Spain, the co-host of this year's CISMEF, had 500 booths. Zou Zhongpin

GUANGZHOU: China's latest initiative to boost the development of small and medium enterprises (SMEs) has gained immediate popularity among entrepreneurs in the sector. A number of them said, during the course of the 6th China International SME Fair (CISMEF), that they now have keen hopes of imminently improved business prospects, despite the negative influences of the global economic downturn.

Liu Yinglang, a beverage wholesaler from the Pearl River Delta city of Jiangmen said, during the fair: "Thanks to this new policy, my corporate income tax will be halved next year. I started my business earlier this year and its scale is still small. These tax reductions means increased cash flow for me and that will help to make it easier to operate the business and to survive."

Wang Ruixiang, the owner of an audio systems firm in Guangzhou's Panyu district, believes the new policy is particularly significant in the field of public procurement.

Commenting on the policy, he said: "It seems to be a common practice for the government procurement department to prefer foreign brands or those manufactured by major companies. I wonder how we can grow strong enough to compete in the global market if we are not given a fair opportunity to win a share of the domestic market."

Wang said his firm was once barred from the tendering process for supplying audio systems for the 2010 Asian Games, simply because its products were made domestically.

A researcher with the provincial academy of social sciences of Guangdong, who asked to remain anonymous, said detailed regulations should be issued to supervise and even to punish government departments should they be found to have treated SMEs unfairly during a public procurement process.

Gu Jianguang, general manager of a software firm in Wuhan, however, remains concerned that production scale requirements and overly-stringent financial necessities in the public procurement process will continue to effectively exclude SMEs. His belief is based on the fact that the public procurement process inevitably favors low cost, low risk options.

Gu said: "The public procurement process for software solutions tends to require a total package, which, due to their lack of access to a comprehensive industrial chain, is frequently difficult for SMEs to provide.

"Even with their competitive technology and pricing, SMEs will not be able to increase their share of public procurements unless considerable changes are made to the current process."

Gu proposed that the government should consider dividing its larger projects into several smaller segments, allowing SMEs to more effectively compete in this arena.

Whilst a number of SME owners are hoping that the new policy will ease their access to financial support, many more are expecting to capitalize on the incentives on offer to allow them to target global markets.

The State Council issued the new policy last Tuesday when the 6th CISMEF opened in Guangzhou. It paved the way for substantial reforms of the country's monopoly industries, as well as lowering the market threshold for the SMEs and creating a more open and fair competitive environment.

As part of the package, the government will now allow a one-year hiatus on social security fund payments for SMEs facing operational difficulties as a result of the global economic downturn. It will also offer extended tax breaks smaller firms with an annual taxable income below 30,000 yuan throughout the whole of 2010.

The government will also work to improve its purchase ratio of commodities, engineering and services from SMEs and seek to optimize the procurement process.

Official statistics show that SMEs make up 99 percent of China's overall business sector. They also contribute 60 percent of the nation's GDP annually, whilst offering work to 75 percent of the employed urban population.