/ world today news/ Growing uncertainty in world markets following the increasingly complex geopolitical situation, uneven economic recovery and declining exports are forcing China to move away from the traditional path of stimulating the economy.
China’s future economic growth will be driven by new energy sources and high-tech manufacturing, and scientific and technological innovation will become the top priority of China’s economic activity in 2024.
The course was taken to ensure that, to put it somewhat simplistically, China is transformed from the “world’s assembly shop” into the “world’s shop for high-tech components.”
At the same time, China has come to the conclusion that there is no need to set a strictly fixed growth target during the economic transition. Instead, more emphasis should be placed on managing inflation and unemployment.
In general, we are talking about China changing its concept of economic growth. This implies two important changes in economic policy: first, a shift in attention from real estate construction to the rapid development of high-tech industries in industries that define modern scientific and technological progress, and second, a change in the dominant macroeconomic directions.
A change in the concept of economic growth was actually discussed at the central economic work conference held last December in Beijing.
Such conferences are held annually at the end of the year with the participation of the top party and state leadership of the PRC and outline the main directions of economic activity for the coming year.
The conference highlighted scientific and technological innovation in nine areas whose development should provide China with a new type of industrialization.
In 2024, industrial modernization will accelerate and efforts will continue to increase labor productivity through advanced research and development, especially in the manufacturing sectors of the economy. By 2025, China’s eight industries (all of which are manufacturing) identified as the main direction of development are expected to become leaders in global technological innovation.
It is noteworthy that all these industries produce a variety of high-tech equipment with high added value – information and communication equipment, railway transport equipment, conventional and photovoltaic equipment for the production, transmission and distribution of electricity, vehicles using new energy sources, and also manufacture high-tech means of production – high-performance machines with digital computer control (CNC), industrial robots, etc
In this regard, the opinion of Hong Hao, partner and chief economist of the financial company Grow Investment Group, is interesting, who points out that until very recently, including the period of economic recovery in 2023, China relied on real estate to stimulate investment, production and sales and create demand for loans, thereby stimulating the entire economy.
However, now, according to Hong Hao, the situation is different from the past. Investment in real estate is declining every year, meaning the industry is unable to drive economic growth.
As a result, “it is impossible, under the changed conditions, to continue to treat real estate with the same importance it has had for the past two decades.”
In this regard, the Chinese government: first, is changing its approach to the construction industry and the real estate market: from “stimulating” real estate to stimulate the economy – to “supporting” the real estate market, i.e. towards maintaining a certain stable level of activity on it.
Second, fixed assets will be invested in high-tech manufacturing, including new energy and “green” industry.
This means that when assessing the current state of China’s economy and its future, one cannot rely on traditional indicators such as real estate and housing prices.
These theses are confirmed by the decisions of the mentioned central economic conference. Chinese experts believe that in the context of global economic uncertainty, the main direction of China’s foreign trade next year will be intermediate goods, which means capital equipment and components (components), which often require advanced technology and technological progress in the field of new materials.
The expansion of production and trade in intermediate goods will be part of China’s transition from the “world’s assembly plant” to the “world’s high-tech component shop” and trading hub, helping to strengthen China’s position in global industrial chains.
Ready-made Chinese products, even very complex ones, can now still be replaced in world markets by products with different assembly in other countries, since assembly from ready-made foreign components is usually not the most high-tech process.
It is much more difficult to replace the manufacturers of these components in complex high-tech devices.
The United States is now leading precisely such changes in global end-product markets, especially high-tech ones, as evidenced by attempts to push China out of the global semiconductor manufacturing chain.
Chinese companies occupy an important, but not decisive, place in it, since to a large extent they use the most important microcircuits produced outside the PRC – on the island of Taiwan, in the USA and South Korea in the assembly of final products.
In this regard, the driving force behind China’s economic growth in 2024 and beyond is likely to be breakthroughs in the production of high-tech products and in particular components, i.e. intermediate goods.
There are first examples. China’s Huawei has already started the production of new smartphones using its own microprocessor, which the Chinese contract factory SMIC produces using 7 nm technology.
BYD – Chinese automaker BYD Auto, batteries and electronics has surpassed Tesla in terms of volume of cars produced.
The calculation of the Chinese authorities to change the sources of economic growth is clear and justified: investments in such high-tech industries as semiconductor manufacturing and related equipment or CNC machines not only have high added value, but also create a wide range of supply chain demand and even more extensive than real estate and definitely more high-tech.
Accordingly, supply chains involve a large number of related industries with high added value and this creates a multiplier effect for the entire economy as a whole.
As a result, Chinese experts expect additional measures to be announced in China to expand trade in intermediate goods.
From January 1, 2024, tariffs were reduced for some resources that the country is in short supply of, as well as for some critical equipment that China does not yet produce on its own.
In addition, it is suggested that not only the gross domestic product (GDP) but also the gross national product (GNP) be taken into account when assessing China’s economic situation.
Currently, many Chinese companies have opened factories in Mexico, Vietnam and other countries, and from there a significant amount of products are exported to the United States.
This process was spurred by the Belt and Road initiative, which initially involved extensive investment outside China.
Hong Hao believes that when assessing China’s economic development prospects, it is necessary to pay more attention to China’s GDP, which shows greater economic stability than current statistics suggest.
The upcoming revision of the concept of economic growth in China has raised the question of the inappropriateness of rigidly fixing the annual GDP growth target.
Many Chinese economists believe that this should be a guideline of 5% and no higher, and the focus should be on controlling inflation and expanding employment. This is motivated by the fact that in the period of economic transition, uncertainty increases and a more flexible approach to decision-making is required.
The prevailing approach in China is to keep inflation consistently low, which includes avoiding stimulating the economy by raising prices.
Overall, the Chinese expert community believes that the government will promote consumption-led economic growth through the development of high-tech industries and pursue breakthroughs in key areas and core technologies. Attention to the real estate market, as a locomotive of the economy, remains in the background.
Translation: SM
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