Benjamin Gerald, a manager of a US-based Italian Gift and Frame Co, launched a tour around China in August, a month after China opened its long-time, State-monopolized trading sector to millions of private small and medium-sized enterprises (SMEs).

The 39-year-old Jewish American spent a week on a visit to four Chinese cities - Guangzhou, Yiwu, Taiyuan and Xiamen, all manufacturing powerhouses with active private economies.

"I had talks with more than a dozen private SMEs," he told China Daily. "And we expect to enter into purchase deals with some of them.

"We have a sense that it is better for us to establish a direct supply-and-buy relationship with these companies instead of doing business via traditional State-owned traders," he said.

China's private SMEs were banned from doing foreign trade until full liberalization took place in July, which allowed Chinese companies as well as individuals to conduct importing and exporting.

Gerald's company, a small-sized distributor of gifts and decorative goods, has had business ties with Chinese exporters for more than a decade, and buys goods worth US$1 million from this country annually.

Gerald is among thousands of foreign managers who will benefit from China's surging private exporters, which will replace State-owned trading companies to become the backbone in terms of exporting consumer goods.

Zhou Feng, the general manager of Wenzhou Jiahua Laser Arts and Crafts Co, a private manufacturer in East China's Zhejiang Province, told China Daily: "Our competitive edge is enhanced since we have the trading rights.

"We don't need to pay charges to go-betweens any longer," he said. "A number of foreign clients have contacted us, saying they are willing to directly buy our goods."

Zhou said his clients are from a variety of nations and regions such as the United States, Germany and Hong Kong, who favor his inexpensive wood pictures and statues featuring Chinese culture and modern laser-cutting technologies.

"The living of private SMEs is improving," said Yuan Chengda, president of the China Council for the Promotion of Private Economy. "With trading rights in hand, they have witnessed falling costs and a rising interest in doing trade.

Private enterprises have chalked up an export volume of US$7 billion in September alone, accounting for 12.5 per cent of the nation's total. It compared to US$5.8 billion, or 11 per cent, in June.

The flexibility enables Chinese private SMEs to chase after what the market needs and make profit.

Low labour cost also gives them a head start in manufacturing consumer goods such as textiles, and low-end machinery and electronic products.

Another advantage facing these private SMEs is their ability to make prompt decisions.

Lu Deguo, general manager of Shandong-based Taishan Ceramics Co, said there is no red tape in his company.

"We can sign contracts with clients as soon as we feel the deal is profitable," he said.

"In the past, we would sit down, quarrel, hesitate and then decide... and often it was too late," he said.

Lu's company evolved from a loss-making State-owned firm to a private one in 2000, and soon switched into the black.

The company's international orders also began to rise after it was allowed to begin exporting in August.

But on the other side of the coin, Yuan said an outdated management mode and small-scale might also kill some private SMEs.

"The vulnerability increases after they fire experienced go-betweens and go straightly into deals with overseas importers," the Wenzhou-born, entrepreneur-to-researcher Yuan said.

He said a large number of private SMEs are running like family enterprises.

"A wrong decision from the top boss would immediately causes a collapse of the enterprise," he said.

Individually speaking, these companies are too small to withstand any "sudden climate changes," said Yuan.

"They cannot deal with such matters as anti-dumping charges and trade barriers," he said.

Furthermore, the traditional edge of these private SMEs - cheap prices - is losing luster as foreign importers pay more attention to a combination of other factors such as brand, credit, quality and social accountability.

"Quality above all," said Gerald. "We come to China not simply for cheap goods."

However, some SMEs' hit-and-run behaviour has led to a deteriorating reputation of "Made-in-China."

Yao Xiaoman, secretary-general of China Feather and Down Industrial Association, told China Daily that Chinese feather and down-filled garments enjoyed popularity in Russia in the early 1990s.

However, the hit-and-run attitude adopted by some SMEs has resulted in less attention to quality and after-the-sale service, and gradually knocked them out of the Russian market.

"The reputation of Chinese-made garments did not recover until recently," said Yao.

Gerald said he is willing to do business with a company that has sound service, even if it costs him more.

Apart from quality, Gerald points out that credit is another bottleneck affecting SME exporters.

"We don't want to do business with speculators," he said. "We will be cautious in businesses with private SMEs whose credit is normally worse than State-owned firms."

China Foreign Affairs University Professor Fan Ying cautioned that some foreign buyers also require SMEs to reach certain labour standards, a factor that takes a dent in some SMEs business prospects.

"It has become a trend for large international distributors to ask their suppliers to meet some labour conditions," she said.

Small foreign buyers are also keen about these matters.

Gerald was astonished when he saw working conditions in a Chinese SME he visited.

"It's unbelievable! They work under the scorching sun without shelter," he exclaimed.

"Although the factory gave me a good price offer," he said, "I still preferred signing contracts with another frame maker that provided its workers with ample and comfortable workshops."

(China Daily November 16, 2004)