When thinking about investment in the Chinese market, innovation is not necessarily the first thing that comes to mind. While the country’s long reputation as a hub for cheap labour and manufacturing is less relevant today than it was 10 years ago, the concept of ‘Made in China’ remains strong. However, as China’s economy grows and matures, the idea of ‘Designed in China’ – native innovation and quality construction – is entering the fray.

This is particularly true for industrial design, where China’s leading companies not only have a huge domestic market with increasingly sophisticated tastes in which to operate, but also the ability to cater to Western clients as well. This offers an attractive proposition for investors.

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Innovation machine

One of the intriguing aspects of the design market in China is that it is still in the embryonic stage. As of 2011, only one of the top 500 service companies in China was a design firm, and internationally renowned domestic designs are still relatively rare.

However, with the country firming up intellectual property protection and with consumer demand increasing, the potential to enter a market that looks as if it has a lot of room for development is appealing. In 2012, 657,582 design patent applications were filed in China – more than in any other country in the world, and more than in the rest of the top 20 jurisdictions put together. And only 2.3% of the design patent applications in China were filed by non-Chinese entities – showing how strong the domestic market in this sector is becoming.

Take the design of aerospace parts. China’s rising demand for air travel, investment in domestically made aircraft and spending on infrastructure means that this market (including other aspects such as component systems and training) could be worth as much as $32bn over the next 20 years.

This is all part of China’s rising ‘innovation machine’, which has seen the country move away from its low-cost, high-output model to grow rapidly as a producer and innovator of hi-tech products. From the continued success of the country’s e-commerce sector – including Chinese e-commerce giant Alibaba’s record US initial public offering and the creation of apps, such as WeChat – to the 18% year-on-year growth in research and development, China is now a global player in cutting-edge design and technology.

Getting creative

China's share of the world's hi-tech manufacturing ballooned from 8% in 2003 to 24% in 2012, according to a report by US-based National Science Board.

“The general design environment in China has improved in recent years as the number and quality of art schools increases in China. Also, there is a higher number of Chinese students travelling abroad to study the creative industries. In the past five years in the UK, there has been a 150% rise in the number of Chinese students travelling to London to study creative arts and design," says Tom Pattinson, art director of Beijing-based arts promoter Surge Art, and a commentator on Chinese contemporary culture.

"The creative arts have now overtaken traditional subjects, such as technology, engineering and mathematics, among Chinese students coming to the UK. These students are returning to China with international skills and a global aesthetic, finding jobs in the design teams of major companies and also creating their own companies, from furniture design to fashion.” 

Such innovation and new ways of thinking are certainly required if FDI flows are to continue in the future – China’s overall FDI figures for August 2014 were at a four-year low, with the country attracting $7.2bn of FDI in the month, down 14% from the previous year and the lowest monthly level since July 2010.

China is beginning to create its own design templates, offering further avenues for investment. “Growth areas will be across the field, but we will see a major shift in product design, and it is likely that over the next decade China will create its own product design style much as Italy, Japan and Germany have done over the past half century,” says Mr Pattinson.

Still, gaining exposure to investors has been a challenge for this burgeoning market, with manufacturing still dominating China's FDI landscape. Events such as this year’s inaugural Design Shanghai forum and the annual Beijing Design Week are opening up foreign eyes to Chinese design potential. However, challenges still remain as China looks to shake off decades of tight government centralisation on industry and multi-layered bureaucracy – not ideal bedfellows for cutting-edge design thinking.

Government intervention

Ben Hughes, professor in the industrial design department of the Central Academy of Fine Arts in Beijing, was involved in the recent Beijing Design Week. Although such events are certainly helping to drive interest in the market, he believes that while the Chinese government is buying into the creative industries, problems do still persist.

The Chinese government has, for some time, bought into the idea of the creative industries having a positive effect on both industrial and cultural development.

"Industrial design even gets a mention in the government's 12th Five-Year Plan as part of the strategy for accelerating the development of production services," says Mr Hughes. "The problem is that the behemoth lumbering of this kind of central planning cannot really accommodate the organic evolution that brings about genuine creative communities. The top-down approach can only try to put the pieces together, but it doesn’t seem to be very good at this."

Mr Hughes believes it is the younger, design-literate audience and smaller companies that offer the best opportunities for actual innovation and growth for China’s design sector. So while design innovation in China is still a relatively new concept, there are clear signs that the market has strong potential for growth as both China’s consumers – and its domestic design producers – continue to evolve.