Innovation Without Borders: A Journey Through Modern China

Last month, we had the opportunity to travel to China as part of a high-level UK delegation of companies and policymakers.

Over two weeks—starting in Beijing and traveling by bus, train, and plane—we visited Shandong and Zhejiang provinces. Along the way, we engaged with senior government officials and met with dozens of leading Chinese companies operating in energy, AI, robotics, healthcare, and biotech.

Three Key Takeaways

1. China Is Back in Business

As we’ve written before, a primary concern post-COVID wasn’t just economic indicators—it was the deep sense of risk aversion that had taken root in the corporate sector. Years of regulatory crackdowns, state intervention, and surveillance had stifled the entrepreneurial energy that once propelled China’s meteoric growth. Even financially strong private enterprises were hesitant to act.

The turning point came in February, with DeepSeek. President Xi Jinping—ever the pragmatist—appears to have recognised that revitalising the economy, pushing forward with “Industrial Revolution 4.0,” and achieving “common prosperity” were not possible without the private sector. DeepSeek, a symbol of private-sector innovation, marked a pivotal moment. The publicised meetings between Xi, senior officials, and industrial titans sent a clear message: the private sector is once again central to China’s economic vision.

This shift was palpable during our visit. The government is stepping back from direct economic management and focusing instead on creating strong incentives for investment. Priority sectors include next-gen technology, biomedical innovation, EVs, advanced materials, smart equipment, and clean energy. The goal is to harness AI and digital tools to modernise manufacturing across all company sizes.

2. Geopolitics and Trump’s Trade War Are Reshaping Alliances

Europe is looking East. As we’ve previously argued, Europe stands to lose the most from a Trump 2.0 presidency. His aggressive trade policies, unilateral stance on Ukraine, and NATO funding demands have strained transatlantic ties. Europe can no longer rely on the U.S. for security or technological leadership.

China, on the other hand, is indispensable—especially if Europe is to meet its net-zero goals. China leads the world in green technologies: from EVs and batteries to solar, wind, and energy optimisation. Chinese firms produce 70% of global EVs and 80% of batteries. A new EV rolls off the line every 76 minutes—built by just 100 people and robots. Xiaomi’s YU7 EV can charge from 10% to 80% in 12 minutes, delivering 620 km of range in just 15 minutes of charging.

The AI gap with the U.S. is narrowing, and China’s expertise in applying AI to manufacturing and energy optimisation is advancing rapidly. China is also home to some of the most cost-competitive manufacturers in the world. One standout was Unitree, a robotics firm we met that sells factory-ready robots for as little as $16,000.

Engagement is becoming essential. While national security concerns persist, economic cooperation with China is becoming a necessity for Europe. Meanwhile, China is actively courting new partners. Across dozens of business meetings, Chinese firms were eager to collaborate, expand overseas, and welcome UK investment.

Foreign companies remain vital to China. We were told that foreign firms account for 13 million jobs, a third of tax revenues and exports. In Beijing alone, there are 49,000 foreign enterprises from 16 countries. New foreign-funded company registrations rose 16% year-on-year in 2024.

Still, the data shows a recent cooling in inbound FDI. Post-pandemic uncertainty, domestic policy shifts, and geopolitical tensions—especially Trump’s trade war—have caused FDI flows to drop to $18 billion in 2024, their lowest since 2009 (Figure 1). It's no wonder China is accelerating reforms to attract foreign investors and level the playing field.

3. Innovation Knows No Boundaries

The speed and depth of innovation in China are breathtaking. Where the country truly excels is in the practical application of technology—particularly AI and robotics—to improve everyday life and industrial processes.

Ironically, U.S. restrictions on tech transfers and the trade war have only accelerated indigenous innovation. China is home to 4,500 AI firms, and the sector is valued at $600 billion. China now accounts for 45% of global computing power and over 60% of AI patent filings in 2024. Intellectual property protections are also strengthening.

In Hangzhou, Alibaba showcased driverless trucks delivering to robot-run warehouses, where AI optimises packing and real-time delivery tracking. And the numbers are staggering: 6.7 million packages are delivered in China every single day.

Zhejiang and Shandong: At the Cutting Edge Zhejiang, home to Alibaba, DeepSeek, and Geely, is a tech powerhouse—hosting 38 of 41 major industrial sectors and all 31 categories of industry. It’s no coincidence Xi Jinping once led the province, laying the groundwork for a private-sector-driven, innovation-focused economy. Today, 99% of its companies are privately owned, with leadership in smart vehicles, aerospace, semiconductors, and biopharma.

Shandong, China’s agricultural heartland, is also an industrial giant. Key sectors include chemicals, machinery, shipbuilding, and electronics.

Qingdao Port stands out globally: fully automated, powered by solar, wind, and hydrogen, with carbon emissions reduced by 2,000 tonnes. AI and just 300 workers handled 4.7 million containers in 2024—3,000 in one day, 8,000 in two.

A Final Reflection: Innovation Begets Innovation

As any Austrian economist would tell you, innovation fuels more innovation. Businesses don’t operate in silos—they create opportunities for others. This builds vertically and horizontally integrated industrial ecosystems and draws in talent. Reportedly, 50% of the world’s AI talent is now based in China. And what drives it all? The profit motive—yes, even in China.

Socio-economic inequality remains a challenge, and addressing it is critical to the Communist Party’s long-term stability. But at its core, China remains a deeply entrepreneurial society.

A Long Road Ahead

China leads in green tech and has already surpassed some of its own carbon goals. It is the world’s largest solar panel manufacturer and the top consumer of renewables, accounting for over 30% of global demand and 32% of renewable energy production in 2023.

Still, challenges remain. Coal accounts for 54% of primary energy use, and when oil is included, the total rises to 73%. Renewables make up just 9%, or 27% when hydro, nuclear, and natural gas are included (Figure 2). Moreover, despite AI-driven efficiency gains, China remains the world's largest carbon emitter, responsible for a third of global CO₂ emissions—compared to the U.S. at 12.7% (Figure 3).

This isn’t to downplay China’s progress. But it does underscore the scale of the challenge—and the opportunity. For investors, the combination of geopolitical shifts, Beijing’s green push, and its renewed embrace of innovation and the private sector make one thing clear: sectors linked to renewables and energy optimisation—especially those powered by AI—are a smart bet.