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https://scmp.com/comment/opinion/article/3166110/forget-big-tech-chinas-new-motto-little-giants-stay-small-and-dont Comment
Forget Big Tech: China’s new motto for ‘little giants’ is stay small and don’t stray
- By shunning the traditional business motto ‘become big and strong’, China’s ‘little giants’ plan aims to reshape its economy around small, niche firms
- Like other industrial policies, risks remain that some firms vying for a position in the new scheme will suck up resources with little to show for it
China is encouraging the development of small, specialised tech firms in an effort to reshape the economy, but it comes with risks. Photo: Shutterstock
Many Chinese businesses have long lived by the motto “zuo da zuo qiang”, or “become big and strong”. A company in need of consolidation may put “strong” ahead of “big”, but getting big remains the ultimate goal.
The strategy of seeking scale has been popular because it fits China’s economic and business environment in recent decades. Bigger businesses are often better positioned than smaller ones not only to grab more market share, but also to secure favourable policies, bank credit and investment. In many ways, whether a small business can survive is determined by how fast and big it can grow.
China’s latest plan to forge an army of “little giants”, therefore, is extraordinary. The government is essentially seeking to persuade the country’s entrepreneurs to be less ambitious about scale and instead focus on specific niche areas.
The state plan includes two parts. The first involves trying to determine the country’s promising start-ups and small businesses so the government can help them develop. The second part involves keeping those businesses focused on particular products or areas without expanding into unrelated fields. In Beijing’s own language, the companies must remain “focused, refined, special and innovative”.
China aims to have 10,000 of these little giants by 2025, according to the plan. In 2022 alone, China will work to spot about 3,000 such companies. In addition to “state-level” little giants, Chinese provincial and municipal authorities are expected to find their own little giants to shower them with subsidies and grants.
In an ideal scenario, successful execution of the plan will reshape China’s economic landscape – a vast number of technologically powerful players will dominate many niche products and solutions. Together, these firms would make China a big and strong economy instead of just a big one.
At the same time, the plan could face challenges similar to those of other industrial policies. The state is essentially trying to outsmart the market by deciding which businesses should be encouraged.
Early on, there will be many Chinese enterprises seeking state recognition as a little giant because the label will confer various benefits such as direct fiscal subsidies and tax cuts. A particular set of little giants are expected to eventually emerge as the true winners in the marketplace with the state’s help.
Still, risks remain that other firms vying to become little giants fail to take off, and instead become vessels sucking up resources that could have been better used elsewhere.