Until recently China has been tagged with economic recession factors such as regional disparities, an aging population, declining heavy-industrial sectors, bursting property bubbles, growth in debt levels, and considerable environmental issues. So how comes, it is now slightly ahead of its goal to double GDP between 2010 and 2020? President Xi's ambition to make China a “moderately prosperous country" is right on track and the country enters 2018 with robust economic-growth momentum. In this post, I want to retrace China's path to it's massive growth unlocked by a combination of several factors, one of which is the "Digital China" agenda.
Let's look back a mere 4 months: In October 2017 President Xi delivered his work report and 7 key themes at the start of the 19th Communist Party Congress. Furthermore, he unveiled his new leadership line-up. With very clear objectives and supported by a strong force to execute them, nobody is left to doubt China's new growth path:
"Our economy has moved from a stage of high growth to a stage of high quality growth," Xi stated, "Innovation will be the primary force driving the development of China's modernised economy."
Moving from high growth to high quality growth
Let's look back a little further. During the past 3 decades, China grew its economy mainly driven by two factors:
- By taking advantage of its demographic dividend, namely a large number of inexpensive labor, and
- by considerable capital investments.
But looking at the United Nations' 2015 World Population Prospects report it becomes clear that the population of China is expected to remain fairly constant until the 2030s, after which it is expected to even decrease. So the previously fast growing working-age population and the migration of those from rural areas into cities will no longer contribute to China's productivity advantage. What's more, an economy that previously relied on inexpensive labor now sees rising wages and an increased global competition - not just by India, whose population numbers are still rising and expected to reach 1.7 billion by 2050. In addition to that, fixed asset investment growth slowed down significantly, leaving behind overcapacity, high corporate dept and excessive real estate investment.
China's economic engine of these past 3 decades could be considered stuttering, to say the least. So how does President Xi plan to set sails to new horizons of sustainable economic growth?
"We will strengthen basic research in applied sciences, launch major national science and technology projects, and prioritise innovation in key generic technologies, cutting-edge frontier technologies, modern engineering technologies, and disruptive technologies." he states as point number 5 of his 7 key themes.
"Efforts in these areas will provide powerful support for building China's strength in science and technology, product quality, aerospace, cyberspace, and transportation, as well as for building a digital China and a smart society," he said.
Enhancing productivity is vital to escape recession, and China's government has realized that technological progress and innovation are the basic ingredients to that.
China's path to Digitalization
Let's have a look at China's ambitious plans to build a Digital China and perform a reality check on where the nation stands right now.
Chinese consumers already show a massive enthusiasm for digital technologies and contribute themselves to the rapidly growing digital infrastructure. China accounts for more than 40% of of the value of wordwide e-commerce transactions, which is larger than in France, Germany, Japan, UK and the US combined. The value of mobile payments by individuals was as high as $790 billion, 11 times that of the United States.
China's internet giants Baidu, Alibaba (Alipay) and Tencent (WeChat) - in short BAT - are fuelled to grow their digital ecosystems even larger. BAT themselves have developed into a massive venture capital investment force, supporting the development of digital technologies such as big data and artificial intelligence (AI).
Furthermore, large enterprises such as Huawei and Ping An are building their own innovation clusters and leading the road to digitalization at their pace. On top of that, China's (and BAT's) support for startups is unbeaten with one in three of the world's 262 unicorns (startups valued at over $1 billion) being Chinese, contributing 43 percent of the global value of these companies.
Lastly, Xi and his government gave digital players an unprecendented experimental playground for digital technologies, holding back official regulations for as long as 10 years. Now, China's government is vigorously building top-notch infrastructure to support digitization in the role of investor as well as developer, and consumer itself. The resulting 13th Five-Year Programm "Digital China", released in March 2016 is well underway .
It's main objectives are:
- Innovation: Move up in the value chain by abandoning old heavy industry and building up bases of modern information-intensive infrastructure
- Balancing: Bridge the welfare gaps between countryside and cities by distributing and managing resources more efficiently
- Greening: Develop environmental technology industry, as well as ecological living and ecological culture
- Opening up: Deeper participation in supranational power structures, more international co-operation
- Sharing: Encourage people of China to share the fruits of economic growth, so to bridge the existing welfare gaps
Made in China 2025 - The digital upgrade of China's Manufacturing sector
Part of this 13th Year Program is "Made in China 2025" (中国制造2025), an initiative to comprehensively upgrade the Chinese industry and obtain a bigger part of the global production chains. This initiative is directly inspired by Germany's "Industry 4.0" concept and will provide a plan for the digital upgrade of the nation's manufacturing sector.
We will look into China 2025's key principles and implications for China's manufacturing landscape in our next post of this series. Stay tuned!
Don't miss any of our news and blog posts: