A couple of weeks ago, we featured a blog about how China is aiming to establish technological supremacy in the world as opposed to economic growth alone. This piece in the Economist builds on it and links it to the Chinese president Xi Jinping’s vision of cultivating ‘new productive forces’ to drive the economy. This marks a new phase of development for China, compared to its impressive journey over the past four decades of rapid economic growth. But the forces at play were different then:

“For years its productive forces drew on the mobilisation of labour and accumulation of capital. Its workforce grew by 100m people from 1996 to 2015. Its stock of capital rose from 258% of GDP in 2001 to 349% two decades later, according to the Asia Productivity Organisation. After the global financial crisis of 2007-09, capital accumulation often took the form of new property or infrastructure.

But China’s workforce is now shrinking and demand for property has slumped: fewer people are moving to China’s cities, speculative gains on real estate are no longer assured and potential homebuyers are reluctant to buy flats in advance in case distressed developers run out of cash before building is complete. The property downturn has hurt consumer confidence and deprived local governments of crucial revenues from land sales.”

What do Xi’s ‘new productive forces’ mean?
“In presenting the concept, Mr Xi has said that the test for new productive forces will be improvements in “total factor productivity”…It refers to increases in output that cannot be attributed to increases in measurable inputs, such as physical and human capital….

According to Mr Xi, the new productive forces will flow from the application of science and technology to production. The phrase is a signal that China’s technology push should be even more ambitious than it is today, and more tightly integrated into economic production. China’s leaders have promised a “whole of nation” effort to boost technological self-reliance. The central government’s budget, unveiled in March, increased annual spending on science and technology by 10%, the largest percentage increase of any division.”

The article quotes Gavekal’s Tilly Zhang: “What China really wants to be is the leader of the next industrial revolution” and University of California’s Barry Naughton who called China’s innovation strategy “the greatest single commitment of government resources to an industrial-policy objective in history”.

What does it have to show for this so far?
“In e-commerce, fintech, high-speed trains and renewable energy, China is at or near the frontier. The same is strikingly apparent in EVs, where success helped China last year to become the world’s biggest exporter of cars. In a list of 64 “critical” technologies identified by the Australian Policy Research Institute, a think-tank, China leads the world in all but 11, based on its share of the most influential papers in the fields. The country is number one in 5G and 6G communications, as well as biomanufacturing, nanomanufacturing and additive manufacturing. It is also out in front in drones, radar, robotics and sonar, as well as post-quantum cryptography.

In addition, China has made good progress in measures of a country’s innovation “ecosystem”. The Global Innovation Index, published by the World Intellectual Property Organisation, combines about 80 indicators, spanning infrastructure, regulations and market conditions, as well as research effort, patent awards and citation counts. A middle-income country with China’s GDP per person would expect to rank in the 60s. China ranks 12th.”

Whilst China intends to build self-reliance in areas choked by American sanctions such as semiconductor manufacturing equipment, it is keen to lead the world in futuristic technologies and then use that to negotiate with the west:

“…goal is to invent technologies the rest of the world is yet to create. In January government ministries issued a list of “future industries”, many of which are even more pathbreaking than the strategic emerging industries of the past. They include photonic computing, brain-computer interfaces, nuclear fusion and digital twins—simulacra of patients that doctors can monitor for illnesses that might arise in their real-life counterparts. The government is encouraging laboratories and research institutes to spend more than half of their basic funding on scientists under 35 years of age, in the belief they are more likely to make the breakthroughs the country needs.

…China’s success in EVs, after its longstanding failure to displace incumbent makers of traditional vehicles, demonstrates that it can sometimes be easier to make advances in fields that are not already occupied by well-entrenched incumbents.”

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