China’s new labor advantage

STEM Graduates

05 Sep 2018

China’s earlier growth was propelled by low-cost, lowskilled labor, but that advantage has shifted because it now has a large and growing workforce capable of propelling the innovation-led economic development path that the government is promoting.

China leads in STEM Education

The Chinese government has ramped up spending in education with a total of RMB 3.01 trillion invested in 20171, compared with RMB 478 billion in 2006, in line with its plans to drastically improve the skills and education levels of the population, with recent emphasis being squarely placed on technical subjects.

This has created a huge population of students graduating in the Science, Technology, Engineering, and Mathematics (STEM) subjects, with 4.7 million Chinese students graduating in the field in 20162, far in excess of India (2.6 million), the USA (568,000) and Japan (195,000), according to data compiled by the World Economic Forum.

And this talent pool is being augmented by a flow of returning students from overseas, with 432,500 (80% of the 544,500 going abroad in 2016) coming back to China in 2016, up from 272,900 in 20123.

Total Stem graduates, 2016

Source: World Economic Forum, March 2017

The knowledge base for innovation-led development

Looking ahead, the OECD estimates that China’s superiority in producing STEM graduates is only going to increase. Between 2015 and 2030, China will produce approximately 48 million STEM graduates, compared with an estimated 10 million in the USA, and 2.5 million in Japan4, meaning that it will take the majority of STEM graduates globally.

And it’s this expanding knowledge base that will be at the heart of China’s drive for innovation-led development. And the trends are already lining up, with China’s output of cutting-edge research, particularly in subjects like artificial intelligence and computer studies, growing significantly in recent years.

Chinese educational institutions account for two of the top institutions in the world, and 15 of the top 100, for citations for artificial intelligence papers.

AI Citations

Source: FT: China's AI ambitions revealed by most cited research papers, November 6th 2017

Businesses are investing in China’s STEM Workforce

China’s rapidly growing knowledge base is a key attractor for both domestic and overseas businesses. In a 2017 McKinsey survey5, 37% of respondents cited the improved capabilities of Chinese workers, particularly engineers, as a key reason why they were investing in product and business development in China, and this explains why R&D spending in China has been growing rapidly, and is projected to have grown 8x between 2007 and 2020.

China’s expanding knowledge base, fed by steady growth in university graduates and an increase in knowledge workers coming from overseas, is at the base of China’s growing superiority in hi-tech sectors.

China: Total R&D spending (USD billions) & CAGR, 2007-2020 (f)

Source: McKinsey: How semiconductor companies can win in China's new product-development landscape, March 2017

China / Emerging markets

Read the latest about China / EM in our dedicated channel.

Investment solutions

Your global investment challenges answered

Distribution Partners

In order to proceed, you must confirm that you are a qualified investor based in Switzerland.

For marketing and information purposes by UBS.

For qualified investors/ professional clients only. The information and opinions contained in this document have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the document. UBS Asset Management Switzerland AG and / or other members of the UBS Group may have a position in and may make a purchase and / or sale of any of the securities or other financial instruments mentioned in this document.

Before investing in a product please read the latest prospectus carefully and thoroughly. Units of UBS funds mentioned herein may not be eligible for sale in all jurisdictions or to certain categories of investors and may not be offered, sold or delivered in the United States. The information mentioned herein is not intended to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not a reliable indicator of future results. The performance shown does not take account of any commissions and costs charged when subscribing to and redeeming units. Commissions and costs have a negative impact on performance. If the currency of a financial product or financial service is different from your reference currency, the return can increase or decrease as a result of currency fluctuations. This information pays no regard to the specific or future investment objectives, financial or tax situation or particular needs of any specific recipient. The details and opinions contained in this document are provided by UBS without any guarantee or warranty and are for the recipient's personal use and information purposes only. This document may not be reproduced, redistributed or republished for any purpose without the written permission of UBS Asset Management Switzerland AG. Source for all data and charts (if not indicated otherwise): UBS Asset Management

This document contains statements that constitute “forward-looking statements”, including, but not limited to, statements relating to our future business development. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations.