By Lin Jiabin　

I. General Description

In order to get a comparatively complete picture of the situation of the development of small and medium-sized enterprises in China and the problems facing them, and to provide the basis for formulation of policy measures to support their development, the Research Department of Development Strategy and Regional Economy of the Development Research Center of the State Council picked four provinces, Guangdong, Liaoning, Hubei and Yunnan, for a questionnaire of the problems and needs of small and medium-sized enterprises in the course of development. A total of 2,800 questionnaires were distributed in December 1999, and 1,121 valid ones were recovered. Covered in the questionnaire were enterprises of all kinds of ownerships in all major trades. Table 1 shows the distribution of the respondent enterprises covered in the questionnaire. The contents of the questionnaire included mainly the performance of these enterprises, their basic quality, their major problems in development, and their needs to be met by government and socialized services.

Table 1 Distribution of enterprises covered in the questionnaire

	Number of enterprises	Percentage
Sum total	1121	100.0
By ownership State ownership Collective ownership Private ownership Sino-foreign joint venture Associated Others Blank	388 351 119 73 19 148 23	34.6 31.3 10.6 6.5 1.7 13.2 2.1
By industry Capital goods in the manufacturing sector Intermediary goods in the manufacturing sector Consumer goods in the manufacturing sector The tertiary sector Others Blank	263 297 297 65 144 55	23.5 26.5 26.5 5.8 12.8 4.9
By region Guangdong Province Liaoning Province Hubei Province Yunnan Province	216 548 165 198	19.3 48.9 14.7 17.7

Notes:

1. The item "Others" in the ownership section includes shareholding companies, limited liability companies, Sino-foreign cooperative enterprises, exclusively foreign-owned enterprises, and enterprises with investment from Hong Kong, Macao and Taiwan.

2. The industries mentioned in the item "By industry" are synthesized from the 15 trades covered in the questionnaire. These industries cover the following segments: Capital goods in the manufacturing industry includes machinery and electronic and electric appliances.

Intermediary goods in the manufacturing industry includes chemicals, building materials, textiles, construction and metallurgical product.

Consumer goods in the manufacturing industry includes foodstuff and light industrial product. The tertiary sector includes transportation, telecommunications, commercial, catering, and other services.

Covered in the item "Others" are those other than mentioned above.

3. The figures are those for 1998. The same herein below unless otherwise indicated.

II. Operational Situation of Enterprises

We used three indexes -- business revenue, total profit, and asset-liability ratio – to study the operational situation of the respondent enterprises covered in the questionnaire and the changes in the situation.

See Table 2 for the results.

Notes: In the item "Average by industry," "Capital" refers to capital goods from the manufacturing sector, "Intermediary" to intermediary goods from the manufacturing sector, "Consumer" to consumer goods from the manufacturing sector, and "Tertiary" to the tertiary industry.

The results of the questionnaire showed that the business revenue of the respondent enterprises increased year by year between 1995 and 1997, but it dropped in 1998. Changes in jointly-run enterprises, however, moved oppositely to that in the overall situation: dropping year by year between 1995 and 1997 and hit the bottom and bounced back in 1998. The profit of the respondent enterprises declined year after year between 1995 and 1997, and even went into red in 1997 when viewed as a whole. The amount of losses decreased somewhat in 1998. The situation differed much, however, between enterprises of different ownerships, in different trades, and in different regions. Of the enterprises of different ownerships, privately-run enterprises suffered the biggest loss, followed by State-owned enterprises. Among the enterprises specializing in different trades, only the consumer goods sector of the manufacturing industry suffered year-by-year losses, and the profit of those in all other trades remained positive. The profit of the capital goods sector and the intermediary goods sector of the manufacturing industry, however, kept falling year by year. Among the enterprises in different regions, those in Liaoning Province suffered losses year by year, the profit of those in Yunnan Province kept sliding down and was in deficit in 1998, those in Guangdong Province fell into red in 1997 but turned the situation of losses into one of profit in 1998, and those in Hubei Province maintained their normal level of profit all the time. The asset-liability ratio of the enterprises covered in the questionnaire kept rising year by year, hitting 84 per cent in 1998. This means a fairly high level of liability (According to "China Yearbook of Statistics, 2000", the asset-liability ratio of China’s State-owned and State holding industrial enterprises was 62 per cent in 1999, while that of large and medium-sized industrial enterprises was 60 per cent). Among the enterprises of different ownerships, privately-owned enterprises had the biggest asset-liability ratio, standing at 131 per cent, followed by State-owned enterprises with an asset-liability ratio of 87 per cent. The asset-liability ratio of collectively-owned enterprises was the smallest, standing at 49 per cent. Among the enterprises specializing in different trades, the tertiary sector had the biggest asset-liability ratio of 97 per cent, and the capital goods sector of the manufacturing industry had the smallest of 53 per cent. By regional division, Liaoning ranked at the top with an asset-liability ratio of 101 per cent, and Hubei stood at the bottom with a ratio of 57 per cent.

III. Basic Quality of Enterprises

We made simple appraisal of the basic quality of the enterprises covered in the questionnaire by three indexes: the composition of the academic credentials of their employees, the proportion of those that had passed ISO9000 certification, and the ratio of compliance with State standards on the discharging of pollutants. Viewed from the academic credentials of the employees, those who had received education at and above the polytechnic level (including education in technical, vocational and senior middle schools) accounted for 15.8 per cent of the total in 1995 and 19.1 per cent by 1998. Although this revealed a trend of elevation, the level was still fairly low (According to "China Yearbook of Statistics, 2000", the number of employees in 1999 who had received education at and above the polytechnic level accounted for 15.7 per cent of the country’s total number of employees including those working in the rural areas).

Viewed from the proportion of those that had passed ISO9000 certification, only 201 or 17.9 per cent of the 1121 valid respondents passed the ISO9000 certification. Divided by ownership, those under the item "Others" boasted the biggest ratio of passage at 29.1 per cent, followed by Sino-foreign joint ventures at 28.8 per cent. Privately-run enterprises were in the rear at merely 14.3 per cent.

Viewed from the ratio of compliance with State standards on the discharging of pollutants, the total ratio of compliance was 70.5 per cent. In other words, nearly 30 per cent of the enterprises covered in the questionnaire were not yet up to State standards so far as their discharge of pollutants was concerned. Among the enterprises of different ownerships, Sino-foreign joint ventures boasted the biggest ratio of compliance at 80.8 per cent, and private enterprises came the last once again with a ratio of 67.2 per cent.

IV. Problems Faced by Enterprises

Since the problems faced by the enterprises were the key issues of concern in the questionnaire, we tried to explore these issues from various angles and in a comparatively all-round way.

1. Big issue of retirees and laid-off workers

Results from the questionnaire showed that the proportion of "workers still at their work posts" against the total number of workers on the payroll kept dropping year by year. This meant that the enterprises had to shoulder a growing burden as the number of their retirees and laid-off workers increased. During the years from 1995 to 1998, the above-mentioned proportion of the respondent enterprises went down continuously from 67 down to 64, 59 and 52 per cent respectively. In other words, by 1998, each working employee of these enterprises would have to bear up one of their retirees or laid-off workers.

2. Comparatively low production-marketing ratio and equipment utilization ratio, and obstructiveness of marketing channels

In 1998, the enterprises with production-marketing ratio above 90 per cent accounted for 74.3 per cent of the total number of the enterprises covered in the questionnaire, those with production-marketing ratio standing between 80 and 90 per cent made up 15.2 per cent, and those with production-marketing ratio ranging between 50 and 80 per cent and staying below 50 per cent accounted for 8.4 and 2 per cent respectively. In other words, the enterprises with production-marketing ratio below 90 per cent accounted for 25.6 per cent of the total, and the enterprises with production-marketing ratio below 80 per cent made up more than 10 per cent of the total. Compared with industrial enterprises of the national scale, these enterprises had a comparatively low production-marketing ratio (the production-marketing ratio of China’s industrial sector as a whole was 95.7 per cent in the first half of 1999. Please refer to "Review of the Economic Situation of China’s Industrial Sector in 1999 and Outlook of its Development in the Year 2000", a paper by Xie Youqiao and carried in the "Study Materials for Economic Workers", Issue 80, 1999).

Results from the questionnaire showed that the enterprises with equipment utilization ratio below 80 per cent accounted for 45.9 per cent of the total number of the respondent enterprises. Divided by ownership, State-owned enterprises boasted the biggest proportion of 57.5 per cent, whereas Sino-foreign joint ventures had the smallest proportion of 30.1 per cent. We asked the enterprises with equipment utilization ratio below 80 per cent for the reason. Of the multiple choices presented to them, "Blunt competitive edge of products due to big production costs" was ticked most frequently, and 52.4 per cent of the respondents listed it as the top reason. "Impact from substandard fabrication" and "lack of marketing means" were also ticked very frequently as the reason.

When asked "whether something has gone wrong with the marketing of products," 63.5 per cent of the enterprises gave a positive answer. Of the State-owned enterprises, in particular, 76 per cent acknowledged that something had gone wrong with their marketing of products. When coming to detailed choices, "small scale of the market of the product and limitation of sales" was more frequently ticked, and 34.6 per cent of the respondents listed it as the top reason. "Weak marketing means", "incompetitiveness of products in price",and "serious disorderly competition at the market" were also ticked in a great many cases.

3. Low technical level

Using it as a parameter measuring the overall technical level of the enterprises, we looked into the technical level of their production equipment. Results of the questionnaire showed that over 50 per cent of the equipment of more than half of the enterprises covered in the questionnaire were at the technical level of the 1970s or the 1980s, and over 50 per cent of the equipment of the more than 20 per cent of the enterprises stood at the technical level before the 1970s. The equipment level of Sino-foreign joint ventures was noticeably higher than that of the enterprises of other ownerships, with more than 80 per cent of over half of these joint ventures boasting equipment reaching the technical level of the 1990s.

Viewed from the sources of the technology applied to production, "self-developed" came at the top and made up 42.5 per cent of the total, followed by "maturized technology for common application" with a 27.3 percentage, "cooperatively developed" with a 17.3 percentage, and "imitated" with a 5.2 percentage.

Table 3 Sources of technology used by enterprises for production (%)

	Self-developed	Jointly developed	Imitated	Patented	Popular	Others
Aggregate average	42.5	17.3	5.2	4.3	27.3	3.3
State-owned	41.5	17.3	2.6	3.2	32.7	2.6
Collectively-owned	42.2	17.0	4.3	5.3	28.0	3.2
Privately-owned	48.0	16.7	13.7	2.9	16.7	2.0
Joint ventures	36.8	20.6	4.4	7.4	22.1	8.8
Associated	23.5	29.4	11.8	5.9	23.5	5.9
Others	46.9	14.6	7.7	3.8	23.1	3.8

4. Financial difficulty

Results of the questionnaire revealed that most of the enterprises were of the opinion that fund shortage was a major woe hindering their development. To the question "what are the major factors unfavourable to the development of enterprises," we offered nine choices, namely, fund shortage, inadequate market demand, low-level internal management, lack of talents, limited space for business operations, limited market development ability, excessive competition within the trade, disorderliness of the market, and retardation of government policies or services. The respondent enterprises are asked to tick according to their sequence of importance. Of these, fund shortage was listed as the top issue by 66.9 per cent of the respondents. Viewed from the situation of loan utilization, 66.9 per cent of the enterprises that made fixed asset investment in 1998 did not receive any loans from financial institutions, and over 80 per cent of the investment made by 62 per cent of the enterprises came from their own funds. The proportion of loans as working capital was comparatively bigger. Of the respondent enterprises, 43.8 per cent did not receive any loans from financial institutions, and over 80 per cent of the total working capital of 52 per cent of the enterprises came from their own funds.

Viewed from the sources of loans to the enterprises, State-owned commercial banks constituted the major lenders, with 70.3 per cent of the enterprises having borrowed loans from State-owned commercial banks. Urban and rural credit co-ops were also one of the major suppliers of loans for enterprises of collective and private ownerships, although they fell fairly far behind State-owned commercial banks in terms of the lending proportion.

Table 4 Sources of loans to enterprises (%)

	State-owned C. banks	Shareholding banks	City commercial banks	Foreign-funded banks	Urban credit co-ops	Rural credit co-ops	Trust & invest. Cos.	Others
Aggregate average	70.3	1.2	3.6	0.2	5.3	6.4	1.4	11.5
State-owned enterprises	82.7	1.3	3.1	0	4.4	0	1.8	6.7
Collectively-owned enterprises.	57.0	2.1	2.1	0.7	7.0	16.9	0	14.1
Privately-owned enterprises.	52.5	0	4.9	0	9.8	9.8	3.3	19.6
Joint ventures	62.5	0	9.4	0	3.1	3.1	0	21.9
Associated firms	66.7	0	8.3	0	16.6	0	8.3	0
Others	75.6	0	3.5	0	1.2	5.8	1.2	12.8

Viewed from the terms of borrowing, most of the enterprises paid interest rates at 5-8 per cent, the length of maturity ranged between 6 and 12 months, and the maximum sum of loan was set below RMB 5 million.

5. Undesirable environments, especially fund and credit environments, for business operations

During the survey, we defined the environment of business operation from different segments and classified it into 5 types: (a) the legal environment (whether effective protection was provided to the legitimate rights and interests of the enterprises and whether disputes over economic and intellectual property right issues could be settled in good time and in a rational way once they developed); (b) the fund environment (the degree of convenience for enterprises to raise funds); (c) the market environment (the situation of fair dealing between enterprises, and whether there were any cases of powerful clients’ riding roughshod over weak ones); (d) the credit environment (whether loans could be recovered on schedule, and the situation of delay of repayment by enter