Recent news flow about China has been dominated by Xi Jinping’s centralisation of power. But we believe the real story of interest for investors is the radical shift from imitation to innovation within the country’s economy. As China’s technology sector expands rapidly, we assess its transformative impact on the nation’s economy.
Change is afoot in the global technology sector. Shenzhen is vying to become the next Silicon Valley – not in the immediate future, but perhaps in the next 15 years. And imitation by the world’s biggest factory is no longer the sincerest form of flattery. China is determined to be at the forefront of the next wave of technological innovation.
Today, the government is fuelling growth in the technology sector. Funding for research is ramping up, thanks to the economy’s $11tn annual GDP, which is growing by over $650bn per year. By 2020, China will spend 2.5% of its GDP on R&D – that’s a 70% rise in absolute terms since 2015, and in line with the developed world. Furthermore, a nationwide policy introduced earlier this year allows all local governments to add R&D expenses into their GDP. This should spur governments to compete on this measure, boosting the country’s aggregate investment in R&D. Importantly, the effort is not limited to official channels. Support from the private sector is also driving technological innovation. China is fast becoming a hot destination for venture capitalists, already attracting more start-up capital than Europe.