Overview

China has a large number of SMEs operating in all industries and they play a significant role in creating job opportunities and contributing to China’s economic growth.   However, SMEs face numerous constraints, such as insufficient access to finance, poor management and marketing skills, obsolete technology and low product quality.  One bottleneck, in particular, is the shortage of skills.  As China’s industrial structure shifts from labor-intensive and capital intensive production toward knowledge-intensive production, and the economy becomes increasingly open with China’s accession into the WTO, China’s SMEs will need to focus more on skills development if they are to survive and grow in an environment characterized by increasing competition, both domestic and international.  This skills development imperative raises questions for policymakers about how best to support SMEs in becoming more competitive, whether through financial incentives, institutional and technical assistance for their skills development activities so as to improve productivity and national welfare.

In this context, both the public and private sectors have made significant efforts to foster skills development in SMEs in the past few years.   The Chinese government has adopted various policy initiatives including financial incentives to encourage SMEs’ training; however, progress thus far still lags behind the pressing skill needs of small enterprises in China.  First, relative to large enterprises, SMEs face skill constraints because of high labor turnover, limited access to finance, and institutional and organizational limitations.  Second, there are important information gaps between training providers and enterprises in what training is supplied and what skills are needed.  Finally, it is unclear whether training alone would be sufficient to address the issues of low worker productivity in SMEs.  As such, the Chinese government is keen to develop a more effective training system to provide SMEs with an integrated package of training and technical support through close collaboration between the public and private sectors.

To address SMEs’ skills constraints and improve their productivity, the SME Department of National Development and Reform Commission (NDRC) launched a pilot scheme in 2003 named the National SME Galaxy Training Project (Galaxy Project).  Funded by the central government with matching resources from local governments, the Galaxy Project offered an integrated package of training and technical support to SMEs.  While empirical evidence shows that most enterprises experienced positive impacts from participating in the Galaxy Project, the training system still has a long way to go towards meeting the pressing skill needs of SMEs.  In this regard, the SME Department of NDRC is interested in learning from international experiences with alternative skills development and training policies targeting SMEs.