hen China released its major economic data for the first three quarters of 2019 in October, it caught widespread attention. China recorded GDP growth of 6.0 percent in the third quarter, the lowest in 27 years. Analysts projected that as the trade war with the US continues to weigh on the world’s second-largest economy, China’s economic growth rate could fall further in 2020.
But many Chinese analysts see some positive signs in the figures. For example, the data shows high-tech manufacturing output increased by 8.7 percent in the first three quarters of 2019, 3.1 percent higher than overall industrial output growth. Also, in the same period, investment in high-tech manufacturing and services increased by 12.6 percent and 13.8 percent, more than doubling the growth of the overall investment in the manufacturing and service sectors.
Since Chinese President Xi Jinping assumed power in 2013, China has highlighted the importance of upgrading its industries in response to problems from its investment and debt-driven development. Under this approach, in 2015 China launched the Made in China 2025 initiative, which focuses on 10 keynote high-tech industries.
But since US President Donald Trump assumed office, his administration has waged an escalating trade war with China which explicitly targeted the Made in China 2025 initiative. Since then, China has downplayed the initiative and refrained from using the term in official documents.
But with its defiant position in the trade war, China has become ever more determined to promote the role of technology and innovation in its economic growth.
In recent months, China’s leadership has championed the buzzword “new economy.” The concept, which originates from the internet boom of the mid-1990s, is often used to describe new, high-growth industries resulting from cutting-edge technologies and innovation that go beyond traditional industry.
The concept is not new for the Chinese leadership. In 2014, Xi used the term in a keynote speech, saying that the world is entering an era marked by the development of an emerging new economy. In 2016, China mentioned the new economy in its government report for the first time, saying that the new round of technological innovation presents a major opportunity for China.
Challenged with internal and external uncertainties, development of the new economy has become a top priority for the Chinese leadership. The New Economy Forum, a high-profile global forum co-hosted by Bloomberg and the China Center for International Economic Exchanges (CCIEE), a Chinese government-backed think tank, held in late November in Beijing, offered a glimpse of China’s high-tech strategy.
During the forum, Huang Qifan, former mayor of Chongqing and vice president of the CCIEE, highlighted the importance of digitalization, which he referred as “ABCD”: A for artificial intelligence, B for blockchain, C for cloud computing and D for big data.
Huang, who spearheads China’s digital economy initiatives, told NewsChina that the four fields will comprise a new internet platform that will not only inject vitality into the traditional economy, but also transform the fundamental production relationships of the entire economy. In the past couple of years, China has launched initiatives in all four areas. In 2017, Beijing laid out plans to become the world leader in artificial intelligence (AI) by 2030, aiming to increase its market to 1 trillion yuan (US$142b). More recently, China has rolled out AI applications, such as facial recognition technology, on a large scale.
China’s Alibaba Group Holding became the world’s fourth biggest cloud computing provider in 2019. Despite US efforts to dissuade countries from using equipment from Chinese firm Huawei, the company’s status as the world largest telecommunications gear maker appears to remain solid.
On November 1, China’s 5G network went online, two months earlier than its original 2020 target. All three of China’s major operators – China Telecom, China Unicom and China Mobile – unveiled 5G plans. Experts believe that China is on track to becoming the world’s largest 5G market.
According to Huang, the emerging digital economy will not only provide a new source of growth, but will help China achieve more balanced growth by addressing the development disparity between the prosperous coastal regions in eastern China and its inland western regions.
As the digital economy transforms the traditional production relationship, China’s inland regions will find new opportunities to catch up with coastal regions, Huang said.
For example, Southwest China’s Guizhou Province, one of the country’s most mountainous and poorest areas, has become a major center for big data thanks to its abundant and cheap hydroelectric resources. Ningxia Hui Autonomous Region in Northwest China, known for its arid land, is an established cloud-computing center powered by its booming wind and solar power infrastructure.
In October, the central government designated Xiongan New Area in Hebei Province, Zhejiang, Fujian, Guangdong and Sichuan provinces and the city of Chongqing as “pilot areas” for “national innovation of the digital economy.” Two of the pilot areas are located in China’s southwest.
During a Politburo symposium on November 25 on drafting China’s 14th Five-Year Plan (2021-2025), Chinese Premier Li Keqiang warned that the “external environment may become more complicated with increasing uncertainties and challenges” in the following years. He said that China is “at a crucial stage of transforming economic development modes, optimizing economic structures and converting growth drivers.”
While Li did not mention the digital economy particularly, considering that China’s 13th Five-Year Plan (2016-2020) already stressed the role of the digital technology and AI in the development of the country’s strategic technological development, the digital economy is expected to be among China’s top priorities for the next five years.
Among all the digital technologies, the nascent blockchain technology has attracted particular attention from China’s leadership. At a Politburo meeting held in November, Xi highlighted the importance of blockchain technology, saying that blockchain would play “an important role in the next round of technological innovation and industrial transformation,” and called for China to become a “world leader” and “rule maker” in the field.
Best known for its use in Bitcoin, blockchain has potential that goes far beyond digital currencies. According to Xi, with its capabilities in promoting data sharing, optimizing business processes, reducing operating costs, improving collaborative efficiency and building a trusted system, blockchain can be applied to public security, public transportation, crime investigation and anti-corruption campaigns, potentially making it a major feature in China’s governance. China’s blockchain ambitions are at direct odds with the US. Well aware of blockchain’s potential, the US Senate Committee of Commerce, Science and Transportation approved the Blockchain Promotion Act, which aims to lay the regulatory framework for blockchain technology and to see how the government could benefit from its use. In the meantime, US tech giant Facebook has been actively promoting its cryptocurrency Libra.
In a speech at the Bund Financial Summit in Shanghai on October 28, Huang Qifan laid out a vision for China’s own digital currency. Huang said that China has been developing a digital currency for six years, and it is likely to be the first country to launch a State-backed cryptocurrency, which he said would have the potential to replace the US SWIFT system. According to Huang, the SWIFT system, which has functioned as a global network for bank transactions for over 40 years, is not only outdated, inefficient and expensive to use, but also has been weaponized as a financial instrument for the US to exercise global hegemony and carry out long-arm jurisdiction.
Huang also cast doubt on the future of digital currencies developed by private firms such as Libra. “The basis of their issuance cannot be guaranteed, the value of the currency cannot be stabilized and it is difficult to truly form social wealth. I do not believe that Libra will succeed,” Huang said.
Huang did not offer a timetable for the release of China’s digital currency. But as China is still locked in a trade war with the US, which is partially fueled by a battle over technological supremacy in 5G and other technologies, China’s blockchain ambitions will no doubt draw new battle lines between the world’s two largest economies in the coming years.