CHAPTER 1 HISTORY OF CHINA’S SMES
　　There is consensus among policy makers， economists， and business experts that small and medium enterprises (SMEs) are drivers of economic growth. A healthy SME sector contributes prominently to the economy through creating more employment opportunities， generating higher production volumes， increasing exports and introducing innovation and entrepreneurship skills. The dynamic role of SMEs in developing countries insures them as engines through which the growth objectives of developing countries can be achieved.
　　It is estimated that SMEs employ 22% of the adult population in developing countries. United Nations Industrial Development Organisation (UNIDO) estimates that SMEs represent over 90% of private business and contribute to more than 50% of employment and of gross domestic product (GDP) in most African countries (UNIDO， 2000). A recent study conducted by Abor and Quartey (2010) estimates that 91% of formal business entities in South Africa are SMEs， and that these SMEs contribute between 52 to 57% to GDP and provide about 61% to employment.
1.1 Genesis of SMEs in China
　　The emergence of mixed， ‘unorthodox’ ownership and governance forms in China is one of the most interesting aspects of its dynamic development since 1978. China now exhibits a distinctive type of ‘mixed property’ system， which is in some ways like the 1921~1928 NEP in the Soviet Union. It is important to understand the role of SMEs within this complex environment， specifically considering the ownership forms， relationships with large SOE and government authorities at both national and local levels. This system is still in active， rapid evolution toward unclear future forms (Sun et al， 1999). Some consideration of the institutional developments over the last several decades is required to make sense of contemporary patterns.
　　The historical process of China’s socialist revolution was entirely different from that of the Soviet Union. The Communist party built its base among the peasantry before the party took political power， and since rural workers comprised well over 80 per cent of the labor force， the Chinese Revolution was a real mass phenomenon from the beginning. It produced a highly mobilized popular support among the peasants A close identification of the peasant base with the party which claimed to represent it; and an ideology which made the peasant majority a real and natural part of the party constituency. Most importantly， the last phases of the Chinese Civil War were mostly easy victories and so did not (as had the 1918~1921 Russian Civil War) decimate the ranks of lower level supporters and party activists. The winners in the Chinese case were already successfully governing a large part of the country， and took total control with their popular base intact.
　　After an initial period of attempting to copy in great detail the institutional arrangements of the Soviet Union， China abandoned the classical Stalinist model. It turned away from centralized decision-making carried out through a national administrative hierarchy， and experimented with construction of a new model of socialist development. Political mobilization campaigns and attacks on the privileges of the ‘new elite’ created economic chaos， but also avoided early institutional stagnation within a tightly organized Soviet-type party-state. After the death of Mao Tse-Tung， China then moved toward market reforms beginning in 1978. This was quite late， compared to the diverse reform developments that had been carried out in Eastern Europe and the Soviet Union over the prior 25 years， but China has persevered with these reforms in a careful， pragmatic way over two decades. A common theme to each reform period is the tendency to build in greater decentralization in economic management， either through changes in the administrative structure of planning or through use of the market to take over some but not all of the functions of planning.
1.2 Developing Stage
　　“Setting the Stage for SME Growth: Unlikely Results of the Great Leap”
　　A major decentralization of industry was undertaken in 1957~1958 (at the same time similar reorganization was occurring in the Soviet Union). Control of individual enterprise was transferred from ministries to provincial and local governments. In 1958 decentralization was extended by a wide-scale attempt to develop very small-scale rural industries (most famous of which were the so-called backyard steel furnaces).
　　This program was not meant to divert resources from the operation or construction of large-scale plants but was part of China’s effort to industrialize by ‘walking on two legs’. This meant simultaneously using technologically advanced， capital-intensive methods in the modern sector and intensifying the development of traditional， technically simple， labor-intensive methods in the other sector.
　　The attempt to develop small-scale rural industries was part of a
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