From Gao Jiawei
China’s economy has not by any means peaked, at least not yet.
With the approach of the Chinese Two Sessions, the Chinese economy is once again at the forefront of discussions, where perspectives of optimism and skepticism intertwine.
On one hand, the recent Spring Festival holiday showcased China’s bustling consumer market. On the other, some foreign media outlets have been focusing on the internal and external challenges that face the Chinese economy, as well as the spillover effects. They make the argument that the rebound of the Chinese economy in 2023 “fell short of expectations”, and the outlook for the Chinese economy in 2024 appears even “dimmer”. At this critical time, China’s choice is to cultivate “new productive forces” that underscore China’s resolve to further fuel its economic resurgence through scientific and technological breakthroughs.
“New productive forces” refer to advanced productivity different from traditional economic growth models and development paths. With innovation playing the leading role, it features high-tech, high-efficiency, and high-quality in production, such as artificial intelligence, 5G technology and the digital economy.
In the past, output growth relied heavily on increasing labor, land, and capital inputs, but this approach is no longer suitable for China after years of rapid economic growth since the reform and opening up. While China once benefited from significant demographic dividends due to its large population, the nation is now transitioning into an aging society, leading to the evolution of a talent-driven economy. Similarly, the utilization of land resources for social production is increasingly restricted as transportation and civil infrastructure greatly expand during the process of China’s modernization. Moreover, environmental concerns loom large, as rapid industrialization and urbanization often result in environmental pollution. Balancing economic growth with environmental protection and sustainable development has become a pressing issue, demanding new productive forces that are green and highly efficient. In this sense, cultivating new productive forces is not a sudden new proposal. Rather, it has been a long-term process that mirrors the changing aspects of China’s national condition.
More importantly, when domestic risks may be exacerbated by external pressures, such as protectionism from other countries, developing new productive forces is crucial for the steady growth of China’s economy.
Structural adjustment: Developing new productive forces reflects the transition of China’s economy
In 2023, China saw a shift in foreign investment inflows from growth to decline, prompting speculation about “foreign capital withdrawal from China.” However, this trend doesn’t necessarily signify the decline of China’s economic growth. Rather, it reflects the country’s structural adjustment towards higher-end production in the global value chain.
China has moved beyond its heavy reliance on foreign trade and investment for economic growth. Unlike its previous emphasis on extensive expansion, China now prioritizes high-quality economic development with more emphasis on resource efficiency and environmental sustainability. This involves structural adjustments such as shifting labor-intensive low-end industries to Southeast Asia and other regions, and fostering high-value-added industries. While this shift may cause short-term fluctuations in data, it ultimately supports the sustained growth of the Chinese economy. In fact, the stimulating effect of new productive forces can already be seen across various industries.
For instance, Bloomberg reports that the green economy, exemplified by clean energy, made a historic contribution of 11.4 trillion RMB to China’s GDP in 2023, accounting for 40% of GDP growth. This sector is effectively mitigating the side effects from the downturn of the real estate industry. Additionally, China’s high-tech manufacturing sector is witnessing accelerated growth, with investments in high-tech manufacturing having increased by 9.9% in 2023, according to China’s National Bureau of Statistics. Remarkably, the export of electric vehicles has been robust. China Customs data reveals that in 2023, one out of every three cars exported from China was an electric car, totaling more than 1.7 million vehicles, a stunning 67% increase year on year. Despite having to face policy “barriers” from the European Union and the United States, Chinese electric vehicles continue to maintain its competitive edge in the global market, and are becoming a new driver of China’s economy.
Addressing international competition: Developing new productive forces accelerates technological self-reliance
Competition in the technological field between China and the West, particularly with the United States, has intensified. This year, western countries may further tighten technology exports to China. Moreover, with the upcoming 2024 US presidential election, the Republican presidential candidate, Donald Trump, eyeing for a potential second term, could lead to another downturn in Sino-US relations, as he has been preparing a series of protectionist measures against China.
China can only mitigate the impact of these external pressures by continuing to prioritize ground-breaking innovation, which is at the core of developing new productive forces.
Progress was made in China’s semiconductor and chip industries last year, a predictable result that stemmed from western restrictions and China’s commitment to technological self-reliance. According to Chinese customs data, imports of integrated circuits in China dropped significantly in 2023 due to strict US export controls. Meanwhile, imports of chip manufacturing equipment surged by 14% to nearly 40 billion USD, reflecting China’s emphasis on chip self-sufficiency.
Not only for China, countries worldwide, especially developed ones, also highly value advanced technology and are enacting policies to drive research and application. Examples include the “Endless Frontier Act” in the US, the “EU Economic Security Strategy”, and Japan’s “Society 5.0” concept. There is no doubt that international competition in key advanced technology will only become fiercer. Thus, even if there were no western blockade, promoting innovation in high-tech industry to cultivate new productive force is still a must for China, as this represents the country’s ability to secure a stable position in the future international market.
China has become an indispensable part of the global market, and the strength of its economic rebound will significantly impact global economic dynamics. According to the IMF’s “World Economic Outlook” report released earlier this year, if China’s economic recovery in 2024 is lackluster, it could pose downward risks to the global economy. Conversely, if China manages to bolster its economy and stimulate growth, the positive spill-over effects could contribute to global economic growth.
The IMF has increased its global economic growth forecast for 2024 by 0.2 percentage points since its October report, citing China’s better-than-expected stimulus measures for its economy as one of the reasons. Regardless of western willingness to believe this, China is already on the path forward. As China navigates the shift to promote new productive forces, its growth will inject new vitality into the world economy. –The Daily Mail-CGTN news exchange item
