In this context, an extensive investigation published by the British newspaper “Financial Times” under the title: (Will Xi’s industrialization plan be sufficient to save the Chinese economy?), stated that:

  • Chinese President Xi Jinping pays special attention to "accelerating the development of new, high-quality productive forces."

  • This slogan, in early 2024, became shorthand for Xi's vision of economic growth supported by China's increasingly advanced manufacturing industries.

  • That goal, linked to new, high-quality productive forces, was listed as the government's top economic priority for 2024 by Xi's second-in-command, Premier Li Qiang, when he affirmed China's economic growth target of about 5 percent earlier in March.

The British newspaper points out that economic growth has slowed since the pandemic, and that the country’s 1.4 billion citizens are hoarding savings instead of spending, in addition to dwindling foreign direct investment. This weak domestic demand has raised concerns that many of Xi's high-tech products will end up on export markets.

Therefore, for this Chinese approach to succeed, Beijing must expand its share in global manufacturing. This must also be understood by the rest of the world.

  • Xi Jinping's administration has won praise for finally deciding to stop accumulating trillions of dollars in unsustainable debt by China's real estate developers and most provincial governments.

  • But his administration's failure to find new consumer-focused drivers of economic growth has raised more fundamental questions about the economic direction chosen by the country's most powerful leader since Mao Zedong.

Economists say that never before in the post-Mao era has the Chinese Communist Party followed a growth path where real estate and infrastructure were not among the main drivers of investment. No major modern global economy has been able to stage a soft landing after decades of debt-driven growth without providing significant support to households and consumers.

After twelve years of leadership, Xi seems clear about the challenge he faces as he leads the world's second largest economy into uncharted territory, according to the British newspaper's investigation.

“This is an unprecedented path, but we will continue to explore it and move forward with courage,” state media quoted him as saying. Experts say that China is considered an anomaly when it comes to the percentage of economic growth it derives from investment.

Investment as a percentage

According to World Bank data,:

  • Investment as a percentage of global GDP has for decades hovered around 25 percent.

  • In countries with high investment rates, usually in the developing world, this percentage generally ranges between 30 and 34 percent.

  • While in China, the percentage has remained above 40 percent for two decades, Pettis points out.

  • About two-thirds of this investment went into real estate and infrastructure. But although these remain large parts of the Chinese economy, they are no longer expected to support growth.

In 2021, Beijing imposed its "red lines" on real estate companies to address the massive financial leverage in the real estate sector. Xi declared that housing is for living, not for speculation.

Three years later, there is mounting evidence that similar treatment is being received by county and local governments that spend unsustainable amounts on unproductive infrastructure.

According to a document seen by the Financial Times, the State Council has banned 10 heavily indebted provinces and regions and two large cities from building highways, government buildings and other new projects. Another 19 regions were encouraged to report their most indebted cities, so that the central government can develop further debt reduction plans.

Bloomberg estimates that as of year-end 2022, real estate developers owed 17.8 trillion yuan ($2.5 trillion) while local government financing vehicles owed 94 trillion yuan, according to Goldman Sachs. Paying off this debt is expected to take years, if not longer.

The resilience of the Chinese economy

Head of the Tahrir Center for Studies and Research, and member of the Egyptian Council for Foreign Affairs, Imad Al-Azraq, tells Eqtisad Sky News Arabia:

  • Despite the challenges that the international economy has faced during the last five years, starting with the outbreak of the Covid-19 virus and ending with the war in Ukraine and their severe economic impacts, especially on supply chains, which negatively affected many global economies, the Chinese economy has shown a great and remarkable ability to recover. .

  • The features of recovery are evident in the increase in China's GDP to 126 trillion yuan in 2023, with a growth rate of 5 percent, among the largest growth rates in the world.

  • China also provided about 12 million job opportunities in the same year.

  • It also attracted direct foreign investment of about 1.1 trillion yuan, in addition to the investments of thousands of foreign companies in China during the year 2023, which is considered the largest rate of foreign investment entering the country.

He points out that these trends and indicators have prompted Chinese President Xi Jinping in the recent period to put forward many initiatives to maintain the momentum of the Chinese economy and maintain its positive growth rate, which is planned for the current year 2024 to reach about 5 percent, as the initiatives varied between developing new productive forces, Promoting high-quality development, through which the focus is on achieving sustainable and balanced economic growth, in addition to enhancing innovation and quality in all aspects of development.

Al-Azraq explains that China is currently seeking to expand its openness to the world in a deeper and more comprehensive way, a trend that Xi Jinping has emphasized more than once, pointing out that Chinese openness to the outside world is considered a locomotive and engine for the Chinese economy because of the great opportunities it represents. For Chinese investments abroad and increasing development and growth rates in various countries, especially members of the Belt and Road Initiative, which increases the volume of consumption and creates greater opportunities for Chinese exports and products, and enhances joint cooperation in the areas of enhanced investments, which enhances China’s image and political and economic status.

This comes at a time when China is betting on "industrialization" in order to fill the gap resulting from imbalances in a sector such as the real estate sector.

China's manufacturing activity grew for the first time in six months in March, providing some relief to policymakers even as the economy and confidence continue to be affected by the crisis in the real estate sector.

The official purchasing managers' index rose to 50.8 in March, from 49.1 in February, above the 50 mark that separates growth from contraction and above the average forecast of 49.9 in a Reuters poll.

The Caixin Manufacturing Purchasing Managers' Index (PMI) rose to 51.1 points in March, the highest level in more than a year, an increase from the previous figure of 50.9 in February, and close to expectations of 51 points.

To what extent can manufacturing bridge the gap?

In this context, and returning to the investigation of the British newspaper "Financial Times", economists were quoted as saying that one of the most important questions for China now is the extent to which industrialization can fill the gap created by the lack of prioritization of real estate and infrastructure.

Recounting Xi Jinping's vision as an economic planner, an article in Xinhua News Agency traced back to Mao's Cultural Revolution. In the 1970s, Xi, a teenager, led the development of biogas generation facilities in a rural village, replacing the burning of wood for lighting and cooking — an early example, according to the article, of tapping into “new high-quality productive forces.”

Among these forces today, according to the Chinese Premier, is the “new trio” of electric cars, lithium-ion batteries, and photovoltaic solar cells.

  • Exports of these goods rose by 30 percent to $147 billion last year, according to official customs data.

  • Factories in China already account for about 28 percent of GDP, compared to a global average of 16 percent, according to World Bank data.

  • Much of its production has historically been low-value exports in electronics and machinery.

  • But China has become increasingly competitive, and in some cases dominant, across advanced technologies including wind turbines and battery materials.

  • Beijing is rapidly catching up on computer chips, artificial intelligence and autonomous vehicles, targeting nuclear fusion, quantum computing, hydrogen, spacecraft and biomanufacturing.

While experts recognize the ambiguity surrounding Beijing's plans — no national-level targets have been set for future-oriented industries — there is no doubt that significant change is underway. They also point out that it is consistent with Xi's overall goals of technological self-reliance and resource independence for China.

Enhancing comprehensive economic strength

The British newspaper quoted what was reported by Olivia Cheung and Professor Steve Tsang, academics at Suss University in London, in their book The Political Thought of Xi Jinping, when they said: “Xi seeks to enhance China’s economic power through innovation by any means necessary and reduce its economic exposure to potential Western sanctions.” .

  • In Beijing, economic planners say they are trying to avoid repeating the same mistakes that led to crippling debt associated with real estate and infrastructure development.

  • Officials at the People's Bank of China point to more central oversight while reallocating the state's financial resources toward boosting credit to key emerging and strategic sectors.

  • The People's Bank of China is making plans to set up a new Credit Market Administration, which aims to guide the country's massive RMB450 trillion banking sector to finance priority areas.

Official data indicate that the shift is already taking shape. The Governor of the People's Bank of China, Pan Zongsheng, said last January that the growth rates of green loans, short-term technology loans, and long-term manufacturing loans have significantly exceeded the growth of overall lending in 2023.

At the same time, the demand for loans in the real estate sector and from local companies and government financing instruments has decreased significantly in recent years.

Chinese economy 'not in crisis'

In addition, the director of the regional office of “China Today” magazine in the Middle East, an expert in Chinese affairs, Hussein Ismail, confirms in exclusive statements to the “Eqtesad Sky News Arabia” website that:

  • The policies approved by the Chinese Communist Party came in light of the vision of a group of economists with sufficient experience and knowledge, taking into account the internal and external factors that may affect the future.

  • The Chinese economy is not in crisis, but like other economies in the world, it faces challenges, whether internal or external.

  • The Chinese economy - in my estimation - is better than the indicators of other economies. If we compare indicators such as growth rates and growth rates of different sectors, we will see that the Chinese economy achieves remarkable growth rates.

  • Although some sectors facing problems, such as the real estate sector and the small and medium enterprises sector, were affected, the Chinese government and its recent reports included a set of policies to deal with these problems, in addition to a package of incentive policies for different sectors, which would help China achieve its goals in terms of The growth rate is estimated at approximately 5 percent during the year 2024.

The expert specializing in Chinese affairs points out expectations that the growth rate of the Chinese economy during the current year will exceed 5 percent, given that China has fully recovered from the repercussions of Covid-19.

He continues: “China’s ability to achieve these rates comes with support from the current Chinese government’s trends towards expanding domestic demand, especially since we are talking about a market of 1,400 billion people, which supports the growth rates of the Chinese economy and supports its ability to face the current challenges, the most prominent of which are the problems related to... “With exports, which were affected by the international situation and supply chain problems, which will reduce imports from China during this period.”

How does the world view China's industrial plan?

Outside China, many experts and government officials see the possibility of Beijing's increasing reliance on manufacturing for growth as an emerging threat.

  • Comparisons of industrial policy are notoriously difficult.

  • But the Center for Strategic and International Studies describes Chinese state support as “uniquely high,” estimating it at $406 billion, or 1.73 percent of GDP, in 2019.

  • This compares to 0.39 percent of GDP in the United States and 0.5 percent in the United States.

Growing American-European concern

  • In the United States and Europe, politicians fear such lavish spending could trigger a wave of low-cost high-tech exports from China, which could displace domestic industries and pose national security risks.

  • Washington and Brussels launched separate investigations into China's electric vehicle industry, with the former targeting security risks to Americans and the latter targeting allegations of unfair state support.

  • President Joe Biden also recently promised billions of dollars to replace Chinese-made container cranes at US ports, citing concerns that hackers could disrupt supply chains.

European Commission President Ursula von der Leyen had indicated that the European Union's trade deficit with China had risen to 400 billion euros, from 40 billion euros 20 years ago, as she highlighted a series of complaints including China's excess industrial capacity. “European leaders will not be able to tolerate our industrial base being undermined by unfair competition,” she added.

In private conversations with their Chinese counterparts, US economic officials warned Beijing that the United States and its allies would take action if China tried to alleviate the problem of excess industrial capacity by flooding international markets with goods.

While Beijing has taken some moves to allay international concerns. Xuan Changning, deputy governor of the People's Bank of China, said in a press conference a few days ago that the central bank will also be careful to guide banks against excessive lending that could lead to excess capacity problems.

This came weeks after China's Ministry of Commerce and eight other agencies in February announced plans to support the "healthy development" of the country's overseas electric vehicle expansion, including cooperating more with foreign partners and taking advantage of free trade deals.

Manufacturing strategy

  • Against the backdrop of growing international concern, experts believe the industrialization strategy will not achieve Beijing's growth goals.

  • Exports already account for a fifth of GDP, and China's share of global manufacturing is 31 percent.

  • In the absence of an explosion in demand, experts say it is unlikely that the rest of the world will be able to absorb China's exports without reducing its manufacturing.

Chinese economic targets

In addition, economic expert Dr. Jaafar Al-Husseinawi, in special statements to the “Eqtisad Sky News Arabia” website, points out that:

  • China seeks to achieve economic growth of 5 percent, despite indications of a budget deficit of 3 percent in the current year 2024.

  • The Chinese government has worked to support the real estate sector (which is an essential source of the country's economy).

  • It also worked to support the private sector and allow it the freedom to work according to its vision, not the vision of the government.

  • This comes in parallel with the slight growth achieved by the industrial sector in the recent period, when the Chinese government worked to supply Russia with high-precision industrial materials after Europe refused to supply Russia with those materials.

He points out that, on the other hand, the Chinese President called for the need to focus on accelerating the construction of a modern industrial system and to make efforts to increase internal demand and prevent and defuse risks.

The Chinese President also emphasized self-reliance in the industrial sectors and the science and technology sector in particular, with rapid development measures to strengthen the Chinese economy and reach the targeted growth rate estimated at 5 percent and avoid recording the expected deficit of up to 3 percent.