The New Productive Forces In China – Analysis

By Zhao Zhijiang

The current focus, emphasis, and approaches of policies in China have shifted towards what is known as “new productive forces”. To avoid policy diffusion and loss of focus, it is crucial for the country to ensure that policies are implemented in sectors and manufacturing that are genuinely reliable.

Many so-called new products and technologies are often short-lived phenomena. Therefore, policy concentration will be a vital focal point. According to ANBOUND’s founder Mr. Kung Chan, China’s economic situation is currently trending towards a state of shrinkage, which should not be viewed solely from an economic cycle perspective, nor can simple additions to policies resolve the issues. He believes that since the matter revolves around economic growth, the key lies in production. The immediate task for the Chinese policymakers is to identify focal points and develop industries that qualify as “new productive forces”, or else China may face risks of spending resources on unnecessary sectors.

What exactly is “new productive forces”?

From a manufacturing perspective, it not only refers to technological innovation but also achieves product upgrades and sustainable technological advancements. Only industries that meet these criteria can be termed as “new productive forces”. The essence of it lies in whether the product and its associated industry can withstand the test of time, maintain its product positioning, possess continuous technological upgrading capabilities, constantly innovate, and control the market through product updates and replacements.

It is worth noting that there is currently a directional issue in China’s public opinion, where any technology product related to high technology and innovation tends to be labeled as a “new productive force”, leading to the concept being abused. The Economic Daily criticizes this phenomenon, stating that “developing new productive forces must guard against blindly following trends”. Ignoring the development laws of industries and blindly chasing the current popular trends will only cause issues such as new redundant construction and over-production, which will certainly have negative impacts on local economic and social development, including debt. In fact, industries like photovoltaics and batteries obviously have technological shortcomings and face geopolitical risks, making them difficult to sustain and assume the responsibility of developing new productive forces.

Where then, does China’s true new productive forces lie? Chan believes that among numerous industries, electrical manufacturing and automobiles can be seen as important focal points for the development of new productive forces.

China is a major electrical manufacturing country with outstanding capabilities from design to production. Many products of well-known electrical brands abroad are actually “Made in China” through OEM manufacturing. More importantly, China has the sustainable technological upgrading capability in electrical equipment manufacturing. Despite being considered “common” technology, these capabilities enable continuous technological upgrades and replacements, thereby maintaining market dominance. Many industries that boast high technology cannot achieve this fundamental technological capability.

It is worth noting that electrical manufacturing is a broad category, and even during economic downturns, China’s electrical manufacturing sector remains strong. Chinese-produced products such as air conditioners, washing machines, refrigerators, etc., are still highly popular in overseas markets. According to the latest data from the General Administration of Customs earlier this year, China’s exports of major household electrical appliances saw year-on-year increases. From January to December 2023, the cumulative export volumes were as follows: air conditioners reached 47.99 million units, a 4.6% increase year-on-year; refrigerators reached 67.13 million units, a 22.4% increase year-on-year; washing machines reached 28.79 million units, a 39.8% increase year-on-year; and LCD TVs reached 98.87 million units, a 7.5% increase year-on-year.

Even the notoriously difficult Japanese market has been dominated by Chinese home appliances, with approximately 70% of products originating from China. In the Japanese refrigerator market, Chinese manufacturers hold about 28% market share, which has doubled in the past decade. Especially in the mid-to-low price range segment, Chinese manufacturers are significantly advantaged in providing sufficient functionality at competitive prices. Undoubtedly, the country’s electrical manufacturing sector demonstrates strong resilience and competitiveness both domestically and internationally.

China’s automotive industry is also another major component of new productive forces.

As the center of the world’s new automotive forces, China’s technological progress is an objective reality. Technologically, it has the capability for continuous upgrades, continually launching annual models, similar to the development trajectory of Japanese and Korean automobiles in the past. For example, in terms of engine thermal efficiency, Chinese products previously ranged from approximately 33% to 35%, while engines from Toyota in Japan can achieve over 40%. Currently, engines from BYD and Geely have achieved maximum thermal efficiencies of 46%, resolving previous bottlenecks, thereby enabling significant strides in automotive manufacturing. Additionally, supporting facilities such as batteries and intelligent components are continuously breaking through technological bottlenecks and innovating.

China’s electric vehicles, constantly innovating, have already posed challenges to established European and American automakers. In short, the development of Chinese automotive manufacturing is becoming a growth pole, perfectly fitting the definition of new productive forces.

As things stand, China relies on the development of these two major industries to support its economic growth, reminiscent of the economic development history of Japan and South Korea. Both Japan and South Korea became global manufacturing powerhouses through the success of these two major industries.

According to ANBOUND’s essential assessment regarding China’s exit from shrinkage, it is challenging for China’s economic growth and industrial prosperity to rely solely on automotive manufacturing and consumer electronics, as Japan and South Korea did. However, given the current risk of shrinkage in the Chinese economy, it appears that to emerge from this predicament in the future, the country still needs to rely on production and manufacturing, and it still needs industry leaders.

It should be pointed out that without the ability for continuous technological updates and upgrades, innovations may remain merely inventions, with difficulty developing into actual industries, let alone fulfilling the role and value of productivity. In contrast, industries like electrical appliance manufacturing and automotive manufacturing truly possess the value and utility of productivity. Moreover, they are everyday consumer goods, unlike semiconductor chips, which are strategically sensitive and can easily lead to geopolitical friction. As long as trade disputes are properly managed, these industries are relatively stable. At the very least, the rise of China’s home appliances and automotive industries will contribute to the resurgence of “Made in China” and provide more time to address deeper economic development issues.

Final analysis conclusion:

The Chinese economy is currently experiencing a trend of shrinkage. In facing these challenges, the emphasis should be on cultivating authentic new productive forces and identifying industry leaders. Key industries like electrical appliance manufacturing and automotive manufacturing not only drive technological innovation but also sustainably renew products and operations. China can leverage these industries as pivotal points to address the current issues strategically.

• Zhijiang Zhao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.