China Focuses on Nurturing 'Small Giants' Amid US-China Conflict

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyun-ui Cho] Chinese authorities are focusing on nurturing so-called 'small giant' companies to achieve technological self-reliance amid the US-China trade conflict.

Bloomberg reported on the 24th (local time) that "the small giant company nurturing policy has been in place for more than a decade, but its presence is becoming more prominent as Chinese authorities tighten regulations on large information technology (IT) companies."

The small giant company system was introduced in 2005 by the local government of Hunan Province to support small and medium-sized enterprises, but was later developed into a nationwide system by the central government’s Ministry of Industry and Information Technology.

Companies designated as small giants receive various benefits such as tax reductions and preferential loans. It is also interpreted as a sign that they are exempt from government regulations, which can attract significant investment from investors.

Bloomberg stated, "The US-China trade conflict has led the Chinese government to pay more attention to this system." Seeing domestic giants like Huawei and SMIC falter after being blacklisted by the former Donald Trump administration, China decided to pursue technological self-reliance.

The Ministry of Industry and Information Technology has designated 4,762 small giant companies in strategic fields such as semiconductors and enterprise software since 2019 to concentrate resources on strategically important technologies.

The Chinese Ministry of Finance has also allocated 10 billion yuan (approximately 1.879 trillion KRW) in support funds for small and medium-sized enterprises, aiming to create 10,000 small giant companies by 2025.

However, there are concerns about significant risks associated with these policy changes. China's success in the technology industry was possible because founders like Ma Yun of Alibaba and Zhang Yiming of ByteDance were able to freely establish their businesses.

Chinese authorities have followed the Silicon Valley model, allowing entrepreneurs to freely demonstrate their capabilities, which led to the emergence of big tech companies such as Alibaba, Tencent, and ByteDance.

Barry Naughton, a professor at UC San Diego, pointed out, "Reversing this model and focusing on government-set priorities could lead to resource waste and failure."