China’s decade of transformation

The country is seeking to harness data and technology to advance itself and offset a diminishing workforce. This promises some major investment possibilities, particularly in areas that intersect with its simultaneous drive to reduce pollution and promote greater social equality.

A compelling intersection of technological innovation and sustainability are set to make a big mark on what will soon be the world’s largest economy. China is poised for a decade of change. Beijing’s desire to modernize its manufacturing and lead the world in many technologies. Achieving that will require investment, education and experimentation. The country is already ramping up all three.

“If you look at the amount of money being invested into China’s R&D, the number of science and technology graduates and the number of new patents and it’s hard to conclude anything except that China’s innovation is in great shape and that businesses will continue moving up the value chain, and taking global market share” says Niall MacLeod, Head of Asia Pacific equity strategy at UBS. “There’s even more transformation to come in the next 10 years.”

As part of this effort, local businesses are increasingly embracing automation to compensate for a slowly declining workforce that will, in many situations, lack the skills to support this transformation. That shift, combined with strong supply chains, means Chinese manufacturing should remain highly competitive even as worker wages rise.

The country’s technological advances are also being underpinned by its strength in data, artificial intelligence and financial technology. China already boasts some of the best AI, data collection and analysis technologies in the world, and its Internet-based financial services that are certainly the most advanced. Indeed, Chinese regulators have introduced new rules to better codify and control the breakneck growth of fintech giants, and to ensure they better protect personal data. Expect to see further data collection and analysis advances, albeit in a more controlled manner. These promise to improve healthcare, supply chains and risk assessment. They should also help worthy small businesses more easily access funding – potentially seeding the next generation of corporate winners.

At the same time, China’s government understands that pollution and global warming pose potentially existential risks. So, it is encouraging technological innovation to tackle these problems too. “China is looking to upscale many areas of Greentech to reduce pollution. Its plans encompass everything from retrofitting old facilities to renewable energy, more electric vehicles, battery tech advances and even the use of new materials,” says Tao Wang, Head of Asia Economics and Chief China Economist at UBS. One key area will be the ability to source cleaner energy. These will initially include using more natural gas, as well as harnessing more solar, hydro and wind energy. Plus, China could eventually lead the world in some types of renewable energy, including the use of hydrogen as an energy source.

Last, it is hard to overstate the ramifications of the government’s focus on achieving common prosperity. Beijing wants people enjoy better healthcare, education and social welfare, and that should drive investment into better drugs, hospital networks, elderly care, pensions and other areas. That, in turn, could persuade families of the need to save less for emergencies and old age – and consume more instead. The rise of Generation Z into the work force could further accelerate this trend.

In a decade’s time, China intends to be more technologically advanced, data savvy, green and financially egalitarian than it is today. For investors, financiers and companies alike, those plans offer a lot of promise.