China already owns third of the global share of industrial robots used in the automotive, electric and metal industries and is among the top seven countries for worldwide spending on the Internet of Things – so it’s hardly surprising that China is expected to become the biggest investor in science and technology this year (2020) as it continues its conscious shift from ‘Made in China’ to ‘Created in China’.

According to its current industrial policy, China has a strategic ambition to transform itself into a “manufacturing superpower” by 2025 – aiming to produce more of its own truly China-made core materials and reduce its reliance on foreign technologies.  It is focusing on ‘10 priority sectors’: new-generation information technology, advanced numerical control machine tools and robotics, aerospace technology (aircraft engines and airborne equipment), biopharmaceuticals, high-performance medical equipment, automotive and semiconductor industries.

Although this initiative has taken somewhat of a back seat since the US trade war began, I do believe it will come to the forefront again over the coming year, motivating the industry players in these sectors in the longer term.  Note, for example, the recent announcement by the Chinese government to replace 30% of Windows PCs by the end of 2020, a further 50% in 2021 and the final 20% by the end of 2022.

Britain’s open attitude and mature technology development ‘soil’ remain hugely important to China’s science and technology development. Last year alone, Chinese and British researchers jointly published more than 10,000 articles and there was no end to large Chinese enterprises setting up R&D centres in Britain. Significantly, Huawei and eCommerce giant JD.com set up research centres to tap into the Cambridge innovation ecosystem.

However, China’s pursuit of short-term economic gains means there has been much less appetite to invest in long-term basic research. Funding for this remains seriously inadequate. (111.8 billion yuan in 2018, just 5 – 5.6% of overall R&D spending for more than a decade) and, as a result, China relies heavily on imports for its core technology.

Indeed, the reason why our Crayfish.io Accelerator – backed by two Chinese VC funds – revolves around specific sectors (medical equipment, advanced manufacturing, new materials, semiconductors, Internet of Things and ICT) is because these technologies have high innovation components which make up for the shortfalls in the current Chinese science and technology field – and which are not likely to be addressed in China quickly owing to its lack of talent and the obsolete knowledge taught in schools.

Despite the uncertainty of Brexit, the UK has remained a highly attractive destination for Chinese investors with direct investment into the UK continuing to rise between 2016 and 2017 to reach £88.4 billion (Tou Yin Tracker 2018 report published by Grant Thorton). The UK’s stable legal and social environment, together with a weak pound and the increasingly difficult situation with the US, have all added to the UK’s appeal.

The Chinese government also wants to balance China’s economic growth with protecting the environment and increasing the benefits for its citizens  – and this, in turn, has kickstarted a keen interest in the UK’s innovative Agritech and environment technology sectors, further expanding the opportunities for UK|China business.

There has also been a distinct shift in the way that Chinese businesses are choosing to invest overseas – with a greater interest in development instead of the traditional pattern of “buy and merge”.

Previously, Chinese investors concentrated on becoming large shareholders of mature UK companies – eg House of Fraser, Sunseekers, Pizza Express and Jagex. But we are now starting to see more and more Chinese corporates and investors getting involved with startups in a way that we’ve never seen before: working ‘in partnership’, getting involved at an earlier stage, willing even to become small shareholders in small- and medium-sized tech companies. Last May (2019), for example, we saw Chinese tech giant Tencent happy to be part of a group of investors in a funding round for Cambridge-based AI startup, Prowler.io.

The typical model is for Chinese investments to help UK startups scale up in China as ‘part of the package’, looking for exit via capital markets in China or UK – however, there is now less emphasis from minority Chinese investors on the startups doing business in China in the near term.

A very recent development is that Chinese regional city have also started getting involved in the UK’s earlier-stage startup scene, and several are now running entrepreneur business plan competitions with cash awards in the UK aimed at attracting early stage startups to set up in their city regions – and we will see more and more of this happening over the coming year. I would, however, advise startups to consider carefully what’s really on offer and whether participation in such competitions will indeed add value to their go-to-market strategy.

In 2015, China introduced its second-child policy, which has encouraged a lot more investment into the education industry. Historically, Chinese education has been based on a rote-based system of repetition and remembering. But China now recognizes that, in order to be a global innovator and produce home-grown innovators of its own, its stringent education system has to change to encourage its future generations to be creative.

This is providing lots of opportunities for innovative British companies within the education sector. One of our clients, Steer – a company focused on children’s socio-emotional development – has already started running a pilot programme in ten schools in Suzhou, near Shanghai, which is set to be rolled out into other Chinese cities once successful outcomes have been demonstrated.

AI is also having a huge impact on Chinese education – and the EduTech market, based on after-school tutoring alone is worth 600 billion RMB. Key development areas with this booming sector also include English language teaching, STEM (now a compulsory subject in Chinese schools) and examination preparation. Of course, there are the usual challenges of IP risks, lack of access, language and culture barriers, and who to work with – so it’s important to build a partnership to really understand the education system as well as the needs of the students, families, schools and local educational authorities.

Chinese investors still see a wealth of opportunities in the UK beyond the Brexit uncertainty – and China will remain an important partner for post-Brexit Britain throughout 2020 as a powerful player in global geo-economics, for trade as well as investment.

Looking across the pond at the start of 2020, I think the ongoing US|China trade conflict will actually present the biggest challenges for UK businesses wanting to trade with both great nations. And that’s the challenge of not bowing to pressure or getting caught in between.

Already the world’s No 1 consumer market, China boasts more internet users/online shoppers than the entire population of Europe, and the use of mobile payments is ubiquitous.

The “Thirteenth Five-Year Plan” for e-commerce, organised by the Ministry of Commerce in 2017, established three major development goals for eCommerce in 2020:

• 40 trillion Yuan in eCommerce transaction value

• 10 trillion Yuan in online retail revenue

• 50 million ecommerce professionals hired in relevant industries

According to the 2019 China Social ECommerce Industry Development Report, the number of mobile online shoppers in China reached 610 million last year, and the number of individual eCommerce transactions on social media reached 592 million. This is larger than the number of social eCommerce shoppers in the United States and the United Kingdom combined and, unsurprisingly, is a key growth area.

China’s middle classes are enjoying a boom period, the shops are full and there are long queues for restaurant tables. China’s version of Black Friday, Singles Day (also known as Double 11 Day) on 11/11 was so successful with literally billions being spent across two or three platforms, that it has spawned a follow-up, Couples Day (or Double 12 Day) on 12/12.

The luxury market including luxury brands and ‘experiential’ luxury brands like premium travelling, luxurious food and drinks is therefore another key growth area. In fact, China delivered more than half the global growth in luxury spending between 2012–18 and is expected to deliver 65 percent of the world’s additional spending heading into 2025 (according to UnionPay transaction data for the 2019 McKinsey China Luxury Report).

With easy access to all major brands – luxury (Burberry and Gucci) through to more affordable household names (Bodyshop, Lush, Whittard), there are lots of opportunities for UK brands –  although actually getting your brand onto the big ecommerce platforms to begin with remains both challenging and expensive.  Finding the right partners to help you navigating this complicated process is essential.