To take on the challenges of improving productivity, living standards and transitioning away from fossil fuels China will need a thriving tech space.

Beijing seems to have walked back some of its crackdown on the sector while the likes of Alibaba (BABA:NYSE) have announced plans to break up their businesses to help address monopoly concerns.

In 2021 a report from the International Monetary Fund commented: ‘Stagnant productivity is a signal that China needs more innovation, and a diversified financial system to support it.

‘China has many of the ingredients that contribute to innovation—a large domestic market; high spending (2.4% of GDP) on research and development; millions of scientists, engineers, and software developers graduating every year; and gradually improving intellectual property protection. Still, innovation output is inconsistent.

‘Innovation will be the key to meeting the country’s environmental goals, especially the target of zero net carbon emissions by 2060,’ added the IMF.

If you look at the MSCI China index true technology companies are relatively thin on the ground – with Alibaba and other internet-based businesses classed as either in the communication services or consumer discretionary universes.

Somewhat surprisingly information technology has a significantly higher weighting in the broader emerging markets space, which could hint at the progress China needs to make to become a true tech champion. 

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

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