VC Eric Li says these firms will define China’s new economy — Quartz

China’s tech crack down has made clear that Beijing wants to shift its economy away from consumer internet firms.

But if these big tech firms have fallen out of official favor, what kinds of high-tech businesses would China rather prioritize?

The outspoken China-born, US-educated venture capitalist Eric Li argues that there’s a simple way to figure this out.

If the consumer internet era of the past two decades can be defined as “capital leveraging China,” Li said in a speech at an industry conference this month, then in the next two decades Beijing will want to ensure “China leverages capital.”

That may sound abstract, but it echoes preferences that Beijing has made clear in various official speeches and policy guidelines over the past two years.

For example, authorities have talked a lot about wanting to develop the “real” economy rather than just the digital economy (though they maintain that’s still important). Instead of directing tech at things like ride-hailing apps, food delivery services, and social media platforms, Beijing wants to use tech to boost its manufacturing prowess.

Industrial internet, industrial robots, advanced materials

Li identifies three specific companies that exemplify Beijing’s vision for its new economy.

One is Baibu, a platform for trading fabrics and digitizing the traditional textiles sector. As Li puts it, the aim is to link up China’s fragmented textiles manufacturing landscape to improve efficiency and reduce costs, and to turn physical factories into cloud-based factories capable of connecting thousands of looms.

Another company is UMA Intelligent Group (link in Chinese), which is developing industrial robots to automate the traditional welding industry—long a labor- and skill-intensive sector.

And the third company is Baiaoheng, which is developing a process of turning slag—a byproduct from the smelting industry—to make a cement-like material. Given China’s heavy investment in infrastructure and real estate, the country needs a lot of cement.

The companies that Li picked are examples of the kinds of “little giant” businesses that the Chinese government wants to promote.

“Little giant” companies are so called because they’re often smaller and little-known firms, but nevertheless have special products and know-how across various supply chains in different strategic sectors including advanced manufacturing, semiconductors, and critical minerals. Beijing has so far identified several thousand such “little giant” firms across the country.

Nurturing these “little giants,” as the official thinking goes, would help China become more self-sufficient. At the same time, embedding “little giants” in global supply chains would achieve another key objective: making other countries more reliant on China.