Beijing is roping in the help of some 3,000 "small giants" in 2022 to sharpen China's edge in technology and manufacturing, even as it continues to clamp down on its homegrown tech behemoths Tencent and Alibaba.
China's Ministry of Industry and Information Technology announced Monday that it will identify about 3,000 strategically important startups and micro-, small-, and medium-sized enterprises (SMEs) for its official "small giants" ("小巨人" , pronounced xiao ju ren) list this year. This is almost two-thirds the size of the 4,762 currently on the list.
The "small giants" list, introduced in 2019, is Beijing's attempt to discover and nurture innovative startups and small companies across the country in sectors of national importance. The list grants added prestige that can help firms when fundraising. Startups can also benefit from a host of government programs aimed at helping these companies grow and scale up.
Keanda Electronic Technology Corp., based in tech hub Shenzhen in south China, manufactures systems and products for rail systems. It was named a "small giant" in 2019 and was publicly listed seven months later on Shenzhen Stock Exchange.
The program underscores Beijing's continued shift towards relying on other segments of China's economy and society to achieve a broader distribution of wealth and to sharpen its global economic competitiveness.
"SMEs are playing an increasingly important role to Beijing but large corporations, including state-owned enterprises, always have a role to play in the Chinese economy," said Kenneth Huang, associate professor at the National University of Singapore.
President Xi Jinping stressed in 2019 the importance of small enterprises to China's economic, manufacturing, and technological prowess. Today, some 90% of the 4,762 on the small giants list are in manufacturing or focusing on high technology.
"This program does not simply show a newfound preference for small firms over large private ones, it is also part of a comprehensive strategy to build production chains threatened by the possibility of US-China decoupling," said Barry Naughton, a professor and China expert at the University of California, San Diego.
It also makes economic sense for Beijing to give more support to SMEs. Official figures show that they contributed to more than 60% of China's GDP in 2018, half of tax revenue, and account for 80% of employment.
Some of the issues that China hopes SMEs can help with include overcoming bottlenecks in producing core technologies, and securing supply-chain stability and competitiveness. Beijing's latest announcement could also be seen as giving startups and SMEs a lift even as the COVID-19 pandemic weighs on economic growth. China aims to nurture 10,000 "small giants" by 2025.
The list also coincides with Beijing's crackdown on its homegrown Big Tech players beginning November 2020.
China's central government has since tightened offshore-listing rules for tech companies, launched antitrust probes against them, strengthened its oversight on data security, and targeted issues surrounding labor and consumer rights related to Chinese tech giants.
"In Beijing's view, the big internet platforms have not done enough to develop the strategic core technologies that can ultimately make China self-reliant," said Valarie Tan, a Berlin-based analyst at European think tank Merics.
"What Beijing ultimately wants is to create China's own versions of ASML to not only be self-sufficient but also dominate the global supply chain in strategic niche advanced technologies which are highly demanded in the global market, yet extremely difficult for competitors to replicate."
China outlined in 2015 its technological ambitions in a strategic 10-year plan named "Made in China 2025." That, however, became a lightning rod in Sino-US relations after Donald Trump took the White House and precipitated a trade war that continues to simmer.
After scaling back its ambitions, China recognized that it needs to make significant investments into its broader economy so that it can replicate the global supply chain within its shores.
Last year, the central government introduced its 14th Five-Year Plan, writing: "SMEs are important pillars of resilience for China's economy and labor market, and they are now imbued with more new purpose in light of new domestic and global realities."
