SHANGHAI: More efforts should be made to promote the development of small and medium-sized enterprises (SMEs) in China, said Su Bo, director of the department of SMEs under the National Development and Reform Commission.

"We must improve the environment for new ventures and establish a supportive mechanism for SMEs," he told the New Ventures China Investor Forum in Shanghai yesterday.

Over the past two decades, SMEs have grown into an important force behind China's dynamic economic scene. However, due to the absence of a legal and policy-making framework to protect and support the sector, SMEs in China still face a lot of challenges and obstacles.

At the beginning of this year, SME Promotion Regulation was put into effect to tackle the problem. Also, the SME department under the National Development and Reform Commission is working on policies and programmes to assist SMEs with their business, technology development, management and training.

Su said more preferential and protective policies will be given to new ventures in areas such as taxes, financing and government procurement. Even more important is a mature mechanism for venture capital.

"Venture capitalists provide not only funds, but also business expertise, which is vital for start-ups, especially those led by people with technological research backgrounds," Su said.

The Company Law implemented in 1993 did not take venture capital companies into consideration, thus restricting the investment of venture capital.

"According to our research, it is practical to enforce a law that will govern venture capital companies," Su told the forum.

"Also, a second board should be staged soon, as this is the best channel for venture capital funds to exit."

The second board, also called a "start-up board," will implement a lower threshold for SMEs to sell their shares. The long-awaited board is rumoured to be launched in Shenzhen.

Su also noted that intermediate services assisting SMEs should be strengthened in China. According to Su, one of the reasons to develop the SME sector is that they play a significant role in economic and social sustainable development, which is also one of the country's key policies.

"In a world where resources are becoming more scarce, we should encourage SMEs to engage in industries that require minimal natural resources and are environmentally friendly," he stressed.

His view is shared by New Ventures, a project of the World Resources Institute and supported by organizations including Citigroup and Shell.

Launched last year, the project "has established a strong programme" to promote environmental and social responsibilities of local business to their communities, said New Ventures Director Luiz Ros.