New Kinetic Energy for the Development of China's Real Economy

Author: Zhong Wei, Zhang Bin, Zhong Zhengsheng

Hobbled by the subprime mortgage crisis and the COVID-19 pandemic，the global economy has slowed down amidst turmoil，and globalization has encountered challenges. Meanwhile，China's economy is accelerating its structural transformation and high-quality development，with a synergistic domestic-international dual circulation，and a gradual switch between old and new kinetic energy. Following the global economic recovery led by China's economy in 2020，China has adopted a more moderate macro policy in 2021，and the economic growth rate has gradually returned to about 6%. At a roundtable discussion organized by China Forex，Zhang Bin，Deputy Director of Institute of World Economics and Politics，Chinese Academy of Social Sciences，and Zhong Zhengsheng，Chief Economist of Ping An Securities，shared their opinions on new kinetic energy for the development of China's real economy. The conversation，which follows in edited form，was moderated by Zhong Wei，China Forex deputy editor.

Zhong Wei: Welcome both of you to this roundtable discussion. The rise of new kinetic energy is eye-catching. For instance，the new energy industry such as photovoltaic and wind energy has made considerable technological progress. In addition，the electric vehicle industry is witnessing the burgeoning electrification，intelligence，and networking of automobiles. There are also many highlights in the biopharmaceutical field. In this context，which areas of the real economy do you think are really changing? What fields in the real economy are really changing in your view? What is the prospect of the changes in terms of competitiveness and sustainability?

Zhang Bin: Since the reform and opening up，China's manufacturing industry has been upgrading step by step，from the rural industry in the 1980s，to the labor-intensive light industry in the 1990s，to the capital-intensive heavy industry in the first decade of the 21st century，and to the professional knowledge- and technology-intensive industry today，which is in line with the general law of industrial upgrading in other countries.

It is China's large domestic market that has given unique advantages to the upgrading of domestic manufacturing，making the industry more advantageous in reducing costs，increasing international competitiveness，and trial and error opportunities，and China is more likely to lead the world in versatile products such as household appliances，computer electronic products，and mobile phones. To be more optimistic，Chinese companies can take the lead in such fields as automobiles，chip manufacturing，and biopharmaceuticals as well.

There are several prerequisites to realize this optimistic prospect: First，it is important to maintain an open and competitive market environment. China must make full use of both domestic and international markets to promote industrial upgrading through spontaneous market competition. Second，the government must protect intellectual property rights. Protecting intellectual property rights means protecting innovation and investment in innovation，which is essential at the current development stage. Third，it is needed to strengthen the integration of basic scientific research and industrial development.

Zhong Zhengsheng: The new kinetic energy for China's stable and long-term economic development can at least be summarized in the following aspects.

First，"digital industrialization" and "industrial digitization". The National Bureau of Statistics of China has been releasing the New Kinetic Energy Index of Economic Development since 2015. The fastest-growing sub-item is the "network economy"，whose index in 2020 has reached 9.7 times of 2015，while the composite index only 3.7 times. The online demand generated by the COVID-19 outbreak has also boosted the digital economy. At present，on the one hand，China has achieved steady growth in the field of "digital industrialization" such as data infrastructure construction，and new models and patterns of digital consumption. Based on the advantages of huge market，China has formed world-leading business model innovation and has driven the cutting-edge innovation of digital information technology; on the other hand，digital technologies such as artificial intelligence，big data，and cloud computing are accelerating the integration with industries，and the manufacturing intelligence，"industrial digitization" and the continuous enhancement of digitization levels have become new kinetic energy to improve the total factor productivity.

Second，strengthening the "big country industry". From January to July this year，the two-year average growth rate of added value in China's high-tech industries reached 13.1%，6.4 percentage points higher than the overall growth rate of industrial added value; the two-year average growth rate of fixed asset investment in high-tech industries hit 14.2%，10 percentage points higher than the overall growth rate of fixed asset investment. Against the backdrop that US takes strategic suppression to China's science and technology，it is urgent to solve throttling technological problems and march from "big industry country" to "big country industry". The 14th five year plan proposes that share of fundamental study spending in the total research and development spending should be at around 8%; the Politburo meeting in July 30 further proposed to launch a special action on complementing and strengthening chains and foster professional，refined，special，new medium and small enterprises，which attached a new level of importance to strategic and high technology industry.

Third，the grand plan under the goal of "carbon neutrality". It is estimated that fixed asset investment demand of over 100 trillion yuan will be met with speed under the target of “carbon neutrality”. Achieving the carbon peak and carbon neutrality goals requires increased investment in fixed asset in two categories: one is emission reduction，and the other carbon absorption. The two-carbon policies will provide tremendous opportunities for related industries.

Zhong Wei: There are also some fields facing challenges，summarized into "one big and one small，one soft and one hard". "Big" refers to big airplanes，“small” to chips，“soft” to industrial software，and “hard” to the semiconductor industry chain. While the traditional manufacturing industry continues to improve its quality and efficiency，and emerging industries keep rising，what efforts should China make to remedy the shortcomings of the real economy，especi