China Series: The Problem with SMEs

Chinese New Year is right around the corner and to celebrate we thought we’d create a series of blog posts all about China. Today, in the first part of the series, we take a look at China’s SME market. Enjoy!

China Series: The Problem with SMEs

SME growth rates say a lot about a nation’s economic development. In the internet era, SMEs are hotbeds for high-tech innovation. Nowhere is this more true than in China. Jack Ma of Alibaba, and Lei Jun of smartphone maker Xiaomi, are prime examples of the growing proliferation of rags-to-riches tech entrepreneurs. Furthermore, favourable government policy is accelerating the growth of SMEs across China by boosting their significance in the wider economy. SMEs in China accounted for 60% of national GDP growth in 2013, and make up 99.5% of all businesses nationwide. 1.58 million SMEs registered in China during the first half of 2014 alone. SMEs are not something to be ignored.

Therefore when conducting B2B market research assessments in China, it is essential to have an in-depth understanding of the SME market. How many SMEs are there in China? The answer is not as obvious as you may think. There are two main reasons for this:

  1. China’s SME classification system: Definitions of SMEs across the globe are extremely diverse and wide-ranging. International organisations such as the World Bank, the IMF and the UN all abide by different classification systems. Definitions also differ between individual nation states, often to reflect population size. The problem with China is that official definitions also vary greatly by sector. In the heavy industries a business can qualify as an SME with as many as 3000 employees, but in the retail sector a company may have no more than 300 employees. There are also separate sub-definitions for small and medium businesses within each sector.

    Furthermore, Western clients expect a market sizing in line with their own standard definition of an SME. This usually numbers in the hundreds: for example, in the USA an SME is a business of up to 500 staff. But many of the official figures available in China do not tally with western expectations –they take into account all sectors, therefore any business with 3000 employees or less. Thus the process of calculating SME numbers for a specific audience can be extremely complex.

  2. China’s business registration system: Readily available estimates for the number of SMEs in China appear arbitrary. Some sources say there are 42.5 million SMEs in China, presumably taking into account all sectors and all company sizes. Figures from 2008 allege that there are as few as 4.3 million ‘small SMEs’ with less than 300 employees. Furthermore, these 4.3 million are only those businesses that have ‘registered’ with the government. It is hard to know exactly what that entails, but it presumably means those that appear on government censors. It could be that many SMEs in China operate unaccounted for, especially in the less developed Western provinces such as Qinghai, Gansu and Xinjiang.

SMEs in China may be confusing, but they may also present significant investment opportunity. It is worth noting that the number of Chinese SMEs (if we take it to be 42.5 million) already dwarfs that in the USA. An article in the South China Morning Post published last year reported the highest PMI figure for Chinese SMEs since 2012, as well as increased support for small businesses by the government. Furthermore, liberal economic measures – such as the launch of the Shanghai Free Trade Zone – are increasing opportunities for private businesses in China. Is now the time to pounce on this growing market?


To read more about China, please refer to the white papers below:

Entering Chinese Business to Business Markets: The Challenges & Opportunities Marketing and Selling to Chinese Businesses Business-to-Business Market Research in China


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