Shift towards new growth engines underway

Economists and entrepreneurs say a sustained focus on fostering innovation in strategic, emerging sectors, future industries and traditional industries will be a priority for China as it pursues its structural economic reforms. The reforms aim to foster new, high-quality productive forces and shift from old to new growth factors.

Economists say new high-quality production forces will be a key factor driving the country’s economic growth in the coming years, helping to offset the effects of the real estate crisis, accelerating the construction of a modern industrial system and promoting high-quality development in the long term.

Huang Hanquan, head of the China Academy of Macroeconomic Research, said that fostering new high-quality productive forces is crucial to promoting high-quality economic growth, increasing total factor productivity and realizing China’s modernization.

“Various regions and departments across China have adopted this approach to drive economic progress, which will greatly accelerate technological innovation, expand industrial applications and facilitate the transition of growth factors from old to new,” Huang said.

Despite geopolitical headwinds that are weighing on China’s growth trajectory and momentum, the country is succeeding by increasing investment in science and technology, and by refocusing efforts on improving capabilities in emerging industries including artificial intelligence, autonomous vehicles and electric vehicles, key to revitalizing China’s growth engine, a new report finds.

Cities with a significant number of tech hubs showed high levels of economic resilience, according to the Milken Institute’s Best-Performing Cities China Index. The report found that Chinese cities that have strategically invested in new technologies will continue to thrive even as the broader economy faces challenges at home and abroad.

Stressing that science and technology innovation is a key element in developing new, high-quality productive forces, Huang of the China Academy of Macroeconomic Research called for stepping up efforts to achieve breakthroughs in basic technologies through greater investment in basic research and problem-solving, as well as by accelerating reforms in science and technology, education and talent systems.

He added that greater efforts should be made to accelerate reforms in the market allocation of production factors, enabling factors such as land, labor, capital and technology to flow freely and efficiently to areas with new, high-quality productive forces.

Huang said that looking to the future, the country should support new industries, including next-generation information technology, new energy vehicles, new energy and new materials, to offset the impact of falling real estate prices on China’s economy and create new growth factors.

Huang’s remarks came after the third plenary session of the 20th Central Committee of the Communist Party of China adopted a resolution in July that placed great emphasis on improving institutions and mechanisms to support high-quality new productive forces in line with local conditions.

Justin Yifu Lin, dean of the Institute of New Structural Economics at Peking University, said regions with development gaps should measure their progress against their own past rather than focusing on pursuing pioneering success, which could result in chaotic and uneven development.

There are two kinds of new qualitative productive forces – one that invents new technologies and the other that applies them, Lin said. Therefore, applying new technologies to traditional sectors should be considered as part of the drive to use new qualitative productive forces, he added.

“Regions with gaps in development should take advantage of new technologies to increase productivity. It is important to follow the principle of seeking truth from facts and developing in line with competitive advantages,” Lin said.

China needs to better leverage the market and seize the opportunities of technological innovation to boost productivity, especially as it joins other countries in the Fourth Industrial Revolution, an opportunity China “cannot afford to miss,” he said.

The country, which recently issued guidelines to improve its market access regime, is taking solid steps to optimize its business environment and support new, high-quality productive forces. This marks a key push for the country to implement the resolution adopted at the third plenary session.

The guidelines describe 10 measures, including improving the negative list management model, strengthening the coordination of policies for domestically and foreign-owned enterprises, and optimising the market access environment for new businesses and new sectors.

Liu Qiao, dean of Guanghua School of Management at Peking University, said that high opening-up standards and deeper institutional reforms will create enormous opportunities to improve the efficiency of resource allocation, leading to an increase in the growth rate of total factor productivity.

Liu noted that the path to new high-quality productive forces requires expansion into industries and areas that can increase total factor productivity and create new high-quality productive forces, adding that there are two paths to achieve this goal.

“The first path is to leverage disruptive technological change to support strategic emerging industries and future businesses, including energy transition and digital transformation, as well as future-oriented industries such as quantum computing and AI-driven big data. These will create new momentum, helping to accelerate total factor productivity growth.

“The second path includes opportunities arising from the transformation and upgrading of China’s traditional industries. Currently, productivity in China’s agriculture and services sectors, for example, is relatively low, which offers significant potential to increase total factor productivity,” he said.

CEOs from around the world have praised China’s reform initiatives aimed at creating new, high-quality manufacturing forces, saying they create opportunities for global stakeholders.

Nancy Wang, country director of LinkedIn China, said China’s vigorous efforts to introduce new high-quality manufacturing forces are aimed at promoting an innovation-driven economic growth model focused on technological progress, signaling that China is ready to face the challenges of globalization and technological revolution with greater openness, inclusiveness and innovation.

Victor Tsao, vice president of open-source solutions provider Red Hat and general manager of Red Hat Greater China, said: “We believe that by further deepening reform and opening up and optimizing the business environment, China will continue to attract more foreign enterprises.”