For a long time, China has been considered the “workhorse” of the global economy by providing low-cost manufacturing services to Western Companies. However, during the last decades, China has evolved from being a manufacturer to being a consumer of technology, and more recently to being an innovator and pioneer in some technology segments.
China’s technology industry has grown remarkably and today it is leading the pace of innovation in areas such as Artificial Intelligence and Social Media, to the point where it is followed and copied by Western peers.
For example, in e-commerce, Chinese Companies have developed social commerce and live streaming for years now, while Amazon only introduced live stream videos of hosts demonstrating products last year. Recent upgrades such as Instagram’s Checkout and Alphabet’s Youtube shopping services are all features that have been available to Chinese e-commerce users for years.
Chinese Companies, such as WeChat and Alipay, have also pioneered the “super-app”, a powerful multipurpose platform combining payment solutions, shopping, travel, games, and various services bookings. According to Bloomberg, in Q1 2020 the Monthly Active Users of WeChat increased by 8.2% to 1.2 billion, reaching over 300 million Daily Active Users. Facebook started enriching its mobile platform with features such as payments and games only one year ago, indicating a step in the same direction.
Some Chinese Technology Companies are also growing at an extraordinary pace. For example, Chinese e-commerce Company Pinduoduo was launched in 2015 as a small startup focusing on social online shopping. Today, it is the second largest e-commerce platform in China with an average of 487 million Monthly Active Users in 2020, an increase of 68% from 290 million in the same quarter of 2019.
These numbers not only show the potential for growth in the global technology sector, but also serve as a reminder of the speed of technological disruption, which is likely to affect all sectors of the economy. A study from Merrill Lynch predicts that 50% of S&P 500 Companies could be replaced over the next 10 years, and the average tenure of an S&P 500 Company could be reduced to 12 years by 2027 (from a high of 40 years in 1977). This scenario would be very supportive of an active stock picking strategy, highlighting the need for investors to remain selective and maintain a deep understanding of the global forces disrupting the investment landscape.
The information in this article should not be regarded as a description of services provided by Delian Partners SA. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. The views reflected in this article are subject to change at any time without notice.
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