China’s emerging industrial vision: the significance and impact of ‘New Quality Productive Forces’

Since early 2024, the phrase ‘new quality productive forces’ has become a popular term in China, and beyond. However, the Chinese government has not yet released detailed information about its meaning, causing confusion among the public. Some speculate that it is simply a rebranding of old ideas rather than a new step forward for China’s industrial strategies and manufacturing sector.

In this blog post, CIIP Policy Analyst Zongshuai Fan will discuss this new concept’s implications and meaning, drawing from official narratives emerging from the Chinese central government.

This blog is also available in Chinese

此文章亦有中文版

China’s ongoing search for growth

If we turn the dial back to the beginning of 2023, a few months after the Chinese government unexpectedly ended its three-year-long zero Covid policies, many expected a strong rebound of the Chinese economy. However, China has since then been affected by concerns over deflation, a deepening property crisis and increased youth unemployment.

The manufacturing sector is facing multiple challenges on the supply and demand side. On the supply side, there has been a significant reduction in industrial capacity utilisation rates, alongside historically high levels of inventories. This has had a negative impact on Chinese manufacturers. On the demand side, domestic consumption has been sluggish, while exports have been declining.

China-made products, particularly in the fast-growing new energy industries such as solar panels, batteries, and electric vehicles, are facing difficulties in exporting to European countries and the US. Policymakers in these countries have introduced new measures to support their domestic industries against Chinese competition.

In September 2023, Chinese President Xi Jinping toured Northeast China, a region that once played a vital role in China’s heavy industry but now lags far behind many other Chinese areas since the Reform and Opening-up. During his visit, he reiterated the necessity of upgrading the traditional manufacturing industry in order to achieve regional development. This was the first time Xi Jinping publicly proposed the concept of new quality productive forces.

Later on, in March 2024, during his opening speech at the ‘Two Sessions’, an annual political event for major policy announcements and legislative amendments, Premier Li Qiang announced that ‘accelerating the development of new quality productive forces’ would be the foremost priority among the government’s top ten economic work tasks for 2024.

Against this background, the concept of new quality productive forces has emerged as China’s latest buzzword associated with its ongoing search for economic and social development.

What are the new quality productive forces?

In the central government’s narratives, new quality productive forces (新质生产力) are led by technological innovation, rather than traditional productive forces that rely on significant investment in basic resources such as land and labour. According to the Xictionary, an official dictionary recording new terms created by Xi, new quality productive forces mean ‘advanced productivity that is freed from traditional economic growth mode and productivity development paths’ and are characterised by ‘high-tech, high efficiency and high quality’.

The creation of this term adds to the theoretical basis behind China’s ‘high-quality development’, following Xi’s statement in October 2017 in which he asserted that China’s economy had shifted from a phase of rapid growth to a stage of high-quality development. In addition, the concept of new quality productive forces is intended as a guideline for future development and practices.

China’s future industrial development is expected to revolve around the growth of new quality productive forces, with a particular emphasis on the manufacturing sector, especially advanced manufacturing. Xi’s speeches constantly mention that the manufacturing sector will be the backbone of China’s future industrial growth.

The concept of new quality productive forces comprises a three-layered structure, as described in Xi’s speech in February 2024 (hereafter the February speech): (1) technology and innovation, (2) future industrial development, and (3) industrial chains. Additionally, talents, environmental sustainability, and reforms in economic and innovation systems are identified as the three key enablers for developing new quality productive forces (see Figure 1).

FIGURE 1. CONCEPT OF NEW QUALITY PRODUCTIVE FORCES

SOURCE: SUMMARISED BY THE CAMBRIDGE INDUSTRIAL INNOVATION POLICY (CIIP)

The three layers of the new quality productive forces can be described as follows:

• Technology and innovation: The principle that technology is a primary driver of economic development has been etched into the fabric of Chinese political thinking since the era of Deng Xiaoping, lauded as ‘the architect of modern China’. Technological innovation is ubiquitous across the official discourse surrounding the concept of new quality productive forces, where is described as a core driver of these productive forces. Particular emphasis is placed on disruptive technologies and the need to develop them domestically, indicating a commitment to cultivate China’s homegrown innovation.
• Future industrial development: Based on technology and innovation, the concept of new quality productive forces describes options to transform traditional industries, foster emerging industries, and build future-oriented industries (see Figure 2). Cutting-edge technologies serve as the foundation for both emerging and future-oriented industries, while the diffusion of technology from emerging industries is expected to support the transformation of traditional industries. Concerned that emerging and future-oriented industries may dominate attention, Xi emphasises a commitment to not forsake traditional industries. In this context, Xi requires both central and local governments to tailor bespoke strategies for developing new quality productive forces accounting for the unique industrial structures, natural resources, and research and development strengths of diverse regions across China.
• Industrial chains: As the underlying technologies of emerging and future-oriented industries undergo further industrialisation, these industries’ supply chains are poised to expand upstream and downstream, resulting in what Chinese official documents refer to as ‘industrial chains (产业链)’. In response, the Chinese government has decided to devote attention to strengthening the resilience and safeguarding the sovereignty of supply chains. As a result, the government has identified the need to make breakthroughs in materials, technologies and machinery, which are key parts of the supply chain currently dominated by countries which have recently established trade barriers with China.

Figure 2 summarises the three strands (transforming traditional industries, fostering emerging industries, and building future-oriented industries) encompassed in the future industrial development layer, as explained in Xi’s February speech.

FIGURE 2 THREE STRANDS OF FUTURE INDUSTRIAL DEVELOPMENT

SOURCE: SUMMARISED BY THE CAMBRIDGE INDUSTRIAL INNOVATION POLICY (CIIP)

• Transforming traditional industries. As part of the new quality productive forces, the Chinese government emphasises the role of digitalisation and decarbonisation to transform traditional industries, particularly traditional manufacturing based on intensive use of labour, land and energy. The ultimate goal is to upgrade manufacturing into higher-end industries.
• Fostering emerging industries: The concept of ‘emerging industries’ was first introduced in 2009 to refer to industries based on significant advancements in cutting-edge technology. Furthermore, in the definition of the central government, emerging industries represent the latest trends of technologies and industries that play a significant role in the knowledge economy and sustainable economy. The 14^th Five-Year Plan (2021-2025) identifies nine emerging industries (next-generation information technology, bio-tech, new energy, new materials, advanced equipment, new-energy vehicles, green technology, aerospace, marine equipment). Other emerging industries were subsequently added to this list (see Figure 2).
• Building future-oriented industries: Xi first proposed the term ‘future-oriented industries’ in April 2020. Since a unified definition has yet to be confirmed, the level of technology maturity has been used in official discussions to distinguish between future-oriented and emerging industries. Emerging industries are based on more mature technologies, and their industrial structures and development paths are more evident. Future-oriented industries, although showing great potential, are still in the incubation phases with high uncertainty of applications and business models. More than ten future-oriented industries, such as artificial general intelligence (AGI) and hydrogen, have been identified since the implementation of the 14^th Five-Year Plan (2021-2025).

Why now?

Made in China 2025, a comprehensive plan for manufacturing development between 2015 and 2025, is China’s current overarching policy focusing on the manufacturing sector. The plan identifies long-term targets for China to become a manufacturing powerhouse. However, as we are nearing 2025, it is necessary to have a new policy to succeed Made in China 2025.

The 14^th Five-Year Plan is the first official document bringing together traditional, emerging, and future-oriented industries. According to the plan, 2035 is a critical year for China’s economic and social development in the government’s agenda.

Preparatory work for the 15^th Five-Year Plan (2026-2030) started in January 2024. This new plan is expected to offer additional guidance on the development of the traditional, emerging and future-oriented industries, and elaborate on how they will contribute to China’s economic and social development by 2035.

It appears that the introduction of the concept of new quality productive forces into China’s policy discourse is not a coincidence. This concept aligns well with the policy cycle of the central government. As the Chinese government plans for industrial development in the next ten years, this term provides a framework for discussing, designing, disseminating, and implementing new industrial and innovation policies. The concept consolidates existing policies, which are scattered across various official documents, into a cohesive plan for future industrial and manufacturing development.

A new perspective on China’s future industrial policies

Ever since Xi Jinping first proposed the concept of new quality productive forces, he has used it on over 20 different occasions between September 2023 and March 2024. According to Xi’s speech to the Chinese military high command, he has regarded developing new quality productive forces as one of the political goals for his current third term as China’s president and as head of the party and the military.

The private sector, including foreign companies, has swiftly attached great importance to this new concept. The representatives of major US corporations expressed great interest in China’s commitment to developing new quality productive forces when they met Xi in Beijing in late March this year. One day later, during the launch of Xiaomi’s SU7, the company’s first EV model that has been compared with Tesla’s Model 3, Xiaomi’s CEO included one slide with only the five Chinese characters that make up new quality productive forces.

Foreign policymakers are likely to see this phrase used more frequently in future Chinese policy papers. Importantly, some overlap exists between the sectors and technologies identified in China’s new quality productive forces and the priorities in other countries. For example, advanced manufacturing and human-machine interfaces are included in the list of 18 ‘critical and emerging technologies (CETs)’ updated by the White House this February. Similarly, the UK government published a Science and Technology Framework in 2023, in which the UK’s Department for Science, Innovation and Technology (DSIT) identifies five technologies critical to the UK’s prosperity and national security in future, including artificial intelligence, engineering biology, future telecommunications, semiconductors and quantum technologies.

The concept of new quality productive forces has become the latest keyword for understanding China’s future industrial and innovation policies. It is anticipated that a series of new national industrial strategies focusing on technology, innovation, and manufacturing will be introduced between now and the release of a new Five-Year Plan in 2026. Given the challenges faced by China’s economy, such strategies are more crucial than ever.

While waiting for more policies to be announced, it is too early to say whether the new quality productive will help China overcome current economic difficulties. While this new buzzword builds on past Chinese development thinking, it conveys a clearer signal that the government sees integrating technology and innovation into the manufacturing sector as key to achieving the next stages of high-quality development in China.