A Force Distance Times paper describes the fascinating “little giants,” “single champions” programs.
A lot has been said over Chinese industrial policy over the years, so much so that – for example – phrases like “Belt and Road Initiative” or “Made in China 2025” are phrases you might recognize if you’re a relatively voracious news consumer.
How much do we really know how China prioritizes industrial planning and selects the companies to subsidizes? It takes work to sift through planning documents, not everybody reads Mandarin, and the Chinese government isn’t exactly transparent. You’ve got to know where to look.
But thanks to the work that went into a new research paper prepared for Force Distance Times we have a better idea of what that industrial policy looks like. It looks like little giants and state champions.
The former are thousands of small companies China thinks have a shot at mastering developing technologies and future supply chains. The latter are already-dominant Chinese companies that are a top-three entity globally in their specific market.
Back in the United States we’re setting its own industrial policies in place – like the Infrastructure Investment and Jobs Act, the clean tech-focused Inflation Reduction Act, and the CHIPS Act, which is pumping hundreds of billions of dollars into reestablishing a domestic semiconductor industry.
But hold up the CHIPS Act as an example: That program will put $280 billion into one industry considered singularly important to technological advancement. Chinese industrial policy is not like this. Here’s how the Wall Street Journal describes it:
While the U.S. plans to plow vast sums of money into a handful of companies in a bid to dominate global supplies of a single critical technology, China is pursuing a different strategy. In recent years, Chinese leaders have redirected ever more state funding to helping build self-sufficiency and dominance across a swath of industries, aimed at unblocking what Beijing has called technological “chokepoints” where it fears the U.S. and its allies can hamper its progress.
And the little giants and state champions, the paper argues, are the programs it will use to do it.
China has been at it with these two programs since at least 2011 and, the report argues, they demonstrate how that country’s industrial policy works:
In short, these programs are a primary way by which Beijing operationalizes its “Made in China 2025” national strategy, and broader industrial project. They reflect key actors, strengths, weaknesses, and priorities in that project. They also reflect its underlying ambition: Beijing’s goal is to become the global manufacturing superpower, and to claim corresponding global influence.
So what does a state champion look like? No, not Dolph Lundgren. The aforementioned Wall Street Journal article plucks an illustrative example of one from the report. Meet GRIPM Advanced Materials Co.:
Single champion GRIPM Advanced Materials Co., for example, specializes in advanced copper-based metal powders used to 3D-print aerospace components such as satellite antennas and rocket-engine combustion chambers. A subsidiary of a Chinese state-owned metals company, it leads in domestic production and accounts for almost 38% of the global market share for such copper-based powders, according to market-research firm Huajing Research, partly through a 2015 acquisition of U.K.-based Makin Metal Powders.
The company has said in media interviews that its goal is to become the world’s largest producer of all powdered metals, not just copper. One of its subsidiaries and an affiliate it has invested in were named “little giants” last year for their specialization in other metal powders. GRIPM didn’t respond to a request for comment.
And what does a “little giant” look like?
Little giant ComNav Technology Ltd., meanwhile, makes specialized computer chips and computer boards for high-precision navigation positioning, used in global navigation satellite systems such as China’s Beidou and the U.S.’s Global Positioning System. Its biggest client is Guangzhou-based single champion South GNSS Navigation Co., producer of high-precision receivers that communicate with satellites to triangulate coordinates on earth.
The founder of ComNav started the company after learning that South GNSS Navigation relied on expensive foreign suppliers of the same components, such as American company Trimble Inc., according to ComNav’s recent investment prospectus. South GNSS Navigation switched to buying from ComNav once it developed a more affordable homegrown solution, the prospectus said.
It’s that last part in bold, joined with the fact that ComNav’s largest customer is a state champion producer of satellite receivers, that shows a snippet of the industrial policy paying off and kinda reinforcing itself. It’s an investment paying off!
There are literally thousands of these companies, small- and mid-sized enterprises (SMEs) getting a boost from the Chinese government, at work right now. Many of them will likely not work out, but China is betting enough of them will.
If this doesn’t sound efficient according to what you learned in Econ 101, that’s because it isn’t, and the Force Distance Times report shows that’s by design. A lot of manufacturing supply lead to China and the Chinese government is trying to grow those dependencies. “Beijing’s supply chain leverage often goes overlooked because that type of power is unconventional and beyond the scope of traditional competitive frameworks,” argues the report. “Traditional statistics (e.g., per capita GDP, profitability) do not account for the strategic points of leverage that Beijing enjoys vis-à-vis the global system.”
The lil’ giants and the single champs are integral to this overall program:
Taken together, the “single champions” and “little giants” reflect Beijing’s efforts to develop what Dong Jingmei, a researcher at the State Information Center’s economic forecasting department, calls a “national level…ladder from ‘specialized and advanced’ SMEs, to ‘specialized and advanced’ little giant enterprises, to manufacturing single champions, in a cultivation hierarchy.” This hierarchy enables the Chinese government to incubate and guide thousands of manufacturing firms – to support China’s overarching ambition to become a global manufacturing superpower.