Good luck trying to sanction China’s 4,762 little giants

The so-called “little giants” initiative is not new – it dates back more than a decade. But it wasn’t until 2018, after the US-China trade war heated up, that Beijing began to push this program in earnest. The government accelerated the pace last year, offering 10 billion yuan ($1.6 billion) in grants and subsidies and new funding channels. The new Beijing Stock Exchange, which opened in November, aims to support financing for innovative SMEs.

As of 2021, China has recognized 4,762 tiny giants, 74% in manufacturing and another 20% in scientific research and technology services, according to data compiled by HSBC Holdings Plc. The plan is to discover 3,000 more this year.

These small giants have nothing to do with big tech giants like Alibaba Group Holding Ltd. or Tencent Holdings Ltd. to do, whose businesses range from social media to cloud computing to e-commerce. You are highly specialised. Beijing-based ForwardX Robotics, which recently raised $31 million from a Series C funding round, makes robots for warehouses and logistics companies. They aim to dig deep into the global supply chain.

Certainly the West is ready to take a hit to make a mark. US-sanctioned Huawei Technologies Co., which once spent $11 billion a year on its suppliers. However, if the risk of disruption is too great, cold feet can result.

Even when it comes to Putin’s Russia. While the Treasury sanctioned oligarch Alisher Usmanov and confiscated his yachts and private jets, they freed his companies, many of which are key inputs to production. His companies supply half of the world’s trade in hot briquetted iron, a raw material for steel production. Officials fear a crackdown on Usmanov could send metal prices higher, the Wall Street Journal reported. Finally, inflation has already reached 7.9%, the highest since OPEC’s oil embargo in the 1970s.

Will the Treasury want to sanction a Chinese company that is a key supplier to American companies like Apple Inc. for the same reason? Sanctions are designed to harm your opponent, not yourself. While they lag behind in semiconductors and aerospace, Chinese firms are already leaders in batteries for electric vehicles, machine tools and robotics, according to Gavekal Dragonomics, a research firm.

US sanctions have clearly hurt China’s technological ambitions. Huawei’s 29% revenue decline last year was testament to that. But they also forced Beijing policymakers to bolster their economic vulnerabilities. Today they aim high by thinking little.

More from the Bloomberg Opinion:

China risks being caught by Russian sanctions: Shuli Ren

EU vs. China: Is there a global marketplace at all?: Lionel Laurent

Ukraine War Accelerates Shift to Private Markets: Mohamed El-Erian

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Shuli Ren is a columnist for Bloomberg Opinion covering Asian markets. After a career as an investment banker, she previously wrote about markets for Barron’s and is a CFA charterholder.

Leave a Reply

Your email address will not be published.