Justin Yifu Lin: Economic growth is sluggish? Developing new - quality productivity according to loc

Lin Yifu, Dean of the Institute of New Structural Economics, Peking University:

Dear friends,Good morning, everyone! It's a great honor to share my views on industrial transformation and economic development at this roundtable forum, which is crucial for my country's economy. Since 2010, my country's economic growth rate has steadily declined from 10.9% to 5.3% in 2023. After the COVID-19 pandemic ended in 2022, many expected a strong rebound in my country's economy in 2023, but the actual growth was only 5.2%. During this period, the stock market was sluggish, private investment was weak, consumer spending was sluggish, and youth unemployment was high. Coupled with the prevalence of theories about the "Chinese economy peaking" and "Chinese economy collapsing" abroad, many people are pessimistic about China's future development prospects. Regarding the current economic downturn, such as the sluggish stock market, low private investment, and weak consumer spending, I believe these are short-term problems; generally speaking, it reflects a lack of confidence. Regarding this lack of confidence, my country has ample room for fiscal, monetary, and financial policy adjustments. There is a consensus in domestic academia on this point. As long as these policy spaces are used effectively, we should be able to stabilize confidence and restore normal economic growth. Dean Tian Xuan has just given a very detailed account of the policy pronouncements made at the September 24th press conference by Pan Gongsheng, Governor of the People's Bank of China, Wu Qing, Chairman of the China Securities Regulatory Commission, and Li Yunze, Director of the Financial Regulatory Bureau. Combined with the series of measures taken at the Politburo meeting on September 26th, we can clearly feel that public confidence has recovered, especially in the stock market. I believe that a recovery in the Chinese economy is to be expected.

For our country, long-term economic growth remains crucial, as our goal is the great rejuvenation of the Chinese nation and to become an advanced socialist modern country by 2049. In terms of long-term economic growth, the most important factor is the continuous improvement of productivity. How can we achieve this? The key is that existing industries must continuously innovate technologically, and new industries with higher added value must constantly emerge. This is what has been discussed extensively since last year regarding the development of new-quality productive forces. I believe we have many opportunities in developing new-quality productive forces. For emerging industries of the Fourth Industrial Revolution, including artificial intelligence, big data, and life sciences, we are on the same starting line as developed countries, and we have three major advantages compared to other countries. First, we have a talent advantage. We graduate more than 5 million students annually in science, technology, industry, and mathematics, more than the combined total of the United States, Europe, and Japan. Second, we have a massive domestic market. Once technological innovations or emerging industry products are developed, the large domestic market allows for immediate economies of scale, giving them significant competitiveness in both domestic and international markets. Third, my country has the most complete manufacturing ecosystem. For any product or technology requiring hardware, China has the most complete supply, ensuring the lowest costs and highest quality. These advantages are already very evident. For example, in software, the four most downloaded apps in the US are all owned by Chinese companies, such as TikTok, Temu (Pinduoduo's US platform), CapCut, and SHEIN (fast fashion). In hardware, Tesla developed in the US for over a decade, with a peak production of less than 30,000 vehicles. After investing in China in 2019, it produced 480,000 vehicles in 2020, transforming itself from a near-bankrupt company into the world's largest automaker with a market valuation of $600 billion. These advantages are already apparent in emerging industries, such as electric vehicles, drones, solar panels, and lithium batteries. In traditional industries, we already have many internationally leading positions, such as high-speed rail, home appliances, and shipbuilding. In other traditional industries that are still in the catching-up stage, we have the advantage of being a latecomer, and can use the introduction, digestion, and absorption of technologies as a means of reinnovation, with relatively low risk and cost. At the same time, these traditional industries can also achieve leapfrog development through digital transformation and artificial intelligence manufacturing. The most obvious example is electric vehicles. We were in a catching-up stage for a long time, but now, through digital and artificial intelligence transformation, the electric vehicle industry has also taken a leading position internationally. Based on these two advantages, we have a great deal of room to develop new types of productive forces.

Of course, developing new productive forces must avoid a situation of rushing in and then dispersing in a chaotic manner. How can we prevent this? The most important thing is for each region to adapt to its local conditions and, with the combined effect of an effective market and a capable government, transform its comparative advantages into competitive advantages in the market. Generally speaking, my country's eastern coastal areas and some central and western central cities, such as Wuhan, Chengdu, and Xi'an, have developed economies, abundant capital, and a large talent pool, and can focus more on emerging industries. In other relatively underdeveloped areas in the central and western regions, their comparative advantages mainly lie in traditional industries. They can make greater use of digitalization, artificial intelligence, and the introduction, digestion, and absorption of foreign technologies to achieve a leapfrog development from catching-up industries to leading industries.

We are currently facing an international situation undergoing profound changes unseen in a century, with external pressures increasing and domestically, there will inevitably be short-term fluctuations due to structural adjustments, including the recent weakness in domestic demand. However, generally speaking, development is the foundation and key to solving all problems. In the short term, we have ample policy space to overcome difficulties and ensure stable economic growth. In the long term, we possess numerous advantages in developing new productive forces, both in emerging and traditional industries. With the combined efforts of an effective market and a capable government, leveraging these advantages will enable my country's economy to maintain medium-to-high-speed growth, and the expectation of achieving the second centenary goal by 2049 will certainly be realized.