The Importance of Innovation for Chinese SMEs

This article focuses on the adoption model of Chinese SMEs, which account for approximately 97% of the country’s businesses and are the backbone of its economic expansion. These enterprises are crucial to creating jobs, attracting new customers, and maintaining competitiveness with larger businesses. We’ll explore the significance of SMEs in the Chinese economy and the government’s initiatives to support their success.

All About Contribution to Economy by SMEs in China

A small and medium-sized enterprise (SME) in China is defined differently from how the term is used in other countries. While most countries use staff count as a criterion for determining whether or not a company is considered an SME, China employs the SME Promotion Law instead. For this law, a company’s status is determined by its line of business, assets, annual revenues, and the number of employees.

The contribution to economy by SMEs in China is significant, and for a retail establishment to be classified as small, it must have fewer than 100 employees and an annual revenue of less than RMB 10 million. Meanwhile, a retail business is considered medium-sized if it generates over RMB 10 million in annual revenue and has over 100 employees.

Role of SMEs in China

Vice-Premier Liu He has stated that small and medium-sized enterprises (SMEs) are China’s lifeblood and the key generators of employment. Since 2019, small enterprises have been the primary source of non-government employment for 80% of the working population.

Much of China’s economy comprises tiny businesses with less than three hundred people. Over three-quarters of all new jobs and sixty-eight percent of all exports are generated by these businesses. In 2018, there was an all-time high in the establishment of new businesses, with an estimated 18,000 new firms appearing each and every day. Government efforts to enhance the commercial registration process are largely responsible for the dramatic increase in SMEs.

Small and medium-sized enterprises (SMEs) constitute the backbone of the global technology industry. The number of registered technology SMEs has risen by the hundreds of thousands over the past few years, fueling the industry’s rapid expansion.

Nonetheless, there are international corporations that compete with local Enterprises. As a result, the Chinese small and medium-sized enterprise (SME) market is more appealing to foreign companies. Foreign investors are always looking for new routes into the Chinese market to launch a small or medium-sized enterprises. Concurrently, as part of the country’s “One Belt One Road” global economic plan, large and local SMEs are reaching out to foreign companies for interactions and collaborations to break into foreign markets.

An Overview of the Adoption Model of Chinese SMEs

Technology adoption impact business, particularly for small and medium-sized enterprises (SMEs) in China, which are crucial to the country’s economy. The government has implemented tax cuts to support these firms and provided financial aid, including loan repayment extensions and other forms of credit assistance to eligible SMEs.

In 2020, when the COVID-19 pandemic was at its height, the government loosened the requirements for small and medium-sized enterprises (SMEs) to obtain loans even if their owners could not give guarantees. China additionally aided SMEs by not requiring them to pay for their employees’ social and endowment insurance.

The sales tax exemption for the month has increased from RMB 100,000 to 150,000. This substantially lightened the financial load on small taxpayers, freeing up capital for investment and growth. The following subsidies are examples of how the government helps small and medium-sized enterprises (SMEs):

Income taxation regulations

For small and medium-sized enterprises (SMEs) with yearly profits below RMB 30,000, the tax rate was reduced from 33% to 18%. There is a new, lower tax rate of 27% for persons with incomes over RMB 30,000 but under RMB 100,000.

In-demand Businesses

For the first two years of operation, enterprise income tax is waived for small and medium-sized businesses (SMEs) whose operations are based on cutting-edge technologies. Telecommunications, transportation, and information technology service providers are eligible for a tax holiday of one year.

Advantages in Employment

The Chinese government has pushed state-owned banks to establish dedicated divisions to work with small and medium-sized enterprises (SMEs). Also, to better serve rural small companies, banks were mandated to expand the number of their town-based branch locations. There may be a three-year tax break for approved employment organizations that place unemployed people in jobs.

Several small and medium-sized businesses have been hesitant to seek loans in recent years due to the high costs associated with doing so. The China Banking Regulatory Commission issued a directive to reduce unjustified costs, standardize service prices, and restrict financial advice fees in order to persuade SMEs to reapply for loans.

To further facilitate new competitors’ entry, additional SME funding channels were opened to the public. In recent years, shadow banking, leasing, and factoring have all gained popularity as alternative private funding methods. On the other side, the continued strict regulation of online crowdfunding and lending has led to a dramatic decline in business.

The Small and Medium Enterprise Growth Plan proposed by the MIIT (Ministry of Industry and Information Technology) over the next five years aims to help SMEs expand by creating a more level playing field, increasing their capacity for innovation, elevating their level of professionalism, and expanding their access to capital. A million SMEs are planned for the country, with 10% focusing on cutting-edge fields, including biomedicine, green energy, innovative materials, and high-end equipment.

Also Read: A Guide to MSME Finance and Receivable Financing

Major Trends & Big Data Technology Adoption in China

We’ve seen five emerging tendencies among China’s small and medium-sized enterprises.

Industrial Sector

China’s concerted effort is to enhance its industrial ecosystem and find ways to streamline its supply chains. Automation in production, as well as developments in transportation and agricultural machinery, are in high demand. This market is promising for small and medium-sized enterprises (SMEs) involved in manufacturing, robotics, and supply chain management.

Domestic Consumption

Demand for European goods, particularly high-end things, has increased as the country’s middle class has grown. One viable e-commerce strategy is serving as a sales channel for enterprises based in Europe or elsewhere.

Outbound Investment

Chinese investors actively seek opportunities to expand their holdings into other markets. This allows small and medium-sized enterprises to compete with larger ones by providing previously unavailable services like specialized consultancy and financial management.

Food & Beverage Sector

Despite a dip since 2020 due to the pandemic, bars, cafes, and pubs are predicted to grow over the following few years. Specific industries are “in demand” because of the growing number of middle-class residents and related changes in consumer preferences.

Energy Efficiency

The big data technology adoption in China is transforming the green energy industry, especially for small and medium-sized enterprises (SMEs). These firms have benefited from the government’s recent legislation mandating lower energy usage and emissions. Furthermore, as long as the government continues to offer significant subsidies to pioneers working on CEM (contract energy management) projects with SMEs in this sector, growth, and improvement are expected to continue.

The Bottomline

As the backbone of the economy, SMEs play a crucial role in generating employment opportunities, attracting new customers, and maintaining competitiveness with larger businesses. The Chinese government has implemented several initiatives to support the success of SMEs, including tax cuts, financial aid, and credit assistance. These measures have helped SMEs weather the challenges posed by the COVID-19 pandemic and have facilitated their entry into new markets. With continued government support and the adoption of innovative technologies, the future looks bright for the Chinese SME sector.

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