The Chinese government might be throwing its weight behind “little giants,” small startups specializing in deep tech, in a bid to reshape China’s economy, but the pivot is likely to be hindered by a lack of skilled workers.
The little giants program is part of the state’s ongoing support for the country’s small and medium enterprises as big tech firms focusing on consumer technology, education, and entertainment fall out of favor with the Chinese government.
According to Zou Lan, an official from the People’s Bank of China, little giants are homegrown SMEs with a “focus on specialization, refinement, uniqueness and innovation.”
These firms hail from industries of strategic importance to China, such as artificial intelligence, semiconductor manufacturing, robotics, blockchain, and biomedicine. Examples include Shanghai Westwell Information and Technology Co, a fast-growing company known for its driverless container trucks, and Shenzhen-based Keanda Electronic Technology Corp. that provides service and system solutions for rail transit.
Startups that fall into the category are eligible to receive state funding, which includes a lump sum of RMB 3–10 million (USD 473,000 to USD 1.58 million). They will have access to other special government funds, enterprise intellectual property protection, financing credit enhancement, and enjoy tax incentives and corporate tax reductions. The Chinese government will also extend support to these firms in the form of subsidies for technological innovation and through specialized personnel training.
To date, 4,762 companies in China have been awarded little giant status. The Ministry of Industry and Information Technology said it is aiming to cultivate 3,000 such firms by 2022.
In recent years, homegrown SMEs have faced numerous challenges ranging from rising costs of production to regulatory pressure. State assistance in the form of grants and subsidies can provide a lifeline for small enterprises, which are key players in China’s technology ecosystem. Based on statistics from the People’s Bank of China, SMEs make up 99% of Chinese enterprises and contribute to 60% of the nation’s national gross domestic product, 50% of tax revenue, as well as 80% of urban employment. Also, more than 40 million SMEs in China account for over 70% of technological innovation in the country.
Nevertheless, China’s effort to restructure its economy around little giants is likely to be hampered by challenges such as a lack of skilled labor. Based on a 2019 survey conducted by the People’s Daily newspaper on 100 Chinese SMEs, 73% said they faced difficulties in attracting qualified workers with the right skill sets.
One reason why SMEs in China struggle to find trained talent could be due to how they are perceived negatively. According to a 2020 survey conducted by the Ministry of Education on college graduates’ willingness to work in SMEs, 81% of the respondents feel that SMEs did not provide stable employment and had poor employee welfare.
Another reason why little giants are facing a growing talent shortage is linked to how their industries were considered undesirable by locals. Based on a recent report from South China Morning Post, sectors such as semiconductor design and manufacturing were deemed unattractive by Chinese students.
It remains to be seen if the skills crisis would be resolved anytime soon. According to a 2022 report on China’s AI workforce by Baidu and Zhejiang University, China is currently experiencing a shortfall of 5 million workers who are needed for its AI industry as the country produces only 20,000 AI graduates from local universities each year.