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hydropower can prove to be one of China's most valuable natural resources. If hydropower was harnessed at such a volume as to provide for other neighboring.

Capital Formation 资本形成
Since 1992, with the renewal of economic reforms, China has enjoyed faster economic growth, with a rate of nearly 10 per cent annually, while its external trade grew by more than 15 per cent a year (Zhai and Wang 2002). During this period, SMEs expanded rapidly in all sectors. Rural SMEs, which include almost all TVEs and all rural household and PEs, produced about one-third of China's GDP since 1996 and employed over 130 million rural workers. Urban SMEs, comprising small- and medium-sized SOEs, urban collective enterprises (COEs), urban household and private firms, and enterprises with other ownership forms, mainly joint venture (JV) enterprises, produced about another one-third of GDP and employed 115 million urban workers (Sun 2000).

The significance of SMEs has continued to grow in China. SMEs not only help to expand the scale of the market economy, but also contribute to the creation of the system of the market economics as a whole. Most management systems in China, for instance, began first in SMEs

and then became widespread (Fan 2003). The important role of SMEs in China suggests that their development is critical for sustained growth of the economy.

Increasingly, China may have also have benefited from a further element of domestic competition. Even in the command economy period, for instance, the central plan controlled probably less than half of industrial output (Brandt et al. 2008). Over the last three decades of much more open markets, scope was given to decentralized experimentation in novel institutions and forms of organization (Brandt and Rawski,2008). The provision of tax receipts has also led local governments to compete against each other by concentrating spending on productive investment and trying to create hospitable economic environments designed, in particular, to attract FDI (Qian and Weihgast, 1996)

China's trade and investment reforms and incentives led to a surge in foreign direct investment (FDI), which has been a major source of China's capital growth. Annual utilized FDI in China grew from $636 million in 1983 to $61 billion in 2004. FDI will continue to pour into China as investment barriers are reduced under China's WTO commitments and Chinese demand for imports continues to increase.

Improvement in the production is the most literal interpretation of technical progress, result from a combination of research, innovation, and development. Since the founding of the People's Republic, industrial development has been given considerable attention. Among the various industrial branches the machine-building and metallurgical industries have received the highest priority. These two areas alone now account for about 20-30 percent of the total gross value of industrial output. In these, as in most other areas of industry, however, innovation has generally suffered at the hands of a system that has rewarded increases in gross output rather than improvements in variety, sophistication and quality. China, therefore, still imports significant quantities of specialized steels. Overall industrial output has grown at an average rate of more than 10 percent per year, having surpassed all other sectors in economic growth and degree of modernization