[Analytics] China unveils high-tech spending spree

China’s high-speed rail network has expanded rapidly in the past decade. Photo: AFP. Sketched by the Pan Pacific Agency.

Wired up and ready to roll out another massive multi-billion-dollar high-tech spending spree. In two key announcements linked to the Made in China 2025 program, President Xi Jinping’s administration last week launched a wide-ranging technological drive. Gordon Watts specially for the Asia Times.

The broad brushstroke plan will help kickstart China’s slowing economy in the wake of the trade war with the United States. It will also harness cutting-edge sectors, such as artificial intelligence, or AI, smart manufacturing and renewable energy, in a frenzy of country-wide infrastructure projects.

“China’s economy is shifting from high-speed growth to high-quality development,” Ma Jiantang, the vice-president of the powerful State Council’s Development Research Center, said.

“It needs to rely on deeper reform, higher-level opening up and more integrated and efficient innovation to boost productivity and build a modern economic system,” he added.

Ma was the head of the National Bureau of Statistics and is considered a member of Xi’s economic brain trust. His comments came after the Development Research Center, the Ministry of Finance and the World Bank jointly released a major study entitled Innovative China: New Drivers of Growth.

The report recapped on the “remarkable” periods of expansion in the world’s second-largest economy during the past four decades. But the World Bank also warned that traditional “drivers” are running out of steam.

“China is now at a crossroads, with declining returns to public investment and rapid aging. Developing new [areas] of growth will require more efficient allocation of resources [while] unlocking new drivers will also require reforms to let market forces play a decisive role in allocating resources,” the World Bank said in a statement.

Dovetailing the report was Thursday’s policy document outlined by the State Council and Central Committee to beef up the nation’s transportation system by 2035.

Again, it was framed in ‘big picture’ language but light on details such as the overall cost for another major infrastructure push.

Crucial aspects include cutting commuting times within metropolitan areas to one hour and under two hours in “major city clusters.” Connecting mega-cities to high-speed rail networks in under three hours is another goal using AI, information technology and smart manufacturing.

“The industries that Beijing wants to use to improve transportation are the same ones it is looking to develop through its Made in China 2025 industrial policy,” Trivium China, the research group based in Beijing, pointed out.

While both initiatives will give the economy a shot in the arm, allocating the funding to include the cash-starved private sector has to be a priority.

Sprawling state-owned enterprises, or SOEs, have an insatiable appetite for soaking up financial support and government contracts along with privately-owned champions such as Huawei, Alibaba, Tencent, and Baidu.

Small- and medium-sized enterprises are usually left with the scraps as they struggle for investment.

A study compiled last year by the All-China Federation of Industry and Commerce revealed that more than 90% of new jobs in 2017 were created by private enterprises, generating 60% of GDP growth.

“At the end of that year, there were 65.79 million individually-owned businesses and 27.26 million private enterprises in China, which employed some 340 million people,” Gao Yunlong, the head of the ACFIC, told the official state-run Xinhua news agency.

The depth of the funding problem was illustrated by the China Finance 40 Forum when it called on Sunday for an overhaul of the existing system in its annual report.

Economic development

“[It] is clearly not well suited to the core task of current high-quality economic development. Therefore, an important task of financial reform should be to adjust the financial structure,” the Chinese think tank stressed at the weekend.

Huang Yiping, a professor of economics at the National School of Development at the prestigious Peking University, was the lead author and was even more pragmatic in his assessment.

“[Our] reliance on technological innovation for future economic growth has made changing the structure of the financial system an urgent matter,” Huang said.

For more than a year, the fallout from the trade conflict has acted as a brake on China’s slowing economy, which has been engulfed by dismal data during the past three months.

In August, growth dipped again across a broad range of sectors, from retail sales to industrial output, which plunged to a 17-year low. Big-ticket items such as new car sales have stalled while residential property prices have also suffered as consumer debt increases.

Moreover, the downturn is gaining pace just when Xi’s government is realigning the state-backed economic model to high-tech manufacturing and services. Consumption, not cheap, low-value exports is pivotal to Beijing’s blueprint.

“It is necessary for China to boost the country’s productivity. We need to carry out reforms to make the economy more efficient, competitive and productive,” Kun Liu, the Minister of Finance, said. “These reports provide valuable insights and recommendations that will help us develop a reform agenda for a more innovative and productive economic system.”

Yet his “opening up” remarks come at a time when Xi’s administration appears to be closing down, or curtailing, parts of a thriving private sector. Solving that conundrum will be critical to China’s future.

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