How China Will Become THE World’s Super Power

There’s more than one way to become an economic super power.

Take the British, for example. How did Britain create an empire on which the sun never sets? Is it because of their military power and unmatchable navy? I’m sure that had something to do with it.

But more importantly, it was how Britain used their military.

Most nations used war and diplomacy to simply expand their empire. Britain used their military to expand their trade. And took advantage of opportunities when they came.

How did Britain colonise India?

It began with the famous East India Company and the spice trade. As a sea faring nation, Britain had a maritime advantage. The business of spices made Britain incredibly rich.

Then, after the death of Mughal Emperor, Aurangzeb, Britain saw an opportunity to seize far more than Indian ports.  Funding their military efforts was the wealth they had accumulated from spices.

Or what about today’s super power, the US? How did the US become the most dominate nation of the 21st Century? Unlike the British, they didn’t climb to the top with a superior naval force.

Instead, they were able to supplant themselves and the US dollar as a concern stone of global finance. They also rolled out military forces and formed alliances with various nations to prevent the spread of soviet communism.

How will the super power of tomorrow climb to the top?

They won’t use a superior navy or stop the spread of communism. Instead, they’ll rise to the top with superior technology.

And it’s exactly what China plans to do.

The innovation nation

Tim Byrnes, an Aussie quantum physicist, passed up a job in New York. Instead, he went off to Shanghai. The Financial Times wrote, it ‘…goes some way to explaining the lengths to which Beijing is going in its efforts to upend the world order.

China doesn’t just draw quantum physicists to their shores. They’ve also got their fair share of computer engineers and artificial intelligence specialists flooding into the country. 

But Chain’s tech scene was no overnight success. Early on, China sought to foster technology and innovation.

A 2013 Brookings report explains:

Science and industrial parks are key venues for high tech research and development (R&D). Currently, there are fifty-four such parks, mostly located in large cities or provincial capitals. Firms operating in the parks must create or apply technology in high tech fields, devote at least three percent of gross revenues to R&D, and employ at least thirty percent of college degreed workers. The information technology (IT) industry is one of the leading industries in the science parks, and has received special policy recognition since 2000.

Today, China has 17 innovation hubs.

Chinas National Innovation Demonstration Zones 01-05-18

Source: South China Morning Post

[Click to open new window]

Like Byrnes, thousands of scientists and tech professionals flock to China. They either want to work with the most innovative companies of today. Or they have dreams of building their own unicorns (start-ups worth a billion).

One of China’s current tech projects is developing 5G technology.

If you look at your smartphone today, you’ll see a 4G symbol in the left hand corner. It’s the fourth generation of connectivity. 5G is simply the next generation of wireless technology.

While 2G, 3G and 4G focus on mobile radios, 5G covers an entire ecosystem of radios. It will be 100-times faster than 4G. And not only will it send data to and from your phone faster. The 5G will cast a far wider net.

Instead of just smartphones, 5G will open up many more opportunities. Driverless cars, VR headsets, delivery drones and billions of interconnected devices are all possible with 5G.

How 5G Could Work 01-05-18

Source: Bloomberg

[Click to open new window]

As you can imagine, there’s huge financial reward up for grabs. Like the British with spices, China could use their 5G wealth to expand their dominance on global trade.

The two China’s companies planning on rolling out this technology first is ZTE Corp [SHE:000063] and Huawei Culture Co Ltd [SHE:002502].

Of course there will be speed bumps along the way. Already ZTE has gotten into a bit of trouble. The US recently banned any American firm from selling parts and software to ZTE for seven years.

The Chinese telecom violated an agreement they had with the US — to not ship any US goods to Iran or North Korea. South China Morning Post wrote:

If no settlement is reached, the seven-year export ban would not only hurt ZTE, China’s largest listed telecommunications equipment manufacturer, but deal a blow to the country’s goal of recasting itself as a leading innovator. It would also handicap the mainland’s ability to build the world’s largest 5G network by the end of this decade.

‘…Without the US-made chips and other components that it needs, ZTE would be hard-pressed to meet its network equipment as well as smartphone orders around the world, and push forward its 5G-related research and development.

According to Beijing, Chinese 5G investments could reach US$446 billion from 2020–30. And this is just one of China’s multibillion dollar tech investments.

Profiting from China’s rise

To me, there’s no doubt technology will shape our future. If China wants to become the leader of a new digital age, they’ll first have to become leaders in the lab, which they are quickly becoming.

Already, there are hundreds of Chinese and Aussie companies all vying for Chinese tech dollars. Most names are ones investors have never heard of. But with a little research, you could discover some hidden Eastern tech gems that will skyrocket in 2018.

It might take some time to find them, but the rewards could be more than worth it.


Härje Ronngard,
Editor, Money Morning

PS: Finding hidden gems in the East is exactly what I do in my new advisory service Wealth Eruption. The idea is to profit from some of the most exciting companies in the world. And right now you can’t get more exciting that Chinese tech. Not every stock you come across will be a winner. But I’ve found five that have massive promise going forward.

To find out more, click here.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

Money Morning Australia