Beijing Is Manufacturing China's Next Generation of Small Caps

The "little giants" plan is a supply-side policy for China's small and mid-cap market. On 3 September, ten central government bodies published the 2026-2030 SME development plan. It targets 22,000 nationally recognised "little giants" by 2030 1. The stakes: the state is methodically widening the pool of specialised, profitable and eventually listable companies in its priority sectors.

The starting base is already broad. China had more than 17,600 national-level little giants in November 2025 2: the target still implies about 4,400 net new labels over five years. These companies spend on average 7% of revenue on R&D 7. Their average R&D spending exceeded RMB 30m per company in 2024 6.

The plan also sets quality targets, not just numbers: a rise of about 15% in revenue per employee at SMEs by 2030, annual R&D growth above 8%, and 600 specialised industrial clusters 1. It also promises a lasting mechanism against the late payments that hurt SMEs 1.

The objection is a familiar one. A label guarantees neither profitability nor governance, and a flood of public support can produce companies on life support. That is precisely why, in our view, this segment rewards selection. The top ten names account for only about 15% of the MSCI China Small Cap 3 and about 19% of the MSCI China Mid Cap 5, against about 42% of the standard MSCI China 4: the depth is there, the concentration is not.

The bottom line

We think China's small and mid-cap market is set to widen under state impetus, in robotics, new materials, AI and semiconductors. Passive management captures this pool poorly; active selection turns it into a source of return.

What to watch: the next batch of little giants, the pace of tech-SME listings in Shanghai, Shenzhen and Hong Kong, and actual enforcement of the late-payment rules.