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1、September 2024China Economic Quarterly Q2 2024Content1In Brief2Key Takeaways from Q2 Economic Data 3Second-Half Outlook:Policy Directions and Government Support 4Chinas Economic Momentum:A Snapshot5New Quality Productive Forces142 2Chinas Economic Momentum:Key Takeaways from Q2 Data and Second-Half

2、OutlookIn the second quarter,Chinas GDP grew by 4.7%year-over-year,down from 5.3%in the first quarter,resulting in a 5%growth for the first half of the year.This aligns with the annual target.Uneven recovery:Robust factory activity and exports drove growth,but a property downturn and weak consumer s

3、pending weighed it down.High-tech sector growth:The high-tech sector continued to outpace the overall economy,highlighting Chinas focus on high-quality development.Policy support:Policymakers have reaffirmed the 5%growth target,signalling increased government support and fiscal stimulus amid escalat

4、ing trade tensions.Anticipated measures:Expected measures include expanded trade-in programmes and efforts to stabilise the property sector.Topic in Focus:New Quality Productive ForcesNew quality productive forces have emerged as a central theme.These forces drive policies for sustainable growth thr

5、ough technology,innovation,and green development while addressing structural challenges.This strategic approach emphasises five pillars:1.Technological innovation:Technological innovation serves as the cornerstone of Chinas strategic pivot.The country ramps up research and development to achieve sci

6、entific breakthroughs.2.Emerging and future industries:Cutting-edge technologies foster emerging and future industries,such as artificial intelligence and quantum technology.3.Upgrading traditional industries:Upgrading traditional industries through digitalisation and green transformation remains a

7、key driver of productivity gains.4.Institutional reforms:Institutional reforms enhance resource allocation.This aligns with the two unswervingly principle for coordinated development of state-owned and private sectors.5.Opening-up:Chinas opening-up leverages foreign direct investment to foster knowl

8、edge spillovers and outward direct investment to elevate its position in the global value chain.In BriefKey Takeaways from Q2 Economic Data 3Chinas GDP expanded by 5%in the first half of the year,hitting its official target.However,a deceleration in the second quarters economic growth has put policy

9、makers under pressure to ramp up stimulus measures.This is crucial to ensure the economy meets its full-year growth target of around 5%.While Chinas economy is on a recovery path,structural imbalances persist,with growth still heavily reliant on factory activity and foreign demand.Despite falling fa

10、ctory prices and tepid consumer prices,industrial output has posted robust growth.Additionally,a cyclical upswing in global trade has so far helped counterbalance sluggish domestic consumption.Chinas economic drivers are also shifting.On the one hand,the prolonged downturn in the property sector con

11、tinues to weigh on both fixed asset investment and consumer spending.On the other hand,investments in manufacturing and infrastructure have helped offset the softness in the housing market.However,private and foreign investments lag behind state-led investments,underscoring the need to further bolst

12、er investor confidence.Chinas pivot toward high-quality development continues unabated.The high-tech sector remains a bright spot,with industrial production and investment in high-tech sectors outpacing the overall economy.While loan demand from households and corporations remains tepid,financing ac

13、tivity in high-tech sectors is holding up well.4Looking ahead,Chinese leaders recent reaffirmation of achieving the official growth target of 5%during the Third Plenum signals that more government support is on the horizon.Throughout the second half of the year,policy interventions will be necessary

14、 to mitigate potential risks.Escalating trade tensions are casting a shadow over the export outlook,as Chinas major trade partners impose tariffs on Chinese goods.In response,Chinas policymakers have pledged to expedite fiscal stimulus to boost domestic demand,a commitment made at the recent conclus

15、ion of the Politburo meeting.Equipment upgrade programmes launched in the first half of the year have bolstered equipment manufacturers,and policymakers have recently unveiled a new round of targeted measures to stimulate consumer spending through trade-in programmes.Specifically,China has allocated

16、 RMB300 billion in ultra-long special government bonds to fund the expansion of these programmes.Importantly,policy measures aimed at enhancing consumption are primarily focused on strategic sectors,including automobiles and equipment,aligning with Chinas industrial policy to cultivate new productiv

17、e forces.Additionally,China will likely accelerate its deployment of the proceeds from the RMB1 trillion ultra-long sovereign bonds for investment in infrastructure and manufacturing.Policymakers are also expected to continue rolling out supportive measures to stabilise the property sector.As China

18、pledges to coordinate its fiscal and monetary policy,the PBOC has moved to further ease monetary policy and cut rates while the government issues ultra-long sovereign bonds.However,the stimulus will likely be just enough to ensure the economy meets its official growth target,falling short of a bazoo

19、ka-type stimulus.Given the geopolitical uncertainty surrounding the upcoming US election,policymakers may opt to keep their fiscal powder dry.Second-Half Outlook:Policy Directions and Government Support 5GDPIn Q2,Chinas GDP expanded by 4.7%YoY,slowing from the 5.3%growth recorded in Q1.This brings t

20、he GDP growth for the first half of the year to 5%,aligning with Chinas annual growth target.While the economy continues its recovery,the trajectory remains uneven.The growth engine is primarily fuelled by robust factory activity,buoyant exports,and sustained manufacturing investment.Yet,the drag fr

21、om a lingering property downturn and tepid consumer spending continues to cloud the broader economic outlook.The secondary sector has served as the primary growth driver,with a 5.6%increase.The high-tech manufacturing sector,in particular,saw an 8.7%rise in value added.However,the tertiary sectors g

22、rowth slowed to 4.2%in Q2 from 5%in Q1,indicating potential weakening in consumer demand for services.The information transmission,software,and IT services sectors have been a bright spot,growing by 10.2%in Q2 after a robust 13.7%expansion Q1.Chinas Economic Momentum:A SnapshotGDP(Trillion Yuan)0%1%

23、2%3%4%5%6%7%262728293031323334352023 Q22023 Q32023 Q42024 Q12024 Q2GDP ValueQuarterly GrowthYoY GrowthQuarterly GDP Values and Quarterly and Annual GDP Growth RateSource:Unless otherwise stated,economic data are from the National Bureau of Statistics of China,the Peoples Bank of China,and Wind.60%1%

24、2%3%4%5%6%7%8%YoY Growth RateIndustrial OutputIndustrial OutputIndustrial output grew by 6.7%in April and 5.6%in May from a year ago.The momentum continued into June,albeit at a slower pace,with industrial production expanding by 5.3%.The high-tech manufacturing sector continued to outperform,regist

25、ering 8.8%growth in June.In the first half of the year,industrial output saw a rise of 6%YoY.In line with the governments emphasis on high-quality development,the high-tech manufacturing industry experienced an 8.7%growth,making up 15.8%of the total industrial output.Digital and green technologies h

26、ave emerged as key growth drivers.Notably,the production of service robots(22.8%),smartphones(11.8%),and new energy vehicles(34.3%)has exceeded the overall growth rate.7Retail SalesRetail sales growth reached a new post-pandemic low of 2%YoY in June.The auto(-6.2%),household appliances(-7.6%),and co

27、smetics(-14.6%)subcategories were among the biggest drags on retail sales,indicating a diminishing impact of trade-in policies on boosting sales in the auto and household appliance sectors.Service consumption still outpaced goods consumption.In the catering sector(5.4%),growth surpassed double the h

28、eadline rate.However,the sports&recreation(-1.5%)category took an unexpected hit after strong growth for the last few months.For the first half of the year,retail sales grew by 3.7%YoY.Indicating an ongoing shift in consumer spending patterns,the catering sector(7.9%)and sports and recreational arti

29、cles(11.2%)have outpaced overall growth during the first six months.0%3%6%9%12%15%Retail Sales of Consumer GoodsYoY Growth Rate8Consumer Price Index(CPI)and Producer Price Index(PPI)Aligned with soft consumer spending,consumer prices rose by just 0.3%YoY in both April and May,before slowing further

30、to 0.2%YoY in June.Core inflation,excluding food and energy,increased by 0.6%YoY in June.On a month-on-month basis,consumer prices fell in June across most major categories,except for residence and healthcare,indicating continued disinflationary pressure in the near future.In a positive development,

31、producer prices showed signs of stabilizing.The PPI saw a year-on-year decline of 2.5%,1.4%,and 0.8%in April,May,and June,respectively.However,producer prices have remained in negative territory since September 2022.-6%0%6%CPIPPIYoY Growth RateConsumer Price Index and Producer Price Index9-30%-20%-1

32、0%0%10%20%30%Export GrowthImport GrowthExports and Imports YoY Growth RateTradeChinas exports have experienced a surge,partially fuelled by a cyclical recovery in the global electronics sector.In USD terms,the year-on-year export growth accelerated from 1.5%in April to 7.6%in May,and further increas

33、ed to 8.6%in June.Through the first half of the year,trade has remained a crucial driver of Chinas economic growth,helping to offset weak domestic consumption,with a 6.9%YoY increase in RMB terms.The acceleration in June was also partially due to importers front-loading orders in anticipation of the

34、 expected tariffs from the US and EU.Mechanical and electrical products saw an 8.2%rise,making up 58.9%of total exports.Notably,automatic data processing equipment grew by 10.3%,integrated circuits by 25.6%,and autos by 22.2%.ASEAN continues to be Chinas largest trade partner,followed by the EU and

35、the USA.However,the sustainability of strong export growth is uncertain amid rising protectionism from major trade partners.On the other hand,import growth has decelerated,with a year-on-year increase of 8.4%in April slowing down to 1.8%in May,measured in USD terms.Import growth further declined by

36、2.3%year-on-year in June,signalling an ongoing weakness in domestic demand.Despite a substantial uptick in government bond issuance since May,this has not yet spurred higher commodity demand from the construction sector,which is heavily dependent on imports.100%1%2%3%4%5%Accumulated YoY Growth RateF

37、ixed Asset InvestmentFixed Asset InvestmentFixed asset investment in China maintained its upward trajectory in the first half of the year,albeit at a slowing pace.From January to June,fixed asset investment registered a 3.9%increase compared to the same period a year ago,marking a deceleration from

38、the 4.5%growth observed in the January-March period.The property sector continued to weigh on growth,but this was counterbalanced by sustained investments in the manufacturing sector and infrastructure.Excluding the property sector,fixed asset investment posted a more robust growth of 8.5%in the fir

39、st half of the year.As the government continued to implement the trade-in programmes announced during the Two Sessions,investment in equipment,tools,and instruments witnessed a significant upswing.This sector recorded a year-on-year growth of 17.3%in the first half of the year,contributing an additi

40、onal 2.1 percentage points to the overall growth in fixed-asset investment.However,the private sector saw only a marginal growth of 0.1%in fixed asset investment,largely attributed to the challenges faced by the property sector.Despite this,private investment in the manufacturing sector expanded by

41、11.5%.Additionally,private firms ramped up their infrastructure investments by 5.8%.11Foreign Direct Investment(FDI)Data from Chinas Ministry of Commerce shows that from January to June,the number of foreign-invested firms grew by 14.2%,while the amount of FDI fell by 29.1%.In line with Chinas renew

42、ed focus on high-quality productive forces,investment in the high-tech manufacturing sector accounted for 12.8%of total FDI,marking an increase of 2.4 percentage points.Notably,FDI inflows from Germany and Singapore rose by 18.1%and 10.5%,respectively.FDI Inflows0306090120150RMB billionSource:Minist

43、ry of Commerce,PwC Analysis12Purchasing Managers Index(PMI)Chinas manufacturing PMI declined from 50.4 in April to 49.5 in both May and June,indicating a softening business sentiment among the manufacturers surveyed.However,the high-tech manufacturing sector has emerged as a bright spot,rising for t

44、he eighth consecutive month to reach 52.3 in June.Further,the equipment manufacturing sector,bolstered by the trade-in programmes for equipment upgrades,has demonstrated resilience with a PMI reading of 51,marking its fourth consecutive month of expansion.The official nonmanufacturing PMI,which incl

45、udes both services and construction,remained in the expansion zone but dipped to 50.5 in June from 51.1 in May and 51.2 in April,indicating a deceleration in growth.The subindex for service activity slipped to 50.2 in June,while the construction subindex dropped to 52.3.Service activity was adversel

46、y affected by a weakening in capital market services and business activity tied to Chinas property market.Heavy rainfall in southern China also impeded construction activity,contributing to the sectors slowdown.48%49%50%51%52%PercentageOfficial PMICaixin PMIManufacturing PMIServices PMI48%50%52%54%5

47、6%58%60%PercentageOfficial PMICaixin PMI13Total Social Financing(TSF)and New Bank LoansDuring the first half of the year,Chinas newly added TSF amounted to RMB18.1 trillion,a decrease of RMB3.45 trillion compared to the same period last year.By the end of June,the outstanding social financing in Chi

48、na had reached a significant RMB395.11 trillion,marking an 8.1%year-on-year increase.In April,Chinas TSF unexpectedly experienced a downturn,falling by almost RMB200 billion,the first negative reading since October 2005.In the same period,Chinese banks issued new yuan loans totalling RMB13.27 trilli

49、on,a decrease of RMB3.15 trillion from a year ago.Additionally,the broad money supply(M2)had reached RMB305.02 trillion by the end of June,reflecting a 6.2%year-on-year increase.These figures suggest demand for credit remaining soft among businesses and households.Among the bright spots,medium-and l

50、ong-term loans to the manufacturing industry increased by 18.1%YoY at the end of June.Aligned with Chinas pivot toward high-quality development,medium-and long-term loans for high-tech manufacturing industries saw a year-on-year increase of 16.5%.Credit Growth-1,00001,0002,0003,0004,0005,0006,0007,0

51、00Total Social FinancingNew Yuan LoansRMB billionSource:Peoples Bank of China,PwC Analysis14New Quality Productive ForcesWhat Are New Quality Productive Forces?“With innovation playing the leading role,new quality productive forces mean advanced productivity that is freed from traditional economic g

52、rowth mode and productivity development paths,features high-tech,high efficiency and high quality,and comes in line with the new development philosophy”,according to“Xictionary,”an official lexicon of new terms introduced by President Xi.This term was first introduced during Xis inspection trip to C

53、hinas northeastern Heilongjiang province in September 2023 and reiterated during the Central Economic Work Conference in December.It was noted that“new quality productive forces are driven by revolutionary technological breakthroughs,innovative allocation of production factors,and deep industrial tr

54、ansformation and upgrading”.During this years Two Sessions in China,the concept of“high-quality productive forces”emerged as a central theme,underpinning every significant policy.This concept charts the course towards“high-quality development,”a new phase of sustainable growth fuelled by technology,

55、innovation,and green development.More importantly,it reveals Chinas multi-faceted policy approach aimed at steering the economic transformation and tackling long-term structural challenges.15Making Sense of New Quality Productive Forces An Economic PerspectiveChinas economy is at an inflection point

56、,shifting from a phase of high-speed growth to a phase of high-quality development.This transition signifies a move from an economic model driven by capital and labour accumulation to one propelled by total factor productivity(TFP).TFP,a key concept in economic growth theories,measures the efficienc

57、y of input transformation into output.Its growth is fuelled by technological advancements and efficient resource allocation.Over the past four decades,capital formation and labour growth have been pivotal in Chinas ascent as a global economic powerhouse.However,this traditional model is losing steam

58、 as China faces demographic challenges,including an aging population and a shrinking workforce,coupled with diminishing returns on physical capital investments.Economic reforms initiated in 1978 have significantly boosted productivity in China.However,post-Global Financial Crisis,Chinas TFP growth h

59、as stagnated,compelling the economy to depend on capital accumulation in infrastructure and real estate,despite their waning effectiveness in driving growth.Notably,Chinas TFP is approximately half that of OECD countries,highlighting substantial untapped potential for productivity gains.Reigniting p

60、roductivity growth is crucial for China to achieve sustainable and inclusive growth,underpinned by technological innovation and efficiency.This approach could help China to avoid the middle-income trap and attain moderately developed nation status in terms of per capita GDP by 2035.Given the sheer s

61、ize of Chinas economy and the scale of its ongoing transformation,new quality productive forces will undoubtedly shape its economic trajectory for decades to come.Source of Chinas Economic Growth0.0%2.0%4.0%6.0%8.0%10.0%12.0%1978-19901991-20012002-20072008-20122013-2020Capital GrowthLaborTFPReal GDP

62、0.20.40.60.81.01.21.419791989199920092019ChinaUSAUKGermanyFranceJapanTotal Factor Productivity(USA=1)Source:Peoples Bank of ChinaSource:Groningen Growth and Development Centre,PwC Analysis16In our analysis,the transformation of Chinas economy hinges on five pillars of new quality productive forces p

63、oised to drive productivity growth:1.Advancements in high-tech innovations2.Pivot toward strategic emerging and future industries3.Digitalisation and decarbonisation of traditional sectors 4.Implementation of institutional reforms5.Promotion of high-level opening upCollectively,these pillars are set

64、 to accelerate a strategic shift in Chinas economic paradigm,steering the nation towards sustainable and inclusive growth amidst a rapidly evolving global landscape.New Quality Productive ForcesBreaking Through Core Technological ChallengesChinas R&D investment has tripled over the past decade,drivi

65、ng its R&D intensity from 1.91%to 2.55%Cultivating Emerging and Future IndustriesThe 14th Five-Year Plan highlights next-gen IT,bio-tech,new energy,new materials,advanced equipment,new-energy vehicles,green tech,aerospace,and marine equipmentUpgrading Traditional SectorsThe modernisation of traditio

66、nal sectors through digitalisation and green transformation will continue to be a key driver of productivity enhancementsInstitutional ReformsChina supports private firms by enhancing resource allocation while strengthening the core competencies of SOEs for them to invest in strategic emerging secto

67、rsOpening-UpFDI fosters knowledge spillovers,while ODI strengthens and elevates Chinas position in the global value chain171.Breaking Through Core Technological ChallengesTechnological innovation serves as the bedrock of Chinas strategic pivot towards new quality productive forces.Over the past deca

68、de,Chinas investment in R&D has surged threefold,catapulting its R&D intensity-a metric that gauges R&D expenditure relative to GDP-from 1.91%to 2.55%.In 2023,Chinas R&D spending continued its upward trajectory,growing by 8.1%to exceed 3.3 trillion yuan.The focus has also shifted,with foundational r

69、esearch now playing an increasingly prominent role,accounting for 6.3%of total R&D spending,up from 4.8%.Despite these significant strides,there remains considerable room for growth.In terms of R&D intensity,China surpassed the European Union(2.28%)in 2021,but still trails South Korea(4.93%),the Uni

70、ted States(3.46%),and Japan(3.3%).This gap underscores the opportunities that lie ahead for China in its quest for technological advancement.By adopting a“whole nation”approach,China is mobilizing its researchers and businesses,pooling resources to spearhead advancements in core technologies.Address

71、ing“chokepoints”,such as the semiconductor industry,aligns with both the countrys economic goals and its national security priorities.2.00%2.50%3.00%3.50%4.00%4.50%5.00%20172018201920202021ChinaEUJapanKoreaUS0.00%5.00%10.00%15.00%20.00%01,0002,0003,0004,00020192020202120222023R&D ExpenditureGrowthRM

72、B billionChinas R&D Spending Hits New HighR&D Spending(%of GDP)Source:National Bureau of Statistics of China,World BankSource:National Bureau of Statistics of China,World Bank182.Cultivating Strategic Emerging and Future IndustriesSectoral reallocation,a process that enables an economy to shift reso

73、urces from lower productivity sectors to those with higher productivity,has been a powerful driver of productivity growth in Chinas economic transformation.Chinas strategic shift toward emerging and future industries mirrors its earlier transition from agriculture to manufacturing and services,which

74、 yielded substantial productivity gains.Today,cutting-edge technologies pave the way for significant leaps in sectors such as artificial intelligence and quantum technology.The 14th Five-Year Plan(2021-2025)underscores the nations strategy to diversify the economy by expanding beyond heavy industrie

75、s and sets an ambitious goal:to boost the contribution of strategic emerging industries from 11.5%of GDP in 2019 to over 17%by 2025.This growth represents a larger slice of an expanding pie,signalling vast opportunities for investors and business ventures.Aligned with this goal,in August 2023,the Mi

76、nistry of Industry and Information Technology,the Ministry of Science and Technology,the National Energy Administration,and the National Standards Committee jointly issued the“Implementation Plan for New Industry Standardisation Pilot Project(2023-2035),”unveiling an updated roster of key areas that

77、 spotlight eight emerging industries and nine future industries.Next-Generation Information TechnologyNew EnergyNew MaterialsAdvanced EquipmentNew Energy VehiclesGreen TechnologyAerospaceMarine EquipmentEmerging Industries MetaverseBrain-Computer InterfaceQuantum InformationHumanoid RobotsGenerative

78、 Artificial IntelligenceBiological ManufacturingFuture DisplayFuture NetworkNew Energy StorageFuture Industries 19Following this strategy,the trajectory of Chinas future industrial development is set to be shaped by the expansion of new quality productive forces,with a particular emphasis on advance

79、d manufacturing.In May 2024,the value added by the equipment manufacturing industry saw a year-on-year increase of 7.5%,while the high-tech manufacturing industrys value added rose by 10%.China is also making considerable investments in fostering future-oriented industries such as the humanoid robot

80、s and quantum information.A government guideline issued in January 2024 indicated that China will support the establishment of a series of incubators and pilot zones for these future industries by 2025.3.Upgrading Traditional Sectors:Digitalisation and Green TransformationThe upgrading of traditiona

81、l sectors is poised to remain a key driver of productivity gains in China,particularly through digitalisation and green transformation.Digital and green technologies are not only fast-growing sectors but also key drivers of transforming traditional industries.Digital technologies have become pivotal

82、 drivers of productivity gains across Chinas traditional sectors.With the countrys ongoing efforts to integrate the digital and real economies,the scale of digital industrialisation and industrial digitalisation has surged to RMB9.2 trillion and RMB41 trillion,respectively,representing 18.3%and 81.7

83、%of Chinas digital economy in 20221.In Chinas burgeoning digital economy,data has emerged as a critical productive factor,enhancing the efficiency of traditional factors.The immense value of data in circulation and transactions,coupled with Chinas vast data volume,provides a distinct advantage in ex

84、panding its digital economy.Leveraging big data,AI,and 5G,traditional sectors are undergoing significant upgrades through smart manufacturing.Notably,the scale of Chinas intelligent manufacturing equipment industry has exceeded 3.2 trillion yuan.The Three-Year Action Plan(2024-2026)for“Data Elements

85、 X”is set to further accelerate digital transformation across 12 key sectors.The plan aims to develop over 300 application scenarios,with a goal of achieving a 20%annual growth rate in the data industry and doubling data transaction volumes.By leveraging data resources,the initiative seeks to advanc

86、e Chinas large language models.Additionally,the plan encourages private capital investment in the data industry and supports data businesses in going public and raising funds.13%17%Now2035Of Chinas GDP coming from strategic emerging industries1.Digital Economy Development in China(2023).China Academ

87、y of Information and Communications Technology,April 2023.20Meanwhile,China is embarking on a green transformation to decarbonise its traditional sectors.The country has pledged to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060.In February 2024,the central govern

88、ment published a comprehensive policy document to expedite the green and low-carbon transition of the nations traditional industries.Notably,more than 800 large Chinese companies,particularly in the ICT,textile,and manufacturing sectors,have set targets to achieve carbon neutrality by 20602.Industri

89、al ManufacturingAgricultureCommerceTransportation and LogisticsFinancial ServicesTechnological InnovationCultural Tourism12 Sectors to Receive a Boost for Digitalisationannual growth in the data industry by 202620%Data Initiative0.00%5.00%10.00%15.00%20.00%010203040502019202020212022Digital Industri

90、alisationIndustrial DigitalisationDigital Economy GrowthRMB trillionEmergency ManagementMeteorological ServiceUrban GovernanceHealthcareGreen and Low-CarbonChinas Digital Transformation2.Funding the Green Technology Innovation Pipeline:Lessons from China.World Economic Forum,8 May 2024.Source:China

91、Academy of Information and Communications Technology4.Deepening Institutional ReformInstitutional reforms are pivotal in enhancing TFP,with an emphasis on mechanisms that allocate resources to the most productive firms and enhance production processes to boost firm-level productivity.Chinas“two unsw

92、ervingly”principle underscores the dual strategy of consolidating and developing the public sector while encouraging,supporting,and guiding the development of the private sector.Chinas private sector plays a significant role in shaping emerging and future industries.By the end of May 2024,the countr

93、y had 180.45 million private business entities,comprising 96.4%of all business entities.Notably,the share of private businesses in the scientific research and technical services sector has increased to 94.4%.In the high-tech manufacturing and high-tech services sectors,private firms account for 90.2

94、%and 93.3%of all companies,respectively.Chinese policymakers have committed to institutional reforms that will further enhance the environment for private businesses by improving market access,fair competition and property rights protection.In line with this principle,in November 2023,the PBOC and s

95、even other ministries introduced specific measures to boost financial services for the private economy,focusing on small and medium-sized enterprises in high-tech and low-carbon sectors.These measures have led to a 20.3%year-on-year increase in loans to small and micro companies and a 10.7%rise in l

96、oans to the private sector in the first quarter of this year.SOEs will continue to play a crucial role in Chinas economy,driving the development of strategic emerging industries such as artificial intelligence,quantum computing,and nuclear fusion.Central SOEs have increased investment in these indus

97、tries by 32%,reaching RMB 2.18 trillion in 2023.By 2025,these industries are expected to account for 35%of central SOEs total revenue,up from an estimated 25%in 2023.With substantial technological reserves,a skilled workforce,and robust financial capabilities,SOEs are well-equipped to thrive in sect

98、ors requiring significant investment and longer return cycles.In April 2024,a group of central SOEs were selected by the State-owned Assets Supervision and Administration Commission(SASAC)to help cultivate tech unicorns and startups.Local SOEs are also expected to follow suit,focusing on frontier te

99、chnological innovation and integrating AI with traditional sectors.Additionally,SOEs are urged to expedite digitalisation and smart manufacturing,and to adopt green and low-carbon initiatives.Central to the reform is the coordinated development of both state-owned and private sectors.Chinas SASAC ha

100、s committed to enhancing collaboration between SOEs and private firms as part of its broader SOE reform agenda.Central SOEs are forming equity partnerships,engaging in industrial chain collaborations,and improving supply chains to support private business growth.In the sphere of scientific and techn

101、ological innovation,SOEs are partnering with private enterprises,universities,and research institutes to achieve major technological breakthroughs.This strategy underscores Chinas commitment to leveraging the strengths of both public and private entities to drive high-quality development and innovat

102、ion.2122Promoting Coordinated Development of SOEs and Private Enterprises Central SOEs have actively engaged in equity cooperation with private enterprises and other social capital,resulting in investments exceeding 390 billion yuan Central SOEs have invested in over 13,000 companies of various type

103、s through shareholding Central SOEs have collaborated with upstream and downstream enterprises to strengthen and upgrade weak links in the industrial chains,aiming to extend and solidify these networks This initiative has driven the development of over 5,700 business entities,with numerous private e

104、nterprises participating Central SOEs have established 24 innovation consortia in strategic emerging and future industries,collaborating with private enterprises,universities,and research institutes to tackle key challenges These consortia have achieved breakthroughs in the fields of industrial soft

105、ware,industrial mother machines,computing power networks,and new materials Central SOEs have lowered procurement thresholds and transaction costs during the procurement process to support the development of private businesses Among the more than two million enterprises in the upstream and downstream

106、 supply chains directly driven by central SOEs,96%are private SMEsCapitalIndustrial ChainsSci-Tech InnovationSupply Chain Collaboration235.Promoting High-Level Opening-upHigh-level opening-up that promotes both foreign direct investment(FDI)and outward direct investment(ODI)is another key pillar in

107、accelerating Chinas development of new quality productive forces.FDI has been a cornerstone of Chinas economic growth over the past three decades,serving as a vital conduit for both capital and technology.Foreign investors have directly provided the economy with capital and facilitated knowledge spi

108、llovers,enabling domestic firms to enhance their competitiveness and productivity.This has fuelled Chinas rapid economic growth and technological ascent.In particular,foreign companies have been instrumental in constructing Chinas tech value chain,introducing advanced technologies and business pract

109、ices,and upskilling the local workforce.In an effort to attract foreign investment,China has initiated a revision of the industry catalogue that encourages foreign investment.This revision emphasises support for advanced manufacturing,modern services,advanced technology,energy conservation,and envir

110、onmental protection.This move is designed to attract more foreign capital and expertise into these key sectors and stimulate innovation and growth.Simultaneously,Chinese ODI is helping manufacturers export more technologically intensive intermediate goods and move up the global value chaina key obje

111、ctive in developing new quality productive forces.Chinas role as the worlds factory has evolved from relying on low-cost labour to featuring a sophisticated supplier ecosystem producing intermediate goods,such as auto parts and battery cells.As Chinese multinationals invest in local production in em

112、erging economies like ASEAN and Mexico,they drive demand for components,semi-finished goods,and equipment from China.By combining Chinas intermediate goods with low-cost labour in these regions for final assembly,the finished products are then re-exported to the US and Europe.This approach not only

113、strengthens Chinas role in the global supply chain but also helps accelerate Chinas broader transition from a labour-intensive economy to one driven by technology and innovation.It allows Chinese manufacturers to capture a larger share of the global value chain and focus their investments in high-te

114、ch manufacturing.In 2023,Chinas export of intermediate goods rose to RMB11.24 trillion,comprising 47.3%of its total exports.In conclusion,Chinas economic transformation strategy hinges on five key pillars.These pillars aim to tackle structural challenges and,crucially,steer the economy towards susta

115、inable,green,and inclusive growth,powered by technology and innovation.This transformation is set to reveal new market opportunities and drive growth in emerging sectors.02004006008001,0001,2001,40020192020202120222023Foreign Direct InvestmentOutward Direct InvestmentSteady Growth in Chinas FDI and

116、ODISource:Ministry of Commerce,PwC AnalysisRMB billionThis content is for general information purposes only,and should not be used as a substitute for consultation with professional advisors.2024 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is a separate legal entity.Please see for further YanEconomist PwC China+852 2289