China promoting SME champions: “little giant companies”

China unveiled its largest-ever batch of 2,930 “little giant companies” – innovative small and medium-sized enterprises or SMEs – recently, which shows the country’s strong determination to mold such firms into future champions in bottleneck sectors, industry experts said. According to the Ministry of Industry and Information Technology (MIIT), “little giant companies” refer to leading SMEs that specialize in niche sectors, command a high market share, have a strong innovative capacity and core technologies. Industry experts said that they are comparable to the “hidden champions” of Germany – small-sized leaders in highly specialized global markets. MIIT data showed 90% of the third batch of little giants are from the manufacturing sector, with 80% of them topping the market share in a certain vertical niche in their own provinces.

A report from CITIC Securities found that listed little giant companies have outperformed other types of companies in terms of revenue growth and potential profitability. More than 300 little giant companies are listed in the A-share market, with a total market value of over CNY2.96 trillion. The 10-year average net profit growth of such companies is about 28%, significantly higher than that of other companies. By 2025, China aims to develop 10,000 little giant companies and 1,000 single-product champion enterprises. This is an important strategic step to boost the resilience of the manufacturing industry chain to be more self-supporting and competitive in bottleneck sectors. The country has already identified 4,762 such little giant companies. More than one-fifth of them have a market share of 50% each in the domestic market. They can be found in major national-level projects, including space exploration and high-speed railways, the MIIT said. The CITIC Securities report noted that the return on equity (ROE) rates of listed little giant companies saw a steady increase since 2015 and had reached 10% on average.

At the same time, the combined gross profit rate of such companies also exceeded that of those listed on the ChiNext board of the Shenzhen Stock Exchange, showing that the core competitiveness of such companies has improved greatly. With a research and development rate of 6%, listed little giant companies outpaced the overall A-share market, but the figure is significantly lower than that of companies listed on the Science and Technology Innovation Board, or the STAR Market of the Shanghai Stock Exchange. They have maintained a positive growth rate and relatively high capital expenditure during the Covid-19 pandemic last year, which showed that such companies were less affected by the pandemic and were still growing rapidly. “The little giant companies, which are able to fill in certain weak niches for the country, will help improve the industry and supply chains, and enable China to become a manufacturing powerhouse,” said Li Chao, Chief Economist of Zheshang Securities. “On the other hand, the country’s latest move to support little giant companies has helped them achieve technological breakthroughs, innovations and upgrades, and furthermore, boosted their core competitiveness in the face of increasing global competition,” the China Daily reports.