterprises;

　　(2) establishment of a credit guaranty system for the enterprises;

　　(3) technological innovation;

　　(4) encouragement for their specialization and their cooperation with large enterprises;

　　(5) personnel training and information consultancy, etc. provided by the service institutions for the enterprises;

　　(6) creation of international market;

　　(7) cleaner production;

　　(8) others.

　　The administrative measures for establishment and use of the development funds for small and medium-sized enterprises shall be formulated separately by the State Council.

　　Article 14 The People's Bank of China shall give better guidance in credit policies and help improve the financing environment for small and medium-sized enterprises.

　　The People's Bank of China shall give more vigorous support to small and medium-sized financial institutions and encourage commercial banks to readjust their credit structure and provide greater credit support to small and medium-sized enterprises.

　　Article 15 All financial institutions shall provide financial support to small and medium-sized enterprises, make efforts to improve financial service, change their style of service, enhance their awareness of the importance of service and improve service quality.

　　All commercial banks and credit cooperatives shall improve credit management, expand the areas of services and develop financial products that are suited to the development of small and medium-sized enterprises, readjust their credit structure, and provide the enterprises with such services as loans, balancing of accounts, financial consultancy and investment management.

　　State policy-oriented financial institutions shall, within their business scope, provide financial services to small and medium-sized enterprises.

　　Article 16 The State takes measures to broaden the channels of direct financing for small and medium-sized enterprises and gives them active guidance in their efforts to create conditions for direct financing through various ways as permitted by laws and administrative regulations.

　　Article 17 The State, through taxation policies, encourages various kinds of risk investment institutions established according to law to increase investment in small and medium-sized enterprises.

　　Article 18 The State promotes the development of the credit system for small and medium-sized enterprises by establishing a collection and assessment system of credit information, in order to socialize the inquiry about and the exchange and sharing of credit information concerning such enterprises.

　　Article 19 People's governments at or above the county level and related departments shall promote and arrange for the establishment of a credit guaranty system for small and medium-sized enterprises, encourage credit guaranty for them and create conditions for their financing.

　　The administrative measures for credit guaranty for small and medium-sized enterprises shall be formulated separately by the State Council.

　　Article 20 The State encourages all kinds of guaranty institutions to provide credit guaranty to small and medium-sized enterprises.

　　Article 21 The State encourages small and medium-sized enterprises to enter into different forms of mutual-help financing guaranty according to law.

Chapter III  Support for Establishment of Enterprises

　　Article 22 The government departments concerned shall actively create conditions to provide necessary and suitable information and consultancy and, when working out plans for urban and rural construction, make rational arrangements for the necessary places and facilities to meet the needs for the development of small and medium-sized enterprises and support the establishment of such enterprises.

　　Where unemployed or disabled establish small and medium-sized enterprises, the local government shall actively support them, provide conveniences and better guidance.

　　The government departments concerned shall take measures to broaden channels for the small and medium-sized enterprises to employ graduates of colleges and specialized secondary schools.

　　Article 23 The State supports and encourages, through relevant taxation policies, the establishment and development of small and medium-sized enterprises.

　　Article 24 With regard to the small and medium-sized enterprises that are established by unemployed persons or that employ laid-off workers in the year of their establishment, the number of whom reaches the percentage fixed by the State, the ones that use new and high technologies and conform to State policies for supporting and encouraging the development of such enterprises the ones that are established in minority ethnic areas and poverty-stricken areas, and the ones that provide jobs to disabled persons, the number of whom reaches the percentage fixed by the State, the State reduces the rate of tax or exempts them from income tax during a certain period of time, and adopts preferential taxation policies.

　　Article 25 Local people's governments shall, in light of actual conditions, provide persons who establish enterprises with policy consultancy and information services concerning industrial and commercial administration, public finance, taxation, financing, labor, employment, social security, etc.

　　Article 26 Government departments in charge of enterprise registration shall, in compliance with the statutory requirements and procedures, handle registration for the small and medium-sized enterprises established, increase their work efficiency and provide conveniences to the registrants. They may not impose preconditions for registration of enterprises beyond the provisions of laws and administrative regulations; and they may not collect fees beyond the ones or rates specified by laws and administrative regulations.

　　Article 27 The State encourages small and medium-sized enterprises, in accordance with the State policies for the use of foreign funds, to introduce foreign investment and advanced technology and management expertise and to establish Chinese-foreign equity joint ventures and contractual joint ventures.

　　Article 28 The State encourages individuals and legal persons, in accordance with law, to take part in the establishment of small and medium-sized enterprises by investing their industrial property right, nonpatented technology, etc.

Chapter IV  Technological Innovation

　　Article 29 The State formulates policies to encourage small and medium-sized enterprises to develop new products and to adopt advanced technology, manufacturing technique and equipment to meet market needs and to improve product quality and make technological progress.

　　When launching projects for technological innovation and projects for technological updating in support of the products of large enterprises, small and medium-sized enterprises may enjoy the policy of discount interest on loans.

　　Article 30 The government departments concerned shall give policy-related support to small and medium-sized enterprises in terms of planning, land use and finance, promote the establishment of different kinds of technical service institutions and establish centers for advancing the productive forces and bases for creating science- and technology-oriented enterprises, in order to provide small and medium-sized enterprises with services relating to technological information, consultancy and transferring and services for the development of products and technologies, and to help promote the transformation of scientific and technological achievements and upgrade the technology and product of the enterprises.

　　Article 31 The State encourages technological cooperation, development and exchange between small and medium-sized enterprises on the one hand and research institutions and institutions of higher education on the other, in order to promote the industrialization of scientific and technological achievements and actively develop small and medium-sized enterprises that make use of scientific and technological achievements.

Chapter V  Market Development

　　Article 32 The State encourages and supports large enterprises to establish, on the basis of resources allocation by the market, stable relations of cooperation with small and medium-sized enterprise in respect of the supply of raw and semi-processed materials, production, marketing, and technological development and updating, in order to help promote the development of small and medium-sized enterprises.

　　Article 33 The State gives guidance to, promotes and regulates the restructuring of the assets of small and medium-sized enterprises through merge, purchase, etc., in order to optimize the allocation of resources.

　　Article 34 When purchasing goods or service, the government shall give first priority to small and medium-sized enterprises.

　　Article 35 The government departments and institutions concerned shall provide guidance and assistance to small and medium-sized enterprises to stimulate the export of their products and promote their economic and technological cooperation and exchange with other countries.

　　The policy-oriented financial institutions of the State concerned shall, by means of providing loans for import and export, export credit insurance, etc., support small and medium-sized enterprises in their efforts to develop market abroad.

　　Article 36 The State formulates policies to encourage qualified small and medium-sized enterprises to invest abroad, participate in international trade and develop international market.

　　Article 37 The State encourages the service institutions for small and medium-sized enterprises to hold exhibitions and fairs for their products and to conduct information consultancy activities.

Chapter VI  Public Services

　　Article 38 The State encourages all sectors of the society to establish and improve the service system for small and medium-sized enterprises and to provide them with services.

　　Article 39 The government shall, in light of actual needs, support the institutions established in the service of small and medium-sized enterprises and see that they provide top-notch services to the enterprises.

　　The service institutions for small and medium-sized enterprises shall make full use of computer networks and other advanced technologies to gradually establish and improve the information service system opening to the entire community.

　　The service institutions for small and medium-sized enterprises shall contact the various kinds of public intermediary agencies and encourage them to serve such enterprises.

　　Article 40 The State encourages the various kinds of public intermediary agencies to provide the small and medium-sized enterprises with such services as instructions on establishment of enterprises, business consulting, information consultancy, marketing, investment, financing, credit guaranty, property right transaction, technological support, bringing in of talents, personnel training, cooperation with other countries, exhibitions, fairs and legal advice.

　　Article 41 The State encourages related institutions and institutions of higher education to train managerial, technical and other personnel for small and medium-sized enterprises, in order to help raise the enterprises' level of marketing, management and technology.

　　Article 42 The self-regulating trade organizations shall actively serve the small and medium-sized enterprises.

　　Article 43 The self-regulating organizations in charge of the self-restricting and self serving small and medium-sized enterprises shall safeguard the legitimate rights and interests of the enterprises, express their suggestions and requirements, and serve them in market development and increase of their management ability.

Chapter VII  Supplementary Provisions

　　Article 44 The provinces, autonomous regions and municipalities directly under the Central Government may, in light of the conditions of the local small and medium-sized enterprises, formulate measures for implementation of this Law.

　　Article 45 This Law shall go into effect as of January 1, 2003.