China is transforming into a tech powerhouse

• 

  Susan Niederhöfer
  Chefredakteurin

China’s growth story has recently taken a few knocks. What could be the reasons for this?

China’s impressive growth story has lost considerable momentum in recent years. The reasons are found in deeper structural changes rather than in short-term phenomena. One of the most significant factors is the crisis in the property sector, which has been a key driver of growth for many years. Major property developers are heavily indebted, projects remain unfinished and falling property prices are having a negative effect on the wealth of many households. This is weakening not only construction activity but also consumer sentiment.

And it is linked to another problem: comparatively weak domestic consumption. Many Chinese households are saving as a precautionary measure, partly because of uncertain job prospects and a less developed social security system. High youth unemployment is also contributing to this uncertainty. The long-standing, successful export-driven model is increasingly reaching its limits. Trade conflicts, particularly with the US, rising protectionism and the relocation of supply chains to other countries are undermining China’s model of success.

Overall, it can be said that whilst China continues to grow, it is doing so under more challenging conditions and at a slower pace – a pattern more typical of large, already developed economies.

In early March 2026, the National People’s Congress adopted the 15th Five-Year Plan. What opportunities might this present?

The 15th Five-Year Plan could further accelerate the transition from a primarily export-oriented manufacturing economy to an innovation-driven leading role.

The Chinese legislature has identified several key pillars in this regard: innovation and scientific progress, industrial upgrading, digital and green transformation, and the promotion of technology-driven domestic consumption. The overall goal is to strengthen global competitiveness in a sustainable manner and to systematically reduce dependence on key foreign technologies.

Officially, the strategic ambition is to achieve greater independence and strength in science and technology in order to drive the development of new, high-quality and productive forces. For investors, this means that government strategy and entrepreneurial innovation are closely intertwined. Anyone analysing structural growth in China must take this political logic of control into account as an integral part of their investment thesis.

According to the plan, technology and innovation are to be driven forward on a massive scale. Does China have what it takes to evolve from the world’s workshop into a leading and autonomous technological power?

Over the past 30 years, emerging economies have steadily grown in their importance in relation to the global economy, with Asia now at the heart of this transformation. The share of Asian emerging economies in global gross domestic product has now overtaken that of the eurozone and is competing on a par with the US. According to forecasts by the International Monetary Fund, Asian emerging markets could reach a gross domestic product of around USD 38 trillion by 2030 – almost double the figure of around ten years ago. This underlines the region’s impressive structural growth momentum.

China plays a central role in this. Whilst the country was known for decades as the “world’s workshop”, today, the focus is increasingly on technological sovereignty and high-quality value creation. However, this transition is neither guaranteed nor is it proceeding entirely smoothly. Whilst China already holds a strong position in several future-oriented sectors and is likely to be among the world leaders – or even lead – in some areas, complete technological autonomy is difficult to achieve because modern technologies are globally interconnected. It is, therefore, more probable to remain a race between the leading and most advanced economies, with an open outcome. A more likely scenario is that China will lead in certain key industries, but might continue to rely on international cooperation in other areas.

Could China’s affinity for technology and massive investment in key technological sectors such as AI and robotics present an opportunity for investors?

Artificial intelligence is a particularly exciting field in the global competition – and it is precisely here that it becomes clear just how determined China is in striving for technological leadership. After all, good software alone is not enough to stay ahead in the AI race. Structural conditions are crucial – and it is precisely in this area that China possesses several strategic strengths.

A key factor is availability of energy. AI models and data centres are highly energy-intensive, and China is one of the world’s leading countries in energy production. At the same time, the country is driving forward the expansion of renewable energies on a massive scale. A stable and scalable energy infrastructure is, therefore, a clear competitive advantage. Yet another factor is access to critical resources. China dominates the production of rare earths, which are indispensable for semiconductors, high-performance processors and many future technologies. This strong position in global supply chains gives the country additional influence.

Another key factor is human capital. In the STEM subjects (science, technology, engineering and mathematics), China produces significantly more graduates each year than, for example, the US. This ensures a broad pool of talent – from basic research to industrial applications. Last but not least, China has massively increased its spending on research and development in recent years and is now one of the world’s leading centres of innovation. The gap with the US has narrowed considerably.

Whether China will ultimately take the lead in AI remains to be seen. One thing, however, is for certain: the structural foundations are in place and are being systematically expanded.

For investors, this means that Asian innovation hubs should no longer be regarded as laggards, but rather as serious competitors with their own momentum. Interesting opportunities are emerging, particularly in areas such as AI, robotics, green technology and autonomous driving. At the same time, however, investors should also keep an eye on geopolitical risks, regulatory intervention and the, in part, high market volatility.

The yuan has appreciated against the US dollar in recent months. How do you see the currency developing in the future? And could the People’s Bank of China attempt to reverse the yuan’s appreciation?

The recent appreciation of the Chinese yuan against the US dollar is primarily the result of several coinciding factors: a temporary weakness in the dollar, capital inflows into China, and a stance adopted by the People’s Bank of China that is deliberately tolerated but clearly managed. A key factor here is that the yuan is not a free-floating currency, but is traded within a framework closely monitored by the central bank.

From China’s perspective, a stronger yuan certainly has advantages, such as lower import prices – particularly for raw materials – as well as a dampening effect on inflation. Furthermore, a gradual appreciation is in line with the strategic reorientation of the economy towards greater domestic consumption. At the same time, the central bank ensures that the appreciation does not proceed too rapidly. An excessive or abrupt appreciation would undermine the competitiveness of the export-oriented industry, which continues to play a central role in growth.

Against this backdrop, the People’s Bank of China is pursuing a typical “smoothing strategy”: it generally allows market forces to operate, but intervenes as soon as the trend becomes too one-sided. This is evident, for example, in adjustments to exchange rate fixings or regulatory measures that either curb or facilitate speculation – depending on the direction in which the yuan is moving. The aim is not a clear trend towards appreciation or depreciation, but a stable exchange rate within a politically desired range.

A deliberate reversal of the yuan’s appreciation – in other words, an active devaluation of the currency – seems rather unlikely at present. It would be politically risky and could quickly lead to accusations of currency manipulation on the international stage. Furthermore, China has a long-term interest in building confidence in its own currency and promoting its international use.

Your firm launched the Vontobel Rising Economies Disruptors Index (R.E.D.) at the start of the year. What are the benefits for investors?

The Vontobel Rising Economies Disruptors Index comprises a broadly diversified portfolio of around 50 companies from emerging economies that are regarded as “disruptors” in sectors such as technology, energy and financial services. This eliminates the need for investors to analyse and select individual stocks or to arrange direct market access to what are often complex emerging markets.

Another key advantage is that investors can spread their risk across multiple regions and sectors. Many of today’s most dynamic innovations are coming from emerging markets, and the R.E.D. Index specifically targets companies that are driving structural change in their respective markets.

What is the strategy of the index, and in which companies and sectors does it invest?

The Vontobel Rising Economies Disruptors Index pursues a clearly thematic and growth-oriented investment strategy. The focus is specifically on companies from emerging markets that are regarded as driving forces of innovation and structural change. The geographical focus is particularly on China and other Asian economies which, according to the index sponsor Vontobel Asset Management, are likely to play an increasingly significant role in the global innovation landscape in the future.

In terms of content, the index focuses on companies that actively drive innovation, develop disruptive products or incorporate relevant technologies into their business models. The relevant advancements can be categorised into four key thematic areas: core technologies, automation, healthcare technology and consumer technology. Suitable companies are identified through the combined use of an LLM-based machine learning model and a so-called “quantamental’ selection process, which takes into account both attractive fundamentals and quantitative key figures.

Unlike traditional emerging markets indices, the priority is, therefore, not on achieving the broadest possible market coverage. Instead, the focus is on a targeted selection of companies that demonstrate growth potential through technological innovations, digital business models or state-supported future-oriented industries, and are, thus, regarded as particularly dynamic players within their markets.

What role does China play in the Vontobel Rising Economies Disruptors Index?

The selection process for the Vontobel Rising Economies Disruptors Index involves several steps and includes screening potential index constituents against qualitative and quantitative criteria. In this way, up to 50 shares are selected from the relevant thematic sectors that are considered most attractive for the strategy. China plays a very dominant role in this process. Depending on the timing of the composition, the weighting of Chinese companies typically lies in the region of around 50% or even higher.

There are several reasons for this: firstly, China is by far the largest and most technologically dynamic market among emerging economies. Secondly, a particularly large proportion of Chinese companies meets the index’s criteria – namely as disruptors in sectors such as digitalisation, e-mobility, battery technology and renewable energy. Companies such as Tencent and CATL are prime examples of this focus. Companies from other countries, such as India, South Korea or Southeast Asian economies, are also represented, but carry significantly less weight.

For investors, this means that the index’s performance is also heavily dependent on economic, political and regulatory developments in China.

Thank you for the interesting conversation, Mr. Wolff.

__

Benjamin Wolff
Vontobel Public Distribution Execution

Benjamin Wolff has extensive expertise in the field of Structured Products. His regular appearances as an interview
on “Der Aktionär TV” highlight his commitment and his profile within the financial sector. He also shares his passion and expertise in Structured Products with a wide audience, both at industry events in Switzerland and via webinars.