High-Tech Revolution the Frontier of China’s New Economy

By | August 29, 2016

It’s not all doom and gloom for the world’s second-largest economy. Amid the sharp slowdown in manufacturing, central bank uncertainty and unprecedented pace of capital flight from the country’s equity markets, China’s white-hot technology sector continues to churn out wealthy entrepreneurs tapping into high-demand sectors that intersect e-commerce, social media and green tech. In an economy desperate for brand-new direction, tech start-ups are leading the charge.

“Fast technological innovations have actually created waves of opportunities,” says Wang Feng, founder of the Beijing-based Linekong Interactive Group, a Chinese online and mobile game developer valued at nearly $200 million. “As long as you’re smart, you’re going to make money.”[1]

Wang is surely making money. A lot of it. Yet his story isn’t unique when you look at China’s ever-expanding group of high-net-worth tech entrepreneurs making it big. Ultimately, it will be these young guys and gals who revive China’s economy, not shadowy central bank “restructuring.”

China’s Ailing Economy

To put it in perspective, China’s tech boom is happening at a time of great uncertainty. China’s gross domestic product – the value of all goods and services produced in the economy – expanded 6.9% in 2015, the slowest rate of expansion in 25 years.[2] Indicators in 2016 have actually reaffirmed slowing growth, along with trade and manufacturing activity continuing to cool amid regional and global downturns. These and other forces created fresh waves of volatility for the country’s main equity markets, forcing regulators to suspend trading activity on two separate occasions in early January.[3]

China’s main stock markets officially entered into bear market territory at the start of 2016. The benchmark Shanghai Composite Index declined nearly 22% through the initial two months of the year. The Shanghai Shenzhen CSI 300 Index plunged 21% over the same period.

China’s Tech Sector Sees Boundless Optimism

Investors along with a long-term time horizon view China’s technology sector along with unlimited potential, especially as the nation transitions from an investment-based and export-oriented economy toward consumption. China’s rapid industrialization since the 1970s has actually created the world’s largest middle class[4] that is happy to spend disposable income on tech gadgets. China’s rapid growth over the past four decades has actually created a $10 trillion economy[5] along with huge sums of household wealth. Some of the leading trends in China’s tech industry mirror the expansion of the middle class, which according to Credit Suisse reached 109 million adults in 2015.[6]

Mobile technology, electronic gaming, hardware manufacturing and safeguarding intellectual property are among the biggest trends shaping China’s technology market. These market drivers have actually additionally led to a rise in tech start-up mergers and acquisitions, a trend that was initial observed in Silicon Valley lots of years ago. In recent years China’s technology market has actually given us massive IPOs such as Alibaba (largest debut ever[7]), Baidu and Tencent.[8]

Tech Entrepreneurship (and Wealth) on the Rise

While any discussion of wealthy Chinese technology entrepreneurs could begin and end along with Jack Ma, the celebrated chairman of Alibaba worth $22.5 billion, the pie is actually much bigger. In 2014 alone China’s population of high-net-worth individuals grew by 17.5% to 890,000, according to Capgemini and RBC Wealth Management. Their combined wealth was valued at a staggering $4.5 trillion, a figure expected to reach $8.2 trillion by 2020.

Among the elite, technology entrepreneurs are one of the fastest growing cohorts. According to Bloomberg, four from the five richest Chinese are in the technology sector.[9]

Francis Liu, a Greater China manager for high-net-worth individuals at UBS summarized the opportunity perfectly along with just one line: “From zero to billionaire can be as quick as six years in this brand-new tech sector.”[10]

Hot Sectors

Technology and web start-up companies are popping up all over the place. It makes perfect sense, given that China’s e-commerce market was estimated to be worth US$275 billion in 2014. This environment has actually inspired young entrepreneurs to get in the game, focusing on dynamic technology sectors such as social media, green tech, cloud computing, gadgets and gaming.[11] In fact, around two-thirds of the entrepreneurs listed on the 2014 Forbes China 30 Under 30 list are in the technology, internet or e-commerce sectors.[12] At this rate, it’s clear that the next phase of China’s expansion will be driven by technology.

Another hot area that private bankers are monitoring along with a watchful eye is financial technology, or fin-tech for short. Innovations in fin-tech are already disrupting the way banks and other financial service providers operate. Mobile payments, personal and business lending, cybersecurity, financial data analytics and cryptocurrencies are all having a profound impact on traditional finance.

Conclusion

The world’s second-largest economy is no longer experiencing runaway growth, Yet appears poised to compete on brand-new frontiers that intersect technology and several industry verticals ranging from commerce to finance and up to manufacturing. China’s brand-new wave of technology millionaires is leading the country’s economic transition. These tech leaders are additionally leaving behind them a trail of wealth that is already piquing the interest of private bankers and foreign investors.

China’s transition will take lots of years to fully play out. The country’s growth engine is expected to slow considerably over the next few years. This will likely create more short-term vulnerabilities, as the People’s Bank of China struggles to rein in volatility.

[1] Cathy Kit Ching Chang (February 22, 2016). “China’s Great Tech Wealth Machine.” Bloomberg Business.

[2] Mark Magnier (January 19, 2016). “China’s Economic Growth in 2015 Is Slowest in 25 Years.” The Wall Street Journal.

[3] Sam, The Trading God (January 7, 2016). US Stock Rout Intensified amid Deepening China Crisis.” TradingGods.net.

[4] Agency (October 14, 2015). “China’s middle class overtakes US as largest in the world.” The Telegraph UK.

[5] Trading Economics. China GDP.

[6] Agency (October 14, 2015). “China’s middle class overtakes US as largest in the world.” The Telegraph UK.

[7] Ryan Mac (September 22, 2014). “Alibaba Claims Title For Largest Global IPO Ever.” Forbes.

[8] Kathleen O’Toole (October 2013). “China 2.0: A Nation’s High-Tech Direction.” Stanford Graduate School of Business.

[9] Cathy Kit Ching Chang (February 22, 2016). “China’s Great Tech Wealth Machine.” Bloomberg Business.

[10] Cathy Kit Ching Chang (February 22, 2016). “China’s Great Tech Wealth Machine.” Bloomberg Business.

[11] Steven Millward (March 27, 2014). “12 tech entrepreneurs under 30 making awesome stuff in China.” www.techinasia.com.

[12] Russel Flannery (March 17, 2014). “2014 Forbes China 30 Under 30: Rising Starts of Entrepreneurism in China.” Forbes.

The post High-Tech Revolution the Frontier of China’s brand-new Economy appeared initial on Forex.Info.

Leave a Reply

Your email address will not be published. Required fields are marked *