Chinese companies should employ professional consultants to improve quality, business models and processes, and reduce internal and external risks, according to an expert.

"Chinese firms, especially small and medium-sized enterprises (SMEs), lack the awareness to use consulting firms to sharpen their competitive edge," said Joseph Fu, founding partner and executive director of JFU Consultants, which offers services across governance and operating platforms for sustainable growth.

Fu has worked in the industry advising multinationals and government agencies for over 25 years and was named one of China's top advisors by the International Tax Review and Euromoney.

Fu said despite rapid and aggressive growth by Chinese SMEs in the past few decades, risks still exist in their financial systems, business modeling, internal controls and human resources systems.

"For instance, building a modern financial system is exceedingly important for a company's sustainable development. But many Chinese SMEs neglect it and even have an aversion to professional financial operations," said Fu.

He added that it's a common practice for SMEs in developed countries to hire consultants to design financial systems.

Fu said as China increasingly merges into the global system, Chinese SMEs will have to compete with foreign counterparts, and thus they should learn to seek help from professional consulting firms.

"Professional consulting firms could help SMEs boost business operation efficiency, reduce operating costs, and systematically shape their core competencies through business restructuring, service sharing and outsourcing," Fu said.

Fu also said China's unified corporate income tax law, which will take effect on January 1, 2008, would not have a serious effect on China's ability to absorb foreign investment.

The new corporate income tax law, which unifies the income tax levied on domestic and foreign enterprises to create a level playing field, will introduce a single tax rate of 25 percent, replacing the existing two-system tax. The new tax rate is lower than the average tax rates of neighboring countries in an effort to increase companies' competitiveness and to enhance China's attraction to foreign investors.

"The law provides all market players with a more transparent, stable and predictable tax system," Fu said.

For foreign investors, the loss of a broad incentive system and preferential tax rate will urge a new approach to their business models, investment structures, site selection and financing strategies, according to Fu.