#2: China's Tech Companies are Becoming More Innovative
It used to be the case that Chinese companies copied overseas firms.
Not anymore. Chinese tech firms are leading the world with a whole range of new innovations in fields including smartphone apps, on-demand bicycle rentals, drones, online games, and self-driving cars.
It's not just about creating innovative products, it's about investing in your capacity to continue innovating - and Chinese companies are doing very well in this respect.
R&D spending in China grew 14% y-o-y in 2017, reaching USD 279 billion (5) and 2.1% of GDP. China's tech companies are leading these investments too, channeling money into innovation campuses to create the ideas of the future.
#3: China Tech Companies Are Just Starting to Expand Globally
Chinese tech companies success has been largely based in China, but they are starting to expand globally.
Chinese companies completed 222 deals worth USD 34.7 billion in total in 2016, 49% of global tech M&A deals (6), according to FTI Consulting. For sure, these deals are a great way to access knowledge, but they are also a great way to enter overseas markets.
Notable deals include Chinese IT firms snapping up stakes in e-commerce companies in India and South East Asia, as well as in leading online services and new energy vehicles companies overseas, and via these deals they are tapping into fast-growing markets, and building platforms that will propel their future growth.
Long-Term Drivers for Sustained Growth
The trends underpinning the above three factors are long term in nature - raising internet penetration will take time, R&D spending needs time to bear fruit, and overseas expansion is a long-term strategy - and support what we believe will be sustained growth for the companies we look at.
The trends are also significant because they are related to the profound changes going on in China's economy, such as the growth of consumer demand, which recent evidence shows is largely unaffected by changes in China's headline economic growth numbers.
And the trends add up to compelling reasons to expect China's tech and internet sectors to continue growing.
We believe that investors will continue to benefit by holding a selection of the best companies in the sector and, with our rigorous stock selection process and disciplined investment approach, we believe we are well placed to unlock the best opportunities.