In China, technology sector supports an ecosystem for growth

While developed economies tend to get investors’ attention for inventing leading-edge technologies, other countries are quickly adapting this technology in ways that are fundamentally changing peoples’ day-to-day lives. When we look at countries that are at the forefront of developing innovative, technology-driven solutions, we see that China is among the most prominent.

Consider that China’s economy is facing challenges such as labor shortages, a stressed healthcare system, an aging population, and an inadequate social safety net. Embracing technology could potentially alleviate some of these headwinds and have broader implications for the Chinese economy. As technology applications further advance in China, we think this trend could very well usher in far-reaching, fundamentally meaningful improvements to daily life.

Finding evidence in the consumer space

Mobile technology in China appears to be infiltrating many aspects of people’s lives, transforming how people interact, transact, and ultimately consume. Take a service introduced by a major provider of online consumer service platforms, for example. With a base of 900 million users, the company has developed a mobile app that takes disparate elements of a given experience — say, dining out — and puts them in one place. Users can search for particular restaurants, order meals, pay their bills, and post photographs of their experiences — all without switching to another app. This results in a better customer experience while also providing bottom-line benefits for business owners. For the restaurant operator, such enhanced mobile technology allows for fewer employees (such as wait staff).

This example underscores a broader trend we are observing, in which advancements in technology can result in better information and less guesswork about consumer desires, while helping businesses improve their operational efficiencies. Furthermore, the proliferation of advanced consumer applications dovetails with higher-level societal issues, by enhancing transparency in commercial dealings and potentially creating barriers for dishonest or suspicious business activity.

Insurance and healthcare: notable progress

The application of advanced technology is affecting China’s automotive industry in ways that go beyond the vehicles themselves. A major auto insurer, for instance, has launched a service that uses artificial intelligence (AI) technology to make its claims processing faster, more accurate, and more efficient. This AI-based service can use photographs of a damaged vehicle to file a claim, estimate necessary repairs, and process a settlement. The entire process can be completed in as little as one hour. As in the restaurant example above, not only does this process put customer needs front and center, it also benefits the business entity; the insurer can take advantage of the technology to reduce the likelihood of false claims.

Insurers are also using data-intensive technology to build detailed profiles of customers and potential customers. This compilation of personal attributes allows insurers to make smarter underwriting decisions. In the end, the aggregation of large amounts of data helps insurers make more nuanced decisions with less human intervention.

New technology applications are also making a positive contribution in healthcare. An aging Chinese population (see table below), together with a medical workforce that’s small in relation to the country’s needs, is creating a climate in which online technology is viewed as a promising way to ensure that more individuals — particularly older people in remote areas — receive access to quality medical care. In addition to conducting basic medical evaluations, at least one healthcare provider has applied for a license to write medication prescriptions digitally. Over the longer term, we think mobile healthcare could become an important part of the Chinese healthcare experience, ultimately raising living standards.

Technology-driven advancements such as these are still in their early stages, however, and while we see potential for future positive outcomes, the degree of success must be proven over time.

The market for mobile health applications: Set to expand?

Several trends suggest strengthening demand for mobile health services

China is home to an aging population with significant medical needs
  • 15% of the population is older than 60 years of age.
  • 20% of Chinese are living with chronic medical conditions.
  • Life expectancy is on the rise; it has more than doubled between 1949 and 2016, from 35.2 years to 76.1 years.

However:

Older patients have yet to adopt mobile health options

  • The majority of mobile healthcare users are younger than 30 years of age.

Which Means:

There is potential pent-up demand

  • As older patients eventually seek mobile services, providers could experience significant enrollment growth.

Source: Health Policy and Technology Journal

Possible investment implications

Mobile technology appears likely to influence many industries in China, and we see several investment implications from this:

Disruption to business models and competitive dynamics. As we are witnessing in industries such as offline retail and cable television, mobile technology can thoroughly disrupt industry structures and render historical competitive advantages obsolete. The forces of creative destruction are well at work in China, and it is critical to consider the effects of mobile technology on the businesses in which we invest.

Potential consumption gains. We expect to see positive effects on consumption within China’s economy over time. As goods and services become more accessible and more customized to individual needs, it should become ever easier to conduct transactions.   

Increased demand for data processing. We think it’s reasonable to expect the volume of data generation and data processing to grow as devices become “smarter” and more connected. We believe that certain companies in the semiconductor industry could be among the beneficiaries of this growth.

We can envision other emerging markets following China’s example in mobile technology, providing even greater opportunities for future growth. However, we recognize that widespread success is not a given. Fundamental challenges such as poor infrastructure and sluggish income growth persist in many countries. Because of factors like these, we believe it prudent to take a patient, vigilant, and selective approach to investing.


The views expressed represent the Manager's assessment of the market environment as of June 2018, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

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