The ongoing struggle of the world’s second-largest economy against multiple challenges, such as geopolitical tensions with the West, troubled property sector, overcapacity in the manufacturing industry, and local government indebtedness to sustain economic growth, would lead many to believe that it is fading rapidly, even if it is not over yet.

However, the dragon country seems to be undertaking strategic economic planning to mark a new phase of transition by transforming its development model as it has done repetitively in the past five decades to stay on the growth trajectory.

Delivering his maiden work report at the National People’s Congress, Chinese Premier Li Qiang has announced an ambitious 2024 economic growth target of five per cent, vowing a new leap forward through accelerated industry modernisation and “development of new quality productive forces”, which means a “systematic shift to high-end, smart and clean manufacturing industries” by diverting more resources for tech innovation as Beijing seeks to curb industrial overcapacity.

The term actually refers to China’s plan to leverage science and technological innovation to generate new industries and speed up the country’s economic development. The emphasis on the quality productive forces — the electric-vehicle supply chain, artificial intelligence, renewable energy, advanced infrastructure and cutting-edge semiconductors — isn’t new.

Investment from Beijing can flow into the industrial sector with the right policy incentives

The new quality productive forces are already a success story in China, as evident from the electric vehicle (EV) boom that displaced Japan as the world’s largest vehicle exporter last year and its record installations of solar panels amounting to more than ever built by the United States or any other country.

China’s exports of electric vehicles, lithium batteries, and solar photovoltaic products increased by nearly 30pc to $150 billion last year. The country accounted for more than 60pc of the world’s total EV production and sales and over 50pc of the world’s renewable capacity addition in 2023.

In line with its strategic goals of transforming the development model, Beijing has boosted its budget for science and technology by 10pc to an unprecedented $51.6bn — the biggest increase since 2019.

The emphasis on self-reliance in science and technology comes after the United States tightened control over the export of cutting-edge technologies to China, particularly in artificial intelligence (AI), which Washington said could be used to strengthen the Chinese military.

The Biden administration has restricted American companies from selling advanced semiconductor chips to China and banned US investment in sensitive technologies, including AI, quantum computing, and semiconductors, in China.

The government work report that reviews China’s achievements in 2023 and sets goals for 2024 targets 5pc growth, 12m urban jobs with an urban unemployment rate of 5.5pc, and a reduction in energy consumption per unit of GDP of about 2.5pc.

Additionally, it has set a deficit-to-GDP ratio of 3pc and plans to issue special-purpose bonds of $540bn for local government and invest $98bn from the central government budget. Beijing will also lift all foreign investment restrictions in manufacturing to woo back foreign capital.

Last year, according to the work report, the Chinese economy had generally recovered as it made breakthroughs in core technologies and continued to deepen reform as its GDP expanded by 5.2pc to $17.5 trillion, ranking China among the fastest-growing major economies in the world.

Opportunity for Pakistan

China’s emphasis on the development of new, high-quality productive forces and its systematic shift to high-end, smart, and clean manufacturing industries bring new opportunities for Pakistan.

Zafaruddin Mahmood, Pakistan’s first Consul General at Shanghai, who currently heads a think tank, Understanding China Forum, says Chinese businesses are actively looking to relocate to other countries.

This is because China is focusing on new quality productive sectors while circumventing Western restrictions. Labour costs in China are also rising as workers graduate to higher-paying jobs. Other reasons include Beijing’s policy to push out the sunset industries due to overcapacity, rising production costs, environmental factors, etc.

“The trend of relocating offshore among Chinese manufacturers presents a significant opportunity for Pakistan’s economy as well. For now, the Chinese focus seems to be on venturing into Vietnam, Myanmar, Cambodia, Indonesia, and Bangladesh rather than Pakistan.

“We could get China’s firms to relocate their manufacturing here if we tackle the policy issues impeding Chinese investors, build special economic zones and offer them incentives like the other countries,” he adds.

He is of the view that by creating a special zone for Chinese investors at the vast land of the steel mills in Karachi and handing over its management to the Chinese could attract massive Chinese foreign direct investment (FDI) inflows and easily boost our exports by $8bn-$10bn within three to five years.

“Now it is for Islamabad to address the Chinese concerns on policy issues, provide developed infrastructure, ensure the security of Chinese personnel, and announce liberal tax and other incentives for joint ventures between Chinese and Pakistani investors to attract FDI flows from Beijing in the industrial sector to boost exports and substitute imports for longer-term economic stability, job creation and poverty reduction.”

Published in Dawn, The Business and Finance Weekly, March 11th, 2024