As ‘Made in China 2025’ draws to a close and property-driven growth stalls, the question remains how China will continue to produce such high GDP growth figures, which have not dropped below 5% annually since 1990 (excluding the pandemic). This article will explore the drivers of growth so far and how the Chinese Communist Party (CCP) intends to address the next stage of the nation’s development.
‘Made in China 2025’ is an industrial plan launched by the CCP in 2015 to generate ‘innovation-driven development’, in an attempt to bolster its value-adding capabilities in the global supply chain. According to the South China Morning Post, the scheme can broadly be characterised as a success, with its most underperforming sector, new materials, still completing 75% of its objectives by last year. Furthermore, some areas such as renewable energy and Electric Vehicle (EV) production has surpassed expectations. For example, this year, EV sales were expected to reach 3 million, but even in 2023 this nearly surpassed 10 million.
Moreover, for the first two decades of the 21st century, China’s property market drove a quarter of GDP. Then, after a government crackdown on borrowing in 2020 in an attempt to alleviate spiralling developer borrowing, the property crisis began. The first and most famous default by a real estate developer was Evergrande Group in late 2021, which held $300bn of liabilities. The slowdown in property-driven growth has underlined the need to seek alternative sources of growth moving forward.
What are these new sources? A HSBC report indicates that while ‘New Economy’ industries such as GenAI and renewables remain small and will therefore need to be supplemented with traditional drivers such as infrastructure in the near term, thanks to ‘Made in China 2025’, the country holds a commanding position in these sectors. For example, 90% of the world’s production of solar glass is located in China, and EV passenger vehicle penetration is due to reach the same percentage by 2030. It also notes a large scope for Chinese businesses to expand abroad, as overseas revenues of the CSI 300 are only 10.3%, compared to 78.8% of the FTSE Germany index.
However, geopolitical tensions may still stymie an international growth model. As JP Morgan has pointed out, China still faces many external challenges from a Trump presidency and escalation of the trade war, given its reliance on exports to drive growth. Although only 15% of this is tied to the US, America is China’s largest trading partner by some margin, and exports even account for around 4% of China’s GDP. Protectionist tariffs from the EU have followed a similar path, hitting some EV manufacturers with 37.6% duties.
Therefore, in spite of domestic and international challenges in the near future, China’s growth outlook still looks optimistic. However, with annual GDP growth predicted to drop to 3.31% by 2029, it is unlikely to replicate the outstanding growth figures seen earlier this century.
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