China: future industry leader from 2025?

In the Beijing region, the Landsky Techno-logy company is inventing new lighting systems. One of them was used to illuminate the national stadium at the Olympic Games. 2,000 kilometers away, in the province of Guizhou, FlexBot provides parts for the autonomous car. In the Hubei region, Kofon Motion Group produces machines for peeling crayfish – a dish the Chinese love – but also engine components. These three SMEs have received an official stamp: they are among some 8,000 “little giants” already identified in all provinces by the Chinese state, which intends to bring out 10,000 by 2025.

Behind one of these colorful formulas of which China has the secret is a project dear to Xi Jinping. The expression appeared as early as 2020. The Ministry of Industry and Information Technology then defined it: “The “little giants” are still at an early stage of their development, focus on new generations of information technologies, cutting-edge production tools, new energies, new materials, biotechs and all other cutting-edge sectors.”

Criteria to be fulfilled

To qualify for this label, which entitles them to subsidies, tax breaks and credits, SMEs must meet specific criteria: carry out R&D, have filed patents attesting to their innovative character and above all appear on the list of sectors identified by the State. Sectors where China is encountering supply problems and intends to strengthen its autonomy. “China is lagging behind in the manufacture of some sophisticated industrial components,” the ministry said on March 8.

Freeing oneself from dependence on Western groups: this imperative haunts the Red Emperor. “As early as 2006, the government was talking about “indigenous” technologies, recalls Françoise Huang, economist specializing in China at Allianz Trade (formerly Euler Hermès).

The Made in China 2025 plan, announced in 2015, already listed the industries for which China wanted to become the leader by 2025.” If Beijing has erased the reference to Made in China, the same logic remains at work .

“This policy is part of a five-year plan shaped by Sino-American tensions,” adds sinologist Alice Ekman, author of Bright Red: the Chinese Communist Ideal (Champs Actuel). For the past two years, the supply difficulties linked to Covid have also reinforced Xi Jinping’s conviction that the Chinese economy should be more resilient. And the Ukrainian conflict only served to drive the point home. “The sanctions taken against Russia remind China of the need to strengthen its autonomy, says Alice Ek-man. The government has realized that certain players are essential to global production chains.”

In unveiling its industrial policy, the Chinese government did not hesitate to quote ASML, the Dutch group, which is creating a machine that is still out of reach for China. Sold for $150 million, it manufactures the latest generation of chips through the use of extreme ultraviolet rays. Hence the pressure from the Trump administration to block exports of these machines in 2019, a ban maintained by Joe Biden. To reduce the gap in this sensitive area, Xi Jinping has chosen the Shenzhen region to set up a sector there. The Bronze Technologies group has just inaugurated a 5,000 m2 industrial site there which will produce third-generation semiconductors.

Support from banks

Emphasis is also placed on robotics, an area where China is lagging behind Switzerland, Japan and Germany. The latest five-year plan also prioritizes “new technological infrastructures: IoT, 5G, artificial intelligence and big data”. In thirty years, China has created an industrial fabric of private companies. “The next step is to create a competitive innovation system,” summarizes Antoine Bondaz, researcher at the Foundation for Strategic Research.

“These objectives are part of a policy of upgrading manufacturing, develops the economist Françoise Huang. A fairly classic logic, which we have been able to find in other emerging countries.” But this support is done in Chinese style, following the logic specific to the “socialist market economy”. The State sets general objectives and supports companies that meet them. The key to this support are the banks. “The banking sector remains totally in the hands of the State: 90% of loans are granted by public banks”, specifies the specialist in the Chinese economy Jean-François Dufour, author of Made by China (Dunod). The label allows these “little giants” to obtain credits which they could not normally claim. Public banks act as a transmission channel. “It’s sort of Chinese-style venture capital,” smiles Jean-François Dufour.

Under party control

Beijing intends to promote collaboration between these “little giants” and the large state conglomerates, which can finance them directly, via investment funds or incubators which some have set up. Successful cooperations have already emerged. “Around the two major Chinese missile manufacturers Casc and Casic has appeared a new generation of very innovative companies, which are developing like SpaceX”, explains Antoine Bondaz. Examples that Xi Jinping would like to see multiply.

The ties of these small private companies with the Chinese state will strengthen as they grow in power. “As soon as one of them becomes important, the link with the Chinese Communist Party is established more directly, believes Jean-François Dufour. This often involves the creation of a cell within the company. .” Some may be tempted to emancipate themselves, like the giant Alibaba and its turbulent founder, Jack Ma. He was sidelined and the group has since been in the crosshairs of the authorities. If the tech giants forget where they came from, Xi Jinping is in charge of refreshing their memory.

Beijing is targeting several sectors: Bronze Technologies (1) will produce 3rd generation semiconductors; Landsky Technology (2) stands out in high-tech, one of its systems was used to illuminate the national stadium during the Olympic Games; Kofon (3) works in robotics, developing engine components, and shelling crayfish!

Some 8,000 companies have been identified in all provinces by the Chinese state, which intends to bring out 10,000 “little giants” by 2025.