Some consideration on Chinese economy after the announcement that Alibaba is plowing RMB100bn ($15bn) into R&D with seven new research labs worldwide

There have been less doubts about resilience of China’s economy in near term, but still much concerns into medium term.

Nonetheless, we think medium-term outlook of China also moving towards constructive side, if ongoing structural transition continues. This is one of the examples, and it looks not just Alibaba.

•      China has never been shy on R&D spending. The level of R&D/GDP has been catching up rapidly, approaching the level of EU, and has been much higher than Korea and Japan when they were in similar development stage.
  

•      One doubt has been about the quality of R&D. But with more private companies showed their willingness to spend money on longer-term researches, the quality of such R&D looks to be also moving towards right direction.
  

•      Meanwhile, China’s labour quality is improving rapidly – a rare case around the world, as there are around 8mn new college graduates (1% of labour) each year entering labour markets to replace those retiring who are mostly migrants (China had almost no college education a few decades ago).
  

•      If continue with structural reforms to improve system efficiency, it would further help to mobilize such technology with labour, to help China find new engines of productivity growth into medium term. This is also one of key factors to ultimately help solve debt issue.
  

•      Already, World Bank’s Ease of Doing Business suggested that China’s rank has improved from 96 for 2014 to 78 for 2017, along with reform efforts. We hope and expect, at least, no change of such direction with incoming 19th Party Congress.