INVESTMENT DISCOVERIES Watching China’s quest for technology independence A story by Connie Ou. This past October, I visited a popular technology conference in Beijing: the 2019 PT EXPO China. In contrast to the chilly weather outside, the expo floor was warm with enthusiasm from the nearly 400 companies showcasing their latest products. The expo had an interesting theme: integrating 5G for a smart and connected world. However, by being on location in Beijing, I obtained a deeper level of insight. In a new era of technological and industrial revolution, China is evolving Alison Shimada Senior Portfolio continuously—with an eye toward achieving transformative economic goals. Manager, Head of SF Global Emerging Markets Equity Team The Chinese government is focusing on two key agenda items: Mastering core technology such as 1. advanced semiconductors Establishing a complete domestic supply chain 2. The economic drivers: • Technology remains the largest part of China’s overall imports, Connie Ou, CFA 1 measured at 21%. • In particular, semiconductors constitute 70% of China’s Associate Portfolio Manager/Senior Analyst, 2 SF Global Emerging technology imports. • More than $300 billion in semiconductors were shipped to China Markets Equity Team 3 in 2018, reflecting about 60% of global semiconductor value. China’s motivation: • Supply stability • National security • Moving up the value chain through economic transformation Sources: 1 and 2: Credit Suisse; 3: World Semiconductor Trade Statistics and China’s General Administration of Customs Under the Beijing government’s supportive industrial policies and “Made in China 2025” initiatives, some success is starting to emerge. Local semiconductor production has been growing at a 20% compound annual growth rate in recent years, according to Credit Suisse. In part, this is because the domestic suppliers offer lower cost compared with foreign companies while also providing better service. 11 2020