Chinese experts' perspectives on some key aspects of China's economy
Chinese experts' perspectives on some key aspects of China's economy
New productive forces, digital economy, AI, foreign investment, foreign trade, etc.
Good evening. Today, I've curated some opinions on China's economy from experts, government officials, entrepreneurs in two significant recent forums. Each one of speakers shared their perspectives on specific aspects of China's economy. The challenges facing China's economy today are indeed numerous, and the views of these Chinese experts, I believe, are important to policymakers in their strategies for future economic development.
The two events are the 25th Annual Peking University Guanghua New Year Forum and the China Economic Roundtable. These discussions encompassed a range of topics including new productive forces, the digital economy, artificial intelligence, foreign investment, and foreign trade.
The 25th Annual Peking University Guanghua New Year Forum was held on Jan. 7, by Guanghua School of Management of Peking University. The theme of the forum is to explore momentum for the high quality development of the Chinese economy. The Guanghua School of Management is the business school of Peking University in Beijing. It has consistently been regarded as one of the top business schools in China. The forum lasted over eight hours. You can check the video of the forum here.
I select parts of the speeches of three speakers in the forum. They are:
Huang Qifan 黄奇帆, former mayor of Chongqing, on "New productive forces 新质生产力"
Jiang Xiaojuan 江小涓, former senior government official, now President of the Chinese Society of Industrial Economics and a Professor at the University of Chinese Academy of Social Sciences, on "digital economy"
Wang Aihua 王爱华, Deputy Chief Engineer of China Academy of Information and Communications Technology, on "general artificial intelligence"
China Economic Roundtable is launched by Xinhua News Agency. The episode of the roundtable which was released on Monday focuses on foreign trade & investment.
I select parts of the speeches of three speakers in the roundtable. They are:
Zhu Bing 朱冰, Director of the Foreign Investment Management of the Ministry of Commerce
Zhang Wei 张威, Deputy Director of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce
Fang Xueyu 方雪玉, vice-president of Chinese home appliance maker Hisense Group's international marketing unit
Please kindly note that the translation has not received personal review by the speakers.
Huang Qifan 黄奇帆, former mayor of Chongqing, on "New productive forces 新质生产力"
Note: New productive forces "新质生产力" is firstly introduced by President Xi Jinping during his inspection visit to northeast China's Heilongjiang Province in September 2023:
要整合科技创新资源，引领发展战略性新兴产业和未来产业，加快形成新质生产力
Integrate the resources of technological innovation and pioneer the development of strategic emerging industries and industries of the future, so as to accelerate the formation of new quality productive forces.
New productive forces: disruptive technological innovation
My personal understanding of "new manufacturing" encompasses five domains: new energy, new materials, new pharmaceuticals, new manufacturing equipment, and new information technology. However, to be considered as the "new productive forces," it requires more than just ordinary technological progress or marginal improvements, but disruptive technological innovation. I believe at least one of the following five new standards should be met for such disruptive technological innovation:
1. New scientific discoveries. These are "zero to one" breakthroughs, creating something from nothing, leading to significant new understandings of our world. For instance, research in quantum science and neuroscience could greatly advance our knowledge of the world and our understanding of ourselves.
2. New manufacturing technologies. These are entirely different from existing technological approaches in principles and pathways, capable of replacing existing processes and technologies. An example could be future biomanufacturing, using bioreactors to produce a variety of proteins, food, materials, and energy that humans need.
3. New production tools. The evolution of tools has always played a crucial role in human development, as innovation in tools leads to increased efficiency and reduced costs. There are many examples, such as the emergence of EUV lithography machines enabling the manufacture of 7nm and 5nm chips, and integrated die-casting technologies in new energy vehicle manufacturing that significantly reduce the cost of producing new vehicles.
4. New elements of production. Traditional manufacturing relies on labor, capital, and energy, but future manufacturing will incorporate data as a new element. The introduction of this new element changes the production function, leading to new combinations and fusion fissions of economies of scale, scope economies, and learning effects.
5. New products and applications. Every era has its own set of popular household items that symbolize the technological and cultural milestones of the time. In recent decades, these items have included home appliances, mobile phones, and automobiles. Looking ahead, it's anticipated that the future household essentials could be domestic robots, head-mounted VR/AR devices, flexible displays, 3D printing equipment, and smart cars.
Productive services are increasingly important
In many countries, especially developed ones, the proportion of productive services within their GDP is increasing significantly. It is often said that services account for 80% of the United States' GDP, which might seem to be overly reliant on the service sector and raises questions about potential economic bubbles. However, it's important to note that within this 80%, approximately 70% is constituted by productive services. This means that about 56% of the US's $25 trillion GDP, or roughly $13 trillion, comes from productive services, which are highly related to manufacturing and high-tech services. In the European Union's 27 countries, the service sector's value added accounts for 78% of GDP, and within this percentage, about 50% is from productive services, making up 39% of the EU's GDP. In the United States, productive services account for more than 50% of GDP, around 40% in the EU, and between 40%-50% in other developed and G20 countries.
In contrast, these service sector indicators highlight a current shortcoming in the productive capacity of China. In 2022, manufacturing added value accounted for 27% of China’s GDP, and service sector added value was 52.8%. However, within this 52.8%, two-thirds are in the category of lifestyle services, with productive services constituting less than one-third. This means that productive services in China account for approximately 17%-18% of GDP, which is significantly lower compared to around 40% in Europe and 50% in the United States.
Therefore, to achieve Chinese modernization, there is a need to accelerate the development of productive services. To realize high-quality Chinese manufacturing, it is crucial to increase the added value of productive services that are strongly related to the manufacturing sector and have a high added value.
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Jiang Xiaojuan 江小涓, former senior government official, now President of the Chinese Society of Industrial Economics and a Professor at the University of Chinese Academy of Social Sciences, on "digital economy"
"Digital economy" & "data elements" in 2023 China's central economic work conference
Three weeks ago, China's Central Economic Work Conference outlined a comprehensive plan for this year's work, focusing on seven key tasks and nine specific areas of work, all of which emphasized the importance of the digital economy. For instance, the first key point centered on new industrialization, specifically highlighting the digital economy. The plan calls for a robust promotion of new industrialization, the development of the digital economy, and an accelerated push for the advancement of artificial intelligence. In terms of upgrading and transforming traditional industries, two main aspects were discussed. The primary approach for the modernization of these industries involves the extensive use of digital and green technologies. This strategy is aimed at accelerating the transformation and upgrading of traditional industries
Another focus is on new growth areas in consumer spending, with digital consumption highlighted as a primary area. The meeting discussed seven points about intelligent home systems, two of which were about digital consumption. In terms of new drivers for foreign trade, four areas were stressed, including the expansion of trade in intermediate goods, service trade, and specifically digital trade and cross-border e-commerce exports, signifying a high regard for the digital economy.
In the financial support sector, traditional focuses have included inclusive finance, green finance, and finance for science and technology innovation. This year, new emphases were placed on silver finance and digital finance.
Regarding the expansion of openness to the world, there is a need to align with the international high-standard economic and trade system. This is particularly relevant in addressing the prominent issues of cross-border data flow and equal participation in government procurement, both of which are closely related to the data element and the digital economy.
Therefore, it is evident that in this year's economic work plans, the Central Government places a very high level of importance on the digital economy and data elements.
Why can China lead the global development of digital economy?
Globally, the digital economy is a focus area, and China is among the countries with high expectations for data elements, justified by its possession of the world's largest amount of real-time data. Firstly, from the consumer data perspective, China has the highest number of online users and the longest average online duration per capita. With 1.2 billion people spending an average of nearly 7 hours per day on mobile internet, the daily consumer online duration is about 8 billion hours. However, for digital consumption, mere numbers are not enough. Real market engagement is reflected in online activities like shopping, socializing, and entertainment. China's 8 billion hours of extensive data, which exceeds the total daily active online duration of all OECD countries, undoubtedly makes China the leading nation in generating consumer data. Secondly, China boasts the largest manufacturing industry globally, not only in scale but also in terms of digitalization. Consequently, the production data generated daily by China's physical industries and manufacturing sector is the highest worldwide. Thirdly, China is the leader in smart city development, with over 600 cities engaged in such initiatives, generating vast amounts of urban activity data daily. Therefore, China is the economy producing the most urban activity data globally. Moreover, data infrastructure in China is robust, capable not only of generating data but also of aggregating, connecting, and further analyzing it. As a major data-producing nation, China's vast data resources are a crucial foundation for maximizing the potential of data.
Digital economy: 50%+ of the economic volume by 2025
The final goal is to leverage the data element to propel the growth of the digital economy. According to the National Development and Reform Commission's 14th Five-Year Plan, the digital core industry's value added is expected to increase from 7.8% of GDP to 10% by 2025. This indicates that the digital economy could account for over half of the economic volume and become the main growth driver. This target is not merely aspirational but a realistic objective, representing a major growth area and a critical new driver for the economy. This segment cannot be overlooked, as failing to accelerate its growth could significantly constrain the overall economic expansion.
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Wang Aihua 王爱华, Deputy Chief Engineer of China Academy of Information and Communications Technology, on "general artificial intelligence"
AI for Science
It's crucial to recognize that AIGC (AI-generated content) can drive a collective breakthrough in technological innovation, especially in the realm of AI for Science. I'm particularly keen to share more about AI for Science. The introduction of new methods and tools in this area could fundamentally hasten the pace of scientific development.
The latest wave of artificial intelligence can be likened to the 17th-century discovery of microscopes and telescopes, and to the 19th-century development of journals and laboratories. It's set to transform the very nature of scientific research. Much of its utility likely stems from AI's immense capability in solving high-dimensional functions. Therefore, AI plays a pivotal role in highly precise and efficient modeling, high-throughput screening, and more targeted experimental verification. This has led to significant breakthroughs in areas like new drug development, discovery and creation of new materials, and more.
According to an OECD report, although artificial intelligence is infiltrating all fields and stages of science, its full potential is far from realized. Therefore, accelerating the productivity of research could be of utmost economic and social value.
How can AI drive economic growth？
Economically, the significance of artificial intelligence lies not only in the growth of its own industry scale but also in its role as a foundational tool and method accelerating the development of the digital economy and industry. Furthermore, the integration and penetration of AI into various sectors of the real economy, especially in advancing emerging industrialization, is invaluable.
In terms of overall business landscape, the United States and China continue to be the two most significant attractors of global investment, together accounting for 70% of the total. Of course, the U.S. is growing faster, and while China's share in global financing may see a relative decrease, it remains substantial. In the first three quarters of last year, the distribution of global AI investment showed active mutual investments among the U.S., UK, Canada, and Germany, aligning with the distribution of unicorn companies. However, domestic investment still dominates China's AI financing, which is due to several objective reasons. Therefore, a key indicator or characteristic of this new round of industrial development is the growth of unicorn companies.
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Zhu Bing 朱冰, Director of Foreign Investment Management at the Ministry of Commerce, on foreign investment
Why do foreign investment scales fluctuate？
Fluctuations in the scale of foreign investment are due to both economic and non-economic factors. Firstly, the global pandemic of COVID-19 continues to have an impact. The pandemic has hindered offline inspections and exchanges, affecting the investment decisions of multinational companies. Since these companies have longer investment decision cycles, this has resulted in a lag in data. Secondly, geopolitical influences have caused some fluctuations in transnational capital flows. Thirdly, the overall shrinkage in the scale of global transnational investment and intensified competition for international investment have had a certain diverting effect on a macro level.
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Zhang Wei 张威, Deputy Director of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, on institutional opening-up
Institutional opening-up: top priority in China's opening-up
Institutional opening-up is contrasted with factor-driven opening-up. Factor-driven growth relies primarily on changing factor inputs, which eventually face the problem of diminishing returns to scale. In recent years, China has continuously expanded its opening up, reaching the "limit" of factor opening up under current conditions. As a result, the support of factor opening-up for economic growth has weakened. Conversely, the core of institutional opening-up lies in optimizing the allocation of resources in the field of opening-up. Currently, China is in the phase of increasing returns to scale in promoting institutional opening-up. Expanding institutional opening-up can enhance China's total factor productivity and potential growth rate. Therefore, institutional opening-up is currently a top priority in the field of opening-up.
Cultivation of new drivers for foreign trade
The international market demand for some "old" products is bound to have a ceiling. With the global market generally in a state of saturation, innovation becomes increasingly crucial. The Central Economic Work Conference proposed to "accelerate the cultivation of new drivers for foreign trade," including expanding trade in intermediate goods, trade in services, digital trade, and cross-border e-commerce exports. This strategy is accurately positioned and judged, and it plays a significant role in promoting the future development of foreign trade. "We also look forward to the emergence of not only 新三样 "new three items", namely new energy vehicles, lithium batteries and photovoltaic products, but potentially "new five items" or "new six items" types of products in the future.
Note: In recent years, the export volume of China's 新三样 "new three items" - new energy vehicles, lithium batteries, and photovoltaic products - has seen rapid growth, becoming a key force in driving the increase in China's foreign trade exports. In the first ten months of this year, the export volume of these "new three" amounted to 928.5 billion yuan (about 140 billion USD), up 35.9% year-on-year, contributing 1.3 percentage points to China's export growth.
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Fang Xueyu 方雪玉, President of Hisense International Marketing Company, on Chinese companies going global
Note: Hisense is a leading Chinese electronics manufacturer
What is the advantage for Chinese companies going global
Regarding the home appliance industry, Chinese companies no longer rely solely on the advantage of supply chain cost in international markets. Previously, the focus was more on competitive pricing, but now it has shifted to the "three highs": high technological content, high added value, and high quality. For a long time, the global presence of Chinese manufacturing depended on cost-performance ratios, even engaging in price wars. This approach, however, resulted in a narrow competitive moat and low barriers to entry. Internally, the company emphasizes that "aiming high-end is the only correct path to becoming a world-class entity." To truly become a global or world-class brand, it is essential to move beyond low-price and low-level competition and focus on developing high-end industries and products. This approach can provide a competitive edge as enterprises expand internationally.
Hisense's localization strategy
On the other hand, globalization also implies localization. The household appliance industry is one of the most fully competitive industries globally. The survival and development of enterprises highly depend on a globally integrated R&D, manufacturing, and marketing system. Whenever Hisense enters a country, it establishes a complete company, including sales, marketing, service, finance, and human resources functions. After more than a decade of continuous investment, Hisense has achieved integrated production, sales, and research in North America, Europe, South Africa, and Japan. This allows Hisense products to be delivered at the fastest speed and quickly adjust direction, optimize, and upgrade according to market changes.