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Busani Ngcaweni:Technology, innovation and efficiency fuel the red dragon

Writer:Busani Ngcaweni Date : Sep.12, 2024
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Drawing from established ideas on the role of the state in promoting economic transformation helps us locate Chinas new economic development frontier: the nurturing of new productive forces to achieve high-quality development.

The emphasis on building new quality productive forces represents a remarkable shift in the countrys economic trajectory, which involves traditional drivers such as mass production of low-value products into strategic industries that are driven by technology, skills and innovation.

This should be read within the context of what I call Chinas third opening up (a post-pandemic China that is shifting from a labour-intensive to a technology-intensive growth model that leverages the global green and technology revolutions).

This economic transformation is writing the script of the post-pandemic economic recovery.

Both internal (such as demographic shifts and infrastructure spend reaching its peak) and external (demand for technologies that mitigate climate change and advances in AI) factors have converged to set the scene for Chinas new era of economic transformation.

They give new meaning to the reform and expansion processes of last century, when China was focused on integrating with the international community and establishing itself as the factory of the world.

The development of new productive forces can be understood through the lens of structural transformation, a concept central to development economics.

Structural transformation involves the reallocation of economic activity across the broad sectors of agriculture, manufacturing and services, typically driven by technological advancements and changes in comparative advantage.

Chinas economic reforms and expansive policies, initiated in the late 20th century, have historically facilitated such transformations by liberalising markets, attracting foreign investment, promoting export-led growth, building infrastructure, increasing human capital and addressing poverty.

In the initial stages of economic development, physical investment, or what economists call capital deepening, plays a critical role in promoting growth.

This phase aligns with traditional productive forces, where the accumulation of capital leads to increased output and employment.

 

ECONOMIC MATURITY

Traditional productive forces are driven primarily by factors such as labour, land and capital all of which have been driving forces of Chinas economic advances for over four decades.

Although we do not say much about the state-owned enterprise sectors performance here, it is one factor in the Chinese story of economic development that must be taken into account.

As the economy matures and per capita capital reaches higher levels, the returns on additional physical investment begin to diminish.

This is where the role of innovation and efficiency gains matter. We are witnessing this in China now, as we did in other nations, such as Switzerland, Singapore and South Korea.

Growth driven by innovation involves enhancing technologies and improving production processes, which in turn revitalise the importance of capital investment.

By fostering technological advancements, the diminishing returns on investment can be countered, creating new avenues for economic expansion.

Growth driven by efficiency focuses on optimising resource use and improving productivity across sectors, further amplifying the impact of technological innovations.  

In other words, old industries are not abandoned in this approach, they are upgraded, hence the notion of industrial upgradingthat government officials and economists talk about.

New productive forces are led by technological, advances, innovation and novel elements such as big data (and analytics).

For instance, generative AI (computer algorithms capable of producing text, images, code, videos and audio that mimic real humans) is being used to improve the performance and appeal of electronic vehicles and drive e-commerce, where user experience matters most.

Chinese tools such as Sora are transforming the way people are transacting. Whereas, in the West, as one political scientist recently commented, AI is used to write poems and plagiarise essays.

The promotion of the deeper integration of AI, trade, services, mining and manufacturing is shifting Chinas modern industrial system.

This shift towards high-quality development explains how the country is now the global leader in semiconductor and chips production, EVs, lithium batteries, wind energy products, solar panels and other products that are driving the dual revolutions: energy transition/green revolution and the fourth industrial revolution. We would do well to observe the intensifying global competition that has taken a turn into geostrategic considerations that are disrupting the global trade system as we have known it since China joined the World Trade Organisation in 2001. 

Of course, we must also mention that, as the digital economy and real economy become increasingly intertwined, cybersecurity risks rise, necessitating innovative solutions to safeguard nations and people/users of the new technologies.

This integration demands not only high-end scientific and technological talent (which is missing in most of the global south countries), but also a large cadre of high-quality technical and skilled employees and government regulators and great craftsmen, if I can paraphrase one Zhou Yuan, CEO of the knowledge-sharing platform Zhihu. 

Chinas previous growth model was heavily reliant on labour-intensive manufacturing and large-scale capital investments.

This model emphasised rapid industrialisation and export-led growth, which significantly boosted economic output and employment but eventually led to diminishing returns as wages increased and global competition intensified. 

In contrast, the new growth model focuses on high-quality development driven by innovation and efficiency.

By investing in advanced technologies, such as AI, big data and autonomous vehicles, China aims to move up the global value chain and create more sustainable economic growth.

This shift involves a greater emphasis on deeper market-oriented reforms, research and development, higher education and the digital economy, aligning with global trends towards knowledge-based economies.

 

MAGIC CITY

Chinas strategy of nurturing new productive forces has already shown significant progress. For instance, in 2023, a total of 13 commercial rockets were launched by private Chinese companies from Beijing, showcasing the rapidly developing commercial sector.

The Beijing municipal government has emphasised the acceleration of these new forces, with significant achievements, such as producing the C919 aircraft and the large cruise ship Magic City.

Provinces and cities across China are also prioritising the development of new productive forces. For example, the 2024 Shanghai report emphasises building an international economic centre driven by technological innovation.

High-tech manufacturing in Shanghai grew by 8.8% in 2023, reflecting the citys ongoing commitment to fostering new productive forces.

Chinas development of new productive forces brings more opportunities to the world. On the one hand, this benefits all by promoting the worlds technological progress and avoiding homogenised competition with other countries.

On the other hand, Chinas technology spillover and industrial transfer bring more opportunities to developing countries. However, competing nations face challenges in matching Chinas rapid progress.

These include maintaining high levels of research and development investment, developing a skilled workforce, and creating a supportive policy environment for innovation.

Additionally, geopolitical tensions and trade disputes can affect the global supply chain, posing risks to the seamless integration of new technologies and industries.

In conclusion, Chinas strategy of nurturing new productive forces is a progressive approach that integrates the principles of structural transformation with contemporary technological innovations.

By fostering growth driven by innovation and efficiency, China aims to create more space and greater potential for economic expansion, ensuring that both new and traditional productive forces contribute to sustainable development. 

This strategic shift is essential for maintaining Chinas competitive edge in the global economy and achieving high-quality growth in the face of evolving challenges and opportunities.


This article is written by Busani Ngcaweni, director-general of the National School of Government in South Africa, released on News24, Sept. 8, 2024.