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31 May 2024

China’s Quixotic Quest to Innovate

George Magnus

By now, the systemic problems that bedevil China’s economy are obvious. The country is suffering from slowing economic growth, stagnating productivity, a malfunctioning property sector, the misallocation and inefficient use of capital, debt-capacity constraints, and weak household income and consumer demand. But it is less clear how Beijing should fix these problems. Many economists outside China, as well as some inside the country, believe that it must recalibrate its development model by making it far more market-oriented and driven by consumer spending. Chinese leader Xi Jinping’s Chinese Communist Party (CCP), however, cannot accept the political and institutional changes that such a recalibration would require.

So Xi has chosen a different path: a growth strategy centered on industrial policy, aimed at boosting what he and the CCP call “new productive forces.” In Marx’s thinking, this phrase describes the process whereby major changes in technology clash with the existing economic order, enabling communists to overthrow it. For Xi, these new forces are the sectors now at the vanguard of scientific and technological development, such as clean energy, electric vehicles, and batteries—in which China already leads—as well as industrial machinery, semiconductors and computing, artificial intelligence and robotics, the life sciences industries, and biotechnology and pharmaceuticals. Xi’s ambition is for China to achieve self-sufficiency in all these sectors. Xi believes that by focusing on industrial policy and innovation, he can rescue China’s beleaguered economy, seize geopolitical opportunities to lead the twenty-first century’s new industrial revolution, and end the United States’ dominance in the international system.

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