China’s ‘little giants’ are its latest weapon in the US tech war

That’s the designation for a new generation of startups that have been selected under an ambitious government program aimed at fostering a technology industry that can compete with Silicon Valley. These often-obscure companies have demonstrated they’re doing something innovative and unique, and they’re targeting strategically important sectors like robotics, quantum computing and semiconductors.

“This is helpful to startups in many ways: It’s a subsidy. It’s a grant. It’s an honour. It’s a stamp of approval,” said Lee Kai-Fu, founding managing director of the venture firm Sinovation. “What the country is trying to promote is more hardcore technology,” said Yipin Ng, founding partner of Yunqi Partners, a venture fund that is investing in little giants. “In that sense, this is more in line with what they are trying to promote – things that makes China more competitive.”

It was in 2018, with the trade war, that the central government began to seriously push the programme. MIIT announced a plan to create about 600 little giants that would develop core technologies. The procedure for winning the designation was designed to foster competition and identify the most promising companies.

MIIT has since expanded the programme to thousands of companies, with about 1,000 “priority little giants” at the top of the hierarchy. Members of this rarefied club, which includes Wu’s Uisee, receive direct funding from the central government. In January, the Finance Ministry set aside at least 10bil yuan to fund small and mid-sized enterprises until 2025, with the lion’s share directly financing the priority startups’ research. The goal is to create 10,000 little giants by 2025.

The little giants have become popular targets for venture capitalists, many of whom lost money on portfolio companies during Beijing’s crackdown. One VC said that some startups in the programme have been able to raise capital in the last six months while boosting their valuations by 50% to 75%. Another VC reportedly invests only in companies identified as little giants by the government.

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