The Chinese economy is at a turning point. The old growth model – ‘the factory of the world’ – is obsolete. Wages are on the rise, exports and investments can no longer ensure high economic growth rates. If structural reforms currently underway prove successful, China has the potential of becoming a leading economic and technological power in the twenty-first century. Inadequate reforms or a severe economic crisis, however, could drag the country into mediocrity – or even propel it to the brink of collapse. MERICS’ Economy and Technology program observes and analyzes the critical transition of China’s economy. It focuses in particular on three main trends:
Economic reforms and signs of crisis
The Chinese economy shows signs of a slowdown while financial markets have experienced their own difficulties. The Chinese leadership needs to prove that its comprehensive reform agenda from 2013 is capable of preparing the economy for the challenges ahead. However, if the Chinese economy heads into a crisis, short-term fixes are likely to take precedence and delay further reforms. This would hinder or bring to a halt structural changes towards a service and innovation-driven economy. In such a scenario, high, long-term economic growth could be at stake. China might have to give up efforts to catch up with cutting-edge technology in advanced economies before it really got started.
Digitization of the economy
Despite the economic slowdowns, China’s digital change is progressing at great speed. New business start-ups are mushrooming. The success of Chinese internet companies like Xiaomi and Alibaba questions the validity of conventional market structures and business set-ups. Linking up every area of the economy and people’s lives in the Internet of Things will influence and determine the future of China’s economic development. The country’s leaders recognized the potential economic benefits of e-commerce and modern IT technologies early on - earlier in fact than many other governments. Internet Plus is the catchphrase used by the Chinese government to promote the cross-linkage and digitization of traditional industries. New web-based services and Big Data also create e new means to regulate and control the economy and society more stringently.
The comprehensive modernization of industry is at the heart of China’s strategy of innovation and industrialization. The country hopes to become a global leader in innovation and advanced technologies. With its modernization program Made in China 2025, Beijing wants to boost industrial productivity and quality. Automation technology and intelligent production networks, i.e. the concept of Industry 4.0, are becoming more and more important. Simultaneously, the Chinese government allocates enormous funds and resources to promote strategically important technologies such as IT, e-mobility and renewable energy. In many industries leading multinational firms are still way ahead of their Chinese competitors, but Chinese companies are catching up fast.