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The Chinese digital economy can’t be slowed down. Here’s a look at how and why. (Promotional Feature by UBS)

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Anyone who regularly reads business news will recognize the Chinese companies consistently making headlines: Alibaba, Baidu, Tencent, and Xiaomi. These companies have established a major role in the global economy. Today, they dominate everything from e-commerce to the Chinese entertainment industry.

One of the reasons these organizations have become digital titans of industry is China’s steadfast dedication to digital innovation. China is home to the biggest online shopping site in the world. It’s poised to be a major player in the electric vehicle industry. Alongside the U.S., China is also on track to lead the world in 5G connectivity. The country has frequently been ahead of the pack in developing game-changing innovations like cryptocurrency, artificial intelligence, robotics, and big data.

Early adoption of digital technologies in China is further fueled by the country’s huge online market. According to The Wall Street Journal, China had 802 million internet users at the end of June 2018, an increase of 3.8 percent from just six months prior. That massive number is almost as large as the entire population of the U.S. and the EU combined. 

Here’s a look at how China’s digital economy is flourishing — and a few emerging areas of opportunity to watch. 

The Chinese economy: An overview for 2018

Image: Photo by chuttersnap on Unsplash

China’s digital economy is up to $3.8 trillion as of 2017 — it is a full third of the country’s overall gross domestic product (GDP). Earlier in 2018, the Chinese National Development and Reform Commission called for expansion of the country’s thriving digital sector. Officials believe that fields such as big data and artificial intelligence are promising drivers of job creation. The country has no shortage of applicants to fill emerging roles in the job market, too: China produces 2.8 million science and engineering graduates every year. That’s about five times as many as come out of the U.S. 

China produces 2.8 million science and engineering graduates every year. That’s about five times as many as come out of the U.S.

One of the factors behind China’s digital economy boom is its investment in research and development. China’s spending on R&D is projected to surpass that of the EU and the U.S. combined by 2020. China has also recently stressed its commitment to restructuring traditional industries like agriculture and manufacturing in order to emphasize sustainability.

The upward trajectory of the Chinese economy is not new. For nearly 40 years, the country’s economy has expanded at a rate of up to 10 percent annually. No Western nation has seen such sustained economic growth. Patent filing at the U.S. Patent Office by Chinese entities also grew ten-fold in the past decade, surpassing the UK and on track to exceed Germany this year. 

Emerging areas of opportunity

Image: Photo by Lucas Vasques on Unsplash

In China, traditional industries like retail and health care are swiftly adopting digital solutions. Moreover, China is investing heavily across a wide range of emerging technology sectors. Here are just a few industries showing significant growth in 2018.

Biomedicine and biotech: As China deals with a rapidly aging population and high rates of cancer and diabetes, initiatives like Healthy China 2030 attempt to curb rates of disease. In the fields of health care and medicine, China is making promising advancements in biotech. One example is the country’s successes with procedures such as CAR-T for treating cancer. 

Under the Made in China 2025 plan, a state-driven push to propel China’s traditional industries forward, the pharmaceutical sector is also highlighted as being ripe for innovation.

Mobile payments: China is swiftly becoming a cashless society. Today, Chinese citizens are accustomed to using mobile payments platforms such as WeChat Pay or Alipay for everything from buying groceries to settling personal debts — even for panhandling. In 2016 alone, China saw $9 trillion worth of mobile payments transactions.

Gaming and esports: In China, a rapidly growing population of online users coupled with rising incomes has opened doors for an explosion of digital gamers. In 2018, the country accounts for nearly half of the 1.2 billion active gamers in the Asia Pacific region. Smartphone mini games on apps like WeChat and QQ are soaring in popularity. Esports, too, are making strides: At the next Asian Games set for 2022 in Hangzhou, China, esports competitors will even be eligible to win medals.

China has established itself as a world leader in areas of revolutionary digital technology. It is on the brink of being first to market with exciting medical, commercial, entertainment, and telecommunications products. With these advancements and more on the way, China is proudly reimagining the 21st century and the future of connected society.

The value of investments can go down as well as up. Your capital and income is at risk. 

ESG/Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies. The returns on a portfolio consisting primarily of ESG or sustainable investments may be lower or higher than a portfolio where such factors are not considered by the portfolio manager. Because sustainability criteria can exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.  Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is also no guarantee that any company will meet  expectations in connection with corporate responsibility, sustainability, and/or impact performance.

©UBS 2018. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC.

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