Executive Summary Small and medium scale enterprises (SMEs) have become play an integral determinant in the growth and development of the economies of many nations. In this paper, the impact that SMEs have on individuals, nations and the world at large have been discussed. The paper has also focused on the theory and research that is available to SMEs. It has also focused on the models that have been advanced to support the operations SMEs. A critique of the available literature was also conducted. From this analysis, it was found that the government plays a critical role in the incorporation and sustainability of SMEs in the short run and in the long run by providing financial, technical and technological assistance. Thus, with its findings, this paper clearly highlights the importance of SMEs in the process of economic development and the role played by the government in achieving this goal. Introduction The goal of any business entity, organization or government is to ensure that its operations are sustainable in the short run and in the long run. To achieve this, scholars have come up with different strategies and plans. China for example, is a nation that has been exhibiting positive economic growth for the last several decades (Kameyama and Kobayashi, 2010). The country is renowned by the key role that it plays in technological development. However, to ensure that its economy is sustainable in the long run, the Chinese government has put a lot of emphasis from the beginning of the 21 st century with the establishment of small and medium enterprises (SMEs) by its citizens and foreign investors as well (Kameyama and Kobayashi, 2010). The Chinese government views SMEs as economic investments that not only enable their economies to grow and become sustainable but as means through which their nations can increase the rate of employment as well as productivity. It is as a result of this that several studies have been undertaken to determine the effectiveness of SMEs in economic development. This paper will therefore focus on literature that surrounds SMEs. It will expound on the theories, models and research that surround the incorporation and management of SMEs. The paper will take a further step and critically analyse several articles that expound on the theories and models that it presented. This will create a deeper understanding of operation and management of SMEs in China and the world at large. Theories and Research on SME Development According to Berry, (2009), the main aim of SMEs is to achieve a given objective in the economy of a given nation. It is due to this fact that the burden of developing and sustaining SMEs lies in the hands of the government. The modern world is experiencing many challenges. Unemployment, increased in demand for goods and services, increased production costs and the fluctuation in the world economy are but some of the challenges that the world is facing. To overcome these challenges, scholars have come up with different strategies, SMEs being one of them. The Chinese regards SMEs as a basis in which an industry can be developed from (Kameyama and Kobayashi, 2010). However, it is essential to note that most of the governments that use or have used SMEs as avenues of developing industries are based developi