The increasing role of small business in the Chinese economy.

This paper considers the changes in firm ownership since the Chinese government implemented its open-door policy in 1978. Most significant amongst these is the relative decline in State owned enterprises and the marked increase in the numbers of small business. By 1999, there were 10 million registered small businesses in China. We first discuss the background to change, then review the changes in legislation which have allowed different forms of ownership. The paper then shows how the changes in ownership forms have affected industrial output and employment. We conclude, with some caveats, that these changes offer opportunities to pursue an exciting research agenda. Since China implemented its open-door policy in 1978 and moved towards a socialist market economy, it has experienced rapid economic growth. One characteristic of this change has been the relative decline of large State Owned Enterprises (SOEs) and the expansion of the number of small enterprises. Although the role of small businesses in creating economic development in the advanced economies is well documented, the exploration of the extraordinary growth of small business in the transition economy of China is less well understood. From a position of no privately owned small businesses in 1979, by 1999 there were more than 10 million SMEs registered in China (Chinese Statistics Bureau 1999), representing some 90 percent of all firms. These small firms made an increasingly important contribution to national income and employment at a time of relative decline of the contribution of larger firms. Moreover, these changes have to be set in the context of an extremely turbulent and uncertain political environment. The purpose of this paper is to demonstrate the expanding role of small firms within the changing socio-political context of China