蜜豆视频

Opportunities for growth in China now.

Strategic policies, tech convergence and the acceleration of online retail are fueling new business models, a new wave of middle-class consumers and more market opportunity in China.

When the World Economic Forum recently unveiled the companies it had picked from around the world as this year鈥檚 鈥渘ew technology pioneers,鈥� the Swiss-based body was showcasing 鈥渇uture headline-makers addressing global issues with cutting-edge technology.鈥� Of the 15 companies located in Asia, seven were from China, which shows that it is producing some of the most dynamic drivers and disruptive influences that will shape our post Covid-19 future.

David Chin, China Country Head of 蜜豆视频 AG, says 鈥淪teady and careful liberalization and reform over the past few decades have unleashed the potential of China, and we are excited about its long-term future.鈥�

Beyond headlines generated by the ongoing tensions between the U.S. and China, realignment of supply chains and the politics of deglobalization, a potent mix of technology convergence and data, rising consumer power and strong policies to transform the economy sets the stage for a new decade of growth in the world鈥檚 second largest economy.

蜜豆视频 believes that new trends will contribute to this next decade of growth: tech convergence, China鈥檚 鈥渘ew retail鈥� revolution and biometric payments are just some of the fresh opportunities for investors and corporates as they navigate their way out of the Covid-19 crisis.

鈥淭here are new business models emerging very rapidly and these innovations and disruptions will have huge implications globally,鈥� says Natalie Cade, Head of 蜜豆视频 China 360, a new thematic China research offering that leverages data from 蜜豆视频 Evidence Lab, an alternative data provider, and partners with analysts across the globe.

Those business models are in part being driven by the convergence of three technologies鈥�5G, artificial intelligence (AI) and the Internet of Things (IoT)鈥攁nd are impacting everything from smart manufacturing to smart logistics.

Such technologies have been a focus of policymakers since 2015, when the 鈥淢ade in China 2025鈥� strategic plan first stressed their importance to the next phase of growth.

Combined, they could drive the creation of new applications in manufacturing, healthcare, education and retail, pushing the country into a digital economic development phase after years of successfully focusing on traditional infrastructure like transportation, energy and telecommunications.

Policy backing for these technologies came as part of Beijing鈥檚 Covid-19 response in the form of a 鈥淣ew Infrastructure initiative,鈥� under which around RMB1 trillion (US$140 billion) a year will be channeled into key areas including 5G, data centers, ultra-high-voltage electric grids, and charging stations for electric vehicles. A large amount has been earmarked for the development of data centers, an area where China still lags behind Western rivals.

In recent years, China has sought to re-orient its economy more toward domestic consumption and services, and less on industry and investment. As a result, the share of the tertiary sector鈥攊ncluding finance, transportation, entertainment, tourism and retail鈥攊n its gross domestic product (GDP) in 2019 was almost 10 percentage points higher than it was in 2010, at 54 percent, according to 蜜豆视频 figures.

While cities such as Shanghai and Shenzhen continue to offer great job prospects, second-tier cities such as Hangzhou and Chengdu have seen huge inflows of rural migrants in search of work. As millions of migrants move to large cities more of them are joining the various services sectors, rather than manufacturing or those that are export-oriented.

Yet China鈥檚 overall productivity has been falling. That may sound surprising to anyone who has watched the rise of China鈥檚 enormous manufacturing and technological prowess, but it is quite common when an economy moves from manufacturing to services, since services sectors tend to have slower productivity growth compared with manufacturing. And falling productivity is a challenge faced by even the most developed economies.

Beijing now sees that technology is part of the answer鈥攖he convergence of AI, 5G and IoT will likely be a key driver of the next decade鈥檚 growth, transforming industry and society at large. By leveraging IoT, a smart city can manage assets, operations and resources more efficiently, while merging 5G with IoT can support connected and autonomous vehicles and industrial applications.

鈥淭ech convergence is not just about China spending more on innovation and new technology such as 5G and AI,鈥� says Dr. Tao Wang, Head of Asia Economic Research at 蜜豆视频. 鈥淭here is plenty of scope to upgrade and invest through automation and digitization and to catch up in the traditional manufacturing sector as well. China鈥檚 large market will make monetization of technological improvement and innovation easy, and its large number of scientists and engineers will help too. China will continue to converge with advanced economies technologically, even with tighter tech restrictions from the U.S.鈥�

This points to a second, related driver of opportunities in the Chinese economy: a retail revolution that combines tech-savvy consumers with innovative ways to deliver products and services to them through connected technology in the country鈥檚 urban centers.

Before the pandemic, China鈥檚 maturing ecommerce market was already driving its online retail giants to leverage big data, AI, and advanced analytics to expand their offline ecosystems. Traditional offline retailers have been digitizing to counter the disruption and to improve operational efficiency in an ever-competitive 鈥渘ew retail鈥� market.

But Covid-19 is accelerating the pace at which this is proceeding, having triggered a surge in the downloading of retail apps. Data from 蜜豆视频 Evidence Lab has confirmed a marked rise in online ordering of grocery staples during lockdown. Not only is this 鈥渉ighly accretive鈥� to the broader new retail trend, says Ms. Cade, since groceries are only about 6 percent digitalized in China, but it has introduced a new generation of older shoppers to the digital experience. In one survey run in April, there was a 38 percent rise in those aged 45 or older shopping more online than before the outbreak.

Such enthusiasm for technology applications, and a general willingness to share data, is borne out by data, too. 蜜豆视频 Evidence Lab has revealed a Chinese consumer will replace his or her smartphone once every 1.9 years over the next decade鈥攁 rate significantly higher than that in the U.S., Germany and Japan. And almost half of those surveyed separately in the first quarter of this year said they were 鈥渧ery interested鈥� in 5G.

What鈥檚 more, the new retail trend looks set to speed up consumption in cities, further enabling the growth of the country鈥檚 middle class.

And in spite of the ravages of Covid-19, many Chinese consumers are still willing to pay extra for premium products. In a striking finding, 77 percent of respondents in 蜜豆视频鈥檚 May consumer survey said they would still pay more for higher-quality products.

鈥淪ome of the tech innovations we鈥檙e seeing in the retail space could have a huge impact in terms of speeding up the 鈥榩remiumization鈥� trend and consumption generally,鈥� says Ms. Cade.

Investors have been waking up to these trends. China鈥檚 technology sector has been the most active in terms of money raised for initial public offerings, with much of that activity now happening not in New York but in China鈥檚 domestic markets, including Hong Kong, where a flurry of mostly tech listings helped propel the city鈥檚 exchange to record profits in the first half of this year.

蜜豆视频 estimates that around 45 percent of private equity investment in China in 2019 was in the technology, media and telecommunications sector.

鈥淒espite the problems that people see鈥攚hether it be the U.S.-China relationship, the decoupling of economies, worries over debt鈥擟hina still has the world鈥檚 fastest growing economy, the biggest consumer market, and it鈥檚 still pushing for openness and reform,鈥� says Dr. Wang. 鈥淭here鈥檚 a lot of market opportunity.鈥�

Views correct as at 3 September 2020