Introduction

The People's Republic of China (PRC) is a relative latecomer to modern industry and is—by most standards—a highly successful one. Its market-oriented reforms have produced remarkable results: the manufacturing sector has enjoyed high and sustained rates of growth, with shares of gross national product (GNP) and exports rising sharply. The emergence of dynamic small- and medium-sized enterprises (SMEs) is one of the most important outcomes of the reform process. Despite their significant contribution to the PRC economy, SMEs have largely been neglected in official thinking about technological issues; they now do rate a mention in the current long-term plan.

This policy brief examines the role of SMEs in technological issues such as innovation, research and development (R&D), and strategic clustering. It focuses on the questions that need to be addressed in any further attempts to reshape the PRC's industrial policy, in the context of the national innovation system (NIS): What challenges and constraints does the internal economic environment pose for SMEs seeking to grow? How does the external environment affect the ability of SMEs to operate and compete? What opportunities are available to the PRC's authorities seeking to make the NIS friendlier toward SMEs?

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