Summary of Key Points
In the past two years, a number of specialized and innovative small enterprises in Chengdu, each with its own unique skills, have been successively acquired by listed companies in the Yangtze River Delta and Pearl River Delta regions. This has sparked controversy: is it a testament to the successful monetization of Western China's scientific and technological innovation capabilities, or merely the migration of high-quality assets to the more developed eastern regions? The article compares the responses of cities such as Xi'an (which has seen passive loss of talent and hollowing out of its teams), Wuhan (where state-owned capital has actively tried to retain these enterprises), Chongqing (which has shifted from being acquired to acquiring other companies), and Hefei (which has used funds to secure these enterprises), and proposes three strategies for Chengdu to break this pattern: encouraging local capital to invest earlier and more boldly, activating the ecological mindset of leading enterprises, and creating an industrial ecosystem that these companies cannot do without.
Why Are Chengdu’s “Small Giants” So Desirable to Eastern Companies?
Chengdu’s specialized and innovative enterprises are like “high-quality technical assets.” Leveraging their strengths in military electronics and aerospace, they possess unique technologies (such as rare military-grade materials and core patents in niche areas). However, their weakness lies in their focus on research and development rather than large-scale market operations. Eastern listed companies, on the other hand, are in need of such advanced technologies. Acquiring a Chengdu-based company not only provides them with these valuable technologies but also grants them military qualifications, potentially using them as a foothold to enter the Western market.
Looking at the broader context, it has become more difficult for companies to go public (with stricter IPO regulations), making acquisitions the most practical route for exiting the market. Therefore, this is a mutual benefit situation: founders receive funding, and eastern companies gain the necessary capabilities, though Chengdu may lose the potential for these enterprises to grow into larger corporations.
What Strategies Have Other Cities Used to Cope with These Acquisitions?
The outcomes vary dramatically depending on the city:
- Xi'an: Passive loss of key assets. For example, Zhongke Xiguang, a company in the commercial aerospace sector, was acquired by a Shanxi-based firm, resulting in the relocation of its core R&D team and leaving Xi’an with only an empty shell.
- Wuhan: State-owned capital stepped in to retain the enterprise. When Wuhan XinXin was on the market for sale, local state-owned funds quickly took over, ensuring the company remained in Wuhan.
- Chongqing: A reversal of roles! Chongqing’s Qiteng Robotics, a company specializing in special-purpose robots, acquired the foreign-listed company Shengtong Energy, with support from a 20-billion yuan state-owned fund.
- Hefei: Hefei has established a fund portfolio worth nearly 29 billion yuan and invested early in these companies. When acquisitions occurred, Hefei’s state-owned funds ensured that the R&D centers stayed in Chengdu and additional investments were made.
The First Step to Breaking This Pattern: Encouraging Local Capital to Invest Earlier and More Boldly
Many founders of Chengdu-based enterprises say that local investment institutions are too cautious, waiting until the companies reach a later stage (C+ round) before investing, by which time they have already attracted attention from external investors. Hefei has taken action by setting up a 17-billion yuan fund and a 10-billion yuan sub-fund, with the key being to intervene early—becoming significant shareholders before external capital gets involved and using contracts to ensure that core R&D and production facilities remain in Chengdu.
The Second Step: Transforming Leading Enterprises from Solo Players into Ecosystem Builders
What does it mean to be an “ecosystem builder”? It means that leading companies should not focus solely on their own profits but should act like parents, connecting upstream and downstream enterprises through investment, orders, and technical support to create a complete industrial chain. Companies like Huawei and Tencent in Shenzhen do this by investing in future technologies and integrating their supply chains.
However, many of Chengdu’s leading enterprises lack this awareness; they either focus on internal R&D or simply expand production without using investment to build an ecosystem. Chengdu is now working on a “Chain Leader Fund Plan” to create 12 such funds, with a total scale of 60 billion yuan, in hopes of encouraging these companies to actively integrate the local supply chain.
The Third Step: Creating an Industrial Ecosystem That Enterprises Cannot Do Without
No amount of subsidies can match the benefits of an environment where enterprises feel that they cannot thrive outside of Chengdu. For example, companies in Hefei would struggle to find the necessary resources and funding support elsewhere.
Chengdu needs to:
- Promote CVC (Corporate Venture Capital) by encouraging local leading enterprises to invest in their upstream and downstream partners, similar to how Tencent invests in startups to build ecosystems.
- Improve risk tolerance mechanisms. The Chengdu High-Tech Zone has already implemented a reduced loss tolerance rate (from 80% to 30%) to encourage investment in early-stage projects.
- Enhance industrial infrastructure by providing easy access to raw materials, technical talent, and customers, creating an environment similar to a tropical rainforest—where everything needed is available, making it impossible for enterprises to thrive outside of the city.
In Conclusion
Chengdu’s current challenge is that it has built a “nursery” for technology but not yet developed a solid industrial foundation. While the plants in the nursery can be easily moved elsewhere, a strong industrial foundation can turn technological innovation into a thriving industry. Whether Chengdu can transform from a supportive partner to a central player depends on whether these steps are successfully implemented.