China’s plan to speed up growth: A new slogan for building factories

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From the top of the government, China is vigorously promoting a plan to fix the country’s stagnant economy and repair the damage caused by its decades-long housing bubble.

The program has a fresh slogan, introduced by the country’s top leader Xi Jinping as “new, quality productive forces.”

But it has features that are familiar from China’s economic strategy: The idea is to promote innovation and growth through massive investment in manufacturing, especially in high-tech and clean energy, as well as strong spending on research and development. To do. And it has made some concrete provisions on how the government hopes to persuade Chinese households to reverse a long-standing slump in spending.

The country’s No. 2 official, Premier Li Qiang, presented the plan in a speech on Sunday to chief executives from around the world who gathered in Beijing for the country’s annual China Development Forum. “We will accelerate the development of new, quality productive forces,” he said at the forum’s opening ceremony.

Started in 2000, the China Development Forum is designed to explain to corporate leaders the economic plan set out by the Prime Minister on March 5 each year.

In previous years, the Forum had featured a lengthy, closed-door discussion with chief executives, where the Prime Minister answered a number of questions. But the prime minister’s talks, usually on the last day of the event, were canceled without explanation this year, leading some chief executives to skip Monday and schedule their private jets to fly on Sunday evening. .

The China Development Forum used to include a fairly open discussion of economic policies by Chinese corporate leaders and ministers the day before the opening ceremony, but that did not happen this year.

Evan Greenberg, chairman and chief executive of Chubb Group, a large US insurance company, co-hosted the opening of the conference on Sunday. The list of attendees included Apple Chief Executive Tim Cook, who spent the past week trying to reinvigorate iPhone sales in China, as well as Australian mining giant BHP Chief Executive Mike Henry.

In his speech, Mr Lee called for increased manufacturing and increased services and consumption. He repeatedly called on Chinese households to replace old cars and home appliances, but did not say whether the government would provide funding to help them do so.

Consumer spending in China has slowed as apartment prices fell by a fifth in the past two years, according to semiofficial data. The number of housing transactions has also declined. Homeowners complain that they will have to cut their prices in half if they want to find buyers.

Real estate represents 60 to 80 percent of household wealth, a much larger share than in most countries. So the near collapse of the housing market has left many families feeling less well off and struggling to meet mortgage payments.

Mr Lee mentioned real estate and a related problem, local government debt, only briefly during his discussion of the risks. He said, risks and challenges have not defeated us in the last four decades.

Mr Lee said the government would consider providing legal residence to more than 250 million people from farming families who have permanently moved to cities but are not qualified to reside there. Cities offer far more medical, retirement, and educational benefits than rural areas.

But Mr. Lee did not explain how city governments, already strapped for cash, could provide these costly benefits.

The mantra of “new, quality productive forces” is partly intended to address concerns in China and abroad that US-led restrictions on high-tech exports to China could stunt its growth. In briefings before the forum, officials emphasized that manufacturing represents a large share of the country’s economy – more than double the share in the United States.

“In China, you can see it is growing steadily and much higher than other countries,” Shi Dan, director general of economics at the Chinese Academy of Social Sciences, a government ministry, said at a briefing.

China’s trading partners are concerned that more manufacturing would potentially lead to more Chinese exports. The European Union is preparing to impose tariffs on electric cars coming from China. The EU Chamber of Commerce released a report last Wednesday warning that the policy could lead to deindustrialization in Europe, as European companies may not be able to compete with government-backed Chinese businesses.

Companies that have relied on selling goods to China to build housing and infrastructure are watching closely as the doubling down on high-tech manufacturing.

Andrew Forrest, executive chairman of Australian iron ore mining company Fortescue, said China will inevitably continue to spend heavily on infrastructure, including roads, rail lines and ports.

“The infrastructure situation will really be no different, it will just be an emphasis on manufacturing,” he said in an interview.

Chinese officials have made many promises to stabilize the housing market, but have offered few details on how to do so.

Li Xuesong, another director general of economics at the Chinese Academy of Social Sciences, said at a briefing that local governments could provide more apartments for public sector workers. But he did not explain how local governments, many of which are deeply in debt, would pay for these apartments.

Following a recent decline in sales of public land to real estate developers, many local governments have had to cut salaries of municipal workers and have required aid from Beijing to make interest payments. The Chinese Finance Ministry has launched a program to help some cities with their debts provided they cut back on expensive but popular programs to build infrastructure.

Helping consumers afford more is important, Wang Dan, chief China economist at Hang Seng Bank’s Shanghai office, said at an online conference organized by the International Finance Forum, affiliated with China’s central bank. “Direct cash transfers will still be the most effective method,” he said.

At present, the emphasis in China is on strengthening the supply and quality of goods and not on worrying about demand.

“The pace of investment growth in new driving forces is good,” said Liu Sushe, deputy head of the National Development and Reform Commission.

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