China’s Little Giant

Merics Report

Nice topic how china success to fosters their Little Giant Companies

The MERICS Report titled “Accelerator State: How China fosters ‘Little Giant’ companies” provides an in-depth analysis of China’s evolving industrial policy, focusing on the promotion and support of high-tech small and medium-sized enterprises (SMEs). Here’s a summarized overview:

• Emergence of High-Tech SMEs: These companies are crucial in China’s industrial policy, specializing in niche markets and developing domestic alternatives to foreign inputs.
• Shift in Policy Focus: Previously, Chinese policy focused on larger firms, but now there’s a significant push towards smaller, innovative companies.
• Tiered-Cultivation System: A multi-level support system is in place to identify and fast-track the growth of specialized high-tech SMEs.
• “Specialized SMEs” and “Little Giants”: These are government-certified high-tech SMEs that receive extensive support but face competition and re-evaluation every three years.
• Increased Financing: The government is directing significant financial resources towards high-tech companies, increasing access to loans and equity markets.
• Comprehensive Support System: This includes subsidies, R&D support, collaboration with universities, and a favorable intellectual property system.
• Risks and Rewards: While the system has successfully fostered companies like Leaderdrive and Endovastec, there are concerns about misallocation of resources and the efficacy of officials in identifying promising firms.
• Challenge for Foreign Companies: Foreign firms face increasing competition from these state-backed SMEs, both within China and globally.

Detailed Insights

• Government Strategy: The report details the Chinese government’s strategy to cultivate a robust domestic high-tech sector, including financial incentives, market access, and R&D support.
• Impact on Foreign Business: The growing competence and global reach of these SMEs pose a significant challenge to foreign companies in similar sectors.
• Challenges and Criticisms: The system’s dependence on government selection and support raises questions about its long-term sustainability and effectiveness.
• Global Implications: The rise of these SMEs is likely to have significant implications for global markets, especially in high-tech industries.

Conclusion

China’s focus on fostering high-tech SMEs through a comprehensive state-backed system marks a significant shift in its industrial policy. While this approach has successfully cultivated a number of promising companies, it also presents challenges, both internally in terms of resource allocation and externally in terms of global market dynamics.