China is accelerating its cultivation of "little giants", or innovative small and medium-sized enterprises that have played a crucial role in helping the nation's supply and industrial chains withstand the fallout from the COVID-19 pandemic, officials and experts said.
The move highlights China's strong determination to mold such innovative SMEs into future champions in making components that, when in short supply, create bottlenecks in production. That is of long-term significance in strengthening the nation's technological prowess in strategically important industries such as chip-making, biotechnology and quantum computing, as well as in helping further buoy the nation's sprawling industrial economy.
The Ministry of Industry and Information Technology, the nation's top industry regulator, said it aims this year to cultivate 3,000 such little giants that specialize in niche sectors, command a high market share, and have a strong innovative capacity and core technologies.
That would bring the total number to almost 8,000 by the end of 2022. It is also part of the nation's plan to trigger the vitality of its small and medium-sized enterprises in its industrial economy. By 2025, China aims to grow 10,000 little giant companies, according to a government guideline on the development of SMEs during the 14th Five-Year Plan period (2021-25).
Xiao Yaqing, minister of industry and information technology, said recently that although little giant companies only account for a small proportion of SMEs in China, the average growth rate of their revenue, profit margins and patents is far higher than those of SMEs overall.
"Over 90 percent of enterprises in China are SMEs, and we hope that little giants will become models for other SMEs," Xiao said.
Favorable policies offered to little giant companies, including tax breaks, should be expanded gradually to other SMEs to better buttress industrial growth, he said.
Local governments are also significantly increasing their offers of favorable policy packages, including support in funding, talent and tax reductions for little giant companies. Anhui province, for instance, said it aims to cultivate more than 5,000 provincial-level little giants and 500 national-level little giants by 2025.
All this comes as innovative SMEs have sprung up and gained greater visibility for their increasingly important role in cementing the country's industrial strength amid the pandemic.
"If you randomly look into an industrial chain in China, you'll find countless dynamic small players in it," said Xu Xiaolan, vice-minister of industry and information technology.
China's industrial chain has withstood the impact of the pandemic largely due to the depth and breadth of its SME industries, she said.
Liu Xiangdong, a researcher at the China Center for International Economic Exchanges, told Xinhua News Agency, "After the impact of the pandemic, these small, specialized and innovative firms are becoming forceful propellers for the stable development of the Chinese economy."
In one such case, Kofon Motion Group, a little giant based in Huanggang, Hubei province, has seen one of its products, a crayfish peeling machine, become a fast seller. It is the first of its kind and designed with Chinese diners' appetite for crayfish in mind.
The machine, priced at 3 million yuan, can process about 1,000 crayfish per minute, doing in one day what it would take 50 people to complete.
It had garnered the company over 150 orders by late November, keeping its factory floor busy.
Another flagship product that enhanced the company's industrial presence is its proprietary planetary gear reducer, a key component of robotic machines. A planetary gear reducer maximizes rotational force or torque while decreasing the required number of motor revolutions at the same time.
The company has manufactured over 85 percent of the country's gear reducers used in machines that drill pipeline corridors during underground excavations, and more than 80 percent of the gear reducers used in vehicular gates for electronic toll collection.
Kofon is just one of the 4,762 little giant enterprises that China has incubated, adding to the innovative SMEs that have become an increasingly important component of innovation in China.
These companies focus on new generations of information technology, high-end equipment manufacturing, new energy, new materials, biomedicine and other premium fields, according to the MIIT.
Annual research and development spending exceeds 10 million yuan for more than half of the little giants, said Liang Zhifeng, head of the SME bureau of the ministry. Also, more than 60 percent are engaged in fundamental industrial techniques, and more than 70 percent have been deeply involved in an industrial niche for more than 10 years.
More than 80 percent were ranked No 1 in their niche in their home province. They often can be found taking part in major, national-level projects, including space exploration and high-speed railways, ministry officials said, adding that in the first nine months of last year, the operating incomes of little giants increased 31.6 percent, and total profits increased 67.9 percent.
"For China, innovation capabilities and well-rounded supply chains have played an increasingly prominent role during its economic development," said Li Chao, chief economist at Zheshang Securities. "The little giant companies, which are able to fill certain weak niches in the country, will help improve the industrial and supply chains, and enable China to become a manufacturing powerhouse.
"The country's latest move to support little giant companies will help them achieve technological breakthroughs, innovations and upgrades, and boost their core competitiveness in the face of increasing global competition."
A research note from CITIC Securities said that there are more than 370 little giant companies listed. It said they had maintained a positive growth rate and relatively high capital expenditures during the COVID-19 pandemic, showing that such companies were less affected by the pandemic and were still growing rapidly.
They will likely become future "hidden champions" like comparable companies in Germany, and may even make a big contribution to industrial growth, CITIC Securities said.
Yang Fan, chief analyst of policy research at CITIC Securities, said the central government and local governments are doubling down their policy support, which will boost the overall market value of listed little giant companies in the short term.
But he also warned that the valuation levels of little giant companies might diverge over time, adding that careful screening is needed for long-term investments.
Eager to further fuel SMEs' vitality, the MIIT said that this year, it will roll out more favorable policy support, such as encouraging large enterprises to open the way for SMEs in terms of markets, technologies and talent. More efforts will also be made to encourage SMEs to embrace digital transformation.
Yang Yuanqing, chairman and CEO of Lenovo Group, said SMEs are not only an indispensable part of the industrial and supply chains but also an important source of innovation and support for employment.
Established companies such as Lenovo should play a bigger part in driving the joint innovation and development of SMEs in both the upstream and downstream parts of industrial and supply chains, Yang said.
Qu Xianming, an independent manufacturing industry analyst, said innovative SMEs are a key link in the entire industrial chain, and their role is irreplaceable.
"China lags behind developed countries in making certain high-end industrial components, and efforts to nurture SMEs that specialize in one or two products can help the country achieve breakthroughs in crucial areas and complement its industrial structure. That is of crucial significance for China's long-term economic development," he added.