The Department of Industry and Information Technology of Shandong Province recently released a list of 2018 Shandong Unicorn and Quasi-Unicorn Enterprises. Considered as representatives of the new economy, the unicorn companies can be a leading force behind 'new and old kinetic transformation' (新旧动能转换). 

*Company descriptions are attached at the end of the article.

As the 2018 Nobel-winning Economist Paul M. Romer illustrated in his prized endogenous theory,

"growth is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents."

Romer concluded the rate of growth is determined by internal forces: human capital devoting to research determines the rate of growth.

To sustain growth, it's important to generate new ideas and employ new technology. President Xi said last October in Guangdong,

"to go from a big economy to a strong one, it is vital to develop the real economy. Manufacturing is a key to the real economy, and the core strength is innovation and the control of core technologies."

Chinese government is laying out its long-term economic strategy, and it starts from Shandong province.

Why does the 3rd richest Chinese province look left-behind?

The question has aroused intense discussion in social media as Chinese netizens joke about the poor-quality content shown in Shandong TV channels. Despite the joke, Shandong has been carrying a label of being underdeveloped and old-fashioned for a long time. 

At the east coast of China, with Yellow River passing through, Shandong had a location-specific advantage. Agriculture permeates the province's economy as it supplies an outstanding amount of vegetables, fruits, meat and aquatic products nationwide and overseas. It also has an advanced marine economy, contains the most gold reserves nationwide, and is a major supplier of petroleum, coal and nonferrous metal.

With a long history of civilization from 8500 to 4000 years ago, Shandong is the second most-populated province with the latest record of population over 100 million. It also possesses a rich culture background as the homeland of Confucius. In Shandong, traditional belief of family hierarchy and ancestor veneration deeply rooted in the people's DNA. 

Shandong's economy played a key role in moving China into industrial age. Manufacturing sector greatly contributes to  economic development of the province. However, it is dominated by heavy industry and traditional industry. Heavy industry requires higher capital intensity than light industry and involves the production of heavy, large products such as a locomotive, ships, etc. Traditional industry is defined as converting raw materials into products by using manual or mechanized transformational techniques, contrary to advanced manufacturing industry where products enhanced and/or processes are digitalized by innovative, cutting-edge technology. By classifiying manufacturing sector into heavy and light industry, heavy industry constituents more than 70% of manufacturing. If categorizing manufacturing into traditional and advanced industry, Shandong's traditional industry constituents more than 70% of the manufacturing sector. This 70/30 distribution explains why the economy is perceived as underperformed.

New and old kinetic energy conversion to accommodate high-quality growth

Geographic and demographic advantages laid a strong foundation for Shandong's economy. In 2018, Shandong saw its GDP reached CNY 7.65 trillion (USD 1.13 trillion), taking up about 8% of China’s total GDP. It ranked the third largest province-level economy, after Guangdong and Jiangsu province. 

While the total GDP is comparatively high, GDP growth rate was 6.4% in 2018, the 22nd place out of 31 province-level divisions, declined from 7.4% from 2017. The figure is lower than China's GDP growth rate 6.6%. 

Shandong's less-innovative economic structure and below-average growth rate constrained its capability. It is the critical period for Shandong to transform from a high-speed to a high-quality economy, thus achieving sustainable progress. 

"China is facing the challenge of New and Old kinetic energy conversion, from both macro and micro levels,"

 said Zhao Xijun, the Associate Dean of School of Finance at Renmin University of China. Dr. Chen Hua, the director of the Institute of Contemporary Finance Shandong University of Finance and Economics, believes that Shandong could be considered as an epitome of China:

"Shandong's economy is like that of China, big but not strong, and imbalanced."

Shandong is expected to be a national demonstration of  new and old economic conversion. China's State Council authorized in January 2018 the Shandong's Implementation Plan for the Construction of the New and Old Kinetic Energy Conversion Pilot Zone, the first regional development strategy approved after the 19th National Congress of the Communist Party of China. 

Taking a close look at Shandong's Unicorns and Quasi-Unicorns

Third party institutions and experts examined the companies, by conducting independent reviews, on-site audit and competitive defense review of the companies.

Unicorn evaluation criteria comprise the qualitative and the quantitative parts. 
The qualitative part considers:
 1) credit tax status,
 2) illegal record, and 
3) environmental protection or major safety issues. 

The quantitative part considers:
1) registering in Shandong Province, 
2) establishing for less than 10 years, 
3) no private equity and public offering conducted, 
4) quasi-unicorn company valued at more than USD 100 million and unicorn company at more than USD 1 billion, 
5) in line with new technologies, new models, new business, and new industries, and 
6) the credit score of the company above 73 points. 

Among the 2 unicorn companies and 17 quasi-unicorn companies, 4 of them are in biomedicine area, 4 in intelligent hardware, 3 in E-commerce, 2 in Business Services, 2 in New Material, and the rest focuses in AI, Building Services, Smart Logistics, and Software. 10 companies are located in Jinan, the capitol of Shandong Province, 3 in Qingdao, 2 in Yantai, and the rest in Binzhou, Jining, Rizhao, and Weifang. 

 

RRS Logistics (日日顺物流), specializing in heavy cargo logistics, is a subsidiary of RRS, an integrated service brand under Haier Group in Qingdao. In 2013, RRS Logistics was financed HKD 1.8 billion by Alibaba, moving to an intelligent logistics platform from a traditional company. Controlled by its big data system, RRS provides logistics solution from ordering to delivering to consumers and automates the whole process of heavy cargo storage. It's services cover both cities and villages of total 2915 regions. 

Bloomage BioTechnology（华熙生物）is an investment holding company that develops, manufactures, and sells bio-chemical products in China and internationally. It provides hyaluronic acid (HA) raw materials and end products for use in pharmaceutical, cosmetic, and health care products. Its recent lipstick product in 2018, by cooperating with The Forbidden City, was a hit on the internet. Bloomage BioTechnology achieved CNY 1.2 billion revenue with CNY 424 million net income, with gross profit margin greater than 75% for three years, preparing for IPO at Shanghai Science and Technology Innovation Board (STIB). Bloomage has applied for more than 100 patent licences with more than 45 approved. 

HSTYLE (also known as HanDuYiShe) (韩都衣舍) is an E-commerce brand specializing in Korean fast fashion style. Established in 2008, HSTYLE is a Tao Brand, developed with the help of TaoBao and Tmall. HSTYLE has developed a data-driven operational model that allows prompt marketing decisions within 5 days to a new product. The company repeatedly revolutionizes its small-group team management and smooth logistics systems. 

Founded in 2009, Yantai-based Raytron Technology (睿创微纳) is a thermographic solution provider that develops, produces and sells chips, sensors, and whole devices. The products are widely used in manufacturing, driver assistance System, security, energy-saving, consumer electronics, and IoT. In 2018, it has a revenue of CNY 380 million (USD 55 million) and a net income CNY 125 million (USD 18 million), with a year-on-year growth of 146.66% and 94.51%. It’s foreign revenue accounts for 21.38%, mainly exporting to Germany and Poland. Raytron is among the companies to be listed in STIB.

Established in 2013, Saikesaisi Biotechnology (赛克赛斯) is a high-tech enterprise engaged in research, development, production, sale and service of medical devices.  Saikesaisi holds more than 20 patents. 

Founded in 2005, CM Network (中磁视讯) specializes in developing and producing intelligent surveillance devices and providing big data solutions in social governance. The company has been listed in NEEQ since 2014. Its 2018 revenue and net income were CNY 463 million (USD 67 million) and CNY 134 million (USD 19 million), grew by 34.78% and 37.9% from the numbers of previous year.  

RRS LeHome (日日顺乐家), another subsidiary of RRS, is a home service brand and service platform of smart communities founded in 2015. It provides smart community solutions including delivery lockers and stations, housekeeping and appliance repair services, and community advertising, currently connecting with 51,000 communities in top 100 cities in China.  

BIOBASE Biotech(博科生物) is an integrated service platform in the value chain of medical and laboratory equipments, applying a strategy of “Health + Internet + E-commerce + IoT + smart manufacturing + AI +data”, providing services to Chinese and international clients. 

Founded in 2012, Weifang-based Jinhong New Material (金鸿新材) develops, manufactures and sells silicon carbides products. Jinhong is listed in NEEQ with stock number 832600. Its 2018 revenue and net income were CNY 122 million (USD 17.64 million) and CNY 22 million (USD 3 million), grew by 7.85% and 29.85% the numbers of previous year.  

Shiji Kaiyuan (36588)（世纪开元）is a technology and E-commerce company, providing customized printing services to businesses and consumers. It applies a "100% online, 100% direct clients, 100% customization" strategy, thriving in the sunset industry of printing. Due to customization, Shiji Kaiyuan's factory processes hundreds of thousands SKUs on a daily basis, with the help of its lean management, supply chain and IT system.

Thunderobot（雷神科技）is the first Chinese company designs, develops and sells gaming laptops, under Haier Group. Thunderobot provides a series of devices related to gaming, including laptops, accessories, and VR devices.

Focusing on smart city, intelligent transportation, intelligent building, and financial security, Zhongan Technology (中安股份) is a public security solution provider. The company adopted an innovation-oriented strategy, adding research and manufacturing sector while keeping and reinforcing its system integration business. This NEEQ listed company had revenue and net income of CNY 147 million (USD 21 million) and CNY 8 million (USD 1.16 million), decreasing from last year by 26.05% and 14.78%. The company has possessed more than 200 patents as of the end of 2018.

Tianyi Machinery (天意机械) is a prefabricated building production line supplier, specializing in the developing, manufacturing and providing solutions of new building materials and equipment. Different from traditional buildings, prefabricated building consists of components largely or entirely built off-site. With light-weighted wall panels, it could significantly lower the labor costs and shorten the construction period. Until January 2017, Tianyi production lines had been sold to more than 6,000 manufactories in 86 countries and regions. 

Chuangze Robot（创泽智能）is a software development and intelligent service robot solution provider. Enabled by deep learning algorithms and simultaneous localization and mapping (SLAM) technology, the intelligent service robots "Chuangchuang" is used in scenarios including government administrative halls, education institutions, museums, libraries, hospital, smart home, as well as customized service scenarios. 

QianYuan ZeFu Technology（乾元泽孚）develops, manufactures, and distributes energy-saving building materials and employing solar energy technology. The building process is automated with the help of IT, 3D, and big data technology. Qianyuan Zefu is also actively exploring the smart home sectors.

Boyuan Heavy Industries（博远重工）is a construction machinery supplier that provides infrastructure construction product and services, including highway, high-speed rail, water engineering, tunnel, and nuclear power. 

Junteng Medical (骏腾医疗) is a pathological diagnostic product supplier that develops, produces, sells and serves high-quality medical equipment. The company has independently researched and developed series of pathological products.