What does Xi’s hi-tech push mean for China?

‘New quality productive forces’, with its focus on science and technology, is seen as the answer to China’s economic woes, with the potential to transform society
However, outside the establishment, there is confusion and scepticism surrounding the puzzling catchphrase

The new buzzword in China’s politics is “new quality productive forces”. First used by President Xi Jinping last September, the cryptic phrase is now on every official’s lips, seemingly becoming the answer to China’s economic troubles.

Unfortunately, few outside the establishment understand what it means. Some have dismissed it as a wordplay to mask Beijing’s inadequacies to revive its growth trajectory. History will tell whether the Chinese leadership can succeed in creating these forces, but the phrase is not as empty as some believe.
In classic economics, there are four factors of production: capital, labour, land and entrepreneurship. China’s economic miracle during the past four decades could be explained in terms of the growth of these factors.

Between 1980 and 2017, China’s foreign direct investment increased by more than 90 times, making it by far the top recipient among emerging markets. Similarly, when China first started its economic reforms in 1978, its population was around 960 million. By 2017, it had reached nearly 1.4 billion, adding more than 10 million newborns each year despite restrictive birth-control policies.
This provided a huge pool of young, energetic and hardworking people to power the country’s growth. At its peak, there were nearly 300 million migrant workers – almost the size of the entire population of the United States – leaving their rural homes and going to work in Chinese factories.

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Back in 1978, most Chinese people lived in villages – the urbanisation rate was only around 18 per cent. By 2017, this number stood at 58 per cent.
As for entrepreneurship, the country’s mode of business ownership has shifted from Maoist collectivism to a kaleidoscopic mix of all sorts of market entities. At the end of 2022, around 52.8 million enterprises were registered in China, compared to around 23.2 million enterprises in Europe.

At the risk of oversimplifying, this is the formula of China’s success: local governments using cheap land to attract foreign investors to set up factories and creating jobs that absorb the vast surplus labour in rural areas. Products were sold to Western markets. The trade surplus was then used to finance the country’s infrastructure projects. The China miracle is largely a story of the amazing quantitative increase in the four factors of production.

Yet, everything comes to an end. After 40 years, it is hard to see how China can continue this course. Foreign investment dipped for the first time last year. Even if this is just a blip, when many people are convinced it isn’t, it is implausible for Chinese foreign investment to grow at double digits every year.
China’s working-age population – those between 16 and 59 – is also decreasing. With low birth rates and a rapidly ageing society, the demographic dividend might disappear soon.

The same goes for land. The country’s economic growth has exacted a heavy price on its environment. While China is still pushing for urbanisation, how to safeguard its precious farmlands and natural resources has become a challenge to the nation’s food and resource security. With all four factors hitting bottlenecks, China needs to find a new formula to power its growth.

In Marxist theory, technology is the primary aspect of the productive force. It is the qualitative amplifier that will not only raise productivity but also transform the relations of production. A company of 10 people working on computers – all other factors being equal – will produce vastly different products and services from those working with pen and paper.

The “new quality” refers not only to the tools of production but also to workers’ training, a new relationship between various factors, and new services rendered to the consumers.

As the quantitative growth of production factors comes to near exhaustion, China must find the qualitative amplifier to lift its economy to the next stage. Hence Xi’s new favourite buzzword, “new quality productive forces”.

From Deng Xiaoping to Jiang Zemin and Hu Jintao, all of Xi’s predecessors have put science and technology at the centre of their development strategy. But the China of back then lacked the wherewithal required to transform itself from a mere follower to a pioneer.

Modern research is costly and capital intensive. While science and technology’s importance to a modern economy has always been great, its impact has reached an unparalleled extent today and the pace of technological advancement is accelerating. The advent of artificial intelligence, nuclear fusion, new biotechnology and new materials all promise to revolutionise our sociopolitical fabric. All these create new conditions and substantial challenges for today’s leadership.

The concept is about more than the economy. Marxists view technological advancements as the driver in the evolution of modes of production, which in turn will shape and transform the economic structure of society, relationships among classes and ultimately the way we organise and govern ourselves.
To Xi, the survival of the Communist Party depends on whether it can seize the opportunities of these revolutionary changes and take measures to mitigate the negative effects. The party cannot afford to passively react to the changes but needs to take the lead and shape the development.

It is by all means a grand and ambitious goal. Understandably, it will be met with scepticism and doubt. It will also test the popular wisdom that you cannot have innovation by decree and that the very nature of disruptive innovation means a bottom-up creative process.

Yet, it could also be argued that without the government-led and financed Manhattan Project, the Apollo programme or Vannevar Bush’s tireless work that created the foundation for the age of the internet, the United States might not be the science and tech power it is today. If Xi can succeed in his endeavour, history will remember him as a truly transformative leader.