The current economic story of China is one of transition. Factors like high export volumes and real estate, which had driven its high growth in gross domestic product (GDP) previously are receding. These factors are increasingly being replaced with advanced technological and manufacturing strategies and techniques. As Kavan Choksi Japan mentions, the leadership in China is putting emphasis on elevating the quality and sustainability of economic development, while also improving the well-being of the people. Focusing on particular sectors provides the necessary space for strategic resource allocation and accelerated development of important industries.
Kavan Choksi Japan sheds light on China’s shifting industries
China has experienced three decades of high GDP growth that transitioned the nation from low to upper-middle income status, and managed to lift tens of millions of Chinese out of poverty within a generation. The dominant Chinese economy news story today, however, is about certain short-term structural challenges like high debt levels, government regulations and overbuilding, which have caused a real estate slump. Issues like supply chain disruptions, high local government debt levels and an ageing population are also affecting the growth of the country. While it is important to think about these factors, one also cannot discount China’s industrial dynamism, especially when it comes to advanced technology, manufacturing and financial services.
China is moving towards the cutting edge. In fact, it is already leading the pack in certain areas like the ownership and supply of critical materials. There has been a growing shift witnessed in China from its economic model favouring a heavy investment model that favours heavy investment in real estate and physical capital to a nimbler growth that is focused on high-quality products and services.
There is a growing shift from an economic model favouring heavy investment in physical capital and real estate towards a nimbler growth focused on high-quality products and services. As Kavan Choksi Japan mentions, if the authorities get this transition right, industries in China would power a vibrant domestic community, and play a vital fiscal role globally in the coming decades.
As per the recent figures from the International Monetary Fund (IMF), China is in the position to contribute more to global GDP growth than any other economy, including the economies of the Group of Seven, in the next five years. However, this growth shall rely on pursuing a package of pro-market reforms. In case China gets this right, its economy may grow faster, amounting to a 20% expansion of the real economy and add $3.5 trillion in the next 15 years or so.
China has a strong track record of economic management and evolution. The structural issues faced by it at the moment are not unique. Rather, it is somewhat just a part way along the path of transforming the economy. China does have a range of policy levers and resources available to address specific problems. One significant change to keep in mind is the transformation of China’s foreign trade structure, signalling an industrial upgrade. This shift is evident in the “new three exports” – electric vehicles, lithium batteries, and photovoltaic modules. Despite uncertainties, it is apparent that China’s competitive edge is rising within the industrial chain, with intermediate and capital goods comprising a growing portion of its exports.
