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China’s Economic Growth and ‘New Quality Productive Forces'

Opangmeren Jamir
Dr Opangmeren Jamir is Associate Fellow at Manohar Parrikar Institute for Defence Studies and Analyses Click here for profile

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    Opangmeren Jamir
    August 01, 2024

    Chinese President Xi Jinping propounded the idea of “new quality productive forces” in September 2023 as a blueprint for future Chinese economic development during a tour in Heilongjiang province.1 The communique of the 20th Central Committee of the Communist Party of China (CPC) of the Third Plenum session, held in Beijing from 15 to 18 July 2024 declared that

    We will improve the institutions and mechanisms for fostering new quality productive forces in line with local conditions so to fully stimulate the assimilation between ‘real economy’ and ‘digital economy’, including service sector, infrastructure and supply chains.2

    The promulgation of “new quality productive forces” is unsurprising as it comes when several economists and institutions like the International Monetary Fund have expressed reservations about the deep structural reforms needed within China, including the financial sector3 and challenges from demographic changes and climate change.4 Economists have cautioned that if China wants to maintain a sustained growth rate then it “has to move to a growth model that is based more on innovation and productivity increase than in the past”.5

    Improving or maintaining the quality of economic and social development is a common goal pursued by all countries in the world. China in the 1970s under the leadership of Deng Xiaoping initiated reforms and opened up its economy to the world. Since then, high growth rates have been a major feature of the Chinese economy. At the 19th National Congress of CPC in 2017, however, China announced the transitioning of its economic development from a period of “rapid growth to a stage of high-quality development”.6

    In other words, China is seeking not merely growth but better growth and quality over quantity, which it will drive mainly by ‘emerging industries’ and ‘future oriented industries’ which include artificial intelligence, robotic, quantum technology, etc. Besides, outdated production industries and equipment will be discontinued and replaced by ‘green emerging industries’. In high-quality development, the fundamental aspect is green development where it will develop a “harmonious relationship between humans and nature”. To accomplish the objective of high-quality development in China, the “new quality productive forces”, have been propounded which essentially refer to, “advanced productivity freed from the traditional economic growth models and productivity development paths” featuring “high-technology, high efficiency and high quality”.7

    There are several elements envisaged in the implementation of new quality productive forces. One of the foremost core element, as underlined by Xi Jinping, is ‘innovation’, i.e., scientific and technological innovation or revolutionary technological breakthroughs. The idea is embodied in the Marxist theory of productive force, where Marx emphasises that ‘technology’ is the sole force for historical change.8

    Technological innovation is critical for advancing economic growth where it significantly impacts the manufacturing industries. However, under the new quality productive forces, industrial innovation will be mainly powered by advanced technologies like semiconductors, artificial intelligence, quantum computing, biotechnology and nanotechnology, generating new industries, new models and developing new quality productivity. While promoting new quality productive forces, old and/or traditional industries will not be neglected or abandoned; instead, they will be encouraged to transform and upgrade their technology. 

    Another novelty in the “quality productive forces” is the upgrading and expansion of labour, the means of labour and objectives of labour. In this regard, the Chinese Minister of Science and Technology, Yin Hejun has emphasised a thorough revamp of science and technology and education management systems with the objective to cultivate more creative workers with the requisite skills, including investment in R&D, expansion of the higher education sector, reform in the evaluation of the performance of scientists and engineers, open and inclusive scientific project collaborations with different countries and creating an environment to attract outstanding scientists from different countries to innovate and start business in China.9

    The third important aspect is the promotion of green development. Xi Jinping underlined “green development is the foundation of high-quality development”. Hence, the “new quality productive forces” require promotion of green development by accelerating technology innovation and advanced application of green technologies, and the development of green and low-carbon industries and supply chains, to achieve sustainable development.          

    Faced by a series of humiliating defeats at the hand of imperial powers in the 19th century, the Communist Party of China realised that only ‘science’ can ‘save’ China.10 From 1949 onwards, the CPC has unceasingly shown a strong commitment to technology-driven economic development and strong state leadership in science is “taken as an article of faith” by Chinese leaders. Thus, the concept of “new quality productive forces” where the central elements is science and technology, provides fresh hope and motivation for China to transform its economic development speedily. It reflects that Chinese officials have comprehended that the ‘old’ technology/industries or traditional model, relying on debt-fueled investment to drive growth, are subject to the law of diminishing returns.

    Zheng Shanjie, Chairman of the National Development and Reform Commission stated that under the “new quality productive forces”, it will not only promote its own domestic growth but also inject new momentum into “global economic recovery and growth”. To this end, Zheng declared, robust reforms are taking place to boost industrial innovation through technological innovation in the fields of bio-manufacturing, commercial flights, new materials and low-altitude economy.11 Meanwhile, Chinese Finance Ministry in 2024 announced a massive budget of 370.828 billion Yuan (US$ 51.51 billion) on science and technology, an increase of 10 per cent compared to previous year as well as the largest percentage of funding sector.12 Additionally, to advance “high-quality development”, Chinese Ministry of Finance Lan Fo’an outlined several measures, including financial support for innovation and upgradation of industries and allocation of more financial support to education, healthcare, social security and environmental protection.13      

    It is too early to ascertain the success of Chinese economic development based on the “new quality productive forces”, though Chinese officials have expressed confidence in generating sustained growth. In an interview with Newsweek, Xie Feng, the Chinese Ambassador to the United States, stated, “it will serve as a catalyst that further brings out the vitality and potential of China’s supersized market”. And also “energizes China’s growth, and generates huge investment and consumption needs”.14 At the World Economic Forum, Chinese Premier Li Qiang while presenting the opportunities bought by sci-tech in China, encouraged companies to invest, especially in cutting-edge technology, and encouraged the effort “to foster a market oriented, world-class business environment within a sound legal framework”.15

    Challenges

    Reaping the benefits from the “new quality productive forces” will depend on several factors. One of the foremost determinants will be how far the Chinese government is able to undertake deep structural reforms, particularly in mitigating the property sector crisis and local government debt risk, building confidence for domestic consumption, investment in education, including training and re-skilling and quality health care, which in turn will deliver higher labour productivity and incomes and address the emerging challenges of climate change.16

    Another challenge, as highlighted by Chinese economist Cai Fang, will be how far the Chinese entrepreneurs truly embrace the Schumpeter principle of ‘creative destruction’. As per Schumpeter, economic growth is characterised by continuous disruptions of the old order and in the process, certainly existing business and workers for some time could experience big losses and be replaced by a new order.17 Hence, any entrepreneur that fails to compete and/or innovate should accept ‘failure’. Otherwise, it will perpetuate the “operation of zombie companies” surviving on bailouts and thereby undermine economic growth.18

    Jeffrey Sachs points out that the current U.S. administration policy is “anti-China” where it is actively trying to slow down the Chinese economy through technology blockage and erecting trade barriers.19 Some of the recent US policies towards this end have included the imposition of high tariffs on some of the imported Chinese goods such as electric vehicles (EVs), EV batteries, semiconductors, medical products, ship to shore cranes, solar cells and steel and aluminum items,20 the ‘Biosecure Act’  to restrict Chinese biotech and manufacturing from accessing US funding and collaborating with pharma companies21 and July 2024 White House guidelines to US universities to safeguard US research.22 The ongoing Sino-US bilateral tensions will, therefore, also significantly impact the Chinese growth trajectory.

    Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.

    Keywords: 
    China

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