04.12.2023
China’s rapid economic rise and its emergence as a world manufacturing leader have been attracting widespread attention to China’s economic policy for several decades. “State capitalism, Chinese style” has become the subject of study by the world’s leading economic schools, and this interest continues to this day, including due to changes in the development strategy of the PRC.
According to experts, the Chinese authorities under the leadership of President Xi Jinping have accelerated the course towards centralization of the market economy, especially in the field of technological and industrial policy, which was outlined back in 2006 by his predecessor Hu Jintao. The Strategic New Industries Development Plan adopted in 2010 reinforced this trend. At the state level, seven strategic new industries were identified – energy saving and environmental protection, a new generation of information and communication technologies, biology, production of high-tech equipment, green energy, new materials and new energy vehicles. In 2018, two areas were added to this list – the digital creative industry and related services.
The Chinese government has launched large-scale financing programs for priority industries to overcome China’s technological gap and develop strategically important and highly profitable industry segments. In 2015 and 2017, the Made in China 2025″ and the Development Plan for a New Generation of Artificial Intelligence. These and other steps significantly expanded the scope and depth of industrial planning, resulting in greater self-sufficiency in the Chinese economic system.
Taking into account the strengthening role of the state in the economy, international experts call China’s current economic policy a “dual circulation strategy”, which, on the one hand, is aimed at maintaining the country’s role as a “global factory”, and on the other, protecting the national economy from global shocks and upheavals.
At the core of this strategy is the Chinese leadership’s goal to redouble its efforts in the extraction, processing of raw materials and components, as well as in the production of components at all levels of global supply chains, with an emphasis on the nationalization of key technological processes. Thus, China is focusing on building integrated production systems domestically, stimulating domestic demand, and making its economy more resilient and adaptable.
These approaches are reflected in the ideological work of the Communist Party of the People’s Republic of China. President Xi Jinping considers technological self-sufficiency to be the main condition for overcoming social inequality and poverty.
It is worth noting here that China has already provided itself with significant headroom to stimulate domestic growth and development. Since many Chinese provinces have successfully adopted advanced and innovative technologies, even the simple transfer of technological experience and business practices within the country, from province to province, will be a strong impetus for industrial growth.
In the medium and long term, the economic power of the Celestial Empire will grow. This is confirmed by the following factors, which can be called the main “growth drivers” of the Chinese economy:
1. China holds a key position in global supply chains in critical industries
After decades of focused investment and research, Chinese companies dominate the production, processing and purification of most critical minerals, including rare earth elements used in the construction of, for example , F-35 fighter jets or wind turbines.
Currently, China controls 71% of the world’s graphite production and 90% of the world’s rare earth ore processing. In recent months, Beijing has exploited this advantage by imposing restrictions on exports of graphite as well as gallium and germanium, two important components for chip production.
In addition to a significant raw material base and well-established technological processes for processing critical materials, the production of active pharmaceutical ingredients (APIs) is concentrated in China , as well as such important segments of global supply chains as casting and stamping of products .
China is also an active participant in logistics corridors and has its own transport and logistics platform (LOGINK) in the Asia-Pacific region, through which it influences international supply routes for critical materials.
According to experts, despite the global rise in prices for critical materials, on the domestic market, Chinese consumers can buy the same graphite cheaper than foreign players. This also demonstrates the strategic nature of Chinese planning, due to the structural features of the PRC economy: strictly centralized at the national level, it is open and competitive at the local level.
China’s provinces compete with each other and encourage experimentation and innovation. To attract investors, local authorities provide subsidies, offer discounted land plots for the construction of production facilities, and also allow tax breaks and benefits for joint ventures with foreign capital. These measures accelerate the transfer of knowledge and technology and stimulate our own, local research and development.
In the future, China does not intend to give up its leadership position in the market for critical materials, and in this regard, it is currently focused on ocean resource research and deep-sea exploration. This topic has been included in national security legislation since 2016 and declared one of the priority areas in the country’s development.
2. China is rapidly implementing an energy transition and developing “new industries”
While in the early 2010s, China’s economic growth depended largely on investment in real estate and infrastructure, in the last 7-8 years new industries have developed, serving the middle class of consumers and creating new investment opportunities.
Among them are solar energy, the production of electric cars, the creation of innovative electronic devices, online services in the field of trade, leisure, transport and education. A strong ecosystem has emerged to support entrepreneurs, including venture capital markets. All of the above laid the foundation for long-term growth.
The Chinese government has taken the green agenda very seriously. The country adopted laws in the field of environmental protection and environmental safety, as a result of which companies with outdated technologies were forced out of the market.
One of the mechanisms for attracting investment in new areas of industry has become the so-called “publicly managed funds” (政府引导基金) – public-private investment funds whose purpose is to support the government’s industrial policy. In 2020, more than 1,700 funds were established with a registered endowment capital of RMB 11 trillion (USD 1.55 trillion). In essence, this impressive amount of “long money” was aimed at the development and development of deep technologies – unique, differentiated, often protected by patents or difficult to copy technological and scientific achievements.
A study by the Australian Strategic Policy Institute (ASPI) found that China is already a world leader in science and technology. China achieved superiority in 37 of 44 categories, including defense, space, robotics, energy, environment, biotechnology, artificial intelligence, advanced materials and quantum technology.
(ASPI’s Critical Technology Tracker – The global race for future power. Report No 69/ 2023 by Jamie Gaida, Jennifer Wong-Leung, Stephan Robin and Danielle Cave)
In some industries, the top ten leading scientific institutions in the world are based in China. Together, these institutions produce nine times more high-impact research articles than the second-ranked country (usually the United States). It is noted that the Chinese Academy of Sciences occupies high positions in all 44 technologies.
Moreover, China’s efforts are bolstered by the import of talent and knowledge: one-fifth of scientific articles are written by Chinese scientists who received postgraduate education in Western countries.
According to experts, China will continue to work on creating a national support infrastructure in space – in Earth orbit and on the Moon. Leadership in space is becoming a critical element of ensuring the country’s security.
In the long term, China’s leading position in R & D will mean not only its dominance in current technological development in almost all sectors, but also in future technologies that do not yet exist.
3. High adaptability of the Chinese economy.
The ability to “keep your nose to the wind” and strategically calculate risks for decades to come is a great advantage of the Chinese type of economic thinking.
China took advantage of globalization in time, thanks to which it grew to the status of the second economy in the world. Moreover, China has become critical to the stability of the global economic system and has become, as they say, “ too big to fail .” Nearly half of the G-20 countries list China as their top export destination, ranging from major economic powers such as Japan and Saudi Arabia to regional blocs such as the African Union. Australia, Brazil, Indonesia, Russia, South Korea depend on
China for one fifth of their exports.
At the same time, China is not afraid to admit its mistakes and is capable of radically changing approaches to economic policy, which evolves along with assessments of the country’s changing capabilities and vulnerabilities.
Unlike the Western market model, Chinese state capitalism is not driven by quarterly earnings reports and is not influenced by shareholders focused on extracting short-term dividends. The goal is fundamentally different – the accumulation of long-term potential and competencies.
By combining long-term optimism with short-term realism, China is adapting to fundamental changes in its own economic reality. The most obvious of them is the process of objective aging of the population. From 1980 to 2010, China’s working-age population grew at an average annual rate of 1.7%. Already, this indicator has acquired negative dynamics, and it is projected to decrease by 0.9% annually until 2050.
To level out demographic imbalances, the Chinese government has embarked on the progressive development of artificial intelligence technologies. AI is already actively occupying certain niches in the labor market and is capable of solving the problem of personnel shortages in the future.
Conclusion.
In the world analytical press, with enviable regularity, materials appear that China has reached the peak of its development, and growth rates will steadily decline. However, Chinese experts consider the economic slowdown a sign of its maturity and a transition from high-speed growth to high-quality development .
Under these conditions, it would be unrealistic to expect the same level of investment to be maintained. According to data from the National Bureau of Statistics of the People’s Republic of China, the annual growth rate of fixed capital investment in China for the period from January to October of this year decreased by 0.2%. The country’s authorities believe that the Chinese economy will no longer rely on investment growth, but will instead focus on improving the quality and efficiency of investments and optimizing their structure.
Currently, work is carried out in three directions:
1) Allocation of more significant resources to the implementation of industrial policy.
2) Prioritization and industrial targeting.
3) Focus on ICT industries (5G, AI, semiconductors, big data) that are perceived as enabling China to leapfrog into the technological future.
The question for experts and forecasters is not whether China will grow—it certainly will. The question is the size of this growth. If we take 2022 as a starting point, in which the US GDP was $25.5 trillion and the Chinese GDP was $17.9 trillion, with real GDP growth in both economies by 2%, US GDP will be 42% greater than GDP China in 2050. However, if the growth of the Chinese economy is 5%, by 2050 China’s GDP will be 58% larger than that of America.
In conclusion, it would be fair to note that China, as one of the examples of dynamic development, is part of the global processes of transition to a new geopolitical model. Within its framework, the outlines of new emerging macro-regional “technoblocks” capable of pursuing independent technological and industrial policies can already be traced. China will undoubtedly play the role of one of the gravitational centers in this configuration.
China Studies Center, Astana
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