Retired RCMP Inspector Bill Majcher is one of the most celebrated undercover officers in the history of North America and has gone from infiltrating Colombian cocaine cartels, to taking down Russian mob owned banks to spending time in jail with terrorists accused of the most horrific crimes.

At the time he left public service he was responsible for overseeing the protection and integrity of Canada’s capital market system on the Canadian West Coast.

He is now the Managing Director of the Baron Group based out of Hong Kong and where he continues his legacy of helping the right companies become successful.

We recently interviewed him regarding the SME arena in China:

Alvin Donovan: We noticed that the SME market in China is changing so rapidly most westerners do not realize the implications. Why is that?

Bill Majcher: You are right. Most people do not realize that the number of SMEs in China is about 40 million! This accounts for approximately 75% of the urban employment in China.

Alvin Donovan: What is the economic importance of that?

Bill Majcher: It is very important. For example, in the first 5 months of 2008 alone, Chinese SME’s achieved RMB 6.58 trillion of industrial output. A large percentage of these companies are located in the coastal provinces, where a number of Special Economic Zones were first established, thus becoming the prime economic engines for the Chinese economy. Most western investors and JV partners are familiar with Tianjin, Dalian, Shanghai, Guangzhou, Dongguan etc.

Alvin Donovan: What are the major challenges to the Chinese SME market?

Bill Majcher: By the end of 2008, China like the rest of the world was caught up in the financial crisis that swamped the global economy. China experienced slower export growth at the same time as they were dealing with a slowdown in direct foreign investment and were reacting to major labour and employment reforms designed to enhance the rights and benefits of workers.

The rising labour costs and an appreciating Chinese currency, combined with increasingly expensive raw materials contributed to 67,000 SMEs in China suffering losses or filing for bankruptcy in the first half of 2008 alone….. more than 20 million workers were laid off.

Alvin Donovan: What has been done to change this?

Bill Majcher: In September 2008, to help the growth of SMEs, the Ministry of Finance announced a RMB 3.51 billion special fund.

The central treasury implemented six measures, which included supporting SMEs in developing new businesses, funding and supporting technological innovation and R&D, expanding credit guarantee systems, and improving the financing environment specifically for SMEs. It is important to recognize that the Chinese economy is sustained by three drivers; Investment, Exports, and Consumption.

According to the UN, China is already the world’s number one recipient of Direct Foreign Investment so there is not much more China can do than it is already doing to attract foreign investment. For Exports, China has little control over the buying habits of a beleaguered global consumer who are themselves struggling with personal financial hardship brought about by the financial crisis.

Domestic Consumption is the one driver that China can affect and they have very successfully done so. Significant land reform has taken place that has motivated more rural dwellers to move to urban areas where studies have shown that urban dwellers spend 3.5 times what a rural dweller will spend. Government has provided incentives towards the purchase of big ticket items to encourage family consumption for such things as washers, dryers, TV’s etc.

Alvin Donovan: What has been the result?

Bill Majcher: The result has been nothing short of amazing! GDP growth is expected to be over 10% in 2010. China leads the world in economic recovery and growth in 2009.

In fact, China is now nervously watching the traditional bogeyman called “inflation” begins to rear its head due to the rapid growth and expansion of its domestic economy.

China is now beginning to take steps to actually cool down the rising economy and has begun to put the brakes on some of the stimulus spending and relaxed credit that was provided to sustain the economy during the worst of the financial crisis.

China is also moving as a matter of official policy to develop the western provinces of China and I believe the next 20 years will see massive movements of capital and development opportunities across this vast untapped expanse. Check out www.cwhk.hk.

I am the Honorary Advisor to the HK Association for the Development of Western China and I can say with absolute certainty that when it comes to new economic growth and opportunity, the future lies in Western China.