Appendix 2. Small- and Medium-Sized Enterprise (SME) Policy: The Japanese Experience

Although there are significant differences in political, economic and social structure between Japan and the PRC, some Japanese experiences on SME policy may be useful. In particular, Japan's situation during late 1950s and 1960s is somewhat similar to China today on the following points. First, after the entry into the WTO, Japan began to liberalize its trade and capital transactions and registered high economic growth. Second, although Japan was already a market-oriented economy, the role of public sector and government intervention in the market was relatively large compared to other developed countries.

According to Japan's 1997 White Paper on SMEs [56], Japan’s SME policy can be divided into the following four stages.

First stage (1945-1954) Reconstruction period after World War II

Second stage (1955-1972) High economic growth period

Third stage (1973-1984) Stable economic growth after first oil crisis

Fourth stage (1985-present) Transition period after the Plaza Accord

During the first stage, the SME Agency was established in the government administration and the government laid the foundation for an SME policy. This policy primarily focused on financial and organizational support and of counseling and information services for SMEs. In the area of finance, several specialized financial institutions and credit guarantee associations were established. In terms of organization, the SME Association Law was introduced in order to vitalize and improve the organizational structure of SMEs. In addition, support systems were set up to provide advice and guidance for SMEs.

During the second stage, the government took further measures in all three areas, i.e. finance, organization, and counseling and information. In the area of finance, preferential tax treatment for SMEs was introduced and financial support was given through local governments to update obsolete equipment of SMEs. The Credit Insurance Public Corporation was also established during this period to strengthen the credit guarantee system for SMEs. Various laws were also enacted to provide SMEs with organizational support. In accordance with the Law on SME Organizations, a number of industrial and commercial associations were set up. In the area of counseling and information, a law on guidance for SMEs was introduced, and based upon it, the guidance system for SMEs was strengthened. In addition, reflecting the high economic growth, sectoral measures to modernize the equipment and facilities of SMEs and enhance their technology were also introduced, in particular for machineries, textile and fabrics.

The third stage is characterized by support in the area of human resource training and technology enhancement. The milestone of this period was the enforcement of the Basic Law on SMEs in 1963. This law stipulates that the purpose of SME policy is first to address the economic and social disadvantages of SMEs, and second to encourage independent efforts by SMEs. Based on this law, sectoral policies for modernization and revitalization were introduced and implemented. The Basic Law also included provisions to provide SMEs with guidance on how to prepare for the trade and capital account liberalization after Japan's upgrade to an IMF Article VIII country in 1964. Since the 1990s, the government has placed greater emphasis on supporting SMEs in launching new businesses or changing businesses, promoting R&D and streamlining and concentrating SME businesses. It seems that the government has come to realize the importance of enhancing the market competitiveness of SMEs rather than just protecting them.

Overall, Japan's White Paper concluded that past SME policy tended to restrict market competition and protect SME, but that it had moved toward a more market-oriented type policy. Human resource training, information services and support for SMEs entering new businesses or changing business all aim to support the ability of SMEs to play an important role in the market, so that the market economy as a whole can further develop. Basically we could identify a similar tendency in other developed countries.

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