Germany is considered a country of “hidden champions”. Countless small and medium-sized companies are successful in this country with special products in strategically important sectors of the economy. What has been bothering larger companies for some time is now threatening them too: competition from China. Xi Jinping’s government is supporting thousands of small and medium-sized high-tech companies, from mechanical engineers to electromobility specialists. The long-term goal: to replace foreign imports with innovative products produced on the domestic market.
Back in 2018, Beijing started a German-inspired program to breed so-called “Little Giants”. It is intended to help promising companies grow into “little giants” in their fields. The program just received a new boost when Prime Minister Li Qiang demanded that Chinese companies develop key technologies to ensure the country’s economic security. Beijing’s goal today is less growth (and therefore less trade with the West) and more technological independence.
Beijing’s means of promoting smaller high-tech companies are rich: a dynamic, multi-tiered evaluation system helps to find innovative companies. Provincial governments have identified 98,000 “specialized high-tech companies”, while national authorities have identified more than 12,000 particularly promising “little giants”
have selected.
Easy ways on China’s stock exchanges
Anyone who wants to be included in the funding program must work in one of ten priority sectors. These include, for example, control technology, electric cars or medical devices. Further evaluation criteria include a company’s potential to replace imports from abroad with its products or a relevant global market share for innovative niche products.
Thanks to government support, those chosen can cooperate with large companies and universities. They are also supported in matters of intellectual property – and, above all, financially supported. The state has been at their side as a patient investor right from the start, with support flowing from state funds and cheap loans from Chinese banks that advise the “little giants” in departments created specifically for this purpose.
Companies can also raise capital more easily on the stock markets thanks to simplified entry requirements. 2022 went 40 percent
of the listings on the stock exchanges in Shanghai, Shenzhen and Beijing to “little giants”. In September, for example, Hubei Kait Automotive raised 133 million Chinese yuan (around 15 million euros) from its IPO in Beijing. The supplier of automotive electronics and sensors counts the Chinese car manufacturer BYD and Volkswagen among its customers.
There are numerous “little giants” supporting China’s rise in electric mobility. Guizhou Anda produces battery materials for major Chinese manufacturers such as CATL, BYD and CALB. The company was listed in March 2023 Stock exchange in Beijing
listed and raised 650 million yuan (around 88 million euros). Welion, a provider of high-performance solid-state batteries, is rapidly expanding its production capacity and plans to until 2025
to go public. The firm has already signed up Nio as a customer and has reportedly attracted interest from companies such as Volkswagen and Mercedes-Benz.
Around 40 percent of exports could be threatened
China’s pursuit of its own hidden champions challenges not only German but also European companies. They could lose market share in China and worldwide. The most important export goods from the EU to China are machinery and vehicles; overall, Europe exports goods worth 230 billion euros there. Around 40 percent of these could be threatened by Chinese competitors.
Foreign companies producing in China are less vulnerable to China’s efforts to secure supply chains. But domestic competition is becoming stronger, especially in sectors that China defines as strategically important. For example, mechanical engineering, in which above all German companies
are active in China.
Europe needs to act in the face of the growing “little giants”. Chinese industrial policy cleverly combines state control and the use of market mechanisms. The difficult-to-analyze network often makes it difficult for political actors to support their demands for fair competition with Chinese interlocutors with concrete data. The EU must support its own hidden champions. Investments are necessary, for example in institutions such as the EU Commission’s SME Trade Protection Helpdesk for small and medium-sized enterprises.
Affected European companies, in turn, must better protect their core technologies and intellectual property when dealing with China. They should see China’s ambitious high-tech company program as a wake-up call. The times when European companies were unassailable in China due to their specialization and technological advantage are coming to an end. The European automotive sector is currently seeing its skins slipping away in the area of e-mobility in competition with China, and the hidden champions could be next.