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Last year, Xi Jinping, the Chinese president, visited Heilongjiang in the northeast of the country. This province, which is part of the rusty trade belt, exemplifies the turmoil plaguing China’s economy. Its birth rate is the lowest in the country. Steady costs in its largest city are falling. The province’s GDP grew by 2. 6 percent in 2023. Worse still, its nominal GDP, before adjusting for inflation, has risen slightly, suggesting that it is mired in deep deflation.
Fear not: Xi has a plan. During his visit, he suggested to his provincial audience that they tame “new productive forces. “Since then, the word has appeared dozens of times in state newspapers and at official meetings. This was underlined by last month’s “two sessions”, the annual meetings of China’s parliament and its advisory body. In the foreword to a new e-book on the subject, Wang Xianqing of Peking University compares the term to “reform and opening-up,” the word that sums up China’s acceptance of market forces after 1978. These words still “shine” today, he writes: implying that the “new productive forces” will have a similar capacity for resistance.
What does the expression mean? Chinese officials are looking for tactics to breathe life into the country’s economy. For years, its productive forces have been based on the mobilization of hard labor and capital accumulation. Its workforce grew by 100 million more people between 1996 and 2015. Its capital inventory rose from 258% of GDP in 2001 to 349% two decades later, according to the Asian Productivity Organization. After the global currency crisis of 2007-2009, capital accumulation took the form of new real estate or infrastructure.
But China’s labor force is shrinking, and demand for assets has plummeted: fewer and fewer people are moving to Chinese cities, speculative profits on real estate are no longer assured, and prospective buyers are reluctant to buy apartments upfront in case property developers run out of resources. no money before construction is complete. The real estate slowdown has shaken customer confidence and hurt local governments in terms of profits from land sales. Even after China abandoned its strict Covid-19 controls, the economic recovery remained subdued and uneven. forces. As a result, through one measure, deflation has persisted for 3 consecutive quarters.
At China’s level of development, economies tend to rely on services. However, the center of government lies elsewhere. The pandemic has increased demand for Chinese manufactured goods, from surgical masks to stationary bikes. Export controls on “bottleneck technologies” have created a need for local alternatives, from lithography machines to aircraft-grade stainless steel. China’s 14th Five-Year Plan, which runs from 2021 to 2025, promises the output sector the share of GDP, which had risen from about one-third in 2006 to just over one-quarter in 2020.
In its pursuit of a complicated but self-sustaining production system, China employs a number of useful policies. Its Department of Education, for example, recently approved a new university concentration in high-end semiconductor science and engineering. adding subsidies, tax breaks and reasonable credits, it amounted to 1. 7% of GDP in 2019, according to the Center for Strategic and International Studies, a think tank, more than 3 times the percentage spent through the United States.
“What China needs is to be the leader of the next trade revolution,” says Tilly Zhang of consultancy Gavekal Dragonomics. This will require modernizing traditional industries, breaking foreign dominance over existing technologies, and charting a new course for tomorrow’s industries. Even if the central government’s ambition is impressive, even worrying, it cannot succeed without the help of cash-strapped local authorities and trustless personal entrepreneurs. a long-term vision that blinds leaders to more immediate economic concerns.
For Barry Naughton of the University of California, San Diego, who admits to having read Hegel in his youth, the term “new productive forces” evokes the “dialectical” concept that an accumulation of quantitative adjustments can lead to a qualitative or sudden breakdown. a leap, as Hegel puts it, a bit like when a slow rise in temperature turns water into steam. Marx, on the other hand, pointed out that when the new productive forces gain sufficient weight in the economy, they have the capacity to remake the social order: “The hand mill provides you with society with the feudal lord,” he wrote, “the steam mill, society with the feudal lord,” he wrote. The commercial capitalist. Then, the new productive forces can prove very problematic.
In introducing the concept, Xi said that control of the new productive forces will be the improvement of “total productivity,” a term borrowed not from Marx, but from mainstream economics. It refers to increases in output that are attributed to increases in measurable inputs. , such as physical and human capital. By combining Marxist and neoclassical concepts, the new productive forces constitute a “strange hybrid beast,” says M. Naughton.
According to Xi, the new productive forces will emerge from the application of science and generation to production. This word indicates that China’s technological advancement will be even more ambitious than it is today and more strongly incorporated into economic output. China’s leaders have promised a “whole-of-the-nation” effort to bring technological autonomy to life. The central government’s budget, presented in March, increases annual spending on science and generation by 10 percent, the highest cumulative percentage of any division. Frugal innovation is not.
Nor is this China’s first attack on the problem. In 2006, a 15-year plan set national targets for increasing R&D spending.
Six years later, China has changed course again. Its “innovation-driven progression strategy” expressed confidence that the world was in the midst of a business revolution. Advances in virtual technologies, the Internet of Things, green technologies, and synthetic intelligence (AI) promised economy-wide breakthroughs. Instead of opting for a mix of emerging industries, China’s new strategy has focused on this mutually reinforcing set of technologies. China’s purpose was to become a “global powerhouse” in innovation by the middle of this century. In 2020, it spent just about 2. 9 trillion yuan ($420 billion, or 2. 8% of GDP) on science and technology, according to Rhodium Group, a consulting firm. The government’s contribution exceeds 60% if generous tax breaks are included. a sixth studied at universities or institutes of study. About 60% went to businesses.
Naughton called China’s innovation strategy “the largest commitment of government resources for a trade policy purpose in history. “What does the country have to show for this? So far, the effects have been greater than any middle-income country expected, but they are not as impressive as China’s leaders had hoped.
In the e-commerce, fintech, high-speed rail, and renewable energy spaces, China is at or near the frontier. The same is striking in the electric vehicle sector, where good luck made China the world’s largest auto exporter last year. In a list of 64 “critical” technologies known by the Australian Institute for Policy Research, a think tank, China leads the world in 11 spaces, based on its percentage of the most influential articles in those spaces. The country is number one in 5G and 6G communications, as well as biomanufacturing, nanofabrication, and additive manufacturing. It is also at the forefront of drones, radar, robotics, and sonars, as well as post-quantum cryptography.
In addition, China has made progress in measuring a country’s innovation “ecosystem. “The Global Innovation Index, published through the World Organization for Intellectual Consistency, combines about 80 signs covering infrastructure, regulations and market conditions, as well as research efforts, patent granting. and appointments. A middle-income country with a GDP consistent with the capita would be expected to be located in the 1960s. China ranks 12th.
The economic impact of these achievements is more difficult to measure. China’s list of “emerging strategic industries” has continued to evolve since its emergence in 2010, making it difficult to track progress. Two members of China’s National Bureau of Statistics once lamented. that the inclusion criteria, especially at the product level, were “vague”. How can you tell if a boiler is considered “energy efficient” or if a composite curtain is “efficient”?However, Chinese statisticians estimate that emerging strategic industries accounted for 13. 4% of GDP in 2021, up from 7. 6% in 2014, but below the original target of 15% by 2020. By comparison, the price added through structure and genuine real estate facilities (ignoring backward links to steel, iron ore, and other similar industries) was around 12%.
While this progress is impressive, China’s leaders are not satisfied. They have been alarmed by U. S. -imposed generation embargoes and its recent technological triumphs. Drastic export controls on the sale of chips and chip-making devices have exposed China’s dependence on foreign components. , software and appliances. Advances in AI have also sparked reflection. AI is an industry where China thought it had an advantage. The country’s leaders were surprised by the arrival in 2022 of ChatGPT, a giant language style evolved through OpenAI.
China’s progress has also been hampered by its own leaders. They cracked down on many of the country’s most complex tech corporations in 2021, accusing them of mishandling knowledge, thwarting competition, and exploiting freelancers. This regulatory storm has focused on consumer-facing “platforms. “”, such as Alibaba and Meituan, rather than complex brands or other “hard tech” corporations. However, it has been difficult to contain the damage to investor confidence. Disadvantaged platform corporations, with their huge pools of knowledge, are also big investors in many of the state-of-the-art technologies, such as AI, that China’s leaders must encourage. The country’s major web corporations have slashed their R&D spending.
The total expansion of productivity – M’s favorite testXi. for the new productive force – it has also slowed down. The generation programme introduced in China in 2006 implied that its contribution to expansion should reach 60%. a third, according to Louis Kuijs de S
The country’s innovation drive is now divided into three. First, it seeks to reflect “strangled” technologies. One goal of the moment is to invent technologies that the rest of the world has not yet created. In January, ministries published a list of “industries of the future,” many of which are even more cutting-edge than the emerging strategic industries of the past. They come with photonic computing, brain-computer interfaces, nuclear fusion, and virtual twins — patient simulations that doctors can monitor for diseases occurring in their real-life counterparts. The government is encouraging laboratories and think tanks to devote more than a portion of their core investment to scientists under the age of 35, believing they are more likely to make the breakthroughs the country needs.
These lunar projects can simply be considered a folly that China can’t do: a distraction from its stubborn quest for self-sufficiency, which demands local versions of technologies that China can no longer rely on to load from abroad. But according to Gavekal’s Zhang, China’s leaders hope that futuristic industries will indirectly contribute to the country’s technological sovereignty by giving it “bargaining chips” in long-term generational battles. If the U. S. threatens to cut off China’s access to an important input, China may retaliate in the same way.
Chinese commentators call it “overtaking on a curve. ” China’s good fortune in the EV sector, after its prolonged failure to supplant classic vehicle manufacturers, shows that it can often be easier to make headway in spaces that are not yet occupied. through well-established headlines. According to Jie Mao of Beijing University of International Business and Economics, and his co-authors, China’s science and generation policies between 2000 and 2012 boosted productivity more in booming industries than in mature ones, either locally or locally. . or abroad. When waging guerrilla warfare, Mao Zedong believed that it was mandatory to occupy the countryside before advancing into the cities. By the same token, China could venture into wilder and more confusing spaces of technological discovery, where its longtime adversaries have less power. advantage.
A third goal is to modernize existing industries. ” Even the most classical agriculture can shape new productive forces,” said Wang Yong of Peking University, as long as it employs revolutionary technologies. He cites automated planting or Big Data selective breeding. During the sessions, the annual meetings of China’s parliament and its advisory body, a delegate from a state-owned distillery went so far as to argue that the new productive forces could simply be discovered in hardliners.
Pursuing those goals will be costly. One of the characteristics of the last decade is that too much cash cannot guarantee a Hegelian transformation of production. But lack of spending will save you.
Therefore, China’s leaders will have to worry that local government budgets are under pressure and animal morale is at an all-time low. In the past, much of the money for China’s technological progress came from the budget of local governments that raised cash through land sales and “special bonds. “Its revenue fell by more than a fifth between 2020 and 2023.
When the economy is booming and local governments are in good shape, they are free to invest in projects that may not succeed for another five or 10 years, said Matt Sheehan of the Carnegie Endowment for International Peace, a think tank. By 2010, for example, the expansion was picking up, and the stimulus budget may also focus on electric vehicles, solar panels, and other evolving technologies. But for local governments, in today’s toughest of times, “firefighting will end up being an overwhelming attempt to think long-term,” he says. Companies will be incentivized to invest in projects that are successful in the short term. They may also be harassed by unfinished taxes and fees to help their provincial or municipal consumers balance their books.
In both sessions this year, Li Qiang, China’s premier, defined the country’s “major tasks” for the coming year. M. Li’s first priority was to “modernize the trading system” and expand “new quality productive forces. “Domestic demand, which is mandatory to dispel deflation, ranks only third. If mood and markets don’t recover, local governments will struggle to fill their coffers and personal investment may be insufficient. Xi is determined to reinvent China’s economy. economy. To do this, you will first need to inflate it. ■
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