Old and defective standards

"One of the reasons for revising the old standards is that they were unable to satisfy the demand of economic and corporate development. They weren't able to accommodate SMEs," said a MIIT news release.

The old division standards were formulated in February 2003 by the former State Economic and Trade Commission, former State Development Planning Commission, MOF and NBS.

The MIIT news release says although the old standards did play a very important role in defining the scope of SMEs, clarifying statistical categories, analyzing situations for individual SMEs and formulating policies on the SMEs, they had some defects.

The old standards divided SMEs across all industries using three indicators: the number of employees, sales revenue and assets. This was problematic because it could not reflect varying situations and characteristics within each industry. Furthermore, eight years have passed since the old standards were implemented. With advances in science and technology and improvements in productivity, many of the indicators are grossly outdated. For example, the upper limit of sales revenue is too low and the number of employees is too high for medium-sized enterprises. The old standards stipulate industrial enterprises with sales revenue of 300 million yuan ($46.37 million) are medium-sized enterprises. But in reality many enterprises have sales revenues between 300 million yuan and 400 million yuan ($61.82 million), and they should be incorporated into this category.

Another flaw of the old standards is their lack of complete coverage of industrial sectors. Only enterprises with business operations in industry, construction, wholesale and retail, transportation, logistics, and hotel and catering sectors were covered. The real estate, lease and business service, information transmission as well as software and information technology service sectors were left out in the cold.

"For the above problems, the old standards cannot conform to the changes in China's economic and industrial development. Particularly, during the global financial crisis, SMEs, especially small enterprises and micro-enterprises were not able to get appropriate policy support. The revised standards not only have solved the above problems, but also will be significant in formulating research and implement policies on SMEs, and will help strengthen differentiated guidance and promote the development of SMEs," the MIIT news release said.

According to the news release, the new standards will be conducive to the differentiated management of SMEs and to the implementation of supporting policies for small and micro-enterprises. For the wide industrial coverage, the new standards will help establish a classified statistical system and information management to realistically address SMEs' needs.

Support policies

Small and micro-enterprises will be the focus of future government assistance policies for Chinese businesses.

"The country will mainly optimize the development environment for small and micro-enterprises and continue to research general preferential policies and strengthen government support," said Zhang Ping, Minister of the NDRC.

To promote the development of China's SMEs, the government has launched a series of laws and regulations since 2003. To cope with the global financial crisis, the State Council issued Several Opinions on Further Promoting the Development of Small and Medium-Sized Enterprises in 2009. With these laws and regulations, the business environment for SMEs is improving.

According to Zhang, the new standards divide enterprises in more specific ways, and small and micro-enterprises will receive special attention. The government will focus on optimizing the development environment for SMEs, research to formulate general preferential policies and improve services for SMEs.

As China continues to tighten its monetary policies, SMEs are in need of support, as they face increasing difficulties in acquiring financing. In Zhejiang Province, which enjoys a relatively prosperous private economy, a number of SMEs have been forced to split their capital gains. Some have simply shut down their operations.

At a conference held in Guangzhou on June 27, Huang Mengfu, Chairman of the All-China Federation of Industry and Commerce, said SMEs provide nearly 80 percent of job opportunities in urban areas, complete 75 percent of corporate technology innovation, create products and services equivalent to 60 percent of the country's GDP and contribute 50 percent to the country's tax revenue. If SMEs, which account for 99 percent of all enterprises in China, cannot realize reasonable development and industrial upgrading, transformation of the country's economic growth pattern will be rendered hollow.

Huang said whether new specific supporting policies will follow will be key to reflecting the actual effect of the new standards.

Wang Yong, an analyst at CITIC Securities Co. Ltd., said now the market is full of expectations, and most people believe as the new division standards are implemented supporting policies must also be put in place.

"The government will, in accordance with different situations, strengthen its support policies for small and micro-enterprises," Wang said.

Highlights of the New Standards

- Threshold of SMEs raised

For industrial enterprises, the threshold for sales revenue of SMEs is raised from 300 million yuan (46.37 million) to 400 million yuan (61.82 million), and the number of employees is reduced from 2,000 to 1,000.

- Micro-enterprises added

Micro-enterprises include:

Enterprises in agriculture, forestry, stockbreeding and fishing whose annual sales revenues are under 500,000 yuan ($77,280);

Industrial enterprises that have less than 20 employees or whose annual sales revenues are under 3 million yuan ($463,679);

Enterprises in software and information technology service that have less than 10 employees or whose annual sales revenues are under 500,000 yuan;

Enterprises in the real estate sector whose annual sales revenues are under 1 million yuan ($154,560) or whose total assets are under 20 million yuan ($3.09 million).

- Individuals and households engaged in small-scale business incorporated into SMEs