China’s “New” Strategic Industries Will Not Produce 5% GDP Growth | Report

cross-posted from: https://lemmy.sdf.org/post/48941079

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TL;DR:

• China’s high-technology industries will not generate investment sufficient to power 5% GDP growth in the years ahead, an analysis of input-output tables newly released by China's National Bureau of Statistics (NBS) reveal
• The reason is that the country's technology sector is too small relative to the property and infrastructure investment that are in sharp decline
• This suggests that China will become even more dependent upon gaining market share in export markets, in both new and traditional industries
• China’s past economic performance has clearly been overstated, particularly since the decline of the property sector starting in 2022

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Based on this new dataset and secondary industry-specific sources that include Rhodium Group’s Global Clean Investment Monitor, the estimated decline in economic output from China’s older industries has been around six times larger than the impact of the pickup in new growth drivers over the past two years, from 2023 to 2025. Admittedly, there are considerable uncertainties around some of these industry-specific estimates of output, but these are unlikely to change the overall conclusion.

Output in the property sector, some components of infrastructure investment, and conventional internal combustion engine (ICE) vehicles declined as a proportion of GDP by around six percentage points, from 23% to 17%. The pickup in output from new energy vehicles (NEVs), lithium-ion batteries, solar technology, artificial intelligence, robotics, and new electric power construction was less than one percentage point of GDP, from 5.5% to 6.3%. The new growth drivers have a little more than one-third the impact of traditional industries, even with a much smaller property sector after four years of contraction.

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China’s chosen economic development strategy will not produce Beijing’s targeted rates of economic growth for the next five years, or longer. Real GDP growth of 5%—Beijing’s targeted level in recent years and likely its goal for 2026—would require at least 2 percentage points of growth from new fixed capital formation (investment) every year, which is around what China has been officially reporting in recent years.

Electric vehicles have likely already reached their fastest rates of growth, and output in the industry may be slowing in the years ahead. Even if there is no contraction in property, infrastructure investment, ICE vehicles, or any other sector, the remaining “new” industrial sectors (excluding NEVs) would have to expand roughly sevenfold over the next five years to produce 2 percentage points of overall investment growth per year. For 2026 alone, this would require around 2.8 trillion yuan in new investment on top of last year’s levels, or around 120% more than the 2025 estimated level of 2.3 trillion yuan in total investment in these sectors (excluding the NEV sector).

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China’s past economic performance has clearly been overstated, particularly since the decline of the property sector starting in 2022. We have made this case extensively (See December 2025, “China’s Economy: Rightsizing 2025, Looking Ahead to 2026”), but the new analysis highlights that no other source of investment has offset the decline in property and infrastructure in particular. If these “new quality productive forces” have not produced the required economic offset so far, it remains to be seen what other industries could have possibly filled in the gap over the past four years.

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China will remain even more reliant upon exports in the future, leaving the economy vulnerable to new trade restrictions. China’s development strategy and economic growth targets remain dependent upon investment and exports, but there is no clear prospect for domestic investment to produce the necessary demand to reach targeted growth rates, even in newer industries. This means that Beijing will become even more dependent upon gaining market share in export markets, in both new and traditional industries. The likely impact will be additional exported deflationary pressures via goods prices from China. If reducing trade imbalances is a priority, Beijing’s trading partners will need to consider broader restrictions on China’s exports.

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China’s shift to “new” industries will keep employment and consumption under pressure. Based on recent national economic census data, employment in the construction and property sectors increased from 72 million to 87 million from 2018 to 2023, or from 9% of total employment to 12%. With these traditional sectors collapsing over the last three years, associated job and income losses should be significant. At the same time, labor demand from higher-wage new industrial sectors was much weaker. Median employment per firm among A-share listed chip and cement companies we surveyed was 830 and 20,174 people respectively, even though average salaries were three times higher within chip firms relative to cement producers. Nor is there likely to be a meaningful redistribution of wealth through China’s tax system, which depends heavily upon value-added taxes. The shift to newer industries is likely to be marked by lower levels of new employment and consumer spending.