China's Big Bet On 'New Quality Productive Forces'

(MENAFN- Asia Times) Don't tell Donald Trump, but his pledge to impose 60% tariffs on Chinese goods may help accelerate Xi Jinping's efforts to move Asia's biggest economy upmarket in ways Washington never saw coming.

Granted, President Xi has been previewing his buzz-phrase of“new quality productive forces” since at least last September. Though cryptic and a tad ambiguous, Xi's inner circle has been selling it as the answer to China's economic future.

Little did Team Xi know that former US president Trump would be helping the Communist Party sell the strategy. In the months since September and the National
People's Congress in early March, Trump unveiled his plan to make trade wars great again.

On top of crushing new import taxes , Trump says he plans to revoke China's“most favored nation” status if elected in November. These steps could make Trump's 2017-2021 stint in the White House seem tame by comparison.

In doing so, Trump's Republican Party is reminding Xi's party of the folly of acting time and time again to boost domestic demand-led growth.

To be sure, China wants to get its consumers to spend more and save less to keep growth near 5% year after year. That means continuing to raise incomes and building more robust social safety nets to encourage spending.

It also means creating deeper, trusted capital markets so the average Chinese can invest in stocks and bonds - not just real estate.

Yet Beijing's extreme focus on goosing consumption time and time again is counterproductive, many economists say. It leaves China susceptible to boom-and-bust cycles that require urgent attention at the expense of moving the economy upmarket. And China's heavy reliance on exports leaves the economy vulnerable to Trump-like trade war antics.

There's no better alternative to accelerating and broadening China's evolution as a high-tech powerhouse, development experts agree. And indications are this is precisely the pivot Xi and Premier Li Qiang are trying to make as 2024 unfolds.

Li Qiang and Xi Jinping in a file photo. Image: Twitter / Screengrab

At last month's NPC, Xi's party said“It's imperative to boost the endeavors to modernize the industrial system and accelerate the development of new productive forces.”

State news agency Xinhua says the priority is“spurring revival of northeast China” and promoting“green productive forces” across the nation. And making China a dominant innovator in semiconductors, electric-vehicle supply chains, renewable energy, advanced infrastructure, aviation and artificial intelligence.

Justin Yifu Lin, a former World Bank chief economist, argues that China“has enough room for elevation of technological innovation, industrial upgrade and productivity level.” He cites the nation's high savings rate, abundant investment resources and government commitment to economic development.

China, Lin says, has certain advantages that often get lost in worries about current economic challenges. As a major developing economy, Lin notes, China is“still in a process of industrial upgrade and still faces a big gap with developed countries, but this creates a latecomer's advantage.”

During this catch-up stage, other economies including Japan, South Korea and Germany achieved a growth rate of 8% or above. If they can achieve that, China also has the potential to achieve it, Lin says.

China“has another advantage in the new economy, represented by artificial intelligence and digital economy. China is placed at the same start line as those developed countries, but it has demonstrated a significant advantage in tech innovation involving the new economy ,” Lin argues.

Lin also highlights China's“abundant human capital” and its massive scale. It means that any technological innovation or new product development“can swiftly enter the domestic market and benefit from economies of scale. Even when competing with developed countries, China can surpass them in economies of scale thanks to its enormous domestic market size.”

Also, China has, in Lin's view,“the best industrial supporting capability of almost any economy globally.”


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