[Salon] Accelerator state: How China fosters "Little Giant" companies

[Chas Freeman <cwfresidence@gmail.com>]

https://merics.org/en/report/accelerator-state-how-china-fosters-little-giant-companies

Accelerator state: How China fosters "Little Giant" companies

Key findings

• High-tech small and medium-sized enterprises (SMEs) have emerged as key new players in China’s industrial policy: They have the potential to specialize in niche markets, develop domestic alternatives to foreign inputs and reinforce China’s industrial chain. Beijing has established a comprehensive support system for these firms, as originally outlined in the Made in China 2025 strategy.
• The emergence of an “accelerator state” in China marks a dramatic extension of the industrial focus of Chinese policymakers towards smaller companies: Previous industrial policy primarily directed resources to larger firms to achieve strategic goals. Smaller firms are now seen as valuable sources of innovation.
• Beijing’s tiered-cultivation combines state guidance with market forces: China has developed a dynamic multi-level evaluation and support system, active at the local, provincial and national levels, to first identify specialized high-tech SMEs and then fast-track their growth.
• Government-certified high-tech SMEs are labeled as “Specialized SMEs” or “Little Giants”: They benefit from a comprehensive system of direct and indirect state support. But these firms cannot rest on their laurels as the system is set up to promote competition and after three years the government support has to be earned once again.
• Officials are channeling ever more finance towards high-tech companies: Beijing has mobilized public financial institutions and is pushing private investors to direct capital towards government-certified start-ups and SMEs, worth tens of billions of yuan. The government has increased loan financing through the banking system and expanded access to equity markets for high-tech SMEs.
• The support system seeks to cover all the needs of its SMEs: The government is encouraging all state-connected entities to help high-tech SMEs. This means more state subsidies and R&D support, increased collaboration with universities and research institutes and a more favorable intellectual property system. Officials are also directing large firms to act as financiers, clients and mentors.
• The model presents both risks and rewards: The system is channeling more funding to high-tech SMEs. Several state-backed firms such as Leaderdrive and Endovastec in the robotics and MedTech sectors are advancing self-reliance in core technologies. Yet, there are also signs of weaknesses. The system relies on the capacity of officials to identify the most promising firms, which may be flawed. Support measures could result in significant bad investments and misuse of funds.
• Foreign companies need to be prepared for the challenge: Foreign manufacturing firms ought to be wary of the large pool of state-backed SMEs which could target their core business area. In addition to increasing competition within China, Little Giants have already begun their entry into foreign markets.

Full report attached

Attachment: MERICS Report Accelerator State_final.pdf
Description: Adobe PDF document