Canada - China
Small and Medium Size Enterprise Applied Management and Environment Project

An increasingly serious challenge to sustainable development in China is the environmental pollution and degradation caused by township village enterprises, non-state owned small and medium enterprises (SMEs) which represent 62% of all enterprises in Jiangsu and employ 46% of the provincial workforce.

SMEs are the driving force behind China's economic liberalization and a critical source of employment generation as state-owned enterprises restructure. However, SMEs are characterized by poor management capacity, low and highly polluting technology and very low rates of compliance with environmental regulations.

This results in large energy inefficiencies, wasteful and costly use of resources and heavy pollution affecting workers and surrounding population. SMEs, compared to state-owned enterprises, are price sensitive. Therefore, long-term cost effective solutions to improve compliance with environmental regulations by SMEs lie in incentives and market-based approaches. Although the environment has increasingly become a policy priority in China, and regulatory frameworks are in place, the enforcement of punitive environmental enforcement measures have not thus far been adequate to reduce end-of-pipe pollution and secure regulatory compliance by SMEs.

The development of Township Village Enterprises in China has been most rapid and concentrated in Jiangsu Province. These enterprises represent locally based SMEs, operated by individual enterprises cooperatives, as well as regional and municipal governments. In recent years the SMEs have transformed existing operations from state-controlled enterprises to independent enterprises that respond to market forces resulting in a rapid growth of the small business sector. From 1980 to 1992, the total output value of the SMEs in Jiangsu Province increased from 20 % to 78% and SMEs became the major pillar of the rural economy within China. Currently, SMEs represent approximately 31% of Jiangsu's total economic output.