Conclusion

Certain industries—in particular, the small- and medium-sized enterprise (SME) sector—may play a significant role in terms of further economic reforms in the People's Republic of China (PRC). As a late-industrializing economy, the PRC has the opportunity to enhance the competitiveness of its industries by limiting its shortcomings as a late entrant while tapping its unique strategic resources. This policy brief has shed light on these issues by proposing a strategy that is oriented toward SMEs.

An increasing number of studies suggest that the key constraint to firm growth stems not so much from size, but from the fact that small firms face limited resources: when operating independently, they cannot access the variety of resources available to larger firms. Clustering allows SMEs to benefit from the advantages of agglomeration and external economies of scale. The network cluster strategy is particularly suited to the PRC at this stage in its development and transition, since the collective nature of the cluster may also help resolve the problem of the “missing middle,” i.e., the absence of medium-sized enterprises. Therefore, we have made a case for a network cluster strategy that would enhance the links between existing actors while building on the PRC's existing industry policies. The successful pursuit of such a strategy would enable SMEs to increase in size (collectively), adopt technology that adds more value, and serve global markets.

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