Xi Jinping's Tech Push Cushions China's Economic Challenges Amid Property Slump

China's economy faces a blend of domestic challenges and global concerns, yet President Xi Jinping's emphasis on technology-driven "high-quality growth" yields promising results. As property downturns persist, China's focus on technological advancement is maintaining its targeted growth rate of approximately 5%.

Xi Jinping's Technology-Driven Strategy Aims to Offset Property Slump and Global Trade Tensions

China's economy is currently generating a mix of domestic challenges and global apprehensions regarding the dominance of its manufacturers. The property downturn persists, resulting in the slowest quarterly growth in five quarters. This is evident from recent data showing that while industrial production remains strong, it is offset by weak consumption. However, a silver lining is emerging through Chinese President Xi Jinping's long-standing pursuit of technology-driven "high-quality growth," which is beginning to show results.

According to Bloomberg, Japan and the United States faced significant economic downturns when their housing markets collapsed. However, China's technological advancements and subsequent export surge have helped maintain its economic growth at the targeted rate of approximately 5%. The Chinese authorities are committed to sustaining this growth. This week, the Third Plenum, a significant gathering in Beijing, convenes for Xi and senior Communist cadres to establish long-term economic strategies.

However, a significant obstacle remains: Chinese consumer confidence has yet to recover, as indicated by lackluster retail sales numbers. Additionally, the influx of inexpensive solar panels and electric vehicles into global markets has prompted protectionist responses from governments in the United States and Europe concerned about potential job losses due to China's industrial power.

Political analysts now believe that the likelihood of Donald Trump's reelection has increased, potentially leading to more challenging circumstances for China. Trump has threatened to impose tariffs of 60% on Chinese products. For Xi, these protectionist moves reinforce his determination to achieve self-sufficiency in strategic sectors, including advanced computer processors, to prevent China from being impeded by escalating trade or military tensions.

High-Tech Sector Set to Boost China's GDP as Traditional Industries Decline, Experts Predict a Great Rebalancing

Bloomberg Economics predicts that the high-tech sector will contribute 19% of China's GDP by 2026, up from 11% in 2018, provided Beijing can continue to thwart U.S.-led containment efforts. The proportion of GDP attributed to electric vehicles, batteries, and solar panels will increase to 23% by 2026, compensating for the real estate sector's decline from 24% to 16%. "Pessimism on China’s prospects is understandable but also overdone,” say Chang Shu and Eric Zhu, economists with Bloomberg Economics. "The government might just be about to pull off a great rebalancing.”

Xuzhou, a city of 9 million residents situated approximately midway between Beijing and Shanghai, exemplifies the transition incited by Xi's policies. Until a decade ago, Xuzhou's economy was driven by heavy industries, including coal, steel, and cement. In response to concerns about rising debt, authorities implemented restrictions, severely impacting home prices and closing coal mines and steel factories. The city has shifted its focus to mechanized construction, new materials, and new energy.

GCL Technology, the world's second-largest polysilicon producer, has significantly contributed to Xuzhou's green industry, creating more than 5,000 jobs in the past five years. This shift exemplifies Xi's vision of transitioning from "high-speed" to "high-quality" growth. "We went from a following to a leading position in the industry,” said Xu Zhenyu, assistant vice president of GCL’s polysilicon business division. "Technological innovation has been critical in this process.”

Xi's initiative has persisted despite ongoing challenges such as COVID-19 lockdowns and property cycles. From 2018 to 2023, the high-tech sector outpaced nominal GDP growth, and Bloomberg Economics projects continued growth in these industries. Liu Lei, a researcher at the National Institution for Finance and Development, asserts that technological advancement will remain a primary focus for at least another decade.

The transition in Xuzhou is proving difficult for those not employed in new industries. Gao, a 43-year-old woman who declined to disclose her first name, reported that sales at her furniture store specializing in children's cots had halved this year. "Sales plummeted following the Lunar New Year," she said. "It appears that everyone is experiencing hardship, regardless of their occupation. I have never been so concerned."

China's Growth Strategy Shifts Focus to High-Tech Manufacturing Amid Weak Consumer Sentiment and Unemployment

Consumer sentiment has been eroded due to the property market's weakness and high youth unemployment. As the Japan Times reported, price battles in sectors such as automobiles also affect company revenues. However, the government and central bank have refrained from transitioning to stimulus mode, as the rapid expansion of exports supports overall growth. Economists believe additional stimulus is possible if the 5% growth target becomes unattainable.

Focusing on high-tech manufacturing is part of a broader strategy to reduce reliance on the United States for critical technology. China aims to achieve "medium-developed country" status by 2035. This requires elevating per-capita GDP and maintaining annual growth rates of around 5%. Enhancing productivity through innovation is crucial, given the declining labor force and diminishing returns on credit-driven investment in infrastructure projects.

Larry Hu, director of China economics at Macquarie Group, compares Xi's initiative to South Korea's shift from heavy industry to technology after the Asian Financial Crisis. "Key to China’s ability to attain its tech goals will be the pace of change in the technologies themselves," he said. "The faster things like AI and advanced chipmaking progress, the harder it will be for China to keep pace.”