Research and development (R&D) statistics illustrate this ambition. Supported by higher economic growth, China is actually expected to take global R&D leadership this year, and outspend the US for the very first time.1 China now leads the pack in many areas, such as artificial intelligence (AI), 5G telecommunication networks, ultra-high voltage electricity networks or high-speed rail.
While China’s technology push is hardly news, rising tensions with the West, in particular with the US, have put it under the spotlight
While China’s technology push is hardly news, rising tensions with the West, in particular with the US, have put it under the spotlight. Over the past few years, Chinese officials have increased their emphasis on the need to become less dependent on foreign technology. Some have even theorized a so-called ‘technology decoupling’, advocating self-sufficiency in a number of critical industries.
However, one key consideration to bear in mind is that China’s technology push amid rising tensions with the US does not necessarily herald a full economic decoupling, nor an era of deglobalization, as some have argued.2 For now, US restrictions on exports to China issued in 2020 remain essentially focused on a few select technologies, where non-US alternatives are difficult to find.
Meanwhile, China's main policy goal remains to improve the country’s manufacturing capability to produce higher value-added goods and services, and keep the economic growth engine roaring. Policy makers acknowledge that this will be impossible without importing advanced technologies from the US, Europe, Japan, or South Korea.
AI, for instance, is perhaps the area in which China has achieved the most spectacular results and secured a clear leading position at global level.4 The Chinese AI-related ecosystem benefits from various supporting factors, including the country’s gigantic market size which provided a unique opportunity to assemble large datasets, and a long-standing friendly policy environment.
AI is perhaps the area in which China has achieved the most spectacular results and secured a clear leading position at global level
China seems therefore poised to become a leader in AI-empowered businesses, like speech and image recognition applications. At global level, the main AI services providers remain large US technology giants, but Chinese firms are catching up fast. China already employs the world’s largest cohort, by far, of AI professionals, with over 12,000 AI jobs in 2019, versus roughly 7,500 for the US.5
Another area where strong progress has been made NEVs. China has the world’s largest fleet of NEVs in circulation, far ahead of Europe and the US, as well as the world’s largest battery-charging network. And although the country’s NEV car registrations were overtaken by European ones last year, it remains one of the most dynamic markets, largely dominated by local manufacturers.
China’s technology push is offering opportunities in many industries, but finding these is not always straightforward. Not all initiatives have lived up to expectations, so far, and political will does not warrant success. Yet that does not mean opportunities in areas where results have been mixed are entirely absent, nor that policy success will necessarily lead to attractive returns for investors.
From this perspective, we have identified three major investment themes worth considering: the relentless rise of NEVs, the advent of ‘industry 4.0’ in China, and an increased focus on the localization of supply chains. Given the bright prospects these three trends offer, we believe this is where some of the most interesting opportunities are to be found.
1 Source: R&D World, April 2021.
2 Hale, T., 27 July 2021, “US and China face bumpy ride as talk of decoupling intensifies”, Financial Times news article.
3 NEVs are vehicles which are not fueled by common energy sources, such as unleaded petrol or diesel fuel, for example. These include in particular, plug-in electric vehicles, either plug-in hybrid electric ones or an all-electric plug-in battery electric ones.
4 Li, D., Tong, T. W., and Xiao, Y., 18 February 2021, “Is China Emerging as the Global Leader in AI?”, Harvard Business Review article.
5 United Nations Conference on Trade and Development (UNCTAD), February 2021 “Technology and innovation report 2021 – Catching technology waves: Innovation with equity”, UN Report.
6 International Energy Agency , April 2020, “Global EV Outlook 2021”, report.
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