When investors think about innovation in China, attention tends to gravitate towards artificial intelligence, large language models and the country’s internet giants. But this is only one part of China’s story and a week of meeting companies recently reinforced that they represent only a portion of a broader transformation.
A growing number of innovative companies are developing new technologies ranging from robotics and advanced manufacturing to autonomous transport and consumer technology.
These technologies are increasingly solving real-world challenges, being deployed for everyday use across China’s economy and playing an important role that will help China’s next growth phase.
For investors, that breadth matters. It means that China’s next phase of growth will not depend on the fortunes of a handful of AI and internet businesses, but on innovation taking place across a much broader range of industries and end markets.
A company that stands out for me is Agibot. This has rapidly become one of China’s leading developers of humanoid robots, despite only being founded three years ago.
These have moved beyond the lab and are already being deployed in manufacturing to help improve productivity and efficiency. Elsewhere, AI-enabled smart glasses developed by Chinese manufacturer Shanghai Conant for leading global technology brands demonstrates how artificial intelligence is becoming embedded into everyday products rather than existing purely as software.
EHang provides another example of tech innovation that could revolutionise urban mobility and tourism. The company manufactures autonomous aerial taxis and has started selling units, with customers in China and abroad, specifically tourism operators in Thailand, and it is awaiting regulatory approval for commercial operations.
What makes China a global leader when it comes to innovation
Agibot and EHang also highlight how China’s competitive edge isn’t just innovation, but its ability to execute at scale and commercialise their technology.
China’s vast domestic market combined with its manufacturing expertise and integrated supply chains is crucial in helping to drive innovation and give China its competitive edge. It allows companies to develop, test and scale new technologies at speed.
The success of businesses such as CATL, the world's leading battery manufacturer, illustrates how sustained investment and industrial scale have created global leaders in sectors that will underpin the energy transition, automation and advanced manufacturing.
Another good example of how Chinese businesses are increasingly competing in technology and product quality rather than simply cost is TCL Electronics, which now manufactures Sony-branded televisions through a joint venture.
Innovation in China isn’t confined to the technology sector. It can also be found in traditional industries such as agriculture. Take Muyuan Foods, which began as a family pig farm with just 22 pigs but has grown into one of the world’s largest pork producers selling over 77 million pigs last year, using automation, intelligent feeding, advanced breeding and disease-monitoring technology to drive down costs and dramatically increase productivity.
It demonstrates how innovation in seemingly traditional industries can create extraordinary growth opportunities that investors may overlook.
Alongside more structural advantages, one of the things that always strikes me at company meetings is that management teams are incredibly entrepreneurially minded with long-term thinking and global ambition.
For example, Impro Precision is already a well-established global leader in high-end casting and machinery components production, yet its chairman remains remarkably hands-on, spending considerable time at its new operations in Mexico even learning Spanish and English himself to make sure nothing gets lost in translation.
That entrepreneurial mindset is something we continue to find across many of the companies we invest in.
What this means for the investment opportunities
Alongside innovation taking place, company balance sheets are extremely healthy and typically tend to be under geared. Many are beginning to pay out more in dividends and share buybacks. And what’s more, many of the companies driving innovation and progress are underappreciated by international investors.
China continues to offer genuine diversification to UK and global investors with its political and economic cycles distinct from those of Western markets. During times of volatility, this can help balance portfolios.
Risks clearly remain and investors must continue to assess individual companies carefully. However, short-term sentiment should not obscure the structural strengths underpinning many of China’s most innovative businesses.
Additionally, companies are increasingly adopting best practices in transparency, board independence and risk management, making them more attractive to investors.
Finding China’s next generation of market leaders
China remains one of the world’s most closely watched investment markets, supported by tangible evidence that its innovation ecosystem is producing world-leading products, while it is also home to the largest number of patents registered each year.
The country’s next generation of market leaders is unlikely to be defined solely by internet platforms or AI models, but by companies applying innovation across manufacturing, robotics, energy, consumer technology and industrial automation at remarkable speed and scale.
While geopolitical tensions and macroeconomic uncertainty will continue to shape sentiment, they should not obscure the structural strengths underpinning many of China’s most innovative businesses.
Behind the volatility that often dominates perceptions of China, sits a diverse group of businesses developing and commercialising technologies with applications across the real economy.
The question is no longer whether China can innovate; it's whether investors are looking in the right places.
Mike Balfour is chairman of the Fidelity China Special Situations trust. The views expressed above should not be taken as investment advice.