China names pioneer team of state firms to take pole position in race to tech’s bleeding edge

A select group of China’s state-owned enterprises (SOEs) has been designated as the vanguard of development for emerging and future industries, another step in Beijing’s campaign to break through to the bleeding edge in technologies like artificial intelligence, neuroscience, quantum computing and nuclear fusion to reorient its growth model and counter containment attempts from the West.

The State-owned Assets Supervision and Administration Commission (SASAC) – which oversees 97 large industrial conglomerates – launched a pioneer scheme on Friday for major conglomerates to cultivate unicorn companies and tech start-ups to form clusters and work for new innovations, with the commission promising ample support and resources along the way, state outlet Xinhua reported.

The scheme is seen as the state assets watchdog’s answer to President Xi Jinping’s exhortations to develop “new quality productive forces”, an overall strategy to spur growth for the world’s second-largest economy through home-grown innovation while mitigating the effects of tech export bans and the vagaries of geopolitics.

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SASAC director Zhang Yuzhuo said at the country’s annual parliamentary sessions last month that central SOEs – those controlled by the central government – will earn 35 per cent of their income from strategic industries in 2025.

Several up-and-coming tech subsidiaries nurtured under their larger state parents within the past three years made the initial round, including China Telecom’s Telecom Quantum, China Aerospace Science and Technology Corp’s Rocket Medical and an AI-powered geological survey company operating under China Coal Technology and Engineering Group.

“SASAC has given a clear mandate that developing emerging and future industries is a pivotal task. While cultivating start-ups and units within their ecosystems, SOEs will also tap external investment and merger opportunities,” wrote Lin Xipeng, an analyst with China Merchants Securities, in a note on Monday.

Hu Yongjun, an official with the State Information Center under the National Development and Reform Commission – the country’s top economic planner – told state media last week it would be urgent for China to plan in advance to be a leader in the global tech race.

“It’s exigent to have forward-looking plans for future industries, when America and Europe have launched similar programmes. History offers lessons about China’s failure to cultivate competitiveness in photolithography machines, industrial software and operating systems, the future industries in the 1970s and 80s,” he said, adding this had led to the West’s current “chokehold” on China’s tech development.

But Fu Weigang, president of the Shanghai Institute of Finance and Law think tank, has questioned whether SOEs – especially the lumbering giants under the central government – will be nimble and flexible enough to lead the hi-tech charge.

“There are risks and uncertainties when SOEs run tech firms. A not so distant example is how the [Communist Party media outlet] People’s Daily spent huge to launch a search engine but failed. There could be a repeat of such failures in realms like AI,” he said.

“One underlying reason is that the core assets of hi-tech firms are usually technologies and researchers, but [they] can be undermined when many SOEs cap pay and bonuses and prioritise other issues over efficiency.”

This is not the first instance of Beijing choosing a select group of companies to advance national objectives. In recent years government support has been levied to form an army of small-yet-successful “hidden champions”, as well as a cohort of small but advanced “little giant” tech manufacturers. However, most of the beneficiaries of these initiatives were private SMEs.

They may wonder whether government support for them will be pared back to favour SOEs

Alex Ma

Alex Ma, an assistant professor of public administration with Peking University, said those prospective “hidden champions” and “little giants” could worry about being left behind as a “national team” of SOEs joins the tech crusade.

“They may wonder whether government support will be pared back to favour SOEs, or even if they will be acquired,” he said.

“The hope is that there could be synergy, as hidden champions and little giants focus on advanced manufacturing while SOEs strive to attain breakthroughs in future industries.”

South China Morning Post