EconomistLast year Xi Jinping, China’s leader, paid a visit to Heilongjiang in the country’s north-east. Part of China’s industrial rustbelt, the province exemplifies the problems besetting China’s economy. Its birth rate is the lowest in the country. House prices in its biggest city are falling. The province’s gdp grew by only 2.6% in 2023. Worse, its nominal gdp, before adjusting for inflation, barely grew at all, suggesting it is in the grip of deep deflation.
Never fear: Mr Xi has a plan. On his visit, he urged his provincial audience to cultivate “new productive forces”. That phrase has since appeared scores of times in state newspapers and at official gatherings. It was highlighted in last month’s “two sessions”, annual meetings of China’s rubber-stamp parliament and its advisory body. In the preface of a new book on the subject, Wang Xianqing of Peking University likens the term to “reform and opening up”, the formula that encapsulated China’s embrace of market forces after 1978. Those words “shine” even today, he wrote, implying that “new productive forces” will have similar staying power.
What do the shiny words mean? Chinese officials are hunting for ways to power the country’s economy. For many years its productive forces drew on the mobilisation of labour and accumulation of capital. The country’s workforce grew by 100m people from 1996 to 2015. Its stock of capital rose from 258% of gdp in 2001 to 349% two decades later, according to the Asia Productivity Organisation, a think-tank. After the global financial crisis of 2007-09, much of this capital accumulation took the form of new property and infrastructure.
China’s workforce is now shrinking and demand for property has slumped: fewer people are moving to China’s cities, speculative gains on real estate are no longer assured and potential homebuyers are reluctant to buy flats in advance in case distressed developers run out of cash before building is complete. The property downturn has hurt consumer confidence and deprived local governments of crucial revenues from land sales. Even after China abandoned its strict covid-19 controls, the economic recovery has been muted and uneven. Spending has not been strong enough to fully employ China’s existing productive forces. As a consequence, according to one measure, deflation has persisted for three quarters in a row.