Despite a strong push in so-called advanced manufacturing, which includes solar panels, lithium batteries and electric vehicles (EV), these sectors will not be able to solve China’s structural problems in the short term, economists said during a discussion at HSBC’s Global Investment Summit on April 8 in Hong Kong.
Keyu Jin, Chinese economist and associate professor of economics at London School of Economics, said: “China has now moved upward in global value chains through green tech and advanced manufacturing. But that is a long-term plan, which does not address short-term demand issue that the country faces.”
Nicholas Lardy, non-resident senior fellow at Peterson Institute, emphasised that the key is whether Chinese government will allow greater space for innovation in the private sector, a major source of technology breakthroughs in various areas.
“Investment in private companies has gone down in general. There has been a lot of speeches that support the private sector, but it has yet been translated into observable measurable public policy.”
Fred Hu, founder, chairman and chief executive officer (CEO) at Primavera Capital Group, echoed the view and warned against a possible comeback of a private sector crackdown, similar to what happened to several tech giants such as Ant Financial several years ago.
The speakers agreed that China had done a great job developing high-tech areas that bears high costs and high risks, with high returns at the same time. However, higher certainty is needed for investors to regain interest and confidence in the market.
Positive signs
The world’s second largest economy’s performance in Q1 2024 fared better than expected. Xiangrong Yu, Citibank’s China chief economist, has adjusted China’s2024 gross domestic product (GDP) forecast from 4.6% to 5%.
Exports and manufacturing were two major contributors – the purchasing managers’ index (PMI) released by the National Bureau of Statistics reached 50.8%, the highest in six months; sub-gauges for manufacturing and new orders read 52.2% and 53% respectively, marking a rise in both demand and supply after the Chinese New Year.
However, he pointed out that “structural challenges exist,” in an April 8 media note.
Yu warned that the property market is still weak, posing risks for another economic slowdown, despite a seemingly stabilisation in contraction, which was signalled by a smaller drop in property investment in January and February compared to last year and a slower depreciation of second-hand housing prices in major cities since the start of March.
