China’s business environment is beginning to sound like the African savannah after central leadership’s comments this week included calls to ensure “survival of the fittest” while warning of “vicious competition” and the need to nurture “gazelle” firms.
In an announcement on Tuesday, China’s Politburo emphasised the importance of “vigorously and efficiently supporting the development of gazelle and unicorn enterprises”.
So, what are ‘gazelle’ enterprises?
The “gazelle” designation for companies was coined by economist David Birch in Silicon Valley in 1987.
A gazelle enterprise is characterised by its fast-growing revenue sales, typically generating at least a 20 per cent revenue growth in the span of about four years after starting with a base revenue of at least US$100,000.
While most such firms are in the tech sector, some are in the retail, apparel, food and beverage industries, among others.
But the priority among these gazelle companies is hi-tech start-ups.
What is the difference between a unicorn and a gazelle?
A unicorn enterprise is a privately held company with a valuation of at least US$1 billion.
Gazelles tend to be start-ups valued at more than US$100 million and which have experienced fast-growing revenue in the first few years.
China has the second-most gazelle firms in the world, trailing only the United States. Together, they possess more than 70 per cent of all gazelle enterprises.
Examples of thriving gazelles include Elon Musk’s brain-chip firm Neuralink, and FTXT Energy Technology, whose parent company is Great Wall Motor.
China is lagging in the start-up race, especially since the AI revolution
Why do gazelles matter to China?
The presence of gazelles opens the door for innovation, high-quality regional development and greater employment opportunities at a time when local-level economies across China are struggling.
And added emphasis is being placed on gazelles and unicorns to promote the growth of emerging industries. Frontiers include quantum technology, life sciences and artificial intelligence.
Beijing plans on cultivating future unicorn enterprises from smaller “seeded players” like these gazelle companies.
“This is an admission of the huge gap in the number of unicorns nurtured between China and America,” said a Peking University professor who spoke on condition of anonymity due to the sensitive nature of the issue. “China is lagging in the start-up race, especially since the AI revolution, and as global talent and capital have been flowing to the US in recent years.”
He added that, even with the valuation threshold dropping from US$1 billion to US$100 million as Beijing’s focus shifts to gazelles, leadership needs to help Chinese start-ups grow while also respecting the market, since the valuation of a start-up is determined by the market and capital, not by the government.
China still stands a chance to turn its gazelles into the next Huawei or Tencent
What role will China’s gazelles play?
“More Chinese unicorns and gazelles will also help Beijing break the West’s tech and trade blockade,” said Zhu Jiangnan, director of the Contemporary China Studies programme at Hong Kong University. “It is also Beijing’s imperative to help young people start businesses and create employment.”
Despite a wide gulf with the West in the start-up race, China’s supersized market and abundant application scenarios are expected to help it catch up.
“China has fewer unicorns and gazelles on a per capita basis than the US, but China can play to the advantages of its market and economy scale and close the gap,” Zhu explained. “China still stands a chance to turn its gazelles into the next Huawei or Tencent.”
