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. 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.
While China’s technology push is hardly news, rising tensions with the West, in particular with the US, have put it under the spotlight.
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.2For 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.
Figure 1: MIC 2025’s ten strategic industries
Source: China State Council, MERICS, Robeco, September 2021.
China’s technology ambitions were formally articulated in 2015 with the ‘Made in China 2025’ (MIC 2025) initiative, a ten-year comprehensive blueprint aiming to modernize further the country’s industrial base. MIC 2025 identifies ten strategic sectors, including aerospace equipment, medical devices, or high-tech ships, in which China intends to excel and secure a leading position.
Focus on a few selected technologies
Even under the MIC 2025 umbrella, the designated ten core industries are clearly not all being pursued with the same intensity. In recent years, China has been prioritizing efforts in a small number of emerging technologies, including AI, semiconductors, robotics, and new energy vehicles (NEVs),3 with colossal efforts being deployed from a human and a financial perspective.
Figure 2: Top 20 countries in AI paper output 1997-2017
Source: China Institute for Science and Technology Policy, July 2018, “China AI Development Report 2018”, Tsinghua University.
AI is perhaps the area in which China has achieved the most spectacular results and secured a clear leading position at global level.
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.
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.
Figure 3: Market share of top five battery makers
Source: SNE Research, March 2021.
China has also managed to secure a leading position in various areas of the NEV supply chain. This is especially the case for electric battery production, where the largest Chinese manufacturers have emerged as global leaders along with their South Korean and Japanese competitors. Altogether, China accounts for over 70% of global battery cell production capacity.6
Three investment themes
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.
1Source: 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.
3NEVs 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.
4Li, D., Tong, T. W., and Xiao, Y., 18 February 2021, “Is China Emerging as the Global Leader in AI?”, Harvard Business Review article.
5United Nations Conference on Trade and Development (UNCTAD), February 2021 “Technology and innovation report 2021 – Catching technology waves: Innovation with equity”, UN Report.
6International Energy Agency , April 2020, “Global EV Outlook 2021”, report.
本文由荷宝海外投资基金管理(上海)有限公司(“荷宝上海”)编制, 本文内容仅供参考, 并不构成荷宝上海对任何人的购买或出售任何产品的建议、专业意见、要约、招揽或邀请。本文不应被视为对购买或出售任何投资产品的推荐或采用任何投资策略的建议。本文中的任何内容不得被视为有关法律、税务或投资方面的咨询, 也不表示任何投资或策略适合您的个人情况, 或以其他方式构成对您个人的推荐。 本文中所包含的信息和/或分析系根据荷宝上海所认为的可信渠道而获得的信息准备而成。荷宝上海不就其准确性、正确性、实用性或完整性作出任何陈述, 也不对因使用本文中的信息和/或分析而造成的损失承担任何责任。荷宝上海或其他任何关联机构及其董事、高级管理人员、员工均不对任何人因其依据本文所含信息而造成的任何直接或间接的损失或损害或任何其他后果承担责任或义务。 本文包含一些有关于未来业务、目标、管理纪律或其他方面的前瞻性陈述与预测, 这些陈述含有假设、风险和不确定性, 且是建立在截止到本文编写之日已有的信息之上。基于此, 我们不能保证这些前瞻性情况都会发生, 实际情况可能会与本文中的陈述具有一定的差别。我们不能保证本文中的统计信息在任何特定条件下都是准确、适当和完整的, 亦不能保证这些统计信息以及据以得出这些信息的假设能够反映荷宝上海可能遇到的市场条件或未来表现。本文中的信息是基于当前的市场情况, 这很有可能因随后的市场事件或其他原因而发生变化, 本文内容可能因此未反映最新情况,荷宝上海不负责更新本文, 或对本文中不准确或遗漏之信息进行纠正。