How China Is Rewiring Its Faltering Economy

Summary

China is transitioning its economic focus from a sluggish property market and low productivity in heavy industry to high-tech, sustainable industries like solar panels, semiconductors, biopharmaceuticals, and AI. This shift aims to enhance China's global economic and geopolitical standing. The success of this strategy is evident in the growth of industries such as solar panel manufacturing and electric vehicles, supported by consistent government policy. Despite facing challenges from domestic market issues and international protectionist measures, China is determined to achieve self-sufficiency and maintain significant global economic growth.

Takeaways

• 🏗️ China is transitioning from a property-driven economy to a high-tech and sustainable one.
• 🔋 The focus is on new energy technologies, including solar panels, batteries, semiconductors, and biopharmaceuticals.
• 🚗 China's electric vehicle (EV) industry is booming, with companies like BYD leading the global market.
• 🌞 GCL Technologies, a major player in solar panel manufacturing, is innovating with more efficient production methods.
• 📈 China aims to make 'Made in China' a mark of quality and innovation, moving away from its reputation for cheap, low-quality goods.
• 🛠️ The Chinese government supports this transformation with consistent policy support, including cheap land, credit, and easy environmental permitting.
• 🌍 The shift aims to strengthen China's position as a global economic and geopolitical leader.
• 📊 The transition includes moving away from heavy reliance on property and infrastructure towards technology sectors.
• 🔧 Protectionist measures from the US and Europe may challenge China's tech industry growth but also fuel its push for self-sufficiency.
• 🏠 China's declining property market and its effects on consumer confidence present challenges to this economic shift.

Q & A

What is the new economic focus for China according to the script?

China is focusing on creating a high-tech, clean, lucrative, and sustainable economic engine, with industries such as new energy (solar panels and batteries), semiconductors, biopharmaceuticals, and artificial intelligence.

Why does China need a new economic engine?

China needs a new economic engine because the prolonged slump in its property market is dragging down consumer confidence and affecting the economy, which is also suffering from low productivity in heavy industry and cheap manufacturing.

What role did the property market and infrastructure play in China's past economic growth?

The property market and infrastructure played a significant role in driving China's demand and growth over the past four decades by expanding urbanization and positioning China as the world's manufacturer of choice for cheap, mass-produced goods and materials.

What is the significance of GCL Technologies in China's new economic plan?

GCL Technologies, located in Xuzhou, China, is significant for its breakthrough in manufacturing granular silicon, which uses significantly less electricity to produce compared to existing methods. This innovation aligns with President Xi Jinping's goal for high-tech and greener manufacturing.

What are 'the new three' priority areas of growth for China?

'The new three' priority areas of growth for China are solar panels, electric vehicles (EVs), and lithium-ion batteries.

How is China's electric vehicle industry performing?

China's electric vehicle industry is booming, making it a global auto heavyweight. BYD, based in Shenzhen, is China's best-selling car brand and is on track to become the biggest seller of EVs globally.

What challenges does China face in its push for technological self-sufficiency?

China faces challenges such as geopolitical tensions, protectionist measures from the US and Europe, and domestic issues like the declining property market, which affects consumer confidence and the overall economy.

How has the Chinese government supported its high-tech industries?

The Chinese government has supported its high-tech industries with consistent policy support, cheap land, cheap credit, and easy environmental permitting, allowing these industries to grow and dominate globally.

What impact has the housing market crash had on Chinese consumers?

The housing market crash has reduced consumer confidence, as buying property was one of the most successful ways for Chinese investors to save for the future. This reduction in confidence has led to consumers tightening their belts despite the ramp-up in production.

What is the expected transition in China's industrial contributions to GDP?

The expected transition in China's industrial contributions to GDP involves a decline in the property's contribution and a rise in technology sectors, driven by innovation in areas like solar panels, electric vehicles, and batteries.

How does China's new economic strategy compare to South Korea's past economic transition?

China's new economic strategy is similar to South Korea's past transition from heavy industry to technology, which made South Korea one of the world's biggest exporters. However, unlike South Korea, China faces the challenge of insufficient global demand to absorb all of its exports and lacks an alliance with Washington.

What are China's goals for its economic growth rate and per-capita GDP?

China aims to boost its per-capita GDP from the current level and maintain an economic growth rate of about 5% per year. Achieving these goals is expected to ensure solid growth for many years and contribute significantly to global growth.

Outlines

00:00

🚀 China's New High-Tech Economic Engine

China is transitioning from its traditional economic drivers like property and heavy industry to a new, high-tech economy focused on sustainable and innovative industries such as solar energy, semiconductors, biopharmaceuticals, and AI. This shift is crucial for China to potentially surpass the United States as the world's largest economy and geopolitical force. Policies and support from the government have helped companies like GCL Technologies in Xuzhou to innovate and dominate global markets in areas like solar panel manufacturing, positioning 'Made in China' as a badge of honor.

05:00

🏠 Challenges and Ambitions Amidst Property Market Decline

Despite its high-tech aspirations, China faces significant challenges, including a declining property market that affects consumer confidence and overall economic stability. The Biden administration's strict export controls on chip technology further hinder China's semiconductor industry. The housing market crash has reduced consumer confidence, evident in decreased consumer spending despite increased production. Xi Jinping's ambition to shift China's economy towards high-tech industries is critical, but the property market decline presents a major obstacle to this transformation.

Keywords

💡Economic Engine

An 'Economic Engine' refers to the driving force behind economic growth and development. In the script, China's new economic engine focuses on high-tech, clean, and sustainable industries to replace the declining property market. Examples include solar panels, semiconductors, and electric vehicles.

💡Consumer Confidence

'Consumer Confidence' measures how optimistic consumers feel about their financial situation and the overall economy. The script mentions that the slump in China's property market is lowering consumer confidence, affecting economic stability and growth.

💡High Tech Industries

'High Tech Industries' are sectors that rely on advanced technological development and innovation. The script highlights China's shift towards high-tech industries like AI, new energy, and biopharmaceuticals to drive future economic growth and compete globally.

💡Sustainable Growth

'Sustainable Growth' refers to economic development that meets current needs without compromising future generations' ability to meet theirs. China's focus on renewable energy and eco-friendly manufacturing, such as solar panels and granular silicon, aims to achieve sustainable growth.

💡Polysilicon

'Polysilicon' is a material used in the production of solar panels. The script discusses GCL Technologies' breakthrough in producing granular silicon, a more efficient and eco-friendly form of polysilicon, which aligns with China's goal of dominating the global solar panel market.

💡Electric Vehicles (EVs)

'Electric Vehicles' are automobiles powered by electric motors instead of internal combustion engines. China's booming EV industry, exemplified by BYD, is making it a global leader in the automotive market, contributing to the country's economic transformation.

💡Lithium-ion Batteries

'Lithium-ion Batteries' are rechargeable batteries used in electric vehicles and various electronic devices. The script highlights their importance in China's new economic focus, with advancements in battery technology driving growth in the EV and electronics sectors.

💡Protectionism

'Protectionism' involves government actions and policies that restrict international trade to protect domestic industries. The script notes protectionist measures from the US and Europe, like tariffs on Chinese products, which impact China's tech ascent and push for self-sufficiency.

💡Self-Sufficiency

'Self-Sufficiency' is the ability of a country to produce everything it needs without relying on imports. In response to external pressures and tariffs, China is striving for self-sufficiency in key technologies, such as semiconductors and advanced manufacturing.

💡Urbanization

'Urbanization' is the process of people moving from rural areas to cities, driving economic growth through increased demand for property and infrastructure. The script mentions that China's past growth was fueled by urbanization, which is now shifting towards high-tech industries.

Highlights

China is building a new high-tech, clean, lucrative, and sustainable economic engine to replace its declining property market and low-productivity industries.

Beijing's new focus areas include new energy, semiconductors, biopharmaceuticals, and artificial intelligence.

China's transformation over the past four decades from one of the poorest countries to the second-biggest economy was driven by property and infrastructure.

The shift from mass-producing cheap goods to high-quality, innovative products is part of President Xi Jinping's vision for 'Made in China' to become a badge of honor.

GCL Technologies in Xuzhou has become the world's only commercial maker of granular silicon, a cheaper and greener material for solar panels.

China now dominates global solar panel manufacturing, thanks to consistent policy support and backing from the government.

The 'new three' priority growth areas for China include solar panels, electric vehicles (EVs), and lithium-ion batteries.

BYD, based in Shenzhen, is China's best-selling car brand and the biggest global seller of EVs.

China's EV industry produces high-quality products at much cheaper prices than competitors, appealing to both domestic and global markets.

Xi Jinping's economic strategy includes pushing for self-sufficiency in key technologies, with implications for national security and military capability.

The Biden administration's export controls on advanced chips have impacted China's semiconductor industry, highlighting the geopolitical tensions.

China's declining property market has reduced consumer confidence, impacting companies in steel, cement, and other sectors.

China needs to boost domestic consumption and reduce its reliance on exports to sustain its growth.

Innovation in high-tech sectors is crucial for cities like Xuzhou to transition from traditional industries to modern, sustainable ones.

China's economic transformation mirrors South Korea's successful shift from heavy industry to technology, aiming for sustainable, long-term growth.

China's leaders aim to boost per-capita GDP and maintain a 5% annual growth rate, contributing significantly to global economic growth.

Transcripts

China is building a whole new economic engine,

and it's a lot shinier than the last one.

The prolonged slump of China's property market is dragging down consumer confidence

and weighing on an economy already suffering from the effects

of low productivity in heavy industry and cheap manufacturing.

So Beijing needs a replacement and it's focused on creating a high tech, clean, lucrative and sustainable one.

You're looking at creating

new energy, like solar panels, or batteries, or

building semiconductors,

biopharmaceuticals, you're looking at A.I..

All industries the world's major economies want a piece of

and will compete for control of.

It's crucially important

for China's

ability,

potentially, to overtake the United States

as the world's biggest economy

and most potent

geopolitical force.

And Beijing's plan is starting to pay off.

Over the past four decades, China transformed from one of the poorest countries in the world, to its second-biggest economy.

A lot of that was driven by property and infrastructure.

Urbanization drove expansion of property and infrastructure-building, which was very powerful in sending China's demand and growth much higher over the past many years.

So was the country's role as the world's manufacturer of choice for cheap, mass-produced goods and materials.

But this familiar branding? It became something of a punchline -- a derisive nod to China's exports being poor-quality versions of Western products.

President Xi Jinping intends to change that -- for "Made in China" to become a badge of honor.

And that will rely on cities like this.

We're here at GCL Technologies' home base in Xuzhou, China, about halfway between Beijing and Shanghai. GCL is the world's second-leading producer of polysilicon -- the key material for solar panels.

And it hit on a manufacturing breakthrough that helped it become the world's only commercial maker of this stuff --

granular silicon -- which uses significantly less electricity to produce compared with existing methods.

It's cheaper and greener to make cutting-edge solar panels with -- exactly the kind of high tech innovation President Xi Jinping wants.

Over the past decade, China has

given consistent policy support and

has helped back companies with cheap land, cheap credit,

easy environmental permitting.

It's seen its industry grow and grow and grow to the point where now it absolutely dominates global solar panel manufacturing.

Solar panels are just one of "the new three," as Xi Jinping's government dubbed its priority areas of growth.

Electric vehicles are one of the others.

And the country's booming EV industry is making it a global auto heavyweight.

BYD, based in the southern Chinese tech hub of Shenzhen, is China's best-selling car brand,

and it's on track to once again become the biggest seller of EVs globally.

China is producing these products

at much cheaper prices than its competitors,

but also the quality. If you look at Chinese consumers, when they face both Tesla and domestic brands, which one they choose,

the domestic brand is by no means inferior.

And inside them, the final member of Xi's new three: lithium-ion batteries --

used to power EVs, but also products you can attach to a drone or a dog.

Together, the new three have driven the rapid growth in the value of China's exports, underpinned by that all-important policy support.

When Xi Jinping and his team identify a new priority,

they can point

banks at providing

the finance

and businesses

at acquiring

the technology

to try and get them

to where they want to go.

This has not gone unnoticed.

Obviously, we're facing a very different geopolitical environment

with all the tariffs talks being ramped up.

We're starting to hear the actual figures that Europe is planning on doing when it comes to tariffs and EVs from China.

25% tariff on Chinese steel and aluminum products, and we'll counter China's overcapacity in these industries.

Protectionist salvos from the US and Europe may slow China's tech ascent, but they're also fueling Xi's push for self-sufficiency.

And that's not just about economics,

Key technologies

aren't just good for growth.

They also have direct national security implications.

The bigger the Chinese economy is,

the more they're going to be able to pay

for a capable military.

You'll have heard of at least one company that knows this all too well.

Huawei had had to back out of the smartphone market because it didn't have access to the most advanced chips.

So it developed its own instead. And the tension escalated.

The Biden administration, of course, has imposed these very strict export controls on what kinds of chips, what kinds of chip-making equipment, can be sent to China.

And so on.

It meant that despite Huawei's chip breakthrough, China's semiconductor industry is still behind global leaders.

Xi's big push is facing domestic challenges, though, too.

That declining property market we saw earlier has a ripple effect, hitting companies that produce steel and cement, as well as ordinary people.

Chinese investors don't have a ton of ways to put their money away for the future. One of the most successful in recent decades has been buying a house and seeing that value get

better and better and better over time.

And so the crash in the housing market,

it's reduced consumer confidence.

You can see that clearly on this chart. Over the past five years, while China's factories ramped up production, consumers tightened their belts.

China can't continue on its development path

by producing too much,

consuming too little,

and expecting

the US consumer

to pick up

the slack.

For Xi Jinping

and his aspiration

to drive China's new productive forces,

that could be a significant problem.

Back here at GCL, the solar technology company in Xuzhou, innovation is helping its parent city transition toward high tech sectors, away from a long-standing reliance on mining and heavy industry.

But take a look at this analysis from Bloomberg Economics of industrial contributions to China's gross domestic product.

The data show the same transition is expected to take place across the country, with property's contribution to GDP continuing to decline, but technology sectors rising to fill the gap.

What the push for this economic transformation here in China means

is that

no longer

is China's future going to be dependent on

taking something the rest of the world made and producing it cheaper,

and quicker, and reselling it to everybody else. What you're seeing now in solar panels,

companies like GCL, in electric vehicles and batteries, is that Chinese companies are at the forefront

of bringing new products to market.

It's a blueprint South Korea knows well.

It pivoted from a reliance on heavy industry to technology, and became one of the world's biggest exporters, fostering popular household names in the process.

While Japan and Korea

could

export their way

to high income,

it's just much harder for China to do that because there's just not enough global demand

to absorb

all of the Chinese exports.

Beijing also isn't an ally of Washington, unlike Seoul.

Still, Chinese leaders have set an ambitious goal of boosting per-capita GDP from the current level and maintaining a growth rate for the economy of about 5% a year.

I think if China gets it right

from a growth point of view, China can maintain a

solid pace of growth for many years to come. And because of China's sheer size,

its contribution to global growth

will be important

on the global stage.