Abstract
This chapter reviews and analyzes the effects of rising labor costs, CNY appreciation, and the 2008 Global Financial Crisis on the performance of Chinese SMEs. Chinese SMEs have spearheaded the integration of the Chinese economy with the world economy through their involvement and partnership with the Asian regional and global production networks and supply chains. While they have acted as important linkages for the national economy with the world economy, they have also become important conduits of the impact of world events on the national economy. This chapter focuses on the impact of the 2008 Global Financial Crisis against the background of rising labor costs and currency appreciation that had already been exerting great strains on SMEs in China.
This research is conducted as a part of the project ‘Reducing the Vulnerability of Supply Chains and Production Networks’ of the Economic Research Institute for ASEAN and East Asia (ERIA). The authors are deeply indebted to Shandre THANGAVEL, Fukunari KIMURA, Venkatachalam ANBUMOZHI and other members of the project team for their invaluable comments and suggestions on earlier drafts, and to ZHU Yongqing and ZHANG Lingyu for research assistance. The opinions expressed in this paper are the sole responsibility of the authors and do not reflect the views of ERIA.
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Notes
- 1.
Despite the increasing prominence of SMEs and their contribution to development, there is actually no unified definition of SMEs. For example, definitions have varied widely among the East Asian economies by phase of development, prevailing social conditions, and industry. A number of measures have routinely been used to define SMEs and they include the number of employees, volume of invested capital, total amount of assets, sales volume, and some other measure of production capability (Harvie 2004). A more common measure is, however, the number of employees a firm hires. According to ADB (2009, p. 26), a major study on SMEs in the Asia-Pacific region in recent years, “small enterprises are taken to be enterprises with 5–49 workers, medium-sized ones those with 50–199 workers, and large enterprises those with 200 or more workers.” But other studies may well use different measures and definitions.
- 2.
Although the greatest beneficiaries from regional and global production fragmentations and production chains are likely to be the SMEs from developing countries, competing models of global value chain exist that have implications for the related production chains, which in turn have implications for the role of SMEs in these production chains. APEC (2012) identifies three main types of value chain: producer-driven, buyer-driven, and multi-polar. These value chains differ according to the position and the role of the lead firm (the transnational corporation that controls the value chain) vis-à-vis those of the other players in the chain. It is, however, not possible to go into detail here over these competing models and their implications for the role and opportunity offered to a developing country SME.
- 3.
Note, however, that different definitions of SMEs may have been used in different countries for the collection of the statistics. Nevertheless, the comparison should be of value. For details on this see ADB (2015).
- 4.
Certainly, in terms of value of participation in global supply chains presented in Fig. 10.5, China contrasts very sharply indeed with India.
- 5.
By China’s official classifications, medium-sized firms are those (1) hiring between 300–2000 workers (inclusive); (2) having annual sales between CNY 30–300 million (inclusive); (3) with fixed assets between CNY 40–400 million (inclusive). Firms which surpass all of these three criteria are large-sized firms. Firms which fall below any one of these criteria are small-sized firms. Some revisions to this classification system were made in 2011, but do not appear to be followed in subsequent statistical reporting.
- 6.
In China’s classification, foreign funded enterprises include equity joint ventures, cooperative joint ventures and wholly foreign funded enterprises. Variable fe measures the sum total of trade by all these enterprises.
- 7.
Note that fcrisis = 1 for 2008 and all post-2008 years, and fcrisis = 0 for all pre-2008 years. Similarly, yr2011 = 1 for 2011 and all subsequent years, and yr2011 = 0 for all pre-2011 years.
- 8.
Adequate institutional infrastructures for effective participation of SMEs in global chains are of course also important, but in the case of China they are, in general, not province-specific. Other measures of the degree of physical connectedness are also possible but they are unlikely to have mattered to SMEs as critically as highway density.
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Liu, M., Tai, H. (2020). Achieving the Resilience of Production Networks During Economic Crisis: The Case of Chinese SMEs. In: Anbumozhi, V., Kimura, F., Thangavelu, S. (eds) Supply Chain Resilience. Springer, Singapore. https://doi.org/10.1007/978-981-15-2870-5_10
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