Shifting gears for new growth

HAN WOO-DUK
The author is a senior reporter of the China Lab.

Last year, China suffered the “Peak China” offensive by the West. A real estate recession, youth unemployment and population decline helped fuel the China crisis theory. Economic experts forecast that the country would not be able to avoid the middle-income trap or it will follow the “lost 30 years” of Japan.

Beijing has come up with an answer called “new quality productive forces” by Chinese media. The new phrase, referring to a methodical campaign to improve China’s manufacturing qualities, has been appearing every day in the state media since it was first revealed in the government work report for the Two Sessions on March 5. It was the major topic of the Boao Forum for Asia last week. China described Xiaomi’s announcement of a new electric car last month as “a victory of new quality productive forces.”

What is China trying to do anyway?

It can be summed up as a “growth engine replacement.” China plans to achieve economic growth through high-value, high-tech industries, not in toll processing plants. The list of “new quality productive forces” appearing in the report includes new energy vehicles, hydrogen, new materials, commercial aerospace, quantum technology, life science, artificial intelligence and others. China wants to create new growth engines through national policy instead of the market.

The goal is to get out of the middle-income trap. China’s per capita GDP of about $12,000 borders the trap.

Chinese government-backed scholars are confident of success. They point out that the country is moving beyond the “fast follower” stage to become a “first mover” in the fields of new technologies like AI and quantum science. They claim that China produces the world’s best AI papers, surpassing the United States in both quality and quantity.

As these fields are mostly in the early growth stage, government support is important. The scholars contend that Beijing’s new and ambitious governance system will be more powerful, as the government, businesses and academia will work together tightly.

Western academia points to more fundamental limitations to the government-led growth drive. Many studies empirically show that it is difficult to jump to the ranks of advanced countries without political democratization and economic liberalization. Japan, Korea, Singapore, and Taiwan prove this. China is also taking a different escape route than those countries, because it must achieve the leap amid a sharp confrontation with the United States, a technological powerhouse and the largest market.

It is too early to say whether China will be able to break through the middle-income trap by switching its growth engine. But it seems clear that China’s industrial “quality” is becoming more advanced. The closer it inches to success, the more likely it will end up as an “advanced yet unique economic system” quite different from the existing developed world. As the past 45 years showed, China’s experiment has just begun.