Thinking About Exchanges Between Small and Medium-Sized Enterprises in Japan and China

|China

2003 can be described as the first year of a new era for China’s small and medium-sized enterprises, as the implementation of the Small and Medium-Sized Enterprises Promotion Law was a major steppingstone in the development of such enterprises. It may sound strange to talk about the promotion of small and medium-sized enterprises at this stage in China, which is considered to be “the world’s factory”, but China’s small and medium-sized enterprises have been cold-shouldered to a surprising extent. Now, however, there are plans to promote them in a big way. Why is this? In a word, China’s intention to manufacture its own goods is at the root of this. With cheap Chinese products of reasonable quality taking the world by storm, the “China threat theory” has been proliferating of late; however, the reality is that more than half of such Chinese products rely on foreign investment in China1. In other words, there is little awareness that many of the parts and raw materials of which Chinese products are composed, are provided by imports and foreign investment in China.

We now live in a time of internationalization. Foreign investors in China may one day target their funds towards expansion into other countries. It is not necessarily the case that Chinese industry will hollow out if that occurs. The real intention behind the enactment of the Small and Medium-Sized Enterprises Promotion Law is a far-sighted, well-designed scheme that deems the nurture and development of small and medium-sized enterprises that are deeply involved in manufacturing (parts from raw materials) to be crucial in order to prevent the hollowing out of Chinese industry, in particular, keeping unemployment to a minimum, while keeping a close eye on the direction taken by the uncertain global economy in the future.

The development of China’s small and medium-sized enterprises has also been long awaited by foreign investors. For example, a large mission consisting of representatives from 300 companies from the EU visited China last November for what might be termed a “group matchmaking session” with small and medium-sized companies from various Chinese provinces and cities, focusing on such economic matters as trade, investment, technological cooperation, R&D and marketing. The meetings conducted by this mission – the largest organized by the EU – covered a broad range of issues, encompassing machinery, electricity, metals, IT, the environment, foods and engineering, to say nothing of various parts and raw materials. Apparently, quite a few contracts were concluded during this visit, showing that small and medium-sized Chinese enterprises have acquired the necessary skills. If development gets a boost from the Promotion Law, opportunities for foreign investors to hold business meetings with China will increase.

So, what is the situation in Japan? With regard to the economic relationship with China of Japan’s small and medium-sized enterprises, it would be fair to say that there was a time when Japan outclassed other countries and regions, including the U.S. and Europe. These days, there are pros and cons as far as the expansion into China of Japan’s small and medium-sized enterprises is concerned, but perhaps we should see the Promotion Law as an opportunity that may offer unexpected benefits. China is pinning its hopes on the formulation of cooperative relationships with Japan’s small and medium-sized enterprises. If such relationships were established, it is likely that a great deal of cooperation could take place in such fields as the nurturing of supporting industries, something that is Japan’s specialty, and the establishment of venture businesses, the future development of which is greatly anticipated in China. It is fine for businesses to expand into China, but equally it does not matter if they do not. However, why not hearken to the true intention of the Promotion Law by employing a bold concept focusing on the estimated 420,000 foreign-financed companies (based on company registrations) that have been established in China, with the aim of achieving cooperation between small and medium-sized enterprises in Japan and China in the sale of parts and raw materials?

[Translated by ERINA]

  1. Foreign investment in China accounts for more than 50% of the total value of China’s imports and exports.