context: A new initiative aims to transform young high-tech SOEs (state-owned enterprises) into the PRC’s next generation of tech unicorns. Li Jin 李锦 one of China’s most active SOE reform commentators, contextualises the new initiative.
Success of the Qihang enterprises will hinge on deepening SOE (state-owned enterprises) reform, argues Li Jin 李锦 China Enterprise Research Institute chief researcher, highlighting the need for
- evaluations shifting from traditional mindsets focused on short-term profits to long-term indicators, as innovative startups may remain unprofitable for years
- tolerating failures, as innovation involves trial-and-error
- allowing exploratory approaches where the business scope changes and is not defined up-front
- willingness to take legal risks
- e.g. Didi grew its bicycle sharing platform at a time when there was close to no regulation because Didi only created the market
- incentives for tech talent cultivation
- clarifying the relation between Qihang enterprises and existing alternative SOE management structures, such as
- mixed ownership
- capital operators like Guoxin and SDIC
- government guidance funds
Such reforms, Li argues, will form the ‘new relations of production’ that are needed to unleash ‘new productive forces’.
The PRC has the second most unicorns of any country, but almost none of them are SOEs. The reasons are historical, Li explains
- the PRC's first generation of unicorns was established in the late 1990s (Tencent in 1998, Alibaba in 1999, Baidu in 2000)
- at that time, central SOEs were busy undergoing a major reform that was announced at the first plenum in 1997 an ran from 1998-2001
- after the reform, the influence of SOEs was reduced and focused narrowly on defence, natural resource and pillar industries (metallurgy, machinery, chemicals. etc.)
- rare cases of SOEs trying to compete with internet companies failed, such as China Mobile’s ‘Fetion’ mobile communication app which was marginalised by Wechat in the 2010s and eventually shut down in 2022
This historical disadvantage of SOEs could change in the future, Li contends. As modern technologies are integrated with manufacturing, including in traditional industries, SOEs have unique advantages.