310 JOURNAL OF SMALL BUSINESS MANAGEMENT Introduction This paper examines the changes in firm ownership since the Chinese gov- ernment implemented its “open-door” policy in 1978. Most significant among these is the relative decline in state- owned enterprises (SOEs) and the marked increase in the numbers of small business. By 1999, there were 10 million registered small businesses in China. We first discuss the background to change and review the changes in legislation that have allowed different forms of own- ership; then we show how the changes in ownership forms have affected industrial output and employment. We conclude, with some caveats, that these changes offer opportunities to pursue an exciting research agenda. Since China implemented its open- door policy in 1978 and moved toward a socialist market economy, it has experi- enced rapid economic growth. One characteristic of this change has been the relative decline of large SOEs and the expansion of the number of small enterprises. Although the role of small businesses in creating economic devel- opment in the advanced economies is well documented, the exploration of the extraordinary growth of small business in the transition economy of China is less understood. From a position of no pri- vately owned small businesses in 1979, by 1999 there were more than 10 million small to medium-sized enterprises (SMEs) registered in China (Chinese Sta- tistics Bureau 1999), representing some 90 percent of all firms. These small firms made an increas- ingly important contribution to national income and employment at a time of rel- ative decline of the contribution of larger firms. Moreover, these changes have to be set in the context of an extremely tur- bulent and uncertain political environ- ment. The purpose of this paper is to demonstrate the expanding role of small firms within the changing sociopolitical context of China. Economic Tranformation China is the world’s oldest state (Tam and Redding 1993), with a traceable history of over 3,000 years. Recently, there have been radical ideological and practical changes in state attitudes to enterprise and ownership. The year 1978 marked the beginning of a series of radical changes from the state-controlled centralist command economy that previ- ously had followed the Soviet model of central planning based on the control of inputs and outputs. China implemented major economic reforms to create an open-door policy (Davies 1995). This represented a shift from a centralist- planned economy to a new market-based socialist economy. In the long run, this was intended to prepare China for enter- ing the global market (Tseng, Ip, and Ng 1999), a reflection of the commitment to Journal of Small Business Management 2003 41(3), pp. 310–316  GLOBAL PERSPECTIVE The Increasing Role of Small Business in the Chinese Economy by Alistair R. Anderson, Jin-Hai Li, Richard T. Harrison, and Paul J. A. Robson