Chinese president Xi Has recently visited Heilongjiang in the north-east of the country. It is a province where the birth rate is the lowest in the country. The house price in its biggest city is falling. In 2023, the province’s GDP grew only 2.6%. In nominal terms the province GDP did not grow at all in 2023, this reflects the deep deflation in the province economics, which can spread over the other provinces. In his visit Mr.Xi talked about “New Productive Forces” which shall replace the previous propulsion engines of the Chinese economy. The forces are supposed to replace both property building and manufacturing sectors. The phrase “New Productive Forces” has actually appeared scores of times in the state newspapers and official gatherings.
This phrase is somehow close to the term used in mainstream economic science, “Total Factor Productivity”. This is basically the growth which has not come from means of production, capital, labor and human capital.
The usual sources of growth have definitely diminished, Chinese people are growing old and the wages are already quite high forcing international companies to abandon China for other Asian countries. The capital has also become dense enough. The stock of a country’s capital has risen from 258% of gross domestic product to 349% of it in two decades. Thus the marginal production of capital is decreased. It is clear that the usual drivers of growth are phasing out and it is not strange that Mr.Xi is looking for new productive forces.
According to Mr.Xi terminology, the new productive forces will flow from application of science and technology to the production. This signals a more ambitious move toward technology from the state. In March, when the state government revealed, spending in science and technology rose 10 percent for the next financial year, the largest percentage increase between any government spending item.
The new front for China to boost the growth include, chip making technology, (which recently faces US embargo and the government vowed for self-reliance), renewable energies, nuclear fusion, artificial intelligence, energy storage and electric vehicles and quantum computing. Recently the Australian Policy Research Institute, published the list of 64 critical world technologies and China leads all but 11 technologies based on most influential papers on the field. The top race would continue between China and the United States, and we should check if these New Productive Forces are able to compensate for the usual propulsion engines of china which are declining
Source: Economist
